10-Q 1 0001.txt FORM 10-Q Page 1 of 18 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 June 30, 2000 ------------- 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 2,814,720 -------------------------- ----------------------------- Class Outstanding on August 8, 2000 2 FIRST REGIONAL BANCORP ---------------------- INDEX ----- Page ---- Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition.................................... 3 Consolidated Statements of Income............ 4 Consolidated Statements of Cash Flows........ 5 Notes to Consolidated Financial Statements................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 10 Part II - Other Information Item 1. Legal Proceedings............................ 17 Item 4. Submission of Matters to a Vote of Security Holders............................. 17 Item 6. Exhibits and Reports on Form 8-K............. 17 Signatures.................................................. 18 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ----------------------------- FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ---------------------------------------------- (In Thousands) (unaudited)
June 30, December 31, 2000 1999 -------- ------------ ASSETS ------ Cash and due from banks $ 16,014 $ 10,074 Federal funds sold 19,605 37,090 -------- -------- Cash and cash equivalents $ 35,619 $ 47,164 Investment securities 5,950 52,789 Interest-bearing deposits in financial institutions 3,960 6,923 Government guaranteed loans 20,635 5,084 Loans, net of allowance for losses of $3,109,000 in 2000 and $2,300,000 in 1999 165,886 116,732 Premises and equipment, net of accumulated depreciation 1,272 1,172 Accrued interest receivable and other assets 3,957 3,169 -------- -------- Total Assets $237,279 $233,033 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Noninterest bearing $ 74,298 $ 65,405 Interest Bearing: Savings deposits 9,940 8,605 Money market deposits 87,254 87,670 Time deposits 39,122 44,052 -------- -------- Total deposits 210,614 205,732 Note payable 1,237 1,313 Accrued interest payable and other liabilities 3,913 5,285 -------- -------- Total Liabilities 215,764 212,330 Shareholders' Equity: Common Stock, no par value, 50,000,000 shares authorized; 2,813,000 and 2,809,000 shares outstanding in 2000 and 1999, respectively 14,247 14,410 Less: Unearned ESOP shares; 129,000 and 132,000 outstanding in 2000 and 1999, respectively (1,173) (1,244) Total common stock, no par value; -------- -------- Outstanding 2,683,000 (2000) and 2,677,000 (1999) shares 13,074 13,166 Retained earnings 8,438 7,538 Accumulated other comprehensive income 3 (1) -------- -------- Total Shareholders' Equity 21,515 20,703 -------- -------- Total Liabilities and Shareholders' Equity $237,279 $233,033 ======== ========
The accompanying notes are an integral part of these statements. 4 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (In Thousands Except Per Share Amounts) (Unaudited)
Three Months Six Ended Months Ended June 30, June 30, ---------------- ---------------- 2000 1999 2000 1999 ------ ------ ------ ------ REVENUE FROM EARNING ASSETS: Interest on loans $4,441 $2,395 $7,834 $4,707 Interest on deposits in financial Institutions 58 110 150 264 Interest on investment securities 464 889 1,152 1,576 Interest on federal funds sold 344 275 801 685 ------ ------ ------ ------ Total interest income 5,307 3,669 9,937 7,232 COST OF FUNDS: Interest on deposits 1,026 1,075 2,105 2,201 Interest on other borrowings 3 7 8 8 ------ ------ ------ ------ Total interest expense 1,029 1,082 2,113 2,209 ------ ------ ------ ------ Net interest income 4,278 2,587 7,824 5,023 PROVISION (REVERSAL OF PROVISION) FOR LOAN LOSSES 564 25 714 (195) ------ ------ ------ ------ Net interest income after provision for loan losses 3,714 2,562 7,110 5,218 OTHER OPERATING INCOME 283 427 744 793 ------ ------ ------ ------ OPERATING EXPENSES: Salaries and related benefits 1,764 1,290 3,447 2,495 Occupancy expense 213 170 415 326 Equipment expense 112 88 235 173 Promotion expense 81 68 131 95 Professional service expense 286 236 578 531 Customer service expense 121 182 282 391 Supply/communication expense 138 112 247 201 Other expenses 343 273 707 539 ------ ------ ------ ------ Total operating expenses 3,058 2,419 6,042 4,751 ------ ------ ------ ------ Income before provision for income taxes 939 570 1,812 1,260 PROVISION FOR INCOME TAXES 389 237 749 518 ------ ------ ------ ------ NET INCOME $ 550 $ 333 $1,063 $ 742 ====== ====== ====== ====== EARNINGS PER SHARE (Note 2) Basic $0.20 $0.11 $ 0.39 $ 0.26 Diluted $0.20 $0.11 $ 0.39 $ 0.25
