<PAGE> 1
Total number of pages: 13
Exhibit Index on page: 13
FORM 10-QSB
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
Commission File Number 0-17650
FP Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0018976
- -------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
613 West Valley Parkway, Escondido, California 92025-4929
- ----------------------------------- ---------- ----------
(Address of principal executive offices) (ZIP Code)
(760) 741-3312
- --------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
As of June 30, 1997, the number of shares outstanding of the Registrant's only
class of common stock was 2,655,036.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,849,000 $ 22,919,000
Investment securities available for sale 47,143,000 47,405,000
Investment securities held to maturity 14,171,000 9,279,000
Loans, net of allowance for loan losses of $2,814,000
as of June 30, 1997 and $3,121,000 as of December 31, 1996 225,870,000 210,876,000
Premises and equipment, net 7,890,000 7,672,000
Other real estate owned, net 2,146,000 1,329,000
Goodwill and other intangibles, net 4,224,000 3,431,000
Accrued interest and other assets 6,140,000 5,674,000
------------- -------------
$ 332,433,000 $ 308,585,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 70,862,000 $ 59,541,000
Interest-bearing 229,958,000 204,980,000
------------- -------------
Total deposits 300,820,000 264,521,000
------------- -------------
Federal funds purchased 3,000,000 11,802,000
Other borrowings 4,950,000
Accrued expenses and other liabilities 1,127,000 1,759,000
Subordinated debentures 4,575,000 4,575,000
------------- -------------
Total liabilities 309,522,000 287,607,000
------------- -------------
Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000
shares; issued and outstanding 2,655,036 as of June
30, 1997 and 2,653,641 as of December 31, 1996 3,000 3,000
Additional paid-in capital 24,578,000 24,571,000
Accumulated deficit (1,778,000) (3,702,000)
Unrealized holding gains on investment securities available for sale 108,000 106,000
------------- -------------
Total stockholders' equity 22,911,000 20,978,000
------------- -------------
$ 332,433,000 $ 308,585,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,948,000 $ 4,992,000 $ 11,578,000 $ 8,781,000
Federal funds sold 7,000 105,000 30,000 184,000
Interest-earning deposits -- 4,000 -- 4,000
Investment securities:
Taxable 1,031,000 530,000 2,119,000 1,085,000
Nontaxable 20,000 -- 20,000 --
------------ ------------ ------------ ------------
Total interest income 7,006,000 5,631,000 13,747,000 10,054,000
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits 1,793,000 1,496,000 3,447,000 2,667,000
Other 215,000 122,000 621,000 244,000
------------ ------------ ------------ ------------
Total interest expense 2,008,000 1,618,000 4,068,000 2,911,000
------------ ------------ ------------ ------------
Net interest income 4,998,000 4,013,000 9,679,000 7,143,000
Provision for loan losses 108,000 150,000 216,000 400,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 4,890,000 3,863,000 9,463,000 6,743,000
------------ ------------ ------------ ------------
OTHER OPERATING INCOME:
Service charges 540,000 423,000 1,009,000 807,000
Other 33,000 66,000 129,000 129,000
------------ ------------ ------------ ------------
Total other operating income 573,000 489,000 1,138,000 936,000
------------ ------------ ------------ ------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,951,000 1,673,000 3,834,000 3,086,000
Occupancy 371,000 350,000 749,000 646,000
Professional services 342,000 596,000 662,000 1,010,000
Furniture and equipment 290,000 282,000 574,000 486,000
Other real estate owned, net 45,000 122,000 77,000 206,000
Loss on sale of investment securities 9,000 110,000 9,000 136,000
Goodwill and other intangible amortization 99,000 75,000 179,000 103,000
Other 621,000 614,000 1,203,000 1,031,000
------------ ------------ ------------ ------------
Total other operating expenses 3,728,000 3,822,000 7,287,000 6,704,000
------------ ------------ ------------ ------------
Earnings before income taxes 1,735,000 530,000 3,314,000 975,000
Net income taxes (benefit) 725,000 (978,000) 1,390,000 (1,257,000)
------------ ------------ ------------ ------------
