-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfnMlPq85UqkHqmPU6XyEbM6riAyhi3Q3mVpbdZ7hZ3NihcvqhPc7svSbKm0qOc/ DbCwY2W21UlOtysuiPd7pA== 0000944209-98-001804.txt : 19981103 0000944209-98-001804.hdr.sgml : 19981103 ACCESSION NUMBER: 0000944209-98-001804 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REGIONAL BANCORP CENTRAL INDEX KEY: 0000356708 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953582843 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10232 FILM NUMBER: 98736283 BUSINESS ADDRESS: STREET 1: 1801 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105521776 MAIL ADDRESS: STREET 1: 1801 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: GREAT AMERICAN BANCORP DATE OF NAME CHANGE: 19880309 10-Q 1 FORM 10-Q FOR PERIOD 9/30/98 Page 1 of 20 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 Quarter Ended September 30, 1998 ------------------------------------------------------------------ Commission File Number 0-10232 --------------------------------------------------------- FIRST REGIONAL BANCORP - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 95-3582843 - -------------------------------------------------------------------------------- State or other jurisdiction of IRS Employer incorporation or organization Identification Number 1801 Century Park East, Los Angeles, California 90067 - -------------------------------------------------------------------------------- Address of principal executive offices Zip Code (310) 552-1776 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code Not applicable - -------------------------------------------------------------------------------- Former name, former address, and former fiscal year, if changed since last report 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 ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding in each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, No Par Value 2,972,381 -------------------------- ------------------------------- Class Outstanding on October 28, 1998 2 FIRST REGIONAL BANCORP ---------------------- INDEX -----
Page ---- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition.................................... 3 Consolidated Statements of Income............ 5 Consolidated Statements of Cash Flows........ 7 Notes to Consolidated Financial Statements................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 12 Part II - Other Information Item 1. Legal Proceedings............................ 19 Item 4. Submission of Matters to a Vote of Security Holders............................. 19 Item 6. Exhibits and Reports on Form 8-K............. 19 Signatures.................................................. 20
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ---------------------------------------------- (In Thousands) (unaudited)
September 30, December 31, 1998 1997 ------------- ------------ ASSETS ------ Cash and due from banks $ 12,143 $ 9,847 Federal funds sold 31,530 38,390 -------- -------- Cash and cash equivalents $ 43,673 $ 48,237 Interest-bearing deposits in financial institutions 9,341 6,626 Investment securities available for sale 51,314 26,431 Government guaranteed loans 494 942 Loans, net of allowance for losses of $2,431,000 in 1998 and $2,400,000 in 1997 82,473 77,778 Premises and equipment, net of accumulated depreciation 729 698 Accrued interest receivable and other assets 1,867 1,733 -------- -------- Total Assets $189,891 $162,445 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities: Noninterest bearing deposits $ 66,757 $ 35,820 Time deposits 39,657 30,206 Money market deposits 54,251 72,959 Other deposits 6,059 6,111 -------- -------- Total deposits 166,724 145,096 Accrued interest payable and other liabilities 3,383 1,926 -------- -------- Total Liabilities 170,107 147,022
4
September 30, December 31, 1998 1997 ------------- ------------ Shareholders' Equity: Common Stock, no par value, 50,000,000 shares authorized; 2,972,381 and 2,416,631 shares outstanding in 1998 and 1997, respectively 15,824 11,286 Less: Unearned ESOP shares; 150,000 and 0 outstanding in 1998 and 1997, respectively (1,421) 0 Retained earnings 5,371 4,128 Accumulated comprehensive income 10 9 -------- -------- Total Shareholders' Equity 19,784 15,423 -------- -------- Total Liabilities and Shareholders' Equity $189,891 $162,445 ======== ========
