<PAGE> 1
Total number of pages: 13
Exhibit Index on page: 13
FORM 10-QSB
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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 March 31, 1998
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 0-17650
FP Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0018976
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
613 West Valley Parkway, Escondido, California 92025-4929
(Address of principal executive offices) (ZIP Code)
(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 March 31, 1998, the number of shares outstanding of the Registrant's only
class of common stock was 3,122,215.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Cash and due from banks $ 23,916,000 $ 23,737,000
Federal funds sold 2,200,000 --
Investment securities available-for-sale 64,421,000 59,366,000
Investment securities held-to-maturity 23,986,000 23,478,000
Loans, net of allowance for loan losses of $2,938,000 as of March 31, 1998
and $2,646,000 as of December 31, 1997 231,333,000 227,856,000
Premises and equipment, net 7,377,000 7,577,000
Other real estate owned, net 1,346,000 1,260,000
Goodwill and other intangibles, net 3,826,000 3,938,000
Accrued interest and other assets 5,731,000 5,992,000
- ----------------------------------------------------------------------------------- -------------- -----------------
$ 364,136,000 $ 353,204,000
=================================================================================== ============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------
Deposits:
Noninterest-bearing $ 70,938,000 $ 74,795,000
Interest-bearing 259,048,000 234,707,000
- ----------------------------------------------------------------------------------- -------------- -----------------
Total deposits 329,986,000 309,502,000
- ----------------------------------------------------------------------------------- -------------- -----------------
Federal funds purchased -- 11,100,000
Accrued expenses and other liabilities 2,256,000 1,838,000
Subordinated debentures -- 4,575,000
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Total liabilities 332,242,000 327,015,000
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Stockholders' equity:
Common stock, par value $.001, authorized 4,000,000 shares; issued and outstanding
3,122,215 as of March 31, 1998 and 2,778,823 as of December 31, 1997 3,000 3,000
Additional paid-in capital 29,783,000 25,219,000
Retained earnings 1,948,000 681,000
Unrealized gains on investment securities available for sale, net 160,000 286,000
- ----------------------------------------------------------------------------------- -------------- -----------------
Total stockholders' equity 31,894,000 26,189,000
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$ 364,136,000 $ 353,204,000
=================================================================================== ============== =================
</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
March 31,
-----------------------
1998 1997
- ------------------------------------------------------------ ---------- ----------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $5,903,000 $5,630,000
Federal funds sold 62,000 23,000
Investment securities:
Taxable 1,227,000 1,088,000
Nontaxable 182,000 --
- ------------------------------------------------------------ ---------- ----------
Total interest income 7,374,000 6,741,000
- ------------------------------------------------------------ ---------- ----------
INTEREST EXPENSE:
Deposits 2,098,000 1,654,000
Other 21,000 406,000
- ------------------------------------------------------------ ---------- ----------
Total interest expense 2,119,000 2,060,000
- ------------------------------------------------------------ ---------- ----------
Net interest income 5,255,000 4,681,000
Provision for loan losses 270,000 108,000
- ------------------------------------------------------------ ---------- ----------
Net interest income after provision for loan losses 4,985,000 4,573,000
- ------------------------------------------------------------ ---------- ----------
OTHER OPERATING INCOME:
Service charges 622,000 469,000
Net gain on sale of investment securities available-for-sale 103,000 --
Other 42,000 96,000
- ------------------------------------------------------------ ---------- ----------
Total other operating income 767,000 565,000
- ------------------------------------------------------------ ---------- ----------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,993,000 1,883,000
Occupancy 394,000 378,000
Furniture and equipment 271,000 284,000
Professional services 161,000 320,000
Other real estate owned, net 19,000 32,000
Goodwill and other intangible amortization 97,000 80,000
Other 646,000 582,000
- ------------------------------------------------------------ ---------- ----------
Total other operating expenses 3,581,000 3,559,000
- ------------------------------------------------------------ ---------- ----------
Earnings before income taxes 2,171,000 1,579,000
Income taxes 904,000 665,000
- ------------------------------------------------------------ ---------- ----------
Net earnings $1,267,000 $ 914,000
============================================================ ========== ==========
Basic earnings per share $ 0.42 $ 0.34
============================================================ ========== ==========
Diluted earnings per share $ 0.40 $ 0.29
============================================================ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
- ---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,267,000 $ 914,000
