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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-17650
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FP BANCORP, INC.
(Name of small business issuer in its charter)
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Delaware 33-0018976
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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613 West Valley Parkway
Escondido, California 92025-4929
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number, including area code (619) 741-3312
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Securities registered under Section 12(b) of the Exchange Act:
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Title of each class Name of each exchange on which registered
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None None
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Securities registered pursuant to section 12(g) of the Exchange Act:
Common Stock, par value $.001
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
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Issuer's revenues for its most recent fiscal year: $19,381,000
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The aggregate market value of the voting stock held by nonaffiliates as of
February 29, 1996: $13,325,000
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DOCUMENTS INCORPORATED BY REFERENCE
Part III -Portions of the Proxy Statement for Annual Meeting of
Stockholders to be held on May 21, 1996.
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The number of shares outstanding of Common Stock as of March 22, 1996: 2,651,811
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Transitional Small Business Disclosure Format (check one): Yes No X
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FP BANCORP, INC.
1995 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
General Development of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Subordinated Debenture Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Subsidiary Bank Merger and Branch Closings . . . . . . . . . . . . . . . . . . . . . . I-2
Special Assets Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
Private Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
Overland Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-2
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-3
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-4
Governmental Policies and Legislation . . . . . . . . . . . . . . . . . . . . . . . . I-5
Interstate Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
Federal Deposit Insurance Corporation Improvement Act of 1991 . . . . . . . . . . . . I-6
Capital Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
New Operational Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
New Financial Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
Revision of Risk-Based Capital Standards . . . . . . . . . . . . . . . . . . . . I-8
Memorandum of Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-10
Item 2. Description of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . I-11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . II-1
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Item 6. Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-2
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-3
Provision for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-5
Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-6
Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-6
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-6
Liquidity and Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . II-7
Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-7
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-7
Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-8
Investment Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-10
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FP BANCORP, INC.
1995 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
(CONTINUED)
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Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-12
Commercial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-13
Real Estate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-13
Construction Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-13
Installment Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-14
Loan Maturity and Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . . . II-14
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-14
Allowance for Loan and Lease Losses . . . . . . . . . . . . . . . . . . . . . . . . II-15
Credit Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-18
Premises and Equipment, Accrued Interest and Other Assets and Goodwill . . . . . . . . . II-18
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-19
Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-20
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-21
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-22
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . II-22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . III-1
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . III-1
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
FP Bancorp, Inc. (the "Company"), a Delaware corporation, was organized in
1995 and is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended. The Company is the successor to FP Bancorp, a
California corporation, organized in 1984. The Company is headquartered in
Escondido, California, a city on the northeast edge of San Diego County,
approximately 35 miles north of downtown San Diego. The Company conducts all
of its business activities through branches of its wholly-owned subsidiary
bank, First Pacific National Bank ("FPNB"), headquartered in Escondido, with
one branch office in Escondido, two branches in the neighboring City of San
Marcos and one each in the Cities of Temecula and Moreno Valley in southern
Riverside County. FPNB was formed in 1993 as a result of the merger of three
subsidiary banks of the Company, Escondido National Bank, San Marcos National
Bank and Temecula Valley National Bank (the "Subsidiary Merger") in 1993.
Unless otherwise indicated, all references to the business and assets of the
Company include the business and assets of FPNB. The Company's administrative
offices are located at 613 West Valley Parkway, Escondido, California
92025-4929, telephone (619) 741-3312.
As of December 31, 1995, the Company had total assets of $208,797,000, total
deposits of $185,664,000 and total stockholders' equity of $16,833,000.
FPNB focuses on providing commercial banking services in northern San Diego
County and southern Riverside County. Since the formation of the predecessors
of FPNB, Escondido National Bank, San Marcos National Bank and Temecula Valley
National Bank (collectively, the "Subsidiary Banks"), in 1982, 1984 and 1990,
respectively, FPNB has worked to build a reputation for service to businesses
and professionals and, through efforts of its Board of Directors and
management, has sought to maintain an identity as a community-oriented
commercial bank.
Net earnings for the year ended December 31, 1995 were $1,911,000 as compared
to net earnings of $332,000 for the year ended December 31, 1994 and a net loss
of $(5,068,000) for the year ended December 31, 1993. The loss incurred in
1993 was a result of the Southern California economic recession that began in
1989, declining real estate activity and real estate values in the Company's
market area and management and operational difficulties that were exposed as a
result of those factors.
Due to regulatory concerns about the effectiveness of management and the
boards of directors of FPNB and the Subsidiary Banks during 1993 and 1994, each
of them operated under a formal agreement with the Office of the Comptroller of
the Currency (the "Comptroller"). Upon completion of the Subsidiary Merger,
the formal agreement of Escondido National Bank continued in effect for FPNB
(the "Formal Agreement"). The Formal Agreement (i) imposed capital
requirements higher than those that would otherwise be required under
applicable regulations, (ii) required the adoption of new loan origination,
underwriting and review procedures and (iii) mandated the adoption of
additional procedures to improve the board of directors oversight of
operations.
The Company responded to the foregoing events by taking the actions listed
below, among others. The Company's overriding objectives in so doing were to
reduce nonperforming assets, minimize the need for additional provisions for
loan losses, achieve capital levels required by regulators, streamline
operations while maintaining the level of service expected by customers and
increase the Company's profitability levels.
1. Management. The Company replaced its former senior management with
new senior management.
2. Subordinated Debenture Offering. During 1993, the Company
completed the offering (the "Debenture Offering") of $4,575,000 of its 9%
Convertible Subordinated Debentures due December 31, 1997 (the
"Debentures"), $3,400,000 of the proceeds of which increased the
capitalization of FPNB in mid-1993. On December 31, 1997, the holders of
the Debentures will receive cash in the principal amount, or if the
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conversion rights are exercised, 100 shares of the Company's $.001 par value
common stock ("Common Stock") (subject to anti- dilutive adjustments) for
each $1,000 principal of Debentures, subject to the limitation that the fair
market value of the number of shares of Common Stock received by the holder
of a Debenture shall not exceed twice the principal amount of the Debenture.
The Company invested $3,400,000 of the proceeds in FPNB, used approximately
$618,000 to provide a reserve for payment of interest on the Debentures
through January 1, 1995, and paid expenses of the Debenture Offering and
other items, leaving the remaining proceeds available for general corporate
purposes including payment of interest on the Debentures.
3. Subsidiary Bank Merger and Branch Closings. Effective July 30,
1993, the Subsidiary Merger was completed. FPNB also closed its Murrieta
branch office, its East Valley Parkway branch office and its escrow
department.
4. Special Assets Department. FPNB created a special assets
department to work out and collect problem loans and manage and dispose of
other real estate owned ("OREO"). FPNB revised its loan, investment and
funds management policies, adopted new loan administration policies to
document and maintain information concerning loans and revised its written
real estate appraisal program. The Audit Committee of the Company retained
an independent outside professional credit review company which monitors and
reviews, at least semi-annually, certain loans exceeding amounts set by the
audit committee and the Board of Directors and any special or unique loans
of any amount after origination.
5. Private Offerings. In order to obtain additional capital so as to
permit internal growth or growth through acquisition, the Company raised net
proceeds of $3,034,000 in two private offerings of Common Stock completed
November 22, 1994 (the "Private Offerings"). The Company believes that its
improved operations and efficiencies and the success of the Private
Offerings have positioned it well for future controlled growth both through
internal operations and potentially through acquisitions. The Company
believes that there are opportunities in its market area for a community
commercial bank to increase its market share.
6. Overland Merger. Pursuant to an Agreement and Plan of
Reorganization dated October 12, 1994, as amended, among the Company, FPNB
and Overland Bank ("Overland"), the Company agreed to exchange shares of
Common Stock for all of the outstanding shares of Overland common stock and
to merge Overland into FPNB (the "Overland Merger"). The Overland Merger
was effective April 1, 1995. The number of shares of Common Stock received
by the Overland shareholders under the Merger Agreement was based on the
relative shareholders' equities of the Company and Overland, adjusted to
eliminate intangible assets and disparities in certain accounting and
operating matters. On April 1, 1995, the Overland Merger increased the
Company's assets to approximately $210,000,000 and has contributed to the
profitability in the Company's net earnings in 1995.
As a result of the foregoing actions, the Company reported net earnings of
$332,000 for the year ended December 31, 1994. The Company's earnings, the
Debenture Offering, the Private Offerings and a change in the Company's mix of
assets brought FPNB into compliance with all of the capital requirements of the
Formal Agreement and as of December 20, 1994, the Formal Agreement was
terminated. Nonperforming assets continued to decline, operational
efficiencies continued to be realized during 1995, and with the additional
earnings recorded as a result of the Overland Merger and a tax benefit recorded
by the Company, net earnings of $1,911,000 were reported for the year ended
December 31, 1995.
Following the Overland Merger in 1995, the Company was reincorporated as a
Delaware corporation (the "Delaware Reincorporation"). The Delaware
Reincorporation was accomplished by merging FP Bancorp, a California
corporation, with and into a wholly-owned Delaware subsidiary, which was then
liquidated into FP Bancorp. The principal reasons for the Delaware
Reincorporation were to enable the Company to pay dividends under certain
circumstances which would not be permitted under California law (although the
Company presently has no plans to pay such dividends) and to permit a staggered
Board of Directors serving two year terms with half
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of the Directors to be elected each year. The daily business operations of the
Company have been unaffected by the Delaware Reincorporation.
On January 12, 1996, the Company announced that it had signed a definitive
agreement that would lead to the merger of RB Bancorp and its wholly-owned
subsidiary, the Bank of Rancho Bernardo, into FPNB (the "RB Bancorp Merger")
upon regulatory and RB Bancorp shareholder approval. RB Bancorp shareholder
approval was obtained on February 20, 1996. The terms of the definitive
agreement call for shareholders of RB Bancorp to receive $7,350,000 in cash for
the exchange of all outstanding RB Bancorp shares. The RB Bancorp Merger is
expected to be completed during the second quarter of 1996.
COMPETITION
In general, the banking business in California is highly competitive with
respect to both loans and deposits and is dominated by major banks with many
offices operating over a wide geographic area. In the Company's primary
service area, major banks dominate the commercial banking industry as a result
of acquisitions of other independent banks in the area in recent years. The
Company competes for deposits and loans with other commercial banks and with
nonbank financial institutions, including savings and loan associations and
credit unions.
Institutions such as brokerage firms, credit card companies and even retail
establishments offer alternative investment vehicles such as money market funds
and traditional banking services such as check-writing and cash advances on
credit card accounts. Other entities (both public and private) seeking to
raise capital through the issuance and sale of debt or equity securities also
represent a source of competition for the Company with respect to acquisition
of deposits.
Among the advantages certain of these institutions have over the Company are
their ability to finance wide-ranging and effective advertising campaigns, to
access international money markets and to allocate their investment resources
to regions of highest yield and demand. Major banks operating in the Company's
service area offer services, such as international banking and trust services,
which are not offered directly by FPNB. Also, by virtue of their greater total
capitalization, such banks have substantially higher lending limits than FPNB.
A recent trend in the financial services industry is the rapid expansion of
nontraditional branch locations, particularly in retail grocery stores. Large,
regional banks are opening hundreds of small operations within major California
grocery chains. Currently, it is difficult to determine whether this trend
represents a threat to independent banks.
Another recent trend in the financial services industry is the move toward
"home banking." Several banks are conducting trials on the Internet; however,
still only a very small segment of the Company's customer base is actively
using home PC's to conduct banking or bill paying. In the business community,
the related move toward "cash management systems" is also a trend that the
Company has begun to monitor.
The Company does not have a dependency upon a single customer or industry,
the loss of which would have a material adverse effect. However, some of the
Company's commercial, real estate and construction borrowers are to some extent
dependent on the real estate and construction industries and have been
adversely affected by the recent recession and the deterioration of local real
estate markets. The Company believes that the unique services it offers, such
as courier service, and the high quality of its customer service and attention
distinguish it from other financial institutions in its market area. In
addition, prompt response to lending requests is a positive contributing factor
to the Company's competitive position in its area. The accessibility of senior
management to customers and local decision-making also distinguish the Company
from other financial institutions.
In order to compete with the other financial institutions in its primary
service area, the Company relies principally upon local promotional activities,
personal contact by its officers, directors, employees and stockholders,
extended hours and specialized services. For customers whose loan demands
exceed FPNB's lending limit, the Company has attempted and will continue in the
future to attempt to arrange for such loans on a
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participation basis with other community banks. The Company also assists
customers in obtaining services not offered directly by FPNB from its
correspondent banks or through third-party providers.
SUPERVISION AND REGULATION
General. The Company is subject to the periodic reporting
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), which include, but are not limited to, the filing of annual,
quarterly and other reports with the Securities and Exchange Commission (the
"SEC").
The Company is a bank holding company within the meaning of the Bank Holding
Company Act, and is registered as such with and is subject to the supervision
of the Federal Reserve Bank of San Francisco (the "FRB"). Generally, a bank
holding company is required to obtain the approval of the FRB before it may
acquire all or substantially all of the assets of any bank, or ownership or
control of the voting shares of any bank if, after giving effect to such
acquisition of shares, the bank holding company would own or control more than
5% of the voting shares of such bank. The FRB's approval is also required for
the merger or consolidation of bank holding companies.
The Company is required to file reports with the FRB and provide such
additional information as the FRB may require. The FRB also has the authority
to examine the Company and FPNB, as well as any arrangements between the
Company and FPNB, with the cost of any such examination to be borne by the
Company.
Banking subsidiaries of bank holding companies are also subject to certain
restrictions imposed by federal law in dealings with their holding companies
and other affiliates. Subject to certain restrictions set forth in the Federal
Reserve Act, a bank can loan or extend credit to an affiliate, purchase or
invest in the securities of an affiliate, purchase assets from an affiliate or
issue a guarantee, acceptance or letter of credit on behalf of an affiliate;
provided that the aggregate amount of the above transactions of a bank and its
subsidiaries does not exceed 10% of the capital stock and surplus of the bank
on a per affiliate basis or 20% of the capital stock and surplus of the bank on
an aggregate affiliate basis. In addition, such transactions must be on terms
and conditions that are consistent with safe and sound banking practices and,
in particular, a bank and its subsidiaries generally may not purchase from an
affiliate a low-quality asset, as defined in the Federal Reserve Act. Such
restrictions also prevent a bank holding company and its other affiliates from
borrowing from a banking subsidiary of the bank holding company unless the
loans are secured by marketable collateral of designated amounts. Further, the
Company and its subsidiary are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services.
A bank holding company is prohibited from engaging in or acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company engaged in nonbanking activities. One of the principal exceptions to
this prohibition is for activities found by the FRB by order or regulation to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making these determinations, the FRB considers
whether the performance of such activities by a bank holding company would
offer advantages to the public which outweigh possible adverse effects.
As a national bank, FPNB is subject to regulation, supervision and regular
examination by the Comptroller. Each depositor's account with FPNB is insured
by the Federal Deposit Insurance Corporation (the "FDIC") to the maximum amount
permitted by law, which is currently $100,000 for each insured deposit. FPNB
is also subject to certain regulations promulgated by the FRB and applicable
provisions of California law, insofar as they do not conflict with or are not
preempted by federal banking law. The Comptroller regulates the number of
locations of the branch offices of a national bank, but may only permit a
national bank to maintain branches in locations and under the same conditions
that state banks are permitted to maintain by state law. California law
presently permits a bank to locate a branch office in any locality in the
state. Additionally, California law exempts banks, including national banks,
from California usury law.
The regulations of the FDIC, the Comptroller and the FRB govern most aspects
of the Company's business, including deposit reserve requirements, investments,
loans, certain check clearing activities, issuance of securities,
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payment of dividends, branching, deposit interest rate ceilings and numerous
other matters. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Company's business is particularly
susceptible to changes in state and federal legislation and regulations, which
may have the effect of increasing the cost of doing business, limiting
permissible activities or increasing competition.
Governmental Policies and Legislation. Banking is a business that
depends primarily on rate differentials. In general, the difference between
the interest rates paid by the Company on its deposits and its other
borrowings, and the interest rates received by the Company on loans extended to
its customers and securities held in its portfolio, comprise the major portion
of the Company's net revenues. These rates are highly sensitive to many
factors that are beyond the Company's control. Accordingly, the Company's
growth and earnings are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.
The commercial banking business is affected not only by general economic
conditions, but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
FRB. The FRB implements national monetary policies (with objectives such as
curbing inflation and combating recession) by its open-market operations in
U.S. Government securities, by adjusting the required level of reserves for
financial institutions subject to its reserve requirements and by varying the
discount rates applicable to borrowings by depository institutions. The
actions of the FRB in these areas influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of bank holding companies, banks and other financial
institutions are frequently made in Congress, in the California Legislature and
before various bank holding company and bank regulatory agencies. The
likelihood of any major changes and the impact such changes might have are
impossible to predict. Certain of the potentially significant changes which
have been enacted recently by Congress or various regulatory or professional
agencies are discussed below.
Interstate Banking. On September 29, 1994, President Clinton signed
into law the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"). The Interstate Banking Act has various
provisions designed to facilitate the acquisition of banks and branching across
state borders. Beginning on September 29, 1995, the FRB is authorized to
approve a bank holding company's application to acquire either control or
substantial assets of a bank located outside the bank holding company's home
state, regardless of whether the acquisition would be prohibited by state law.
The Interstate Banking Act would also permit a bank in one state to merge with
another bank outside its "home state," beginning on June 1, 1997. However, a
state may enact a law after September 29, 1994, but before June 1, 1997,
expressly prohibiting merger transactions with out-of-state banks, provided it
applies equally to all out-of-state banks. Mergers between banks in different
states prior to June 1, 1997 may be permitted if the home state of each bank
involved in the transaction has a law in effect which applies equally to all
out-of- state banks expressly permitting interstate mergers. Acquisitions of
branches and opening of new branches outside the home state of a bank will
continue to be subject to state law restrictions.
On October 2, 1995, the California legislature adopted the Caldera,
Weggeland, and Killea California Interstate Banking and Branching Act of 1995
(the "California Act"). The California Act expressly permits an out-of-state
bank to acquire an entire California bank by merger or purchase. De novo
branching or acquisition of branches in California by an out-of-state bank
continue to be prohibited. Out-of-state banks are permitted to affiliate with
California institutions and may establish facilities in California (such as
loan production offices) under conditions set forth in the California Act.
Neither the Interstate Banking Act nor the California Act has had a
material effect upon the Company.
Capital Requirements. The FRB, the Comptroller and the FDIC have
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 (i)
assigning weighted risks to each balance
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<PAGE> 9
sheet asset and certain off-balance sheet commitments and (ii) adding up all of
the weighted risks of all assets and includable off-balance sheet commitments
to obtain the total risk. The guidelines generally require banks to maintain a
total qualifying capital to weighted risk assets level of 8% (the "Risk-based
Capital Ratio"). Of the total 8%, at least 4% of the total qualifying capital
to weighted risk assets (the "Tier 1 Risk-based Capital Ratio") must be Tier 1
or core capital consisting primarily of equity stock. Tier 2 capital, which is
to make up the remainder of total capital, consists of (i) loan loss allowance,
up to 1.25% of weighted risk assets (ii) mandatory convertible debentures and
(iii) other forms of capital. Qualified preferred capital stock may be
considered core capital up to 25% of all core capital elements.
The FRB, the Comptroller and the FDIC have adopted leverage requirements that
apply in addition to the risk-based capital requirements. Under these
requirements, bank holding companies and banks are required to maintain core
capital of at least 3% of their assets (the "Leverage Ratio"). However, an
institution may be required to maintain core capital of at least 4% or 5%, or
possibly higher, depending upon the activities, risks, rate of growth, and
other factors deemed material by regulatory authorities. As of December 31,
1995, the Company and FPNB both met all applicable capital requirements imposed
by regulation. See "Item 6. Management's Discussion and Analysis -- Capital
Resources."
The FRB has adopted a policy of requiring each holding company to serve as a
source of financial strength to each of its subsidiary banks. If FPNB were to
experience either significant loan losses or rapid growth in loans or deposits,
or some other event resulting in a depletion or deterioration of capital
accounts were to occur, the Company might be compelled by the FRB to invest
additional capital in an amount sufficient to return FPNB's capital account to
a satisfactory level. Such action could preclude the Company from making
interest payments on the Debentures or making other expenditures. Such
additional investment may be required at times when, absent the policy of the
FRB, the Company would not be able or willing to provide such additional
investment. However, as FPNB's capital level exceeds Comptroller minimum
requirements as of December 31, 1995, no such action is anticipated.
Dividends. There are regulatory restrictions on dividend payments by
both FPNB and the Company that may affect the Company's ability to make
interest payments on the Debentures and pay dividends on its Common Stock. See
"Item 5. Market for Common Equity and Related Stockholder Matters."
Federal Deposit Insurance Corporation Improvement Act of 1991. On
December 19, 1991, President Bush signed into law the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). FDICIA is an omnibus banking
reform bill which added new regulation and made changes in existing regulation
of the operations, procedures and regulatory reporting of insured institutions,
bank holding companies and affiliates. Many of these provisions required
promulgation of additional regulations, some of which have not been issued in
final form to date. Among the provisions of FDICIA are the following:
1. Capital Categories. Establishes five capital categories applicable to
insured institutions, each with specific regulatory consequences. If the
appropriate federal banking agency determines, after notice and an opportunity
for hearing, that an insured institution is in an unsafe or unsound condition,
reclassify the institution to the next lower capital category (other than
critically undercapitalized) and require the submission of a plan to correct
the unsafe or unsound condition. The Comptroller has issued regulations (the
"Prompt Corrective Action Regulations") to implement these provisions.
a. Well Capitalized -- The institution exceeds the required minimum
level for each relevant capital measure. No capital distribution may be made
that would result in the institution becoming undercapitalized.
The Prompt Corrective Action Regulations define "well capitalized," as (i)
having a Risk-based Capital Ratio of 10% or greater, (ii) having a Tier 1
Risk-based Capital Ratio of 6% or greater, (iii) having a Leverage Ratio of 5%
or greater and (iv) not being subject to any order or written directive to meet
and maintain a specific capital level for any capital measure. Under these
guidelines, as of December 31, 1995, the Company and FPNB were considered "well
capitalized." See "Item 6. Management's Discussion and Analysis -- Capital
Resources."
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<PAGE> 10
b. Adequately Capitalized -- The institution meets the required
minimum level for each relevant capital measure. No capital distribution may
be made that would result in the institution becoming undercapitalized.
The Prompt Corrective Action Regulations define "adequately capitalized" as
(i) having a Risk-based Capital Ratio of 8% or greater, (ii) having a Tier 1
Risk-based Capital Ratio of 4% or greater and (iii) having a Leverage Ratio of
4% or greater or a Leverage Ratio of 3% or greater if the institution is rated
composite 1 under the CAMEL rating system.
c. Undercapitalized -- The institution fails to meet the required
minimum level for any relevant capital measure. The appropriate federal
banking agency must closely monitor an undercapitalized institution and the
institution must submit an acceptable capital restoration plan. Each company
having control over the undercapitalized institution must provide a limited
guarantee that the institution will comply with its capital restoration plan.
Except under limited circumstances consistent with an accepted capital
restoration plan, an undercapitalized institution may not grow. An
undercapitalized institution may not acquire another institution, establish
additional branch offices or engage in any new line of business unless
determined by the appropriate federal banking agency to be consistent with an
accepted capital restoration plan or the FDIC determines that the proposed
action will further the purpose of prompt corrective action. The appropriate
federal banking agency may take any action authorized for a significantly
undercapitalized institution if an undercapitalized institution fails to submit
an acceptable capital restoration plan or fails in any material respect to
implement a plan accepted by the agency.
An insured depository institution may not pay a management fee to a bank
holding company controlling that institution or any other person having control
of the institution if, after making the payment, the institution would be
undercapitalized. In addition, an institution cannot make a capital
distribution, such as a dividend or other distribution that is in substance a
distribution of capital to the owners of the institution if following such a
distribution the institution would be undercapitalized. Thus, if payment of
such a management fee or the making of such a distribution would cause FPNB to
become undercapitalized, it could not pay a management fee or dividend to the
Company.
The Prompt Corrective Action Regulations define "undercapitalized" as (i)
having a Risk-based Capital Ratio of less than 8% or (ii) having a Tier 1
Risk-based Capital Ratio of less than 4% or (iii) having a Leverage Ratio of
less than 4% or if the institution is rated a composite 1 under the CAMEL
rating system, a Leverage Ratio of less than 3%.
d. Significantly Undercapitalized -- The institution is
significantly below the required minimum level for any relevant capital
measure. A significantly undercapitalized institution may not pay any bonus to
any senior executive officer or provide compensation at a rate exceeding that
officer's average rate of pay during the prior 12 months, without the approval
of the appropriate federal banking agency.
The Prompt Corrective Action Regulations define "significantly
undercapitalized" as (i) having a Risk-based Capital Ratio of less than 6% or
(ii) having a Tier 1 Risk-based Capital Ratio of less than 3% or (iii) having a
Leverage Ratio of less than 3%.
e. Critically Undercapitalized -- The institution fails to meet a
critical capital level set by the appropriate federal banking agency. The FDIC
must, by regulation or order, restrict the activities of any critically
undercapitalized institution and must require its approval before the
institution may take certain actions. In addition, not later than 90 days
after an institution becomes critically undercapitalized, the appropriate
federal banking agency shall appoint a receiver, or, with the concurrence of
the FDIC, a conservator, or take such other action as the agency determines,
with the concurrence of the FDIC, would better achieve the purpose of prompt
corrective action.
The Prompt Corrective Action Regulations define "critically undercapitalized"
as having a ratio of tangible equity to total assets that is equal to or less
than 2%.
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<PAGE> 11
2. New Operational Standards. Requires federal banking agencies to
prescribe standards for insured institutions relating to: (i) internal
controls; (ii) loan documentation; (iii) credit underwriting; (iv) interest
rate exposure; (v) asset growth; (vi) aompensation, fees and benefits; and
(vii) such other operational and managerial standards as an agency determines
to be appropriate.
On July 10, 1995, the federal banking agencies adopted final guidelines
implementing these provisions. These guidelines have not had a material effect
upon the company.
The Company has evaluated these proposals and does not believe that adoption
would have a material effect upon its operations.
3. New Financial Standards. Requires each federal banking agency to
prescribe standards for insured institutions and holding companies specifying:
(i) the maximum ratio of classified assets to capital; (ii) minimum earnings
sufficient to absorb losses without impairing capital; (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly traded
shares of an institution or a company; and (iv) such other standards relating
to asset quality, earnings and valuation as the agency determines to be
appropriate.
4. Assessments. Requires the FDIC to implement a risk-based assessment
system in which the insurance premium relates to the probability that the
deposit insurance fund will incur a loss and directs the FDIC to set
semi-annual assessments in an amount necessary to increase the reserve ratio of
the Bank Insurance Fund (the "BIF") to at least 1.25% of insured deposits or a
higher percentage as determined to be justified by the FDIC.
The FDIC has promulgated implementing regulations that base an institution's
risk category partly upon whether the institution is well capitalized ("1"),
adequately capitalized ("2") or less than adequately capitalized ("3"), as
defined under the Prompt Corrective Action Regulations described above. In
addition, each insured depository institution is assigned to one of three
"supervisory subgroups." Subgroup "A" institutions are financially sound
institutions with few minor weaknesses, subgroup "B" institutions demonstrate
weaknesses which, if not corrected, could result in significant deterioration
and subgroup "C" institutions are those as to which there is a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Prior to
June 30, 1995, based on its capital and supervisory subgroups, each BIF member
institution was assigned an annual FDIC assessment rate of between $0.23 and
$0.31 per $100 of deposits. Effective December 1, 1992 the FDIC began
notifying each institution of its assessment risk classification and rate
semi-annually. In 1994, the Company paid assessments of $225,000 and $219,000,
respectively, for the first and second halves of the year, as compared to
$281,000 and $258,000 for the first and second halves of 1993, respectively.
On August 8, 1995, the FDIC Board of Directors voted to reduce the deposit
insurance premiums paid by most members of the BIF effective the first day
after the recapitalization of the BIF, or as of June 1, 1995. Under the
revised assessment rules, the best-rated institutions would pay an annual rate
of four cents per $100 of assessable deposits, down from the previous rate of
$0.23 per $100. FPNB paid assessments of $109,000 and $145,000 for the first
and second halves of 1995, respectively.
On November 14, 1995, the FDIC Board of Directors voted to further reduce the
insurance premiums paid on deposits covered by the BIF. Under the new rate
structure, assessment rates were lowered by four cents per $100 of assessable
deposits for all risk categories, subject to the statutory requirement that all
institutions pay at least $2,000 annually for FDIC insurance. The new rate
structure retains the current rate spread of $0.27 per $100 of assessable
deposits between the highest- and lowest-rated institutions. Under the new
rate structure, FPNB has been assessed $27,000 for the first half of 1996.
5. Revision of Risk-based Capital Standards. Requires each banking
agency to revise its risk-based capital standards to ensure that those
standards (i) take into account interest-rate risk, concentration of credit
risk and the risks of nontraditional activities and (ii) reflect the actual
performance and expected risk of loss of multi-family mortgages.
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The federal banking agencies have jointly adopted transitional regulations
regarding interest rate risk. These regulations essentially provide that
interest rate risk will be assessed on a case-by-case basis. Examiners
consider an institution's historical financial performance and its earnings
exposure to interest rate movements, as well as qualitative factors, including
adequacy of the institution's internal interest rate risk management. The
transitional regulations will be in effect until the regulators have gathered
sufficient information to formulate an explicit supervisory threshold above
which capital would be required. These regulations have not had a material
effect upon the Company.
With regard to multi-family mortgages, the FRB has adopted guidelines
permitting certain of those with loan to value ratios of less than 80% to be
carried at a risk-weight of 50% rather than 100%. The other banking agencies
have not yet adopted final regulations in this area.
Because many of the provisions of FDICIA require implementing regulations to
be issued, and those that have been issued have been issued only very recently,
the Company is unable to assess the impact of FDICIA upon its operations, and
whether such impact will be material, except as otherwise noted above.
Memorandum of Understanding. On May 24, 1993, as a result of
supervisory concerns disclosed during the inspection of the Company by the FRB
in December, 1992, the Company entered into a Memorandum of Understanding with
the FRB (the "Memorandum of Understanding"). The Memorandum requires improved
supervision of FPNB by FP Bancorp. It also prohibits certain actions by the
Board of Directors of FP Bancorp, including (i) payment of dividends without at
least 15 days prior notice to the FRB, (ii) incurring additional indebtedness
without at least 15 days prior notice to the FRB and (iii) repurchasing
outstanding stock without prior approval of the FRB. FP Bancorp is required to
submit written progress reports, provide advance notice of adding or replacing
a director or employing any individual as a senior executive officer and
designate board members who will be responsible for monitoring adherence to the
provisions of the Memorandum.
The FRB conducted an inspection of FP Bancorp in January 1995. The overall
condition of FP Bancorp was found to have improved from marginal to fair based
on overall improvement in the financial condition of FPNB and the holding
company's ability to provide financial and managerial strength to FPNB. FP
Bancorp was found to be in full compliance with the FP Bancorp Memorandum.
The FRB conducted another inspection of FP Bancorp during February 1996 and
management of the Company believes it is in material compliance with the
provisions of the FP Bancorp Memorandum. However, the FRB has not yet issued
its final report.
ACCOUNTING STANDARDS
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement 115") which was adopted prospectively by the Company as of January
1, 1994. Statement 115 addresses the accounting and reporting for investments
in equity securities that have readily determinable fair values (other than
those accounted for under the equity method or as investments in consolidated
subsidiaries) and all investments in debt securities. Under Statement 115,
debt and marketable equity securities are classified in one of three
categories: trading, available for sale, or held to maturity. Held to maturity
securities are carried at amortized cost. Available for sale securities are
carried at fair value with unrealized gains or losses reported as a separate
component of stockholders' equity, net of applicable income taxes. Trading
securities are reported at fair value and unrealized gains or losses are
included in operations. The change in method of accounting for certain
investments in 1994 has not had a significant effect on the Company's financial
position or results of operations.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("Statement 114") and,
in October 1994, the FASB issued Statement of Financial Accounting Standards
No. 118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures" ("Statement 118") which were adopted prospectively by FP
Bancorp. Under the
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provisions of Statement 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 114 defines methods of
measuring impairment and if the measure of the impaired loan is less than the
recorded investment in the loan, requires a creditor to create a valuation
allowance with a corresponding charge to the provision for loan losses included
in operations. Statement 118 amends Statement 114 to allow a creditor to use
existing methods for recognizing interest income on impaired loans. In
addition, Statement 118 amends certain disclosure requirements of Statement
114. The adoption of Statement 114 and Statement 118 has not had a material
impact on FP Bancorp's results of operations or financial position.
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 121"). Statement 121 requires that
long-lived assets and certain identifiable intangibles to be held and used 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 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 121 must be adopted for financial
statements for fiscal years beginning after December 15, 1995. The impact on
the Company of adopting Statement 121 is not expected to be material.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Statement 123 applies to all transactions in which an entity acquires goods or
services by issuing equity instruments or by incurring liabilities where the
payment amounts are based on the entity's common stock price, except for
employee stock ownership plans. A new method of accounting for stock-based
compensation arrangements with employees is established by Statement 123. The
new method is a fair value-based method rather than the intrinsic value-based
method that is contained in APB Opinion No. 25 ("Opinion 25"). The Statement
123 fair value-based method will result in higher compensation costs than the
Opinion 25 intrinsic value-based method for fixed stock option compensation
plans and will result in different compensation costs for variable stock option
compensation plans. Also, many employee stock purchase plans that are
considered noncompensatory under Opinion 25 will be compensatory and result in
the recognition of compensation costs under the fair value-based method.
Statement 123 does not require an entity to adopt the new fair value-based
method for purposes of preparing its basic financial statements. Entities are
allowed either to continue to use the Opinion 25 method or to adopt the
Statement No. 123 fair value-based method. Statement 123 is required to be
adopted for financial statements for fiscal years beginning after December 15,
1995. The impact on the Company of adopting Statement 123 is not expected to
be material.
EMPLOYEES
As of December 31, 1995, the Company employed 116 persons full-time and 35
persons part-time. The Company's employees are not represented by a union or
covered by a collective bargaining agreement. Management believes that, in
general, its employee relations are excellent.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's headquarters are located at 613 West Valley Parkway in the
central financial district of Escondido, California. FPNB leases approximately
16,642 square feet of a three-story professional office building. The primary
office space has a 35-year lease term which commenced July 1, 1984 and provides
for various lease adjustments during its term. FPNB leases the facilities from
a partnership in which three of the members of the Board of Directors of FPNB
are partners. See "Item 12 - Certain Relationships and Related Transactions."
The San Marcos branch of FPNB is located at 879 San Marcos Boulevard in the
City of San Marcos, California and consists of a free-standing two-story
building owned by FPNB. FPNB leases its 2,680 square foot Lake San Marcos
branch, located at 1132 San Marino Drive in the Lake San Marcos neighborhood of
the City of San Marcos, California, and is responsible for maintenance of the
premises and payment of personal and real property taxes and utilities. The
Temecula Valley branch of FPNB is located at 41615 Winchester Road in the City
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of Temecula, California and consists of approximately 10,000 square feet in a
two-story building owned by FPNB. The Moreno Valley branch of FPNB is located
at 24525 Alessandro Boulevard in the City of Moreno Valley, California,
consists of approximately 6,450 square feet and is leased from an unrelated
party.
All of the properties owned or leased by the Company are considered by
management to be well suited for a financial institution and are deemed
adequate to accommodate current needs, plus expansion, in the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than
nonmaterial proceedings arising in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq"),
National Market System, but there is not a consistently active market therefor.
From April 13, 1995 to September 17, 1995, the Common Stock traded on the
Nasdaq SmallCap Market and average daily trading volume during that period was
1,943 shares. On September 18, 1995, the Common Stock began to be quoted on
the Nasdaq National Market System.
The table below presents (i) the high and low bid prices per share of the
Common Stock quoted on the Nasdaq National Market System from September 18,
1995 through December 31, 1995, (ii) the high and low bid prices per share of
the Common Stock quoted on the Nasdaq SmallCap Market from April 13, 1995
through September 17, 1995, and (iii) the high and low bid prices per share of
the Common Stock as reported by Western Financial Corporation prior to April
13, 1995. The high and low bid prices of the Common Stock do not include
retail markups, markdowns or commissions and may not represent actual
transactions.
MARKET PRICES
<TABLE>
<CAPTION>
HIGH LOW
---------- ---------
<S> <C> <C>
1995
Fourth Quarter $9.25 $7.88
Third Quarter $8.25 $5.38
Second Quarter $6.75 $5.13
First Quarter $5.75 $5.00
1994
Fourth Quarter $6.00 $5.00
Third Quarter $5.00 $4.50
Second Quarter $5.00 $4.75
First Quarter $5.00 $5.00
1993
Fourth Quarter $9.00 $5.00
Third Quarter $11.00 $8.00
Second Quarter $11.00 $10.00
First Quarter $11.00 $10.00
</TABLE>
As of December 31, 1995, the Company had 1,253 stockholders of record, as
shown on the records of its transfer agent, U.S. Stock Transfer. The Company
is aware of the following four securities dealers: Western Financial
Corporation, San Diego; Sandler O'Neill & Partners, New York; Hoefer and
Arnett, Inc., San Francisco; and Herzog, Heine, Geduld, Inc., Jersey City,
which currently make a market in the Common Stock.
DIVIDENDS
The principal source of the Company's revenues for the payment of dividends
is dividends from FPNB. Generally, the payment of dividends to FP Bancorp by
FPNB is limited to FPNB's current year's earnings, as defined in Federal
regulations, plus retained net earnings for the two preceding years. Payment
of dividends in excess of such amount requires prior federal regulatory
approval. As of December 31, 1995, FPNB had no funds available for payment of
dividends to FP Bancorp without prior regulatory approval. However, in
addition to such limitations on dividend payments, the Comptroller has
authority to prohibit FPNB from paying dividends to FP Bancorp if, in the
opinion of the Comptroller and notwithstanding the amount of current year net
earnings and retained net earnings for the two preceding years, the payment of
dividends would constitute an unsafe or unsound practice in light of the
overall financial condition of FPNB or if FPNB is the subject of administrative
action. The
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<PAGE> 16
Memorandum of Understanding prohibits payment of dividends without 15 days
prior notice to the FRB. See "Item 1. Description of Business -- Supervision
and Regulation -- Memorandum of Understanding."
In addition to the foregoing regulatory restrictions, the Company's ability
to pay dividends is governed by the Delaware General Corporation Law (the
"Delaware Law"). The Delaware Law provides that a Delaware corporation, such
as the Company, may, unless otherwise restricted by its certificate of
incorporation, declare and pay dividends out of any surplus or, if no surplus
exists, out of net profits for the fiscal year in which the dividend is
declared and the preceding fiscal year, or both (provided that the amount of
capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets). The Delaware Law also provides that a corporation may
redeem or repurchase its shares out of surplus. The ability of a Delaware
corporation to pay dividends on or to redeem or repurchase it shares is
dependent on the financial status of the corporation standing alone and not on
a consolidated basis.
No dividends were paid by the Company during 1995, 1994 or 1993. Payment of
stock or cash dividends by the Company in the future will depend upon the
Company's earnings and financial condition and other factors deemed relevant by
the Company, including performance of FPNB and its ability to pay dividends.
FPNB has adopted a policy of approving dividends only in the event that after
payment and for the foreseeable future, FPNB's capital level will not be
adversely affected. The Company has adopted a similar policy with regard to
payment of cash dividends to stockholders. These standards may be greater than
any standard the regulatory agencies may impose. Under these policies, FPNB
would not be able to pay a dividend to the Company and the Company would not be
able to pay a dividend to its stockholders. It is the current intention of
management of the Company to follow a policy of retaining most of the Company's
earnings to increase its capital to support future growth. Accordingly, no
assurance can be given that any dividends will be declared by the Company in
the next few years.
The Debentures were issued under the terms of an Indenture dated November 9,
1992 (the "Indenture"), between the Company and Meridian Trust Company of
California, as Trustee. The Indenture provides that the Company will not (i)
declare or pay any dividend or make any distribution on the Common Stock or to
its stockholders (other than dividends or distributions payable in shares of
the Common Stock) or (ii) purchase, redeem or otherwise acquire or retire for
value any shares of the Common Stock or permit any subsidiary to purchase,
redeem or otherwise acquire or retire for value any shares of the Common Stock,
if at the time of such action, an Event of Default as defined in the Indenture
shall have occurred and be continuing or result therefrom. See "Item 6.
Management's Discussion and Analysis -- Liquidity and Asset/Liability
Management -- Liquidity."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
The following presents the Company's management's discussion and analysis of
the financial condition and results of operations of the Company as of and for
the years ended December 31, 1995, 1994 and 1993. The discussion should be
read in conjunction with the Company's consolidated financial statements and
notes thereto. See "Item 7. Financial Statements."
OVERVIEW
The Company reported net earnings for 1995 of $1,911,000 or $0.77 per share
as compared to net earnings of $332,000 or $0.26 per share in 1994. Net
earnings for the year ended December 31, 1995 increased $1,579,000 or 475.60%,
despite an increase in the provision for loan losses of $600,000 primarily due
to (i) a significant reduction in problem assets, (ii) improved credit quality,
(iii) an increase in the net interest margin, (iv) increased income and
efficiencies resulting from the acquisition of Overland Bank, (v) continued
cost control efforts related to noninterest expenses and (vi) the recording of
a tax benefit for the year. The Company's return on average assets and return
on average stockholders' equity were .95% and 12.98%, respectively, for the
year ended December 31, 1995 as compared to .20% and 4.36%, respectively, for
the year ended December 31, 1994.
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The Company reported net earnings for 1994 of $332,000 or $0.26 per share as
compared to a net loss of $(5,068,000) or $(4.18) per share in 1993. The
increase in net earnings of $5,400,000 in 1994 from 1993 was primarily due to
(i) a reduction in problem assets, (ii) improved credit quality, (iii)
stabilization of loan and deposit balances, (iv) an increase in the net
interest margin due to an increase in interest rates and (v) a significant
reduction in noninterest expense as a result of the subsidiary merger. The
Company's return on average assets and return on average stockholders' equity
were 0.20% and 4.36%, respectively, for the year ended December 31, 1994,
compared to (2.77%) and (50.14%), respectively, for the same period in 1993.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income, the most significant component of
the Company's net earnings, is the amount by which the interest and fees
generated from loans and other earning assets exceeds the expense associated
with funding those assets. Net interest income depends upon the difference
(the "interest rate spread") between the gross interest and fees earned on the
Company's loan and investment portfolios ("interest-earning assets") and the
rates paid on its deposits and borrowings ("interest-bearing liabilities"), and
the relative amounts and composition of its interest-earning assets and
interest-bearing liabilities. When the amount of interest-earning assets
exceeds interest-bearing liabilities, a positive interest rate spread will
generate net interest income. When the amount of interest-earning assets is
less than the amount of interest-bearing liabilities, the Company may incur net
interest expense even when its interest rate spread is positive. Management
has contributed to the profitability and improved operations of the Company by
managing the net interest spread and net interest margin to increase net
interest income.