The accompanying notes are an integral part of these statements. 5 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (In Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1998 1997 1998 1997 ----- ------ ------ ------ REVENUE FROM EARNING ASSETS: Interest on loans $2,151 $1,959 $5,756 $6,057 Interest on federal funds sold 295 480 1,437 975 Interest on investment securities 814 583 2,040 1,888 ------ ------ ------ ------ Total interest income 3,260 3,022 9,233 8,920 COST OF FUNDS: Interest on deposits 834 808 2,525 2,451 Interest on other borrowings 1 0 3 (1) ------ ------ ------ ------ Total interest expense 835 808 2,528 2,450 ------ ------ ------ ------ Net interest income 2,425 2,214 6,705 6,470 PROVISION FOR LOAN LOSSES (10) 106 14 519 ------ ------ ------ ------ Net interest income after provision for loan losses 2,435 2,108 6,691 5,951 Other operating income 229 159 616 528 ------ ------ ------ ------ OTHER OPERATING EXPENSES: Salaries and related benefits 905 740 2,560 2,153 Occupancy expense 135 103 380 292 Equipment expense 68 55 183 145 Promotion expense 30 32 110 107 Professional service expense 192 325 527 707 Customer service expense 217 293 712 897 Supply/communication expense 54 43 170 110 Other expenses 298 135 553 387 ------ ------ ------ ------ Total operating expenses 1,899 1,726 5,195 4,798 ------ ------ ------ ------ Income before provision for income taxes 765 541 2,112 1,681 PROVISION FOR INCOME TAXES 303 223 868 703 ------ ------ ------ ------
6
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 1998 1997 1998 1997 ----- ------ ------ ------ NET INCOME $ 462 $ 318 $1,244 $ 978 ====== ====== ====== ===== EARNINGS PER SHARE (Note 2) Basic $ 0.17 $ 0.13 $ 0.49 $0.40 Diluted $ 0.16 $ 0.12 $ 0.46 $0.37
The accompanying notes are an integral part of these statements. 7 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In Thousands) (Unaudited)
Nine Months Ended September 30, ------------------------- 1998 1997 -------- ------- OPERATING ACTIVITIES Net Income $ 1,244 $ 978 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 14 519 Provision for depreciation and amortization 97 85 Amortization of investment security and guaranteed loan premiums 0 (197) Accretion of investment security discounts (136) 0 Decrease (increase) in interest receivable (97) 706 Increase (decrease) in interest payable 60 (23) Increase (decrease) in taxes payable (118) (41) Net increase in other liabilities 1,515 326 -------- ------- Net cash provided by operating activities $ 2,579 $ 2,353 INVESTING ACTIVITIES Decrease (increase) in investments in time deposits with other financial institutions $ (2,715) $ 497 Decrease (increase) in investment securities (24,746) (4,662) Decrease (increase) in guaranteed loans 448 6,267 Net decrease (increase) in other loans (4,709) 15,518 Decrease (increase) in premises and equipment (128) (219) Decrease (increase) in other real estate owned 0 (1,836) Net decrease (increase) in other assets (37) 441 -------- ------- Net cash provided by (used in) investing activities $(31,887) $16,006
8
Nine Months Ended September 30, --------------------- 1998 1997 -------- --------- FINANCING ACTIVITIES Net increase (decrease) in noninterest bearing deposits, money market deposits, and other deposits $12,177 $16,198 Net increase (decrease) in time deposits 9,451 (8,163) Increase (decrease) in securities sold under agreement to repurchase 0 4 Increase (decrease) in shareholders' equity 3,116 (186) ------- ------- Net cash provided by financing activities $24,744 $ 7,853 Increase (decrease) in cash and cash equivalents $(4,564) $26,212 Cash and cash equivalents, beginning of period 48,237 29,279 ------- ------- Cash and cash equivalents, end of period $43,673 $55,491 ======= =======
The accompanying notes are an integral part of these statements. 9 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ September 30, 1998 (Unaudited) NOTE 1 - The consolidated financial statements include the accounts of First Regional Bancorp (the Company), a bank holding company, and its wholly-owned subsidiary, First Regional Bank (the Bank). Certain amounts in the 1997 financial statements have been reclassified to be comparable with the classifications used in the 1998 financial statements. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 1998 and December 31, 1997 and the results of operations for the three and nine month periods ended September 30, 1998 and 1997. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's 1997 annual report. NOTE 2 - Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share." Accordingly, basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share also considers the number of shares issuable upon the assumed exercise of outstanding common stock options. All earnings per common share amounts presented have been restated in accordance with the provisions of this statement. A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per share is:
Three Months Ended September 30, 1998 ------------------------------------------ Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------ Basic EPS - --------- Income available to common shareholders $462,000 2,644,069 $ 0.17 Effect of Dilutive Securities - ---------- Incremental shares from assumed exercise of outstanding options 163,951 (0.01) -------- ---------- -------
10 Diluted EPS - ----------- Income available to common shareholders $ 462,000 2,808,020 $ 0.16 =========== ========= ======