The accompanying notes are an integral part of these statements. 5 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In Thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 ------- ------- OPERATING ACTIVITIES Net Income $ 1,063 $ 742 Adjustments to reconcile net income to net cash provided by operating activities: Provision (reversal of provision) for loan losses 714 (195) Provision for depreciation and amortization 113 82 Amortization of investment security and guaranteed loan premiums 141 39 Accretion of investment security discounts (62) (93) Increase in interest receivable (430) (232) (Decrease) increase in interest payable (28) 33 (Decrease) Increase in taxes payable (121) 60 Net (Decrease) increase in other Liabilities (1,223) 503 ------- ------- Net cash provided by operating activities $ 167 $ 939 INVESTING ACTIVITIES Decrease in investments in time deposits with other financial institutions $ 2,963 $ 5,052 Decrease (increase) in investment securities 46,895 (36,556) (Increase) decrease in guaranteed loans (15,682) 164 Net increase in other loans (48,868) (8,795) Increase in premises and equipment (213) (251) Net increase in other assets (358) (643) -------- -------- Net cash used in investing activities $(16,263) $(41,029) FINANCING ACTIVITIES Net increase in noninterest bearing deposits money market deposits, and other deposits $ 9,812 $ 41,246 Net decrease in time deposits (4,930) (3,478) Decrease in note payable (76) (76) Increase in securities sold under agreement to repurchase 0 190 Decrease in shareholders' equity (255) (101) ------- ------- Net cash provided by financing activities $ 4,551 $ 37,781 Decrease in cash and cash equivalents $(11,545) $ (2,309) Cash and cash equivalents, beginning of period 47,164 41,177 -------- -------- Cash and cash equivalents, end of period $ 35,619 $ 38,868 ======== ========
The accompanying notes are an integral part of these statements. 6 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ June 30, 2000 (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 1999 financial statements have been reclassified to be comparable with the classifications used in the 2000 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 June 30, 2000 and December 31, 1999 and the results of operations for the three and six month periods ended June 30, 2000 and 1999. 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 1999 annual report. Certain statements in this Report on Form 10-Q constitute "forward looking statements" under the Private Securities Litigation Reform Act of 1995 which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the geographic and business areas in which the Company conducts operations, fluctuations in interest rates, credit quality and government regulations. NOTE 2 - 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: 7
Three Months Ended June 30, 2000 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- Basic EPS --------- Income available to common shareholders $ 550,000 2,690,176 $ 0.20 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 9,966 (0.00) ----------- --------- ------ Diluted EPS ----------- Income available to common shareholders $ 550,000 2,700,142 $ 0.20 =========== ========= ======
Three Months Ended June 30, 2000 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- Basic EPS --------- Income available to common shareholders $ 333,000 2,989,837 $ 0.11 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 99,376 (0.00) ------------ --------- ------ Diluted EPS ----------- Income available to common shareholders $ 333,000 2,999,213 $ 0.11 =========== ========= ======
8
Six Months Ended June 30, 2000 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- Basic EPS --------- Income available to common shareholders $ 1,063,000 2,699,615 $ 0.39 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 15,551 (0.00) ----------- --------- ------ Diluted EPS ----------- Income available to common shareholders $ 1,063,000 2,715,166 $ 0.39 =========== ========= ======
Six Months Ended June 30, 2000 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ---------- Basic EPS --------- Income available to common shareholders $ 742,000 2,877,784 $ 0.26 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 115,422 (0.01) ----------- --------- ------ Diluted EPS ----------- Income available to common shareholders $ 742,000 2,993,206 $ 0.25 =========== ========= ======
NOTE 3 - As of June 30, 2000 the Bank had a total of $1,059,000 in standby letters of credit outstanding. No losses are anticipated as a result of these transactions. NOTE 4 - The Company's comprehensive income includes all items which comprise net income plus the unrealized holding gains on 9 available-for-sale securities. For the three and six month periods ended June 30, 2000 and 1999, the Company's comprehensive income was as follows:
Three Months Ended ------------------------------- June 30, 2000 June 30, 1999 ------------- ------------- (in thousands) Net Income $ 550 $ 333 Other comprehensive income 3 (10) ------ ------ Total comprehensive income $ 553 $ 323
Six Months Ended June 30, 2000 June 30, 1999 ------------- ------------- (in thousands) Net Income $ 1,063 $ 742 Other comprehensive income 4 (12) -------- -------- Total comprehensive income $1,067 $730
