-----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, MK1X+sFmdyB89e2ElRsMWDaD6WBrQEArpKI1irrUIppBLXua9xsrg3ehRew37DF2 M5S2ioYrxFrcEnleHCcwzg== 0000944209-98-000896.txt : 19980504 0000944209-98-000896.hdr.sgml : 19980504 ACCESSION NUMBER: 0000944209-98-000896 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980501 SROS: NASD 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: 98608024 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 03/31/98 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 March 31, 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 2,451,631 -------------------------- --------- Class Outstanding on April 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)
March 31, December 31, ASSETS 1998 1997 ------ --------- ------------ Cash and due from banks $ 9,454 $ 9,847 Time deposits with other financial institutions 8,896 6,626 Investment securities 15,313 26,431 Funds sold 60,000 38,390 Federally guaranteed loans 500 942 Other loans, net of allowance for losses of $2,424,000 in 1998 and $2,400,000 in 1997 71,171 77,778 Premises and equipment, net of accumulated depreciation 693 698 Other real estate owned 0 0 Accrued interest receivable and other assets 1,722 1,733 -------- -------- Total Assets $167,749 $162,445 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities: Demand deposits $ 38,955 $ 35,820 Savings deposits 6,001 6,111 Money market deposits 65,302 72,959 Time deposits 39,862 30,206 -------- -------- Total deposits 150,120 145,096 Securities sold under agreement to repurchase 0 0 Accrued interest payable and other liabilities 1,926 1,926 -------- -------- Total Liabilities 152,046 147,022 Shareholders' Equity: Common Stock, no par value, 50,000,000 shares authorized; 2,451,631 and 2,416,631 shares outstanding in 1998 and 1997, respectively 11,215 11,286 Retained earnings 4,487 4,128
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March 31 December 31, 1998 1997 -------- ------------ Net unrealized gain (loss) on securities available for sale 1 9 -------- -------- Total Shareholders' Equity 15,703 15,423 -------- -------- Total Liabilities and Shareholders' Equity $167,749 $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 March 31, ------------------ 1998 1997 ---- ---- REVENUE FROM EARNING ASSETS: Interest and fees on loans $1,675 $2,007 Interest on time deposits with other financial institutions 101 78 Interest on investment securities 581 593 Interest on funds sold 481 255 ------ ------ Total revenue from earning assets 2,838 2,933 COST OF FUNDS: Interest on deposits 817 846 Interest on securities sold under agreements to repurchase 3 (1) ------ ------ Total cost of funds 820 845 Net revenue from earning assets before provision for loan losses 2,018 2,088 PROVISION FOR LOAN LOSSES 12 156 ------ ------ Net revenue from earning assets 2,006 1,932 OPERATING INCOME Net gains (losses) on sales of investment securities 0 0 Other revenue 170 183 ------ ------ Total operating income 170 183 OPERATING EXPENSES: Salaries and related benefits 794 691 Occupancy expense 115 92 Equipment expense 56 46 Promotion expense 35 37 Professional service expense 161 165 Customer service expense 262 298 Supply/communication expense 45 31 Other expenses 94 137 ------ ------ Total operating expenses 1,562 1,497 Income before provision for income taxes 614 618 PROVISION FOR INCOME TAXES 254 256 ------ ------
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Three Months Ended March 31, ------------------ 1998 1997 ---- ---- NET INCOME $ 360 $ 362 ====== ====== NET INCOME PER SHARE (Note 2) Basic $ 0.15 $ 0.15 Diluted $ 0.14 $ 0.14 Average shares outstanding 2,440,131 2,425,927 Diluted average shares 2,628,495 2,622,985
The accompanying notes are an integral part of these statements. 7 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In Thousands) (Unaudited)
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- OPERATING ACTIVITIES Net Income $ 360 $ 362 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 12 156 Provision for depreciation and amortization 31 19 Amortization of investment security and guaranteed loan premiums 16 32 Accretion of investment security discounts (79) (43) Decrease (increase) in interest receivable 58 357 Increase (decrease) in interest payable 28 12 Increase (decrease) in taxes payable 229 255 Net increase (decrease) in other liabilities (257) (75) ------- -------- Net cash provided by operating activities $ 398 $ 1,075 INVESTING ACTIVITIES Decrease (increase) in investments in time deposits with other financial institution $(2,270) $ (98) Decrease (increase) in investment securities 11,173 2,988 Decrease (increase) in guaranteed loans 442 3,584 Net decrease (increase) in other loans 6,595 (10,830) Decrease (increase) in premises and equipment (26) (29) Decrease (increase) in other real estate owned 0 0 Net decrease (increase) in other assets (47) 18 ------- -------- Net cash provided by investing activities $15,867 $ (4,367)
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Three Months Ended March 31, ------------------ 1998 1997 ---- ---- FINANCING ACTIVITIES Net increase (decrease) in demand deposits, savings accounts, and money market accounts $(4,632) $(1,029) Net increase (decrease) in time deposits 9,656 (2,386) Increase (decrease) in securities sold under agreement to repurchase 0 (94) Increase (decrease) in shareholders' equity (72) 0 ------- ------- Net cash provided by financing activities $ 4,952 $(3,509) Increase (decrease) in cash and cash equivalents $21,217 $(6,801) Cash and cash equivalents, beginning of period 48,237 29,279 ------- ------- Cash and cash equivalents, end of period $69,454 $22,478 ======= =======