Net earnings $ 1,010,000 $ 1,508,000 $ 1,924,000 $ 2,232,000
============ ============ ============ ============
Primary earnings per share $ 0.36 $ 0.55 $ 0.69 $ 0.82
============ ============ ============ ============
Fully diluted earnings per share $ 0.33 $ 0.48 $ 0.64 $ 0.74
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,924,000 $ 2,232,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 741,000 581,000
Provision for loan losses 216,000 400,000
Provision for losses on other real estate owned 31,000 143,000
Gain on sale of other real estate owned (4,000) (10,000)
Loss on sale of investment securities available for sale 9,000 136,000
Increase in accrued interest and other assets (465,000) (615,000)
Decrease in accrued expenses and other liabilities (707,000) (693,000)
(Decrease) increase in deferred loan origination fees (8,000) 63,000
------------ ------------
Net cash provided by operating activities 1,737,000 2,237,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans outstanding (15,209,000) (4,827,000)
Proceeds on sale of other real estate owned 808,000 1,856,000
Net maturities of interest-earning deposits -- 396,000
Maturities of investment securities available for sale 3,137,000 2,345,000
Maturities of investment securities held to maturity 81,000 278,000
Purchase of investment securities available for sale (5,884,000) (7,047,000)
Purchase of investment securities held to maturity (4,984,000) --
Proceeds from sale of investment securities available for sale 2,973,000 8,995,000
Decrease in receivable from ESOP -- 100,000
Capital expenditures for premises and equipment (466,000) (783,000)
Net cash acquired in merger/acquisition 14,042,000 5,302,000
------------ ------------
Net cash (used in) provided by investing activities (5,502,000) 6,615,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 12,563,000 2,928,000
Net increase in noninterest-bearing deposits 6,877,000 1,591,000
Proceeds from exercise of stock options 7,000 5,000
Decrease in Federal funds purchased (8,802,000) --
Decrease in other borrowings (4,950,000) --
------------ ------------
Net cash provided by financing activities 5,695,000 4,524,000
------------ ------------
Net increase in cash and cash equivalents 1,930,000 13,376,000
Cash and cash equivalents at beginning of period 22,919,000 16,293,000
------------ ------------
Cash and cash equivalents at end of period $ 24,849,000 $ 29,669,000
============ ============
(continued)
</TABLE>
4
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FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,228,000 $ 2,943,000
Income taxes $ 79,000 $ 26,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to other real estate owned $ 1,652,000 $ 229,000
Change in unrealized holding gains (losses) on investment securities
available for sale, net of tax effect $ 80,000 $ (568,000)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FP BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements include the accounts of FP Bancorp,
Inc. (the "Company") and its wholly-owned subsidiary, First Pacific
National Bank ("FPNB"). All material intercompany accounts and transactions
have been eliminated. The consolidated financial statements as of June 30,
1997 and for the six-month periods ended June 30, 1997 and 1996 are
unaudited and reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results of the interim
periods. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition
and results of operations contained in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996. The results of operations for
the six-month period ended June 30, 1997 are not necessarily indicative of
the results for the entire year ending December 31, 1997.
2. Primary earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Stock options are considered to
be common stock equivalents and are used in the primary earnings per share
calculations unless they are antidilutive. The weighted average numbers of
shares used for the primary earnings per share calculations for the
three-month periods ended June 30, 1997 and 1996 were 2,811,000 and
2,718,000, respectively. The weighted average numbers of shares used for
the primary earnings per share calculations for the six-month periods ended
June 30, 1997 and 1996 were 2,805,000 and 2,715,000, respectively.