10 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 June 30, 2000 total assets were $237,279,000 compared to $233,033,000 at December 31, 1999, an increase of $4,246,000 or 1.8%. Moreover, the June 30, 2000 asset level represents a $4,289,000 (1.8%) increase over the $232,990,000 that existed on the same date in 1999. The 2000 asset growth reflects a corresponding increase in total deposits of $4,882,000 or 2.4%, from $205,732,000 at the end of 1999 to $210,614,000 at June 30, 2000. While overall deposits increased slightly, the deposit growth was centered in noninterest bearing deposits, savings deposits increased slightly and money market deposits and time experienced some decline. There were several changes in the composition of the Bank's assets during the first six months of 2000. The Bank's core loan portfolio actually grew significantly by $64,705,000 during the six month period bringing the Bank's total loans to $186,521,000 at June 30, 2000 from the December 31, 1999 total of $121,816,000. The combined effect of the substantial increase in loans and the slight growth in deposits was a decrease in the level of total liquid assets. Of particular note, investment securities decreased by approximately $46.8 million and time deposits in financial institutions fell by $3.0 million. Federal funds sold fell by $17.4 million in order to accommodate the changes that took place in the rest of the balance sheet. The Company earned a profit of $550,000 in the three months ended June 30, 2000, compared to earnings of $333,000 in the second quarter of 1999 an increase of 65%. The results for the six months ended June 30, 2000 were profits of $1,063,000 compared to a profit of $742,000 for the corresponding period of 1999. NET INTEREST INCOME ------------------- Total interest income increased by $1,638,000 (45%) for the second quarter of 2000 compared to the same period in 1999, and increased by $2,705,000 (37%) for the six month period ended June 30, 2000 compared to the prior year although total earning assets were only slightly higher (1.2%) in 2000 than in 1999. The majority of the increase in interest income arises from a substantial increase of $3,127,000 (66 %) in interest on loans from $4,707,000 for the six months ended June 30, 1999 compared to $7,834,000 for the same period in 2000. This increase in interest income on loans corresponds to an substantial increase in core loan portfolio of 11 $85,994,000 (86%) from June 30, 1999 to June 30, 2000 and generally higher interest rates which have existed this year compared with 1999. For the three months ended June 30, 2000 interest expense decreased by $53,000 (5%) to $1,029,000 from the 1999 level of $1,082,000 and for the six months ended June 30, 2000 interest expense decreased slightly by $96,000 (4%) to $2,113,000 from the 1999 level of $2,209,000. Interest expenses decreased in these periods although total deposits were slightly higher than in the same periods in 1999, as interest bearing deposits decreased from the prior period. The net result was an increase in net interest income of $1,691,000 (65%), from $2,587,000 in the second quarter of 1999 to $4,278,000 for the second quarter of 2000 and an increase in net interest income of $2,801,000 (56%), from $5,023,000 for the six months ended June 30, 1999 to $7,824,000 for the first six months of 2000. OTHER OPERATING INCOME ---------------------- Other operating income decreased to $283,000 in the second quarter of 2000 from $427,000 in the three months ended June 30, 1999. For the first half of 2000 other operating income also decreased slightly from $793,000 for the six months ended June 30, 1999 to $744,000 for the first six months of 2000. The Bank's merchant services operation, which provides credit card deposit and clearing services to retailers and other credit card accepting businesses, had revenue that totaled $183,000 for the second quarter of 2000 and $342,000 for the six months ended June 30, 2000 in contrast with $116,000 for the second quarter of 1999 and $221,000 for the six months ended June 30, 1999. Offsetting this income increase in part was the Bank's Trust Administration Services Corp. (TASC), a wholly owned subsidiary that provides administrative and custodial services to self-directed retirement plans. TASC had revenue that decreased to $133,000 for the six months ended June 30, 2000 in contrast with $242,000 in the first six months of 1999. Also offsetting this income increase was the decrease in gains realized on the sale of land, which fell from $100,000 in 1999's first half to $30,000 in the first half of 2000. Losses on securities sales totaled $24,000 for both the 2nd quarter and the first six months of 2000 while no gains or losses on securities sales were realized in the first half of 1999. No gains or losses on the sale of loans were realized in the first half of 2000 or 1999. 12 LOAN PORTFOLIO AND PROVISION FOR LOAN LOSSES -------------------------------------------- The loan portfolio consisted of the following at June 30, 2000 and December 31, 1999:
June 30, December 31, 2000 1999 ------------------------------ (Dollars in Thousands) Commercial loans........................... $ 55,105 $ 42,789 Real estate construction loans............. 33,939 19,267 Real estate loans.......................... 79,739 56,741 Other loans................................ 1,234 961 -------- -------- Total loans......................... $170,017 $119,758 Less - Allowances for loan losses......... 3,109 2,300 - Deferred loan fees................. 1,022 726 -------- -------- Net loans............................ $165,886 $116,732 ======== ======== Government guaranteed loans $ 20,635 $ 5,084 ======== ========
The allowance for loan losses is intended to reflect the known and unknown risks which are inherent in a loan portfolio. The adequacy of the allowance for loan losses is continually evaluated in light of many factors, including loan loss experience and current economic conditions. The allowance for loan losses is increased by provisions for loan losses, and is decreased by net chargeoffs. Management believes the allowance for loan losses is adequate in relation to both existing and potential risks in the loan portfolio. The Bank has historically evaluated the adequacy of its allowance for loan losses on an overall basis rather than by specific categories of loans. In determining the adequacy of the allowance for loan losses, management considers such factors as historical loan loss experience, known problem loans, evaluations made by bank regulatory authorities, assessment of economic conditions and other appropriate data to identify the risks in the loan portfolio. The allowance for losses was $3,109,000 and $2,300,000 (or 1.64% and 1.85% of gross outstanding loans) at June 30, 2000 and December 31, 1999 respectively. Reflecting the Company's ongoing analysis of the risks presented by its loan portfolio, provisions for loan losses were $564,000 and $714,000 for the three and six month period ended June 30, 2000, compared to $25,000 and $(195,000) for the same periods of 1999. For the three and six months ended June 30, 2000, the Company generated net loan 13 recoveries of $85,000 and 95,000; by comparison, in the first half of 1999 the Company experienced net loan recoveries of $21,000. For the quarter ended June 30, 2000 the Company identified loans having an aggregate average balance of $84,000 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 June 30, 2000 totaled $45,000 for the loans as a group. OTHER OPERATING EXPENSES ------------------------ Other operating expenses increased in the first six months of 2000 compared to the same period of 1999, although some categories of expense actually decreased from the levels of previous periods. Other operating expenses rose to a total of $3,058,000 for the second quarter of 2000 from $2,419,000 for the three months ended June 30, 1999. For the six months ended June 30, 2000 other operating expenses totaled $6,042,000, an increase from $4,751,000 for the corresponding period in 1999. Salary and related benefits increased by $474,000, rising from a total of $1,290,000 for the second quarter of 1999 to $1,764,000 for the same period in 2000, and also rose for the six months ended June 30, to $3,447,000 from $2,495,000 in 1999. The increase principally reflects increases in staffing which took place due to staffing in the new regional offices. The increase also reflects employee salary adjustments. Occupancy expense rose to $213,000 for the three months ended June 30, 2000 from $170,000 in the second quarter of 1999, the increases reflect the rent paid on the various facilities which house the Bank's new regional offices and the TASC operation. Total other operating expenses rose in 2000 compared to the prior year, increasing from $959,000 for the second quarter of 1999 to $1,081,000 for the second quarter of 2000 and a corresponding increase from $1,930,000 for the first six months of 1999 to $2,180,000 for the same period of 2000. The combined effects of the above-described factors resulted in income before taxes of $939,000 for the three months ended June 30, 2000 compared to $570,000 for the second quarter of 1999. For the six months ended June 30, 2000 income before taxes is $1,812,000 compared to $1,260,000 for the first six months of the prior year. In the second quarter, the Company's provision for taxes increased from $237,000 in 1999 to $389,000 in 2000. For the six months ended June 30, 2000 the provisions were $749,000 compared to $518,000 in 1999. This brought net income for the second quarter of 2000 to $550,000 compared to $333,000 for the same period in 14 1999. For the six months ended June 30, net income in 2000 was $1,063,000, while 1999 net income through June 30 was $742,000. LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES -------------------------------------------------- The Company's financial position remains 