Net interest income increased $2,548,000 or 26.62%, to $12,121,000 for the
year ended December 31, 1995 from $9,573,000 for the year ended December 31,
1994. The rate earned on interest-earning assets in 1995 increased to 9.80%
from 9.06% in 1994. The rate paid on interest-bearing liabilities increased to
3.35% in 1995 from 2.47% in 1994. These increases were primarily to higher
average interest rates during 1995 as compared to 1994 as a result of numerous
changes in rates implemented by the Federal Reserve Board during those two
years. Average loans in 1995 were $136,425,000 which earned interest at the
rate of 10.89% as compared to average loans of $113,053,000 which earned
interest at a rate of 10.05% in 1994. Average other interest-earning assets,
including investment securities and Federal funds sold, were $37,776,000 during
1995 which earned interest at a rate of 5.89% as compared to average other
interest-earning assets of $27,330,000 which earned interest at a rate of 4.95%
during 1994. Average interest-bearing liabilities for 1995 were $147,799,000
as compared to average interest-bearing liabilities of $127,106,000 during
1994.
Net interest income increased $371,000 or 4.03% to $9,573,000 for the year
ended December 31, 1994 from $9,202,000 for the year ended December 31, 1993.
The rate earned on interest-earning assets in 1994 increased to 9.06% from
8.28% in 1993. The rate paid on interest-bearing liabilities decreased to
2.47% in 1994 from 2.73% in 1993. Rates earned on interest-earning assets
increased while rates paid on deposits and other interest-bearing liabilities
decreased overall due to the decrease in interest rates prior to December 31,
1993 and the subsequent increase in rates during 1994. Overall, rates earned
on interest-earning assets increased faster during 1994 than rates paid on
interest-bearing liabilities due to the Company's active liability management,
even in a rising rate environment. Average loans outstanding in 1994 were
$113,053,000, which earned interest at a rate of 10.05% as compared to average
loans outstanding of $128,706,000 which earned a rate of 9.21% during 1993.
Average other interest-earning assets, including investment securities and
Federal funds sold, were $27,330,000 during 1994 which earned interest at a
rate of 4.95% as compared to average other interest-earning assets of
$29,799,000 which earned interest at a rate of 4.26% during 1993. Average
interest-bearing liabilities for 1994 were $127,106,000 as compared to average
interest-bearing liabilities of $143,495,000 for the year ended December 31,
1993.
The Company's net interest margins for the years ended December 31, 1995,
1994 and 1993 were 6.96%, 6.82% and 5.81%, respectively.
II-3
<PAGE> 18
The following table presents the major categories of interest-earning
assets, interest-bearing liabilities and stockholders' equity with
corresponding average balances, related interest income or expense and
resulting yields and rates for the periods indicated.
ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------------------------------------------------
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
AMOUNT INCOME/ EARNED/ AMOUNT INCOME/ EARNED/ AMOUNT INCOME/ EARNED/
OUTSTANDING EXPENSE PAID OUTSTANDING EXPENSE PAID OUTSTANDING EXPENSE PAID
----------- ------- ---- ----------- ------- ---- ----------- ------- ----
(1) (1) (1)
--- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(2)(3) $136,425 $14,851 10.89% $113,053 $11,364 10.05% $128,706 $11,852 9.21%
Taxable investment
securities 29,995 1,783 5.94% 23,562 1,185 5.03% 11,825 585 4.95%
Nontaxable investment
securities 0 0 0.00% 741 45 6.07% 2,965 184 6.21%
Interest-earning
deposits 341 19 5.57% 98 4 4.08% 5,029 221 4.39%
Federal funds sold 7,440 422 5.67% 2,929 120 4.10% 9,980 279 2.80%
------- ------ ----- ------- ------ ------- ------- -----
Total interest-earning
assets 174,201 17,075 9.80% 140,383 12,718 9.06% 158,505 $13,121 8.28%
Other assets:
Cash and due from banks 14,069 13,023 16,827
Other assets, net 12,670 10,365 7,497
-------- -------- --------
Total Assets $200,940 $163,771 $182,829
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits:
Savings and time $63,068 2,903 4.60% $47,811 1,444 3.02% $58,885 1,860 3.16%
Interest-bearing demand
and money market 80,100 1,564 1.95% 74,695 1,216 1.63% 81,179 1,663 2.05%
------- ----- ------ ----- ------ ----- ----
Total interest-bearing
deposits 143,168 4,467 3.12% 122,506 2,660 2.17% 140,064 3,523 2.52%
Debentures and Federal
funds purchased 4,631 487 10.52% 4,600 485 10.54% 3,431 396 11.54%
------- ----- ------ ------- ----- ------ ------- ----- ------
Total interest-bearing
liabilities 147,799 4,954 3.35% 127,106 3,145 2.47% 143,495 3,919 2.73%
Noninterest-bearing
demand deposits 37,225 27,775 28,309
Other liabilities 1,420 1,278 1,105
Stockholders' equity 14,717 7,763 10,061
Receivable from ESOP and
unrealized net gain
(loss) on investment
securities available for
sale (221) (151) (141)
-------- -------- --------
Total Liabilities and
Stockholders' Equity $200,940 $163,771 $182,829
======== ======== ========
Net interest income $12,121 $9,573 $9,202
======= ====== ======
Net interest margin(4) 6.96% 6.82% 5.81%
- ---------------
</TABLE>
(1) Averages are daily averages.
(2) Loan interest income includes accretion of loan fees of $452,000,
$1,249,000, and $1,343,000 for the years 1995, 1994 and 1993,
respectively.
(3) For the purpose of these computations, nonaccrual loans are included in
average loans.
(4) The net interest margin is calculated by dividing net interest income by
average total interest-earning assets.
II-4
<PAGE> 19
As discussed above, the Company's net interest income is affected by the
change in the amount and mix of interest-earning assets and interest-bearing
liabilities, referred to as "volume change," as well as by changes in yields
earned on interest-earning assets and rates paid on deposits and other borrowed
funds, referred to as "rate changes." The following table presents for the
periods indicated a summary of changes in interest income and interest expense
for the major categories of interest-earning assets and interest-bearing
liabilities and the amounts of change attributable to variations in volume and
interest rates.
RATE/VOLUME ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 COMPARED TO 1994 1994 COMPARED TO 1993
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) $2,349 $1,138 $3,487 $(1,442) $ 954 $ (488)
Taxable investment
securities 324 274 598 581 19 600
Nontaxable investment
securities (45) 0 (45) (138) (1) (139)
Interest-earning deposits 10 5 15 (217) 0 (217)
Federal funds sold 185 117 302 (197) 38 (159)
------ ------ ------ ------- ------ -------
Total Interest Earned on
Interest-earning Assets $2,823 $1,534 $4,357 $(1,413) $1,010 $ (403)
====== ====== ====== ======= ====== =======
Interest paid on interest-bearing
liabilities:
Interest-bearing deposits:
Savings and time $ 461 $ 998 $1,459 $ (350) $ (66) $ (416)
Interest-bearing demand 88 260 348 (133) (314) (447)
------ ------ ------ ------- ------ -------
Total interest-bearing
deposits 549 1,258 1,807 (483) (380) (863)
Debentures and Federal funds
purchased 3 (1) 2 135 (46) 89
------ ------ ------ ------- ------ -------
Total Interest Paid on
Interest-bearing
Liabilities $ 552 $1,257 $1,809 $ (348) $ (426) $ (774)
====== ====== ====== ======= ====== =======
- ---------------
</TABLE>
(1) Nonaccrual loans are included in the loan totals used in the
calculation of this table.
Provision for Loan Losses. The provision for loan losses is based upon the
Company's evaluation of the quality of the loan portfolio, total outstanding
and committed loans, previous loan losses and current and anticipated economic
conditions. In making its evaluation, the Company takes into account the
results of regulatory examinations of FP Bancorp and FPNB, which can be
expected to occur at least once each year. The amount of the provision for
loan losses is a charge against earnings. Actual loan losses are charged
against the allowance for loan and lease losses (the "ALLL").
The Company's ALLL is typically maintained at a level deemed adequate to
provide for known and inherent losses in the loan portfolio. No assurance can
be given that unforeseen adverse economic conditions or other circumstances
will not result in increased provisions for loan and lease losses in the
future. Additionally, regulatory examiners may require the Company to
recognize additions to the ALLL based upon their judgment about information
available to them at the time of their examinations.
II-5
<PAGE> 20
The provisions for loan losses for the years ended December 31, 1995, 1994
and 1993 were $600,000, $0 and $3,106,000, respectively. Based on the analyses
conducted by management during 1995, it was deemed necessary to increase the
ALLL to adequately cover potential known and inherent risks of loss in the loan
portfolio. The decrease in 1994 as compared to 1993 was due to a decrease in
loan charge-offs, problem loans, improved credit quality, aggressive collection
efforts resulting in higher recoveries and a revised and improved loan approval
and management system put into place during late 1993.
Due to significant improvement in the quality of the loan portfolio,
the ALLL fell to $2,013,000 or 1.40% of total loans as of December 31, 1995
from $2,666,000 or 2.21% of total loans as of December 31, 1994. For
explanation of the variances in the allowance balances, see "Loan Portfolio --
Allowance for Loan and Lease Losses."
Other Operating Income. Total other operating income for the year ended
December 31, 1995 increased $626,000 or 37.26% to $2,306,000 from $1,680,000 in
1994. The increase was primarily a result of an increase in service charges
and other fees resulting from the Company's growth during the year.
Total other operating income for the year ended December 31, 1994
decreased $321,000 or 16.04% to $1,680,000 from $2,001,000 in 1993. The
decrease was primarily related to the closure of the Company's escrow
department in early 1994.
Other Operating Expenses. Total other operating expenses for the year ended
December 31, 1995 increased $1,823,000 or 16.69% to $12,744,000 from
$10,921,000 in 1994. The increase was a result of the Company's growth
accomplished by the Overland Merger, offset by continued cost-cutting measures
in the area of noninterest expenses. Salaries and employee benefits increased
$835,000 of 17.82%, professional services expense increased $130,000 or 7.60%,
and net OREO expense increased $120,000 or 19.20% for the year ended December
31, 1995 as compared to the same period in 1994. Conversely, occupancy expense
decreased $160,000 or 12.08% and the FDIC assessment decreased $192,000 or
43.24% for the year ended December 31, 1995 as compared to the same period in
1994. The Company recorded a loss on the sale of investment securities of
$158,000 and amortization of goodwill of $80,000 during 1995, for which there
were no comparable expenses in 1994. The balance of other noninterest expenses
increased $852,000 or 39.96%, primarily in the areas of merchant credit card
charges due to higher merchant volume, additional promotional activities of the
Company during 1995 and other operating expenses related to the Company's
growth during 1995.
Total other operating expenses for the year ended December 31, 1994 decreased
$2,244,000 or 17.05% to $10,921,000 from $13,165,000 for the year ended
December 31, 1993. Salaries and employee benefits decreased $593,000 or
11.23%, net OREO expenses decreased $153,000 or 19.67% and the balance of the
other operating expenses decreased $1,498,000 or 21.08%. The reduction in
other operating expenses for 1994 as compared to 1993 were primarily due to the
efforts of management in implementing the strategic plan including the
economies of scale achieved through the Subsidiary Merger. The Subsidiary
Merger resulted in a reduction of staff, the elimination of duplicate services
and significant savings through the renegotiation and consolidation of various
service and supply contracts. The ongoing efforts of management in the
resolution of problem loans and other real estate owned also resulted in lower
credit collection costs.
Income Taxes. The Company realized a net income tax benefit of $828,000 for
the year ended December 31, 1995 compared to no income tax benefit or expense
for the years ended December 31, 1994 and 1993. The net income tax benefit
consisted of a $900,000 net deferred tax asset which was offset by current
income taxes of $23,000 and a credit to goodwill of $49,000. Management
believes that realization of the recognized deferred tax asset is more likely
than not based on the expectation that the Company will generate the necessary
amount of taxable income in future periods.
II-6
<PAGE> 21
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Effective asset/liability management includes 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 the
sensitivity of its interest-earning assets and interest-bearing liabilities
lies with the executive committee of FPNB which meets each week to review
liquidity, investment strategies, loan demand and the adequacy of funding
sources.
Cash Flows. The Company uses or is provided with cash flows from its
operating, investing and financing activities. Cash flows of FPNB are
primarily used to fund loans and are provided by the deposits and borrowings of
FPNB.
The Company's operating activities for the year ended December 31, 1995
resulted in net cash provided of $2,110,000 primarily due to net earnings of
$1,911,000 adjusted for depreciation and amortization of $943,000, a provision
for loan losses of $600,000 and a provision for losses on OREO of $537,000.
These cash flows were offset by a benefit for deferred taxes of $828,000 and an
increase in other assets and other liabilities of $1,237,000. This compares to
net cash provided of $1,861,000 for the year ended December 31, 1994 primarily
due to net earnings of $332,000 adjusted for depreciation and amortization of
$878,000 and a provision for losses on OREO of $455,000. The Company's
operating activities during 1993 resulted in net cash provided of $2,422,000
for the year ended December 31, 1993 primarily due to a net loss of
$(5,068,000) adjusted for a provision for loan losses of $3,106,000,
depreciation and amortization of $945,000 and a decrease in other assets and
other liabilities of $3,194,000.
The Company's cash flows from investing activities provided net cash of
$7,218,000 for the year ended December 31, 1995 compared to net cash used of
$4,053,000 for the same period in 1994. The significant increase in net cash
provided by investing activities was due to cash acquired from the Overland
Merger of $5,366,000, a decrease in loans outstanding of $1,705,000, and
proceeds from the sale of OREO of $6,107,000 offset by a net increase from the
purchase of and proceeds from the sale of investment securities available for
sale of $9,782,000. The Company's cash flows from investing activities
resulted in net cash used of $4,053,000 for the year ended December 31, 1994
compared to net cash provided of $13,707,000 for the same period in 1993. The
decrease in net cash provided by investing activities in 1994 as compared to
1993 was primarily due to a large decrease in loans outstanding during 1993 of
$15,695,000 compared to an increase in loans during 1994 of $8,909,000. Cash
flows from investing activities provided $13,707,000 for the year ended
December 31, 1993 primarily due to a decrease in loans outstanding and
maturities of interest-bearing deposits for the period.
Net cash used in financing activities for the year ended December 31, 1995
was $2,662,000 compared to net cash used of $727,000 for the same period in
1994. The net cash used in 1995 was a result of a decrease in Federal funds
purchased of $2,800,000. Net cash used in financing activities for the year
ended December 31, 1994 was $727,000 as compared to $32,112,000 for the same
period in 1993. The cash used in both years was a result of net decreases in
deposits during those periods offset by $3,034,000 and $4,575,000 in net
proceeds from the Private Offerings in 1994 and the sale of Debentures in 1993,
respectively.
Liquidity. The objective of liquidity management is to maintain a balance
between sources and uses of funds in such a way that the cash requirements of
customers for loans and deposit withdrawals are met in the most economical
manner. Management of FPNB monitors its liquidity position continuously in
relation to trends of loans and deposits for short-term as well as long-term
requirements. Liquid assets are monitored on a daily basis to assure maximum
utilization. Management of FPNB also manages its liquidity requirements by
maintaining an adequate level of readily marketable assets and access to
short-term funding sources. This is primarily accomplished through investing
in obligations of U.S. Government agencies, various low-risk mortgage-backed
securities and overnight Federal funds.
The Company defines liquid assets as cash and due from banks, overnight
Federal funds sold, interest-earning deposits, and investment securities
available for sale. The Company's ratios of liquid assets to deposits
increased to 23.63% as of December 31, 1995 from 12.17% as of December 31, 1994
as a result of liquid assets acquired during
II-7
<PAGE> 22
the Overland Merger and the reclassification of $8,450,000 from investment
securities held to maturity to investment securities available for sale of
December 31, 1995, in accordance with a one-time provision allowed by the FASB
under Statement 115. See "Investment Portfolios."
The Company's overall liquidity position is enhanced by a sizable
concentration of total deposits less certificates of deposit of $100,000 or
more ("Core Deposits") which management believes provides a stable and
relatively inexpensive funding base. Average Core Deposits totaled
$165,176,000 or 91.56% of average deposits as of December 31, 1995 compared to
$141,027,000 or 93.84% of average deposits as of December 31, 1994.
Other than the investment securities portfolios (see "Investment
Portfolios"), the Company places excess funds in overnight Federal funds to
provide an immediate source of liquidity. Federal funds sold were $2,000,000
as of December 31, 1995, while there were no Federal funds sold as of December
31, 1994.
The level of deposits may fluctuate significantly due to seasonal business
cycles of depository customers. Similarly, the level of demand for loans may
vary significantly and at any given time may increase or decrease
substantially. However, unlike the level of deposits, management has more
direct control over lending activities and maintains the level of those
activities for the Company according to the amounts of available funds.
As of December 31, 1995, FPNB had a line of credit from a correspondent bank
in the amount of $5,000,000 expiring July 31, 1996 which is renewable annually.
FPNB also had a secured Federal Reserve Bank discount window limit of
$3,700,000. The availability of these lines of credit, as well as adjustments
in deposit programs, provides for liquidity in the event that the level of
deposits should fall abnormally low. These sources provide that funding
thereof may be withdrawn depending upon the financial strength of FPNB.
FP Bancorp's operations consist primarily of regulatory reporting, raising
capital and planning business strategies. FP Bancorp's primary sources of
liquidity have been (i) proceeds from securities offerings, (ii) fees from FPNB
for FP Bancorp's services and (iii) dividends from FPNB. After completion of
the Subsidiary Merger, management of FPNB began performing many of the
functions that had previously been provided by FP Bancorp and reduced the fees
paid to FP Bancorp for services. Regulatory and internal restrictions exist
regarding the payment of dividends to FP Bancorp by FPNB (see "Dividends").
Consequently, FP Bancorp's sole source of liquidity during 1995 was the
proceeds from the Private Offerings completed in 1994. See "Item 1.
Description of Business - General Development of Business - Private Offerings."
FP Bancorp's current liquidity is sufficient to permit it to operate as it has
in the past.
FP Bancorp placed an amount sufficient to make interest payments on the
Debentures through January 1, 1995, in an irrevocable trust to provide funding
for this purpose. See "Item 1. Description of Business--General Development
of Business--Subordinated Debenture Offering." FP Bancorp relied upon proceeds
of the Private Offerings retained by it to finance operations of FP Bancorp
during 1995 and may rely upon a portion of such proceeds to make payments due
upon the Debentures after January 1, 1996.
INTEREST RATES
While no single measure can completely identify the impact of changes in
interest rates on net interest income, one gauge of interest rate sensitivity
is to measure, over a variety of time periods, the differences in the amounts
of The Company's rate-sensitive assets and rate-sensitive liabilities. These
differences or "gaps" provide an indication of the extent to which net interest
income may be affected by future changes in interest rates. A "positive gap"
exists when rate-sensitive assets exceed rate-sensitive liabilities and
indicates that a greater volume of assets than liabilities will reprice during
a given period. This mismatch may enhance earnings in a rising interest rate
environment and may inhibit earnings when interest rates decline. Conversely,
when rate-sensitive liabilities exceed rate-sensitive assets, referred to as a
"negative gap," it indicates that a greater volume of liabilities than assets
will reprice during the period. In this case, a rising interest rate
environment may inhibit earnings and declining interest rates may enhance
earnings. The cumulative one-year contractual gap as of December 31, 1995 was
$(36,501,000), representing (20.02%) of interest-earning assets.
II-8
<PAGE> 23
The following table presents the Company's contractual gap position as of
December 31, 1995.
CONTRACTUAL GAP POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
IMMEDIATELY
ADJUSTABLE 1 DAY
OR 1 DAY THROUGH 3 THROUGH 6 THROUGH OVER 12
MATURITY 3 MONTHS 6 MONTHS 12 MONTHS MONTHS TOTAL
-------- --------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold $ 2,000 $ 0 $ 0 $ 0 $ 0 $ 2,000
Investments available for sale 0 200 0 1,011 26,370 27,581
Investments held to maturity 0 0 50 0 7,703 7,753
Loans(1)
Installment 1,347 138 46 174 5,810 7,515
Real estate equity lines of credit 8,085 0 0 0 0 8,085
Long-term real estate 1,754 0 0 0 887 2,641
Other 83,398 3,826 712 1,847 37,010 126,793
------- ------- ------- ------- ------- --------
Total interest-earning assets $96,584 $ 4,164 $ 808 $ 3,032 $77,780 182,368
======= ======= ====== ======= =======
Other noninterest-earning assets 26,429
Total Assets $208,797
========
LIABILITIES
Interest-bearing liabilities:
Demand deposits $79,455 $ 0 $ 0 $ 0 $ 0 $ 79,455
Savings accounts 14,732 0 0 0 0 14,732
Certificates of deposit 1,276 22,453 12,071 11,102 3,341 50,243
Debentures 0 0 0 0 4,575 4,575
------- ------- ------- ------- ------- --------
Total interest-bearing liabilities $95,463 $22,453 $12,071 $11,102 $ 7,916 149,005
======= ======= ======= ======= =======
Noninterest-bearing liabilities 42,959
Stockholders' equity 16,833
--------
Total Liabilities & Stockholders'
Equity $208,797
========
Interest rate sensitivity gap $1,121 $(18,289) $(11,263) $ (8,070) $69,864
Cumulative interest rate
sensitivity gap $1,121 $(17,168) $(28,431) $(36,501) $33,363
Cumulative interest rate sensitivity gap
as a percent of interest-earning
assets 0.61% (9.41)% (15.59)% (20.02)% 18.29%
- ---------------
</TABLE>
(1) Loan balances include nonaccrual loans of $735,000 as of December 31,
1995.
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, achieve
consistent growth in net interest income and profit from favorable market
opportunities. The Company manages its rate sensitivity position by adjusting
the repricing characteristics of its assets and liabilities. 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 and risks related to differences in
the timing and indexes for interest rate adjustments for assets and liabilities
with adjustable interest rates. In addition, in the years ended December 31,
1995 and 1994, the Company's gap position became more negative despite the
Company's rate management efforts as depositors moved funds from longer term to
shorter term accounts. Should this trend continue to occur, the Company's risk
exposure in a rising rate environment could increase. However, in
II-9
<PAGE> 24
the Company's experience, in a rising rate environment rates on its short-term
liabilities rise more slowly than rates on its adjustable rate assets.
INVESTMENT PORTFOLIOS
The Company invests funds not used for capital expenditures or lending
purposes in U.S. Government agency bonds, step up bonds and mortgage-backed
securities and may also purchase tax-exempt municipal bonds or certificates of
deposit. Obligations of U.S. Government agencies include treasury notes,
callable or noncallable agency bonds and step up bonds which have no risk as to
loss of principal. Mortgage-backed securities include collateralized mortgage
obligations and mortgage-backed security pools with balloon principal payments.
The collateralized mortgage obligations in the Company's investment securities
portfolios are "low risk" as defined by applicable bank regulations and are
diverse as to collateral and interest rates of the underlying mortgages. The
mortgage-backed securities are diverse as to interest rates and guarantors.
Prepayment rates accelerated in recent years due to the decrease in interest
rates through early 1994, then began to decelerate as interest rates increased
during late 1994 and 1995. Investment maturities range from less than one year
to over ten years for U.S. Government agency bonds, step up bonds and mortgage-
backed securities.
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 investment securities
from held to maturity available for sale. On December 31, 1995, the Company
reclassified $8,450,000 from investment securities held to maturity to
investment securities available for sale.
The Available for Sale Portfolio as of December 31, 1995 was $27,581,000, an
increase of $19,389,000 or 236.68% from $8,192,000 as of December 31, 1994.
The increase was primarily due to $8,450,000 of securities reclassified from
"Held to Maturity" to "Available for Sale," $24,859,000 in purchases,
$3,814,000 acquired through the Overland Merger and an increase in the
unrealized gain of $799,000, offset by the sale of $15,077,000 in securities
and maturities of $3,215,000. The Held to Maturity Portfolio decreased from
$15,465,000 as of December 31, 1994 to $7,753,000 as of December 31, 1995, a
decrease of $7,712,000 or 49.87%, primarily due to the reclassification of
$8,450,000 in securities to Available for Sale in accordance with the Guide,
purchases of $1,871,000 and $201,000 of securities acquired in the Overland
Merger.
Prior to January 1, 1994, it was management's intent to hold all securities
to maturity. Effective January 1, 1994, the Company adopted FAS 115 which
requires the classification of certain of its investment securities as held to
maturity (the "Held to Maturity Portfolio") and other securities as available
for sale (the "Available for Sale Portfolio"). In accordance with FAS 115,
management established an Available for Sale Portfolio as of January 1, 1994
totaling $11,792,000. The Available for Sale Portfolio decreased from
$11,792,000 as of January 1, 1994 to $8,192,000 as of December 31, 1994. As of
December 31, 1995 there was an unrealized holding gain of $284,000 in the
Available for Sale Portfolio.
II-10
<PAGE> 25
The table below presents the composition of the Company's investment
portfolios as of the dates indicated.
INVESTMENT PORTFOLIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- ------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Obligations of U.S. Government
agencies $11,285 $11,379 $ 3,127 $ 2,956 $ 0 $ 0
Step up bonds 0 0 2,606 2,435 0 0
Mortgage-backed securities 15,472 15,662 2,629 2,456 0 0
Federal Reserve Bank stock 540 540 345 345 0 0
------- ------- ------- ------- ------- -------
Total Available for Sale $27,297 $27,581 $ 8,707 $ 8,192 $ 0 $ 0
======= ======= ======= ======= ======= =======
HELD TO MATURITY:
Obligations of U.S. Government
agencies $ 0 $ 0 $ 5,601 $ 5,146 $ 9,828 $ 9,820
Step up bonds 0 0 2,001 1,941 2,620 2,593
Obligations of State and political
subdivisions 0 0 0 0 2,267 2,346
Mortgage-backed securities 7,549 7,441 7,863 7,130 10,801 10,595
Corporate notes 204 218 0 0 0 0
Federal Reserve Bank Stock 0 0 0 0 338 338
------- ------- ------- ------- ------- -------
Total Held to Maturity $ 7,753 $ 7,659 $15,465 $14,217 $25,854 $25,692
======= ======= ======= ======= ======= =======
</TABLE>
II-11
<PAGE> 26
The following table presents the maturity distribution based on fair value or
amortized cost of the investment portfolios as of the dates indicated.
INVESTMENT PORTFOLIOS -- MATURITY DISTRIBUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995
----------------
FAIR
VALUE YIELD
------ -----
<S> <C> <C>
AVAILABLE FOR SALE:
Obligations of U.S. Government
agencies:
Within one year $ 1,211 4.50%
After one year through five years 4,040 5.37%
Five years through ten years 6,128 7.19%
Mortgage-backed securities 15,662 7.53%
Federal Reserve Bank stock(1) 540 6.00%
-------
Total Available for Sale $27,581
=======
HELD TO MATURITY:
Mortgage-backed securities $ 7,441 5.87%
Corporate notes:
After one year through five years 218 8.01%
-------
Total Held to Maturity $ 7,659
=======
- ---------------
</TABLE>
(1) Federal Reserve Bank Stock has no maturity.
LOAN PORTFOLIO
The Company's net loans were $141,930,000 as of December 31, 1995, an
increase of $23,747,000 or 20.09% from $118,183,000 as of December 31, 1994.
The Overland Merger accounted for $29,180,000 of the increase, offset by a net
decrease of $1,705,000 in loans due to a number of large individual loan
paydowns since December 31, 1994 and $2,951,000 of loans transferred into OREO.
The Company's ratio of net loans to total deposits was 76.44% as of December
31, 1995. Typically, the Company maintains a ratio of loans to total deposits
of between 70% and 85%. The loan portfolio primarily consists of commercial
and real estate loans (including real estate term loans, construction loans and
other loans secured by real estate). However, the Company adjusts its mix of
lending and the terms of its loan programs according to market conditions and
other factors. As presented in the table below, the mix of loans within the
portfolio has changed from December 31, 1994 to December 31, 1995 with an
increase in the percentage of real estate and installment loans in the
portfolio as a result of the Overland Merger. Management expects that the mix
of loans in future periods will remain consistent with the mix as of December
31, 1995. The Company's loans are typically made to businesses and individuals
located within the Company's market area, most of whom have account
relationships with FPNB. There is no concentration of loans exceeding 10% of
total loans which is not disclosed in the categories presented below. The
Company has not made any loans to foreign governments, banks, businesses or
individuals. Commercial, real estate and construction loans in the Company's
portfolio are primarily variable rate loans and have little interest rate risk.
Credit risk in the portfolio has been reduced and loan quality continued to
improve during 1995 as evidenced by the decrease in problem loans as of
December 31, 1995.
II-12
<PAGE> 27
The table below presents the composition of the Company's loan portfolio as of
the dates indicated.
LOAN PORTFOLIO(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial $ 62,867 $ 60,252 $ 62,629 $ 49,993 $ 68,093
Real Estate 68,448 48,391 43,436 62,175 60,127
Construction 6,204 9,795 6,192 21,707 28,815
Installment 7,515 2,739 4,499 7,639 12,271
-------- -------- -------- -------- --------
Total Loans $145,034 $121,177 $116,756 $141,514 $169,306
======== ======== ======== ======== ========
</TABLE>
(1) Loans are not net of ALLL, deferred loan fees and discounts of
$3,104,000, $2,994,000, $4,282,000, $5,393,000 and $3,598,000 as of
December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
Commercial Loans. Commercial loans accounted for 43.35% of the Company's
loan portfolio as of December 31, 1995. Such loans are generally made to
provide operating lines of credit, to finance the purchase of inventory or
equipment and for other business purposes. Commercial loans are primarily made
at rates that adjust with changes in the prevailing prime interest rate, are
generally made for a maximum term of one year (unless they are term loans) and
generally require interest payments to be made monthly. Typically, loans over
one year require monthly principal and interest payments. The creditworthiness
of the borrower is reviewed, analyzed and evaluated on a periodic basis. Most
commercial loans are collateralized with business assets such as accounts
receivable, inventory and equipment. Even with substantial collateralization
such as all the assets of the business and personal guarantees, commercial
lending involves considerable risk of loss in the event of a business downturn
or failure of the business.
Real Estate Loans. Real estate loans accounted for 47.19% of the Company's
loan portfolio as of December 31, 1995. Real estate term lending, especially
lending secured by vacant land, involves risks that real estate values in
general will fall and that the value of the particular real estate security for
a loan will fall. The Company makes commercial and industrial real estate term
loans that are typically secured by a first trust deed. These loans are
generally made for a maximum of five years, typically with a floating interest
rate based on the prevailing prime interest rate, or with a fixed rate of
interest, and with a 15- to 30-year payment amortization. Such loans are
usually made for a maximum of 75% of the appraised value of the collateral.
Construction Loans. Construction loans accounted for 4.28% of the Company's
loan portfolio as of December 31, 1995. Most construction loans are made to
individuals for the purpose of financing the construction of residences they
intend to occupy upon completion of construction. Other construction loans are
primarily made to owners of property who will use the proceeds for commercial
purposes upon completion of construction. Construction loans are generally
provided for a maximum of 80% of the appraised value of the collateral for
terms of up to 18 months at floating interest rates based on the prevailing
prime interest rate. Construction loans are provided to customers who have a
demonstrated financial ability to complete the project being financed, a cash
investment in the project, cash flow sufficient to service the debt and strong
financial stability and integrity in the judgment of management. The borrower
is usually prequalified for long-term financing at the time the construction
loan is evaluated. Construction lending differs from other types of real
estate lending because of uncertainties inherent in estimating construction
costs, the length of the construction period, the market for the project upon
completion and, in the case of a property intended for sale or rent, the time
for lease-up or sale. If permanent financing is not obtained by the borrower
or construction is not completed, the risk of default rises. Construction
lending also involves risks that real estate values in general will fall and
that the value of the particular real estate security for a loan will fall.
II-13
<PAGE> 28
Installment Loans. Installment loans accounted for 5.18% of the Company's
loan portfolio as of December 31, 1995. The Company's installment loans are
primarily for vehicle and aircraft purchases, home improvement and personal
loans. Vehicle financing involves the risk that collateral will decline in
value faster than the balance of the loan it secures.
Loan Maturity and Interest Rate Sensitivity. The following table presents
the maturity of commercial, real estate, construction and installment loans
outstanding as of December 31, 1995 indicated according to contract terms.
LOAN MATURITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN ONE ONE TO FIVE AFTER FIVE
YEAR YEARS YEARS TOTAL
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial $24,240 $23,566 $15,061 $ 62,867
Real Estate 14,915 37,586 15,947 68,448
Construction 4,040 624 1,540 6,204
Installment 359 4,962 2,194 7,515
------- ------- ------- --------
$43,554 $66,738 $34,742 $145,034
======= ======= ======= ========
</TABLE>
The following table presents the interest rate sensitivity of loans maturing
after one year as of December 31, 1995.
INTEREST RATE SENSITIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Fixed interest rates . . . . . . $ 38,268
Variable interest rates . . . . . 63,212
--------
Total Loans Maturing After One Year $101,480
========
</TABLE>
Nonperforming Assets. Interest on loans is normally accrued from the date a
disbursement is made and recognized as income as it is accrued. Generally, the
Company reviews any loan on which payment has not been made for 90 days for
potential nonaccrual. The loan is examined and the collateral is reviewed to
determine loss potential. If the loan is placed on nonaccrual, any prior
accrued interest which remains unpaid is reversed. Classification of a loan as
nonaccrual does not necessarily mean that the loan will be charged off in the
future. The $735,000 of loans classified as nonaccrual on December 31, 1995
primarily consisted of $361,000 in loans secured by real estate and $317,000 in
commercial loans. The balance of the nonaccruals were in installment and other
types of loans. The amount of interest income on nonaccrual and restructured
loans that are deemed to be fully collectable is included in net earnings or
loss for the years ended December 31, 1995, 1994 and 1993 in the amounts of
$49,000, $207,000 and $71,000, respectively.
The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely
manner. Impaired loans included in the Company's loan portfolio as of December
31, 1995 were $1,449,000, which had an aggregate specific related allowance
amount of $173,000. 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 loan 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. During 1995, the average balance of impaired loans was $2,402,000, and
$81,000 of interest was recognized on these loans during the period of
impairment on a cash basis in accordance with Company policy.
II-14
<PAGE> 29
The following table presents information with respect to the Company's past
due loans and the components of nonperforming assets as of the dates indicated.
NONPERFORMING ASSET TRENDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Loans 90 days or more past due and still accruing
interest $ 0 $ 6 $ 1,018 $3,773 $2,711
Loans on nonaccrual 735 2,587 6,690 2,890 4,336
------ ------ ------- ------ ------
Total nonperforming loans 735 2,593 7,708 6,663 7,047
Other real estate owned 3,139 5,044 5,202 2,555 626
------ ------ ------- ------ ------
Total Nonperforming Assets $3,874 $7,637 $12,910 $9,218 $7,673
====== ====== ======= ====== ======
Interest income which would have been recorded under
original terms for loans on nonaccrual basis $52 $122 $378 $194 $257
</TABLE>
Nonperforming assets totaled $3,874,000 or 2.61% of total loans, leases and
OREO as of December 31, 1995, as compared to $7,637,000 or 6.05% as of December
31, 1994. The following table presents the balance of nonperforming assets by
type as of December 31, 1995.
NONPERFORMING ASSETS BY TYPE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMERCIAL REAL ESTATE INSTALLMENT TOTAL
---------- ----------- ----------- -----
<S> <C> <C> <C> <C>
Nonperforming loans:
Current $0 $0 $ 0 $0
Noncurrent 317 361 57 735
Other real estate owned 857 2,282 0 3,139
------ ------ --- ------
$1,174 $2,643 $57 $3,874
====== ====== === ======
</TABLE>
Management continually evaluates the credit risks of such loans and believes
it currently has provided adequately for the credit risks associated with these
loans. The Comptroller concluded examinations of FPNB in September 1995 and
November 1994 and did not suggest additional provisions. The Company expects
that the amounts of nonperforming assets and loans on nonaccrual basis will
continue to decrease during 1996 as a result of improved loan and problem asset
management. However, the stagnated local real estate market could frustrate
these efforts.
Allowance for Loan and Lease Losses. The Company maintains an ALLL which it
considers adequate to cover the risk of losses in the loan portfolio. The ALLL
is based upon management's ongoing evaluation of the quality of the loan
portfolio, total outstanding and committed loans, previous charges against the
allowance and current and anticipated economic conditions. In making its
evaluation, the Company takes into account the results of regulatory
examinations of the Company and FPNB, which can be expected to occur at least
once each year. The Comptroller completed its most recent examinations of FPNB
in September 1995 and November 1994. As a result of the examinations the
allowance was found to be adequate and no additional provision for loan losses
was required. The Company's management believed that as of December 31, 1995
the allowance was adequate. The amount of the provision for loan losses is a
charge against earnings. Actual loan losses are charged against the ALLL.
Each quarter the management of the Company conducts an in-depth analysis of
the composition of the Company's loan portfolio, examines historical
information with regard to charged-off loans in each category, and determines
the adequacy of the allowance with regard to its analysis. No assurance can be
given that unforeseen
II-15
<PAGE> 30
adverse economic conditions or other circumstances will not result in increased
provisions for loan losses in the future.
The provisions for loan losses for the years ended December 31, 1995 and 1994
were $600,000 and $0, respectively. The increase in 1995 as compared to 1994
resulted from an analysis conducted by management which deemed it necessary for
an addition to the allowance to adequately cover potential known and inherent
risks in the loan portfolio. The provision for the year ended December 31,
1994 was $0 as compared to $3,106,000 for 1993. The decrease in 1994 as
compared to 1993 was due to a decrease in loan charge-offs and problem loans,
improved credit quality, aggressive collection efforts resulting in higher
recoveries and a revised and improved loan approval management system.
The provisions for loan losses for the years ended December 31, 1993, 1992
and 1991 were $3,106,000, $6,210,000 and $3,270,000, respectively. Significant
provisions were recorded during these years primarily to provide for increased
potential loan losses due to the deterioration of local real estate markets.
As of December 31, 1995, the allowance for loan losses totaled $2,013,000 or
1.40% of total loans as compared with $2,666,000 or 2.20% of total loans as of
December 31, 1994. As of December 31, 1995 and 1994, the ALLL was 273.88% and
102.82%, respectively, of nonperforming loans. The ALLL decreased by $653,000
as of December 31, 1995 compared to December 31, 1994, due to the addition of
the ALLL recorded as a result of the Overland Merger of $803,000 and provisions
of $600,000 less net charge-offs of $2,056,000. The decrease as of December
31, 1995 as compared to December 31, 1994 in the ratio of allowance for loan
losses to total loans outstanding is due to a reduction in nonperforming loans
in relation to an increase in total loans of which $30,159,000 were recorded as
a result of the Overland Merger. The decrease in the ALLL and the ALLL to
total loans outstanding as of December 31, 1994 as compared to December 31,
1993 was due to an improving loan portfolio and an allowance for loan losses
that adequately covered charge-offs for 1994.
On at least a monthly basis, the Company reviews classified loans to
determine the risk of loss and estimates losses that may occur on such loans
should they become nonperforming or impaired. The Company also takes into
account the possibility of loss on loans, both principal and interest, which
are not classified and provides for this inherent risk.
Net charge-offs for the Company increased to $2,056,000 from $1,164,000 for
the years ended December 31, 1995 and 1994, respectively, due primarily to the
resolution of problem loans acquired in the Overland Merger. Net charge-offs
to average loans for the years ended December 31, 1995 and 1994 totaled 1.51%
and 1.03%, respectively.
II-16
<PAGE> 31
The following table presents charged-off loans, provisions for loan losses
and adjustments to recoveries on loans previously charged off and the amount of
the allowance for loan losses for the dates indicated.
ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . . . $2,666 $3,830 $4,793 $3,010 $1,607
Loan charge-offs:
Commercial . . . . . . . . . . . . 501 510 993 1,939 1,299
Real estate . . . . . . . . . . . . 1,838 853 3,225 2,050 404
Construction . . . . . . . . . . . 0 0 0 45 0
Installment . . . . . . . . . . . . 114 98 267 550 239
------ ------ ------ ------ ------
Total loan charge-offs . . . . . . . 2,453 1,461 4,485 4,584 1,942
Loan recoveries:
Commercial . . . . . . . . . . . . 238 154 347 111 53
Real Estate . . . . . . . . . . . . 14 96 27 22 0
Construction . . . . . . . . . . . 101 0 0 0 0
Installment . . . . . . . . . . . . 44 47 42 24 22
------ ------ ------ ------ ------
Total loan recoveries . . . . . . . . 397 297 416 157 75
------ ------ ------ ------ ------
Net loan charge-offs . . . . . . . 2,056 1,164 4,069 4,427 1,867
Provisions for loan losses . . . . . 600 0 3,106 6,210 3,270
Allowance adjustment(1) . . . . . . . 803 0 0 0 0
------ ------ ------ ------ ------
Balance at End of Period . . . . . . $2,013 $2,666 $3,830 $4,793 $3,010
====== ====== ====== ====== ======
Ratio of net loan charge-offs during
the period to average loans
outstanding for the period . . . . 1.51% 1.03% 3.16% 2.77% 1.10%
Ratio of loan recoveries during
the period to charge-offs
during the period . . . . . . . . . 16.18% 20.33% 9.28% 3.42% 3.86%
- ---------------
</TABLE>
(1) Represents allowance acquired in Overland Merger.
II-17
<PAGE> 32
The following table presents the allocation of the ALLL as of the dates
indicated. Notwithstanding these allocations, the entire allowance for loan
losses is available to absorb charge-offs in any category of loans.