Fully diluted earnings per share is computed by dividing net earnings,
subject to certain adjustments, by the weighted average number of shares of
common stock, common stock equivalents and other potentially dilutive
securities. Stock options are considered to be common stock equivalents and
are used in the fully diluted earnings per share calculations unless they
are antidilutive. The subordinated convertible debentures are considered to
be other potentially dilutive securities and are used in the fully diluted
earnings per share calculations unless they are antidilutive. The adjusted
net earnings used for the fully diluted earnings per share calculations for
the three-month periods ended June 30, 1997 and 1996 were $1,072,000 and
$1,517,000, respectively. The weighted average numbers of shares used for
the fully diluted earnings per share calculations for the three-month
periods ended June 30, 1997 and 1996 were 3,274,000 and 3,179,000,
respectively. The adjusted net earnings used for the fully diluted earnings
per share calculations for the six-month periods ended June 30, 1997 and
1996 were $2,089,000 and $2,361,000, respectively. The weighted average
numbers of shares used for the fully diluted earnings per share
calculations for the six-month periods ended June 30, 1997 and 1996 were
3,274,000 and 3,179,000, respectively.
3. On February 21, 1997, the Company completed its acquisition of the Wells
Fargo Bank Valley Center branch, located in Valley Center in San Diego
County, California (the "Wells Acquisition"). The acquisition was accounted
for under the purchase accounting method. As a result of this transaction,
deposits increased by $16,838,000 and a core deposit intangible of
$1,038,000 was recorded.
4. Because of the nature of its activities, the Company is at all times
subject to pending and threatened legal actions which arise out of the
normal course of its business. In the opinion of management, based in part
upon opinions of legal counsel, the disposition of all litigation will not
have a material effect on the Company.
5. Goodwill is amortized on a straight-line basis over estimated useful lives
of twelve to fifteen years. The core deposit intangible is amortized on a
straight-line basis over an estimated useful life of ten years.
6. Certain 1996 amounts have been reclassified to conform to the presentation
used in 1997.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements made in this report that state the Company's or management's
intentions, beliefs, expectations or predictions of the future are
forward-looking statements. The Company's actual results could differ materially
from those projected in such forward-looking statements. Additional information
concerning factors that could cause actual results to differ materially from
those in the forward-looking statements is contained in the Company's Form
10-KSB. A copy of that filing may be obtained by contacting the Company or the
SEC.
OVERVIEW
The financial position and the results of operations as of June 30, 1997 reflect
the Wells Acquisition on February 21, 1997.
The Company's net earnings for the quarter ended June 30, 1997 were $1,010,000
or $.33 fully diluted earnings per share, compared to net earnings of $1,508,000
or $.48 fully diluted earnings per share for the same quarter in 1996. The
Company's return on average assets and return on average stockholders' equity
were .31% and 4.54%, respectively, for the quarter ended June 30, 1997 as
compared to .56% and 8.40%, respectively, for the same period in 1996. Although
net earnings decreased $498,000 or 33.02%, growth in pretax earnings was
$1,205,000 or 227.36% for the quarter ended June 30, 1997 as compared to the
same period in 1996, due to the fact that the Company became taxable at an
effective rate of approximately 42% in 1997 as compared to having recorded a net
income tax benefit of $978,000 in 1996. The increase in pretax earnings was
primarily due to growth accomplished through the Wells Acquisition, internal
loan and deposit growth and a reduction in other real estate owned ("OREO")
expenses and other noninterest expenses during the year.
The Company's net earnings for the six-month period ended June 30, 1997 were
$1,924,000 or $.64 fully diluted earnings per share, compared to net earnings of
$2,232,000 or $.74 fully diluted earnings per share for the same period in 1996.
The Company's return on average assets and return on average stockholders'
equity were .59% and 8.82%, respectively, for the six-month period ended June
30, 1997 as compared to .93% and 12.69%, respectively, for the same period in
1996. Although net earnings decreased $308,000 or 13.80%, growth in pretax
earnings was $2,339,000 or 239.90% for the six-month period ended June 30, 1997
as compared to the same period in 1996, due to the fact that the Company became
taxable at an effective rate of approximately 42% in 1997 as compared to having
recorded a net income tax benefit of $1,257,000 in 1996. The increase in pretax
earnings was primarily due to growth accomplished through the RB Merger and the
Wells Acquisition, internal loan and deposit growth and a reduction in other
real estate owned ("OREO") expenses and other noninterest expenses during the
year.