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 21.6% of total deposits at June 30, 2000. This level represents a decrease from the 51.95% liquidity level which existed on December 31, 1999. In addition, at June 30, 2000 some $20.6 million of the Bank's total loans consisted of government guaranteed loans, which represent a significant source of liquidity due to the active secondary markets which exist for these assets. The ratio of net loans (including government guaranteed loans) to deposits was 88.6% and 59.2% as of June 30, 2000 and December 31, 1999, 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 June 30, 2000, 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 Six Less month months One than but less but less year but Five Non-interest Floating one than six than one less than years earning Category Rate month months year five years or more or bearing Total ------------------------------ -------- ----- -------- -------- ---------- ------- ------------ -------- Fed funds sold 19,605 0 0 0 0 0 0 19,605 Time deposits with other banks 0 495 3,465 0 0 0 0 3,960 Investment securities 0 999 4,951 0 0 0 0 5,950 Subtotal 19,605 1,494 8,416 0 0 0 0 29,515 Loans 184,748 227 747 40 759 0 0 186,521 Total earning assets 204,353 1,721 9,163 40 759 0 0 216,036 Cash and due from banks 0 0 0 0 0 0 16,014 16,014 Premises and equipment 0 0 0 0 0 0 1,272 1,272 Other real estate owned 0 0 0 0 0 0 0 0 Other assets 0 0 0 0 0 0 3,957 3,957 Total non-earning assets 0 0 0 0 0 0 21,243 21,243 Total assets 204,353 1,721 9,163 40 759 0 21,243 237,279 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 9,940 0 0 0 0 0 0 9,940 Money market deposits 87,254 0 0 0 0 0 0 87,254 Time deposits 0 20,209 17,315 1,421 177 0 0 39,122 Total bearing liabilities 97,194 20,209 17,315 1,421 177 0 0 136,316 Demand deposits 0 0 0 0 0 0 74,298 74,298 Other liabilities 0 0 0 0 0 0 5,150 5,150 Equity capital 0 0 0 0 0 0 21,515 21,515 Total non-bearing liabilities 0 0 0 0 0 0 100,963 100,963 Total liabilities 97,194 20,209 17,315 1,421 177 0 100,963 237,279 GAP 107,159 (18,488) (8,152) (1,381) 582 0 (79,720) 0 Cumulative GAP 107,159 88,671 80,519 79,138 79,720 79,720 0 0
15 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. The Bank's investment portfolio continues to be composed of high quality, low risk securities, primarily U.S. Treasury or Agency securities. As mentioned above, no gains and $24,000 in losses were recorded on securities sales in the first half of 2000. As of June 30, 2000 the Company's investment portfolio contained gross unrealized gains of $4,000 and no unrealized losses. By comparison, at June 30, 1999 the Company's investment portfolio contained gross unrealized losses of $18,000 and no unrealized gains. The unrealized net gain (adjusted for taxes) of $4,000 at June 30, 2000 gave rise to a $3,000 increase in the Company's shareholders' equity as of that date. Because the Company's holdings of securities are intended to serve as a 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 $21,515,000 and $20,703,000 as of June 30, 2000 and December 31, 1999, respectively. The Company's capital ratios for those dates in comparison with regulatory capital requirements were as follows: 16
6-30-00 12-31-99 ------- -------- Leverage Ratio (Tier I Capital to Assets): Regulatory requirement 4.00% 4.00% First Regional Bancorp 9.10% 8.90%
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: 6-30-00 12-31-99 -------- -------- Tier I Capital to Assets: Regulatory requirement 4.00% 4.00% First Regional Bancorp 10.90% 10.50% 6-30-00 12-31-99 ------- -------- Tier I + Tier II Capital to Assets: Regulatory requirement 8.00% 8.00% First Regional Bancorp 12.15% 11.70% The Company believes that it will continue to meet all applicable capital standards. 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. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS -------------------------- Litigation ---------- In the normal course of business, the Company and the Bank are involved in litigation. Management does not expect the ultimate outcome of any pending litigation to have a material effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ The company held its annual meeting of shareholders on May 18, 2000. The Board of Directors was elected as follows: Fred M. Edwards H. Anthony Gartshore Gary Horgan Thomas E. McCullough Lawrence J. Sherman Jack A. Sweeney No other matters were submitted for shareholder vote. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ----------------------------------------- Exhibits -------- There are no exhibits to this report. Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the second quarter of 2000. 18 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: August 8, 2000 /s/ Jack A. Sweeney ------------------- Jack A. Sweeney, Chairman of the Board and Chief Executive Officer Date: August 8, 2000 /s/ Thomas McCullough --------------------- Thomas McCullough, Chief Financial Officer