The accompanying notes are an integral part of these statements. 9 FIRST REGIONAL BANCORP AND SUBSIDIARY ------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ March 31, 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 March 31, 1998 and December 31, 1997 and the results of operations for the three month periods ended March 31, 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 March 31, 1998 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS --------- Income available to common shareholders $360,000 2,440,131 $ 0.15 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 188,364 (0.01) -------- --------- ------
10 Diluted EPS ----------- Income available to common shareholders $360,000 2,628,495 $ 0.14 ======== ========= ======
Three Months Ended March 31, 1997 ---------------------------------------- Weighted Average Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS --------- Income available to common shareholders $362,000 2,425,927 $ 0.15 Effect of Dilutive Securities ---------- Incremental shares from assumed exercise of outstanding options 197,058 (0.01) -------- --------- ------ Diluted EPS ----------- Income available to common shareholders $362,000 2,622,985 $ 0.14 ======== ========= ======
NOTE 3 - As of March 31, 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. 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 March 31, 1998 the Company had identified loans having an aggregate average balance of $317,182 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 March 31, 1998 totalled $128,000 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 March 31, 1998. 11 NOTE 5 - The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Investments in Certain Debt and Equity Securities," effective January 1, 1994. This Statement supersedes SFAS No. 12, and significantly amends SFAS No. 65 and SFAS No. 60, the standards previously used by the Company. The effect of adopting SFAS No. 115 on the Company's financial statements was to increase shareholders' equity at March 31, 1998 by $1,000 from the level which would have existed had SFAS No. 115 not been adopted. Because the applicable investment securities are classified by the Company as "available for sale," there was no effect on the Company's income statement. 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 March 31, 1998 total assets were $167,749,000 compared to $162,445,000 at December 31, 1997, an increase of $5,304,000 or 3%. Since a modest decline in asset levels is customary in the first quarter of each year, the growth achieved in the first three months of 1998 is a positive event. Moreover, the March 31, 1998 asset level represents a considerable improvement over the $149,472,000 which existed on the same date in 1997. The 1998 asset growth reflects a corresponding increase in total deposits of $5,024,000 or 3%, from $145,096,000 at the end of 1997 to $150,120,000 at March 31, 1998. While the deposit growth was centered in time deposits, there was also significant growth in demand deposits, while savings deposits and money market deposits experienced some decline. Most of the reduction in money market accounts 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 quarter. Other loans (net) fell by $6,607,000 due to the maturity of past investments in bankers acceptances and the inability to find suitable replacement instruments providing competitive yields; the Bank's core loan portfolio actually grew during the quarter, but that growth was overshadowed by the maturities of the bankers acceptances. Federally guaranteed loans fell by $442,000 due to continued sales of loans during the quarter under the loan sale program begun in the fourth quarter of 1996. These changes brought the Bank's total loans to $71,671,000 at March 31, 1998 from the December 31, 1997 total of $78,720,000. The combined effect of the shrinkage in loans and the growth in deposits was an increase in the level of total liquid assets. Of particular note, investment securities fell by approximately $11 million due to maturing instruments and the absence of attractive replacements, while time deposits with other financial institutions rose by $2.2 million. Funds sold rose by a whopping $21.6 million in order to accommodate the changes which took place in the rest of the balance sheet. The Company earned a profit of $360,000 in the first quarter of 1998, compared to earnings of $362,000 in the three months ended March 31, 1997. The consistent results between the 1998 and 1997 periods are a reflection of generally stable net interest revenue resulting from the growth in the level of earning assets over the prior year, combined with somewhat higher non-interest expenses. NET INTEREST INCOME - ------------------- Total revenue from earning assets fell by $95,000 (3%) for the three months ended March 31, 1998 compared to the same period in 1997. This revenue decrease was due to the fact that, while total earning assets were higher 13 in 1998 than in 1997, the 1998 assets were composed of relatively lower levels of high-yielding assets (such as loans) and relatively greater levels