SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 0-22066
FCB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1760287
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
420 South Koeller Street, Oshkosh, WI 54902
(Address of principal executive office)(Zip Code)
(920) 236-3680
(Registrant's telephone number, including area code)
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 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class: Common Stock, $.01 Par Value
Number of shares outstanding as of June 30, 1997: 4,073,147
<PAGE>
FCB FINANCIAL CORP.
INDEX -- FORM 10-Q
Part I--Financial Information Page No.
Item 1--Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of
June 30, 1997 and March 31, 1997 1
Consolidated Statements of Income for the Three
Months Ended June 30, 1997 and 1996 3
Consolidated Statements of Shareholders' Equity for the
Three Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Item 2 --Management's Discussion and Analysis
Results of Operations 11
Changes in Financial Condition 12
Asset Quality 13
Liquidity & Capital Resources 15
Other Matters 16
Part II--Other Information
Item 4 --Submission of Matters to a Vote of Security Holders 17
Item 6 --Exhibits and Reports on Form 8-K 17
<PAGE>
Part I - Financial Information
Item 1--Financial Statements
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and March 31, 1997
(Unaudited)
ASSETS
June 30 March 31
1997 1997
(In thousands)
Cash and cash equivalents $ 7,185 $ 4,628
Investment securities available
for sale, at fair value 897 --
Investment securities held to
maturity (estimated fair value
of $35,876 and $8,953 at
June 30, 1997 and March 31,
1997, respectively) 34,825 8,995
Mortgage-related securities
available for sale, at fair
value 33,562 6,363
Mortgage-related securities held
to maturity (estimated fair
value of $28,362 and
$16,613 at June 30, 1997 and
March 31, 1997, respectively) 28,062 16,531
Investment in Federal Home Loan
Bank stock, at cost 6,028 3,245
Loans held for sale - Net of
unrealized loss of $30 and $87
at June 30, 1997 and
March 31, 1997, respectively 4,861 3,270
Loans receivable - Net 398,630 221,496
Office properties and equipment 6,061 4,091
Other assets 6,092 2,566
------- -------
TOTAL ASSETS $ 526,203 $ 271,185
======= =======
See accompanying notes to the unaudited consolidated
financial statements.
<PAGE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 and March 31, 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 March 31
1997 1997
(In thousands)
Liabilities:
Deposit accounts $ 317,629 $ 153,163
Borrowed funds 117,160 64,900
Advance payments by borrowers
for taxes and insurance 6,275 2,586
Other liabilities 8,583 3,104
------- -------
Total liabilities 449,647 223,753
------- -------
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value 45 29
Additional paid-in capital 58,926 28,911
Retained earnings -
Substantially restricted 26,464 26,630
Unrealized gain (loss) on
securities available for
sale - Net of tax 15 (72)
Unearned compensation - ESOP (1,282) (869)
Treasury common stock, at
cost (7,612) (7,197)
------- -------
Total shareholders' equity 76,556 47,432
------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 526,203 $ 271,185
======= =======
See accompanying notes to the unaudited consolidated financial
statements.
<PAGE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended
June 30
1997 1996
(In thousands except per share
numbers)
Interest and dividend income:
Mortgage loans $ 5,537 $ 3,677
Other loans 1,456 621
Investment securities 392 96
Mortgage-related securities 887 400
Dividends on stock in Federal
Home Loan Bank 87 45
Interest-bearing deposits 17 13
------ ------
Total interest and dividend
income 8,376 4,852
------ ------
Interest expense:
Deposit accounts 3,273 1,916
Borrowed funds 1,423 701
------ ------
Total interest expense 4,696 2,617
------ ------
Net interest income 3,680 2,235
Provision for loan losses 500 50
------ ------
Net interest income after provision
for loan losses 3,180 2,185
------ ------
Noninterest income:
Loan fees - Net 160 91
Gain on sale of loans - Net 140 5
Gain on sale of mortgage-related
securities available for sale 99 --
Deposit fees 137 30
Other income 97 49
------ ------
Total noninterest income 633 175
------ ------
Operating expenses:
Compensation, payroll taxes and
other employee benefits 1,083 567
Marketing 92 51
Occupancy 286 171
Data processing 155 61
Federal insurance premiums 44 89
Merger-related charges 827 --
Other 302 183
------ ------
Total operating expenses 2,789 1,122
------ ------
Income before provision for income
taxes 1,024 1,238
Provision for income taxes 334 481
------ ------
NET INCOME $ 690 $ 757
====== ======
EARNINGS PER SHARE - See note 5 $ 0.20 $ 0.31
====== ======
DIVIDENDS DECLARED PER SHARE $ 0.18 $ 0.18
====== ======
See accompanying notes to the unaudited consolidated
financial statements.