Total assets increased $23,848,000 or 7.73% from $308,585,000 as of December 31,
1996 to $332,433,000 as of June 30, 1997. The increase in asset size was
primarily a result of the Wells Acquisition and strong loan growth. Net loans
increased $14,994,000 or 7.11% to $225,870,000 as of June 30, 1997 from
$210,876,000 as of December 31, 1996, due to an increase in new loan volume
during the first six months of 1997. Total investment securities increased
$4,630,000 or 8.17% from December 31, 1996 to a balance of $61,314,000. Deposits
of $300,820,000 as of June 30, 1997 increased $36,299,000 or 13.72% from
$264,521,000 as of December 31, 1996. Deposits of $16,838,000 were acquired in
the Wells Acquisition and the balance of the increase since December 31, 1996
was attributed to internal growth in deposits generated at branches throughout
the FPNB franchise. The growth in deposits resulted in a decrease in Federal
funds purchased and other borrowings of $13,752,000 or 82.09% since December 31,
1996.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $985,000 or
24.55% for the quarter ended June 30, 1997 as compared to the same period in
1996. Net interest income is affected by changes in average rates, average
volumes of interest-earning assets and average volumes of interest-bearing
liabilities. The purchase of
7
<PAGE> 8
$9,000,000 in real estate loans in October 1996 and significant new loan volume
during the period contributed to the increase in net interest income during 1997
as compared to 1996. Changes in the interest rate environment, including a 25
basis point rate increase implemented by the Federal Reserve Bank in February
1997, and the Company's cost of funds also affected net interest income.
Net interest income before provision for loan losses increased $2,536,000 or
35.50% for the six-month period ended June 30, 1997 as compared to the same
period in 1996. Net interest income is affected by changes in average rates,
average volumes of interest-earning assets and average volumes of
interest-bearing liabilities. On April 1, 1996, $42,498,000 of net loans and
$43,982,000 of interest-bearing deposits were acquired in the RB Merger, which
contributed to the increase in net interest income during 1997 as compared to
1996. The purchase of $9,000,000 in real estate loans in October 1996 and
significant new loan volume contributed to the increase as well. Changes in the
interest rate environment, including a 25 basis point rate increase implemented
by the Federal Reserve Bank in February 1997, and the Company's cost of funds
also affected net interest income.
The weighted-average rate earned on interest-earning assets for the quarter
ended June 30, 1997 increased to 9.76% from 9.61% for the same period in 1996.
Average loans outstanding during the quarter ended June 30, 1997 were
$227,235,000, which earned interest at an average rate of 10.50% as compared to
average loans outstanding of $193,586,000 which earned a rate of 10.37% during
the same period in 1996. Average Federal funds sold were $521,000, which earned
an average rate of 5.39% for the three months ended June 30, 1997 as compared to
$8,675,000 which earned 4.87% during the same quarter in 1996. Conversely,
taxable investment securities had an aggregate average balance of $58,776,000
and earned 7.04% for the three months ended June 30, 1997 as compared to
$33,266,000 which earned 6.41% during the same period in 1996. Nontaxable
investment securities had an aggregate average balance of $1,457,000 which
earned 5.51% for the three months ended June 30, 1997. There were no nontaxable
investment securities during 1996. The increase in the Company's yield on
investment securities was the result of an ongoing restructuring of the
investment portfolio into higher-yielding securities during 1996 and 1997.
The weighted-average rate earned on interest-earning assets for the six months
ended June 30, 1997 increased to 9.68% from 9.58% for the same period in 1996.