Three Months Ended September 30, 1997 ------------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------ Basic EPS - --------- Income available to common shareholders $ 318,000 2,431,381 $ 0.13 Effect of Dilutive Securities - ---------- Incremental shares from assumed exercise of outstanding options 193,989 (0.01) --------- --------- ------ Diluted EPS - ----------- Income available to common shareholders $ 318,000 2,625,370 $ 0.12 =========== ========= ====== Nine Months Ended September 30, 1998 ------------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------ Basic EPS - --------- Income available to common shareholders $1,244,000 2,540,506 $ 0.49 Effect of Dilutive Securities - ---------- Incremental shares from assumed exercise of outstanding options 174,278 (0.03) ---------- --------- ------ Diluted EPS - ----------- Income available to common shareholders $1,244,000 2,714,784 $ 0.46 ========== ========= ======
11
Nine Months Ended September 30, 1997 ------------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ------------- ------------- ------ Basic EPS --------- Income available to common shareholders $ 978,000 2,432,149 $ 0.40 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 189,070 (0.03) ---------- --------- ------ Diluted EPS ----------- Income available to common shareholders $ 978,000 2,621,219 $ 0.37 ========== ========= ======
NOTE 3 - As of September 30, 1998 the Bank had a total of $1,703,000 in standby letters of credit outstanding. No losses are anticipated as a result of these transactions. NOTE 4 - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, effective January 1, 1998. The standard requires that comprehensive income and its components be disclosed in the financial statements. The Company's comprehensive income includes all items which comprise net income plus the unrealized holding gains on available-for-sale securities. For the three and nine month periods ended September 30, 1998 and 1997, the Company's comprehensive income was as follows:
Three Months Ended --------------------------------- September 30, September 30, 1998 1997 ------------- ------------- (in thousands) Net Income $ 462 $ 318 Other comprehensive income 9 (15) ------ ----- Total comprehensive income $ 471 $ 303 ====== ===== Nine Months Ended --------------------------------- September 30, September 30, 1998 1997 ------------- ------------- (in thousands) Net Income $1,244 $ 978 Other comprehensive income 10 0 ------ ----- Total comprehensive income $1,254 $ 978 ====== =====
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS --------------------- SUMMARY - ------- First Regional Bancorp did not conduct any significant business activities independent of First Regional Bank. The following discussion and analysis relates primarily to the Bank. As of September 30, 1998 total assets were $189,891,000 compared to $162,445,000 at December 31, 1997, an increase of $27,446,000 or 17%. Moreover, the September 30, 1998 asset level represents an increase over the $161,516,000 which existed on the same date in 1997. The 1998 asset growth reflects a corresponding increase in total deposits of $21,628,000 or 15%, from $145,096,000 at the end of 1997 to $166,724,000 at September 30, 1998. While the deposit growth was centered in noninterest bearing deposits and time deposits, there was also significant growth in other deposits, while money market deposits experienced some decline. Most of the reduction in money market deposits was due to scheduled deposit reductions in connection with the termination of the Bank's deposit and service relationship with Transcorp Pension Services, which is described more fully below. There were several changes in the composition of the Bank's assets during the first nine months of 1998. The Bank's core loan portfolio actually grew by $4,695,000 during the nine month period. Government guaranteed loans fell by $448,000 due to continued sales of loans during the year under the loan sale program begun in the fourth quarter of 1996. These changes brought the Bank's total loans to $82,967,000 at September 30, 1998 from the December 31, 1997 total of $78,720,000. The combined effect of the increase in loans and the growth in deposits was an increase in the level of total liquid assets. Of particular note, investment securities available for sale rose by approximately $34 million due to maturing instruments and the absence of attractive replacements, while interest-bearing deposits in financial institutions rose by $2.7 million. Federal funds sold decreased by $6.9 million in order to accommodate the changes which took place in the rest of the balance sheet. The Company earned a profit of $462,000 in the three months ended September 30, 1998, compared to earnings of $318,000 in the third quarter of 1997 an increase of 45%. The results for the nine months ended September 30, 1998 were