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1995 1994 1993
------------------------ ----------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
ALLOWANCE EACH ALLOWANCE EACH ALLOWANCE EACH
FOR LOAN CATEGORY FOR LOAN CATEGORY FOR LOAN CATEGORY
AND LEASE TO TOTAL AND LEASE TO TOTAL AND LEASE TO TOTAL
LOSSES LOANS LOSSES LOANS LOSSES LOANS
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 626 43.35% $ 643 49.73% $1,668 53.64%
Real Estate 1,037 47.19% 1,100 39.93% 1,320 37.20%
Construction 71 4.28% 81 8.08% 400 5.30%
Installment 84 5.18% 32 2.26% 95 3.86%
Unallocated 195 N/A 810 N/A 347 N/A
--- --- --- --- --- ---
Total $2,013 100% $2,666 100% $3,830 100%
====== ==== ====== ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1992 1991
------------------------- -------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
ALLOWANCE EACH ALLOWANCE EACH
FOR LOAN CATEGORY FOR LOAN CATEGORY
AND LEASE TO TOTAL AND LEASE TO TOTAL
LOSSES LOANS LOSSES LOANS
------ ------ ------ ------
<S> <C> <C> <C> <C>
Commercial $1,710 35.33% $1,365 40.22%
Real Estate 1,436 43.94% 662 35.51%
Construction 612 15.34% 541 17.02%
Installment 477 5.39% 207 7.25%
Unallocated 558 N/A 235 N/A
------ --- --- ---
Total $4,793 100% $3,010 100%
====== ==== ====== ====
</TABLE>
Credit Risk Management. The risk of nonpayment of loans is an inherent
aspect of commercial banking. The degree of perceived risk is taken into
account in establishing the structure of, and interest rates and security for,
specific loans and various types of loans. The Company strives to minimize its
credit risk exposure by its credit underwriting standards and loan policies and
procedures. Management continually evaluates the credit risks of such loans
and believes it has provided adequately for the credit risks associated with
these loans. The Company has implemented and expects to continue to implement
and update new policies and procedures to improve its credit risk management.
PREMISES AND EQUIPMENT, ACCRUED INTEREST AND OTHER ASSETS AND GOODWILL
Premises and equipment, accrued interest and other assets and goodwill were
$12,101,000 as of December 31, 1995, an increase of $3,894,000 or 47.45% from
$8,207,000 as of December 31, 1994. The increase was primarily due to
$3,116,000 of such assets acquired in the Overland Merger, including $1,683,000
of goodwill. In addition, a net deferred tax asset of $900,000 was recorded
during 1995. See "Results of Operations -- Income Taxes."
II-18
<PAGE> 33
DEPOSITS
Average deposits were $180,393,000 for the year ended December 31, 1995, an
increase of $30,112,000 or 20.04% from $150,281,000 of average deposits for the
year ended December 31, 1994. Average deposits of $150,281,000 for the year
ended December 31, 1994 had decreased $18,092,000 or 10.75% from $168,373,000
for the year ended December 31, 1993. As of December 31, 1995, total deposits
were $185,664,000, representing an increase of $39,221,000 or 26.78% from
$146,443,000 in total deposits as of December 31, 1994. The increase in
deposits during 1995 was due primarily to the $39,098,000 in deposits acquired
from Overland. As of December 31, 1994, total deposits were $146,443,000,
representing a decrease of $6,561,000 or 4.29% from $153,004,000 in total
deposits as of December 31, 1993. The decrease in total deposits from December
31, 1994 to December 31, 1993 resulted from an increase in noninterest-bearing
deposits of $1,282,000 and a decrease in interest-bearing deposits of
$7,843,000.
The Company has historically maintained demand deposits of greater than 50%
of total deposits, largely due to its strategy of targeting the deposits of
small to medium-sized businesses and professionals and its practice of
encouraging business borrowers to maintain compensating balances. For the year
ended December 31, 1995, average demand deposits were $117,325,000 or 65.04% of
average deposits. For the year ended December 31, 1994, average demand
deposits were $102,470,000 or 68.19% of average deposits. Average
noninterest-bearing demand deposits accounted for 20.64% of average deposits
for the year ended December 31, 1995 and 18.48% of average deposits for the
year ended December 31, 1994.
Average interest-bearing deposits were $143,168,000 for the year ended
December 31, 1995, representing an increase of $20,662,000 or 16.87% over the
$122,506,000 in average interest-bearing deposits for the year ended December
31, 1994. The increase in average interest-bearing deposits during 1995 was
primarily due to the $29,799,000 of interest-bearing deposits acquired from
Overland on April 1, 1995, which were outstanding for nine months of the year.
Average interest-bearing deposits were $122,506,000 for the year ended December
31, 1994, representing a decrease of $17,612,000 or 12.57% from $140,118,000 as
of December 31, 1993. The decrease was primarily in certificates of deposit.
See "Net Interest Income."
The Company's ratios of average Core Deposits to average deposits were 91.56%
and 93.84% as of December 31, 1995 and 1994, respectively. Substantially all
of the certificates of deposit of $100,000 and over are held by customers who
have or have had other business relationships with the Company and who reside
within its market area.
II-19
<PAGE> 34
The following table presents the Company's average deposits and the average
rate paid for each category of deposits for the periods indicated.
AVERAGE DEPOSIT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT OF RATE AMOUNT OF RATE AMOUNT OF RATE
DEPOSITS(1) PAID(2) DEPOSITS(1) PAID(2) DEPOSITS(1) PAID
----------- ------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 37,225 N/A $ 27,775 N/A $ 28,255 N/A
Interest-bearing demand
deposits 80,100 1.95% 74,695 1.63% 81,179 2.05%
Savings deposits 13,898 1.98% 11,864 1.95% 12,724 2.36%
Certificates of deposit:
Under $100,000 33,953 5.18% 26,693 3.31% 33,643 3.39%
$100,000 or more 15,217 5.72% 9,254 3.56% 12,572 3.36%
-------- -------- --------
Total certificates of
deposit 49,170 35,947 46,215
-------- -------- --------
Total Average Deposits $180,393 $150,281 $168,373
======== ======== ========
</TABLE>
- ---------------
(1) Averages are daily averages.
(2) Rates are annualized.
The following table presents the maturity schedule of certificates of deposit
of $100,000 or more as of December 31, 1995.
CERTIFICATES OF DEPOSIT OVER $100,000
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Three months or less $10,202
Over three through six months 3,849
Over six through 12 months 2,338
Over 12 months 744
-------
Total $17,133
=======
</TABLE>
FINANCIAL RATIOS
The following table presents certain financial ratios for the periods
indicated.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Return on average total assets(1) 0.95% 0.20% (2.77%)
Return on average equity(1) 12.98% 4.36% (50.14%)
Dividend payout ratio 0.00% 0.00% 0.00%
Average equity to average total assets(1) 7.32% 4.74% 5.53%
- ---------------
</TABLE>
(1) Averages are daily averages
II-20
<PAGE> 35
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support its growth and protect
depositors. This assessment is based on the Company's evaluation of the
capital needed to effect its business plans and regulatory requirements. The
Company's two sources of capital are internally generated funds and the capital
markets. Historically, the Company relied primarily on internally generated
capital.
In November 1994, the Company completed the Private Offerings, which
increased its capitalization by $3,034,000. The Overland Merger resulted in an
increase in capital of $4,255,000. Management believes its capital resources
are adequate for the foreseeable future. However, no assurance can be given
that unforeseen adverse economic conditions or other circumstances will not
result in increased capital requirements. See "Item 1. Description of Business
- - General Development of Business."
The FRB and the Comptroller adopted risk-based capital adequacy guidelines
effective March 15, 1989. These guidelines established a "Risk-based Capital
Ratio" determined by allocating assets and specified off-balance sheet
commitments into weighted categories, with higher levels of capital required of
the activities perceived as representing a greater risk. The guidelines also
require increased capital levels. The ratio of total qualifying capital to
weighted risk assets must equal at least 8%. Of the total 8%, at least 4% of
the total qualifying capital to weighted risk assets must be "Tier 1" or core
capital consisting primarily of equity stock. In addition, the FRB, the
Comptroller and the FDIC adopted Leverage Ratio requirements effective January
1, 1991 which require the Company to maintain a minimum core capital of at
least 4% of their assets.
As of December 31, 1995, the Company met all regulatory capital ratio
requirements and was considered "well capitalized" in accordance with FDICIA.
The following table presents the capital levels and ratios as of December 31,
1995. The Company information is based on the FRB risk-based capital adequacy
rules and leverage requirements.
REGULATORY CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
AMOUNT RATIO
--------- -------
<S> <C> <C>
LEVERAGE RATIOS:
Tier 1 capital $ 15,039 7.25%
Minimum required 8,297 4.00%
------- -----
Excess $ 6,742 3.25%
======== =====
Total Assets(1) $207,434
RISK-BASED CAPITAL RATIOS:
Tier 1 capital $ 15,048 9.32%
Minimum required 6,458 4.00%
------- -----
Excess $ 8,590 5.32%
======= =====
Total capital $ 17,066 10.57%
Minimum required 12,917 8.00%
-------- -----
Excess $ 4,149 2.57%
======== =====
Total Risk $161,459
weighted Assets
</TABLE>
- ---------------
(1) Does not include unrealized gains on investment securities available for
sale, goodwill and discount on loans acquired.
Because the RB Bancorp Merger is to be a cash purchase, no additional capital
will be created as a result of the transaction. Therefore, the Company's and
FPNB's capital ratios will decrease in the short term as a result of the RB
Bancorp Merger. Management anticipates that FPNB and the Company will be
adequately capitalized immediately after the RB Bancorp Merger. See "Item 1.
Description of Business--General Development of Business."
II-21
<PAGE> 36
ITEM 7. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Consolidated Balance Sheets at December 31, 1995 and
December 31, 1994 F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
II-22
<PAGE> 37
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks (note 3) $ 14,293,000 $ 9,627,000
Federal funds sold 2,000,000 --
Investment securities available for sale, at fair value (note 4) 27,581,000 8,192,000
Investment securities held to maturity, at amortized cost (note 4) 7,753,000 15,465,000
Loans, net of allowance for loan losses of $2,013,000 and
$2,666,000 in 1995 and 1994, respectively (note 5) 141,930,000 118,183,000
Other real estate owned, net (note 6) 3,139,000 5,044,000
Premises and equipment, net (note 7) 6,550,000 5,956,000
Goodwill, net (note 2) 1,603,000 --
Accrued interest and other assets 3,948,000 2,251,000
- -------------------------------------------------------------------------------------------------------------
Total assets $ 208,797,000 $ 164,718,000
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
DEPOSITS (NOTES 4 AND 8):
Noninterest-bearing $ 41,234,000 $ 28,027,000
Interest-bearing 144,430,000 118,416,000
- -------------------------------------------------------------------------------------------------------------
Total deposits 185,664,000 146,443,000
- -------------------------------------------------------------------------------------------------------------
Federal funds purchased -- 2,800,000
Debentures (note 9) 4,575,000 4,575,000
Accrued expenses and other liabilities 1,725,000 1,080,000
- -------------------------------------------------------------------------------------------------------------
Total liabilities 191,964,000 154,898,000
- -------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTES 12 AND 13):
Common stock, par value $.001, authorized 4,000,000 shares; issued and
outstanding 2,650,811 and 1,821,879 shares
in 1995 and 1994, respectively 3,000 2,000
Additional paid-in capital 24,556,000 20,287,000
Accumulated deficit (7,910,000) (9,821,000)
Receivable from ESOP (note 14) (100,000) (133,000)
Unrealized net gains (losses) on investment securities
available for sale (note 4) 284,000 (515,000)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,833,000 9,820,000
- -------------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 14,15,16,17,18 and 19)
Total liabilities and stockholders' equity $ 208,797,000 $ 164,718,000
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE> 38
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (note 5) $14,851,000 $11,364,000 $11,852,000
Federal funds sold 422,000 120,000 279,000
Interest-earning deposits 19,000 4,000 221,000
Investment securities (note 4):
Taxable 1,783,000 1,185,000 585,000
Exempt from Federal income tax - 45,000 184,000
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 17,075,000 12,718,000 13,121,000
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits (note 8) 4,467,000 2,660,000 3,523,000
Other (note 9) 487,000 485,000 396,000
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,954,000 3,145,000 3,919,000
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 12,121,000 9,573,000 9,202,000
Provision for loan losses (note 5) 600,000 - 3,106,000
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,521,000 9,573,000 6,096,000
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Service charges 1,949,000 1,359,000 1,737,000
Other 357,000 321,000 264,000
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating income 2,306,000 1,680,000 2,001,000
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 5,521,000 4,686,000 5,279,000
Professional services 1,840,000 1,710,000 2,303,000
Occupancy, net 1,164,000 1,324,000 1,406,000
Furniture and equipment 838,000 667,000 939,000
Other real estate owned, net 745,000 625,000 778,000
Merchant credit card charges 500,000 366,000 378,000
Office supplies 384,000 310,000 361,000
Promotional 361,000 206,000 236,000
FDIC assessment 252,000 444,000 539,000
Loss on sale of investment securities 158,000 - -
Amortization of goodwill 80,000 - -
Other 901,000 583,000 946,000
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 12,744,000 10,921,000 13,165,000
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 1,083,000 332,000 (5,068,000)
Income tax benefit (note 11) (828,000) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,911,000 $ 332,000 $(5,068,000)
===========================================================================================================================
Primary earnings (loss) per share $ .77 $ .26 $ (4.18)
===========================================================================================================================
Fully diluted earnings (loss) per share $ .72 $ .26 $ (4.18)
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 39
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year
(1,821,879, 1,213,479 and 1,213,479 shares, respectively) $ 2,000 $ 1,000 $ 1,000
Private offering issuances, net (608,400 shares) -- 1,000 --
Exercise of stock options (2,800 shares) -- -- --
Common stock issued in merger (826,132 shares) 1,000 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year
(2,650,811, 1,821,879 and 1,213,479 shares, respectively) 3,000 2,000 1,000
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year 20,287,000 17,254,000 17,254,000
Private offering issuances, net -- 3,033,000 --
Exercise of stock options 15,000 -- --
Common stock issued in merger 4,254,000 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 24,556,000 20,287,000 17,254,000
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT:
Balance at beginning of year (9,821,000) (10,153,000) (5,085,000)
Net earnings (loss) 1,911,000 332,000 (5,068,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (7,910,000) (9,821,000) (10,153,000)
- ---------------------------------------------------------------------------------------------------------------------------
RECEIVABLE FROM ESOP:
Balance at beginning of year (133,000) (167,000) (208,000)
Payments from ESOP 33,000 34,000 41,000
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year (100,000) (133,000) (167,000)
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized Net Gains (Losses) on Investment
Securities Available for Sale:
Balance at beginning of year (515,000) -- --
Change in net unrealized gains (losses) on investment securities
available for sale 799,000 (515,000) --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year 284,000 (515,000) --
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 16,833,000 $ 9,820,000 $ 6,935,000
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 40
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,911,000 $ 332,000 $ (5,068,000)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 943,000 878,000 945,000
Benefit for deferred taxes (828,000) -- --
Provision for loan losses 600,000 -- 3,106,000
Provision for losses on other real estate owned 537,000 455,000 504,000
Gain on sale of other real estate owned (213,000) (81,000) (92,000)
(Gain) loss on sale of investment securities available for sale 158,000 (18,000) --
Gain on sale of investment securities held to maturity -- -- (19,000)
Decrease (increase) in other assets and other liabilities (1,237,000) 419,000 3,194,000
Increase (decrease) in deferred loan origination fees 239,000 (124,000) (148,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,110,000 1,861,000 2,422,000
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in loans outstanding 1,705,000 (8,909,000) 15,695,000
Proceeds from sale of other real estate owned 6,107,000 2,648,000 1,935,000
Net maturities of interest-earning deposits 1,853,000 887,000 9,806,000
Maturities of investment securities available for sale 3,215,000 1,789,000 --
Maturities of investment securities held to maturity 1,274,000 365,000 5,659,000
Purchase of investment securities available for sale (24,859,000) (1,000,000) --
Purchase of investment securities held to maturity (1,871,000) (1,859,000) (21,602,000)
Proceeds from sale of investment securities available for sale 15,077,000 2,198,000 --
Proceeds from sale of investment securities held to maturity -- -- 2,312,000
Payments from ESOP 33,000 34,000 41,000
Net capital expenditures for premises and equipment (682,000) (206,000) (139,000)
Cash acquired in merger 5,366,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 7,218,000 (4,053,000) 13,707,000
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in interest-bearing deposits (3,784,000) (7,843,000) (27,341,000)
Net increase (decrease) in noninterest-bearing deposits 3,907,000 1,282,000 (9,138,000)
Increase (decrease) in Federal funds purchased (2,800,000) 2,800,000 --
Proceeds from exercise of stock options 15,000 -- --
Payments on notes payable -- -- (208,000)
Net proceeds from private offering -- 3,034,000 --
Proceeds from sale of debentures -- -- 4,575,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,662,000) (727,000) (32,112,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,666,000 (2,919,000) (15,983,000)
Cash and cash equivalents at beginning of period 9,627,000 12,546,000 28,529,000
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16,293,000 $ 9,627,000 $ 12,546,000
===================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,781,000 $ 2,788,000 $ 3,594,000
Income taxes $ 72,000 $ -- $ --
===================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to other real estate owned $ 2,951,000 $ 4,524,000 $ 4,994,000
===================================================================================================================================
Loans to facilitate sale of other real estate owned $ 62,000 $ 1,200,000 $ --
===================================================================================================================================
Common stock issued in merger $ 4,255,000 $ -- $ --
===================================================================================================================================
Transfer from other real estate owned to bank premises $ -- $ 460,000 $ --
===================================================================================================================================
Transfer of investment securities from held to maturity
to available for sale $ 8,450,000 $ 11,792,000 $ --
===================================================================================================================================
Change in net unrealized gains (losses) on investment
securities available for sale $ 799,000 $ (515,000) $ --
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 41
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FP Bancorp, Inc. (formerly ENB Holding
Company) and its subsidiary (the "Company") conform to generally accepted
accounting principles and to general practice within the banking industry. The
following is a description of the more significant of the policies.
(a) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of FP Bancorp and its
wholly-owned subsidiary, First Pacific National Bank ("FPNB"). All material
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. The parent company financial statements are presented
using the equity method of accounting (note 20).
On March 15, 1993, the Board of Directors of the Company approved the merger of
its three wholly-owned subsidiary banks, Escondido National Bank, San Marcos
National Bank and Temecula Valley National Bank. As of July 30, 1993 the merger
of the three wholly-owned subsidiary banks into one bank, FPNB, was completed.
The Company's consolidated financial statements as of and for the year ended
December 31, 1995 include combined operations with Overland Bank ("Overland")
for the nine-month period from April 1, 1995 through December 31, 1995 (note 2).
(b) CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, cash and cash equivalents consist
of cash on hand, due from banks and Federal funds sold. Generally, Federal funds
are purchased and sold for one-day periods.
(c) INVESTMENT SECURITIES:
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("Statement
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 time of purchase to hold securities until maturity, they are classified as
held to maturity. Investment 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 using the interest method. 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
stockholders' equity, net of applicable income taxes. Realized gains or losses
on the sale of securities available for sale, if any, are determined using the
amortized cost of the specific securities sold. Securities available for sale
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. Securities are individually
evaluated for appropriate classification, when acquired; consequently, similar
types of securities may be classified differently depending on factors existing
at the time of purchase. Effective January 1, 1994, the Company adopted
Statement 115.
(d) LOANS:
Interest on loans is accrued as earned. The accrual of interest on loans is
discontinued when, in management's judgment, a reasonable doubt exists as to the
collectability of such 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.
Nonrefundable fees and related direct costs associated with the origination or
purchase of loans are deferred and netted against outstanding loan balances. Net
deferred fees and costs are recognized in interest income over the terms of the
loans using the interest method. The amortization of loan fees is discontinued
on nonaccrual loans.
F-5
<PAGE> 42
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loan discounts and premiums acquired are accreted or amortized into interest
income as an adjustment of yield over the terms of the loans using the interest
method.
(e) ALLOWANCE FOR LOAN LOSSES:
An allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide 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, current economic conditions which may affect the
borrowers' 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.
In May 1993, Financial Accounting Standards Board (the "FASB") issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("Statement 114") and in October 1994, the FASB issued
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" ("Statement 118"). Under the provisions of
Statement 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 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 the provision for loan losses. Statement 118 amends
Statement 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans. In addition, Statement 118 amends certain
disclosure requirements of Statement 114. Effective January 1, 1995, the Company
adopted Statements 114 and 118 on a prospective basis, and the adoption had no
material effect on the Company's financial condition or results of operations.
(f) OTHER REAL ESTATE OWNED:
Real estate acquired by foreclosure is recorded at fair value. Fair value is
based on current appraisals less estimated selling costs. Write-downs to the
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
charged against operating expenses and recognized as a valuation allowance.
Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses.
(g) PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operating expense using the
straight-line method over the estimated useful lives of the assets, which range
from three to forty years. Leasehold improvements are capitalized and amortized
to operating expense over the term of the respective lease or the estimated
useful life of the improvement, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.
(h) GOODWILL:
Goodwill is amortized on a straight-line basis over its estimated useful life of
fifteen years. Goodwill is reviewed for possible impairment when events or
changed circumstances may affect the underlying basis of the asset.
(i) DEBENTURE COSTS:
Debenture costs are amortized over the term of the debenture using the interest
method.
F-6
<PAGE> 43
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"("Statement 109").
Under the asset and liability method of Statement 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 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.
(k) EARNINGS (LOSS) PER SHARE:
Primary earnings (loss) per share is computed by dividing net earnings (loss) 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 included in the primary net earnings (loss) per
share calculation for that period unless the effect is determined to be
antidilutive. The weighted average numbers of shares used for the primary
earnings (loss) per share calculations were 2,483,000, 1,262,000 and 1,213,000
in 1995, 1994 and 1993, respectively.
Fully diluted earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of shares of common stock, common stock
equivalents and other potentially dilutive securities. The subordinated
convertible debentures are considered to be other potentially dilutive
securities and are included in the earnings (loss) per share calculations unless
the effect is determined to be antidilutive. The weighted average numbers of
shares used for the fully diluted earnings (loss) per share calculations were
3,019,000, 1,269,000 and 1,213,000 in 1995, 1994 and 1993, respectively.
(l) 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.
(m) 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 121"). Statement 121 requires that
long-lived assets and certain identifiable intangibles to be held and used 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 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 121 must be adopted for financial statements for fiscal
years beginning after December 15, 1995. The impact on the Company of adopting
Statement 121 is not expected to be material.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("Statement 123"), issued by the FASB in October 1995, applies to
all transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock ownership plans. A
new method of accounting for stock-based compensation arrangements with
employees is established by Statement 123. The new method is a fair value-based
method rather than the intrinsic value based method that is contained in APB
Opinion No. 25 ("Opinion 25").
The Statement 123 fair value-based method will result in higher compensation
costs than the Opinion 25 intrinsic value-based
F-7
<PAGE> 44
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method for fixed stock option compensation plans and will result in different
compensation costs for variable stock option compensation plans. Also, many
employee stock purchase plans that are considered noncompensatory under Opinion
25 will be compensatory and result in the recognition of compensation costs
under the fair value-based method.
Statement 123 does not require an entity to adopt the new fair value-based
method for purposes of preparing its basic financial statements. Entities are
allowed either to continue to use the Opinion 25 method or to adopt the
Statement No. 123 fair value-based method. However, disclosure of the pro forma
net earnings and earnings per share, as if the fair value method of accounting
for stock-based compensation had been elected, is required for fiscal years
beginning after December 15, 1995.
The impact on the Company of adopting Statement 123 is not expected to be
material.
(n) RECLASSIFICATIONS:
Certain 1994 and 1993 amounts have been reclassified to conform to the
presentation used in 1995.
2) ACQUISITION OF OVERLAND BANK
On April 1, 1995, the Company completed the merger of Overland into FPNB (the
"Overland Merger") for a net purchase price of $5,446,000, including acquisition
costs of $1,191,000. The acquisition was recorded using the purchase method of
accounting. Under this method of accounting the purchase price was allocated to
the respective assets acquired with a fair value of $43,419,000 and liabilities
assumed with a fair value of $39,656,000 at the date of the purchase
transaction. The excess of the purchase price over the fair value of the net
assets acquired has been recorded as goodwill. Pursuant to the merger agreement,
all of the outstanding shares of Overland common stock were converted into newly
issued shares of Company common stock. The number of shares of Company common
stock issued upon the conversion of each share of Overland common stock was
.1006 shares, resulting in the issuance of 826,132 shares of Company common
stock.
The unaudited consolidated information below indicates on a pro forma basis the
results of operations if Overland had been acquired by the Company as of January
1, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $12,590,000 $11,852,000
Net earnings $ 2,099,000 $ 210,000
Primary earnings per share $ .79 $ .11
Fully diluted earnings per share $ .73 $ .11
</TABLE>
3) RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company is required to maintain reserve balances with the Federal Reserve
Bank. The average amount held at the Federal Reserve Bank for the year ended
December 31, 1995 was approximately $5,400,000.
F-8
<PAGE> 45
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) INVESTMENT SECURITIES
a) INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value of investment securities available for sale as of December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $11,285,000 $139,000 $(45,000) $11,379,000
Mortgage-backed securities 15,472,000 208,000 (18,000) 15,662,000
Federal Reserve Bank stock 540,000 - - 540,000
- ----------------------------------------------------------------------------------------------------------
Total $27,297,000 $347,000 $(63,000) $27,581,000
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
- ----------------------------------------------------------------------------------------------------------
Gross
Amortized Unrealized
Cost Losses Fair Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government agencies $3,127,000 $(171,000) $2,956,000
Step up bonds 2,606,000 (171,000) 2,435,000
Mortgage-backed securities 2,629,000 (173,000) 2,456,000
Federal Reserve Bank stock 345,000 - 345,000
- ----------------------------------------------------------------------------------------------------------
Total $8,707,000 $(515,000) $8,192,000
==========================================================================================================
</TABLE>
The maturity distribution based on the amortized cost and fair value (excluding
Federal Reserve Bank stock) of investment securities available for sale as of
December 31, 1995 by contractual maturity is shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Maturity Distribution
- ----------------------------------------------------------------------------------------------------------
Amortized
Cost Fair Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 1,221,000 $ 1,211,000
Due after one year through five years 4,042,000 4,040,000
Due after five years through ten years 6,022,000 6,128,000
- ----------------------------------------------------------------------------------------------------------
11,285,000 11,379,000
Mortgage-backed securities 15,472,000 15,662,000
- ----------------------------------------------------------------------------------------------------------
Total $26,757,000 $27,041,000
==========================================================================================================
</TABLE>
Investment securities available for sale with a principal balance of $4,246,000
and $1,948,000 were pledged as security for public deposits and other purposes
as required by various statutes and agreements as of December 31, 1995 and 1994,
respectively. Proceeds from the sale of investment securities available for sale
during 1995 and 1994 were $15,077,000 and $2,198,000, respectively. Gross gains
(losses) of ($158,000) and $18,000, respectively, were realized on those sales.
Cost was determined in computing the realized gain (loss) using the specific
identification method.
F-9
<PAGE> 46
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) INVESTMENT SECURITIES (CONTINUED)
b) INVESTMENT SECURITIES HELD TO MATURITY:
The amortized cost, gross unrealized gains and losses and fair value of
investment securities held to maturity as of December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1995
- ---------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses FairValue
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $7,549,000 $ - $(108,000) $7,441,000
Corporate notes 204,000 14,000 - 218,000
- ---------------------------------------------------------------------------------------------------------------------------
Total $7,753,000 $14,000 $(108,000) $7,659,000
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
- ---------------------------------------------------------------------------------------------------------------------------
Gross
Amortized Unrealized
Cost Losses Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government agencies $ 5,601,000 $ (455,000) $ 5,146,000
Step up bonds 2,001,000 (60,000) 1,941,000
- ---------------------------------------------------------------------------------------------------------------------------
7,602,000 (515,000) 7,087,000
Mortgage-backed securities 7,863,000 (733,000) 7,130,000
- ---------------------------------------------------------------------------------------------------------------------------
Total $15,465,000 $(1,248,000) $14,217,000
===========================================================================================================================
</TABLE>
The maturity distribution based on amortized cost and fair value of investment
securities held to maturity as of December 31, 1995 by contractual maturity is
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Maturity Distribution
- ---------------------------------------------------------------------------------------------------------------------------
Amortized Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due after one year through five years $ 204,000 $ 218,000
Mortgage-backed securities 7,549,000 7,441,000
- ---------------------------------------------------------------------------------------------------------------------------
Total $7,753,000 $7,659,000
===========================================================================================================================
</TABLE>
Investment securities held to maturity with a principal amount of $4,063,000 and
$5,099,000 were pledged as security for public deposits and other purposes as
required by various statutes and agreements as of December 31, 1995 and 1994,
respectively. There were no sales of investment securities held to maturity
during 1994 or 1995. Proceeds from sale of investment securities held to
maturity during 1993 were $2,312,000. Gross gains of $19,000 were realized on
those sales. Cost was determined in computing the realized gain (loss) using the
specific identification method.
c) INTEREST INCOME ON INVESTMENT SECURITIES:
The following table presents interest income on investment securities for the
years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Securities Available for Sale $ 915,000 $ 373,000 $ -
Investment Securities Held to Maturity 868,000 857,000 769,000
- ---------------------------------------------------------------------------------------------------------------------------
Total $1,783,000 $1,230,000 $769,000
===========================================================================================================================
</TABLE>
F-10
<PAGE> 47
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4) INVESTMENT SECURITIES (CONTINUED)
d) PORTFOLIO RECLASSIFICATION:
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 investment securities
from held to maturity to available for sale. On December 31, 1995, the Company
reclassified $8,450,000 from investment securities held to maturity to
investment securities available for sale.
e) DERIVATIVES:
The Company has had only limited involvement in derivative financial instruments
and does not use them for trading purposes. They are used to manage interest
rate risk in the balance sheet and enhance earnings in the investment portfolio.
The Company has invested in U.S. Government agency "step up" bonds, which
provide a higher initial yield than U.S. Treasury bonds or straight agency
bonds. In return for the higher yield, the issuer reserves the right to call the
bond at a given date prior to maturity. If the issuer does not exercise this
"call option", the coupon rate of the bond will "step up" to a contractually
agreed upon rate. Step up bonds mitigate interest rate risk through the exercise
of the call option or, in a rising rate environment, through the increase in
coupon rates. Step up bonds have no risk of loss of principal, and as such are
considered by management to be low risk derivative investments.
Derivatives included in investment securities available for sale and investment
securities held to maturity were $2,435,000 and $2,001,000, respectively, as of
December 31, 1994. There were no derivatives included in investment securities
available for sale and investment securities held to maturity as of December 31,
1995, as all derivatives were either called or sold during 1995.
5) LOANS
Loans were comprised of the following as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 62,867,000 $ 60,252,000
Real estate 68,448,000 48,391,000
Construction 6,204,000 9,795,000
Installment 7,515,000 2,739,000
- ------------------------------------------------------------------------------------
Total loans 145,034,000 121,177,000
Less allowance for loan losses 2,013,000 2,666,000
Less deferred loan fees 567,000 328,000
Less discount 524,000 -
- ------------------------------------------------------------------------------------
Net loans $ 141,930,000 $ 118,183,000
====================================================================================
</TABLE>
The Company's loan portfolio consists primarily of loans to borrowers within San
Diego County and Southern Riverside County. Although the Company 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 Company's market area and, as a result, the
Company's loan and collateral portfolios are to some degree concentrated in
those industries. The Company 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.
F-11
<PAGE> 48
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5) LOANS (CONTINUED)
The maturity distribution of the loan portfolio as of December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Within one year $ 43,554,000
One to five years 66,738,000
After five years 34,742,000
- -------------------------------------------------------------------------------
Total $ 145,034,000
===============================================================================
</TABLE>
The sensitivity of loans to changes in interest rates as of December 31, 1995
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Fixed rate loans $ 51,049,000
Variable rate loans 93,985,000
- -------------------------------------------------------------------------------
Total $ 145,034,000
===============================================================================
</TABLE>
The Company has established a monitoring system for its loans in order to
identify potential problem loans and to permit the periodic evaluation of
impairment and the adequacy of the allowance for loan losses in a timely manner.
Impaired loans included in the Company's loan portfolio as of December 31, 1995
were $1,449,000, which had an aggregate specific related allowance amount of
$173,000. 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 loan 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. During 1995, the average balance of impaired loans was $2,402,000, and
$81,000 of interest was recognized on these loans during the period of
impairment on a cash basis in accordance with Company policy.
A summary of the activity in the allowance for loan losses, which includes
provisions for impaired loans, for the years ended December 31, 1995, 1994 and
1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of beginning of year $ 2,666,000 $ 3,830,000 $ 4,793,000
Provision charged to expense 600,000 - 3,106,000
Allowance acquired in merger 803,000 - -
Loan charge-offs, net of recoveries (2,056,000) (1,164,000) (4,069,000)
- -------------------------------------------------------------------------------
Balance as of end of year $ 2,013,000 $ 2,666,000 $ 3,830,000
===============================================================================
</TABLE>
The allowance for loan losses and the valuation of real estate owned are
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 judgement about
information available to them at the time of their examinations.
Loans on nonaccrual amounted to $735,000, $2,587,000 and $6,690,000 as of
December 31, 1995, 1994 and 1993, respectively. Interest income of $52,000,
$122,000 and $378,000 would have been recorded for the years ended December 31,
1995, 1994 and 1993, respectively, if nonaccrual loans had been on a current
basis, in accordance with their original terms. Interest income of $49,000,
$207,000, and $71,000 was recognized on loans subsequently transferred to
nonaccrual status as of December 31, 1995, 1994 and 1993, respectively.
F-12
<PAGE> 49
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5) LOANS (CONTINUED)
In the normal course of business, the Company has made loans to certain
directors, executive officers and their affiliates under terms consistent with
their general lending policies. An analysis of this activity during 1995 is
summarized as follows:
<TABLE>
<S> <C>
Loan balances as of December 31, 1994 $ 2,690,000
Additions 2,311,000
Collections (731,000)
- --------------------------------------------------------------------------------
Loan balances as of December 31, 1995 $ 4,270,000
================================================================================
</TABLE>
The Company has also extended additional commitments to these directors,
executive officers and their affiliates totalling approximately $876,000 as of
December 31, 1995.
6) OTHER REAL ESTATE OWNED
Other real estate owned was comprised of the following as of December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired through settlement of loans $4,019,000 $5,852,000
Less allowance for possible losses 880,000 808,000
- --------------------------------------------------------------------------------
Total $3,139,000 $5,044,000
================================================================================
</TABLE>
A summary of the changes in the allowance for possible losses on other real
estate owned for the years ended December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of beginning of year $ 808,000 $ 820,000 $ 606,000
Provision charged to expense 537,000 455,000 504,000
Charge-offs (465,000) (467,000) (290,000)
- --------------------------------------------------------------------------------
Balance as of end of year $ 880,000 $ 808,000 $ 820,000
================================================================================
</TABLE>
7) PREMISES AND EQUIPMENT
Premises and equipment were comprised of the following as December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,103,000 $ 1,801,000
Premises 3,087,000 3,041,000
Furniture, fixtures and equipment 4,444,000 3,672,000
Leasehold improvements 1,236,000 1,004,000
- --------------------------------------------------------------------------------
10,870,000 9,518,000
Less accumulated depreciation and amortization 4,320,000 3,562,000
- --------------------------------------------------------------------------------
Total $ 6,550,000 $ 5,956,000
================================================================================
</TABLE>
F-13
<PAGE> 50
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) DEPOSITS
Interest-bearing deposits were comprised of the following as of December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing demand deposits $ 38,317,000 $ 32,627,000
Money market deposits 41,138,000 34,360,000
Savings deposits 14,732,000 10,552,000
Time deposits under $100,000 33,110,000 26,386,000
Time deposits of $100,000 or more 17,133,000 14,491,000
- --------------------------------------------------------------------------------
Total interest-bearing deposits $144,430,000 $118,416,000
================================================================================
</TABLE>
The maturity distribution of time deposits of $100,000 or more as of December
31, 1995 was as follows:
<TABLE>
<S> <C>
Three months or less $10,202,000
Over three through six months 3,849,000
Over six through twelve months 2,338,000
Over twelve months 744,000
- --------------------------------------------------------------------------------
Total $17,133,000
================================================================================
</TABLE>
Interest expense on deposits was comprised of the following for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing demand deposits $ 354,000 $ 340,000 $ 538,000
Money market deposits 1,211,000 877,000 1,125,000
Savings deposits 275,000 231,000 300,000
Time deposits under $100,000 1,747,000 884,000 1,138,000
Time deposits of $100,000 or more 880,000 328,000 422,000
- --------------------------------------------------------------------------------
Total interest expense on deposits $4,467,000 $2,660,000 $3,523,000
================================================================================
</TABLE>
9) DEBENTURES
During 1993, the Company completed the sale of $4,575,000 of 9% convertible
subordinated debentures due December 31, 1997. On December 31, 1997, the holders
of the debentures will receive cash in the principal amount, or, if the
conversion rights are exercised, 100 shares of FP Bancorp's common stock
(subject to antidilutive adjustments) for each $1,000 principal of debentures,
subject to the limitation that the fair market value of the number of shares of
common stock received by the holder of a debenture shall not exceed twice the
principal amount of the debenture. FP Bancorp invested $3,400,000 of the
proceeds in FPNB, used approximately $618,000 to provide a reserve for payment
of interest on the debentures through January 1, 1995, paid expenses of the
offering and other items, with the remaining proceeds available for general
corporate purposes including payment of interest on the debentures.
10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("Statement 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-earning Deposits
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.
F-14
<PAGE> 51
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Investment 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 nonperforming 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 107, the fair value of deposits with no stated maturity, such as
noninterest-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 and 1994. The fair value of 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 107.
Federal Funds Purchased
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.
Debentures
The fair value of debentures is estimated based on the amount of discounted
future cash flows through estimated maturity using estimated market discount
rates based on current borrowing rates for similar debt instruments.
Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees
Written
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 and
1994, the amounts that will actually be realized or paid at settlement or
maturity of the instruments could be significantly different.
F-15
<PAGE> 52
FP BANCORP, INC. AND SUBSIDIARY
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of the Company's financial instruments as of December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------
Fair Value Fair Value
Carrying Amount Estimates Carrying Amount Estimates
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 14,293,000 $ 14,293,000 $ 9,627,000 $ 9,627,000
Federal funds sold 2,000,000 2,000,000 -- --
Investment securities available for sale 27,581,000 27,581,000 8,192,000 8,192,000
Investment securities held to maturity 7,753,000 7,659,000 15,465,000 14,217,000
Loans, net 141,930,000 139,384,000 118,183,000 116,498,000
Financial liabilities:
Deposits 185,664,000 185,835,000 146,443,000 146,543,000
Federal funds purchased -- -- 2,800,000 2,800,000
Debentures 4,575,000 4,575,000 4,575,000 4,575,000
<CAPTION>
Fair Value Fair Value
Contract Amount Estimates Contract Amount Estimates
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Commitments to extend credit $ 34,142,000 $ 629,000 $ 24,405,000 $ 488,000
Standby letters of credit 4,334,000 87,000 4,280,000 86,000
</TABLE>
11) INCOME TAXES
The components of income taxes for the year ended December 31, 1995 were as
follows:
<TABLE>
<S> <C>
CURRENT:
Federal $ 21,000
State 2,000
- --------------------------------------------------------------------------------------------------------
Total current 23,000
- ---------------------------------------------------------------------------------------------------------
DEFERRED:
Federal 513,000
State 165,000
- --------------------------------------------------------------------------------------------------------
Total deferred 678,000
- --------------------------------------------------------------------------------------------------------
Change in valuation allowance (1,578,000)
Taxes credited to goodwill 49,000
- --------------------------------------------------------------------------------------------------------
Income tax benefit $ (828,000)
=========================================================================================================
</TABLE>
F-16
<PAGE> 53
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
<S> <C> <C>
Plant and equipment, principally due to differences in depreciation $ 254,000 $ 192,000
Nonaccrual interest recognized as income for taxes but not for books 75,000 47,000
OREO property, principally due to differences in valuation of property 174,000 250,000
Charitable contributions not deducted for tax 34,000 20,000
Loan loss allowance, due to differences in computation of bad debts -- 560,000
Net operating loss carryforwards 4,323,000 2,372,000
Alternative minimum and other tax credit carryforwards 289,000 119,000
Other 155,000 --
- -----------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 5,304,000 3,560,000
Less: valuation allowance (4,226,000) (3,465,000)
- -----------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 1,078,000 $ 95,000
===========================================================================================================
DEFERRED TAX LIABILITIES:
Allowance for loan losses, due to differences in computation of loan debts $ (178,000) $ --
Deferred loan costs -- (95,000)
- -----------------------------------------------------------------------------------------------------------
Net deferred tax liability $ (178,000) $ (95,000)
===========================================================================================================
</TABLE>
A reconciliation of total income taxes (benefit) for the years ended December
31, 1995, 1994 and 1993 to the amount computed by applying the applicable
statutory Federal income tax rate of 34% to earnings (loss) before income taxes
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Computed expected income taxes (benefit) $ 368,000 $ 113,000 $(1,723,000)
Tax exempt income -- (13,000) (48,000)
Decrease in valuation allowance (1,578,000) (298,000) --
Benefit of operating loss carryforward, not recognized -- 167,000 1,758,000
State taxes, net of Federal benefit 110,000 -- --
Adjustment of prior year estimated liability 19,000 -- --
Recognition of acquired tax benefits previously included
in valuation allowance 49,000 -- --
Other 204,000 31,000 13,000
- -----------------------------------------------------------------------------------------------------------
Total income tax benefit $ (828,000) $ -- $ --
===========================================================================================================
</TABLE>
Accumulated deferred income tax benefits included in accrued interest and other
assets in the consolidated balance sheets were $900,000 and $0 as of December
31, 1995 and 1994, respectively. As of December 31, 1995, the Company has net
operating loss carryforwards for Federal and state income tax purposes of
$10,442,000 and $6,739,000, respectively, which are available to offset future
taxable income, if any, through 2010 and 2000, respectively. In addition, the
Company has alternative minimum and other tax credit carryforwards of
approximately $289,000 which are available to reduce future Federal regular
income taxes, if any, over an indefinite period.
The 1995 net change in the deferred tax asset valuation allowance was an
increase of $761,000 consisting of $2,339,000 relating to an acquired valuation
allowance for Overland deferred tax assets, a decrease of $900,000 relating to a
favorable reassessment of earnings expectations and a decrease of $678,000
relating to current year activity. The remaining valuation allowance of
$4,226,000 as of December 31, 1995 is primarily reserved for specific Federal
and state tax carryforwards. Management believes that the realization of the
recognized net deferred tax asset of $900,000 is more likely than not, based on
the expectation that the Company will generate the necessary amount of taxable
income in future periods.
F-17
<PAGE> 54
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12) COMMON STOCK
On November 22, 1994, the Company completed two private offerings of the
Company's common stock (the "Private Offerings"). After deducting the direct
costs of approximately $99,000, the private offerings generated $3,034,000 in
additional capital for FP Bancorp.