Average loans outstanding during the six months ended June 30, 1997 were
$224,213,000, which earned interest at an average rate of 10.41% as compared to
average loans outstanding of $169,582,000 which also earned a rate of 10.41%
during the same period in 1996. Average Federal funds sold were $1,210,000,
which earned an average rate of 5.00% for the six months ended June 30, 1997 as
compared to $7,397,000 which also earned 5.00% during the same quarter in 1996.
Taxable investment securities had an aggregate average balance of $60,227,000
and earned 7.10% for the six months ended June 30, 1997 as compared to
$33,982,000 which earned 6.42% during the same period in 1996. Nontaxable
investment securities had an aggregate average balance of $733,000 which earned
5.50% for the six months ended June 30, 1997. There were no nontaxable
investment securities during 1996. The increase in the Company's yield on
investment securities was the result of an ongoing restructuring of the
investment portfolio into higher-yielding securities during 1996 and 1997.
The weighted-average rate paid on interest-bearing liabilities increased to
3.42% for the quarter ended June 30, 1997 from 3.33% for the quarter ended June
30, 1996. Average outstanding interest-bearing deposits of $224,553,000 for the
quarter ended June 30, 1997 were paid an average rate of 3.20% as compared to
average outstanding interest-bearing deposits of $190,911,000 which were paid an
average rate of 3.15% for the same period in 1996. Debentures and other
borrowings had an average outstanding balance of $11,092,000 and paid 7.77% for
the three-month period ended June 30, 1997 as compared to an average balance of
$4,701,000 which paid 10.44% for the three-month period ended June 30, 1996.
The weighted-average rate paid on interest-bearing liabilities increased to
3.47% for the six months ended June 30, 1997 from 3.34% for the six months ended
June 30, 1996. Average outstanding interest-bearing deposits of $218,190,000 for
the six months ended June 30, 1997 were paid an average rate of 3.19% as
compared to average outstanding interest-bearing deposits of $170,495,000 which
were paid an average rate of 3.15% for
8
<PAGE> 9
the same period in 1996. Debentures and other borrowings had an average
outstanding balance of $18,251,000 and paid 6.86% for the six-month period ended
June 30, 1997 as compared to an average balance of $4,673,000 which paid 10.50%
for the six-month period ended June 30, 1996.
The following table presents, for the periods indicated, a summary of changes in
interest income and interest expense for the major categories of average
interest-earning assets and average interest-bearing liabilities and the amounts
of change attributable to variations in volume and in interest rates.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 compared to 1996 1997 compared to 1996
---------------------------------- -----------------------------------
(in thousands) (in thousands)
Increase (Decrease) Increase (Decrease)
---------------------------------- -----------------------------------
Volume Rate Net Volume Rate Net
--------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on interest-earning assets:
Loans(1) $ 870 $ 86 $ 956 $ 2,820 $ (23) $ 2,797
Taxable investment securities 408 93 501 836 198 1,034
Nontaxable investment securities - 20 20 - 20 20
Interest-earning deposits (4) - (4) (4) - (4)
Federal funds sold (99) 1 (98) (153) (1) (154)
--------- -------- --------- --------- -------- ---------
Total interest on interest-earning assets 1,175 200 1,375 3,499 194 3,693
Interest paid on interest-bearing liabilities:
Interest-bearing deposits:
Savings and time 139 26 165 458 14 472
Interest-bearing demand 107 25 132 274 34 308
--------- -------- --------- --------- -------- ---------
Total interest-bearing deposits 246 51 297 732 48 780
Debentures and Federal funds purchased 166 (73) 93 707 (330) 377
--------- -------- --------- --------- -------- ---------
Total interest on interest-bearing liabilities 412 (22) 390 1,439 (282) 1,157
--------- -------- --------- --------- -------- ---------
Change in net interest income $ 763 $ 222 $ 985 $ 2,060 $ 476 $ 2,536
========= ======== ========= ========= ======== =========
</TABLE>
- ----------
(1) Nonaccrual loans are included in the loan totals used in the calculation of
this table.
