SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995
Commission File No. 0-12752
HNB FINANCIAL GROUP
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 95-3865133
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Reorganization) Identification No.)
16531 BOLSA CHICA, HUNTINGTON BEACH, CALIFORNIA 92649
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (714) 840-4681
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceeding 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
Aggregate market value of voting stock held by non-affiliates of the
registrant: $5,429,041
927,951 of Common Stock were outstanding on March 31, 1995
<PAGE>
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
Consolidated Statements of Operations For Three Months (Unaudited)
Consolidated Statements of Operations For Nine Months (Unaudited)
Consolidated Statements of Cashflows (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis
Other Items
<PAGE>
<TABLE>
Consolidated Balance Sheets
March 31, 1995 and March 31, 1994
(Unaudited)
<CAPTION>
3/31/95 3/31/94
<S>
ASSETS <C> <C>
Cash and due from banks $ 5,125,000 $ 5,469,000
Interest bearing deposits 1,291,000 3,590,000
Investment securities (note 1)
Held-to-maturity securities 11,514,000 4,534,000
Available for sale securities 0 6,241,000
Federal funds sold 7,450,000 5,550,000
Loans (note 2):
Commercial 21,251,000 19,778,000
Instalment 11,714,000 12,942,000
Real Estate:
Construction 2,609,000 4,841,000
Mortgage 29,895,000 27,323,000
---------- ----------
Total Loans 65,469,000 64,884,000
Less allowance for losses 897,000 949,000
Less Deferred loan fees, net 550,000 452,000
---------- ----------
Net loans and leases 64,022,000 63,483,000
---------- ----------
Premises and equipment 360,000 472,000
Accrued Interest and other assets 982,000 1,978,000
Goodwill 510,000 562,000
---------- ----------
$91,254,000 $91,879,000
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deposits:
Demand 23,469,000 24,239,000
Savings and Money Market 39,653,000 43,455,000
Time Certificates< $100,000 7,081,000 9,542,000
Time Certificates> $100,000 9,371,000 3,537,000
----------- -----------
Total deposits 79,574,000 80,773,000
Accrued Interest and other liabilities 287,000 397,000
----------- -----------
Total liabilities 79,861,000 81,170,000
----------- -----------
Shareholder's equity:
Capital Stock: 20,000,000 shares
authorized; 928,180 shares issued 9,533,000 9,523,000
Retained Earnings 1,860,000 1,186,000
----------- -----------
Total equity 11,393,000 10,709,000
----------- -----------
$91,254,000 $91,879,000
=========== ===========
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
3/31/95 3/31/94
<S>
Interest Income: <C> <C>
Loans, including fees $1,743,000 $1,491,000
Investments 185,000 145,000
Federal funds sold 81,000 65,000
--------- ----------
Total Interest Income 2,009,000 1,701,000
--------- ----------
Interest Expense:
Savings and money market 369,000 286,000
Time certificates < $100,000 93,000 24,000
Time certificates > $100,000 115,000 105,000
--------- ----------
Total interest expense 577,000 415,000
--------- ----------
Net interest income 1,432,000 1,286,000
Provision for loan losses 100,000 240,000
--------- ----------
Net interest income after
provision for loan losses 1,332,000 1,046,000
Other operating income:
Service charges & other income 132,000 151,000
--------- ----------
Total operating income 1,464,000 1,197,000
--------- ----------
Other operating expenses:
Salaries and benefits 529,000 508,000
Equipment and occupancy 245,000 268,000
Miscellaneous 544,000 562,000
--------- ----------
Total operating expenses 1,318,000 1,338,000
--------- ----------
Earnings before taxes 146,000 (141,000)
Income taxes 66,000 (60,000)
--------- -----------
Net earnings $ 80,000 $ (81,000)
--------- -----------
Earnings per share $0.09 $(0.09)
Weighted average number of shares 927,951 926,180
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cashflows
For the Three Months ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
3/31/95 3/31/94
<S> <C> <C>
Net cash flows from operating activities:
Net earnings $ 80,000 ($ 81,000)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 100,000 240,000
Depreciation 53,000 68,000
Amortization of Goodwill 13,000 14,000
Loss on sale of OREO 0 57,000
Write down of investment securities 50,000 8,000
Net unrealized loss-AFS securities 0 32,000
Gain on sale of SBA loans 4,000 0
(Increase) decrease in deferred loan fees (31,000) 9,000
Decrease (increase) in accrued receivable
and other assets 106,000 ( 918,000)
Increase (decrease) in accrued payable
and other liabilities 0 18,000
---------- ----------
Net cash provided by operating activities 375,000 ( 553,000)
---------- ----------
Cash flows from investing activities:
Net decrease (increase) in loans 446,000 1,465,000
Net (inc) dec in interest bearing deposits
with banks, orig. mat. greater than 90 days 794,000 756,000