<PAGE>
<TABLE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended June 30, 1997 and 1996
(Unaudited-in thousands)
<CAPTION>
Unrealized
Gain (Loss)
on
Securities
Additional Available Unearned Treasury
Common Paid-in Retained For Sale - Compensation- Common
Stock Capital Earnings Net of Tax ESOP Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $ 29 $ 28,693 $ 25,930 $ (26) $ (1,118) $ (6,316) $ 47,192
Net income for three
months ended June 30,
1996 757 757
Cash dividends declared
($.18 per share) (422) (422)
Amortization of unearned
compensation - ESOP 48 64 112
Increase in unrealized
loss on securities
available for sale - Net
of tax (17) (17)
Exercise of stock
options - 3,000 treasury
common shares (18) 48 30
Purchase of treasury
common stock - 56,000
shares (997) (997)
------ ------ ------ ------- ------ ------ ------
Balance at June 30, 1996 29 28,741 26,247 (43) (1,054) (7,265) 46,655
Net income for nine
months ended March 31,
1997 1,683 1,683
Cash dividends declared
($.54 per share) (1,274) (1,274)
Amortization of unearned
compensation - ESOP 170 185 355
Increase in unrealized
loss on securities
available for sale - Net of
tax (29) (29)
Exercise of stock
options - 4,189 treasury
common shares (26) 68 42
------ ------ ------ ------- ------ ------ ------
Balance at March 31, 1997 29 28,911 26,630 (72) (869) (7,197) 47,432
Net income for three
months ended June 30,
1997 690 690
Cash dividends declared
($.18 per share) (707) (707)
Amortization of unearned
compensation - ESOP 108 74 182
Change in unrealized gain
(loss) on securities
available for sale - Net of
tax 87 87
Exercise of stock
options - 32,666
treasury common shares (149) 532 383
Purchase of treasury
common stock - 40,000
shares (947) (947)
Acquisition of OSB
Financial Corp. 16 29,907 (487) 29,436
------ ------ ------ ------- ------ ------ ------
Balance at June 30, 1997 $ 45 $ 58,926 $ 26,464 $ 15 $ (1,282) $ (7,612) $ 76,556
====== ====== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to the unaudited consolidated
financial statements.
<PAGE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended
June 30
1997 1996
(in thousands)
Operating activities:
Net income $ 690 $ 757
------ ------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and net amortization
(accretion) 45 59
Provision for loan losses 500 50
Gain on sale of assets (239) (5)
Loans originated for sale (7,177) (5,368)
Proceeds from loan sales 6,250 4,536
Changes in operating assets and
liabilities 1,477 868
Unearned compensation - ESOP 182 112
------ ------
Total adjustments 1,038 252
------ ------
Net cash provided by operating activities 1,728 1,009
------ ------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (1,968) (2,000)
Maturities of investment securities
held to maturity 0 2,000
Principal repayments on
mortgage-related securities available
for sale 575 149
Sale of mortgage-related securities
available for sale 3,426 0
Principal repayments on
mortgage-related securities held to
maturity 500 486
Redemption of Federal Home Loan Bank
stock 175 0
Purchase of Federal Home Loan Bank
stock (40) (268)
Net increase in loans (1,933) (9,254)
Capital expenditures (3) (54)
Net cash received in acquisition 3,104 0
------ ------
Net cash provided by (used in) investing
activities 3,836 (8,941)
------ ------
Cash flows from financing activities:
Net increase in deposit accounts 2,190 2,316
Net increase (decrease) in borrowed
funds (6,100) 5,355
Net increase in advance payments by
borrowers for taxes and insurance 1,894 1,465
Proceeds from exercise of stock
options 383 30
Purchase of treasury common stock (947) (997)
Dividends paid (427) (360)
------ ------
Net cash provided by (used in) financing
activities (3,007) 7,809
------ ------
Net increase (decrease) in cash and cash
equivalents 2,557 (123)
Cash and cash equivalents at beginning 4,628 4,792
------ ------
Cash and cash equivalents at end $ 7,185 $ 4,669
====== ======
<PAGE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended
June 30
1997 1996
(In thousands)
Supplemental cash flow information:
Cash paid (received) during the quarter
for:
Interest on deposit accounts $ 3,258 $ 1,853
Interest on borrowed funds 1,429 685
Income taxes (127) 93
Supplemental schedule of non-cash
investing activities:
Loans transferred to other real estate 63 0
See accompanying notes to the unaudited consolidated financial
statements.