profits of $1,244,000 compared to a profit of $978,000 for the corresponding period of 1997. NET INTEREST INCOME - ------------------- Total interest income increased by $238,000 (8%) for the third quarter of 1998 compared to the same period in 1997, and increased by $313,000 for the nine month period ended September 30, 1998 compared to the prior year as total earning assets were significantly higher in 1998 than in 1997. Interest expense increased slightly (3%) for both the three month period and the nine month period. For the three months ended September 30, 1998 interest rose by $27,000, to $835,000 from the 1997 level of $808,000 and for the first nine months of 1998 interest expense rose by $78,000 to 13 $2,528,000 from the 1997 nine month total of $2,450,000 because the mix of the Bank's deposits shifted away from high-cost deposit sources such as money market deposits in favor of lower-cost categories such as noninterest bearing deposits. Overall, net interest income increased by $211,000 (10%), from $2,214,000 in the third quarter of 1997 to $2,425,000 for the third quarter of 1998. OPERATING INCOME - ---------------- Other operating income increased to $229,000 in the third quarter of 1998 from $159,000 in the three months ended September 30, 1997. For the first nine months of 1998 other operating income also increased 17% from $528,000 in 1997 to $616,000. The Bank's new merchant services operation, which provides credit card deposit and clearing services to retailers and other credit card accepting businesses, had revenue that totaled $108,000 for the third quarter of 1998 and $242,000 for the nine months ended September 30, 1998; there was no such revenue in the corresponding periods of 1997. Offsetting these income increases in part was reductions in gains realized on the sale of loans, which fell from $136,000 in the first nine months of 1997 to $13,000 in the same period of 1998, and lower gains on sales of land, which declined from $170,000 in 1997's first nine months to $64,000 in the same period of 1998. No gains or losses on securities sales were realized in the first nine months of 1998 or 1997. PROVISION FOR LOAN LOSSES - ------------------------- The allowance for loan losses is intended to reflect known and inherent risks in a portfolio. The allowance for loan losses is increased by provisions for loan losses, and is decreased by net chargeoffs. Management continues to evaluate the portfolio in light of many factors, including loss experience and current economic conditions. Management believes the allowance for loan losses is adequate to provide for losses that might be reasonably anticipated. The allowance for loan losses was $2,431,000 and $2,400,000 (or 2.84% and 2.96% of gross outstanding loans) at September 30, 1998 and December 31, 1997 respectively. Reflecting the Company's ongoing analysis of the risks presented by its loan portfolio, provisions for loan losses were $106,000 and $519,000 for the three and nine month periods ended September 30, 1997, compared to $(10,000) and $14,000 for the same periods of 1998. For the three and nine months ended September 30,1997, the Company generated net loan chargeoffs of $11,000 and 1,027,000; by comparison, in the first nine months of 1998 the Company experienced net loan recoveries of $17,000. In addition, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," effective January 1, 1995. This Statement defines an impaired loan as one for which it is likely that an institution will be unable to collect all amounts due (that is, all principal and interest) according to the contractual terms of the loan. The Statement generally requires impaired loans to be measured at the present value of expected future cash flows discounted at the effective interest rate of the loan, or, as an expedient, at the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. For the quarter ended September 30, 14 1998 the Company had identified loans having an aggregate average balance of $440,000 which it concluded were impaired under SFAS No. 114. The Company's policy is to discontinue the accrual of interest income on impaired loans, and to recognize income on such loans only after the loan principal has been repaid in full. Pursuant to this policy, the Company had already ceased to accrue interest on the impaired loans, and had established a general loss reserve for each of the loans which at September 30, 1998 totaled $144,000 for the loans as a group. As the loss reserves established by the Company were greater than those called for under SFAS No. 114, the adoption of SFAS No. 114 had no effect on the Company's financial statements as of September 30, 1998. OTHER OPERATING EXPENSES - ------------------------ Other operating expenses increased in the first nine months of 1998 compared to the same period of 1997, although some categories of expense actually decreased from the