of lower- yielding assets (such as funds sold) than prevailed in 1997. A similar situation occurred in the area of interest expense, in which interest expense fell slightly despite higher deposit volumes, because the mix of the Bank's deposits shifted away from high-cost deposit sources such as money market accounts in favor of lower-cost categories such as demand deposits. Because the drop in yields on earning assets was more pronounced than the reduction in the cost of funds, the net result was a slight decrease in net revenue from earning assets, from $2,088,000 in the first quarter of 1997 to $2,018,000 for the first three months of 1998. OPERATING INCOME - ---------------- Other revenue fell to $170,000 in the first quarter of 1998 from $183,000 in the three months ended March 31, 1997. The decrease in this category of income was in part due to reductions in gains realized on the sale of loans, which fell from $79,000 in the first quarter of 1997 to $9,000 in the same period of 1998, and lower gains on sales of land, which declined from $70,000 in 1997's first quarter to $12,000 in the first quarter of 1998. Offsetting these income declines was income generated by the Bank's new merchant services operation, which provides credit card deposit and clearing services to retailers and other credit card accepting businesses. Merchant services revenue totalled $52,000 for the three months ended March 31, 1998; there was no such revenue in the corresponding period of 1997. No gains or losses on securities sales were realized in the first quarter of 1998 or 1997. PROVISION FOR POSSIBLE LOSSES - ----------------------------- The allowance for possible losses is intended to reflect known and inherent risks in a portfolio. The allowance for possible losses is increased by provisions for possible 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 possible losses is adequate to provide for losses that might be reasonably anticipated. The allowance for possible losses was $2,424,000 and $2,400,000 (or 3.27% and 2.96% of gross outstanding loans) at March 31, 1998 and December 31, 1997 respectively. Reflecting the Company's ongoing analysis of the risks presented by its loan portfolio, provisions for possible losses were $156,000 for the three month period ended March 31, 1997, compared to $12,000 in the first quarter of 1998. For the three months ended March 31, 1997, the Company generated net loan chargeoffs of $541,000; by comparison, in the first quarter of 1998 the Company experienced net loan recoveries of $12,000. 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 14 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 March 31, 1998 the Company had identified loans having an aggregate average balance of $317,000 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 March 31, 1998 totalled $128,000 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 March 31, 1998. OPERATING EXPENSES - ------------------ Overall operating expenses increased in the first quarter of 1998 compared to the same period of 1997, although some categories of expense actually decreased from the levels of previous periods. Operating expenses rose to a total of $1,562,000 for the first quarter of 1998 from $1,497,000 for the three months ended March 31, 1997. Salary and related benefits increased by $103,000, rising from a total of $691,000 for the first quarter of 1997 to $794,000 for the same period in 1998. 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 $115,000 for the three months ended March 31, 1998 from $92,000 in the first 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 first quarter of 1997 there were no corresponding expense items. Other operating expenses fell in 1998 compared to the prior year, falling from $714,000 for the first quarter of 1997 to $653,000 for the first three months 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 $614,000 for the three months ended March 31, 1998 compared to $618,000 for the first quarter of 1997. In the first quarter, the Company's provision for taxes fell from $256,000 in 1997 to $254,000 in 1998. This brought Net Income for the first quarter of 1998 to $360,000 compared to $362,000 for the same period in 1997. LIQUIDITY, SOURCES OF FUNDS, AND CAPITAL RESOURCES - -------------------------------------------------- The Company's financial position remains highly liquid. Total liquid assets (cash and due from banks, time deposits with other financial 15 institutions, investment securities, and funds sold) stood at 62.4% of total deposits at March 31, 1998. This level represents a slight increase from the 56.0% liquidity level which existed on December 31, 1997. In addition, at March 31, 1998 some $8.5 million of the Bank's total loans consisted of bankers acceptances or government guaranteed loans, both of which represent a significant sources of liquidity due to the active secondary markets which exist for these assets. The ratio of net loans (including bankers acceptances and government guaranteed loans) to deposits was 47.7% and 54.3% as of March 31, 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 March 31, 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 Floating Less than but less than but less than Category Rate one month six months one year - -------- ---- --------- ---------- -------- Fed funds sold 60,000 0 0 0 Time deposits with other banks 0 1,288 7,608 0 