<PAGE>
FCB FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1-PRINCIPLES OF CONSOLIDATION
FCB Financial Corp. (the "Corporation") is the holding company for Fox
Cities Bank, F.S.B. (the "Bank"). The accompanying unaudited consolidated
financial statements include the accounts of the Corporation, the Bank and
the Bank's wholly-owned subsidiaries, Fox Cities Financial Services, Inc.
("FCFS") and Fox Cities Investments, Inc. ("FCI"), after elimination of
significant intercompany accounts and transactions. FCFS sells
tax-deferred annuities and investment securities. In addition, FCFS has a
50% ownership in a low/moderate income apartment building partnership.
The partnership qualifies for federal low income housing tax credits.
FCI, a Nevada corporation, owns and manages a portfolio of investment
securities, all of which are permissible investments of the Bank itself.
NOTE 2-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that
the disclosures are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the consolidated financial statements have been included.
The results of operations and other data for the three months ended June
30, 1997 are not necessarily indicative of results that may be expected
for the fiscal year ending March 31, 1998. The unaudited consolidated
financial statements presented herein should be read in conjunction with
the audited consolidated financial statements and related notes thereto
for the fiscal year ended March 31, 1997 included in the Corporation's
Annual Report on Form 10-K (Commission File Number 0-22066) as filed with
the Securities and Exchange Commission.
NOTE 3-BUSINESS COMBINATIONS
Effective May 1, 1997, OSB Financial Corp. ("OSB"), a Wisconsin
corporation, was merged (the "Merger") with and into the Corporation. The
Corporation was the surviving corporation in the Merger. The Merger was
consummated in accordance with the terms of an Agreement and Plan of
Merger, dated November 13, 1996 (the "Merger Agreement"), between the
Corporation and OSB. Matters with respect to the Merger were approved by
shareholders of the Corporation and OSB at special meetings of
shareholders of such companies held on April 24, 1997.
Under the terms of the Merger Agreement, each share of common stock, $.01
par value, of OSB (the "OSB Common Stock") issued and outstanding
immediately prior to the effectiveness of the Merger was (except as
otherwise provided below) canceled and converted into the right to receive
1.46 shares of the common stock, $.01 par value, of the Corporation (the
"FCB Common Stock") plus cash in lieu of any fractional share. All shares
of OSB Common Stock (I) owned by OSB as treasury stock, (ii) owned by OSB
Management Development and Recognition Plans and not allocated to
participants thereunder and (iii) owned by the Corporation were canceled
and no FCB Common Stock or other consideration was given in exchange
therefor. Of the 1,157,534 shares of OSB Common Stock issued and
outstanding at the effective time of the Merger, 48,650 shares were
canceled pursuant to the preceding sentence and the remaining 1,108,884
shares were converted into shares of FCB Common Stock and cash in lieu of
fractional shares as described above. Shares of FCB Common Stock which
were issued and outstanding at the time of the Merger were not affected by
the Merger and remain outstanding. In connection with the Merger, Oshkosh
Savings Bank, F.S.B., a federally chartered stock savings association and
subsidiary of OSB, was merged with and into the Bank. The Bank was the
surviving corporation in that merger.
The Merger was accounted for as a purchase. Accordingly, the related
accounts and results of operations of OSB are included in Corporation's
consolidated financial statements from the date of acquisition. Prior
period results and balances have not been restated in connection with the
Merger.
The following presents pro-forma information as though the two
corporations had combined at the beginning of each of the periods
presented (dollars in thousands, except per share information):
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
Revenue $10,699 $9,734
Income before extraordinary
items and cumulative effect of
accounting changes $632 $1,214
Net income $632 $1,214
Earnings per share before
extraordinary items and cumulative
effect of accounting changes $0.16 $0.30
Earnings per share $0.16 $0.30
Additional information relating to the Merger is included in the
Corporation's Current Report on Form 8-K, dated May 1, 1997, to which
reference is hereby made.