Proceeds from sale/matured securities 921,000 1,000,000
Purchase of investment securities 0 (2,018,000)
Purchase of fixed assets ( 40,000) ( 42,000)
---------- ----------
Net cash (used in) provided by
investing activities 2,121,000 1,161,000
---------- ----------
Cashflows from financing activities:
(Decrease) increase in non-interest
demand deposits, net 646,000 1,086,000
(Decrease) increase in savings and
money market deposits, net (1,160,000) (4,552,000)
(Decrease) increase in time deposits 384,000 (4,463,000)
Capital stock issued 10,000 0
---------- ----------
Net cash (used in) provided by
financing activities ( 120,000) (7,929,000)
---------- ----------
Net(decrease)increase in cash and cash
equivalents 2,376,000 (7,321,000)
Cash and cash equivalents at beginning
of period 11,490,000 18,538,000
Cash and cash equivalents at end of period 13,866,000 11,217,000
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
PART I
Item 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
HNB Financial Group (Company), a California corporation, was incorporated on
August 4, 1983 for the purpose of acquiring all of the outstanding common
shares of Huntington National Bank (Bank) through an exchange of one share of
stock in the Company for each share of Bank stock outstanding.
The exchange of stock occurred July 12, 1984 when 353,933 shares of stock of
Huntington National Bank were exchanged. With the completion of this
exchange, the Company became a one-bank holding company subject to
regulation by the Federal Reserve Board.
The bank is operated as an independent bank serving the greater Huntington
Beach and Mid-Cities areas with a complete line of banking services.
Services include checking accounts, savings accounts, money market accounts,
certificates of deposit, bus iness and personal loans, and small business
administration loans.
On November 2, 1994, the Company entered into an agreement with First Banks,
Inc. and HNB Acquisition Company ("Acquisition Co."), the wholly -owned
subsidiary of First Banks pursuant to which (I) the Company will be the
surviving entity following th e merger of Acquisition Co. with and into
HNB Financial Group, and (ii) each outstanding share of Common Stock will
be converted into the right to receive cash in the amount of $10.90. The
Board of Directors of the Company and First Banks believe th at the
transaction will be consummated by the end of April, 1995. The Board of
Directors of the Company believe that once the merger with First Banks has
been completed, First Banks intends to merge the Company with and into
Commercial Center Bancorp.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and the Bank.
All significant intercompany transactions have been eliminated in
consolidation.
<PAGE>
1 INVESTMENT SECURITIES
Investment securities are carried at cost, increased by accretion of
discounts and decreased by the amortization of premiums.
<TABLE>
A summary of carrying values and market values of investment securities
as of March 31, 1995:
<CAPTION>
HELD-TO-MATURITY AVAILABLE FOR SALE
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
US Treas Sec and
Obligations of US
Govt Corp and
Agencies 10,054,000 9,845,000 0 0
Obligations of
States and
Political Subd 1,220,000 1,234,000 0 0
FRB Stocks 240,000 240,000 0 0
---------- ---------- --------- ---------
TOTALS 11,514,000 11,319,000 0 0
---------- ---------- --------- ---------
</TABLE>
2 LOANS
Loans are stated at amounts advanced less payments received. Interest income
on loans is accrued monthly as earned using the "simple interest" method.
Except where reasonable doubt exists as to the collectibility of the interest,
in which case the accrual of income is discontinued. Fees on loans, in excess
of the estimated actual costs of processing, are deferred and amortized over
the remaining life of the loan using either effective interest method or the
straight-line method, whichever is applicable.
The provision for possible loan losses is based on management's evaluation of
the loan portfolio under current economic conditions and such other factors
which, in management's best judgment, deserve current recognition in
estimating possible losses.
<PAGE>
3 PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation
which is charged to expense monthly on a straight-line method over the
estimated useful lives of the assets or, in the case of leasehold
improvements, over the terms of the lea se, whichever is shorter.
4 STOCK OPTION PLANS
The Board of Directors approved an amended stock option plan on November 19,
1987, which authorizes the issuance of options to acquire up to 192,532 shares
(after giving retroactive effect for stock dividends) of the Company's
unissued common stock t o officers and other key personnel. Expiration dates
for the options granted under the plan range from one to not more than ten
years after their grant.