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 342,000 356,000
Provision for loan losses 270,000 108,000
Provision for losses on other real estate owned 15,000 --
(Gain) loss on sale of other real estate owned (27,000) 3,000
Gain on sale of investment securities available for sale (103,000) --
Increase in accrued interest and other assets 367,000 886,000
Increase (decrease) in accrued expenses and other liabilities 418,000 (512,000)
Increase in deferred loan origination fees 5,000 15,000
- ---------------------------------------------------------------- ------------ ------------
Net cash provided by operating activities 2,554,000 1,770,000
- ---------------------------------------------------------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans outstanding (4,158,000) (10,658,000)
Proceeds on sale of other real estate owned 332,000 180,000
Maturities of investment securities available for sale 2,179,000 2,113,000
Maturities of investment securities held to maturity 1,526,000 30,000
Purchase of investment securities available for sale (16,466,000) (7,042,000)
Purchase of investment securities held to maturity (1,990,000) (1,002,000)
Proceeds from sale of investment securities available for sale 9,055,000 --
Capital expenditures for premises and equipment (26,000) (354,000)
Net cash acquired in merger/acquisition -- 14,042,000
- ---------------------------------------------------------------- ------------ ------------
Net cash used in investing activities (9,548,000) (2,691,000)
- ---------------------------------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in interest-bearing deposits 24,341,000 3,193,000
Net (decrease) increase in noninterest-bearing deposits (3,857,000) 6,143,000
Decrease in Federal funds purchased (11,100,000) (4,802,000)
Decrease in other borrowings -- (4,950,000)
Direct costs of subordinated debenture conversion (29,000) --
Proceeds from exercise of stock options 18,000 --
- ---------------------------------------------------------------- ------------ ------------
Net cash provided by (used in) financing activities 9,373,000 (416,000)
- ---------------------------------------------------------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,379,000 (1,337,000)
Cash and cash equivalents at beginning of period 23,737,000 22,919,000
- ---------------------------------------------------------------- ------------ ------------
Cash and cash equivalents at end of period $ 26,116,000 $ 21,582,000
================================================================ ============ ============
(continued)
</TABLE>
4
<PAGE> 5
FP BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,086,000 $ 2,122,000
Income taxes $ 683,000 $ 18,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to other real estate owned $ 406,000 $ 849,000
Conversion of subordinated debentures to stockholders' equity $ 4,575,000 $ --
Change in unrealized gains on investment securities
available for sale, net of tax effect $ (126,000) $ (511,000)
======================================================================= ============ ============
</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 March 31,
1998 and for the three-month periods ended March 31, 1998 and 1997 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, 1997. The results of operations for
the three-month period ended March 31, 1998 are not necessarily indicative
of the results for the entire year ending December 31, 1998.
2. Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
period. The weighted average numbers of shares used for the basic earnings
per share calculations for the three-month periods ended March 31, 1998 and
1997 were 3,046,000 and 2,654,000, respectively.
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
outstanding during the period. Stock options are considered to be common
stock equivalents and are used in the diluted earnings per share
calculations. Prior to their conversion in January 1998 (note 5), the
subordinated convertible debentures were considered to be other potentially
dilutive securities and were used in the diluted earnings per share
calculations. The adjusted net earnings used for the diluted earnings per
share calculations for the three-month periods ended March 31, 1998 and
1997 were $1,267,000 and $958,000, respectively. The weighted average
numbers of shares used for the diluted earnings per share calculations for
the three-month periods ended March 31, 1998 and 1997 were 3,151,000 and
3,263,000, respectively.
3. In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements. The FASB defines comprehensive income as "the change
in equity of a business enterprise during the period from transactions and
other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investment by
owners and distributions to owners." Total comprehensive income for the
three months ended March 31, 1998 and 1997 was $1,141,000 and $403,000,
respectively. The difference between comprehensive income and net earnings
reported for those periods is related to the change in unrealized gains on
investment securities available-for-sale, net of income taxes.
4. On December 29, 1997, the Company announced that a definitive agreement had
been signed under which the Company will merge with and into Zions
Bancorporation ("Zions"), and FPNB will merge with and into Grossmont Bank,
a wholly-owned subsidiary of Zions, in exchange for Zions common stock. The
merger is subject to the approval of banking regulators and the
stockholders of the Company. The transaction is expected to close in the
second quarter of 1998.