Interest income on loans includes the accretion of loan fees resulting from the
Company's lending activities. Net fees included in interest income for the three
months ended June 30, 1997 and 1996 were $325,000 and $231,000, respectively.
Net fees included in interest income for the six months ended June 30, 1997 and
1996 were $556,000 and $367,000, respectively.
OTHER OPERATING INCOME
Other operating income was $573,000 for the quarter ended June 30, 1997 as
compared to $489,000 for the same period in 1996, an increase of $84,000 or
17.18%. Service charges increased by $117,000 or 27.66% while all other
operating income decreased $33,000 or 50.00%. The increase in service charges
and other operating income during the three-month period ended June 30, 1997 as
compared to the same period in 1996 was due to the Wells Acquisition and
significant deposit growth during the period.
Other operating income was $1,138,000 for the six months ended June 30, 1997 as
compared to $936,000 for the same period in 1996, an increase of $202,000 or
21.58%. Service charges increased by $202,000 or 25.03% while all other
operating income remained consistent at $129,000 for both the 1997 and 1996
periods. The increase in service charges during the six-month period ended June
30, 1997 as compared to the same period in 1996 was due to the Wells Acquisition
and significant deposit growth during the period.
9
<PAGE> 10
OTHER OPERATING EXPENSES
Total other operating expenses for the quarter ended June 30, 1997 were
$3,728,000, a decrease of $94,000 or 2.46% as compared to the same quarter in
1996. The primary reason for the decrease was a decrease of $101,000 in the loss
on sale of investment securities resulting from the repositioning of the
investment portfolio into higher yielding securities during the quarter ended
June 30, 1996. Increases of $278,000 or 16.62% in salaries and benefits, $29,000
or 4.59% in occupancy and furniture and equipment, and $7,000 or 1.14% in other
expenses were due to company growth during the period. Amortization of goodwill
and other intangibles increased $24,000 or 32.00% due to a core deposit
intangible recorded as a result of the Wells Acquisition. These increases were
offset by a decrease of $254,000 or 42.62% in professional services primarily
due to the elimination of third party data processing expense as a result
of bringing the function in-house in July 1996 and to a reduction in legal
expenses. Other real estate owned expense decreased by $77,000 or 63.11% due to
a reduction in other real estate owned.
Total other operating expenses for the six months ended June 30, 1997 were
$7,287,000, an increase of $583,000 or 8.70% as compared to the same period in
1996. Increases of $748,000 or 24.24% in salaries and benefits, $191,000 or
16.87% in occupancy and furniture and equipment, and $172,000 or 16.68% in
other expenses were due to company growth during the period. Amortization of
goodwill and other intangibles increased $76,000 or 73.79% due to goodwill
recorded in the RB Merger on April 1, 1996 and a core deposit intangible
recorded as a result of the Wells Acquisition. These increases were offset by a
decrease of $348,000 or 34.46% in professional services primarily due to the
elimination of third party data processing expense as a result of bringing the
function in-house in July 1996 and to a reduction in legal expenses. In
addition, there was a decrease in the loss on sale of investment securities of
$127,000 resulting from the repositioning of the investment portfolio into
higher yielding securities during 1996. Other real estate owned expense
decreased by $129,000 or 62.62% due to a reduction in other real estate owned.
ALLOWANCE AND PROVISION FOR LOAN AND LEASE LOSSES
The Company maintains an allowance for loan and lease losses ("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 Company determines the allocation for allowances based upon
the evaluation of quality of the loan portfolio, total outstanding loans,
previous charges against the allowance and current and anticipated economic
conditions. The provision for loan losses is a charge against earnings in the
period in which the potential loss is identified. Actual loan losses are charged
against the allowance for loan losses in the period in which they occur.