levels of previous periods. Other operating expenses rose to a total of $1,899,000 for the third quarter of 1998 from $1,722,000 for the three months ended September 30, 1997. For the nine months ended September 30, 1998 other operating expenses totaled $5,195,000, an increase from $4,794,000 for the corresponding period in 1997. Salary and related benefits increased by $165,000, rising from a total of $740,000 for the third quarter of 1997 to $905,000 for the same period in 1998, and also rose for the nine months ended September 30, to $2,560,000 from $2,153,000 in 1997. The increase principally reflects employee salary adjustments, as well as increases in staffing which took place in recent years as part of the Bank's program to increase its level of assets. Occupancy expense rose to $135,000 for the three months ended September 30, 1998 from $103,000 in the third quarter of 1997 due in part to the one-time adjustment in rent called for in the Bank's head office lease. In addition, the increase reflects the rent paid on the various facilities which house the Bank's regional offices and the merchant services operation; since these operations did not exist in the third quarter of 1997 there were no corresponding expense items. Other operating expenses fell in 1998 compared to the prior year, falling from $883,000 for the third quarter of 1997 to $859,000 for the third quarter of 1998. In addition to the benefits of the Bank's ongoing program of expense control, the expense reduction from prior years reflects reduced expenses for customer services as a result of the termination of the Bank's deposit and service relationship with Transcorp Pension Services. The combined effects of the above-described factors resulted in income before taxes of $765,000 for the three months ended September 30, 1998 compared to $541,000 for the third quarter of 1997. For the nine months ended September 30, 1998 income before taxes is $2,112,000 compared to $1,681,000 for the first nine months of the prior year. In the third quarter, the Company's provision for taxes rose from $223,000 in 1997 to $303,000 in 1998. For the nine months ended September 30, 1998 the provisions were $868,000 compared to $703,000 in 1997. This brought Net Income for the third quarter of 1998 to $462,000 compared to $318,000 for the same period in 1997. For the nine months ended September 30, net 15 income in 1998 was $1,244,000, while 1997 net income through September 30 was $978,000. LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES - -------------------------------------------------- The Company's financial position remains highly liquid. Total liquid assets (cash and due from banks, interest bearing deposits in financial institutions, investment securities available for sale, and federal funds sold) stood at 62.6% of total deposits at September 30, 1998. This level represents an increase from the 56.0% liquidity level which existed on December 31, 1997. The ratio of net loans (including government guaranteed loans) to deposits was 49.8% and 54.3% as of September 30, 1998 and December 31, 1997, respectively. Because customer deposits are the Company's principal funding source outside of its capital, management has attempted to match rates and maturities of its deposits with its investment and loan portfolios as part of its liquidity and asset and liability management policies. The objective of these policies is to limit the fluctuations of net interest income resulting from interest rate changes. The table which follows indicates the repricing or maturity characteristics of the major categories of the Bank's assets and liabilities as of September 30, 1998, and thus the relative sensitivity of the Bank's net interest income to changes in the overall level of interest rates. A positive "gap" for a period indicates that an upward or downward movement in the level of interest rates would cause a corresponding change in net interest income, while a negative "gap" implies that an interest rate movement would result in an inverse change in net interest income.
ONE MONTH SIX MONTHS ONE YEAR NON-INTEREST FLOATING LESS THAN BUT LESS THAN BUT LESS THAN BUT LESS THAN FIVE YEARS EARNING CATEGORY RATE ONE MONTH SIX MONTHS ONE YEAR FIVE YEARS OR MORE OR BEARING TOTAL ========================== ==== ========= ========== ======== ========== ======= ========== ===== FED FUNDS SOLD 31,530 0 0 0 0 0 0 31,530 TIME DEPOSITS WITH OTHER BANKS 0 2,666 6,427 248 0 0 0 9,341 INVESTMENT SECURITIES 0 8,981 42,333 0 0 0 0 51,314 ------- ------ ------ ------ ------ ------ ------- ------- SUBTOTAL 31,530 11,647 48,760 248 0 0 0 92,185 LOANS 82,360 147 278 160 22 0 0 82,967 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL EARNING ASSETS 113,890 11,794 49,038 408 22 0 0 175,152 CASH AND DUE FROM BANKS 0 0 0 0 0 0 12,143 12,143 PREMISES AND EQUIPMENT 0 0 0 0 0 0 729 729 OTHER REAL ESTATE OWNED 0 0 0 0 0 0 0 0 OTHER ASSETS 0 0 0 0 0 0 1,867 1,867 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL NON-EARNING ASSETS 0 0 0 0 0 0 14,739 14,739 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL ASSETS 113,890 11,794 49,038 408 22 0 14,739 189,891 FUNDS PURCHASED 0 0 0 0 0 0 0 0 REPURCHASE AGREEMENTS 0 0 0 0 0 0 0 0 ------- ------ ------ ------ ------ ------ ------- ------- SUBTOTAL 0 0 0 0 0 0 0 0 SAVINGS DEPOSITS 6,059 0 0 0 0 0 0 6,059