5. On January 20, 1998, 100% of the Debenture holders elected conversion into
Company Common Stock (the "Debenture Conversion"). In accordance with the
antidilutive provision included in the terms of the Debentures, a
conversion rate of 74.5226 shares of Company Common Stock per $1,000 of
principal was utilized. Accordingly, 340,895 shares of Company Common Stock
were issued on that date at a total price of $4,575,000, less direct costs
of issuance.
6
<PAGE> 7
6. On March 25, 1998, Zions announced that a definitive agreement had been
signed under which Sumitomo Bank of California ("Sumitomo") will merge with
Grossmont Bank and FPNB after both the acquisitions have been completed.
The merger is subject to the approval of Sumitomo shareholders and banking
regulators and is expected to close in the third quarter of 1998.
7. 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.
8. 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.
7
<PAGE> 8
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" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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. Copies of that filing may be obtained by contacting the
Company or the SEC, or may be accessed via the Internet at www.sec.gov.
OVERVIEW
The results of operations for the three-month periods ended March 31, 1998 and
1997 reflect the acquisition of the Wells Fargo Bank Valley Center branch,
located in Valley Center in San Diego County, California on February 21, 1997
(the "Wells Acquisition"). The Company acquired the branch premises as well as
$16,838,000 of deposits and $1,630,000 in loans. A core deposit intangible of
$1,038,000 was recorded.
The Company's net earnings for the quarter ended March 31, 1998 were $1,267,000
or $.40 per diluted share, compared to net earnings of $914,000 or $.29 per
diluted share for the same quarter in 1997. The Company's return on average
assets and return on average stockholders' equity were .35% and 4.02%,
respectively, for the quarter ended March 31, 1998 as compared to .28% and
4.28%, respectively, for the same period in 1997. The Debenture Conversion
caused average stockholders' equity to increase to the extent that return on
average stockholders' equity decreased during the quarter ended March 31, 1998
as compared to 1997, despite significant increases in both net earnings and
return on average assets during the period. Net earnings increased $353,000 or
38.62% for the quarter ended March 31, 1998 as compared to the same period in
1997. The increase in net earnings for the quarter ended March 31, 1998 as
compared to 1997 was primarily a result of growth achieved through the Wells
Acquisition and significant internal growth resulting from promotional and
employee incentive efforts. A gain on sale of investment securities, a reduction
in other real estate owned ("OREO") expenses and successful cost reduction
efforts in other operating expenses also contributed to the increase in net
earnings.
Total assets increased $10,932,000 or 3.10% from $353,204,000 as of December 31,
1997 to $364,136,000 as of March 31, 1998. The increase in asset size was
primarily a result of seasonal deposit growth partially offset by a
corresponding decrease in borrowed funds. Deposits of $329,986,000 as of March
31, 1998 increased $20,484,000 or 6.62% from $309,502,000 as of December 31,
1997. As a result, Federal funds purchased and other borrowings decreased to
zero from $11,100,000 as of December 31, 1997. Net loans increased $3,477,000 or
1.53% to $231,333,000 as of March 31, 1998 from $227,856,000 as of December 31,
1997. Excess funds were invested in taxable and nontaxable investment
securities, which in total increased $5,563,000 or 6.72% to $88,407,000 as of
March 31, 1998 from $82,844,000 as of December 31, 1997. The Debenture
Conversion resulted in the reclassification of $4,575,000 (less direct costs of
conversion) from subordinated debentures to stockholders' equity on January 20,
1998.
NET INTEREST INCOME
Net interest income on a tax equivalent basis ("TE") before provision for loan
losses increased $660,000 or 14.10% for the three months ended March 31, 1998 as
compared to the same period in 1997. Net interest income is affected by changes
in average rates, average volumes of interest-earning assets and average volumes
of interest-bearing liabilities. A 25 basis point rate increase implemented by
the Federal Reserve Bank in February 1997 affected net interest income during
the current reporting period.
The weighted-average rate earned on interest-earning assets for the quarter
ended March 31, 1998 decreased to 9.41% from 9.60% for the same period in 1997,
primarily as a result of a change in the mix of earning assets during the
period. Average loans outstanding during the quarter ended March 31, 1998 were
$230,433,000, which earned interest at an average rate of 10.39% as compared to
average loans outstanding of $221,157,000 which earned a rate of 10.32% during
the same period in 1997. Average Federal funds sold were $4,694,000, which
earned an average rate of 5.36% for the three months ended March 31, 1998 as
compared to $1,912,000 which earned 4.88% during the same quarter in 1997.