13) STOCK OPTIONS
The Company has a stock option plan approved in 1988 (the "1988 Plan") which
provides for the granting of options for up to 90,090 shares of common stock to
employees for a price not less than the fair market value of the stock at the
date of grant. In November 1993, the Board of Directors approved an increase in
the number of shares available under the 1988 Plan to 250,000 shares and in May
1994, was approved by the stockholders. The plan provides for nonqualified and
incentive stock options. Shares under the options become exercisable at a rate
of 20% or 33 1/3% annually. The terms of the options range from five to ten
years from the date the options are granted. Options to purchase 94,224 shares
were available for grant as of December 31, 1995.
The Company assumed all obligations under the employee stock option plan of San
Marcos National Bank (the "1986 Plan") which provides for the granting of
options to purchase common stock to employees at a price not less than the fair
market value of the stock at the date of grant. There are no additional options
for shares of stock available for granting under this plan. Shares under option
become exercisable at the rate of 33 1/3% annually. The term of the options
cannot exceed six years from the date the options were granted. During 1994, the
last of the stock options outstanding under the 1986 Plan expired.
The following is a summary of transactions under the stock option plans which
occurred during 1995 and 1994:
<TABLE>
<CAPTION>
1988 Plan 1986 Plan
---------------------------------------------------------------
Number of Option Price Number of Option Price
Shares Per Share Shares Per Share
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1993 47,950 $5.15-14.78 5,146 $ 9.71
Granted 124,042 $ 5.15 -- $ --
Forfeitures (16,216) $ 14.78 (5,146) $ 9.71
- ---------------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 1994 155,776 $ 5.15 -- $ --
Exercised (2,800) $ 5.15 -- $ --
- ---------------------------------------------------------------------------------------------------------------
Outstanding as of December 31, 1995 152,976 $ 5.15 -- $ --
===============================================================================================================
Exercisable as of:
December 31, 1995 104,628 $ 5.15 -- $ --
December 31, 1994 59,259 $ 5.15 -- $ --
===============================================================================================================
</TABLE>
14) EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors the FP Bancorp Employee Stock Ownership Plan (the "ESOP").
The amount of annual contributions to the ESOP are at the discretion of the
Company's Board of Directors. Contributions under the ESOP amounted to $43,000,
$46,000 and $54,000 in 1995, 1994 and 1993, respectively.
The ESOP is designed to enable eligible employees, as defined in the plan
document, to participate in the growth and prosperity of the Company through
stock ownership. To fund the ESOP the Company borrowed $500,000 and loaned the
proceeds to the ESOP. The ESOP used most of the proceeds to purchase 19,048
shares of newly issued stock of the Company. The Company's receivable from the
ESOP was $100,000 and $133,000 as of December 31, 1995 and 1994, respectively,
and has been classified as a reduction of Stockholders' equity. The Company is
obligated to make monthly contributions to the ESOP sufficient to enable the
ESOP to repay its loan, including interest. These contributions are expensed at
the time they are made.
F-18
<PAGE> 55
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14) EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
Leveraged shares are released proportionately as the principal is paid down on
the ESOP loan balance, based upon the participants' salary for the current
calendar year. Released shares are assessed at market value at the end of the
plan year. Cash dividends, at the sole discretion of the Company, will either be
credited to the participants' accounts or used to repay the ESOP loan. There
were no cash dividends in 1995, 1994 or 1993.
The total number of shares in the ESOP as of December 31, 1995 was 51,879 (note
19).
15) 401(K) SAVINGS PLAN
Effective January 1, 1994, FPNB implemented the First Pacific National Bank
401(k) Savings Plan (the "Plan"). The Plan is a defined contribution plan
covering full-time and part-time employees who have completed six full months of
employment with FPNB. Temporary employees are excluded from Plan participation.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").
The Trustee and Administrator of the Plan is Union Bank. The Plan provides for
participant-directed accounts which allow participants to allocate their account
balances to the following Union Bank investment funds: Stepstone Stable Value
Income Fund, Stepstone Balanced Fund and Stepstone Value Momentum Fund. A fourth
fund, Fidelity's Contrafund, is also offered. The participants of the Plan may
also allocate up to 50% of their deferral to an investment in FP Bancorp common
stock.
Participants' accounts are credited or debited with investment earnings or
losses at the end of each calendar quarter. FPNB contributed $80,000 and $27,000
as a discretionary contribution for the years ended December 31, 1995 and 1994,
respectively. The contribution in 1995 was a match based on 50% of a
participant's first 4% of salary withholdings. The amount of discretionary
contribution in 1994 was determined based on a Board approved percentage of
FPNB's earnings for the year.
16) LEASE COMMITMENTS
The Company leases certain of its banking and administrative facilities from
partnerships whose partners include several members of the Company's Board of
Directors. As of December 31, 1995, minimum rental payments due primarily to
these related partnerships under operating leases having initial or remaining
noncancelable lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
------------------------------------------
Operating leases Other
with related parties operating leases
- --------------------------------------------------------------------------------
<C> <C> <C>
1996 $ 343,000 $ 93,000
1997 345,000 93,000
1998 346,000 93,000
1999 323,000 93,000
2000 283,000 93,000
Thereafter 3,311,000 271,000
- --------------------------------------------------------------------------------
Total minimum lease payments $4,951,000 $736,000
================================================================================
</TABLE>
During 1995, 1994 and 1993 rent expense totaled $431,000, $474,000 and $596,000,
respectively. There are no contingent rental payments applicable to any of the
leases. Most of the leases provide that the Company pay taxes, maintenance,
insurance and certain other operating expenses applicable to the leased premises
in addition to the monthly minimum payments. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.
F-19
<PAGE> 56
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17) COMMITMENTS AND CONTINGENCIES
The Company 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. The
financial instruments include commitments to extend credit, standby letters of
credit and financial guarantees. 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 Company has in particular classes of financial
instruments.
Commitments to extend credit amounting to $34,142,000 were outstanding as of
December 31, 1995. 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 and financial guarantees amounting to $4,334,000 were
outstanding as of December 31, 1995. Standby letters of credit and financial
guarantees are conditional commitments issued by FPNB 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 Company 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, standby
letters of credit and financial guarantees.
As of December 31, 1995, FPNB had a line of credit in the amount of $5,000,000
expiring July 31, 1996 from a correspondent bank which is renewable annually.
FPNB also had a Federal Reserve Bank discount window funding line of $3,700,000.
The availability of the lines of credit, as well as adjustments in deposit
programs, provides for liquidity in the event that the level of deposits should
fall abnormally low. These sources provide that funding thereof may be withdrawn
depending upon the financial strength of FPNB.
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.
18) REGULATORY MATTERS
The Office of the Comptroller of the Currency (the "OCC") examined FPNB during
late 1994 and measured compliance with the then existing Formal Agreement with
the OCC signed on December 22, 1992 (the "Formal Agreement"). Based upon the
results of its examination, the OCC terminated the Formal Agreement effective
December 20, 1994.
On May 24, 1993, as a result of supervisory concerns disclosed during the
examination of FP Bancorp by the Federal Reserve Bank of San Francisco (the
"FRB") in December, 1992, FP Bancorp entered into a Memorandum of Understanding
with the FRB (the "FP Bancorp Memorandum"). The FP Bancorp Memorandum requires
improved supervision of FPNB by FP Bancorp. It also prohibits certain actions by
the Board of Directors of FP Bancorp, including (i) payment of dividends without
at least 15 days prior notice to the FRB, (ii) incurring additional indebtedness
without at least 15 days prior notice to the FRB and (iii) repurchasing
outstanding stock without prior approval of the FRB. FP Bancorp is required to
submit written progress reports, provide advance notice of adding or replacing a
director or employing any individual as a senior executive officer, and
designate board members who will be responsible for monitoring adherence to the
provisions of the FP Bancorp Memorandum.
F-20
<PAGE> 57
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18) REGULATORY MATTERS (CONTINUED)
The FRB conducted an examination of FP Bancorp during February 1996 and the
management of the Company believes it is in material compliance with the
provisions of the FP Bancorp Memorandum. However, the FRB has not yet issued
its final examination report.
The Federal Deposit Insurance Corporation Improvement Act of 1992 ("FDICIA") was
signed into law on December 19, 1992. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1993.
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 undercapitalized" and "critically undercapitalized".
The prompt corrective action regulations define "well-capitalized" as having a
Risk-based Capital Ratio of 10% or greater, having a Tier 1 Risk-based Capital
Ratio of 6% or greater and having a leverage ratio of 5% or greater. Under these
guidelines, as of December 31, 1995, FPNB was considered "well-capitalized".
Under Federal banking law, dividends declared by FPNB in any calendar year may
not, without the approval of the OCC, exceed its net profit, as defined, for
that year combined with its retained income from the preceding two years.
However, in October 1993, the OCC issued a bulletin to all national banks
outlining new guidelines limiting the circumstances under with national banks
may pay dividends even if the banks are otherwise statutorily authorized to pay
dividends. The limitations impose a requirement or in some cases suggest that
prior approval of the OCC should be obtained before a dividend is paid if a
national bank is the subject of administrative action or the payment could be
viewed by the OCC as unsafe or unsound.
The regulatory restrictions on dividend payments for both FPNB and the Company
may affect the Company's ability to make interest payments on the debentures
(note 9) and pay dividends on its common stock.
19) SUBSEQUENT EVENTS
On January 12, 1996, the Company announced that it had signed a Definitive
Agreement that will lead to the merger of The Bank of Rancho Bernardo into FPNB
upon regulatory and RB Bancorp shareholder approval. 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.
On January 23, 1996, the Board of Directors of the Company approved the
termination of the ESOP during 1996, pending approval of the Internal Revenue
Service. Upon termination of the ESOP, all participants will become fully vested
in their assets. ESOP termination costs will be paid by the Company.
20) PARENT COMPANY CONDENSED FINANCIAL INFORMATION
FP Bancorp, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 2,220,000 $ 3,073,000
Investment in subsidiary 19,019,000 11,149,000
Other assets 480,000 397,000
- --------------------------------------------------------------------------------------------
Total assets $21,719,000 $14,619,000
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------
Accrued expenses and other liabilities $ 311,000 $ 224,000
Debentures 4,575,000 4,575,000
Stockholders' equity 16,833,000 9,820,000
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $21,719,000 $14,619,000
============================================================================================
</TABLE>
F-21
<PAGE> 58
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20) PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
FPBancorp, Inc.
Condensed Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees $ -- $ -- $ 30,000
Other income 109,000 24,000 30,000
Interest expense (483,000) (412,000) (343,000)
Operating expense (531,000) (224,000) (330,000)
- ---------------------------------------------------------------------------------------------------------------
Loss before income taxes and equity in undistributed
net earnings (loss) of subsidiary (905,000) (612,000) (613,000)
Equity in undistributed net earnings (loss) of subsidiary 2,816,000 944,000 (4,455,000)
- ---------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,911,000 $ 332,000 $(5,068,000)
===============================================================================================================
</TABLE>
FP Bancorp, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,911,000 $ 332,000 $(5,068,000)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Equity in undistributed net (earnings) loss of subsidiary (2,816,000) (944,000) 4,455,000
Amortization of debenture issuance costs 72,000 71,000 53,000
Net decrease (increase) in other assets (155,000) (161,000) 3,000
Increase (decrease) in accrued expenses and other liabilities 87,000 (84,000) 308,000
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (901,000) (786,000) (249,000)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in receivable from ESOP 33,000 34,000 41,000
Advances to subsidiary -- -- (3,400,000)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 33,000 34,000 (3,359,000)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from debenture offering -- -- 4,575,000
Net proceeds from private offering -- 3,034,000 --
Proceeds from exercise of stock options 15,000 -- --
Payment on note payable -- -- (208,000)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,000 3,034,000 4,367,000
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (853,000) 2,282,000 759,000
Cash at beginning of year 3,073,000 791,000 32,000
- ---------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,220,000 $ 3,073,000 $ 791,000
===============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 412,000 $ 412,000 $ 343,000
Income taxes $ 1,000 $ 1,000 $ 1,000
===============================================================================================================
Supplemental disclosure of noncash investing and
financing activities:
Change in net unrealized gains (losses) on investment
securities available for sale $ 799,000 $ (515,000) $ --
Common stock issued in merger $ 4,255,000 $ -- $ --
===============================================================================================================
</TABLE>
F-22
<PAGE> 59
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21) QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the Company's quarterly results of operations
(unaudited):
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------
1995 December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 4,573,000 $ 4,421,000 $ 4,595,000 $ 3,486,000
Interest expense 1,338,000 1,298,000 1,269,000 1,049,000
Net interest income before
provision for loan losses 3,235,000 3,123,000 3,326,000 2,437,000
Provision for loan losses 500,000 100,000 -- --
Net interest income after
provision for loan losses 2,735,000 3,023,000 3,326,000 2,437,000
Other operating income 594,000 605,000 588,000 519,000
Other operating expenses 3,479,000 3,425,000 3,169,000 2,671,000
Earnings before income taxes (150,000) 203,000 745,000 285,000
Net income tax benefit 606,000 222,000 -- --
Net earnings 456,000 425,000 745,000 285,000
Primary earnings per share $ .17 $ .16 $ .28 $ .16
Fully diluted earnings per share $ .15 $ .11 $ .27 $ .16
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------
1994 December 31 September 30 June 30 March 31
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 3,292,000 $ 3,341,000 $ 3,093,000 $ 2,992,000
Interest expense 854,000 788,000 740,000 763,000
Net interest income before
provision for loan losses 2,438,000 2,553,000 2,353,000 2,229,000
Provision for loan losses -- -- -- --
Net interest income after
provision for loan losses 2,438,000 2,553,000 2,353,000 2,229,000
Other operating income 405,000 263,000 505,000 507,000
Other operating expenses 2,796,000 2,654,000 2,747,000 2,724,000
Loss before income taxes 47,000 162,000 111,000 12,000
Provision for income taxes -- -- -- --
Net earnings 47,000 162,000 111,000 12,000
Primary earnings per share $ .03 $ .13 $ .09 $ .01
Fully diluted earnings per share $ .03 $ .13 $ .09 $ .01
=============================================================================================
</TABLE>
F-23
<PAGE> 60
FP BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FP Bancorp, Inc.
Escondido, California:
We have audited the accompanying consolidated balance sheets of FP Bancorp, Inc.
and subsidiary (the "Company") as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 FP Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
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 Financial Accounting Standards Board's ("FASB's") Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Also, as discussed in Note 1 to the
consolidated financial statements, the Company changed its method of accounting
for income taxes in 1993 to adopt the provisions of the FASB's SFAS No. 109,
"Accounting for Income Taxes."
/s/ KPMG Peat Marwick LLP
San Diego, California
January 26, 1996
F-24
<PAGE> 61
PART III
The Registrant intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A, which will
involve the election of directors, within 120 days of the end of the fiscal
year covered by this Form 10- KSB (the "Proxy Statement").
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
In response to this item, Registrant hereby incorporates by
reference the "Proposal II--Election of Directors" portion of the Proxy
Statement for the Annual Meeting of Stockholders on May 21, 1996.
ITEM 10. EXECUTIVE COMPENSATION.
In response to this item, Registrant hereby incorporates by
reference the "Director Remuneration, Executive Officers, and Executive
Compensation" subparts of the "Proposal II--Election of Directors" portion of
the Proxy Statement of the Annual Meeting of Stockholders on May 21, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this item, Registrant hereby incorporates by
reference the "Securities Ownership of Officers, Directors and Others" subpart
of the "Proposal II--Election of Directors" portion of the Proxy Statement for
the Annual Meeting of Stockholders on May 21, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In response to this item, Registrant hereby incorporates by
reference the "Certain Transactions" subparts of the "Proposal II--Election of
Directors" portion of the Proxy Statement for the Annual Meeting of
Stockholders on May 21, 1996.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 FP Bancorp, Inc. Certificate of Incorporation and Amendment (incorporated by reference to Exhibit 3.1
to the Form 10-KSB of FP Bancorp for the year ended December 31, 1994, File Number 0-17650)
3.2 FP Bancorp, Inc. By-laws (incorporated by reference to Exhibit 3.2 to the Form 10-KSB of FP Bancorp
for the year ended December 31, 1994, File Number 0-17650)
4.1 Indenture dated November 9, 1992 (including form of Debenture) (incorporated by reference to Exhibit
4.2 to the Registration Statement on Form S-2, File Number 33-52086)
4.2 Trust Agreement (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-2,
File Number 33-52086)
4.3 Escrow Agreement (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-2,
File Number 33-52086)
</TABLE>
III-1
<PAGE> 62
<TABLE>
<S> <C>
10.1 Escondido National Bank Plaza Lease Dated January 4, 1984 Between Grand Avenue Financial Center
Partnership and Escondido National Bank, as Amended (Current Principal Offices of First Pacific
National Bank and FP Bancorp Located at 613 West Valley Parkway, Escondido, California 92025-9999)
(incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-4, File No. 33-
87388)
10.2 Amendment to Escondido National Bank Plaza Lease
10.3* Amended and Restated 1988 Stock Option Plan of ENB Holding Company as Amended (incorporated by
reference to Exhibit 10.2 to the Form 10-KSB of ENB Holding Company for the Year Ended December 31,
1993, File Number 0-17650)
10.4 Lease Between Lake San Marcos Properties and San Marcos National Bank Dated August 9, 1988
(incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, File Number 33-
33628)
10.5 Shopping Center Lease for Plaza Las Brisas Between Las Brisas Joint Venture and Escondido National
Bank Dated December 6, 1989 (incorporated by reference to Exhibit 10.13 to the Registration Statement
on Form S-1, File Number 33-33628)
10.6 Employment Agreement Dated March 1, 1993 Between Escondido National Bank, ENB Holding Company and
Harvey L. Williamson (incorporated by reference to Exhibit 10.5 to the Form 10-KSB of ENB Holding
Company for the Year Ended December 31, 1993, File Number 0-17650)
10.7* ENB Holding Company Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.16 to the
Form 10-K of ENB Holding Company for the Year Ended December 31, 1990, File No. 0-17650)
10.8 Assignment of Lease Between the Bank of California, N.A. and Escondido National Bank Dated July 26,
1991 and the Short Form Lease Between Myron T. Patterson and Hazel V. Patterson and First National
Bank of San Diego County Dated February 1, 1971 (incorporated by reference to Exhibit 10.17 to the
Form 10-K of ENB Holding Company for the Year Ended December 31, 1991, File Number 0-17650)
10.9 Formal Agreement between Escondido National Bank and the Comptroller of the Currency effective as of
December 22, 1992 (incorporated by reference to Exhibit 10.18 to the Form 10-K of ENB Holding Company
for the Year Ended December 31, 1992, File Number 0-17650)
10.10 Change of Control Agreement between Harvey L. Williamson and First Pacific National Bank dated
January 20, 1994 (incorporated by reference to Exhibit 10.12 to the Form 10-KSB of ENB Holding Company
for the Year Ended December 31, 1993, File Number 0-17650)
10.11* Change of Control Agreement between Gary W. Deems and First Pacific National Bank dated January 20,
1994 (incorporated by reference to Exhibit 10.13 to the Form 10-KSB of ENB Holding Company for the
Year Ended December 31, 1993, File Number 0-17650)
10.12* Change of Control Agreement between Michael J. Perdue and First Pacific National Bank dated
January 20, 1994 (incorporated by reference to Exhibit 10.14 to the
</TABLE>
III-2
<PAGE> 63
<TABLE>
<S> <C>
Form 10-KSB of ENB Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
10.13 Summary of Memorandum of Understanding between ENB Holding Company and The Federal Reserve Bank of San
Francisco dated May 24, 1993 (incorporated by reference to Exhibit 10.15 to the Form 10-KSB of ENB
Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
10.14 Office Building Lease between Overland Bank and AARK/Park Joint Venture (incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-4, File No. 33-87388)
10.15 Standard Multi-Tenant Lease between Overland Bank and E. E. Espinas, M.D., trustee of the E. E.
Espinas, M.D., Inc., Retirement Trust executed August 30, 1977 (incorporated by reference to Exhibit
10.15 to the Registration Statement on Form S-4, File No. 33-87388)
10.16 Overland Bank Series A Warrant Agreement (incorporated by reference to Exhibit 10.16 to the
Registration Statement on Form S-4, File No. 33-87388)
10.17* Amendment to Change of Control Agreement between Harvey L. Williamson and First Pacific National Bank
dated January 11, 1995 (incorporated by reference to Exhibit 10.17 to the Registration Statement on
Form S-4, File No. 33-87388)
10.18* Amendment to Change of Control Agreement between Gary W. Deems and First Pacific National Bank dated
January 11, 1995 (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-
4, File No. 33-87388)
10.19* Amendment to Change of Control Agreement between Michael J. Perdue and First Pacific National Bank
dated January 11, 1995 (incorporated by reference to Exhibit 10.19 to the Registration Statement on
Form S-4, File No. 33-87388)
10.20* Amendment to Employment Agreement dated December 30, 1994 between First Pacific National Bank and
Harvey L. Williamson (incorporated by reference to Exhibit 10.20 to the Registration Statement on Form
S-4, File No. 33-87388)
10.21* 1996 Executive Officer Bonus Plan
10.22 Agreement and Plan of Reorganization by and among FP Bancorp, Inc., First Pacific National Bank, RB
Bancorp and Bank of Rancho Bernardo dated as of January 12, 1996.
11 Statement re computation of per share earnings
21 FP Bancorp Subsidiaries (incorporated by reference to Exhibit 21 to the Form 10-KSB of FP Bancorp for
the year ended December 31, 1994, File Number 0-17650)
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included in signature page)
</TABLE>
- -------------------
* Denotes a management contract or compensatory arrangement.
III-3
<PAGE> 64
(b) Reports on Form 8-K
1. Form 8-K dated September 13, 1995, filed October 6, 1995
reporting termination of negotiations with Rancho Santa Fe National Bank and
listing of common stock on Nasdaq National Market System.
III-4
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 26, 1996 FP BANCORP, INC.
(Registrant)
By: /s/ Harvey L. Williamson
----------------------------------
Harvey L. Williamson
President
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Harvey L. Williamson and Michael J. Perdue, or
either of them, his attorney-in-fact, each with power of substitution for him
in any and all capacities, to sign any amendments to this Annual Report on Form
10-KSB and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
ratifies and confirms all that each said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-KSB has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ Mark N. Baker Director March 26, 1996
----------------------------------
Mark N. Baker
/s/ Earle W. Frey, Jr. Director March 26, 1996
----------------------------------
Earle W. Frey, Jr.
/s/ Robert W. Klemme Director March 26, 1996
----------------------------------
Robert W. Klemme
/s/ Joseph J. Kuebler Director March 26, 1996
----------------------------------
Joseph J. Kuebler
/s/ Randall C. Luce Director March 26, 1996
----------------------------------
Randall C. Luce
/s/ Larry R. Markham Director March 26, 1996
----------------------------------
Larry R. Markham
/s/ Richard W. McBride Director March 26, 1996
----------------------------------
Richard W. McBride
/s/ Richard S. Spanjian Director March 26, 1996
----------------------------------
Richard S. Spanjian
/s/ Robert M. Spanjian Director March 26, 1996
----------------------------------
Robert M. Spanjian
</TABLE>
III-5
<PAGE> 66
<TABLE>
<S> <C> <C>
/s/ Richard R. Thomas Director March 26, 1996
----------------------------------
Richard R. Thomas
/s/ Michael W. Wexler Director March 26, 1996
----------------------------------
Michael W. Wexler
/s/ Harvey L. Williamson Director, Chief Executive March 26, 1996
---------------------------------- Officer (Principal Executive
Harvey L. Williamson Officer)
/s/ Michael J. Perdue Chief Financial Officer and March 26, 1996
---------------------------------- Executive Vice President
Michael J. Perdue (Principal Financial Officer
and principal Accounting
Officer)
</TABLE>
III-6
<PAGE> 67
EXHIBIT LIST
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.1 FP Bancorp, Inc. Certificate of Incorporation and Amendment (incorporated by reference to
Exhibit 3.1 to the Form 10-KSB of FP Bancorp for the year ended December 31, 1994, File
Number 0-17650)
3.2 FP Bancorp, Inc. By-laws (incorporated by reference to Exhibit 3.2 to the Form 10-KSB of
FP Bancorp for the year ended December 31, 1994, File Number 0-17650)
4.1 Indenture dated November 9, 1992 (including form of Debenture) (incorporated by reference
to Exhibit 4.2 to the Registration Statement on Form S-2, File Number 33-52086)
4.2 Trust Agreement (incorporated by reference to Exhibit 4.3 to the Registration Statement on
Form S-2, File Number 33-52086)
4.3 Escrow Agreement (incorporated by reference to Exhibit 4.4 to the Registration Statement
on Form S-2, File Number 33-52086)
10.1 Escondido National Bank Plaza Lease Dated January 4, 1984 Between Grand Avenue Financial
Center Partnership and Escondido National Bank, as Amended (Current Principal Offices of
First Pacific National Bank and FP Bancorp Located at 613 West Valley Parkway, Escondido,
California 92025-9999) (incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form S-4, File No. 33-87388)
10.2 Amendment to Escondido National Bank Plaza Lease
10.3 Amended and Restated 1988 Stock Option Plan of ENB Holding Company as Amended
(incorporated by reference to Exhibit 10.2 to the Form 10-KSB of ENB Holding Company for
the Year Ended December 31, 1993, File Number 0-17650)
10.4 Lease Between Lake San Marcos Properties and San Marcos National Bank Dated August 9, 1988
(incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, File
Number 33-33628)
10.5 Shopping Center Lease for Plaza Las Brisas Between Las Brisas Joint Venture and Escondido
National Bank Dated December 6, 1989 (incorporated by reference to Exhibit 10.13 to the
Registration Statement on Form S-1, File Number 33-33628)
10.6 Employment Agreement Dated March 1, 1993 Between Escondido National Bank, ENB Holding
Company and Harvey L. Williamson (incorporated by reference to Exhibit 10.5 to the Form
10-KSB of ENB Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
</TABLE>
III-7
<PAGE> 68
<TABLE>
<S> <C> <C>
10.7 ENB Holding Company Employee Stock Ownership Plan (incorporated by reference to Exhibit
10.16 to the Form 10-K of ENB Holding Company for the Year Ended December 31, 1990, File
No. 0-17650)
10.8 Assignment of Lease Between the Bank of California, N.A. and Escondido National Bank Dated
July 26, 1991 and the Short Form Lease Between Myron T. Patterson and Hazel V. Patterson
and First National Bank of San Diego County Dated February 1, 1971 (incorporated by
reference to Exhibit 10.17 to the Form 10-K of ENB Holding Company for the Year Ended
December 31, 1991, File Number 0-17650)
10.9 Formal Agreement between Escondido National Bank and the Comptroller of the Currency
effective as of December 22, 1992 (incorporated by reference to Exhibit 10.18 to the
Form 10-K of ENB Holding Company for the Year Ended December 31, 1992, File
Number 0-17650)
10.10 Change of Control Agreement between Harvey L. Williamson and First Pacific National Bank
dated January 20, 1994 (incorporated by reference to Exhibit 10.12 to the Form 10-KSB of
ENB Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
10.11 Change of Control Agreement between Gary W. Deems and First Pacific National Bank dated
January 20, 1994 (incorporated by reference to Exhibit 10.13 to the Form 10-KSB of ENB
Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
10.12 Change of Control Agreement between Michael J. Perdue and First Pacific National Bank
dated January 20, 1994 (incorporated by reference to Exhibit 10.14 to the Form 10-KSB of
ENB Holding Company for the Year Ended December 31, 1993, File Number 0-17650)
10.13 Summary of Memorandum of Understanding between ENB Holding Company and The Federal Reserve
Bank of San Francisco dated May 24, 1993 (incorporated by reference to Exhibit 10.15 to
the Form 10-KSB of ENB Holding Company for the Year Ended December 31, 1993, File Number
0-17650)
10.14 Office Building Lease between Overland Bank and AARK/Park Joint Venture (incorporated by
reference to Exhibit 10.14 to the Registration Statement on Form S-4, File No. 33-87388)
10.15 Standard Multi-Tenant Lease between Overland Bank and E. E. Espinas, M.D., trustee of the
E. E. Espinas, M.D., Inc., Retirement Trust executed August 30, 1977 (incorporated by
reference to Exhibit 10.15 to the Registration Statement on Form S-4, File No. 33-87388)
10.16 Overland Bank Series A Warrant Agreement (incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-4, File No. 33-87388)
10.17 Amendment to Change of Control Agreement between Harvey L. Williamson and First Pacific
National Bank dated January 11, 1995 (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form S-4, File No. 33-87388)
</TABLE>
III-8
<PAGE> 69
<TABLE>
<S> <C> <C>
10.18 Amendment to Change of Control Agreement between Gary W. Deems and First Pacific National
Bank dated January 11, 1995 (incorporated by reference to Exhibit 10.18 to the
Registration Statement on Form S-4, File No. 33-87388)
10.19 Amendment to Change of Control Agreement between Michael J. Perdue and First Pacific
National Bank dated January 11, 1995 (incorporated by reference to Exhibit 10.19 to the
Registration Statement on Form S-4, File No. 33-87388)
10.20 Amendment to Employment Agreement dated December 30, 1994 between First Pacific National
Bank and Harvey L. Williamson (incorporated by reference to Exhibit 10.20 to the
Registration Statement on Form S-4, File No. 33-87388)
10.21 1996 Executive Officer Bonus Plan
10.22 Agreement and Plan of Reorganization by and among FP Bancorp, Inc., First Pacific National
Bank, RB Bancorp and Bank of Rancho Bernardo dated as of January 12, 1996
11 Statement re computation of per share earnings
21 FP Bancorp Subsidiaries (incorporated by reference to Exhibit 21 to the Form 10-KSB of FP
Bancorp for the year ended December 31, 1994, File Number 0-17650)
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included in signature page)
</TABLE>
III-9
<PAGE> 1
EXHIBIT 10.2
SIXTH AMENDMENT TO
ESCONDIDO NATIONAL BANK PLAZA LEASE
This Sixth Amendment to Escondido National Bank Plaza Lease (this
"Sixth Amendment") is dated for reference purposes only as of September 30,
1995 by and between Grand Avenue Financial Center Partnership, a California
general partnership ("Landlord") and First Pacific National Bank, a national
banking association formerly known as "Escondido National Bank" ("Tenant")
with respect to the following facts.
RECITALS
A. Pursuant to the Escondido National Bank Plaza Lease dated January 4,
1984 ("Original Lease"), as amended by the First Amendment to Escondido
National Bank Plaza Lease dated March 1, 1987 ("First Amendment"), the Second
Amendment to Escondido National Bank Plaza Lease dated July 13, 1987 ("Second
Amendment"), the Third Amendment to Escondido National Bank Plaza Lease dated
October 1, 1989 ("Third Amendment"), the Fourth Amendment to Escondido National
Bank Plaza Lease dated August 16, 1993 ("Fourth Amendment") and the Fifth
Amendment to Escondido National Bank Plaza Lease dated June 1, 1994, Landlord
leased to Tenant the offices and other spaces described therein (the
"Premises").
B. The Original Lease, as amended by the First, Second, Third, Fourth
and Fifth Amendments, is hereinafter referred to as the "Lease". All
capitalized terms not defined in this Sixth Amendment shall have the meanings
defined in the Lease.
C. Landlord and Tenant now desire to further amend the Lease to
reflect the exercise of certain options contained in the First Amendment and
related matters, upon the terms and conditions set forth in this Sixth
Amendment.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Options Exercised. Section III (Term) of the Lease is hereby
amended to reflect the following:
1.1 Central Operations. Pursuant to Paragraph 3.03(a) of the
Lease, Tenant has duly exercised its first option to extend the Lease to June
30, 2000 with respect to the Central Operations Premises (formerly known as the
"Escrow Premises").
1.2 Staff Room. Pursuant to Paragraph 3.05(a) of the Lease,
Tenant has duly exercised its first option to extend the Lease to June 30, 2000
with respect to the Staff Room Premises.
2. Redetermined Rent. The monthly rent for Central Operations Premises
and the Staff Room Premises during the period commencing October 1, 1995
through June 30, 1997
Page 1 of 2 Sixth Amendment
<PAGE> 2
shall be $1,293.60 and $1,122.00, respectively. Tenant's Proportionate Share of
operating expenses shall remain the same as set forth in the Fifth Amendment.
3. Additional Tenant Improvement Allowance. Paragraph 4.02 of the Lease
is amended to add the following:
"In consideration of Tenant's exercise of its options with
respect to the Central Operations Premises and the Staff Room Premises,
Landlord will reimburse Tenant for its reasonable costs for adding new
or refurbishing existing Tenant Improvements in the Premises, in an
amount not to exceed $10,980.00, as and when constructed by or for
Tenant in compliance with this Lease."
Except as set forth in this Sixth Amendment, all of the provisions of
the Lease shall remain unchanged and in full force and effect.
LANDLORD: GRAND AVENUE FINANCIAL CENTER
PARTNERSHIP, a California general partnership
By: /s/ MARK N. BAKER
-----------------------------------
Mark N. Baker
TENANT: FIRST PACIFIC NATIONAL BANK, a national
banking association
By: /s/ HARVEY L. WILLIAMSON
-----------------------------------
Harvey L. Williamson,
President
Page 2 of 2 Sixth Amendment
<PAGE> 1
EXHIBIT 10.21
[FIRST PACIFIC NATIONAL BANK/FP BANCORP LETTERHEAD]
- --------------------------------------------------------------------------------
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
- --------------------------------------------------------------------------------
I. OBJECTIVE
The objective of this plan is to provide incentives to those senior
executives of FP Bancorp and First Pacific National Bank who can most
directly impact the profitability, return to shareholders and other
performance criteria of the corporation. The plan is designed to reward
these individuals for attaining and sustaining high levels of
performance and profitability, and for meeting and exceeding the short
and long term goals of the corporation. The Board believes that this
plan is desirable and necessary in order to attract, retain and motivate
high quality executives to manage the corporation.
II. DURATION
This is an annual performance plan. Although it is the company's
intention to offer this plan, or a similar one, on an ongoing basis,
there is no guarantee that it will be extended beyond the current year.
All participants will be notified of any extension, change or
termination prior to the start of each calendar year.
III. PLAN DESCRIPTION
The plan is designed to reward participants based upon the company's
performance versus financial goals established as part of the
annual budget and Strategic Plan.
In order to protect shareholder interests, the plan requires a minimum
return on assets and equity before any incentive award can be paid. As
the returns rise above the minimum thresholds, incentives also rise
accordingly. The award levels will be spelled out in a separate document
prior to the beginning of each year.
The plan will also identify key benchmark operating ratios that must be
met in order for the plan to pay out in full. These benchmarks may
include the CAMEL rating, efficiency ratio, ratio of non-performing
assets to total assets and ratio of loan loss reserve to non-performing
loans. Failure to achieve any of the benchmarks may result in the
elimination or lowering of the plan award at the discretion of the
Compensation Committee.
IV. PLAN ADMINISTRATION
The Compensation Committee of the Board of Directors has the
responsibility for designing and administering the plan. Before the
beginning of each year, the Committee will review and revise the plan,
and establish specific goals and award thresholds. The Committee may
adjust the plan and/or payouts accordingly in the event that there are
positive or negative occurrences during the year which are outside the
significant control of the plan participants.
- --------------------------------------------------------------------------------
Page 1
<PAGE> 2
[FIRST PACIFIC NATIONAL BANK/FP BANCORP LETTERHEAD]
- -------------------------------------------------------------------------------
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
- -------------------------------------------------------------------------------
V. PLAN PARTICIPANTS
Key executives of FP Bancorp and First Pacific National Bank who are
responsible for directing significant management functions within the
company are eligible for participation. Before the beginning of each
year, the Compensation Committee shall review the recommendations of the
company's executive management for participants and award levels.
Participants may be added during the plan year at the discretion of the
Compensation Committee, with their incentive awards prorated accordingly.
VI. PAYMENT SCHEDULE
The company will pay out the incentive awards as soon as practical after
the end of the calendar year and after the company's outside auditors have
reviewed the earnings and award calculations. All participants must be
employed by the company on the final day of the plan year to be included
in the incentive plan payout. Participants leaving the bank voluntarily
or for cause prior to year end will be ineligible for any awards under
this plan.
VII. IMPACT OF MERGERS
In the event the company becomes involved in a merger or acquisition, the
Compensation Committee will attempt to adjust and continue the plan
accordingly. Participants who are displaced as a result of such merger
will be eligible for a pro-rata award based upon financial results
attained through the date of the merger, plan termination, or personal
departure, whichever is later.
- -------------------------------------------------------------------------------
Page 2
<PAGE> 3
FP Bancorp, Inc.
1996 Senior Management Incentive Compensation Plan
Benchmarks for 1996 Bonus Pool
<TABLE>
<CAPTION>
PLAN FP
BENCHMARK PLAN
--------- ----
<S> <C> <C>
1) a) Safety and Soundness CAMEL Rating (at FPNB) "2" or better 2
b) CRA Rating (at FPNB) "Fair" or better Satisfactory
c) Compliance Rating (at FPNB) "Fair" or better Satisfactory
d) FRB Overall Rating (at FP Bancorp) "Satisfactory" or better Satisfactory
2) Efficiency Ratio (last quarter average Oct.-Dec.) 74% or less 73.77%
3) Nonperforming assets/Total assets 1.15% or less 0.93%
4) Allowance for loan losses/Nonperforming loans Greater than 125% 432.31%
</TABLE>
Budget includes $2 million of OREO, $500,000 of nonaccrual and $150,000 of > 90
days accruing
Page 3
<PAGE> 4
FP BANCORP, INC.
BONUS POOL CALCULATION - 1996 PLAN
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Findley
Premier
FP Budget Performers
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,178,000 $ 3,661,600 $ 3,842,566 $ 3,882,600 $ 4,098,400
less: income tax benefit $(1,204,000) $(1,204,000) $(1,204,000) $(1,204,000) $(1,204,000)
Pre-tax income <$2,000,000 $ 1,974,000 $ 2,457,600 $ 2,638,566 $ 2,678,600 $ 2,894,400
add: incentive pool $ -- $ 26,000 $ 62,400 $ 100,000 $ 101,400 $ 145,600
add: provision for loan losses $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000
Adjusted profit <$2,600,000 $ 2,600,000 $ 3,120,000 $ 3,338,566 $ 3,380,000 $ 3,640,000
Fully taxable (@ 40%) $ 1,184,400 $ 1,474,560 $ 1,583,140 $ 1,607,160 $ 1,736,640
- ---------------------------------------------------------------------------------------------------------------------------
ROA n/a 1.22% 1.41% 1.48% 1.49% 1.58%
AROA <1.00% 1.00% 1.20% 1.28% 1.30% 1.40%
ROE** n/a 18.88% 21.75% 22.83% 23.07% 24.35%
AROE** n/a 15.45% 18.54% 19.83% 20.08% 21.62%
Fully taxable ROE** n/a 6.36% 7.91% 9.40% 9.55% 10.32%
- ---------------------------------------------------------------------------------------------------------------------------
Bonus % 0% 1% 2% 3% 3% 4%
Bonus amount $ -- $ 26,000 $ 62,400 $ 100,157 $ 101,400 $ 145,600
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Findley
Super
Premiers
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 4,309,000 $ 4,556,000 $ 4,803,000 $ 4,881,000 $ 5,003,200
less: income tax benefit $(1,204,000) $(1,204,000) $(1,204,000) $(1,204,000) $(1,204,000)
Pre-tax income $ 3,105,000 $ 3,352,000 $ 3,599,000 $ 3,677,000 $ 3,799,200
add: incentive pool $ 195,000 $ 208,000 $ 221,000 $ 273,000 $ 280,800
add: provision for loan losses $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000
Adjusted profit $ 3,900,000 $ 4,160,000 $ 4,420,000 $ 4,550,000 $ 4,680,000
Fully taxable (@ 40%) $ 1,863,000 $ 2,011,200 $ 2,159,400 $ 2,206,200 $ 2,279,520
- ------------------------------------------------------------------------------------------------------------
ROA 1.66% 1.75% 1.85% 1.88% 1.92%
AROA 1.50% 1.60% 1.70% 1.75% 1.80%
ROE** 25.60% 27.07% 28.53% 29.00% 29.72%
AROE** 23.17% 24.71% 26.26% 27.03% 27.80%
Fully taxable ROE** 11.07% 11.95% 12.83% 13.11% 13.54%
- ------------------------------------------------------------------------------------------------------------
Bonus % 5% 5% 5% 6% 6%
Bonus amount $ 195,000 $ 208,000 $ 221,000 $ 273,000 $ 280,800
- ------------------------------------------------------------------------------------------------------------
** Based on beginning equity of $16,833,000 (GAAP audited equity)
Findley Premier Performing Banks are in the top 30%
of all California Banks.
Findley Super Premier Performing Banks are in the top 5-8%
of all California Banks.
Page 4
</TABLE>
<PAGE> 5
FP BANCORP, INC.