NOTE 4-ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." This statement simplifies the standards for computing
earnings per share ("EPS"). It replaces the presentation of primary EPS
with basic EPS and further requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation. The statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. The statement
requires restatement of all prior-period EPS data presented. Management
anticipates that adoption of this statement will not materially effect
the consolidated financial statements of the Corporation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display
of comprehensive income in a full set of general-purpose financial
statements. This statement requires that all items that are required to
be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. This statement requires
that an enterprise display an amount representing total comprehensive
income for the period in a financial statement, but does not require a
specific format for that financial statement. This statement also
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the
statement of financial position. The statement is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. Management, at this time, cannot determine the effect that
adoption of this statement may have on the financial statements of the
Corporation as comprehensive income is dependent on the amount and nature
of assets and liabilities held which generate non-income changes to
equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. It also amends SFAS No. 94, "Consolidation of All Majority-
Owned Subsidiaries," to remove the special disclosure requirements for
previously unconsolidated subsidiaries. The statement is effective for
financial statements for periods beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years
is to be restated. This statement need not be applied to interim
financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods
in the second year of application. The statement is not expected to have
an effect on the financial position or operating results of the
Corporation, but may require additional disclosures in the financial
statements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities incurred
or obtained by transferors as a part of a transfer of financial assets be
initially recorded at fair value. Subsequent to acquisition, the serviced
assets and liabilities are to be amortized over the estimated net
servicing period. The applicable sections of this statement were adopted
on January 1, 1997. There was no material effect on the results of
operations or financial condition of the Corporation as a result of
adopting this statement.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125." This statement
defers implementation of certain provisions of SFAS No. 125 for one year.
Adoption of SFAS No. 127 is not anticipated to have a significant impact
on the Corporation's financial condition or results of operations once
implemented.
Effective April 1, 1996, the Corporation adopted FASB SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires long-lived assets and certain
intangibles to be held and used by an entity to be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. The statement also requires long-
lived assets and certain intangibles to be disposed of to be reported at
the lower of carrying amount or fair value less cost to sell. Adoption of
this statement did not have a material impact on the Corporation's
financial condition at, or results of operations for the three month
period ended, June 30, 1996.
Effective April 1, 1996, the Corporation adopted FASB SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which amended the previously
issued Statement No. 65, "Accounting for Certain Mortgage Banking
Activities." Statement No. 122 requires recognition of mortgage servicing
rights as assets however the rights are acquired. For loans which are
subsequently sold or securitized, a portion of the cost of the loans shall
be allocated to the servicing rights based on the relative fair values of
the loans and the servicing rights. The statement further requires
assessment of the value of the capitalized mortgage servicing rights for
impairment. As a result of adopting this statement, the Corporation
recorded a mortgage servicing right ("MSR") asset and an additional gain
on sale of loans of approximately $45,000 in the quarter ended June 30,
1996. There was no impairment of MSRs in the quarters ended June 30, 1997
or 1996.
NOTE 5-EARNINGS PER SHARE
Earnings per share of common stock for the three months ended June 30,
1997 and 1996 were computed based on consolidated net income and weighted
average number of shares outstanding. The weighted average number of
shares outstanding for the three months ended June 30, 1997 and 1996 were
3,482,807 and 2,422,348, respectively.
NOTE 6-STOCK REPURCHASE PROGRAMS
On July 14, 1997, the Corporation completed a previously announced stock
repurchase program under which the Corporation repurchased 125,630 shares.
On July 2, 1997, the Corporation announced an additional stock repurchase
program. Under this program, the Corporation is authorized to purchase an
additional 5% of its outstanding common stock, or 203,704 shares, over the
twelve-month period beginning with the date of the announcement. At July
31, 1997, 11,026 shares had been repurchased. These two programs were the
fourth and fifth 5% stock repurchase programs adopted by the Corporation
since it became a public company in September, 1993.
<PAGE>
Item 2--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FCB FINANCIAL CORP.
Results of Operations
The Corporation's results of operations are dependent primarily on the
Bank's net interest income, which is the difference between the interest
income earned on loans, mortgage-related securities and investments and
the cost of funds, consisting of interest paid on deposits and borrowings.
Operating results are also affected to a lesser extent by loan servicing
fees, commissions on insurance sales, service charges for customer
services and gains or losses on the sale of investment securities and
loans. Operating expenses principally consist of employee compensation
and benefits, occupancy expenses, federal deposit insurance premiums and
other general and administrative expenses. Results of operations are
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities.
Comparison of Operating Results for the Three Months Ended June 30, 1997
and 1996
Net income was $690,000 and $757,000 for the quarters ended June 30, 1997
and 1996, respectively. The decrease in earnings for the quarter ended
June 30, 1997 from the same period in the prior fiscal year was primarily
the result of charges such as data processing, marketing, supplies and
training related to the merger (the "Merger") with OSB Financial Corp.