16 MONEY MARKET DEPOSITS 54,251 0 0 0 0 0 0 54,251 TIME DEPOSITS 0 14,397 22,960 1,752 464 84 0 39,657 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL BEARING LIABILITIES 60,310 14,397 22,960 1,752 464 84 0 99,967 DEMAND DEPOSITS 0 0 0 0 0 0 66,757 66,757 OTHER LIABILITIES 0 0 0 0 0 0 3,383 3,383 EQUITY CAPITAL 0 0 0 0 0 0 19,784 19,784 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL NON-BEARING LIABILITIES 0 0 0 0 0 0 89,924 89,924 ------- ------ ------ ------ ------ ------ ------- ------- TOTAL LIABILITIES 60,310 14,397 22,960 1,752 464 84 89,924 189,891 GAP 53,580 (2,603) 26,078 (1,344) (442) (84) (75,185) 0 CUMULATIVE GAP 53,580 50,977 77,055 75,711 75,269 75,185 0 0
As the table indicates, the vast majority of the Company's assets are either floating rate or, if fixed rate, have extremely short maturities. Since the yields on these assets quickly adjust to reflect changes in the overall level of interest rates, there are no significant unrealized gains or losses with respect to the Company's assets, nor is there much likelihood of large realized or unrealized gains or losses developing in the future. For this reason, realized or unrealized gains or losses are not expected to have any significant impact on the Company's future operating results or liquidity. Deposits of custodial clients of retirement plans administered by Transcorp Pension Services, a corporate customer of the Bank, represented approximately 17% and 39% of the Bank's total deposits as of September 30, 1998 and December 31, 1997, respectively; in recognition of this the Bank has maintained a large portion of its assets in liquid form since the inception of the Transcorp relationship. In 1997 Transcorp merged with an affiliated company which already possessed custodial powers, and for this reason Transcorp sought to terminate its deposit relationship with the Bank. The Bank and Transcorp ultimately agreed to terminate the relationship under a settlement agreement which, among other things, provided for the transfer of the remaining deposits over an 18- month period beginning in March, 1998 and continuing through September, 1999. Because the Bank has invested the Transcorp deposits in highly liquid assets, it anticipates no difficulty in accommodating the deposit withdrawals over the 18- month transfer period. The Bank's investment portfolio continues to be composed of high quality, low risk securities, primarily U.S. Treasury or Agency obligations. As mentioned above, no gains or losses were recorded on securities sales in the first nine months of 1998. As of September 30, 1998 the Company's investment portfolio contained gross unrealized gains of $15,000 and no unrealized losses. By comparison, at September 30, 1997 the Company's investment portfolio contained gross unrealized gains of $3,000 and gross unrealized losses of $3,000. As discussed more fully in Note 5, the Company adopted SFAS No. 115 in 1994, with the result that the unrealized net gain (adjusted for taxes) of $10,000 at September 30, 1998 gave rise to a $10,000 increase in the Company's shareholders' equity as of that date. Because the Company's holdings of securities are intended to serve as 17 source of liquidity should conditions warrant, the securities have been classified by the Company as "available for sale." The Company continues to enjoy a strong capital position. Total capital was $19,774,000 and $15,423,000 as of September 30, 1998 and December 31, 1997, respectively. The Company's capital ratios for those dates in comparison with regulatory capital requirements were as follows:
9-30-98 12-31-97 ------- -------- Leverage Ratio (Tier I Capital to Assets): Regulatory requirement 4.00% 4.00% First Regional Bancorp 11.13% 9.50%
The "regulatory requirement" listed represents the level of capital required for Adequately Capitalized status. In addition, bank regulators have issued risk-adjusted capital guidelines which assign risk weighting to assets and off-balance sheet items and place increased emphasis on common equity. The Company's risk adjusted capital ratios for the dates listed in comparison with the risk adjusted regulatory capital requirements were as follows:
9-30-98 12-31-97 ------- -------- Tier I Capital to Assets: Regulatory requirement 4.00% 4.00% First Regional Bancorp 15.53% 16.70% 9-30-98 12-31-97 ------- -------- Tier I + Tier II Capital to Assets: Regulatory requirement 8.00% 8.00% First Regional Bancorp 16.79% 18.00%