PROJECTED 1996 SHORT-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
SUPER BUDGET
1% AROA PREMIER PREMIER ---------
--------- --------- --------- PROJECTED
% 1996 AROE 1996 AROE 1996 AROE 1996 AROE
ALLOC. 15.45% 20.08% 27.80% 19.83%
------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL 1996 SHORT-TERM $26,000 $101,400 $280,800 $100,157
INCENTIVE POOL 1% 3% 6% 3.00%
SENIOR MANAGEMENT
Williamson - President/CEO 22.0% 5,720 22,308 61,776 22,035
Perdue - EVP/COO/CLO 22.0% 5,720 22,308 61,776 22,035
Deems - EVP/CAO 22.0% 5,720 22,308 61,776 22,035
Other Senior Management 24.0% 6,240 24,336 67,392 24,038
------ ------- -------- -------- --------
TOTAL GROUP INCENTIVE 90.0% 23,400 91,260 252,720 90,141
OTHER KEY MANAGEMENT
& UNALLOCATED 10.0% 2,600 10,140 28,080 10,016
------ ------- -------- -------- --------
PROJECTED 1996 SHORT-TERM
MANAGEMENT INCENTIVE POOL 100.0% $26,000 $101,400 $280,800 $100,157
------ ------- -------- -------- --------
FP 1996 ADJUSTED NET PROFIT
AT ROE % STATED ABOVE $2,600,000 $3,380,000 $4,680,000 $3,338,566
26-Mar-96
Page 5
</TABLE>
<PAGE> 1
EXHIBIT 10.22
AGREEMENT
AND
PLAN OF REORGANIZATION
BY AND AMONG
FP BANCORP, INC.,
FIRST PACIFIC NATIONAL BANK,
RB BANCORP AND
BANK OF RANCHO BERNARDO
DATED AS OF JANUARY 12, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS....................................................................................................... 1
DEFINITIONS.................................................................................................... 2
1. THE REORGANIZATION AND RELATED MATTERS................................................................ 4
1.1 The Reorganization......................................................................... 4
1.1.1 Merger of RB Bancorp into FP Bancorp................................................ 4
1.1.2 Merger of BRB into FPNB............................................................. 4
1.2 Conversion of Shares at the Effective Time of
the Reorganization......................................................................... 4
1.2.1 Payment Per Share................................................................... 4
1.2.2 Effect on RB Bancorp Options and Other Rights
to Acquire RB Bancorp Common Stock.................................................. 5
1.3 Exchange of Certificates................................................................... 5
1.4 Dissenting Shares.......................................................................... 5
1.5 Effect of the Reorganization, Holding Company
Merger and Bank Merger..................................................................... 5
1.6 Certificate of Incorporation and By-laws of
Surviving Holding Company.................................................................. 5
1.7 Articles of Association and Bylaws of Surviving Bank....................................... 6
1.8 Director Agreements........................................................................ 6
1.9 Resignations............................................................................... 6
2. THE CLOSING........................................................................................... 6
2.1 Closing Date and Transactions Contemplated
by this Agreement.......................................................................... 6
2.2 Execution of Agreements to Merge........................................................... 6
2.3 Documents to be Delivered.................................................................. 6
2.4 Deposit of Funds with Exchange Agent....................................................... 6
3. WARRANTIES OF RB BANCORP and BRB...................................................................... 7
3.1 Organization Standing and Power............................................................ 7
3.2 Capitalization............................................................................. 7
3.3 Equity Interests........................................................................... 7
3.4 Banking Activities......................................................................... 7
3.5 Financial Statements....................................................................... 7
3.6 RB Bancorp's and BRB's Authority........................................................... 8
3.7 Insurance.................................................................................. 8
3.8 Proxy Statement............................................................................ 9
3.9 Books and Records.......................................................................... 9
3.10 Title to Assets............................................................................ 9
3.11 Real Estate............................................................................... 10
3.12 Legal Proceedings and Agreements with
Banking Authorities....................................................................... 10
3.13 Taxes..................................................................................... 10
3.14 Compliance with Laws and Regulations...................................................... 11
3.15 Performance of Obligations................................................................ 11
3.16 Employees................................................................................. 11
3.17 Brokers and Finders....................................................................... 11
3.18 Material Contracts........................................................................ 12
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
3.19 Absence of Certain Changes................................................................ 13
3.20 Licenses and Permits...................................................................... 14
3.21 Undisclosed Liabilities................................................................... 14
3.22 Loans and Investments..................................................................... 14
3.23 Employee Benefit Plans.................................................................... 14
3.24 Loan Servicing Portfolio.................................................................. 15
3.25 Filings................................................................................... 15
3.26 Powers of Attorney........................................................................ 15
3.27 Accuracy and Current Status of
Information Furnished..................................................................... 15
3.28 Environmental Matters..................................................................... 16
3.29 Absence of Certain Business Practices..................................................... 16
3.30 Securities Activities..................................................................... 16
3.31 Intellectual Property..................................................................... 16
3.32 Good Faith Deposit and Additional Deposit................................................. 16
3.33 Financial Projections..................................................................... 16
3.34 Effective Date of Representations, Warranties,
Covenants and Agreements.................................................................. 16
4. REPRESENTATIONS AND WARRANTIES OF FP BANCORP AND FPNB................................................ 16
4.1 Organization Standing and Power........................................................... 17
4.2 Banking Activities........................................................................ 17
4.3 Financial Statements...................................................................... 17
4.4 FP Bancorp's and FPNB's Authority......................................................... 17
4.5 Insurance................................................................................. 18
4.6 Proxy Statement........................................................................... 18
4.7 Books and Records......................................................................... 18
4.8 Title to Assets........................................................................... 19
4.9 Legal Proceedings and Agreement with Banking Authorities.................................. 19
4.10 Taxes..................................................................................... 19
4.11 Compliance with Laws and Regulations...................................................... 19
4.12 Performance of Obligations................................................................ 20
4.13 Licenses and Permits...................................................................... 20
4.14 Filings................................................................................... 20
4.15 Accuracy and Current Status of Information Furnished...................................... 20
4.16 Effective Date of Representations, Warranties,
Covenants and Agreements.................................................................. 21
5. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME
OF REORGANIZATION.................................................................................... 21
5.1 Access.................................................................................... 21
5.2 Limitation on Conduct of RB Bancorp and BRB
Prior to Closing.......................................................................... 22
5.3 Certain Loans and Other Extensions of Credit.............................................. 25
5.4 Negotiations With Other Parties........................................................... 25
5.5 Affirmative Conduct of RB BANCORP, BRB,
FP Bancorp and FPNB Prior to Closing...................................................... 26
5.6 Accountants............................................................................... 26
5.7 Submission to Shareholders................................................................ 26
5.8 Preparation of Proxy Statement............................................................ 26
5.9 Corporate Action.......................................................................... 27
5.10 Regulatory Approvals...................................................................... 27
5.11 Necessary Consents........................................................................ 27
5.12 Employees................................................................................. 27
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
5.13 Data Processing Conversion................................................................ 27
5.14 Customer Contacts......................................................................... 28
5.15 Further Assurances........................................................................ 28
6. CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS.................................................... 28
6.1 General Conditions........................................................................ 28
6.1.1 Securityholder Approvals........................................................... 28
6.1.2 No Proceedings..................................................................... 28
6.1.3 Regulatory Approvals............................................................... 28
6.2 Conditions to Obligations of FP Bancorp................................................... 28
6.2.1 Representations and Warranties, and
Performance of Covenants....................................................... 28
6.2.2 Opinion of Counsel for BRB......................................................... 29
6.2.3 Authorization of Reorganization.................................................... 29
6.2.4 Regulatory Approvals and Related
Conditions..................................................................... 29
6.2.5 Third Party Consents............................................................... 29
6.2.6 Absence of Certain Changes......................................................... 29
6.2.7 Director Agreements................................................................ 29
6.2.8 Officers' Certificate.............................................................. 29
6.2.9 Validity of Transactions........................................................... 29
6.2.10 Tax Opinion....................................................................... 29
6.2.11 Delivery of Deposits.............................................................. 29
6.2.12 Fairness Opinion................................................................... 29
6.3 Conditions to Obligations of RB Bancorp and BRB........................................... 30
6.3.1 Performance of Covenants............................................................ 30
6.3.2 Opinions of Counsel for FP Bancorp................................................. 30
6.3.3 Authorization of Reorganization.................................................... 30
6.3.4 Regulatory Approvals............................................................... 30
6.3.5 Third Party Consents............................................................... 30
6.3.6 Officers' Certificate.............................................................. 30
6.3.7 Validity of Transactions........................................................... 30
6.3.8 Fairness Opinion................................................................... 30
6.3.9 Tax Opinion........................................................................ 30
6.3.10 Delivery of Funds................................................................. 30
7. TERMINATION.......................................................................................... 31
7.1 Termination of this Agreement............................................................. 31
7.2 Effect of Termination and Survival........................................................ 32
7.3 Liquidated Damages........................................................................ 32
8. GENERAL PROVISIONS................................................................................... 33
8.1 Indemnification........................................................................... 33
8.2 Expenses.................................................................................. 33
8.3 Notices................................................................................... 33
8.4 Complete Agreement; Modifications......................................................... 35
8.5 Further Actions........................................................................... 35
8.6 Assignment................................................................................ 35
8.7 Successors and Assigns.................................................................... 35
8.8 Severability.............................................................................. 35
8.9 Extension Not a Waiver.................................................................... 35
8.10 Time of Essence........................................................................... 36
8.11 No Third Party Beneficiaries.............................................................. 36
8.12 Headings.................................................................................. 36
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
8.13 References................................................................................ 36
8.14 Gender.................................................................................... 36
8.15 Counterparts.............................................................................. 36
8.16 Applicable Law............................................................................ 36
8.17 Effect of Disclosure...................................................................... 36
8.18 Publicity................................................................................. 36
8.19 Survival of Representations and Warranties................................................ 36
8.20 Dispute Resolution........................................................................ 36
8.21 Attorneys' Fees........................................................................... 37
</TABLE>
- iv -
<PAGE> 6
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Title Reference
------- ----- ---------
<S> <C> <C>
A Agreement of Merger - FirstPac Corp. into RB Bancorp, and 1.1.1
Certificates of Approval of Agreement to Merge of FirstPac
Corp. and RB Bancorp
B Certificate of Election to Wind Up and Dissolve, and Certificate 1.1.1
of Dissolution of RB Bancorp
C Bank Agreement to Merge 1.1.2
D Director Agreement 1.8, 6.2.7
E Duckor & Spradling Legal Opinion 6.2.2
F Higgs, Fletcher & Mack Legal Opinion 6.3.2
</TABLE>
- v -
<PAGE> 7
SCHEDULES
<TABLE>
<CAPTION>
Schedule Title Reference
-------- ----- ---------
<S> <C> <C>
3.1 RB Bancorp Articles of Incorporation and Bylaws and BRB's Articles 3.1
of Incorporation and Bylaws
3.2 RB Bancorp Shareholder List 3.2
3.6 RB Bancorp and BRB Exceptions, Breaches and Conflicts 3.6
3.7(a) RB Bancorp and BRB Insurance Exceptions 3.7
3.7(b) RB Bancorp and BRB Insurance Policies and Bonds 3.7
3.11(a) RB Bancorp and BRB Real Property Assets and Leases 3.11,
3.18.1
3.11(b) RB Bancorp and BRB Commitments to Improve Real Property 3.11
3.11(c) RB Bancorp and BRB Other Real Estate Owned 3.11
3.11(d) RB Bancorp and BRB Title Policies 3.11
3.11(e) RB Bancorp and BRB Exceptions to Zoning and Environmental 3.11
Matters
3.12(a) RB Bancorp and BRB Pending Litigation 3.12.1
3.12(b) RB Bancorp and BRB Judgments, Decrees, etc. 3.12.1
3.12(c) RB Bancorp and BRB Regulatory Agreements 3.12.2
3.13 RB Bancorp and BRB Tax Return Exceptions and Audits 3.13
3.14 RB Bancorp and BRB Breaches and Defaults of Laws, Regulations and 3.14.1
Orders
3.15 RB Bancorp and BRB Breaches of Agreements 3.15
3.16 RB Bancorp and BRB Employment Commitments 3.16
</TABLE>
- iv -
<PAGE> 8
<TABLE>
<CAPTION>
Schedule Title Reference
-------- ----- ---------
<S> <C> <C>
3.18 RB Bancorp and BRB Material Contracts 3.18
3.19 RB Bancorp and BRB Changes in the Conduct of Business 3.19
3.21 RB Bancorp and BRB Liabilities 3.21
3.22 RB Bancorp and BRB Delinquent and Classified Loans 3.22.1,
3.22.2
3.23(a) RB Bancorp and BRB Employee Plan Contributions/Summaries 3.23.1
3.23(b) RB Bancorp and BRB Employee Plans 3.23.1
3.24 RB Bancorp and BRB Loan Servicing 3.24
3.31 Intellectual Property 3.31
3.33 RB Bancorp and BRB Financial Projections (1995) 3.33
4.1 FP Bancorp Certificate of Incorporation and By-laws and FPNB's 4.1
Articles of Association and Bylaws
4.4 FP Bancorp and FPNB Exceptions, Breaches and Conflicts 4.4
4.5(a) FP Bancorp and FPNB Insurance Exceptions 4.5
4.5(b) FP Bancorp and FPNB Insurance Policies and Bonds 4.5
4.8 FP Bancorp and FPNB Liens and Encumbrances 4.8
4.9(a) FP Bancorp and FPNB Pending Litigation 4.9.1
4.9(b) FP Bancorp and FPNB Material Claims and Litigation 4.9.1
4.10 FP Bancorp and FPNB Tax Return Exceptions and Audits 4.10
</TABLE>
- vii -
<PAGE> 9
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FP BANCORP, INC., FIRST PACIFIC NATIONAL BANK,
RB BANCORP AND BANK OF RANCHO BERNARDO
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as January 12, 1996 by and among (i) FP BANCORP, INC., a Delaware
corporation ("FP Bancorp"), and FIRST PACIFIC NATIONAL BANK, a national banking
association ("FPNB"), (ii) RB BANCORP, a California corporation ("RB Bancorp")
and THE BANK OF RANCHO BERNARDO, a California banking corporation ("BRB")
(collectively, the "parties"), with regard to the following:
A. FP Bancorp and RB Bancorp have previously entered into a letter
agreement dated July 10, 1995, as amended and extended by a letter agreement
dated July 18, 1995 (together, the "Negotiation Letter") under which FP Bancorp
was permitted to conduct a due diligence investigation of RB Bancorp and BRB
subject to certain terms and conditions of that Negotiation Letter.
B. FP Bancorp and RB Bancorp subsequently entered into a letter agreement
dated August 15, 1995, the last execution of which was on August 18, 1995, as
amended and extended by a letter agreement dated October 10, 1995 (together, the
"Letter of Intent") under which the general terms of the acquisition of RB
Bancorp and BRB by FP Bancorp and FPNB were set forth, subject to negotiation of
a definitive agreement and certain other matters to be negotiated by the
parties. By its terms, the Letter of Intent superseded and replaced the
Negotiation Letter.
C. Pursuant to Paragraph 3 of the Negotiation Letter, FP Bancorp paid a
good faith deposit of $50,000 to RB Bancorp (the "Good Faith Deposit") and
pursuant to Paragraph 2.1 of the Letter of Intent, FP Bancorp paid an additional
deposit of $200,000 to RB Bancorp (the "Additional Deposit").
D. The parties believe that it would be in their mutual best interests and
in the best interests of their respective shareholders for FP Bancorp's
wholly-owned subsidiary, FPNB, to merge with BRB pursuant to a plan of
reorganization in accordance with the terms of this Agreement, which provides
for (i) the merger of a subsidiary of FPNB to be created, tentatively to be
named "FirstPac Corp.," with and into RB Bancorp, (ii) the liquidation of RB
Bancorp into FPNB (steps (i) and (ii) are together referred to as the "Holding
Company Merger"), (iii) the merger of BRB with and into FPNB (the "Bank
Merger"), and (iv) the exchange of the outstanding shares of RB Bancorp Common
Stock and RB Bancorp Series A Preferred Stock for total consideration of
$7,350,000 in cash, subject to adjustment in accordance with the terms of this
Agreement (the "Reorganization").
E. The parties intend that the Reorganization cause FPNB to be in control
of RB Bancorp and BRB, for no more than an instant in time, it being their
further intention that all components of the Reorganization occur at once.
F. The parties intend that no taxable gain or loss be recognized to any of
the parties as a result of the Reorganization, although taxable gain or loss is
expected to be recognized by the shareholders of RB Bancorp as a result of the
exchange of RB Bancorp shares for cash.
<PAGE> 10
G. As a condition to the execution of this Agreement by FP Bancorp and
FPNB, each of the members of the Boards of Directors of RB Bancorp and BRB,
except Messrs. Alan Douglas and John Gonnerman have entered into a Director
Agreement contemporaneously with the execution of this Agreement.
H. Except as otherwise provided in this Agreement, capitalized terms shall
be defined as provided in the "Definitions" provisions, below.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
DEFINITIONS
As used throughout this Agreement, the following words and terms shall have
the meanings ascribed to them in the Paragraph hereof set forth opposite them
respectively below:
<TABLE>
<CAPTION>
Defined Word or Term Paragraph
- -------------------- ---------
<S> <C>
"Additional Deposit".............................................................. C
"affiliate of".................................................................... 3.18.8
"Agreement"....................................................................... Introduction
"Acquisition Proposal"............................................................ 5.4
"Bank Agreement to Merge"......................................................... 1.1.2
"Bank Merger"..................................................................... D
"BRB"............................................................................. Introduction
"BRB Common Stock"................................................................ 3.2
"BRB MOU"......................................................................... 3.12.2
"Calculation Date"................................................................ 1.2.1.1
"Classified Asset List"........................................................... 5.2.3.k
"Classified Credits".............................................................. 5.3
"Closing"......................................................................... 2.1
"Closing Date".................................................................... 2.1
"Code"............................................................................ 3.13
"Comptroller"..................................................................... 2.2
"Director Agreement".............................................................. 1.8
"Directors"....................................................................... 1.8
"Dissenting Shares"............................................................... 1.4
"Effective Time of the Reorganization"............................................ 1.1
"Employee Plans".................................................................. 3.23.1
"Employee 401(k) Plan"............................................................ 5.12.2
"ERISA"........................................................................... 3.23.1
"Exchange Act".................................................................... 5.2.3.h
"Exchange Agent".................................................................. 1.3
"Expiration Date"................................................................. 7.1.2
"FDIC"............................................................................ 2.2
"Forbearance Agreement:........................................................... 3.22.1
"FP Bancorp"...................................................................... Introduction
"FP Bancorp Filings".............................................................. 4.14
"FP Bancorp MOU".................................................................. 4.5
"FP Bancorp's Audited Financial Statements"....................................... 4.3
"FP Bancorp's Unaudited Financial Statements"..................................... 4.3
"FPNB"............................................................................ Introduction
"FRB"............................................................................. 2.2
"GAAP"............................................................................ 3.5
"Good Faith Deposit".............................................................. C
</TABLE>
- 2 -
<PAGE> 11
<TABLE>
<CAPTION>
Defined Word or Term Paragraph
- -------------------- ---------
<S> <C>
"Holding Company Agreements to Merge"............................................. 1.1.1
"Holding Company Merger".......................................................... D
"immediate family"................................................................ 3.18.9
"Incremental Amount".............................................................. 1.2.1.2
"Indemnified Party"............................................................... 8.1.3
"Indemnifying Party".............................................................. 8.1.3
"KPMG"............................................................................ 3.5
"Letter of Intent"................................................................ B
"material adverse effect"......................................................... 3.6
"material adverse change"......................................................... 3.6
"Negotiation Letter".............................................................. A
"OREO"............................................................................ 3.11
"parties"......................................................................... Introduction
"person".......................................................................... 3.18.8
"person affiliated with".......................................................... 3.18.8
"Plan"............................................................................ 3.23.1
"Proprietary Information"......................................................... 5.1.1
"Proxy Statement"................................................................. 5.8.1
"RB Bancorp"...................................................................... Introduction
"RB Bancorp Common Stock"......................................................... 3.2
"RB Bancorp Filings".............................................................. 3.25
"RB Bancorp Series A Preferred Stock"............................................. 3.2
"RB Bancorp's Audited Financial Statements"....................................... 3.5
"RB Bancorp's Unaudited Financial Statements"..................................... 3.5
"Reorganization".................................................................. D
"SEC"............................................................................. 3.25
"Section 701"..................................................................... 3.6
"Section 1828(c)(1)(A)"........................................................... 3.6
"Section 1828(c)(2)(A)"........................................................... 3.6
"Section 1842".................................................................... 3.6
"Section 1300".................................................................... 1.3
"Securities Act".................................................................. 3.22.1
"Subsidiary"...................................................................... 3.1
"Superintendent".................................................................. 2.2
"Surviving Bank".................................................................. 1.1.2
"Surviving Holding Company"....................................................... 1.1.1
"Tax Opinion"..................................................................... 6.2.11
"Understanding"................................................................... 3.18
</TABLE>
- 3 -
<PAGE> 12
1. THE REORGANIZATION AND RELATED MATTERS
1.1 The Reorganization. The parties shall take all actions necessary or
appropriate for the Reorganization to become effective concurrent with the
Closing (defined below) on such date as FP Bancorp shall determine. The
Reorganization shall be effective upon completion of the following actions and
effectiveness of all of the events and actions set forth in this Paragraph 1.1
according to all applicable laws and regulations, all of which shall be deemed
to be completed simultaneously but in the order set forth in this Paragraph 1.1
(the "Effective Time of the Reorganization"):
1.1.1 Merger of FirstPac Corp. and RB Bancorp, Subsequent Liquidation
of RB Bancorp. FirstPac Corp. shall be merged with and into RB Bancorp according
to the terms of the Agreement of Merger in substantially the form attached as
part of Exhibit "A" hereto (but subject to any changes which may be necessary to
conform to any requirements of any regulatory agency having authority over the
Reorganization or any component transaction or required to permit the completion
of all actions required to complete the Reorganization at the Effective Time of
the Reorganization). RB Bancorp shall immediately liquidate into FPNB according
to the terms of the Certificate of Election to Wind Up and Dissolve and the
Certificate of Dissolution in substantially the form attached as Exhibit "B"
hereto (but subject to any changes which may be necessary to conform to any
requirements of any regulatory agency having authority over the Reorganization
or any component transaction or required to permit the completion of all actions
required to complete the Reorganization at the Effective Time of the
Reorganization). The Agreement to Merge and the documents included in Exhibit
"B" are collectively referred to as the "Holding Company Agreements to Merge."
FP Bancorp, as the entity in control of FPNB both before and after the
Reorganization, is sometimes referred to herein as the "Surviving Holding
Company."
1.1.2 Merger of BRB into FPNB. Immediately following the merger of
FirstPac Corp. with an into RB Bancorp and the liquidation of RB Bancorp, BRB
shall be merged with and into FPNB according to the terms of the Agreement to
Merge in substantially the form attached as Exhibit "C" hereto (but subject to
any changes which may be necessary to conform to any requirements of any
regulatory agency having authority over the Reorganization or any component
transaction or required to permit the completion of all actions required to
complete the Reorganization at the Effective Time of the Reorganization) (the
"Bank Agreement to Merge"), and the separate corporate existence of BRB shall
cease. FPNB, as the entity surviving the Bank Merger, is sometimes referred to
herein as the "Surviving Bank."
1.2 Conversion of Shares at the Effective Time of the Reorganization.
1.2.1 Payment Per Share.
1.2.1.1 If the Effective Time of the Reorganization occurs on or
before the date falling 90 days after the last date on which this Agreement and
each of the required Director Agreements is actually executed plus the number of
days, if any, after the expiration of the time period set forth in Paragraph 5.7
that RB Bancorp's shareholders approve the matters set forth in that Paragraph
(the "Calculation Date"), at the Effective Time of the Reorganization, subject
to the provisions of this Agreement, (i) each share of RB Bancorp Common Stock
as to which dissenters' rights have not been exercised shall be automatically
converted into the right to receive cash in an amount equal $456.7594 per share,
and (ii) each share of RB Bancorp Series A Preferred Stock as to which
dissenters' rights have not been exercised shall be automatically converted into
the right to receive cash in an amount equal to $120.00 per share.
1.2.1.2 If the Effective Time of the Reorganization occurs after
the Calculation Date, at the Effective Time of the Reorganization, subject to
the provisions of this Agreement, the total consideration payable to the
shareholders of RB Bancorp shall be equal to $7,350,000 plus $2,013.6986 per day
after the Calculation Date (the "Incremental Amount") that the Closing occurs;
and (i) each share of RB Bancorp Common Stock as to which dissenters' rights
have not been exercised shall be automatically converted into the right to
receive cash in an amount equal $456.7594 per share plus an amount equal to the
Incremental Amount multiplied by the fraction of one over the total number of
shares of RB Bancorp Common Stock, and (ii) each share of RB
- 4 -
<PAGE> 13
Bancorp Series A Preferred Stock as to which dissenters' rights have not been
exercised shall be automatically converted into the right to receive cash in an
amount equal to $120.00 per share.
1.2.2 Effect on RB Bancorp Options and Other Rights to Acquire RB
Bancorp Common Stock. All options, warrants, convertible securities, or other
rights to acquire RB Bancorp Common Stock or RB Bancorp Series A Preferred Stock
that have not been exercised prior to the Effective Time of the Reorganization
shall lapse and be of no further force or effect as of the Effective Time of the
Reorganization.
1.3 Exchange of Certificates. Each holder of a certificate or certificates
representing shares of RB Bancorp Common Stock or RB Bancorp Series A Preferred
Stock issued and outstanding immediately prior to the Effective Time of the
Reorganization shall surrender such certificate or certificates, duly endorsed
as FP Bancorp may require, to the exchange agent selected by FP Bancorp for such
purpose (the "Exchange Agent"), and shall receive in exchange therefor the cash
payment required under Paragraph 1.2, above. A holder of any certificate which
prior to the Effective Time of the Reorganization represented shares of RB
Bancorp Common Stock or RB Bancorp Series A Preferred Stock shall have no rights
as a holder of FP Bancorp Common Stock, except any rights as may be required by
law. The holder of a certificate or certificates representing shares of RB
Bancorp Common Stock or RB Bancorp Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time of the Reorganization shall
have no rights with respect to such shares of RB Bancorp Common Stock or
Preferred Stock other than to surrender such certificate or certificates
pursuant to this Paragraph 1.3 or to perfect the right of appraisal which such
holder may have pursuant to Section 1300 et seq. of the California Corporations
Code ("Section 1300").
1.4 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, shares of RB Bancorp Common Stock and RB Bancorp Series A
Preferred Stock which are issued and outstanding immediately prior to the
Effective Time of the Reorganization and which are held by shareholders who have
not voted such shares in favor of adoption and approval of this Agreement and
the Holding Company Agreements to Merge and have properly exercised their
dissenters' rights under Section 1300 ("Dissenting Shares") shall not be
converted into or be exchangeable for the right to receive cash provided for in
Paragraph 1.2 herein, but shall be entitled to receive such consideration as
shall be determined pursuant to Section 1300; provided, however, that if any
holder of such shares shall have failed to perfect or shall have effectively
withdrawn or lost his right to dissent and receive payment under Section 1300,
such holder's shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time of the Reorganization,
the right to receive cash pursuant to Paragraph 1.2 herein, without any interest
thereon.
1.5 Effect of the Reorganization, Holding Company Merger and Bank Merger.
By virtue of the Reorganization, the Holding Company Merger and the Bank Merger
(subject to Paragraph 1.1, above), and at the Effective Time of the
Reorganization, all of the rights, privileges, powers and franchises and all
property and assets of every kind and description of RB Bancorp, BRB and FPNB
shall be vested in and be held and enjoyed by the Surviving Bank, without
further act or deed, and all the estates and interests of every kind of RB
Bancorp, BRB and FPNB, including all debts due to either of them, shall be as
effectively the property of the Surviving Bank as they were of RB Bancorp, BRB
and FPNB, and the title to any real estate vested by deed or otherwise in RB
Bancorp, BRB and FPNB shall not revert or be in any way impaired by reason of
the Bank Merger or the Holding Company Merger. All rights of creditors and liens
upon any property of RB Bancorp, BRB and FPNB shall be preserved unimpaired, and
all debts, liabilities and duties of RB Bancorp, BRB and FPNB shall be debts,
liabilities and duties of the Surviving Bank and may be enforced against it to
the same extent as if such debts, liabilities and duties had been incurred or
contracted by it; provided that none of such debts, liabilities or duties shall
be expanded, increased, broadened or enlarged by reason of the Bank Merger or
the Holding Company Merger, and such liens, if any, upon the property of RB
Bancorp, BRB or FPNB shall be limited to the property affected thereby
immediately prior to the Effective Time of the Reorganization.
1.6 Certificate of Incorporation and By-laws of Surviving Holding Company.
The Certificate of Incorporation of FP Bancorp and By-laws of FP Bancorp as
amended and in effect immediately prior to the Effective Time of the
Reorganization shall continue to be the Certificate of Incorporation and By-laws
of the Surviving Holding Company.
- 5 -
<PAGE> 14
1.7 Articles of Association and Bylaws of Surviving Bank. The Articles of
Association and Bylaws of FPNB as amended and in effect immediately prior to the
Effective Time of the Reorganization shall continue to be the Articles of
Association and Bylaws of the Surviving Bank.
1.8 Director Agreements. Pursuant to Paragraph 6.2.7 and Recital G,
concurrently with the execution of this Agreement, as a condition precedent to
FP Bancorp and FPNB entering into this Agreement and as a material inducement
for FP Bancorp and FPNB to enter into this Agreement, each of the directors of
RB Bancorp except Alan Douglas and each of the directors of BRB except Alan
Douglas and John Gonnerman (collectively, the "Directors") shall enter into a
separate "Director Agreement" in the form attached hereto as Exhibit "D".
1.9 Resignations. Effective as of the Closing, all of the directors and
officers of RB Bancorp and BRB shall resign.
2. THE CLOSING
2.1 Closing Date and Transactions Contemplated by this Agreement. The
delivery of the certificates, opinions and other documents required in order to
consummate the transactions contemplated by this Agreement (the "Closing")
shall, unless another date or place is agreed to in writing by the parties
hereto, take place at the offices of FP Bancorp, 613 West Valley Parkway,
Escondido, California, on the first day of a calendar month that occurs at least
ten business days after the last to occur of (i) the receipt of all approvals
and consents and expiration of all waiting periods specified in Paragraphs 6.1.1
and 6.1.3 hereof and (ii) satisfaction of the conditions precedent set forth in
Paragraphs 6.2 and 6.3 required to be satisfied prior to the Closing Date, or
the waiver of such conditions by RB Bancorp, BRB, FP Bancorp or FPNB, as
applicable (the "Closing Date").
2.2 Execution of Agreements to Merge. As soon as practicable after the
approval of RB Bancorp shareholders obtained under Paragraph 5.7, and in
compliance with applicable regulation, and in any event prior to the Closing
Date, the Bank Agreement to Merge and the Holding Company Agreements to Merge
shall be executed by RB Bancorp, BRB, FirstPac Corp. and FPNB, as appropriate.
On or before the Effective Time of the Reorganization, and prior to execution if
required by applicable regulatory authorities, the Bank Agreement to Merge and
the Holding Company Agreements to Merge, together with all requisite
certificates, shall be duly filed with the Office of the Comptroller of the
Currency (the "Comptroller"), the Federal Reserve Board (or Federal Reserve Bank
of San Francisco, if acting under delegated authority) ("FRB"), the Federal
Deposit Insurance Corporation ("FDIC") the California Superintendent of Banking
(the "Superintendent") and the Secretary of State of California in accordance
with and to the extent required by applicable laws and regulations.
2.3 Documents to be Delivered. At or prior to the Closing, the parties
shall deliver, or cause to be delivered, such documents or certificates as may
be necessary, in the reasonable opinion of counsel for either of the parties, to
effectuate the transactions called for in this Agreement. If, at any time
thereafter, the parties or any of their respective successors or assigns shall
determine that any further conveyance, assignment or other documents or any
further action is necessary or desirable to further effectuate the transactions
set forth herein or contemplated hereby, the officers and directors of the
Parties shall execute and deliver, or cause to be executed and delivered, all
such documents as may be reasonably required to effectuate such transactions.
2.4 Deposit of Funds with Exchange Agent. At or before the Closing Date, RB
Bancorp shall deliver to the Exchange Agent the Good Faith Deposit of $50,000
and the Additional Deposit of $200,000 plus accrued interest upon both the Good
Faith Deposit and the Additional Deposit from August 18, 1995 and FP Bancorp
will deliver to the Exchange Agent the aggregate funds required under Paragraph
1.2 less the amount of the Good Faith Deposit and the amount of the Additional
Deposit plus interest accrued and anticipated by RB Bancorp and FP Bancorp upon
both the Good Faith Deposit and the Additional Deposit from August 18, 1995,
through the Closing Date, and FP Bancorp shall, after the Effective Time of the
Reorganization, cause the Exchange Agent to distribute all such funds deposited
by it and by RB Bancorp in accordance with Paragraph 1.2. The agreement to be
entered into between FP Bancorp and the Exchange Agent shall require that the
Exchange Agent distribute the consideration required by this Agreement to
non-dissenting shareholders of RB Bancorp as
- 6 -
<PAGE> 15
soon as possible following the Closing, and in any event, within ten (10) days
after the Exchange Agent has received all information required by it to make
such distribution.
3. WARRANTIES OF RB BANCORP AND BRB
RB Bancorp and BRB jointly and severally warrant to FP Bancorp and FPNB
that the statements set forth below are true and correct as of the date of this
Agreement or the date on which the specified Schedule is received by FP Bancorp,
whichever is later, except those that are specifically as of a different date:
3.1 Organization Standing and Power. RB Bancorp is a California
corporation, duly organized, validly existing and in good standing under the
laws of the State of California. BRB is a banking corporation, duly organized,
validly existing and in good standing under the laws of the State of California.
RB Bancorp has no Subsidiary other than BRB and BRB has no Subsidiaries. Each of
RB Bancorp and BRB has all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as presently
conducted. Neither RB Bancorp nor BRB is required to qualify as a foreign
corporation in any jurisdiction. Schedule 3.1 contains true and correct copies
of RB Bancorp's Articles of Incorporation and Bylaws, as amended and in effect
as of the date hereof, and BRB's Articles of Incorporation and Bylaws, as
amended and in effect as of the date hereof. As used herein an entity is a
"Subsidiary" if it is owned or controlled in whole or in part.
3.2 Capitalization. As of the date of this Agreement, the authorized
capitalization of RB Bancorp consists solely of (i) 10,000,000 shares of common
stock, no par value ("RB Bancorp Common Stock"), of which 9,955 shares are
issued and outstanding and (ii) 23,358 shares of preferred stock designated as
"Series A Preferred Stock," $100.00 par value, of which 23,358 shares are issued
and outstanding ("RB Bancorp Series A Preferred Stock"). All of the outstanding
shares of RB Bancorp Common Stock and RB Bancorp Series A Preferred Stock are
validly issued, fully paid and non-assessable. As of the date of this Agreement,
the authorized capitalization of BRB consists solely of common stock ("BRB
Common Stock"), of which there are issued and outstanding shares, all of which
are owned by RB Bancorp. All of the outstanding shares of BRB Common Stock are
validly issued, fully paid and non-assessable. There are no outstanding options,
warrants, commitments, agreements or other rights in or with respect to the
unissued shares of RB Bancorp Common Stock, RB Bancorp Series A Preferred Stock
or BRB Common Stock or any other securities convertible into RB Bancorp Common
Stock, RB Bancorp Series A Preferred Stock or BRB Common Stock. Schedule 3.2
sets forth a complete list of all holders of RB Bancorp Common Stock and RB
Bancorp Series A Preferred Stock, the number of shares held, and the current
mailing and residence addresses (if different) of each of such holders.
Immediately prior to the Effective Time of the Reorganization, all issued and
outstanding shares of RB Bancorp Common Stock and RB Bancorp Series A Preferred
Stock will have been outstanding on the date of this Agreement.
3.3 Equity Interests. Neither RB Bancorp nor BRB owns, directly or
indirectly, any equity position or other voting interest in any corporation,
partnership, joint venture or other entity other than BRB, and BRB does not own,
directly or indirectly (except as pledgee pursuant to loans which are not in
default), any equity, position or other voting interest in any corporation,
partnership, joint venture or other entity.
3.4 Banking Activities. RB Bancorp is a bank holding company authorized
under the Bank Holding Company Act as such by the FRB. BRB is authorized by the
Superintendent to conduct a general banking business and is not authorized to
conduct a trust business. BRB is not a member of the Federal Reserve System.
BRB's deposits are insured by the FDIC in the manner and to the full extent
provided by law.
3.5 Financial Statements. RB Bancorp has furnished to FP Bancorp its
audited consolidated financial statements for the years ended December 31, 1990,
1991, 1992, 1993 and 1994 certified by KPMG Peat Marwick, L.L.P. ("KPMG")
(collectively "RB Bancorp's Audited Financial Statements") and its unaudited
consolidated financial statements at and for the six-month period ended June 30,
1995 (hereinafter referred to together with any unaudited financial statements
of RB Bancorp for any subsequently ended periods and as of any subsequent dates,
as "RB Bancorp's Unaudited Financial Statements"). RB Bancorp's Audited
Financial Statements were and shall be prepared in accordance with generally
accepted accounting principles ("GAAP")
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except as disclosed therein or in the notes thereto and present and will present
fairly the financial position of RB Bancorp as of the dates thereof and the
results of operations and changes in financial position and cash flows as
applicable for the periods then ended. RB Bancorp's Unaudited Financial
Statements were and shall be prepared in accordance with GAAP, subject to such
differences in accounting as RB Bancorp and BRB implement in the ordinary course
of business consistent with past practice, and present and will present fairly
the financial position of RB Bancorp as of the dates thereof and the results of
operations and changes in financial position and cash flows as applicable for
the periods then ended. None of RB Bancorp's Audited Financial Statements or
Unaudited Financial Statements contain or will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading.
3.6 RB Bancorp's and BRB's Authority. The execution and delivery by RB
Bancorp and BRB of this Agreement and the documents set forth in Exhibits "A"
and "B," as appropriate, and, subject to the requisite approval of the
shareholders of RB Bancorp, and RB Bancorp, in its capacity as sole shareholder
of BRB, the consummation of the transactions contemplated hereunder or
thereunder have been duly and validly authorized by all necessary corporate
action on the part of RB Bancorp and BRB, and this Agreement is and those
documents will be upon due certification, execution, acknowledgment and filing
thereof in accordance with applicable law, valid and binding obligations of RB
Bancorp and BRB, enforceable in accordance with their terms, except as the
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles, and subject to receipt of all applicable bank
and bank holding company regulatory approvals. Except as set forth in Schedule
3.6, neither the execution and delivery by RB Bancorp and BRB of this Agreement
or the documents set forth in Exhibits "A" or "B," nor the consummation of the
transactions contemplated herein or therein, nor compliance by RB Bancorp or BRB
with the provisions hereof or thereof, will (i) conflict with or result in a
breach of any provision of RB Bancorp's or BRB's Articles of Incorporation and
Bylaws; (ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which RB Bancorp or BRB is a party, or by which RB
Bancorp, BRB or any of their respective properties or assets are bound, except
where such breach or default would not have a material adverse effect on the
financial condition, results of operations or prospects of RB Bancorp or BRB;
(iii) constitute a breach of, or result in a default (or give rise to any rights
of termination, acceleration or cancellation, or any right to acquire any
securities or assets) under any material agreement which RB Bancorp, BRB or any
of their respective properties or assets are bound; or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to RB Bancorp
or BRB. No consent or approval of, notice to or filing with any governmental
authority having jurisdiction over any aspect of the business or assets of RB
Bancorp or BRB, and except as set forth in Schedule 3.6, no consent or approval
of or notice to any other person or entity, is required in connection with the
execution and delivery by RB Bancorp or BRB of this Agreement, the documents set
forth in Exhibits "A" and "B," as appropriate, or the consummation by RB Bancorp
and BRB of the transactions contemplated hereunder or thereunder, except
approval of the Reorganization by the shareholders of RB Bancorp and BRB;
approval of the Reorganization by: (W) the Comptroller pursuant to Section
1828(c)(2)(A) of Title 12 of the United States Code ("Section 1828(c)(2)(A)"),
(X) the FRB, pursuant to Section 1842 of Title 12 of the United States Code
("Section 1842"), if required, (Y) the FDIC, pursuant to Section 1828(c)(1)(A)
of Title 12 of the United States Code ("Section 1828(c)(1)(A)"), if required,
and (Z) the Superintendent, pursuant to Section 701 of the California Financial
Code ("Section 701"), if required; and except for the filing of the documents
set forth in Exhibits "A" and "B" with the Secretary of State of California
pursuant to the California Corporations Code and with the Comptroller pursuant
to the provisions of the National Banking Act. As used in this Agreement, the
terms "material adverse effect" and "material adverse change" used with respect
to RB Bancorp or BRB, their financial condition, results of operations,
prospects or businesses, refer to a decrease in RB Bancorp's shareholders'
equity below $5,000,000.
3.7 Insurance. Except as set forth in Schedule 3.7(a), each of RB Bancorp
and BRB has and at all times within five years prior to the date of this
Agreement has had, in full force and effect policies of insurance and bonds
(including without limitation bankers' blanket bond, fidelity coverage, director
and officer liability, fire, third party liability, use and occupancy) with
respect to its assets and businesses and against casualties and
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contingencies which in the judgment of RB Bancorp or BRB are adequate and
appropriate to cover its assets and businesses. Set forth in Schedule 3.7(b) is
a schedule of all policies of insurance and bonds (other than title or credit
insurance) carried and owned by RB Bancorp and BRB as of the date of this
Agreement, showing the name of the insurance or bonding company, a summary of
the coverage, the amounts, the deductible features, the annual premiums and the
expiration dates. If any such policy or bond is changed, terminated or modified
following the date of this Agreement, such termination, change or modification
shall be promptly disclosed to FP Bancorp in writing. Neither RB Bancorp nor BRB
is in default under any such policy of insurance or bond such that it could be
canceled, and all material claims thereunder have been filed in a timely
fashion. Each of RB Bancorp and BRB has filed claims with or given notice of
claim to its insurers or bonding companies with respect to all matters and
occurrences for which it believes it has coverage.
3.8 Proxy Statement. The Proxy Statement (as defined in Paragraph 5.8.1)
and any other documents to be filed with any regulatory authority in connection
with the transactions contemplated by this Agreement or referring to such
transactions in connection with any other acquisition, merger or offering by or
involving FP Bancorp or FPNB, or otherwise, with respect to all information set
forth therein relating to RB Bancorp, BRB, the Reorganization, Holding Company
Merger and Bank Merger and in respect to this Agreement and the Holding Company
Agreements to Merge and the Bank Agreement to Merge will, at the respective
times such documents are filed or become effective, and with respect to the
Proxy Statement, at the time of mailing to shareholders, and at the time of the
meeting of shareholders of RB Bancorp:
3.8.1 comply in all material respects with the provisions of all
applicable regulations; and
3.8.2 not contain any statement which, at the time and in light of the
circumstances under which it is made, is, knowingly false or misleading with
respect to any material fact, or omit any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which have become false or
misleading.
3.9 Books and Records.
3.9.1 The minute books of RB Bancorp and BRB provided to FP Bancorp
contain (i) true, accurate and complete records of all meetings and actions
taken by the respective Boards of Directors, Board committees and shareholders
of RB Bancorp and BRB and (ii) true and complete copies of its respective
charter documents and bylaws and all amendments thereto. The books and records
of RB Bancorp and BRB accurately reflect in all material respects their
businesses and affairs.
3.9.2 Each of RB Bancorp and BRB has records which accurately and
validly reflect its transactions and accounting controls sufficient to insure
that such transactions are (i) executed in accordance with management's general
or specific authorization, and (ii) recorded in conformity with GAAP; such
records, to the extent they contain important information pertaining to RB
Bancorp or BRB which is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely pursuant to
procedures and techniques reasonably adequate for companies of the size of RB
Bancorp and in the businesses in which RB Bancorp and BRB are engaged; and the
data processing equipment, data transmission equipment, related peripheral
equipment and software used by each of RB Bancorp and BRB in the operation of
its businesses (including any disaster recovery facility) to generate and
retrieve such records are reasonably adequate for companies of the size of RB
Bancorp and in the businesses in which RB Bancorp and BRB are engaged.