A provision for loan losses of $108,000 was recorded for the quarter ended June
30, 1997 as compared to $150,000 recorded in the second quarter of 1996. A
provision for loan losses of $216,000 was recorded for the six months ended June
30, 1997 as compared to $400,000 recorded in the same period in 1996. Based on a
review of the loan portfolio and considering historical experience with regard
to potential loan losses, the provisions were necessary so that the allowances
for loan losses as of June 30, 1997 and 1996 were adequate to absorb potential
losses.
As of June 30, 1997, the allowance for loan losses totaled $2,814,000 or 1.23%
of total loans outstanding as compared to $3,121,000 or 1.46% of total loans
outstanding as of December 31, 1996. Based on management's evaluation of the
loan portfolio and considering the factors mentioned above, management believes
that the allowance for loan losses was adequate as of June 30, 1997. However,
there is no assurance that future changes in economic conditions or the other
factors mentioned above will not require that additional provisions be made.
10
<PAGE> 11
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 following table presents information with respect to the Company's past due
loans and the components of nonperforming assets as of the dates indicated.
<TABLE>
<CAPTION>
(in thousands)
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
NONPERFORMING LOANS:
Loans greater than 90 days past due and still accruing interest $ 725 $ 774
Loans on nonaccrual 703 1,374
------ ------
Total nonperforming loans 1,428 2,148
Other real estate owned 2,146 1,329
------ ------
Total Nonperforming Assets $3,574 $3,477
====== ======
</TABLE>
Nonperforming assets totaled $3,574,000 or 1.08% of total assets as of June 30,
1997, as compared to $3,477,000 or 1.13% as of December 31, 1996.
INCOME TAXES
Income tax expense for the first quarter of 1997 was $725,000 as compared to an
income tax benefit of $978,000 recorded during the same period in 1996. Income
tax expense for the six months ended June 30, 1997 was $1,390,000 as compared to
an income tax benefit of $1,257,000 recorded during the same period in 1996. Net
income tax benefits recorded in 1996 represented the last of the significant
income tax benefits recorded by the Company as a result of prior years' net
operating losses.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Effective asset/liability management is achieved by maintaining adequate
liquidity and minimizing the impact of future interest rate changes on net
interest income. The responsibility for monitoring the Company's liquidity and
interest rate sensitivity lies with the Asset/Liability Management and Executive
Committees of FPNB. The Executive Committee meets weekly and the Asset/Liability
Management Committee meets quarterly to monitor liquidity, investment
strategies, rate sensitivity strategy and loan demand as well as the adequacy of
funding sources.
Liquidity measures the ability of the Company to meet its maturing obligations
and existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. Liquidity is provided
by cash and due from banks, Federal funds sold, investments available for sale,
interest-earning deposits in other financial institutions and loan repayments.
The Company's total liquid assets as a percentage of deposits and short-term
borrowings totaled 23.70% and 25.00% as of June 30, 1997 and December 31, 1996,
respectively.
The Company actively manages its interest rate sensitivity position. The
objectives of interest rate risk management are to control exposure of net
interest income to risks associated with interest rate movements, to achieve
consistent growth in net interest income, and to profit from favorable market
opportunities. The Company manages the rate sensitivity position by adjusting
the average maturity of and establishing rates on earning assets and
interest-bearing liabilities in line with its expectation for future interest
rates. However, even with perfectly matched repricing of assets and liabilities,
interest rate risk cannot be avoided entirely. Interest rate risk remains in the
form of prepayment risk of assets or liabilities, risks related to differences
in the timing
11
<PAGE> 12
and indexes for interest rate adjustments for assets and liabilities with
adjustable interest rates, and basis risk. In the Company's experience, in a
rising rate environment, rates on short-term liabilities rise more slowly than
rates on its adjustable rate assets, while in a decreasing rate environment, the
Company would expect rates on its short-term liabilities to decrease more
consistently with the rates on its adjustable rate assets.
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support business growth and to ensure
depositor protection. The Company's two sources of capital are internally
generated funds and the capital markets.