The Company believes that it will continue to meet all applicable capital standards. During the third quarter of 1998, First Regional's capital was substantially increased through a private placement offering of common shares at a price of $9.00 per share. This transaction strengthens the Company's already solid financial foundation, and thus provides the basis for additional future growth. During the quarter the company also established an Employee Stock Ownership Plan consisting of 150,000 shares of First Regional common stock acquired in market transactions or directly from First Regional Bancorp at an average price of $9.48 per share. This new Plan will build the capital base of First Regional Bank and provide its employees with a powerful incentive to achieve further improvements in First Regional's operating performance. 18 YEAR 2000 ISSUES - ---------------- The approach of the year 2000 presents potential problems to businesses, such as the Company, which utilize computers. Many computer systems in use today, particularly older computers and computer programs, may not be able to properly interpret dates after December 31, 1999 because they use only two digits to indicate the year in a date. For example, the year 2000 could be interpreted as the year 1900 by such systems. As a result, the systems could produce inaccurate data, or not function at all. In anticipation of this potential problem, the Company has developed a comprehensive plan to ensure that all of its systems are able to properly deal with the year 2000. The Company is currently assessing the ability of each system to properly perform, and is implementing corrective measures when deficiencies are found. Thus far, relatively few required corrections have been identified, and most of these situations would have been corrected in the normal course of business as part of the routine ongoing maintenance and updating of the Company's systems. At this point, the Company anticipates no difficulty in achieving full year 2000 capability. Further, while it is impossible to determine the costs of achieving full year 2000 capability, at this point those costs are not expected to be material. As a financial institution, the Bank is also exposed to potential risk if borrowers and depositors suffer year 2000-related difficulties and are unable to repay their loans or maintain their deposit balances. The Bank is in the process of performing an assessment of the year 2000 readiness with both borrowers (as part of the loan granting or renewal process) and depositors. At this time, it is impossible to determine what impact, if any, the year 2000 will have on either the loan payment performance of the Bank's borrowers or the balances of key depositors. Thus far, however, none of the Bank's borrowers or depositors have reported the expectation of material adverse impacts as a result of the year 2000. INFLATION - --------- The impact of inflation on the Company differs significantly from other industries, since virtually all of its assets and liabilities are monetary. During periods of rising inflation, companies with net monetary assets will always experience a reduction in purchasing power. Inflation continues to have an impact on salary, supply, and rent expenses, but the rate of inflation in general and its impact on these expenses in particular has remained moderate in recent years. 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - -------------------------- Litigation - ---------- The Company is a party as plaintiff to a number of lawsuits that have arisen in connection with the normal conduct of its banking business. It is management's opinion, based upon advice of legal counsel, that none of the pending litigation will have a materially adverse effect on the Company or the Bank. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the third quarter of 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- Exhibits - -------- Exhibit 27 - Financial Data Schedule Reports on Form 8-K - ------------------- No reports on Form 8-K were filed during the third quarter of 1998. 20 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. FIRST REGIONAL BANCORP Date: October 28, 1998 /s/ Jack A. Sweeney ------------------------------------------- Jack A. Sweeney, Chairman of the Board and Chief Executive Officer Date: October 28, 1998 /s/ Thomas McCullough ------------------------------------------- Thomas McCullough, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 12,143,000 9,341,000 31,530,000 0 51,314,000 0 0 85,398,000 2,431,000 189,891,000 166,724,000 0 3,383,000 0 0 0 15,824,000 3,960,000 189,891,000 5,756,000 2,040,000 1,437,000 9,233,000 2,525,000 2,528,000 6,705,000 14,000 0 5,195,000 2,112,000 1,244,000 0 0 1,244,000 0.49 0.46 .057 469,000 238,000 0 0 2,400,000 19,000 36,000 2,431,000 2,431,000 0 0
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