3.10 Title to Assets. Each of RB Bancorp and BRB has good and transferable
title to all properties and assets, other than real property, owned or purported
to be owned by it, free and clear of all mortgages, liens, encumbrances, pledges
or charges of any kind or nature, except for (i) liens for current taxes not yet
due and payable; (ii) liens incurred in the ordinary course of business and
which do not impair the business of RB Bancorp or BRB, respectively, or detract
from the usefulness of the properties subject thereto; or (iii) such liens as
are disclosed in RB Bancorp's Audited Financial Statements as of December 31,
1994, or in Schedule 3.10.
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3.11 Real Estate. Schedule 3.11(a) contains a list of all real property,
including leaseholds, owned by RB Bancorp and BRB other than other real estate
owned ("OREO"). True, correct and complete copies of all such leases are
included in Schedule 3.11(a). Schedule 3.11(b) contains, among other things, an
accurate summary of all commitments which RB Bancorp or BRB has to improve real
estate owned by it other than any duties to repair under the leasehold
interests. Schedule 3.11(c) contains a list of the OREO of each of RB Bancorp
and BRB. Each of RB Bancorp and BRB has good and transferable title to all the
real property and valid leasehold interests in the leaseholds described in
Schedules 3.11(a), 3.11(b) and 3.11(c), with respect to real property subject to
the exceptions set forth in title insurance policies held with respect to real
property, and with respect to leasehold interests and leaseholds, free and clear
of all mortgages, covenants, conditions, restrictions, easements, liens,
security interests, charges, claims, assessments and encumbrances upon such
leasehold interests and leaseholds; and with respect to real property, leasehold
interests and leaseholds, except for (i) rights of lessors, co-lessees or
sublessees in such matters which are reflected in the leases; (ii) current taxes
not yet due and payable; (iii) such as are described in any title policies
delivered pursuant to this Paragraph 3.11; and (iv) such imperfections of title
and encumbrances, if any, which do not interfere with the present use of such
property and which are described in Schedule 3.11(d). True, correct and complete
copies of title policies for properties described in Schedules 3.11(a) and
3.11(c) owned by RB Bancorp or BRB are included therein. To the knowledge of RB
Bancorp and BRB, the activities of each of RB Bancorp and BRB with respect to
all real property and leaseholds owned by either of them for use in connection
with its operations are in all material respects permitted and authorized by
applicable zoning laws, ordinances and regulations and all laws and regulations
of any governmental department or agency relative to environmental matters
affecting such properties, except as otherwise disclosed in Schedule 3.11(e).
Each of RB Bancorp and BRB enjoys peaceful and undisturbed possession under all
leases to which it is a party, and all of such leases are valid and in full
force and effect.
3.12 Legal Proceedings and Agreements with Banking Authorities.
3.12.1 Schedule 3.12(a) contains a true, correct and complete list of
all pending litigation in which RB Bancorp or BRB is a named party. Except as
set forth in Schedule 3.12(b), there is no private or governmental suit, claim,
action, arbitration or proceeding pending, nor any private or governmental suit,
claim, action, arbitration or proceeding to RB Bancorp's or BRB's knowledge
threatened, nor does RB Bancorp or BRB know of any facts or circumstances which
would form a basis for any such suit, claim, action, arbitration or proceeding
against RB Bancorp or BRB or against any of their directors, officers or
employees relating to the performance of their duties in such capacities, or
against or affecting any properties of RB Bancorp or BRB which individually, or
in the aggregate, could have a material adverse effect upon the financial
condition, business or results of operations of RB Bancorp or BRB or the
transactions contemplated hereunder. Also, except as set forth in Schedule
3.12(b), there are no judgments, decrees, stipulations or orders against RB
Bancorp or BRB enjoining RB Bancorp or BRB or either of their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business by RB Bancorp or BRB in any area.
3.12.2 Except for the Memorandum of Understanding entered into by BRB
with the FDIC on February 26, 1993 (the "BRB MOU") and except as set forth on
Schedule 3.12(c), neither RB Bancorp nor BRB is a party to, or otherwise subject
to, any agreement or memorandum of understanding with or order of any federal,
state or foreign governmental or regulatory authority charged with the
supervision or regulation of state-chartered banks or bank holding companies or
any of the Subsidiaries or engaged in the insurance of bank deposits that
restricts the conduct of its business, or in any manner relates to its capital
adequacy, its credit or investment policies or its management.
3.13 Taxes. Except as set forth in Schedule 3.13, (i) all federal income
tax returns, all state tax returns, and all real and personal property, sales,
use and other tax returns and reports that are required by law to be filed by or
on behalf of RB Bancorp or BRB have been duly prepared and filed; (ii) all taxes
shown to be due and payable by RB Bancorp or BRB on those returns, or which are
otherwise due and payable, whether disputed or not, have been paid or the
liability therefor is reflected in RB Bancorp's Audited Financial Statements and
Unaudited Financial Statements; (iii) RB Bancorp and BRB have each paid or
deposited all taxes, tax penalties or interest owed by it or which it is
obligated to withhold and deposit from amounts paid to any employee, creditor,
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depositor or third party; and (iv) Each of RB Bancorp and BRB has complied with
all reporting requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), including but not limited to obtaining taxpayer identification numbers.
The current status of any audits of those returns by the Internal Revenue
Service or other applicable agencies is as set forth in Schedule 3.13. There are
no agreements by RB Bancorp or BRB waiving a statute of limitations or extending
the time for assessment or payment of any taxes payable by it.
3.14 Compliance with Laws and Regulations.
3.14.1 Except as set forth in Schedule 3.14, neither RB Bancorp nor
BRB is in default under or in breach of any law, ordinance, rule, regulation,
order, judgment or decree applicable to it promulgated by any governmental
agency having authority over it, where such default or breach would have a
material adverse effect on the financial condition, results of operations,
business or prospects of RB Bancorp or BRB.
3.14.2 Each of RB Bancorp and BRB has conducted its businesses in
accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, antitrust,
licensing and other laws, regulations and orders, and the forms, procedures and
practices used by each of RB Bancorp and BRB are in compliance with such laws,
regulations and orders except for such violations or noncompliance as will not
have a material adverse effect on the financial condition, results of
operations, business or prospects of RB Bancorp or BRB.
3.15 Performance of Obligations. Except as set forth in Schedule 3.15, each
of RB Bancorp and BRB has performed in all respects all of the obligations
required to be performed by it to date and is not in breach of any term or
provision of any covenant, contract, lease, indenture or any other agreement to
which it is a party or is subject to or is otherwise bound, and no event has
occurred which, with the giving of notice or the passage of time or both, would
constitute such default or breach, where such default or breach would have a
material adverse effect on the financial condition, results of operations,
business or prospects of RB Bancorp or BRB. No party with whom RB Bancorp or BRB
has an agreement which is material to the financial condition, results of
operations or prospects of RB Bancorp or BRB is in default thereunder, except
for certain loans made by BRB which have been identified in Schedule 3.15.
3.16 Employees. Except as set forth in Schedule 3.16, there are no
understandings for the employment of any officer or employee of RB Bancorp or
BRB which are not terminable by RB Bancorp or BRB, respectively, without
liability on not more than 30 days' notice. There are no material controversies
pending or threatened between RB Bancorp or BRB and any of their respective
employees. Except as disclosed in RB Bancorp's Audited Financial Statements at
December 31, 1994, all material sums due for employee compensation and benefits
have been duly and adequately paid or provided for as of that date, and, except
as set forth in Schedule 3.16, all deferred compensation obligations have been
accrued on the RB Bancorp Unaudited Financial Statements for the level of
operations set forth in the financial projections described in Paragraph 3.33.
Neither RB Bancorp nor BRB is a party to any collective bargaining agreement
with respect to any of its respective employees or any labor organization to
which its employees or any of them belong. No director, officer, or employee of
RB Bancorp or BRB is entitled to receive any payment of any amount under any
existing employment agreement, severance plan or other benefit plan as a result
of the consummation of any transaction contemplated by this Agreement.
3.17 Brokers and Finders. Neither RB Bancorp nor BRB is a party to any
agreement with any investment banker, broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for or contemplated herein
will result in any liability to any investment banker, broker or finder. RB
Bancorp and BRB jointly and severally agree to indemnify and hold FP Bancorp and
FPNB harmless from and against any and all claims, liabilities or obligations
with respect to any fees, commissions or expenses asserted by any person on the
basis of any act, statement, agreement or commitment alleged to have been made
by RB Bancorp or BRB or any of their respective affiliates or Subsidiaries
relating to the employment of any such investment banker, broker or finder
relating to the execution of this Agreement or the consummation of the
transactions contemplated hereby.
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3.18 Material Contracts. Except as set forth in Schedule 3.18 or excepted
below, neither RB Bancorp nor BRB is a party to any contract, agreement,
understanding, commitment or offer, whether written or oral, which is a binding
obligation or may become a binding obligation if accepted by another person
(collectively referred to as an "Understanding"), including the following:
3.18.1 Any loan, letter of credit, pledge, security agreement, lease
(excluding leases of real property listed in Schedule 3.11(a)), guarantee,
commitment or subordination agreement or other similar or related type of
Understanding as to which RB Bancorp or BRB is a debtor, pledgor, lessee or
obligor;
3.18.2 Any Understanding dealing with advertising, brokerage,
licensing, dealership, data processing, item processing, representative or
agency relationships providing for an aggregate annual payment in excess of
$25,000;
3.18.3 Any profit-sharing, group insurance, bonus, deferred
compensation, stock option, severance pay, pension, retirement or other
employment benefit plan;
3.18.4 Any written correspondent banking contracts;
3.18.5 Any Understanding (other than this Agreement) for the sale of
its assets other than in the ordinary course of business, or for the grant of
any preferential right to purchase any of its assets, properties or rights, or
any Understanding which requires the consent of any third party to the transfer
and assignment of any assets, properties or rights;
3.18.6 Any Understanding, other than employment arrangements disclosed
on any other Schedule or specifically referenced in this Agreement, which
provides for an annual payment or single penalty payment in excess of $25,000 in
the aggregate to purchase, sell or provide services, materials, supplies,
merchandise, facilities or equipment and which is not terminable without penalty
on not more than 30 days' notice;
3.18.7 Any Understanding for any one capital expenditure or series of
capital expenditures which is in excess of $25,000 individually or in the
aggregate;
3.18.8 Any Understanding to make, renew or extend the term of a loan
(not fully disbursed or funded as of June 30, 1995) to any person or to any
affiliate of such person, which undisbursed or unfunded amounts, when aggregated
with all outstanding indebtedness of such person or any affiliate or such person
to RB Bancorp and/or BRB, would exceed $150,000. The term "person" as used
herein and throughout this Agreement shall mean any individual, corporation,
association, partnership, joint venture or other entity or any government or
governmental department or agency. The term "affiliate of" or a "person
affiliated with" a specific person as used herein and throughout this Agreement
shall mean a person that directly or indirectly through one or more
intermediaries controls or is controlled by or under common control with the
person specified;
3.18.9 Any Understanding of any kind, except for deposit relationships
or loans made prior to June 30, 1995, with any director or officer of RB Bancorp
or BRB or with any affiliate or any member of the immediate family of any such
director or officer. The term "immediate family" as used herein and throughout
this Agreement shall mean a person's spouse, in-laws, children and siblings;
3.18.10 Any Understanding which would be terminable other than by RB
Bancorp or BRB as a result of the consummation of the transactions contemplated
by this Agreement;
3.18.11 Any contract of participation with any other bank in any loan
entered into by RB Bancorp or BRB subsequent to June 30, 1995 in excess of
$150,000, or any sales of assets of RB Bancorp or BRB with recourse of any kind
to RB Bancorp or BRB;
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3.18.12 Any Understanding of any kind that binds RB Bancorp or BRB and
contains a covenant not to compete; or
3.18.13 Any Understanding not otherwise disclosed or excepted pursuant
to this Paragraph 3.18 which is material to the consolidated financial
condition, results of operations, assets or business of RB Bancorp.
True and correct copies of all documents relating to the foregoing
Understandings are attached as Schedule 3.18.
3.19 Absence of Certain Changes. Except as set forth in Schedule 3.19,
since June 30, 1995, the business of each of RB Bancorp and BRB has been
conducted diligently and only in the ordinary course, in the same manner as
theretofore conducted, and there has not been any:
3.19.1 Material adverse change in, or development which is likely to
result in a material adverse change in, or have a material adverse effect on the
business, prospects, financial position, management, shareholders' equity or
results of operations of RB Bancorp or BRB;
3.19.2 Damage, destruction or loss to property (whether or not covered
by insurance), individually or in the aggregate, that is likely to result in a
material adverse change in the financial condition, property, business or
prospects of RB Bancorp or BRB;
3.19.3 Material contract, agreement, license or understanding which RB
Bancorp or BRB has entered into or to which RB Bancorp or BRB is a party which
has been terminated or amended other than in the ordinary course of business;
3.19.4 Capital expenditure exceeding $25,000 individually or in the
aggregate;
3.19.5 Labor trouble, dispute or problem of any character involving
employees having a material adverse effect upon the financial condition,
property, business or prospects of RB Bancorp or BRB;
3.19.6 Change in accounting policies or practices;
3.19.7 Material revaluation (more than $10,000) by RB Bancorp or BRB
of any of their respective assets;
3.19.8 Increase in the salary schedule, compensation, rate, fees or
commissions, or the declaration, payment, commitment or obligation of any kind
directly or indirectly through the payment by RB Bancorp or BRB of a bonus or
other additional salary, compensation, fee or commission to any person other
than an increase, declaration, payment, commitment or obligation made in the
ordinary course of business consistent with prior reviews and evaluation
practices resulting in additional payment of an amount of no more than 5% of
base salary on an annualized basis;
3.19.9 Sale, assignment or transfer of any asset of RB Bancorp or BRB
except in the usual and ordinary course of business;
3.19.10 Mortgage, pledge or encumbrance of any asset of RB Bancorp or
BRB other than liens for taxes not yet due, pledges or security interests given
in connection with the acceptance of repurchase agreements or government
deposits, and as set forth in Paragraphs 3.10 and 3.11;
3.19.11 Waiver or release of any right or claim of RB Bancorp or BRB
except in the usual and ordinary course of business; or
3.19.12 Declaration, setting aside or payment of any dividend or
distribution with respect to RB Bancorp Common Stock, RB Bancorp Series A
Preferred Stock or BRB Common Stock or the issuance of any
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shares of, or options to purchase, RB Bancorp Common Stock, RB Bancorp Series A
Preferred Stock, BRB Common Stock or any other securities of RB Bancorp or BRB.
3.20 Licenses and Permits. Each of RB Bancorp and BRB has all licenses and
permits which are necessary for the conduct of its businesses, and such licenses
are in full force and effect. The properties and operations of each of RB
Bancorp and BRB are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.
3.21 Undisclosed Liabilities. Neither RB Bancorp nor BRB has any
liabilities or obligations, either accrued or contingent which have not been
either (i) reflected or disclosed in RB Bancorp's Unaudited Financial Statements
as of June 30, 1995 or (ii) disclosed in Schedule 3.21. Neither RB Bancorp nor
BRB knows of any basis for the assertion against RB Bancorp or BRB of any
liability, obligation or claim (including, without limitation, that of any
regulatory authority) that might result in or cause a material adverse change in
the financial condition, results of operations or prospects of RB Bancorp which
is not fairly reflected in RB Bancorp's Unaudited Financial Statements or
otherwise disclosed in the Schedules to this Agreement.
3.22 Loans and Investments.
3.22.1 All loans and investments of each of RB Bancorp and BRB are in
all material respects legal, enforceable and authorized under applicable federal
and state laws and regulations except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and by general equitable principles. Except as
set forth in Schedule 3.22, no loan or investment held by RB Bancorp or BRB was,
at June 30 1995, (i) more than 90 days past due with respect to any scheduled
payment of principal or interest, (ii) classified as "loss," "doubtful,"
"substandard," "special mention" or "criticized" by federal banking regulators,
(iii) on a non-accrual status in accordance with BRB's respective loan review
procedures or (iv) as to any loan with a balance of more than $25,000, the
subject of any restructuring of the terms of such loan or the subject of any
waiver, acquiescence or forbearance, implied or explicit, oral or written,
pursuant to which the terms of such loan or any one of them have been modified
or have not been enforced according to the original terms of the loan
("Forbearance Agreement"). None of such investments is subject to any
restriction, contractual, statutory or other, that would materially impair the
ability of the entity holding such investment to dispose freely of any such
investment at any time, except restrictions on the public distribution or
transfer of such investments under the Securities Act of 1933, as amended
("Securities Act"), and the regulations thereunder, or state securities laws.
3.22.2 Neither RB Bancorp nor BRB has any loan, lease or other
extension of credit outstanding, or commitment to make any loan, lease or other
extension of credit, to any director, officer, employee or holder of 5% or more
of any class of stock of RB Bancorp or BRB which is not on substantially the
same terms (including interest rates, repayment terms and collateral) as would
be available for a comparable transaction with a person of similar
creditworthiness who is not a director, officer, employee or holder of 5% or
more of any class of stock of RB Bancorp or BRB.
3.23 Employee Benefit Plans.
3.23.1 Neither RB Bancorp nor BRB has, or contributes to, any pension,
retirement, profit-sharing, stock ownership, deferred compensation. other
incentive plan, or any other type of "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"))
(a "Plan"), or has any obligation or customary arrangement with employees for
bonuses, incentive compensation, vacations, severance pay, insurance or other
benefits, or have in effect any stock option, stock purchase, stock appreciation
right, deferred compensation, consulting, incentive and welfare, trust
agreements, or other contractual arrangements, plans or arrangements in respect
to any present or former directors, officers or employees (collectively referred
to together with any Plans, as "Employee Plans") except as set forth in Schedule
3.23(a). Attached as Schedule 3.23(b) are true and correct copies of such
Employee Plans.
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3.23.2 Neither RB Bancorp nor BRB contributes to any "multi-employer
plan" within the meaning of Section 3(37) of ERISA and the Code.
3.23.3 With respect to the Plans of each of RB Bancorp and BRB: (i)
each of the Plans has been operated and administered in all material respects in
compliance with applicable laws, including but not limited to ERISA and the
Code, (ii) each of the Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service stating that the Plan is so qualified and all
related trusts are exempt from federal income tax under Section 501(a) of the
Code and nothing has occurred since the day of the last such determination
letter which has resulted in or is likely to result in the revocation of such
determination letter, (iii) with respect to each Plan which is subject to Title
IV of ERISA, the present value of accrued benefits under such Plan, based upon
the actuarial assumptions set forth in such Plan, did not, as of its latest
valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, (iv) with respect to each Plan subject to
Title IV or ERISA, no material liability under Title IV of ERISA has been
incurred by BRB or any of its Subsidiaries that has not been satisfied in full,
(v) all contributions or other amounts payable by BRB or its Subsidiaries in
respect of current or prior plan years have been paid or accrued in accordance
with GAAP and Section 412 of the Code, (vi) neither BRB nor any of its
Subsidiaries has engaged in a transaction in connection with which BRB or any of
its Subsidiaries could be subject to either a material civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code, (vii) there are no pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Plan or any trusts related thereto, and (viii) the
continuation, health care coverage requirement, and notice requirements under
Section 4980B of the Code and Sections 601 through 608 of ERISA have been
satisfied in all material respects.
3.24 Loan Servicing Portfolio. Except as set forth in Schedule 3.24,
neither BRB nor any of its Subsidiaries services loans owned in whole or in part
by other persons.
3.25 Filings. Since January 1, 1990, Each of RB Bancorp and BRB has filed
all reports, registrations and statements, together with any amendments required
to be made with respect thereto, that were required to be filed with (a) the
Superintendent, (b) the FDIC, (c) the FRB, (d) the Securities and Exchange
Commission ("SEC"), and (e) any other applicable federal, foreign, state or
local governmental or regulatory authorities. Since January 1, 1990, each of RB
Bancorp and BRB has filed all required call reports of condition and income with
all appropriate bank regulatory agencies. All such reports, registrations and
filings are collectively referred to as the "RB Bancorp Filings." Upon request
by FP Bancorp and subject to applicable legal restrictions, RB Bancorp will
promptly provide to FP Bancorp all RB Bancorp Filings filed by RB Bancorp or BRB
since January 1, 1990, together with copies of any orders or other
administrative actions taken in connection with such RB Bancorp Filings. As of
their respective dates, each of the past RB Bancorp Filings (i) was true and
complete in all material respects (or was amended so as to be so promptly
following discovery of any discrepancy); and (ii) to the knowledge of RB Bancorp
and BRB, complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the governmental or regulatory authority
with which it was filed (or was amended so as to be so promptly following
discovery of any noncompliance), and none contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Any financial statement contained in any
of such RB Bancorp Filings that was intended to present the financial position
of the entities or entity to which it related fairly presented the financial
position of such entities or entity during the periods involved, and was
prepared in accordance with GAAP or applicable banking regulations consistently
applied, except as stated therein.
3.26 Powers of Attorney. No power of attorney or similar authorization
given by RB Bancorp or BRB is presently in effect or outstanding other than
powers of attorney given in the ordinary course of business with respect to
routine matters.
3.27 Accuracy and Current Status of Information Furnished. The
representations and warranties made by RB Bancorp and BRB hereby or in the
Schedules attached hereto contain no statements of fact which are untrue or
misleading, or omit any material fact which is necessary under the circumstances
to prevent the
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statements contained herein or in such Schedules from being
misleading. RB Bancorp and BRB hereby covenant that they shall, not later than
the 15th day of each calendar month between the date hereof and the Closing
Date, amend or supplement the Schedules prepared and delivered pursuant to this
Paragraph 3 to ensure that the information set forth in such Schedules
accurately reflects the status of RB Bancorp and BRB as of the last day of the
prior calendar month. RB Bancorp and BRB shall further amend or supplement the
Schedules as of the Closing Date if necessary to reflect any additional changes
in the status of each of RB Bancorp and BRB.
3.28 Environmental Matters. Neither RB Bancorp nor BRB has any actual
knowledge that any of their properties and operations are not in compliance in
all material respects with all federal, state, and local laws, regulations, and
requirements pertaining to health, safety, or the environment.
3.29 Absence of Certain Business Practices. To the knowledge of RB Bancorp
and BRB, neither RB Bancorp nor BRB, nor any officer, employee or agent of RB
Bancorp or BRB, nor any other person acting on behalf of RB Bancorp or BRB, has,
directly or indirectly, within the five years preceding the date hereof given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of RB Bancorp or BRB, or assist RB Bancorp or BRB in
connection with any actual or proposed transaction that (i) might subject any of
them to any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (ii) if not given in the past, would be reasonably expected to
have had an adverse effect on the assets, business or operation of RB Bancorp or
BRB, or (iii) if not continued in the future would be reasonably expected to
adversely affect the assets, business, operation or prospects of RB Bancorp or
BRB or which might subject RB Bancorp or BRB to suit or penalty in any private
or governmental litigation or proceeding.
3.30 Securities Activities. In the conduct of the securities activities of
each of RB Bancorp and BRB, no guarantee or assurance has been made to any
person concerning a rate of return or the preservation of capital.
3.31 Intellectual Property. Each of RB Bancorp and BRB owns or possesses
valid and binding licenses and other rights to use without payment all material
patents, copyrights, trade secrets, trade names, logos and trademarks,
servicemarks and computer software used in its businesses, each of which is
listed on Schedule 3.31. Neither RB Bancorp nor BRB has received any notice of
conflict with respect thereto that asserts the right of others.
3.32 Good Faith Deposit and Additional Deposit. The Good Faith Deposit and
the Additional Deposit are maintained in the name of RB Bancorp in
interest-earning deposit accounts with BRB, and such deposits are not subject to
any lien, encumbrance, assessment or restriction and are subject to withdrawal
without penalty by RB Bancorp at any time or from time to time.
3.33 Financial Projections. The financial projections provided by RB
Bancorp and BRB with respect to 1995, which have been separately acknowledged by
the parties as of the date of this Agreement and are attached as Schedule 3.33
have been prepared in good faith and are based upon and prepared in accordance
with methods used for preparation of projections prepared in the ordinary course
of business for the use of the respective Boards of Directors of RB Bancorp and
BRB.
3.34 Effective Date of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of RB Bancorp
or BRB set forth in this Agreement shall be deemed to be made on and as of the
date of this Agreement, except those that are specifically as of a different
date, as of the Closing Date and as of the Effective Time of the Reorganization.
4. REPRESENTATIONS AND WARRANTIES OF FP BANCORP AND FPNB
FP Bancorp and FPNB jointly and severally represent and warrant to RB
Bancorp and BRB that the statements set forth below are true and correct as of
the date of this Agreement, except those that are specifically as of a different
date:
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4.1 Organization Standing and Power. FP Bancorp is a Delaware corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and qualified to do business and is in good standing in the
State of California. FPNB is a national banking association, duly organized,
validly existing and in good standing under the laws of the United States of
America. Each of FP Bancorp and FPNB has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as presently conducted. Neither FP Bancorp nor FPNB is required to
qualify as a foreign corporation in any jurisdiction except that FP Bancorp is
qualified to do business in the State of California. Schedule 4.1 contains true
and correct copies of FP Bancorp's Certificate of Incorporation and By-laws, as
amended and in effect as of the date hereof, and FPNB's Articles of Association
and Bylaws, as amended and in effect as of the date hereof.
4.2 Banking Activities. FP Bancorp is a bank holding company authorized
under the Bank Holding Company Act as such by the FRB. FPNB is authorized by the
Comptroller to conduct a general banking business. FPNB is a member of the
Federal Reserve System. FPNB's deposits are insured by the FDIC in the manner
and to the full extent provided by law.
4.3 Financial Statements. FP Bancorp has furnished to RB Bancorp its
audited consolidated financial statements for the years ended December 31, 1990,
1991, 1992, 1993 and 1994 certified by KPMG (collectively "FP Bancorp's Audited
Financial Statements") and its unaudited consolidated financial statements at
and for the six-month period ended June 30, 1995 (hereinafter referred to
together with any unaudited financial statements of FP Bancorp for any
subsequently ended periods and as of any subsequent dates, as "FP Bancorp's
Unaudited Financial Statements"). FP Bancorp's Audited Financial Statements and
Unaudited Financial Statements were and shall be prepared in accordance with
GAAP except as disclosed therein or in the notes thereto and present and will
present fairly the financial position of FP Bancorp as of the dates thereof and
the results of operations and changes in financial position and cash flows as
applicable for the periods then ended. None of FP Bancorp's Audited Financial
Statements or Unaudited Financial Statements contain or will contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading.
4.4 FP Bancorp's and FPNB's Authority. The execution, delivery and
performance by FP Bancorp and FPNB of this Agreement and the documents set forth
in Exhibits "A" and "B," as appropriate, and the consummation of the
transactions contemplated hereunder or thereunder have been duly and validly
authorized by all necessary action on the part of FP Bancorp and FPNB, and this
Agreement is and those documents will be upon due certification, execution,
acknowledgment and filing thereof in accordance with applicable law, valid and
binding obligations of FP Bancorp, FirstPac Corp. and FPNB, enforceable in
accordance with their terms, except as the enforceability hereof or thereof may
be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and by general equitable principles. Except as
set forth in Schedule 4.4 neither the execution and delivery by FP Bancorp and
FPNB of this Agreement or the documents set forth in Exhibits "A" or "B," nor
the consummation of the transactions contemplated herein or therein, nor
compliance by FP Bancorp, FirstPac Corp. or FPNB with the provisions hereof or
thereof, will (i) conflict with or result in a breach of any provision of its
Articles of Association or Certificate of Incorporation (as the case may be) and
Bylaws; (ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which FP Bancorp or FPNB is a party, or by which FP
Bancorp or FPNB or any of their respective properties or assets are bound,
except where such breach or default would not have a material adverse effect on
the consolidated financial condition, results of operations or prospects of FP
Bancorp; (iii) constitute a breach of, or result in a default (or give rise to
any rights of termination, acceleration or cancellation, or any right to acquire
any securities or assets) under any material agreement which FP Bancorp or FPNB
or any of their respective properties or assets are bound; or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to FP
Bancorp or FPNB. No consent or approval of, notice to or filing with any
governmental authority having jurisdiction over any aspect of the business or
assets of FP Bancorp or FPNB, and except as set forth in Schedule 4.4, no
consent or approval of or notice to any other person or entity, is required in
connection with the execution and delivery by FP Bancorp or FPNB of this
Agreement, the documents set forth in Exhibits
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"A" and "B," as appropriate, or the consummation by FP Bancorp and FPNB of the
transactions contemplated hereunder or thereunder, except approval of the
Reorganization by: (W) the Comptroller pursuant to Section 1828(c)(2)(A), (X)
the FRB, pursuant to Section 1842, if required, (Y) the FDIC, pursuant to
Section 1828(c)(1)(A), if required, and (Z) the Superintendent, pursuant to
Section 701, if required; and except for the filing of the documents set forth
in Exhibits "A" and "B" with the Secretary of State of California pursuant to
the California Corporations Code and with the Comptroller pursuant to the
provisions of the National Banking Act.
4.5 Insurance. Except as set forth in Schedule 4.5(a), each of FP Bancorp
and FPNB has and at all times within five years prior to the date of this
Agreement has had, in full force and effect policies of insurance and bonds
(including without limitation bankers' blanket bond, fidelity coverage, director
and officer liability, fire, third party liability, use and occupancy) with
respect to its assets and businesses and against casualties and contingencies
which in the judgment of FP Bancorp or FPNB are adequate and appropriate to
cover its assets and businesses. Set forth in Schedule 4.5(b) is a schedule of
all policies of insurance and bonds (other than title or credit insurance)
carried and owned by FP Bancorp and FPNB, showing the name of the insurance or
bonding company, a summary of the coverage, the amounts, the deductible
features, the annual premiums and the expiration dates. If any such policy or
bond is changed, terminated or modified following the date of this Agreement,
such termination, change or modification shall be promptly disclosed to RB
Bancorp in writing. Neither FP Bancorp nor FPNB is in default under any such
policy of insurance or bond such that it could be canceled, and all material
claims thereunder have been filed in a timely fashion. Each of FP Bancorp and
FPNB has filed claims with or given notice of claim to its insurers or bonding
companies with respect to all matters and occurrences for which it believes it
has coverage.
4.6 Proxy Statement. The Proxy Statement (as defined in Paragraph 5.8.1)
and any other documents to be filed with any regulatory authority in connection
with the transactions contemplated by this Agreement or referring to such
transactions in connection with any other acquisition, merger or offering by or
involving FP Bancorp or FPNB, or otherwise, with respect to all information set
forth therein relating to FP Bancorp, FPNB, the Reorganization, Holding Company
Merger and Bank Merger and in respect to this Agreement and the Holding Company
Agreements to Merge and the Bank Agreement to Merge will, at the respective
times such documents are filed or become effective, and with respect to the
Proxy Statement, at the time of mailing to shareholders, and at the time of the
meeting of shareholders of RB Bancorp:
4.6.1 comply in all material respects with the provisions of all
applicable regulations; and
4.6.2 not contain any statement which, at the time and in light of the
circumstances under which it is made, is, knowingly false or misleading with
respect to any material fact, or omit any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which have become false or
misleading.
4.7 Books and Records.
4.7.1 The minute books of FP Bancorp and FPNB provided to RB Bancorp
contain (i) true, accurate and complete records of all meetings and actions
taken by the respective Boards of Directors, Board committees and shareholders
of FP Bancorp and FPNB and (ii) true and complete copies of its respective
charter documents and bylaws and all amendments thereto. The books and records
of FP Bancorp and FPNB accurately reflect in all material respects their
businesses and affairs.
4.7.2 Each of FP Bancorp and FPNB has records which accurately and
validly reflect its transactions and accounting controls sufficient to insure
that such transactions are (i) executed in accordance with management's general
or specific authorization, and (ii) recorded in conformity with GAAP; such
records, to the extent they contain important information pertaining to FP
Bancorp or FPNB which is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely pursuant to
procedures and techniques reasonably adequate for companies of the size of FP
Bancorp and in the businesses in which FP Bancorp and FPNB are engaged; and the
data processing equipment, data transmission equipment,
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related peripheral equipment and software used by each of FP Bancorp and FPNB in
the operation of its businesses (including any disaster recovery facility) to
generate and retrieve such records are reasonably adequate for companies of the
size of FP Bancorp and in the businesses in which FP Bancorp and FPNB are
engaged.
4.8 Title to Assets. Each of FP Bancorp and FPNB has good and transferable
title to all properties and assets, other than real property, owned or purported
to be owned by it, free and clear of all mortgages, liens, encumbrances, pledges
or charges of any kind or nature, except for (i) liens for current taxes not yet
due and payable; (ii) liens incurred in the ordinary course of business and
which do not impair the business of FP Bancorp or FPNB, respectively, or detract
from the usefulness of the properties subject thereto; or (iii) such liens as
are disclosed in FP Bancorp's Audited Financial Statements as of December 31,
1994, or in Schedule 4.8.
4.9 Legal Proceedings and Agreement with Banking Authorities.
4.9.1 Schedule 4.9(a) contains a true, correct and complete list of
all pending litigation in which FP Bancorp or FPNB is a named party. Except as
set forth in Schedule 4.9(b), there is no private or governmental suit, claim,
action, arbitration or proceeding pending, nor any private or governmental suit,
claim, action, arbitration or proceeding to FP Bancorp's or FPNB's knowledge
threatened, nor does FP Bancorp or FPNB know of any facts or circumstances which
would form a basis for any such suit, claim, action, arbitration or proceeding
against FP Bancorp or FPNB or against any of their directors, officers or
employees relating to the performance of their duties in such capacities, or
against or affecting any properties of FP Bancorp or FPNB which individually, or
in the aggregate, could have a material adverse effect upon the ability of FP
Bancorp or FPNB to consummate the transactions contemplated hereunder. Also,
except as provided in Schedule 4.9(b), there are no judgments, decrees,
stipulations or orders against FP Bancorp or FPNB enjoining FP Bancorp or FPNB
or either of their respective directors, officers or employees in respect of, or
the effect of which is to prohibit, any business practice or the acquisition of
any property or the conduct of business by FP Bancorp or FPNB in any area.
4.9.2 Except for the memorandum of understanding between FP Bancorp
and the Federal Reserve Bank of San Francisco dated May 24, 1993 (the "FP
Bancorp MOU"), neither FP Bancorp nor FPNB is a party to any agreement or
memorandum of understanding with any federal, state or foreign governmental or
regulatory authority charged with the supervision or regulation of national
banks or bank holding companies or engaged in the insurance of bank deposits
that could have a material adverse effect upon the ability of FP Bancorp or FPNB
to consummate the transactions contemplated hereunder.
4.10 Taxes. Except as set forth in Schedule 4.10 (i) all federal income tax
returns, all state tax returns, and all real and personal property, sales, use
and other tax returns and reports that are required by law to be filed by or on
behalf of FP Bancorp or FPNB have been duly prepared and filed; (ii) all taxes
shown to be due and payable by FP Bancorp or FPNB on those returns, or which are
otherwise due and payable, whether disputed or not, have been paid or the
liability therefor is reflected in FP Bancorp's Audited Financial Statements and
Unaudited Financial Statements; (iii) FP Bancorp and FPNB have each paid or
deposited all taxes, tax penalties or interest owed by it or which it is
obligated to withhold and deposit from amounts paid to any employee, creditor,
depositor or third party; and (iv) Each of FP Bancorp and FPNB has complied with
all reporting requirements of the Code, including but not limited to obtaining
taxpayer identification numbers. The current status of any audits of those
returns by the Internal Revenue Service or other applicable agencies is as set
forth in Schedule 4.10. There are no agreements by FP Bancorp or FPNB waiving a
statute of limitations or extending the time for assessment or payment of any
taxes payable by it.
4.11 Compliance with Laws and Regulations.
4.11.1 Neither FP Bancorp nor FPNB is in default under or in breach of
any law, ordinance, rule, regulation, order, judgment or decree applicable to it
promulgated by any governmental agency having authority over it, where such
default or breach would have a material adverse effect on the ability of FP
Bancorp or FPNB to consummate the transactions contemplated hereunder.
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4.11.2 Each of FP Bancorp and FPNB has conducted its businesses in
accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, antitrust,
licensing and other laws, regulations and orders, and the forms, procedures and
practices used by each of FP Bancorp and FPNB are in compliance with such laws,
regulations and orders except for such violations or noncompliance as will not
have a material adverse effect on the ability of FP Bancorp or FPNB to
consummate the transactions contemplated hereunder.
4.12 Performance of Obligations. Each of FP Bancorp and FPNB has performed
in all respects all of the obligations required to be performed by it to date
and is not in breach of any term or provision of any covenant, contract, lease,
indenture or any other agreement to which FP Bancorp or FPNB is a party or is
subject to or is otherwise bound, and no event has occurred which, with the
giving of notice or the passage of time or both, would constitute such default
or breach, where such default or breach would have a material adverse effect on
the ability of FP Bancorp or FPNB to consummate the transactions contemplated
hereunder. No party with whom FP Bancorp or FPNB has an agreement which is
material to the financial condition, results of operations or prospects of FP
Bancorp or FPNB is in default thereunder, except for certain loans made by FPNB
which in the aggregate have no material adverse effect on the ability of FP
Bancorp or FPNB to consummate the transactions contemplated hereunder.
4.13 Licenses and Permits. Each of FP Bancorp and FPNB has all licenses and
permits which are necessary for the conduct of its businesses, and such licenses
are in full force and effect. The properties and operations of each of FP
Bancorp and FPNB are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.
4.14 Filings. Since January 1, 1990, each of FP Bancorp and FPNB has filed
all reports, registrations and statements, together with any amendments required
to be made with respect thereto, that were required to be filed with (a) the
Comptroller, (b) the FDIC, (c) the FRB, (d) the SEC, and (e) any other
applicable federal, foreign, state or local governmental or regulatory
authorities. Since January 1, 1990, each of FP Bancorp and FPNB has filed all
required call reports of condition and income with all appropriate bank
regulatory agencies. All such reports, registrations and filings are
collectively referred to as the "FP Bancorp Filings." Upon request by RB Bancorp
and subject to applicable legal restrictions, FP Bancorp will promptly provide
to RB Bancorp all FP Bancorp Filings filed by FP Bancorp or FPNB since January
1, 1990, together with copies of any orders or other administrative actions
taken in connection with such FP Bancorp Filings. As of their respective dates,
each of the past FP Bancorp Filings (i) was true and complete in all material
respects (or was amended so as to be so promptly following discovery of any
discrepancy); and (ii) complied in all material respects with all of the
statutes, rules and regulations enforced or promulgated by the governmental or
regulatory authority with which it was filed (or was amended so as to be so
promptly following discovery of any noncompliance), and none contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statement contained in any of such FP Bancorp Filings that was intended to
present the financial position of the entities or entity to which it related
fairly presented the financial position of such entities or entity during the
periods involved, and was prepared in accordance with GAAP or applicable banking
regulations consistently applied, except as stated therein.
4.15 Accuracy and Current Status of Information Furnished. The
representations and warranties made by FP Bancorp hereby or in the Schedules
attached hereto contain no statements of fact which are untrue or misleading, or
omit any material fact which is necessary under the circumstances to prevent the
statements contained herein or in such Schedules from being misleading. FP
Bancorp hereby covenants that it shall, not later than the 15th day of each
calendar month between the date hereof and the Closing Date, amend or supplement
the Schedules prepared and delivered pursuant to this Paragraph 4 to ensure that
the information set forth in such Schedules accurately reflects the then-current
status of FP Bancorp and FPNB. FP Bancorp shall further amend or supplement the
Schedules as of the Closing Date if necessary to reflect any additional changes
in the status of FP Bancorp or FPNB.
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4.16 Effective Date of Representations, Warranties, Covenants and
Agreements. Each representation, warranty, covenant and agreement of FP Bancorp
or FPNB set forth in this Agreement shall be deemed to be made on and as of the
date of this Agreement, except those that are specifically of a different date,
as of the Closing Date and as of the Effective Time of the Reorganization.
5. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME OF REORGANIZATION
5.1 Access.
5.1.1 FP Bancorp and FPNB shall have the right, on reasonable notice
and during ordinary business hours, to examine through their agents, auditors
and attorneys all of the books, records and properties of RB Bancorp and BRB,
including but not limited to all loan, investment, accounting, property and
legal records and files. Such examination shall be made in a manner that will
not unreasonably interfere with the conduct of their respective businesses, but
shall not be conducted in any case in a manner that would cause the loss of the
attorney-client privilege with regard to any particular matter proposed to be
examined; provided that the presence of a director who is also an attorney, in
his capacity as a director, shall not give rise to an attorney-client privilege
for purposes of this Agreement. RB Bancorp and BRB shall provide adequate space
and facilities, to the end that such examination shall be completed
expeditiously, completely and accurately. In furtherance of the foregoing, prior
to the Closing Date, BRB and RB Bancorp shall provide FP Bancorp with all
reports, board packages and other written communications with board members at
the same times as such information is provided to such board members, including,
without limitation, management reports and analysis of OREO, classified loans,
and any other reports relating to the loan portfolio or servicing obligations
and rights of RB Bancorp or BRB. In addition, FP Bancorp shall have the right to
examine BRB's records with respect to its loan portfolio on a monthly basis. In
the event the Reorganization provided for hereby is not consummated for any
reason, FP Bancorp, FPNB, RB Bancorp and BRB each shall not, directly or
indirectly: (i) utilize for its own benefit any Proprietary Information (as
hereinafter defined) or (ii) disclose to any person any Proprietary Information,
except as such disclosure may be required in connection with this Agreement or
by law. "Proprietary Information" shall mean all confidential business
information concerning the pricing, costs, profits and plans for the future
development of business, and the identity, requirements, preferences, practices
and methods of doing business of specific customers or otherwise relating to the
business and affairs of the parties, and with respect to RB Bancorp and BRB,
other than information which (A) was lawfully in the possession of the examining
party prior to June 30, 1995 except under the Confidentiality Agreement and
Negotiation Letter; (B) is obtained by FP Bancorp, FPNB, RB Bancorp or BRB after
the date hereof from a source other than a party hereto not under an obligation
of confidentiality to the party hereto to which the information relates; or (C)
is in the public domain when received or thereafter enters the public domain
through no action of the other party. In the event the Reorganization is not
consummated for any reason, each shall return to the others all copies, notes
and records obtained in the course of negotiation and examination.
5.1.2 Until the Closing Date, representatives of FP Bancorp and FPNB
shall be invited to attend, in person, each meeting of the Board of Directors
and Directors Loan Committee of RB Bancorp and BRB; provided, however, that such
representatives shall be excused during (i) any discussion regarding the
Reorganization or the transactions contemplated by this Agreement, or (ii) the
conduct or discussion of any business requiring the advice of counsel when the
presence of such representatives would have the effect of waiving the
attorney-client privilege.