("OSB") (see Note 3 of Notes to Consolidated Financial Statements) and an
increase in the provision for loan losses in the quarter ended June 30,
1997. These were partially offset by an increase in net interest income
and noninterest income. These revenue increases were primarily due to the
addition effective May 1, 1997 of the operating results of OSB.
Net interest income increased to $3.7 million for the quarter ended June
30, 1997 from $2.2 million for the quarter ended June 30, 1996. The
increase was due to growth in average earning assets to $511.8 million at
June 30, 1997 from $259.4 million at March 31, 1997 and $255.5 million at
June 30, 1996. The major factor contributing to this average earning
asset growth was the addition of approximately $244.0 million of earning
assets as a result of the Merger. Partially offsetting the effect of the
earning asset growth on net income was a decrease in the net interest
spread to 2.65% for the quarter ended June 30, 1997 from 2.72% for the
comparable quarter in the prior year. The net interest margin also
slipped from 3.62% for the quarter ended June 30, 1996 to 3.43% for the
quarter just ended. Interest spread and net interest margin decreases
were primarily driven by an increase in the cost of borrowed funds as a
result of longer term borrowings incurred by OSB and which were added in
conjunction with the Merger. Since the direction and magnitude of future
interest rate changes are not known, it is not possible for management to
estimate how such changes may impact the Corporation's results of
operations in the future.
The provision for loan losses increased from $50,000 for the quarter ended
June 30, 1996 to $500,000 for the same quarter of 1997. The increase was
primarily a result of a provision of $350,000 made to equalize the loan
loss allowance percentages historically maintained by the Bank and the
former Oshkosh Savings Bank, F.S.B. The remaining increase was due to a
change in the mix of loans after completing the Merger. For more
information on the allowance for loan losses, see the " Asset Quality"
section below.
Noninterest income increased from $175,000 for the three months ended June
30, 1996 to $633,000 for the quarter ended June 30, 1997. The largest
components of the increase included an increase in gain on sale of loans
and gain on sale of mortgage-related securities available for sale. Gain
on sale of loans increased to $140,000 for the quarter ended June 30, 1997
from $5,000 for the same quarter of 1996. The increase was due to an
increase in loan sales of $1.2 million in the quarter just ended over the
same quarter last year, as well as more favorable prices received in the
current year quarter. During the quarter ended June 30, 1997, the
Corporation also sold a mortgage-related security held for sale at a gain
of $99,000. There were no such sales in the quarter ended June 30, 1996.
The remaining increase in noninterest income was primarily due to adding
the operating results of OSB from the date of the Merger.
Operating expenses increased to $2.8 million for the quarter ended June
30, 1997 from $1.1 million for the quarter ended June 30, 1996. Included
in this amount for 1997 was a charge of $827,000 for costs of the Merger.
These merger-related items included (but were not limited to) the cost of
combining the respective banks' loan and deposit products, contract
termination charges, data processing conversion charges, costs of
personnel training, and severance costs. The remainder of the increase in
operating expenses was primarily due to adding the operating expenses of
the former OSB from the date of the Merger. Partially offsetting the
increase was a decrease in deposit insurance premiums due to the industry
wide reduction in the deposit insurance assessment rate which occurred in
the quarter ended September 30, 1996.
Changes in Financial Condition
Total Assets. Total assets increased $255.0 million to $526.2 million at
June 30, 1997 from $271.2 million at March 31, 1997. The Merger added
$256.7 in assets to the Corporation.
Investment and Mortgage-related Securities. Total investment and
mortgage-related securities increased from $31.9 million at March 31, 1997
to $97.3 million at June 30, 1997. The Merger added $67.8 million to
total investment and mortgage-related securities. On the date of the
Merger, the OSB investment portfolio was evaluated, and reclassifications
were made between securities available for sale and held to maturity to
reconcile the former OSB portfolio with the Corporation's investment
policy. These securities were transferred at their market value on the
date of the Merger.
Net Loans Receivable. Net loans receivable increased $177.1 million to
$398.6 million at June 30, 1997 from $221.5 million at March 31, 1997.
This increase resulted primarily from the addition of $175.8 million in
net loans from the Merger.
Borrowed Funds. Borrowed funds increased $52.3 million to $117.2 million
at June 30, 1997 from $64.9 million at March 31, 1997. The Merger added
$58.4 million to the Corporation's borrowed funds.