Options are granted with an exercise price equal to the fair market value of
the common stock at the time of grant. Options to purchase 160,370 shares
at a range of $5.65 to $6.60 per share were outstanding at March 31, 1995.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
CHANGES IN FINANCIAL POSITION
At the end of the first quarter, total assets were at $91,294,000 compared
to $91,879,000, a decrease of $585,000 from the same period last year.
Deposits decreased by $1,199,000 to $79,574,000 compared to $80,773,000 in
the first quarter last year. Both interest bearing and noninterest bearing
deposits contributed to the decrease.
Good loans remained very competitive among banks. However, as of the end
of the first quarter, gross loans were at $65,469,000, $585,000 higher than
the same period last year.
Loan to deposit ratio at the end of the quarter was at 83.46%.
Liquidity was adequate with maintenance of a good mix of short term U.S.
government and agency securities, federal funds sold, and interest bearing
certificates of deposit with other financial institutions. The Bank has
a Federal Fund borrowing line with a major bank as a contingent funding
source to meet unexpected decreases in deposits, and increases in funding
needs.
Tier 1 capital and total capital to risk weighted assets were 15.28% and
16.54%, respectively. Tier 1 Capital to Adjusted total assets was 12.64%.
Based on these ratios, the Company is considered as "well-capitalized".
<TABLE>
The following table of rate-sensitive assets (RSA) and rate sensitive
liabilities (RSL) reflects the Company's ability to withstand changes in
market rates (in thousands).
<CAPTION>
3 mos or less 4-6 mos 7-12 mos 1-5 yrs over 5 yrs
<S> <C> <C> <C> <C> <C>
RSA 56,666 1,599 2,538 15,959 6,855
RSL 51,600 1,677 2,457 140 0
------ ------ ------ ------ ------
Gap 5,066 ( 78) 81 15,819 6,855
------ ------ ------ ------ ------
Gap/Assets 5.55% (0.08%) 0.09% 17.33% 7.51%
------ ------ ------ ------ ------
</TABLE>
The majority of assets maturing in the over 5 year category are fully
amortized installment loans. These loans, although long term in nature,
have a historical record of being paid off within 3 to 3.5 years. The gap
to assets ratios from zero to tw elve month time periods were within the
maximum guideline range.
The schedule above includes savings and money market accounts.
<PAGE>
CHANGES IN RESULTS OF OPERATIONS
The Company recorded a first quarter profit of $80,000, twice as much as
1994's year to date loss of $81,000.
Total interest income increased by $308,000 to $2,009,000, due largely to
relatively higher interest rates and yields across all earning assets
spectrum compared to 1994. Costs of funds likewise increased, albeit, the
increase in interest expense was less than half the size of the increase in
interest income. As a result, net interest income improved by $146,000 to
$1,432,000 during the first quarter. Year to date loan loss provision was
significantly lower than last year, $100,000 in 1995 versus $240,000 in 1994,
respectively. There was no OREO at the end of the first quarter.
This year's loss on sale of other assets owned (boats, autos and mobile homes)
was twice the amount of last year, $24,000 in 1995 compared to $12,000 in 1994,
respectively. No OREO related loss or expense was recorded in 1995 versus
$87,000 OREO exp ense in 1994.
A $50,000 investment loss provision was allocated to the Garden Grove
Sanitation District and City of Placentia Municipal Securities who have
invested funds in the infamous Orange County Investment Pool. This write down
provision was undertaken as a n abundance of caution. However, based on
recent communications with the principals of these two municipalities, it
appeared that these two securities may be paid in full at maturity. The
officers of these two municipalities have indicated that they intend to honor
their obligations when due to preserve their rating. At least one of them
have made necessary arrangement to do so. The $50,000 investment loss
provision will likely be reversed during the second quarter when these
securities matu re and are paid in full.
Noninterest income decreased by $19,000, while noninterest expenses decreased
by $20,000, offsetting the reduction in noninterest income.
No nonrecurring adjustment was made during the second quarter.
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings against the Company.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed
None required.
(b) Reports of Form 8-K
Not applicable.
<PAGE>
SIGNATURES
The financial statements contained herein, in the opinion of management,
reflect all adjustments which are necessary to present a fair statement
of the results of operations for the period ended March 31, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
HNB Financial Group
Dated: By:
Kirk Bashore, President
Dated: By:
Robert Green,
Executive Vice President