Investment securities 0 3,989 11,299 25 ------- ------ ------ --- Subtotal 60,000 5,277 18,907 25 Loans 63,066 1,042 7,248 276 ------- ------ ------ --- Total earning assets 123,066 6,319 26,155 301 Cash and due from banks 0 0 0 0 Premises and equipment 0 0 0 0 Other real estate owned 0 0 0 0 Other assets 0 0 0 0 ------- ------ ------ --- Total non-earning assets 0 0 0 0 ------- ------ ------ --- Total assets 123,066 6,319 26,155 301 Funds purchased 0 0 0 0 Repurchase agreements 0 0 0 0 ------- ------ ------ --- Subtotal 0 0 0 0 Savings deposits 6,001 0 0 0 Money market deposits 65,302 0 0 0 Time deposits 0 19,934 18,766 993 ------- ------ ------ --- Total bearing liabilities 71,303 19,934 18,766 993 Demand deposits 0 0 0 0 One year Non-interest but less than Five years earning Category five years or more or bearing Total - -------- ---------- ------- ---------- ----- Fed funds sold 0 0 0 60,000 Time deposits with other banks 0 0 0 8,896 Investment securities 0 0 0 15,313 --- - ------ ------- Subtotal 0 0 0 84,209 Loans 39 0 0 71,671 --- - ------ ------- Total earning assets 39 0 0 155,880 Cash and due from banks 0 0 9,454 9,454 Premises and equipment 0 0 693 693 Other real estate owned 0 0 0 0 Other assets 0 0 1,722 1,722 --- - ------ ------- Total non-earning assets 0 0 11,869 11,869 --- - ------ ------- Total assets 39 0 11,869 167,749 Funds purchased 0 0 0 0 Repurchase agreements 0 0 0 0 --- - ------ ------- Subtotal 0 0 0 0 Savings deposits 0 0 0 6,001 Money market deposits 0 0 0 65,302 Time deposits 169 0 0 39,862 --- - ------ ------- Total bearing liabilities 169 0 0 111,165 Demand deposits 0 0 38,955 38,955
16
One month Six months Floating Less than but less than but less than Category Rate one month six months one year - -------- ---- --------- ---------- -------- Other liabilities 0 0 0 0 Equity capital 0 0 0 0 ------ ------- ------ ------ Total non-bearing liabilities 0 0 0 0 ------ ------- ------ ------ Total liabilities 71,303 19,934 18,766 993 GAP 51,763 (13,615) 7,389 (692) Cumulative GAP 51,763 38,148 45,537 44,845 One year Non-interest but less than Five years earning Category five years or more or bearing Total - -------- ---------- ------- ---------- ----- Other liabilities 0 0 1,926 1,926 Equity capital 0 0 15,703 15,703 ------ ------ ------- ------- Total non-bearing liabilities 0 0 56,584 56,584 ------ ------ ------- ------- Total liabilities 169 0 56,584 167,749 GAP (130) 0 (44,715) 0 Cumulative GAP 44,715 44,715 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 29% and 39% of the Bank's total deposits as of March 31, 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 quarter of 1998. As of March 31, 1998 the Company's investment portfolio contained gross unrealized gains of $2,000 and no unrealized losses. By comparison, at March 31, 1997 the Company's investment portfolio contained gross unrealized gains of $63,000 and gross unrealized losses of $57,000. 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 $1,000 at March 31, 1998 gave rise to a $1,000 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." 17 The Company continues to enjoy a strong capital position. Total capital was $15,703,000 and $15,423,000 as of March 31, 1998 and December 31, 1997, respectively. The Company's capital ratios for those dates in comparison with regulatory capital requirements were as follows:
3-31-98 12-31-97 ------- -------- Leverage Ratio (Tier I Capital to Assets): Regulatory requirement 4.00% 4.00% First Regional Bancorp 9.34% 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:
3-31-98 12-31-97 ------- -------- Tier I Capital to Assets: Regulatory requirement 4.00% 4.00% First Regional Bancorp 15.82% 16.70% 3-31-98 12-31-97 ------- -------- Tier I + Tier II Capital to Assets: Regulatory requirement 8.00% 8.00% First Regional Bancorp 17.08% 18.00%
The Company believes that it will continue to meet all applicable capital standards. 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 18 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 lending institution, the Bank is also exposed to potential risk if borrowers suffer year 2000-related difficulties and are unable to repay their loans. The Bank is discussing the year 2000 issue with borrowers as part of the loan granting or renewal process. At this time, it is impossible to determine what impact, if any, the year 2000 will have on the loan payment performance of the Bank's borrowers. Thus far, however, none of the Bank's borrowers 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 items were submitted to a vote of the Company's shareholders during the first 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 first 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: April 30, 1998 /s/ Jack A. Sweeney ------------------------------------------- Jack A. Sweeney, Chairman of the Board and Chief Executive Officer Date: April 30, 1998 /s/ Thomas McCullough ------------------------------------------- Thomas McCullough, Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 9,454,000 8,896,000 60,000,000 0 15,313,000 0 0 74,095,000 2,424,000 167,749,000 150,120,000 0 1,926,000 0 0 0 11,215,000 4,488,000 167,749,000 1,675,000 581,000 582,000 2,838,000 817,000 820,000 2,018,000 12,000 0 1,562,000 614,000 360,000 0 0 360,000 0.15 0.14 0.052 256,000 193,000 0 0 2,400,000 0 12,000 2,424,000 2,424,000 0 0
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