Deposit Accounts. Deposit accounts totaled $317.6 million at June 30,
1997 compared with $153.2 million at March 31, 1997. The June 30, 1997
total includes $162.3 million in deposits added as a result of the Merger.
Other Liabilities. Other liabilities increased from $3.1 million at March
31, 1997 to $8.6 million at June 30, 1997. The increase resulted
primarily from the Merger.
Shareholders' Equity. Total shareholders' equity increased from $47.4
million at March 31, 1997 to $76.6 million at June 30, 1997. The increase
was due to issuance of additional common shares in connection with the
Merger. This was partially offset by a decrease of approximately $947,000
which resulted from the purchase of treasury stock in connection with the
stock repurchase programs referred to in Note 6 to the Notes to
Consolidated Financial Statements.
Asset Quality
Loans are placed on nonaccrual status when either principal or interest is
more than 90 days past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal
balance or recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
The following table sets forth the amounts and categories of
non-performing assets in the Bank's loan portfolio at the dates indicated.
For all dates presented, the Bank had no troubled debt restructurings
(which involve forgiving a portion of interest or principal on any loans
or making loans at terms materially more favorable than those which would
be provided to other borrowers) or accruing loans more than 90 days
delinquent. Foreclosed properties include assets acquired in settlement
of loans.
At June 30, At March 31,
1997 1997 1996 1995
(In thousands)
Non-accruing loans:
One- to four-family $623 $379 $212 $243
Five or more family - - - -
Commercial real estate 16 - - -
Consumer and other 54 25 - 27
----- ----- ----- -----
Total 693 404 212 270
----- ----- ----- -----
Foreclosed assets:
One- to four-family 113 - - -
Five or more family - - - -
Commercial real estate - - - -
Repossessed assets - - 22 -
Total 113 0 22 0
----- ----- ----- -----
Total non-performing assets $806 $404 $234 $270
===== ===== ===== =====
Total non-performing assets as a
percentage of total assets 0.13% 0.15% 0.09% 0.11%
===== ===== ===== =====
Allowance for loan losses to loans
and foreclosed properties 0.83% 0.51% 0.51% 0.47%
===== ===== ===== =====
The allowance for loan losses includes specific allowances related to
commercial loans which have been judged to be impaired. The Corporation
generally considers credit card, residential mortgage, and consumer
installment loans to be large groups of smaller-balance homogeneous loans.
These loans are collectively evaluated in the analysis of the adequacy of
the allowance for loan losses.
A loan is impaired when, based on current information, it is probable the
Corporation will not collect all amounts due in accordance with the
contractual terms of the loan agreement. Management considers, on a loan
by loan basis, the conditions which may constitute a minimum delay or
shortfall in payment, as well as the factors which may influence its
decision in determining when a loan is impaired. These specific
allowances are based on discounted cash flows of expected future payments
using the loan's initial effective interest rate or the fair value of the
collateral if the loan is collateral dependent. Subsequent changes in the
estimated value of impaired loans are accounted for as bad debt expense.
The Corporation continues to maintain a general allowance for loans and
foreclosed properties not considered impaired. The allowance for loan and
foreclosed property losses is maintained at a level which management
believes is adequate to provide for possible losses. Management
periodically evaluates the adequacy of the allowance using the
Corporation's past loss experience, known and inherent risks in the
portfolio, composition of the portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently subjective since it
requires material estimates that may be susceptible to significant change.
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at fair value at the date of foreclosure.
Subsequently, the foreclosed properties are carried at the lower of the
newly established cost or fair value less estimated selling costs. Costs
related to the development and improvement of property are capitalized,
whereas costs relating to the holding of property are expensed.
Federal regulations require that each savings institution classify its
own assets on a regular basis. On the basis of management's review of its
assets, at June 30, 1997, on a net basis, the Bank classified $506,000 of
its assets as special mention, $767,000 as substandard, and $44,000 as
doubtful. There were no loans classified as loss at June 30, 1997. As of
June 30, 1997, management believes that these asset classifications were
consistent with those of the Office of Thrift Supervision (the "OTS").
During the quarter ended June 30, 1997, the Corporation added $500,000 to
its allowance for loan losses. Of this amount, $350,000 was made through a
special one-time provision. This special provision was made to equalize
the loan loss allowance percentages historically maintained by the Bank
and the former Oshkosh Savings Bank, F.S.B., respectively.
Based on management's evaluation at June 30, 1996, $150,000 in general
loan loss provisions were deemed appropriate for the quarter ended June
30, 1996 and the aggregate allowance for loan losses of $3,322,000 as of
such date was determined to be adequate.