The Federal Reserve Board (the "FRB") in December 1988, the Office of the
Comptroller of the Currency (the "OCC") in January 1989 and the Federal Deposit
Insurance Corporation in March 1989 adopted risk-based capital adequacy
guidelines for bank holding companies and banks. The risk-based capital adequacy
guidelines establish a risk-based capital ratio based on the overall risk of the
entity determined by assigning various weighted risks to each balance sheet
asset and certain off-balance sheet commitments, adding up all of the weighted
risk amounts, and dividing Tier 1 capital (capital, surplus and retained
earnings) into the risk-weighted assets. As of June 30, 1997, the Company's Tier
I risk-based capital to risk-weighted assets totaled 7.68% as compared to 7.47%
as of December 31, 1996, and the Company's total capital to risk-weighted assets
totaled 8.85% as compared to 8.72% as of December 31, 1996. As of June 30, 1997,
FPNB's Tier I risk-based capital to risk-weighted assets totaled 8.95% as
compared to 8.79% as of December 31, 1996, and FPNB's total capital to
risk-weighted assets totaled 10.12% as compared to 10.04% as of December 31,
1996.
The FRB and the OCC adopted leverage requirements effective January 1, 1992
which apply in addition to the risk-based capital requirements. Under these
requirements, bank holding companies and national banking associations are
required to maintain core capital of at least 3% of total assets. On June 30,
1997 and December 31, 1996, the Company's core capital to total assets stood at
5.64% and 5.54%, respectively. On June 30, 1997 and December 31, 1996, FPNB's
core capital to total assets stood at 6.57% and 6.52%, respectively.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May 27, 1997 at
5:30 p.m. at the California Center for the Arts, 340 North Escondido Boulevard,
Escondido, California. There were 2,066,841 shares represented at the meeting by
proxy or in person, constituting a quorum of all stockholders of the Company.
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
Votes Votes Broker
Votes for Against Withheld Non-votes
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
1. Election of seven persons to serve as
Directors of the Company, each
with a two year term. 2,055,687 0 11,154 0
2. Ratification of the appointment of
KPMG Peat Marwick LLP as the
independent auditor for 1997. 2,060,406 1,617 4,818 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURES
In the opinion of management, the financial statements presented reflect all
adjustments which are necessary to a fair statement of the results for the
periods presented.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FP Bancorp, Inc.
By: /s/ MICHAEL J. PERDUE
-------------------------------------
Michael J. Perdue
Executive Vice President and
Chief Operating Officer
(duly authorized officer and
principal financial officer)
Dated: August 11, 1997
13
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 24,849,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,143,000
<INVESTMENTS-CARRYING> 14,171,000
<INVESTMENTS-MARKET> 14,182,000
<LOANS> 228,684,000
<ALLOWANCE> 2,814,000
<TOTAL-ASSETS> 332,433,000
<DEPOSITS> 300,820,000
<SHORT-TERM> 3,000,000
<LIABILITIES-OTHER> 1,127,000
<LONG-TERM> 4,575,000
<COMMON> 3,000
0
0
<OTHER-SE> 22,908,000
<TOTAL-LIABILITIES-AND-EQUITY> 332,433,000
<INTEREST-LOAN> 11,578,000
<INTEREST-INVEST> 2,169,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,747,000
<INTEREST-DEPOSIT> 3,447,000
<INTEREST-EXPENSE> 4,068,000
<INTEREST-INCOME-NET> 9,679,000
<LOAN-LOSSES> 216,000
<SECURITIES-GAINS> (9,000)
<EXPENSE-OTHER> 7,278,000
<INCOME-PRETAX> 3,314,000
<INCOME-PRE-EXTRAORDINARY> 3,314,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,924,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 6.85
<LOANS-NON> 703,000
<LOANS-PAST> 725,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,121,000
<CHARGE-OFFS> 643,000
<RECOVERIES> (120,000)
<ALLOWANCE-CLOSE> 2,814,000
<ALLOWANCE-DOMESTIC> 2,814,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