Taxable and nontaxable investment securities had an aggregate average balance of
$86,544,000 and earned 7.01% (TE) for the three months ended March 31, 1998 as
compared to $61,700,000 which
8
<PAGE> 9
earned 7.15% during the same period in 1997. There were no nontaxable securities
in the portfolio during the three months ended March 31, 1997.
The weighted-average rate paid on interest-bearing liabilities decreased to
3.38% for the quarter ended March 31, 1998 from 3.52% for the quarter ended
March 31, 1997, primarily as a result of the Debenture Conversion. Average
outstanding interest-bearing deposits of $251,766,000 for the quarter ended
March 31, 1998 paid an average rate of 3.38% as compared to average outstanding
interest-bearing deposits of $211,783,000 which paid an average rate of 3.17%
for the same period in 1997. As a result of the Debenture Conversion, average
debentures and other borrowings decreased to $2,425,000 and paid 3.51% for the
three-month period ended March 31, 1998 as compared to an average balance of
$25,475,000 which paid 6.46% for the three-month period ended March 31, 1997.
"Net interest margin" is calculated by dividing net interest income (TE) by
average interest-earning assets. The Company's net interest margin increased
from 6.67% for the three-month period ended March 31, 1997 to 6.73% for the
three-month period ended March 31, 1998. The increase was the result of a
significantly reduced cost of funds resulting from the Debenture Conversion,
offset by a decrease in yield on earning assets resulting from a change in the
mix of interest-earning assets.
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 March 31,
1998 compared to 1997
--------------------------------
(in thousands)
Increase (Decrease)
--------------------------------
Volume Rate Net
-------- -------- --------
<S> <C> <C> <C>
Interest earned on interest-earning assets:
Loans (1) $ 236 $ 37 $ 273
Taxable investment securities 188 (49) 139
Nontaxable investment securities (TE) 268 -- 268
Federal funds sold 33 6 39
-------- -------- --------
Total interest on interest-earning assets 725 (6) 719
Interest paid on interest-bearing liabilities:
Interest-bearing deposits:
Savings and time 324 80 404
Interest-bearing demand 57 (17) 40
-------- -------- --------
Total interest-bearing deposits 381 63 444
Debentures and Federal funds purchased (367) (18) (385)
-------- -------- --------
Total interest on interest-bearing liabilities 14 45 59
-------- -------- --------
Change in net interest income (TE) $ 711 $ (51) $ 660
======== ======== ========
</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 March 31, 1998 and 1997 were $345,000 and $257,000, respectively.
OTHER OPERATING INCOME
Other operating income was $767,000 for the quarter ended March 31, 1998 as
compared to $565,000 for the same period in 1997, an increase of $202,000 or
35.75%. Service charges increased by $153,000 or 32.62% due to the Wells
Acquisition, significant deposit growth and ATM surcharges implemented during
the period. A gain on sale
9
<PAGE> 10
of investment securities of $103,000 was recorded for the three months ended
March 31, 1998 as compared to no gain on sale during 1997. Other income
decreased $54,000 or 56.25% from $96,000 for the quarter ended March 31, 1997 to
$42,000 for the quarter ended March 31, 1998. The decrease in other operating
income was primarily due to nonrecurring property tax refunds, which in
aggregate totaled $61,000 for the quarter ended March 31, 1997. The increase in
other income excluding these nonrecurring items was $7,000 for the quarter ended
March 31, 1998 as compared to 1997, or 17.14%.
OTHER OPERATING EXPENSES
In December 1996, the Company formed an Efficiency Task Force to implement cost
savings ideas and cost control procedures in the area of noninterest expenses.
The success of the measures taken by this committee during 1997 and 1998 are
illustrated by an increase of less than 1.00% in operating expenses in a period
of significant asset growth by the Company.
Total other operating expenses for the quarter ended March 31, 1998 were
$3,581,000, an increase of $22,000 or .62% as compared to $3,559,000 for the
same quarter in 1997. Salaries and benefits expense increased $110,000 or 5.84%
during the period as a result of normal salary increases and an increase in
employee incentive payments during the quarter. Occupancy expenses increased
$16,000 or 4.23% during the period, while furniture and equipment decreased by
$13,000 or 4.58%. Professional services decreased $159,000 or 49.69% as a result
of significant reductions in legal expenses due to the resolution of outstanding
litigation and a reduction in problem assets. OREO expenses also decreased by
$13,000 or 40.63% as a result of a decrease in OREO balances. Goodwill
amortization increased by $17,000 or 21.25% as a result of recording a core
deposit intangible relating to the Wells Acquisition, and other expenses
increased $64,000 or 11.00% as a result of Company growth offset by cost control
measures.