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
Three months
Ended June 30,
1997 1996
(In thousands)
Allowance at beginning of period $1,405 $1,075
Provision for losses on loans and
real estate owned: 500 50
----- -----
Charge-offs:
Residential real estate - -
Consumer (2) (7)
----- -----
Total Charge-offs (2) (7)
----- -----
Recoveries:
Residential real estate - -
Consumer - -
---- -----
Total recoveries 0 0
----- -----
Net charge-offs (2) (7)
----- -----
Allowance acquired through acquisition: 1,419 0
----- -----
Allowance at end of period $3,322 $1,118
===== =====
While management believes that the allowances are adequate and that it
uses the best information available to determine the allowance for losses
on loans, unforeseen market conditions could result in adjustments and net
earnings could be significantly affected if circumstances differ
substantially from the assumptions used in making the final determination.
Liquidity & Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. These requirements, which may be varied at
the direction of the OTS depending upon economic conditions and deposit
flows, are based upon a percentage of the average daily balance of an
institution's net withdrawable deposit accounts and short-term borrowings.
The required ratio is currently 5.0%. On June 30, 1997, the Bank's
liquidity ratio, calculated in accordance with OTS requirements, was
7.64%. In addition, according to current OTS regulations, short-term
liquid assets must constitute l.0% of the average daily balance of net
withdrawable deposit accounts and short-term borrowings. On June 30,
1997, the Bank's short-term liquidity ratio was 3.82%.
At June 30, 1997, the Bank had outstanding commitments to originate loans
of $22.6 million, with varying interest rates. At June 30, 1997, the Bank
had outstanding commitments to sell mortgage loans of $2.9 million, and
commitments to purchase loans of $1.3 million. In addition, the Bank had
commitments to fund unused lines of credit of $8.4 million at June 30,
1997. Management does not believe the Bank will suffer any adverse
consequences as a result of fulfilling these commitments.
The following table summarizes the Bank's capital ratios and the ratios
required by the Financial Institution Reform, Recovery and Enforcement Act
of 1989 and implementing regulations relating thereto at June 30, 1997:
Risk-
Tangible Core Based
Capital Capital Capital
(Dollars in thousands)
Bank's regulatory percentage 12.31 % 12.31 % 19.80 %
Required regulatory percentage 1.50 3.00 8.00
----- ----- -----
Excess regulatory percentage 10.81 % 9.31 % 11.80 %
===== ===== =====
Bank's regulatory capital $64,324 $64,324 $67,655
Required regulatory capital 7,837 15,674 27,294
------ ------ ------
Excess regulatory capital $56,487 $48,650 $40,361
====== ====== ======
Other Matters
Deposits of the Bank are insured by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Deposits
of commercial banks are typically insured by the Bank Insurance Fund
("BIF") of the FDIC. The BIF previously achieved its designated reserve
ratio, and the FDIC lowered BIF deposit insurance premiums for most BIF
insured institutions, creating a difference in BIF and SAIF deposit
insurance assessment rates. On September 30, 1996, legislation was signed
to recapitalize the SAIF through a one-time special assessment of
approximately 65.7 cents per $100 of insured deposits based on the deposit
assessment base as of March 31, 1995.
Also as part of the legislation, effective January 1, 1997, the risk-based
assessment schedule was equalized for BIF and SAIF institutions, and the
Financing Corporation ("FICO") portion of the deposit insurance annual
premium for SAIF institutions was 6.4 cents per $100 of deposits as compared
with 1.3 cents per $100 of deposits for BIF insured institutions. Earnings
of the Bank have been favorably impacted as a result of lower deposit
insurance premiums. Because future deposit insurance premiums are based
on the Bank's future deposit assessment base, management cannot predict
the dollar amount that the Corporation will save on deposit insurance in
future periods.
Another significant element of the above legislation is that the Federal
savings association charter may no longer be available. The United States
Treasury Department was required to provide Congress with a report
regarding the development of a common charter for all depository
institutions by March 31, 1997. Assuming all charters have been converted
by January 1, 1999, it is contemplated that BIF and SAIF would be merged
on that date and pro-rata sharing of FICO premiums will begin. Changing
charters could have a significant impact on the type of operations the
Bank conducts since a bank charter could remove some limitations on the
type and volumes of lending, investment, and deposit activities which are
currently imposed on savings institutions. Management cannot, however,
currently predict what actual changes would be effected in the event that
the Bank obtained a different charter.