5.1.3 Access and communications to representatives of FP Bancorp and
FPNB shall be permitted and made, respectively, only to directors and executive
officers of FP Bancorp and FPNB, and any other person specifically designated by
an executive officer of FP Bancorp or FPNB as having a need to have access or to
learn of communications for the proper performance of his or her duties to FP
Bancorp or FPNB. Executive officers of BRB shall be notified of the identities
of such persons by FP Bancorp and FPNB in advance of providing access or
communications to such persons. The parties understand and agree that a clerical
assistant directly reporting to an individual who is granted access or receives
communications under this Paragraph 5.1 has the same rights to access and
communications as the person to whom he or she directly reports.
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5.2 Limitation on Conduct of RB Bancorp and BRB Prior to Closing. Between
the date hereof and the Effective Time of the Reorganization:
5.2.1 RB Bancorp and BRB each agrees to conduct its business, only in
the normal and customary manner and in accordance with safe and sound banking
practices; and
5.2.2 Neither RB Bancorp nor BRB shall, without the prior written
consent of FP Bancorp, which shall be deemed given in the event FP Bancorp does
not respond to a written request provided in accordance with the notice
provisions of this Agreement within five business days of receipt of such
request, which consent shall not be unreasonably withheld, take any of the
following actions:
a. carry on its business except in substantially the same manner
as heretofore conducted or introduce any new method of management or operation
in respect of its business and properties, except in a manner consistent with
prior practice and in the ordinary course of business;
b. amend, modify or, except as they may be terminated in
accordance with their terms, terminate any Understanding or materially default
in the performance of any of its material obligations under any Understanding;
c. terminate or unilaterally fail to renew or replace any
existing insurance or bonding coverage;
d. amend, modify, terminate or fail to renew or preserve its
business organization, material rights, franchises, permits and licenses, or
take any action which would jeopardize the continuance of the goodwill of its
customers;
e. enter into any Understanding, except (i) deposits incurred and
short-term debt securities (obligations maturing within one year) issued in the
ordinary course of business and consistent with prior practice, and liabilities
arising out of, incurred in connection with, or related to the consummation of
this Agreement; and (ii) loan sales in the ordinary course of business, without
any recourse except to a reserve account funded by an interest rate spread
otherwise payable to the servicer of the loans sold, provided that no commitment
to sell loans shall extend beyond the Effective Time of the Reorganization;
f. make any loan or other extension of credit, or enter into any
commitment to make any loan or other extension of credit, to any director,
officer, employee or shareholder;
g. grant any general or uniform increase in the rates of pay of
employees or employee benefits or any increase in salary or employee benefits of
any officer, employee or agent or pay any bonus to any person other than under
incentive bonus arrangements disclosed in Schedule 3.16;
h. sell, transfer, mortgage, encumber or otherwise dispose of any
assets or any liabilities, except in accordance with safe and sound banking
practices and consistent with prior practice or as required by any existing
contract or for ordinary repairs, renewals or replacements or as contemplated by
this Agreement;
i. except with respect to securities or related security rights
taken as collateral for loan transactions in ordinary course of business, issue,
sell, redeem or acquire for value, or agree to do so, any debt securities or any
shares of the capital stock or other ownership interests or securities
convertible into options, rights or warrants exercisable for such shares or
interests, or declare, issue or pay any dividend or other distribution of
assets, whether consisting of money, common or preferred stock, other personal
property, real property or other things of value to its shareholders, or split,
subdivide combine or reclassify any shares of its stock or other equity
security;
j. change or amend its articles of incorporation or bylaws;
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k. make its credit underwriting policies, standards or practices
relating to the making of loans and other extensions of credit, or commitments
to make loans and other extensions of credit, less stringent than those in
effect on June 30, 1995;
l. make any capital expenditures or commitments with respect
thereto, except those in accordance with safe and sound banking practices which
do not exceed $10,000 individually or $25,000 in aggregate;
m. make special or extraordinary payments not in the ordinary
course of business, to any person other than as contemplated and as disclosed in
this Agreement or the Schedules hereto as of the date hereof;
n. make any investments, by purchase of stock or securities, U.S.
Treasury securities, government agency securities, collateralized mortgage
obligations, repurchase agreements, shares of investment trusts, interests in
common trust funds, options, futures, swaps, mutual funds, bonds, guaranteed
investment contracts, annuities, or any item treated as an investment security
under GAAP, certificates of deposit, contributions to capital, property
transfers, purchases of any property or assets or otherwise, in or of any other
individual, corporation or other entity;
o. compromise or otherwise settle or adjust any assertion or
claim of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency, or amend any federal,
foreign or state tax return or report or make any tax election, or change any
method or period of accounting;
p. terminate any Plan or enter into any new employment agreement
or other employee benefit arrangement, or modify any employment agreement or
other employee benefit arrangement in effect on the date of this Agreement; or
q. agree to take or make any commitment to take any actions
prohibited by this Paragraph 5.2.
5.2.3 RB Bancorp and BRB shall each take the following actions:
a. use and devote its commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact its present business
organizations and to maintain and preserve its relationships and goodwill with
account holders, borrowers, employees and others having business relationships
with it;
b. keep in full force and effect all of its existing permits and
licenses;
c use its commercially reasonable best efforts to maintain
insurance or bonding coverage on all properties for which it is responsible and
on its business operations; and carry not less than the same coverage for
fidelity, public liability, personal injury, property damage and other risks
equal to that which is now in effect; and notify FP Bancorp in writing promptly
of any facts or circumstances which could materially adversely affect its
ability to maintain such insurance or bonding coverage;
d. perform its contractual obligations and not become in material
default on any of such obligations;
e. duly observe and conform to all legal requirements applicable
to its businesses;
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f. use and devote its commercially reasonable efforts to duly and
timely file all reports and returns required to be filed with any federal, state
or local governmental authority, unless any extensions have been duly granted by
such authority;
g. maintain its assets and properties in good condition and
repair, normal wear and tear excepted;
h. promptly advise FP Bancorp in writing of any event or any
other transaction within its knowledge whereby any person or related group of
persons acquires, directly or indirectly, record or beneficial ownership (as
defined in Rule 13d-3 promulgated by the SEC pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) or control of five percent or more
of the outstanding shares of any class of stock prior to the record date fixed
for its shareholders' meeting or any adjourned meeting thereof to approve the
transactions contemplated herein;
i. promptly notify FP Bancorp of any event of which it obtains
knowledge which may have a material adverse effect on its financial condition,
results of operations, business or prospects, or in the event it determines that
the Reorganization will not be consummated because of its inability to meet any
of the conditions set forth in Paragraph 6 hereof;
j. charge off all loans, receivables and other assets, or
portions thereof, deemed uncollectible in accordance with GAAP, applicable law
or regulation, or classified as "loss" or as directed by any regulatory
authority or any internal or outside consultant reviewer; and maintain its
allowance for credit losses at a level which is adequate to provide for all
known and reasonably expected losses on assets outstanding and other inherent
risks in its loan portfolio;
k. furnish to FP Bancorp, concurrent with distribution to its
Board of Directors, (i) a copy of any report submitted to its Board of Directors
and access to the working papers related thereto, and copies of other operating
or financial reports prepared for management of any of its businesses and access
to the working papers thereto; provided, however, that it need not furnish FP
Bancorp communications of its legal counsel regarding its rights against and
obligations to FP Bancorp, FPNB or their affiliates under this Agreement; (ii)
copies of all reports, renewals, filings, certificates, statements and other
documents filed with or received from the Superintendent, the Comptroller, the
FRB, the FDIC or any other governmental or regulatory body; (iii) monthly
unaudited statements of its condition and statements of operations, and its
quarterly unaudited statements of condition and statements of operations and
statements of changes in shareholders' equity, in each case prepared in a manner
consistent with past practice; (iv) internal operating reports describing and/or
referring to actual and planned actions relating to classified assets and/or
setting forth the grounds for classification, prepared in a manner which is
consistent with past practice, all such reports being hereinafter referred to
collectively as the "Classified Asset List." The statements regarding reserves
in each Classified Asset List shall be made in reference to the loan loss
reserve calculation methodology used by RB Bancorp and BRB in the ordinary
course of business. Each of the financial statements delivered pursuant to this
Paragraph 5.2.3.k, except as stated therein, shall be prepared in accordance
with past practice in the ordinary course of business. Each of the financial
statements delivered pursuant to this Paragraph 5.2.3.k shall be accompanied by
a certificate of any two officers of the delivering party, one of whom shall be
the chief financial officer or controller, to the effect that such financial
statements fairly present its financial condition and results of operations for
the periods covered, and reflect all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation;
l. maintain proper reserves for contingent liabilities in
accordance with GAAP;
m. promptly notify FP Bancorp of the filing within its knowledge
of any litigation, governmental or regulatory action, or similar proceeding or
notice of any claims against it or any of its assets;
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n. advise FP Bancorp as to the amount and terms of any
commitments to make loans or other extensions of credit; and
o. advise FP Bancorp as to any employee resignations or
terminations.
p. provide reasonable cooperation within reasonable timeframes
set by FP Bancorp, including making personnel available as required, to assist
FP Bancorp and to prepare information for use by FP Bancorp regarding RB Bancorp
and BRB in connection with regulatory and securities filings directly or
indirectly related or referring to the Reorganization or other acquisitions,
mergers or offerings of FP Bancorp or FPNB.
5.2.4 RB Bancorp and BRB each agrees that through the Effective Time
of the Reorganization, as of their respective dates, (i) each of their Filings
will be true and complete in all material respects; and (ii) each Filing will
comply in all material respects with all of the statutes, rules and regulations
enforced or promulgated by the governmental or regulatory authority with which
it will be filed, and none will contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they will
be made, not misleading. Any financial statement contained in any of such
Filings that is intended to present the financial position of the entities or
entity to which it relates will fairly present the financial position of such
entities or entity during the periods involved, and will be prepared in
accordance with GAAP or applicable banking regulations consistently applied,
except as stated therein;
5.2.5 RB Bancorp shall maintain each of the Good Faith Deposit and the
Additional Deposit (plus interest accrued on each from the date of delivery of
the Additional Deposit by FP Bancorp to RB Bancorp) in an interest-earning
account with BRB, free of liens, encumbrances and claims, and shall provide
statements at least monthly to FP Bancorp setting forth the balance of each such
account.
5.3 Certain Loans and Other Extensions of Credit. RB Bancorp and BRB will
promptly inform FP Bancorp of the amounts and categories of any loans, leases or
other extensions of credit that have been classified by any bank regulatory
authority, or any internal or outside consultant reviewer, or deemed by such
party to require special attention pursuant to its internal policies
(collectively "Classified Credits"). In addition, RB Bancorp and BRB shall
furnish to FP Bancorp, concurrent with distribution to either of their Boards of
Directors, schedules, including the following: (a) Classified Credits; (b)
nonaccrual credits; (c) accrual exception credits that are delinquent 90 or more
days and have not been placed on nonaccrual status; (d) participating loans and
leases, stating, with respect to each, whether it is purchased or sold, the loan
or lease type, and the originating unit; (e) loans or leases (including any
commitments) by a party, or to any director, officer at or above vice president
level, or shareholder holding five percent or more of the capital stock of such
party; (f) letters of credit; (g) loans or leases charged off during the
previous month; (h) loans or leases written down during the previous month; and
(i) other real estate or assets owned, stating with respect to each its type.
Without limiting any other provisions hereof, BRB shall charge off all OREO
based upon the fair market value of OREO less selling expenses, subject to
review and approval of FP Bancorp within 30 days prior to the Closing.
5.4 Negotiations With Other Parties. Neither RB Bancorp nor BRB shall
authorize or knowingly permit any of its representatives to, nor shall either of
them in any other manner, directly or indirectly, entertain, solicit or
encourage, or participate in any discussions, except for oral responses to
unsolicited inquiries, or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than a party
hereto and its representatives) concerning any Acquisition Proposal (as
hereinafter defined) other than the Acquisition Proposal set forth in this
Agreement. RB Bancorp and BRB shall notify FP Bancorp immediately in the manner
set forth in Paragraph 8.3 if any such inquiry or Acquisition Proposal is
received by either of them, including the terms thereof. For purposes of this
Agreement, "Acquisition Proposal" means any (i) proposal pursuant to which any
corporation, partnership, person or other entity or group would acquire or
participate in a merger or other business combination involving RB Bancorp or
BRB; (ii) proposal by which any corporation, partnership, person or other entity
or group would acquire the right to vote five percent or more of any class of
the capital stock of RB Bancorp or BRB, other than acquisition of voting rights
by persons designated
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as proxy holders by the applicable Board of Directors, and excluding any rights
any shareholder not a party or bound by a Director Agreement may have to solicit
proxies for such shareholder's own account; (iii) acquisition of the assets of
RB Bancorp or BRB other than in the ordinary course of business; (iv)
acquisition in excess of five percent of any class of the outstanding capital
stock of RB Bancorp or BRB, other than as contemplated by this Agreement; or (v)
any other reorganization or recapitalization of RB Bancorp or BRB.
5.5 Affirmative Conduct of RB Bancorp, BRB, FP Bancorp and FPNB Prior to
Closing. Between the date hereof and the Effective Time of the Reorganization,
RB Bancorp, BRB, FP Bancorp and FPNB agree that each of them shall do the
following:
5.5.1 Use its commercially reasonable best efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Paragraph 6 hereof; and
5.5.2 Advise the other parties hereto promptly in writing of any
matter which would make the representations and warranties set forth in
Paragraphs 3 or 4 hereof, as applicable, not true and correct in any material
respect at the Closing.
5.6 Accountants. Promptly upon request of FP Bancorp, RB Bancorp and/or BRB
will ask its independent accountants to permit FP Bancorp or its representatives
to review and examine the work papers relating to RB Bancorp's and/or BRB's
audited financial statements for, and other accounting records and tax returns
related to, the years ended December 31, 1990, 1991, 1992, 1993, 1994 and (if
completed prior to the Effective Time of the Reorganization) 1995, and permit
such independent accountants to discuss with FP Bancorp any matter relating to
the audits, accounting records and tax returns of the reviewed party and any
management letter related to any of such matters.
5.7 Submission to Shareholders. Subject to satisfaction of applicable
federal and state securities law requirements, if any, not later than 45 days
after the last date on which this Agreement and each of the Director Agreements
are actually executed, unless extended with the mutual written consent of the
parties, RB Bancorp shall take all such actions as may reasonably be required to
submit to its shareholders and obtain shareholder approval of, and the RB
Bancorp shareholders shall vote upon the approval of, the transactions
contemplated hereby and all requisite matters incident thereto. RB Bancorp shall
recommend that its shareholders vote in favor of approval of the transactions
contemplated hereby.
5.8 Preparation of Proxy Statement.
5.8.1 FP Bancorp will cooperate fully with RB Bancorp within
reasonable timeframes set by FP Bancorp in the preparation of the Proxy
Statement that will be used to solicit proxies of RB Bancorp shareholders in
connection with the approval and adoption of this Agreement, the Holding Company
Agreements to Merge and the Bank Agreement to Merge , including any registration
statement or application for qualification that may be required in connection
with such solicitation (the "Proxy Statement"). In connection therewith, RB
Bancorp and FP Bancorp will each furnish all financial or other information,
certificates, consents, and opinions of counsel, reasonably deemed necessary by
the applicable party for the preparation of the Proxy Statement.
5.8.2 RB Bancorp and FP Bancorp each covenants and agrees that all
information furnished by it to the other for inclusion in the Proxy Statement
prepared pursuant to Paragraph 5.8.1, will comply in all material respects with
the provisions of applicable law, including the Securities Act and the Exchange
Act, to the extent applicable, and the rules and regulations promulgated
thereunder, and will not contain any untrue statement of a material fact and
will not omit to state any material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
5.8.3 RB Bancorp will comply with all applicable state "blue sky"
laws.
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5.9 Corporate Action. The parties shall each take or cause to be taken all
necessary corporate action required to carry out the transactions contemplated
in this Agreement, the Holding Company Agreements to Merge and the Bank
Agreement to Merge.
5.10 Regulatory Approvals. Promptly following execution of this Agreement,
the parties hereto shall prepare, submit and file, or cause to be prepared,
submitted and filed, under the direction of FP Bancorp, all applications for
approvals and consents as may be required of any of them by applicable law and
regulations with respect to the transactions contemplated by this Agreement, the
Holding Company Agreements to Merge and the Bank Agreement to Merge, including
without limitation any and all applications required to be filed with the FDIC,
the Comptroller, the FRB and such other governmental or regulatory authorities
as FP Bancorp or RB Bancorp may reasonably believe necessary. Each party shall
cooperate with the others in the preparation of all of those applications and
will furnish promptly upon request all documents, information, financial
statements or other materials as may be required in order to complete said
applications. Each party shall afford the others a reasonable opportunity to
review all such applications (except confidential portions thereof) and all
amendments and supplements thereto before filing. RB Bancorp, BRB, FP Bancorp,
and FPNB each covenants and agrees that any and all information furnished by it
to the others for inclusion in such applications will not contain any untrue
statement of a material fact and will not omit to state any material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
5.11 Necessary Consents. In addition to the regulatory approvals referred
to in Section 5.10, the parties hereto shall each apply for and diligently seek
to obtain all other third party consents or approvals which may be necessary for
the consummation of the Reorganization, including without limitation the written
consent of any lessors of real and personal property which property cannot be
assigned without the written consent of such lessors.
5.12 Employees.
5.12.1 RB Bancorp and BRB shall terminate all of their employees
immediately prior to the Effective Time of the Reorganization. The Surviving
Holding Company and the Surviving Bank shall have the right (but not the
obligation) to employ, as officers and/or employees of the Surviving Holding
Company or the Surviving Bank immediately following the Effective Time of the
Reorganization, any persons who are officers or employees of RB Bancorp or BRB
immediately prior to the Effective Time of the Reorganization.
5.12.2 The parties shall cooperate, under the direction of FPNB, in
preparing for and implementing the termination and/or merger of the RB Bancorp
and BRB Employee Plans, and in accordance with such implementation, RB Bancorp
and BRB shall, to the extent reasonably necessary, take all reasonable steps to
cease participation or accrual of benefits, effective by each person employed by
RB Bancorp or BRB prior to the Effective Time of the Reorganization in each of
its Employee Plans, to terminate each of its Employee Plans, other than an
Employee Plan containing a cash or deferred arrangement qualified under Section
401(k) of the Code ("Employee 401(k) Plan"), effective as of the Effective Time
of the Reorganization, and shall prepare and submit an Application for
Determination Upon Termination to the Internal Revenue Service with respect to
each Employee Plan.
5.12.3 Notwithstanding any provision of this Agreement to the
contrary, FP Bancorp and FPNB shall be permitted to negotiate in good faith with
any officer or key employee of BRB concerning the terms of his or her potential
continued employment with FP Bancorp or the Surviving Bank, and to enter into
any written agreement with such officer or key employee, subject to the approval
of the other party or parties to the transaction employing such officer at the
date hereof.
5.12.4 This Paragraph 5.12 shall survive the Closing and the Effective
Time of the Reorganization.
5.13 Data Processing Conversion. The parties shall cooperate, under the
direction of FPNB in preparing and implementing a plan for conversion and/or
coordination of data processing systems and capabilities.
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5.14 Customer Contacts. The parties shall cooperate to coordinate a plan
for FPNB personnel to meet with customers of BRB and for FPNB to make other
contacts to maximize customer retention, while minimizing disruptions of the
business of BRB.
5.15 Further Assurances. The parties agree that, from time to time, whether
prior to, at or after the Effective Time of the Reorganization, they will
execute and deliver such further instruments of conveyance and transfer and take
such other action as may reasonably be expected to timely consummate the
transactions contemplated hereby. FP Bancorp, FPNB and BRB each agrees to take
such further action as may reasonably be requested by any of the others in order
to timely consummate the transactions contemplated by this Agreement and that
are not inconsistent with the other provisions hereof.
6. CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS
6.1 General Conditions. The obligations of each of the parties hereto to
consummate the transactions contemplated herein are further subject to the
satisfaction, on or before the Closing Date, of the following conditions
precedent:
6.1.1 Securityholder Approvals. The transactions contemplated hereby
shall have received all requisite approvals of the shareholders of RB Bancorp,
BRB and FPNB.
6.1.2 No Proceedings. No legal, administrative, arbitration,
investigatory or other proceeding by any governmental authority shall have been
instituted and remain pending by or before a court or any governmental authority
to restrain or prohibit the transactions contemplated hereby.
6.1.3 Regulatory Approvals. To the extent required by applicable law
or regulation, all approvals or consents of any governmental authority,
including without limitation those of the Comptroller and the FRB, FDIC and
Superintendent, if required, shall have been obtained or made for the
transactions contemplated hereby. All other statutory or regulatory requirements
for the valid completion of the transactions contemplated hereby shall have been
satisfied.
6.2 Conditions to Obligations of FP Bancorp. The obligations of FP Bancorp
and FPNB to effect the transactions contemplated hereby shall be subject to the
following conditions, any of which may be waived in writing by FP Bancorp:
6.2.1 Representations and Warranties, and Performance of Covenants.
Each of the material representations and warranties of RB Bancorp and BRB set
forth herein shall be true and correct as of the Closing Date and the Effective
Time of the Reorganization in all material respects, as if made on such date,
and RB Bancorp and BRB shall have performed in all material respects all of the
material covenants to be performed by them on or prior to the Effective Time of
the Reorganization; provided that:
a. no material representation or warranty made with reference to
a "material adverse effect" or "material adverse change," that is not true or
correct, individually or in combination with any other such representations or
warranties, shall be deemed not to be true or correct if the untruth or
incorrectness thereof has not resulted in and would not result in the referenced
"material adverse effect" or "material adverse change;"
b. no material covenant made with reference to a "material
adverse effect" or "material adverse change," that has not been performed in all
material respects, individually or in combination with any other such covenants,
shall be deemed not to have been performed in all material respects if the
failure to perform has not resulted in and would not result in the referenced
"material adverse effect" or "material adverse change;" and
c. Paragraphs 5.2.2.g, 5.2.2.h, 5.2.2.i, 5.2.2.m, 5.2.2.p,
5.2.3.k and 5.2.3.m shall be deemed to be material covenants.
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6.2.2 Opinion of Counsel for BRB. FP Bancorp shall have received from
Duckor & Spradling, counsel to RB Bancorp and BRB an opinion dated the Effective
Time of the Reorganization in substantially the form attached hereto as Exhibit
"E."
6.2.3 Authorization of Reorganization. All actions necessary to
authorize the execution, delivery and performance of this Agreement by RB
Bancorp and BRB and the consummation of the transactions contemplated hereunder
shall have been duly and validly taken by the Board of Directors of RB Bancorp
and BRB, and RB Bancorp and BRB shall have full corporate power and right to
take the actions required of them by the documents set forth in Exhibits "A" and
"B."
6.2.4 Regulatory Approvals and Related Conditions. Any and all
governmental and regulatory approvals and consents referred to in Paragraph
6.1.3 and any other paragraph of this Agreement shall have been granted without
the imposition of conditions that are or would have become applicable to the
Surviving Holding Company or the Surviving Bank that are in excess of conditions
typical in community bank acquisitions and any additional conditions under the
FP Bancorp MOU, the BRB MOU or other BRB regulatory agreements.
6.2.5 Third Party Consents. FP Bancorp, FPNB, RB Bancorp and BRB shall
have obtained all consents of other parties to their material mortgages, notes,
leases, franchises, agreements, licenses and permits as may be necessary to
permit the transactions contemplated herein to be consummated, without default,
acceleration, breach or loss of rights or benefits thereunder.
6.2.6 Absence of Certain Changes. As of the Closing Date, there shall
not exist any of the following: (i) any materially adverse change in the
financial condition, results of operation or prospects of RB Bancorp or BRB
since June 30, 1995; or (ii) any damage, destruction, loss or event which has a
material adverse effect upon the properties, business or prospects of RB Bancorp
or BRB.
6.2.7 Director Agreements. Each of the RB Bancorp Directors who
entered into a Director Agreement in the form attached hereto as Exhibit "D,"
shall have performed in all material respects the obligations to be performed by
him thereunder prior to the Closing, and each such Director Agreement shall be
in full force and effect; provided that this condition to Closing shall be
deemed to have been met even if the foregoing is not accurate as to each
Director who entered into a Director Agreement, if such inaccuracy has not
resulted in whole or in part in the failure of any other condition to Closing.
6.2.8 Officers' Certificate. There shall have been delivered to FP
Bancorp on the Closing Date certificates executed by two executive officers of
RB Bancorp certifying, to the best of their knowledge, in their capacities as
officers and with no personal liability, compliance with all of the provisions
of Paragraphs 6.2.1 (without reference to the final clause of that Paragraph),
6.2.3, 6.2.5 and 6.2.6.
6.2.9 Validity of Transactions. The validity of all transactions
herein contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered to FP
Bancorp hereunder, shall be subject to the approval, to be reasonably exercised,
of counsel for FP Bancorp.
6.2.10 Tax Opinion. FP Bancorp shall have received an opinion from
KPMG Peat Marwick (the "Tax Opinion") that the Reorganization will not result in
imposition of federal or state income, transfer or other taxes upon, or result
in recognition of gain or loss by FP Bancorp, RB Bancorp, BRB or FPNB.
6.2.11 Delivery of Deposits. RB Bancorp shall have delivered to the
Exchange Agent the Good Faith Deposit and the Additional Deposit, plus accrued
interest upon both the Good Faith Deposit and the Additional Deposit from August
18, 1995.
6.2.12 Fairness Opinion. Prior to the Closing Date, FP Bancorp shall
have received an opinion from a recognized company experienced in providing
business evaluations and fairness opinions, selected by FP Bancorp confirming
the fairness of the terms of the Reorganization to FP Bancorp and its
shareholders from a
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<PAGE> 38
financial perspective, and such opinion shall not have been withdrawn prior to
the Effective Time of the Reorganization.
6.3 Conditions to Obligations of RB Bancorp and BRB. The obligations of RB
Bancorp and BRB to effect the transactions contemplated hereunder shall be
subject to the following conditions, any of which may be waived in writing by RB
Bancorp:
6.3.1 Performance of Covenants. Each of the material representations
and warranties of FP Bancorp and FPNB set forth herein shall be true and correct
as of the Closing Date and the Effective Time of the Reorganization in all
material respects as if made on such date, except that no representation or
warranty shall be required to be true or correct if its failure to be true or
correct does not materially adversely affect the abilities of FP Bancorp,
FirstPac Corp. or FPNB to complete the Closing; and FP Bancorp and FPNB shall
have performed in all material respects all of the material covenants to be
performed by them on or prior to the Effective Time of the Reorganization.
6.3.2 Opinion of Counsel for FP Bancorp. RB Bancorp shall have
received from Higgs, Fletcher & Mack, counsel to FP Bancorp, an opinion dated
the Effective Time of the Reorganization in substantially the form attached
hereto as Exhibit "F."
6.3.3 Authorization of Reorganization. All actions necessary to
authorize the execution, delivery and performance of this Agreement by FP
Bancorp and FPNB and the consummation of the transactions contemplated hereby
shall have been duly and validly taken by the Boards of Directors of FP Bancorp,
FirstPac Corp. and FPNB shall have full corporate power and right to take the
actions required of them by the documents set forth in Exhibits "A" and "B."
6.3.4 Regulatory Approvals. Any and all governmental and regulatory
approvals and consents referred to in Paragraph 6.1.3 and any other paragraph of
this Agreement shall have been granted.
6.3.5 Third Party Consents. FP Bancorp, FPNB, RB Bancorp and BRB shall
have obtained all consents of other parties to their material mortgages, notes,
leases, franchises, agreements, licenses and permits as may be necessary to
permit the transactions contemplated herein to be consummated, without default,
acceleration, breach or loss of rights or benefits thereunder.
6.3.6 Officers' Certificate. There shall have been delivered to BRB on
the Closing Date certificates executed by any two executive officers of FP
Bancorp and FPNB, respectively, certifying, to the best of their knowledge,
compliance with all of the provisions of Paragraphs 6.3.1, 6.3.3 and 6.3.4.
6.3.7 Validity of Transactions. The validity of all transactions
herein contemplated, as well as the form and substance of all opinions,
certificates, instruments of transfer and other documents to be delivered to BRB
hereunder, shall be subject to the approval, to be reasonably exercised, of
counsel for BRB.
6.3.8 Fairness Opinion. Prior to solicitation of shareholder approval,
RB Bancorp shall have received an opinion from a recognized company experienced
in providing business evaluations and fairness opinions, selected by RB Bancorp,
confirming the fairness of the terms of the Reorganization to its shareholders
from a financial point of view, and such opinion shall not have been withdrawn
prior to the Effective Time of the Reorganization.
6.3.9 Tax Opinion. RB Bancorp shall have received the Tax Opinion, in
a form acceptable to counsel to RB Bancorp.
6.3.10 Delivery of Funds. FP Bancorp shall have delivered to the
Exchange Agent the funds required under Paragraph 2.4, above.
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7. TERMINATION
7.1 Termination of this Agreement.
7.1.1 Notwithstanding that this Agreement, the Holding Company
Agreements to Merge and the Bank Agreement to Merge may have already been
approved by shareholders and/or directors of one or all of the constituent
entities to the Reorganization, this Agreement may be terminated prior to the
Effective Time of the Reorganization:
a. By mutual agreement of the parties, in writing;
b. By:
(A) FP Bancorp or FPNB immediately upon the expiration
of 30 days from the date that FP Bancorp or FPNB has given
notice to RB Bancorp or BRB of a material breach or default by
RB Bancorp or BRB in the performance of any material covenant,
agreement, representation, warranty, duty or obligation
hereunder; provided that:
(i) as to any breach or default in the performance
of any material covenant, agreement, representation,
warranty, duty or obligation undertaken or made with
reference to a "material adverse effect" or "material
adverse change," such breach or default shall not be
deemed to be material, individually or in combination
with any other such breaches or defaults, if the breach
or default has not resulted in and would not result in
the referenced "material adverse effect" or "material
adverse change;"
(ii) Paragraphs 5.2.2.g, 5.2.2.h, 5.2.2.i,
5.2.2.m, 5.2.2.p, 5.2.3.k and 5.2.3.m shall be deemed
to be material covenants;
(B) RB Bancorp or BRB immediately upon the expiration of
30 days from the date that RB Bancorp or BRB has given notice
to FP Bancorp or FPNB of a material breach or default by FP
Bancorp or FPNB in the performance of any material covenant,
agreement, duty or obligation hereunder or representation or
warranty, such that the breach or default, individually or
when considered with other breaches or defaults, would prevent
FP Bancorp, FirstPac Corp. or FPNB from completing the
Closing;
(C) provided, however, that no such termination shall be
effective if, within such 30-day period, the breaching or
defaulting party shall have substantially corrected and cured
the grounds for the termination as set forth in said notice of
termination, or, with respect to a ground for termination that
is curable, but not subject to cure within such 30-day period,
the breaching or defaulting party shall have proceeded
diligently to cure the ground for termination;
c. By FP Bancorp or FPNB if any governmental or regulatory
authority denies or refuses to grant the approvals, consents or authorizations
required to be obtained in order to consummate the transactions contemplated by
this Agreement without the imposition of conditions that are in excess of
conditions typical in community bank acquisitions, or any additional conditions
under the FP Bancorp MOU, the BRB MOU or other BRB regulatory agreements;
d. By FP Bancorp or FPNB if the Reorganization does not
receive the requisite approval of shareholders of RB Bancorp after two votes of
shareholders of RB Bancorp;
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<PAGE> 40
e. By FP Bancorp or FPNB, if the Board of Directors of RB
Bancorp or BRB approves (or authorizes the execution of a letter of intent or
other document with regard to) (A) an Acquisition Proposal or (B) a transaction
pursuant to which any person or entity or related group of persons or entities
acquires, directly or indirectly, record or beneficial ownership (as defined in
Rule 13d-3 promulgated by the SEC pursuant to the Exchange Act) or control of
five percent or more of any class of outstanding shares of RB Bancorp or BRB; or
f. By FP Bancorp or FPNB if any Director of RB Bancorp or BRB
breaches his Director Agreement and as a result in whole or in part of such
breach, a condition to Closing is not met.
g. By FP Bancorp (i) if it does not receive by the date ten
calendar days after the date of this Agreement (calculated without including the
date of this Agreement) any Schedule required to be delivered by RB Bancorp or
BRB pursuant to Paragraph 3; or (ii) if on or before seven calendar days after
receipt of all such Schedules (calculated without including the date of this
Agreement) FP Bancorp gives written notice of its disapproval of any matter set
forth in any such Schedule.
7.1.2 Notwithstanding that this Agreement, the Holding Company
Agreements to Merge and the Bank Agreement to Merge may have already been
approved by shareholders and/or directors of one or more of the constituent
corporations to the Reorganization, this Agreement shall be terminated prior to
the Effective Time of the Reorganization if any conditions specified in
Paragraph 6 have not been satisfied or waived in writing by the party authorized
to waive such conditions by May 1, 1996 (the "Expiration Date") unless mutually
extended by the parties hereto; provided, however, that in the event that any
conditions set forth in Paragraphs 6.2.4 or 6.3.4 have not been satisfied or
waived on or before the Expiration Date, FP Bancorp, FPNB, RB Bancorp or BRB
shall have the right to extend the Expiration Date for an additional 45 days,
and if so extended, the right to extend the Expiration Date for an additional 45
days, by giving written notice to the other parties of the first extension on or
before at least 15 days prior to the initial Expiration Date, and, if the second
right to extend is to be exercised, by giving written notice to the other
parties of the second extension at least 15 days prior to the second Expiration
Date. Each such right may be exercised by a different party or the same party.
7.2 Effect of Termination and Survival. No termination of this Agreement
under this Paragraph 7 for any reason or in any manner shall release, or be
construed as so releasing, any party hereto from its obligations pursuant to
Paragraphs 5.1, 7.3 or 8.1 hereof or from any liability or damage to the other
party hereto arising out of, in connection with or otherwise relating to,
directly or indirectly, said party's material breach, default or failure in
performance of any of its covenants, agreements, duties or obligations arising
hereunder, or any breaches of any representation or warranty contained herein
arising prior to the date of termination of this Agreement.
7.3 Liquidated Damages. The parties have determined that, in the event the
Agreement is terminated by a party under Paragraph 7.1.1(b), 7.1.1(e) or
7.1.1(f), the terminating party will have incurred and would incur following
such termination, substantial costs and expenses, including, but not limited to,
legal and accounting services and costs attributable to the time of the
terminating party, and the parties acknowledge and agree that such costs,
expenses and damages are not, and will not be, readily susceptible to
measurement. To avoid dispute with respect thereto, the parties acknowledge and
agree that liquidated damages as set forth below shall be paid in the
circumstances described below. Any such amount shall bear interest on the unpaid
amount thereof from the date due at a rate equal to The Wall Street Journal
prime rate plus 500 basis points, calculated on a daily basis, until paid in
full:
7.3.1 In the event FP Bancorp or FPNB terminates the Agreement under
Paragraph 7.1.1(b)(A), 7.1.1(e) or 7.1.1(f), RB Bancorp and BRB shall, jointly
and severally, pay, on or before the date 30 days after termination, the total
sum of $250,000 to FP Bancorp, as liquidated damages; and
7.3.2 In the event RB Bancorp or BRB terminates the Agreement under
Paragraph 7.1.1(b)(B), FP Bancorp and FPNB shall, jointly and severally, pay on
or before the date 30 days after termination, the total sum of $250,000 to RB
Bancorp, as liquidated damages.
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8. GENERAL PROVISIONS
8.1 Indemnification.
8.1.1 RB Bancorp and BRB jointly and severally agree to defend,
indemnify and hold harmless FP Bancorp, FPNB and each of their officers and
directors, their attorneys, and each person who controls FP Bancorp within the
meaning of the Securities Act from and against any costs, damages, liability and
expenses insofar as such costs, damages, liabilities or expenses arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Proxy Statement or any amendments or supplements thereto
or any other oral or written communications with shareholders or others relating
or referring to the transactions contemplated by this Agreement, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that neither RB Bancorp nor BRB shall be
liable in any such case to the extent that any such cost, damage, liability or
expense arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information with respect to FP Bancorp or FPNB furnished to RB
Bancorp by or on behalf of FP Bancorp or FPNB, specifically for use therein.
Notwithstanding the foregoing, this Paragraph 8.1.1 shall be of no further force
or effect if the Reorganization contemplated by this Agreement is consummated.
8.1.2 FP Bancorp agrees to defend, indemnify and hold harmless RB
Bancorp, BRB and each of their officers and directors, their attorneys, and each
person who controls RB Bancorp within the meaning of the Securities Act from and
against any costs, damages, liability and expenses insofar as such costs,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Proxy Statement or any amendments or supplements thereto or any other oral or
written communications with shareholders or others relating or referring to the
transactions contemplated by this Agreement, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that FP Bancorp shall not be liable in any such case to the
extent that any such cost, damage, liability or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Proxy Statement, or amendments or supplements
thereto, in reliance upon and in conformity with information with respect to RB
Bancorp or BRB, furnished to FP Bancorp by or on behalf of RB Bancorp or BRB
specifically for use therein. Notwithstanding the foregoing, this Paragraph
8.1.2. shall be of no further force or effect if the Reorganization contemplated
by this Agreement is consummated.
8.1.3 Promptly after receipt by any party to be indemnified pursuant
to Paragraphs 8.1.1 or 8.1.2 (the "Indemnified Party") of notice of (i) any
claim or (ii) the commencement of any action or proceeding, the Indemnified
Party will give the other party (the "Indemnifying Party") written notice of
such claim or the commencement of such action or proceeding. The Indemnifying
Party shall have the right, at its option, to compromise or defend, by its own
counsel, any such matter involving the Indemnified Party's asserted liability.
In the event that the Indemnifying Party shall undertake to compromise or defend
any such asserted liability, it shall promptly notify the Indemnified Party of
its intention to do so, and the Indemnified Party agrees to cooperate fully with
the Indemnifying party and its counsel in the compromise of, or defense against,
any such asserted liability. In any event, the Indemnifying Party shall have the
right to participate in the defense of such asserted liability.
8.2 Expenses. Each party hereto shall pay its own costs and
expenses, including but not limited to those of its attorneys and
accountants, in connection with this Agreement and the transactions covered
and contemplated hereunder
8.3 Notices. Unless otherwise specifically permitted by this Agreement,
all notices or other communications required or permitted under this Agreement
shall be in writing, and shall be personally delivered or sent by registered or
certified mail, postage prepaid, return receipt requested, or sent by telecopy,
provided that the telecopy cover sheet contains a notation of the date and time
of transmission, and shall be deemed received: (i) if personally delivered, upon
the date of delivery to the address of the person to receive such notice, (ii)
if mailed in accordance with the provisions of this paragraph, two business days
after the date placed in the United
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States mail, (iii) if mailed other than in accordance with the provisions of
this paragraph or mailed from outside the United States, upon the date of
delivery to the address of the person to receive such notice, or (iv) if given
by telecopy, when sent. Notices shall be given at the following addresses:
If to FP Bancorp: FP Bancorp
613 West Valley Parkway
Escondido, California 92025
Attn: Harvey L. Williamson,
President
Telecopier: (619) 741-7381
With a copy to: Higgs, Fletcher & Mack
401 West "A" Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
Telecopier: (619) 696-1410
If to FPNB: First Pacific National Bank
613 West Valley Parkway
Escondido, California 92025
Attn: Harvey L. Williamson,
President
Telecopier: (619) 741-7381
With a copy to: Higgs, Fletcher & Mack
401 West "A" Street, Suite 2000
San Diego, California 92101
Attn: Kurt L. Kicklighter, Esq.
Telecopier: (619) 696-1410
If to RB Bancorp: W.J. Brehm
(prior to the Effective Chairman
Time of the Reorganization) RB Bancorp
c/o Brehm Communications, Inc.
17065 Via del Campo, Suite 200
San Diego, California 92127
Telecopier: (619) 451-3814
If to RB Bancorp: W.J. Brehm
(after the Effective Chairman
Time of the Reorganization) RB Bancorp
c/o Brehm Communications, Inc.
17065 Via del Campo, Suite 200
San Diego, California 92127
Telecopier: (619) 451-3814
With a copy to: Duckor & Spradling
401 West A Street, Suite 2400
San Diego, California 92101
Attention: Gary J. Spradling, Esq.
Telecopier: (619) 231-6629
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<PAGE> 43
If to BRB: W.J. Brehm
(before the Effective Chairman
Time of the Reorganization) The Bank of Rancho Bernardo
c/o Brehm Communications, Inc.
17065 Via del Campo, Suite 200
San Diego, California 92127
Telecopier: (619) 451-3814
If to BRB: W.J. Brehm
(after the Effective Chairman
Time of the Reorganization) The Bank of Rancho Bernardo
c/o Brehm Communications, Inc.
17065 Via del Campo, Suite 200
San Diego, California 92127
Telecopier: (619) 451-3814
With a copy to: Duckor & Spradling
401 West A Street, Suite 2400
San Diego, California 92101
Attention: Gary J. Spradling, Esq.
Telecopier: (619) 231-6629
8.4 Complete Agreement; Modifications. This Agreement and written
agreements, if any, entered into concurrently herewith or in accordance with
this Agreement (i) constitute the parties' entire agreement, including all
terms, conditions, definitions, warranties, representations, and covenants, with
respect to the subject matter hereof, (ii) merge all prior discussions and
negotiations between or among any or all of them as to the subject matter
hereof, and (iii) supersede and replace all terms, conditions, definitions,
warranties, representations, covenants, agreements, promises and understandings,
whether oral or written, with respect to the subject matter hereof. This
Agreement may not be amended, altered or modified except by a document signed by
the party to be bound. With regard to such amendments, alterations or
modifications, telecopied signatures shall be effective as original signatures.
Any amendment, alteration or modification requiring the signature of more than
one party may be signed in counterparts.
8.5 Further Actions. Each party agrees to perform any further acts
and execute and deliver any further documents reasonably necessary to carry out
the provisions of this Agreement.
8.6 Assignment. No party may assign its rights under this Agreement
without the prior written consent of the other parties hereto.
8.7 Successors and Assigns. Except as explicitly provided herein to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.
8.8 Severability. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void, or otherwise unenforceable,
the remaining provisions shall remain enforceable to the fullest extent
permitted by law if enforcement would not frustrate the overall intent of the
parties (as such intent is manifested by all provisions of the Agreement,
including such invalid, void or otherwise unenforceable portion).
8.9 Extension Not a Waiver. No delay or omission in the exercise of any
power, remedy or right herein provided or otherwise available to any party shall
impair or affect the right of such party thereafter to exercise the same. Any
extension of time or other indulgence granted to a party hereunder shall not
otherwise alter or affect any power, remedy or right of any other party, or the
obligations of the party to whom such extension or indulgence is granted except
as specifically waived.
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<PAGE> 44
8.10 Time of Essence. Time is of the essence of each and every term,
condition, obligation and provision hereof.