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 $270,000 was recorded for the quarter ended March
31, 1998 as compared to $108,000 recorded in the first quarter of 1997. 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 March 31, 1998 and 1997 were adequate to absorb potential
losses.
As of March 31, 1998, the allowance for loan losses totaled $2,938,000 or 1.25%
of total loans outstanding as compared to $2,646,000 or 1.15% of total loans
outstanding as of December 31, 1997. 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 March 31, 1998 and 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.
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.
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<PAGE> 11
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)
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Loans greater than 90 days past due and still accruing interest $ 211 $ 41
Loans on nonaccrual 276 614
-------------- -----------------
Total nonperforming loans 487 655
Other real estate owned 1,346 1,260
-------------- -----------------
Total Nonperforming Assets $ 1,833 $ 1,915
============== =================
</TABLE>
Nonperforming assets totaled $1,833,000 or .50% of total assets as of March 31,
1998, as compared to $1,915,000 or .54% as of December 31, 1997.
INCOME TAXES
Income tax expense for the first quarter of 1998 was $904,000 representing an
effective tax rate of 41.64%, as compared to $665,000 recorded during the same
period in 1997, representing an effective tax rate of 42.12%.
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 27.44% and 25.92% as of March 31, 1998 and December 31, 1997,
respectively.
The Company actively manages its interest rate sensitivity position. The
objectives of interest rate risk management are to control exposure of net
interest income to risks associated with interest rate movements, to achieve
consistent growth in net interest income, and to profit from favorable market
opportunities. The Company manages the rate sensitivity position by adjusting
the average maturity of and establishing rates on earning assets and
interest-bearing liabilities in line with its expectation for future interest
rates. However, even with perfectly matched repricing of assets and liabilities,
interest rate risk cannot be avoided entirely. Interest rate risk remains in the
form of prepayment risk of assets or liabilities, risks related to differences
in the timing and indexes for interest rate adjustments for assets and
liabilities with adjustable interest rates, and basis risk. In the Company's
experience, in a rising rate environment, rates on short-term liabilities rise
more slowly than rates on its adjustable rate assets, while in a decreasing rate
environment, the Company would expect rates on its short-term liabilities to
decrease more consistently with the rates on its adjustable rate assets.
CAPITAL RESOURCES
The Company engages in an ongoing assessment of its capital needs in order to
maintain an adequate level of capital to support business growth and to ensure
depositor protection. The Company's two sources of capital are internally
generated funds and the capital markets.
The Federal Reserve Board (the "FRB") in December 1988, the Office of the
Comptroller of the Currency (the "OCC") in January 1989 and the Federal Deposit
Insurance Corporation in March 1989 adopted risk-based capital adequacy
guidelines for bank holding companies and banks. The risk-based capital adequacy
guidelines establish a risk-based capital ratio based on the overall risk of the
entity determined by assigning various weighted risks to each balance sheet
asset and certain off-balance sheet commitments, adding up all of the weighted
risk amounts, and
11
<PAGE> 12
dividing Tier 1 capital (capital, surplus and retained earnings) into the
risk-weighted assets. The Debenture Conversion resulted in significant increases
to the Company's capital ratios. As of March 31, 1998, the Company's Tier I
risk-based capital to risk-weighted assets totaled 11.34% as compared to 9.10%
as of December 31, 1997, and the Company's total capital to risk-weighted assets
totaled 12.54% as compared to 10.20% as of December 31, 1997. As of March 31,
1998, FPNB's Tier I risk-based capital to risk-weighted assets totaled 10.66% as
compared to 10.27% as of December 31, 1997, and FPNB's total capital to
risk-weighted assets totaled 11.85% as compared to 11.37% as of December 31,
1997.
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 March 31,
1998 and December 31, 1997, the Company's core capital to total assets stood at
7.74% and 6.29%, respectively. On March 31, 1998 and December 31, 1997, FPNB's
core capital to total assets stood at 7.27% and 7.09%, respectively.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
(1) Report on Form 8-K filed on January 8, 1998 regarding the Zions
definitive agreement and the extension of the conversion deadline
to January 20, 1998.
(2) Report on Form 8-K filed on February 11, 1998 regarding fiscal year
1997 earnings.
(3) Report on Form 8-K filed on April 22, 1998 regarding first quarter
1998 earnings.
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: May 12, 1998
13
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