Provisions of the foregoing legislation also require recapture of
previously allowed tax bad debt provisions. The Corporation is required
to recapture its post 1987 reserves of approximately $1,075,000. The
recapture requires additional tax payments over a six-year period. The
repayments are not anticipated to have a material impact on the
Corporation's results of operations due to the current deferred tax
implications of the allowance for loan losses. Of the amount required to
be recaptured, $179,000 was recaptured in the fiscal year ended March 31,
1997.
Part II - Other Information
Item 4--Submission of Matters to a Vote of Security Holders
At a special meeting of shareholders of the Corporation held on April 24,
1997, the Agreement and Plan of Merger, dated November 13, 1996, between
the Corporation and OSB Financial Corp. was approved by the shareholders.
The results of the balloting were as follows:
Shares Voted For Shares Voted Against Broker Non-Votes
1,934,978 36,014 7,379
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger between FCB Financial Corp. and OSB
Financial Corp., dated November 13, 1996 [Incorporated by
reference to Exhibit 2.1 to FCB Financial Corp.'s Registration
Statement on Form S-4 (Registration No. 333-23177)]
10.1 Employment Agreement with Donald D. Parker, dated May 1, 1997
[Incorporated by reference to Exhibit 2.2 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.2 Employment Agreement with James J. Rothenbach, dated May 1, 1997
[Incorporated by reference to Exhibit 2.3 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.3 Employment Agreement with Phillip J. Schoofs, dated May 1, 1997
[Incorporated by reference to Exhibit 2.4 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.4 Employment Agreement with Theodore W. Hoff, dated May 1, 1997
[Incorporated by reference to Exhibit 2.5 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.5 Employment Agreement with Harold L. Hermansen, dated May 1, 1997
[Incorporated by reference to Exhibit 2.6 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.6 OSB Financial Corp. 1992 Stock Option and Incentive Plan
[Incorporated by reference under File No. 0-20335 to Exhibit A
to OSB Financial Corp.'s Definitive Proxy Statement for the
First Annual Meeting of Stockholders held on April 22, 1993;
filed on March 25, 1993]
10.7 Amendment to OSB Financial Corp. 1992 Stock Option and Incentive
Plan [Incorporated by reference to Exhibit 4.2 to FCB Financial
Corp.'s Registration Statement on Form S-8 (Registration No.
333-27135)]
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
The Corporation filed a Current Report on Form 8-K, dated May 1,
1997, reporting under Items 2 and 7 the Consummation of the Merger.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
FCB FINANCIAL CORP.
Date: August 11, 1997 By:/s/ James J. Rothenbach
James J. Rothenbach
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 By:/s/ Phillip J. Schoofs
Phillip J. Schoofs
Vice President, Treasurer and Chief
Financial Officer (Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
2.1 Agreement and Plan of Merger between FCB Financial Corp. and OSB
Financial Corp., dated November 13, 1996 [Incorporated by
reference to Exhibit 2.1 to FCB Financial Corp.'s Registration
Statement on Form S-4 (Registration No. 333-23177)]
10.1 Employment Agreement with Donald D. Parker, dated May 1, 1997
[Incorporated by reference to Exhibit 2.2 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.2 Employment Agreement with James J. Rothenbach, dated May 1, 1997
[Incorporated by reference to Exhibit 2.3 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.3 Employment Agreement with Phillip J. Schoofs, dated May 1, 1997
[Incorporated by reference to Exhibit 2.4 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.4 Employment Agreement with Theodore W. Hoff, dated May 1, 1997
[Incorporated by reference to Exhibit 2.5 to FCB Financial
Corp's Current Report on Form 8-K, dated May 2, 1997]
10.5 Employment Agreement with Harold L. Hermansen, dated May 1, 1997
[Incorporated by reference to Exhibit 2.6 to FCB Financial
Corp.'s Current Report on Form 8-K, dated May 2, 1997]
10.6 OSB Financial Corp. 1992 Stock Option and Incentive Plan
[Incorporated by reference under File No. 0-20335 to Exhibit A
to OSB Financial Corp.'s Definitive Proxy Statement for the
First Annual Meeting of Stockholders held on April 22,1 993;
filed on March 25, 1993]
10.7 Amendment to OSB Financial Corp. 1992 Stock Option and Incentive
Plan [Incorporated by reference to Exhibit 4.2 to FCB Financial
Corp.'s Registration Statement on Form S-8 (Registration No.
333-27135)]
27 Financial Data Schedule (EDGAR version only)
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