8.11 No Third Party Beneficiaries. This Agreement and each and every
provision hereof is for the exclusive benefit of the parties hereto and not for
the benefit of any third party.
8.12 Headings. The headings in this Agreement are inserted only as a
matter of convenience, and in no way define, limit, extend or interpret the
scope of this Agreement or of any particular provision hereof.
8.13 References. A reference to a particular paragraph or section of this
Agreement shall be deemed to include references to all subordinate paragraphs or
sections, if any.
8.14 Gender. Throughout this Agreement, unless the context otherwise
requires, the masculine, feminine and neuter genders each include the other.
8.15 Counterparts. This Agreement may be signed in multiple counterparts
with the same force and effect as if all original signatures appeared on one
copy; and in the event this Agreement is signed in counterparts, each
counterpart shall be deemed an original and all of the counterparts shall be
deemed to be one agreement.
8.16 Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California, except to the
extent preempted by the laws of the United States.
8.17 Effect of Disclosure. Any list, statement, document, writing or other
information set forth in, referenced to or attached to any Schedule delivered
pursuant to any provision of this Agreement shall be deemed to constitute
disclosure for purposes of any other Schedule required to be delivered pursuant
to any other provision of this Agreement.
8.18 Publicity. The parties hereto agree that they will coordinate on any
publicity concerning this Agreement and the transactions contemplated hereby.
Except as may be required by law, no party shall issue any press release,
publicity statement or other public notice relating in any way to this Agreement
or any of the transactions contemplated hereby without obtaining the prior
consent of the others, which consent shall not be unreasonably withheld.
8.19 Survival of Representations and Warranties. Unless otherwise
expressly stated herein, the representations and warranties made by the parties
to this Agreement, and the respective obligations to be performed under its
terms at or before the Effective Time of the Reorganization, shall expire with,
and be terminated and extinguished at the Effective Time of the Reorganization,
and no action for breach of such representations and warranties shall thereafter
be brought by any party hereto.
8.20 Dispute Resolution.
8.20.1 The parties agree that if a disputes arises as a result of
purported termination of this Agreement other than as a result of the Closing
occurring, the parties agree first to try in good faith to settle the dispute.
In the event that the parties cannot settle the dispute any party shall have the
right to submit the dispute to binding arbitration. Such arbitration shall be
held before a single arbitrator agreed upon by the parties to the dispute, and
if they cannot agree, any party may petition a California Superior Court in San
Diego County for appointment of an arbitrator. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, subject to any contrary and/or additional terms of this
Paragraph 8.20.
8.20.1 The rules of evidence shall not apply to any arbitration
under this Paragraph 8.20. However, in all other respects, the arbitrator shall
follow applicable law.
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<PAGE> 45
8.20.2 Subject to Paragraph 8.20.4, each party shall bear one-half
of the costs and expenses of arbitration, and for purposes of this provision, FP
Bancorp and FPNB shall constitute one party and RB Bancorp and BRB shall
constitute one party.
8.20.3 The arbitrator shall have the power to fashion equitable
remedies.
8.20.4 Notwithstanding Paragraph 8.21, the arbitrator shall have the
power to award reasonable attorneys fees and costs of arbitration, including
expert witness fees and expenses, to one party or another, or to allocate such
fees and expenses as equitable. In determining the reasonableness of attorneys
fees, the arbitrator shall be entitled to consider such matters as the
arbitrator shall deem appropriate.
8.20.5 The decision of the arbitrator or panel of arbitrators shall
be binding, enforceable, and non-appealable, and may be entered in any court
having jurisdiction thereof.
8.20.6 Payment of any and all amounts granted by an arbitrator or
panel or arbitrators hereunder shall be made within fifteen (15) days following
the date of the decision, and thereafter, shall bear interest at the then
current maximum legal rate per month until paid in full unless such amount bears
interest under the liquidated damages provisions of this Agreement.
8.21 Attorneys' Fees. Subject to Paragraph 8.20.4, if applicable, should
any litigation (including any proceedings in bankruptcy court) or arbitration be
commenced between the parties hereto or their representatives concerning any
provision of this Agreement or the rights and duties of any person or entity
hereunder, the party or parties prevailing in such litigation or arbitration
shall be entitled, in addition to such other relief as may be granted, to the
attorneys' fees and court or arbitration costs incurred by reason of such
litigation or arbitration, including attorneys' and experts' fees incurred in
preparation for or investigation of any matter relating to such litigation or
arbitration.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
FP BANCORP: FP Bancorp, Inc.,
a Delaware corporation
Date: January 16, 1996 By: /s/ Mark N. Baker
---------------------------------
Its: Chairman
Date: January 16, 1996 By: /s/ Gary W. Deems
---------------------------------
Its: Secretary
FPNB: First Pacific National Bank,
a national banking association
Date: January 16, 1996 By: /s/ Mark N. Baker
---------------------------------
Its: Chairman
Date: January 16, 1996 By: /s/ Gary W. Deems
---------------------------------
Its: Secretary
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<PAGE> 46
RB BANCORP: RB Bancorp,
a California corporation
Date: January 12, 1996 By: /s/ W. J. Brehm
---------------------------------
Its: Chairman
Date: January 12, 1996 By: /s/ John D. Gonnerman
---------------------------------
Its: Secretary
(Signatures continue)
BRB: Bank of Rancho Bernardo,
a California banking corporation
Date: January 12, 1996 By: /s/ W. J. Brehm
---------------------------------
Its: Chairman
Date: January 12, 1996 By: /s/ John D. Gonnerman
---------------------------------
Its: Secretary
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<PAGE> 47
EXHIBIT "A"
AGREEMENT OF MERGER
This Agreement of Merger is entered into between RB Bancorp, a California
corporation (herein "Surviving Corporation") and FirstPac Corp., a California
corporation (herein "Merging Corporation").
1. Merging Corporation shall be merged into Surviving Corporation.
2. Each outstanding share of Merging Corporation shall be converted
into one share of Surviving Corporation.
3. Each outstanding share of Surviving Corporation shall be
converted into the right to receive payment per share as follows:
[Incorporate provisions of Paragraph 1.2.1 of the Agreement and Plan of
Reorganization].
4. The effect of the merger shall be as prescribed by law.
5. The effective date of the merger shall be _______________.
[Effective Time of the Reorganization].
IN WITNESS WHEREOF the parties have executed this Agreement.
RB Bancorp
By: __________________________
_____________________, Chairman
By: __________________________
_____________________, Secretary
<PAGE> 48
FirstPac Corp..
By: __________________________
_____________________, Chairman
By: __________________________
______________________, Secretary
2
<PAGE> 49
EXHIBIT "A"
CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER
________________________________ and ________________________________
certify that:
1. They are the chairman and the secretary, respectively, of RB
Bancorp, a California corporation.
2. The Agreement of Merger in the form attached was duly approved by
the Board of Directors and shareholders of the corporation.
3. The total number of outstanding shares of each class entitled to vote
on the merger is _________ shares of common stock, no par value, and _________
shares of preferred stock designated as "Series A Preferred Stock," $100 par
value.
4. The principal terms of the agreement of merger in the form attached
were approved by a vote of a number of shares of each class which equaled or
exceeded the vote required, and in particular, the common stock, no par value
was entitled to vote and the percentage vote required of that class was more
than 50%, and the preferred stock designated as "Series A Preferred," $100 par
value, was entitled to vote and the percentage vote required of that class was
75%.
We further certify under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: ___________________ ________________________________
________________________, Chairman
________________________________
_________________________, Secretary
<PAGE> 50
EXHIBIT "A"
CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER
________________________________ and ________________________________
certify that:
1. They are the chairman and the secretary, respectively, of
FirstPac Corp., a California corporation.
2. The Agreement of Merger in the form attached was duly approved by
the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the
outstanding shares of the corporation.
4. There is only one class of shares and the number of shares
outstanding is ____________.
We further certify under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: ___________________ ________________________________
________________________, Chairman
________________________________
_________________________, Secretary
<PAGE> 51
EXHIBIT "B"
CERTIFICATE OF ELECTION TO WIND-UP AND DISSOLVE
_______________________________ and ______________________________
certify that:
1. They are the chairman and the secretary, respectively, of
RB Bancorp, a California corporation.
2. The corporation has elected to wind-up and dissolve.
3. The election was made by the vote of ______ shares of the corporation's
common stock, no par value, representing at least 50% of the voting power of the
corporation.
We further certify under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: ___________________ ________________________________
________________________, Chairman
________________________________
_________________________, Secretary
<PAGE> 52
EXHIBIT "B"
CERTIFICATE OF DISSOLUTION
[Names of all RB Bancorp directors serving prior to the Closing or
immediately following merger - to be determined] ____________________,
____________________, ____________________, ____________________, and
____________________ certify that:
1. They constitute a majority of the directors now in office of RB
Bancorp, a California corporation.
2. The corporation has been completely wound up.
3. The corporation's known debts and liabilities have been adequately
provided for by ___________________________________________________________
[name and street address of either FP Bancorp, or First Pacific National Bank].
4. The corporation's known assets have been distributed to the
persons entitled thereto.
5. The corporation is dissolved.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: ___________________ _______________________________
________________________, Director
_______________________________
_________________________, Director
_______________________________
_________________________, Director
<PAGE> 53
_______________________________
________________________, Director
_______________________________
________________________, Director
2
<PAGE> 54
EXHIBIT "C"
AGREEMENT TO MERGE BETWEEN FIRST PACIFIC NATIONAL BANK AND BANK OF RANCHO
BERNARDO UNDER THE CHARTER OF FIRST PACIFIC NATIONAL BANK UNDER THE TITLE OF
FIRST PACIFIC NATIONAL BANK
This Agreement to Merge made between First Pacific National Bank
(hereinafter referred to as "FPNB"), a banking association organized under the
laws of the United States, being located at Escondido, County of San Diego, in
the State of California, with a capital of $______________, divided into
__________ shares of common stock, each of $______________, surplus of
$______________, and undivided profits, including capital reserves, of
$______________, as of _________, 1996, and Bank of Rancho Bernardo (hereinafter
referred to as "BRB"), a banking association organized under the laws of the
State of California, being located at San Diego, County of San Diego, in the
State of California, with a capital of $______________, divided into
______________ shares of common stock, each of $______________, surplus of
$______________, and undivided profits, including capital reserves, of
$______________, as of ___________, 1996, each acting pursuant to a resolution
of its Board of Directors, adopted by the vote of a majority of its directors,
pursuant to the authority given by and in accordance with the Act of November 7,
1918, as amended (12 U.S.C. Section215(a)), witnessed as follows:
Section 1.
BRB shall be merged into FPNB under the charter of the latter.
Section 2.
The name of the receiving association (hereinafter referred to as the
"Association") shall be First Pacific National Bank.
Section 3.
The business of the Association shall be that of a national banking
association. This business shall be conducted by the Association at its main
office which shall be located at 613 West Valley Parkway, Escondido, California,
and at its legally established branches.
Section 4.
The amount of capital stock of the Association shall be $______________,
divided into ___________ shares of common stock, each of $10 par value, and at
the time the merger shall become effective, the Association shall have a surplus
of $______________ , and undivided profits, including capital reserves, which
when combined with the capital and surplus will be equal to the combined capital
structures of the merging banks as stated in the preamble of this
<PAGE> 55
agreement, adjusted, however, for normal earnings and expenses and purchase
accounting adjustments between __________, 1996 and the effective time of the
merger.
Section 5.
All assets as they exist at the effective time of the merger shall pass to
and vest in the Association without any conveyance or other transfer. The
Association shall be responsible for all of the liabilities of every kind and
description.
Section 6.
FP Bancorp, Inc., the sole shareholder of FPNB ("FP Bancorp"), FPNB, BRB
and RB Bancorp, the sole shareholder of BRB, have entered into an Agreement and
Plan of Reorganization which provides for the merger of RB Bancorp with and into
FP Bancorp, Inc., to be immediately followed by the merger of BRB with and into
FPNB. Upon the effective time of the merger of BRB with and into FPNB, each
outstanding share of BRB shall be cancelled.
Section 7.
The Articles of Association of FPNB in effect immediately prior to the
effective time of the merger shall be and remain the Articles of Association of
the Association until amended as provided by law. The Bylaws of FPNB in effect
immediately prior to the effective time of the merger shall be and remain the
Bylaws of the Association until amended as provided by law and the terms
thereof.
Section 8.
This agreement shall be ratified and confirmed by the affirmative vote of
shareholders of each of the merging banks owning at least two-thirds of its
capital stock outstanding, at a meeting to be held on the call of the directors;
and the merger shall become effective at the time specified in a merger approval
to be issued by the Comptroller of the Currency of the United States.
WITNESS, the signatures and seals of said merging association and bank
this ______________ day of __________, 1996, each set by its President or a Vice
President and attested to by its Cashier or ______________, pursuant to a
resolution of its Board of Directors, acting by a majority.
2
<PAGE> 56
ATTEST:
FIRST PACIFIC NATIONAL BANK,
a national banking association
By: _____________________________
President
__________________________________
Director
_________________________
Cashier __________________________________
(seal of bank) Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
3
<PAGE> 57
ATTEST:
BANK OF RANCHO BERNARDO,
a California banking corporation
By: _____________________________
President
__________________________________
Director
- -------------------------
Cashier __________________________________
(seal of bank) Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
__________________________________
Director
4
<PAGE> 58
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On this ______________ day of ________________, 1996, before me,
_____________________________, a Notary Public for this State and County,
personally came ____________________________, as President, and
____________________________ as Cashier, of ____________________________, in
each of his/her capacity acknowledged this instrument to be the act and deed of
the Association and the seal affixed to it to be its seal.
WITNESS my hand and official seal.
__________________________________
Notary Public, ______________ County
My commission expires ______________.
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On this ______________ day of __________ 1996, before me,
_____________________________, a Notary Public for this State and County,
personally came ____________________________, as ____________________, and
____________________________ as Cashier, of ____________________________, in
each of his/her capacity acknowledged this instrument to be the act and deed of
the Bank and the seal affixed to it to be its seal.
WITNESS my hand and official seal.
__________________________________
Notary Public, ______________ County
My commission expires ______________.
5
<PAGE> 59
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On this ______________ day of __________ 1996, before me,
_____________________________, a Notary Public for this State and County,
personally came ____________________________, as ____________________, and
____________________________ as Cashier, of ____________________________, in
each of his/her capacity acknowledged this instrument to be the act and deed of
the Bank and the seal affixed to it to be its seal.
WITNESS my hand and official seal.
__________________________________
Notary Public, ______________ County
My commission expires ______________.
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On this ______________ day of __________ 1996, before me,
_____________________________, a Notary Public for this State and County,
personally came ____________________________, as ____________________, and
____________________________ as Cashier, of ____________________________, in
each of his/her capacity acknowledged this instrument to be the act and deed of
the Bank and the seal affixed to it to be its seal.
WITNESS my hand and official seal.
__________________________________
Notary Public, ______________ County
My commission expires ______________.
6
<PAGE> 60
EXHIBIT "D"
DIRECTOR AGREEMENT
THIS DIRECTOR AGREEMENT ("Agreement") is dated as of January 12, 1996, by
and among FP Bancorp Inc., a Delaware corporation ("FP Bancorp"), First Pacific
National Bank ("FPNB"), and ____________________ ("Director"), with regard to
the following:
A. FP Bancorp, FPNB, RB Bancorp, a California corporation ("RB Bancorp")
and Bank of Rancho Bernardo ("BRB") have entered into that certain Agreement and
Plan of Reorganization ("Plan of Reorganization"), dated as of January 12, 1996,
pursuant to which FP Bancorp will acquire RB Bancorp and BRB (the "Merger"). As
part of the Merger, the outstanding shares of RB Bancorp will be automatically
changed into the right to receive cash from FP Bancorp.
B. Director is a member of the Board of Directors of [RB Bancorp] [BRB]
and beneficially owns __________ shares of the common stock, no par value (the
"Common Stock"), and __________ shares of the Series A Preferred Stock, $100 par
value of RB Bancorp (the "Preferred Stock").
C. As an inducement to FP Bancorp, FPNB, RB Bancorp and BRB to enter into
the Plan of Reorganization, Director is willing to enter into this Agreement.
D. Unless otherwise provided in this Agreement, capitalized terms
shall have the meanings given to them in the Plan of Reorganization.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Agreements of Director.
1.1 Agreement to Vote. At any meeting of shareholders of RB Bancorp or in
connection with any solicitation of the written consent of shareholders of RB
Bancorp to approve the Merger, the Plan of Reorganization and the transactions
contemplated thereby, Director shall vote or cause to be voted all of the Shares
of Common Stock and Preferred Stock beneficially owned by Director and any other
shares of Common Stock and/or Preferred Stock hereafter beneficially acquired by
Director (collectively "Shares"), in favor of, and to approve, the principal
terms of the Merger and any other matter reasonably required to consummate the
Merger that requires the approval of the shareholders of RB Bancorp.
1.2 Restrictions on Dispositions. Director agrees that from and after the
date hereof and during the term of this Agreement he will neither sell nor
otherwise assign, transfer, pledge, hypothecate or otherwise encumber or dispose
of, any of the Shares, except that Director may
<PAGE> 61
exchange them for the consideration payable under the Plan of Reorganization at
the time specified therein.
1.3 Covenant Not to Compete. Director agrees that he will not at any time
within the two (2) year period, immediately following the Effective Time of the
Reorganization, directly or indirectly (i) engage in, or have an interest in any
bank, thrift and loan, savings and loan or holding company of any such financial
institutions (whether as an employee, officer, director, advisory director,
agent, security holder, creditor, consultant, or otherwise) that has or is
planning to have within such 2-year period an office within a 3-mile radius of
the existing headquarters of BRB, or (ii) act as an informal or formal advisor
to the organizers of, seek investments in, act as an organizer, director or
advisory director of, provide financing of any kind (whether by loan, equity or
otherwise) to or in furtherance of, or take any action to stimulate or encourage
the formation of, any proposed bank, thrift and loan, savings and loan, or
holding company of any such financial institutions that has or is intended or
expected to have an office within such 2-year period within a 3-mile radius of
the existing headquarters of BRB; provided that nothing in this Paragraph 1.3
shall be construed as prohibiting the Director from (W) serving as a member of
the board of directors of a bank, thrift and loan, savings and loan, or holding
company of any such financial institutions where such entity has assets in
excess of $5 billion, (X) owning less than 5% of the outstanding voting stock of
any entity with a class of securities registered under the Securities Exchange
Act of 1934, (Y) with respect to a Director who is an attorney, rendering,
personally or through the actions of any firm of which such Director is a member
or with which he is associated, legal services, or (Z) with respect to a
Director who is an executive officer of RB Bancorp or BRB, being employed in a
position at a branch or office outside a 3-mile radius of the existing
headquarters of BRB by an institution that has an office within that radius, so
long as the Director does not work out of or develop business through the
employees of the office within that radius.
2. Representations and Warranties of Director. Director makes the
following representations and warranties as of the date hereof, and if the
Closing occurs, as of the Closing Date and as of the Effective Time of the
Reorganization:
2.1 Ownership and Related Matters. Subject to the right, power and
authority of the trustee(s) of any retirement benefit plan that may hold title
to the Shares for the benefit of Director and other employees of Director's
employer, Director [CIRCLE ONE] (individually) (together with Director's spouse)
has: (i) good and transferable title to, or is the beneficial owner of the
Shares; (ii) the right, power and authority to cause or direct the sale or other
disposition of the Shares; and (iii) the right, power and authority to vote or
to direct the voting of the Shares.
2.2 Authorization. Director has the legal capacity, power and authority to
execute, deliver and perform this Agreement and this Agreement is the valid and
binding obligation of Director enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally, and by
general principles of equity.
-2-
<PAGE> 62
3. Representations and Warranties of FP Bancorp and FPNB.
3.1 Organization. Each of FP Bancorp and FPNB is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power to own its properties, to carry on its
businesses as now conducted and to execute, deliver and perform this Agreement.
3.2 Authorization. The execution, delivery and performance of this
Agreement by each of FP Bancorp and FPNB have been duly and validly authorized
and approved by all corporate action necessary under its charter and bylaws or
required by law. This Agreement is the valid and binding agreement of each of
them, enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors rights generally, and by general
principles of equity.
4. General Provisions.
4.1 Amendments. To the fullest extent permitted by law, this Agreement and
any schedule or exhibit attached hereto may be amended by agreement in writing
of the parties hereto at any time.
4.2 Integration. This Agreement constitutes the entire agreement between
the parties pertaining to the subject matter hereof and, supersedes all prior
agreements and understandings of the parties in connection therewith.
4.3 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
4.4 Specific Performance. Director acknowledges that, in view of the
uniqueness of the obligations of Director and the transactions contemplated
hereby, FP Bancorp and FPNB would not have an adequate remedy at law for money
damages in the event that this Agreement has not been performed in accordance
with its terms, and therefore Director agrees that FP Bancorp and FPNB shall be
entitled to specific enforcement of the terms hereof in addition to any other
remedy to which it may be entitled, at law or in equity.
4.5 Notices. Any notice or communication required or permitted hereunder,
shall be deemed to have been given if in writing and (a) delivered in person,
(b) telexed, or (c) telecopied (provided that any notice given pursuant to
clauses (b) and (c) is also mailed by certified or registered mail, postage
prepaid) as follows:
-3-
<PAGE> 63
If to FP Bancorp or FPNB, addressed to:
Harvey L. Williamson, President
FP Bancorp
613 West Valley Parkway
Escondido, California 92025
Telecopier No.: (619) 741-7381
With a copy addressed to:
Kurt L. Kicklighter
Higgs, Fletcher & Mack
401 West "A" Street, Suite 2000
San Diego, California 92101-7906
Telecopier No.: (619) 696-1410
If to Director, addressed to:
With a copy addressed to:
or at such other address and to the attention of such other person as a party
may notify the others in accordance with this Section 4.5.
4.6 Dispute Resolution.
4.6.1 The parties agree that if a disputes arises with regard to the
Agreement, the parties agree first to try in good faith to settle the dispute.
In the event that the parties cannot settle the dispute any party shall have the
right to submit the dispute to binding arbitration. Such arbitration shall be
held before a single arbitrator agreed upon by the parties to the dispute, and
if they cannot agree, any party may petition a California Superior Court in San
Diego County for appointment of an arbitrator. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, subject to any contrary and/or additional terms of this
Paragraph 4.6.
4.6.2 The rules of evidence shall not apply to any arbitration under
this Paragraph 4.6. However, in all other respects, the arbitrator shall follow
applicable law.
4.6.3 Subject to Paragraph 4.6.5, each party shall bear one-half of
the costs and expenses of arbitration, and for purposes of this provision, FP
Bancorp and FPNB shall constitute one party.
-4-
<PAGE> 64
4.6.4 The arbitrator shall have the power to fashion equitable
remedies.
4.6.5 The arbitrator shall have the power to award reasonable
attorneys fees and costs of arbitration, including expert witness fees and
expenses, to one party or another, or to allocate such fees and expenses as
equitable. In determining the reasonableness of attorneys fees, the arbitrator
shall be entitled to consider such matters as the arbitrator shall deem
appropriate.
4.6.6 The decision of the arbitrator or panel of arbitrators shall
be binding, enforceable, and non-appealable, and may be entered in any court
having jurisdiction thereof.
4.6.7 Payment of any and all amounts granted by an arbitrator or
panel or arbitrators hereunder shall be made within fifteen (15) days following
the date of the decision, and thereafter, shall bear interest at the then
current maximum legal rate per month, until paid in full.
4.7 Termination. This Agreement shall terminate automatically and without
further action on the earlier of the Effective Time of the Reorganization or the
termination of the Plan of Reorganization in accordance with its terms, except
that the rights and obligations of the parties under Paragraph 4.6 shall survive
any such termination.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the day and year first above written.
FP BANCORP
Date: ___________________ By: ______________________________
FIRST PACIFIC NATIONAL BANK
Date: ___________________ By: ______________________________
Date: ___________________ __________________________________
__________________________________
[Director's Name]
-5-
<PAGE> 65
SPOUSAL CONSENT
(to be executed only if the spouse of Director has an interest in the Shares)
I am the spouse of ____________________, the Director in the above
Agreement. I hereby confirm this Agreement and agree that it shall bind my
interest in the Shares, if any.
Date: ___________________ __________________________________
[Director's Spouse's Name]
-6-
<PAGE> 66
EXHIBIT "E"
[Effective Time of the Reorganization]
FP Bancorp, Inc.
613 West Valley Parkway
Escondido, CA 92025
Re: RB Bancorp and The Bank of Rancho Bernardo
Ladies and Gentlemen:
We have acted as special counsel to RB Bancorp, a California
corporation (the "Company"), and The Bank of Rancho Bernardo, a California
banking corporation ("BRB"), in connection with the Agreement and Plan of
Reorganization dated January 12, 1996 (the "Agreement"), between the Company and
BRB, on the one hand, and FP Bancorp, Inc., a Delaware corporation ("FP
Bancorp"), and First Pacific National Bank ("FPNB"), a national banking
association, on the other hand. This opinion letter is being furnished to FP
Bancorp pursuant to Paragraph 6.2.2 of the Agreement. Terms used and not
otherwise defined herein are used with the same meaning ascribed to such terms
in the Agreement or the Accord (as defined below). In the event of any
inconsistency between the definition of any such term in the Agreement and the
Accord, the definition set forth in the Agreement shall govern.
This opinion letter is governed by, and shall be interpreted
in accordance with, the legal opinion accord (the "Accord") of the American Bar
Association Business Law Section (1991). This opinion letter is also governed
by, and shall be interpreted in accordance with, the "California Provisions" set
forth in the Business Law Section of the State Bar of California Report on the
Third-Party Legal Opinion Report of the ABA Business Law Section (dated May
1992) and is therefore subject to a number of additional qualifications,
exceptions, and understandings, all as more particularly described in the
California Provisions and California Generic Exception, and this opinion letter
should be read in conjunction therewith. The law covered by this opinion letter
is limited to the law of the State of California and to the federal law of the
United States of America to the extent applicable to the second sentence of
paragraph (b) of our opinion and to the extent applicable to all of our opinion
expressed in paragraph (e).
The following terms are defined as set forth below. To the
extent defined in the Accord, they are hereby modified for purposes of applying
the Accord to this opinion letter, and shall have the meanings indicated:
<PAGE> 67
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 2
"Transaction Documents" shall mean the Agreement, the
Holding Company Agreement to Merge and the Bank Agreement to Merge.
"Enforceable in accordance with their terms" as used in
paragraph (d) of our opinion shall mean:
(i) A contract has been formed under the laws of the State of
California;
(ii) A remedy will be available with respect to each agreement
of the Company and BRB in the Transaction Documents or such agreement will
otherwise be given effect, except as otherwise qualified, excepted or limited by
this opinion letter; and
(iii) A California court or United States federal court may
not strictly enforce every provision in such Transaction Documents under the
circumstances prevailing at the time of the breach; however, in the event of a
material breach of a material provision of the Transaction Documents, failure to
enforce one or more of such provisions will not render such Transaction
Documents invalid as a whole and there exists, in such Transaction Documents or
pursuant to applicable law, legally adequate remedies for realization of the
principal benefits intended to be provided by such Transaction Documents.
"Primary Lawyer Group" means Gary J. Spradling, Li-An C.
Leonard and Elizabeth A. Ryner.
As special counsel to the Company and BRB, we have examined
copies of only the following Company and BRB documents in connection with
rendering the opinions expressed herein:
1. The Articles of Incorporation of the Company, together with
any amendments thereto, as certified by the Secretary of State of the State of
California;
2. The Articles of Incorporation of BRB, together with any
amendments thereto, as certified by the Secretary of State of the State of
California;
3. The Bylaws of the Company, as certified on ____________, by
the secretary of the Company as then being complete, accurate and in effect;
<PAGE> 68
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 3
4. The Bylaws of BRB, as certified on _____________, by the
Secretary of BRB as then being complete, accurate and in effect;
5. Minutes of the Board of Directors of the Company, as
certified by the secretary of the Company on ______________, as then being
complete, accurate and in effect, authorizing the execution and delivery of and
performance under the Agreement;
6. Minutes of the Board of Directors of BRB as certified by
the secretary of BRB on _____________, as then being complete, accurate and in
effect, authorizing the execution and delivery of and performance under the
Agreement;
7. Minutes of the Board of Directors of the Company as
certified by the secretary of the Company on _____________, as then being
complete, accurate and in effect, authorizing the execution and delivery of and
performance under the Holding Company Agreements to Merge;
8. Minutes of the Board of Directors of BRB as certified by
the secretary of BRB on _____________, as then being complete, accurate and in
effect, authorizing the execution and delivery of and performance under the Bank
Agreement to Merge;
9. Certificates as to Incumbency for both the Company and BRB
dated _________________;
10. Executed copy of the Agreement;
11. Executed copies of the Holding Company Agreements to
Merge; and
12. Executed copy of the Bank Agreement to Merge.
Our opinions hereinafter expressed are further subject to the
following qualifications and assumptions:
1. Our opinion in paragraph (a) as to good standing is based
upon certificates of the California Secretary of State dated
____________________, 1996, and certificates of the respective secretaries of
those entities dated as of the Closing Date.
2. Our opinion in paragraph (b) as to the Company's
authorization to operate as a bank holding company is based upon a Certificate
of Good Standing issued by the Federal Reserve Board
<PAGE> 69
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 4
(or the Federal Reserve Bank of San Francisco acting by delegated authority)
dated , 1996, and a certificate of the secretary of the Company dated as of the
Closing Date.
3. Our opinion in paragraph (b) as to BRB's authorization to
conduct a commercial banking business is based on a Certificate of Good Standing
issued by the California Superintendent of Banking dated _____________, 1996
and a certificate of the secretary of BRB dated as of the Closing Date.
4. The General Qualifications of the Accord and California
Provisions apply to all of the opinions set forth in this opinion letter.
5. Our opinions in paragraphs (b) through (f) are based in
part upon certificates provided by officers of the Company and/or BRB as to
certain factual matters.
6. The enforcement of the Transaction Documents may be subject
to or limited by the unenforceability qualification or limitation of certain
provisions thereof under certain circumstances, including, but not limited to,
any provisions as to covenants not to compete, protection or indemnification for
environmental related liabilities, choice of law, forum selection, consent to
jurisdiction, appointment of FP Bancorp or FPNB as an attorney-in-fact for the
Company or BRB, or liquidated damages provisions or provisions imposing
penalties, forfeitures, late payment charges or an increase in interest rate
upon delinquency in payment or the occurrence of a default.
Based upon and subject to the limitations, qualifications and
assumptions set forth above and the limitations, qualifications and assumptions
set forth in the Accord, California Provisions and California Generic Exception,
which limitations, qualifications and assumptions are incorporated herein by
reference, we are of the opinion that:
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of California. BRB is
a banking corporation duly incorporated, validly existing and in good standing
under the laws of the State of California.
(b) The Company and BRB have full corporate power and
authority to conduct all of the respective activities conducted by each of them,
to own or lease all the assets respectively owned or
<PAGE> 70
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 5
leased by each of them and to conduct their respective businesses as presently
conducted. The Company is authorized by the Federal Reserve Board to operate as
a bank holding company under the Bank Holding Company Act. BRB is authorized by
the California Superintendent of Banking to conduct a commercial banking
business.
(c) The Company's authorized capitalization consists of
10,000,000 shares of common stock, no par value, of which 9,955 shares are
issued and outstanding, and 23,358 shares of Series A Preferred Stock, $100 par
value, of which 23,358 shares are issued and outstanding. The authorized
capitalization of BRB consists solely of 2,500,000 shares of common stock, of
which one share is issued and outstanding. There are no commitments,
understandings, options or agreements for the issue of any additional shares,
debt or securities of either the Company or BRB, except to the extent BRB may be
obligated to fund benefits under its Employee Stock Ownership Plan. The
outstanding share of BRB is beneficially and of record owned and held by the
Company and is not subject to any lien, encumbrance or assessment. The
outstanding shares of the Company have been duly authorized and validly issued,
and are fully paid and non-assessable. The outstanding share of BRB has been
duly authorized and validly issued, and is fully paid. However, it is subject to
assessment by the board of directors of BRB upon order of the California
Superintendent of Banking for the purpose of correcting an impairment of
contributed capital.
(d) The execution, delivery, and performance of the
Transaction Documents and the consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary action on the
part of the Company and BRB, and have been duly and validly executed and
delivered by the Company and BRB; and the Transaction Documents are valid and
binding obligations of the Company and BRB and are enforceable in accordance
with their terms against the Company and BRB.
(e) Except as disclosed in the Agreement, its schedules and
exhibits, the execution, delivery, performance and compliance with the terms of
the Transaction Documents do not conflict with or constitute a material default
under the provisions of any judgment, writ, decree, order or regulatory
agreement of which we have Actual Knowledge.
(f) The officers of the Company and BRB who have executed the
Transaction Documents are duly qualified, elected and serving.
<PAGE> 71
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 6
Finally, this opinion letter does not address any of the
following legal issues:
(a) Federal securities laws and regulations administered by
the Securities and Exchange Commission or state "Blue Sky" laws and regulations,
except as otherwise expressly set forth herein;
(b) Federal Reserve Board margin regulations;
(c) Pension and employee benefit laws and regulations (e.g.,
ERISA);
(d) Federal and state antitrust and unfair competition laws
and regulations;
(e) Federal and state laws and regulations concerning filing
and notice requirements (e.g., Hart-Scott-Rodino, Exon-Florio), other than
requirements applicable to charter-related documents;
(f) Compliance with fiduciary duty requirements;
(g) Local Law;
(h) Fraudulent transfer and fraudulent conveyance laws;
(i) Federal and state environmental laws and regulations;
(j) Federal and state land use and subdivision laws and
regulations;
(k) Federal and state tax laws and regulations;
(l) Federal patent, copyright and trademark, state trademark,
and other Federal and state intellectual property laws and regulations;
(m) Federal and state racketeering laws and regulations (e.g.,
RICO);
(n) Federal and state health and safety laws and regulations
(e.g., OSHA);
(o) Federal and state labor laws and regulations;
<PAGE> 72
FP Bancorp, Inc.
[Effective Time of the Reorganization]
January 9, 1996
Page 7
(p) Federal and state laws, regulations and policies
concerning (i) national and local emergency, (ii) possible judicial deference to
acts of sovereign states, and (iii) criminal and civil forfeiture laws;
(q) Other Federal and state statutes of general application to
the extent they provide for criminal prosecution (e.g., mail fraud and wire
fraud statutes); or
(r) The laws of any state or jurisdiction other than (i) the
State of California, and (ii) the United States of America to the extent
applicable to the second sentence of paragraph (b) of our opinion and to the
extent applicable to all of paragraph (e) of our opinion.
This opinion letter is furnished to you by us as special
counsel to the Company and BRB solely in connection with the transactions
contemplated by the Transaction Documents and may not be used for any other
purpose or delivered to or relied upon by any other person without our prior
written consent. This opinion is rendered as of its date and we undertake no,
and specifically disclaim any, obligation to advise you of any change in or new
development that may affect any opinion set forth herein.
Very truly yours,
DUCKOR SPRADLING & METZGER
A Law Corporation
By: _________________________
:jlb
<PAGE> 73
EXHIBIT "F"
[Effective Time of the Reorganization]
RB Bancorp
[address]
The Bank of Rancho Bernardo
[address]
Re: FP Bancorp, Inc. and First Pacific National Bank
Ladies and Gentlemen:
We have acted as special counsel to FP Bancorp, Inc., a Delaware
corporation (the "Company") and First Pacific National Bank, a national banking
association ("FPNB") in connection with the Agreement and Plan of Reorganization
dated January 12, 1996 (the "Agreement"), between the Company and FPNB, on the
one hand, and RB Bancorp, a California corporation ("RB Bancorp") and The Bank
of Rancho Bernardo, a California banking corporation ("BRB") on the other hand.
This opinion letter is being furnished to RB Bancorp and BRB pursuant to
Paragraph 6.3.2 of the Agreement. Terms used and not otherwise defined herein
are used with the same meaning ascribed to such terms in the Agreement or the
Accord (as defined below). In the event of any inconsistency between the
definition of any such term in the Agreement and the Accord, the definition set
forth in the Accord shall govern.
This opinion letter is governed by, and shall be interpreted in accordance
with, the legal opinion accord (the "Accord") of the American Bar Association
Business Law Section (1991) and the "California Provisions" set forth in the
Business Law Section of the State Bar of California Report on the Third-party
Legal Opinion Report of the ABA Business Law Section (dated May 1992). As a
consequence of interpretation of this opinion letter pursuant to the Accord and
the California Provisions, this opinion letter is subject to a number of
qualifications, exceptions, definitions, limitations on coverage, and other
limitations, and this opinion letter should be read in conjunction therewith.
The law covered by this opinion letter is limited to the law of the State of
California and to the federal law of the United States of America to the extent
applicable to the Transaction Documents, and as to our opinion in paragraph (a)
regarding FP Bancorp, the law of the State of Delaware.
The following phrases are defined as set forth below. To the extent
defined in the Accord, they are hereby modified and for purposes of applying the
Accord to this opinion letter, and shall have the meanings indicated:
"Transaction Documents" shall mean the Agreement, the Holding Company
Agreements to Merge and the Bank Agreement to Merge.
<PAGE> 74
RB Bancorp
Bank of Rancho Bernardo
[Effective Time of the Reorganization]
Page 2
"Enforceable in accordance with their terms" as used in paragraph (b) of
our opinion shall mean:
(i) The person or entity had the legal capacity or power to enter
into such document;
(ii) Such document has been duly authorized, executed and delivered
by the person or entity;
(iii) Such document is an effective contract formed under the laws of
California or the United States, or both;
(iv) No contractual defense is available to the entirety of such
document; and
(v) A California court or United States federal court may not strictly
enforce every provision in such document under the circumstances
prevailing at the time of the breach; however, in the event of a material
breach of a material provision of such document, failure to enforce one or
more of such provisions will not render such document invalid as a whole
and there exists, in such document or pursuant to applicable law, legally
adequate remedies for realization of the principal benefits intended to be
provided by such document.
"Primary Lawyer Group" means Kurt L. Kicklighter, John L. Morrell and
Erick R. Altona.
Our opinions hereinafter expressed are further subject to the following
qualifications and assumptions:
1. Our opinion in paragraph (a) as to good standing is based upon a
certificate of the Delaware Secretary of State dated ____________________, 1996,
a certificate of the Comptroller dated ____________________, 1996, and
certificates of the respective secretaries of the Company and FPNB dated as of
the Closing Date.
2. The General Qualifications of the Accord apply to all of the
opinions set forth in this opinion letter.
3. Our opinions in paragraphs (b) and (c) are based in part upon
certificates provided by officers of the Company as to certain factual matters.
4. The enforcement of the Transaction Documents may be subject to or
limited by the unenforceability of certain provisions thereof under certain
circumstances, including liquidated damages provisions or provisions imposing
penalties, forfeitures, late payment charges or an increase in interest rate
upon delinquency in payment or the occurrence of a default.
<PAGE> 75
RB Bancorp
Bank of Rancho Bernardo
[Effective Time of the Reorganization]
Page 3
Based upon and subject to the limitations, qualifications and assumptions
set forth above and incorporated by reference to the Accord, we are of the
opinion that:
(a) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. FPNB is a
banking corporation duly incorporated, validly existing and in good
standing under the laws of the United States.
(b) The execution, delivery, and performance of the Transaction Documents
and the consummation of the transactions contemplated thereby have been
duly and validly authorized by all necessary action on the part of the
Company, and FPNB, and have been duly and validly executed and delivered
by the Company and FPNB; and the Transaction Documents are valid and
binding obligations of the Company and FPNB and are enforceable in
accordance with their terms against the Company and FPNB.
(c) Except as disclosed in the Agreement, its schedules and exhibits, the
execution, delivery, performance and compliance with the terms of the
Transaction Documents do not conflict with or constitute a default under
the provisions of any judgment, writ, decree, order or regulatory
agreement of which we have Actual Knowledge.
(d) The officers of the Company and FPNB who have executed the Transaction
Documents are duly qualified, elected and serving.
This opinion letter is furnished to you by us as special counsel to the
Company and FPNB solely in connection with the transactions contemplated by the
Transaction Documents and may not be used for any other purpose or delivered to
or relied upon by any other person without our prior written consent. This
opinion is rendered as of its date and we undertake no, and specifically
disclaim any, obligation to advise you of any change in or new development that
may affect any opinion set forth herein.
Very truly yours,
HIGGS, FLETCHER & MACK
<PAGE> 1
EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Primary earnings (loss) per share is computed by dividing net earnings
(loss) 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 included in the primary net
earnings (loss) per share calculation for that period unless the effect is
determined to be antidilutive. Net earnings (loss) for the years ended
December 31, 1995, 1994 and 1993 were $1,911,000, $332,000 and ($5,068,000),
respectively. The weighted average numbers of shares used for the primary
earnings (loss) per share calculations were 2,483,000, 1,262,000 and
1,213,000 in 1995, 1994 and 1993, respectively.
In the calculation of fully diluted earnings (loss) per share, net
earnings (loss) is adjusted by adding back the interest expense on the
Debentures and deducting the amount of unamortized debt issuance costs as of
the beginning of each period that the Debentures are dilutive. The adjusted
net earnings (loss) is then divided by the weighted average number of shares
of common stock, common stock equivalents and other potentially dilutive
securities. The subordinated convertible debentures are considered to be
other potentially dilutive securities and are included in the earnings (loss)
per share calculations unless the effect is determined to be antidilutive.
The adjusted net earnings used for the fully diluted earnings (loss) per
share calculations were $2,175,000, $332,000, and $(5,068,000), respectively,
for the years ended December 31, 1995, 1994 and 1993. The weighted average
numbers of shares used for the fully diluted earnings (loss) per share
calculations were 3,019,000, 1,269,000 and 1,213,000 in 1995, 1994 and 1993,
respectively.
<PAGE> 1
EXHIBIT 23
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
FP Bancorp:
We consent to incorporation by reference in the registration statement (No.
33-32788) on Form S-8 of FP Bancorp of our report dated January 26, 1996,
relating to the consolidated balance sheets of FP Bancorp and subsidiary (the
"Company") as of December 31, 1995, and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which report appears in
the December 31, 1995 annual report on Form 10-KSB of FP Bancorp.
Our report contains an explanatory paragraph relating to changes in the
Company's methods of accounting for investments and income taxes. 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
Financial Accounting Standards Board's (FASB's) Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." As discussed in Note 1 to the consolidated
financial statements, the Company changed its method of accounting for income
taxes in 1993 to adopt the provisions of the FASB's SFAS No. 109, "Accounting
for income Taxes."
/s/ KPMG PEAT MARWICK LLP
San Diego, California
March 26, 1996
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