-----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, GBCt1necV0Y1LLkFD3gkCxlp35QBVtb2a6xiIIzyYz55xLocFf3MDHRaozzDp5dr cbkrPvMlqLh+ZEGNsbMzIQ== 0001017062-96-000476.txt : 19961113 0001017062-96-000476.hdr.sgml : 19961113 ACCESSION NUMBER: 0001017062-96-000476 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PNB FINANCIAL GROUP CENTRAL INDEX KEY: 0000704693 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953847640 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 002-78580 FILM NUMBER: 96659111 BUSINESS ADDRESS: STREET 1: 4665 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7148511033 MAIL ADDRESS: STREET 1: 4665 MACARTHUR COURT CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10QSB 1 QUARTERLY REPORT 09/30/96 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------------- FORM 10-QSB (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------------- -------------- COMMISSION FILE NO. 2-78580 --------------------------- PNB FINANCIAL GROUP ------------------------------------------------------ (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3847640 ------------------------------- ------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR REORGANIZATION) 4665 MACARTHUR COURT NEWPORT BEACH, CALIFORNIA 92660 ------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (714) 851-1033 -------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ------ ------ THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AT OCTOBER 4, 1996 WAS 2,167,283. THIS REPORT INCLUDES A TOTAL OF 19 PAGES ================================================================================ PNB FINANCIAL GROUP INDEX TO FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1995
PART I FINANCIAL INFORMATION PAGE NUMBER ------ ITEM 1. Financial Statement Condensed Consolidated Balance Sheets (unaudited) - 3 September 30, 1996 and December 31, 1995 Condensed Consolidated Statements of Operations 4 (unaudited) - Nine Months ended September 30, 1996 and 1995 Condensed Consolidated Statements of Operations 5 (unaudited) - Three Months ended September 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows (unaudited) - Nine 6 Months ended September 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial 8-17 Condition and Results of Operations PART II OTHER INFORMATION ITEM 1. Legal Proceedings 18 ITEM 2. Changes in Securities 18 ITEM 3. Defaults upon Senior Securities 18 ITEM 4. Submission of Matters to a Vote of Securities Holders 18 ITEM 5. Other Information 18 ITEM 6. Exhibits and Reports on Form 8-KSB 18 Signatures of Registrants 19
2 PNB FINANCIAL GROUP CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 1996 December 31, 1995 ------------------ ----------------- Assets - ------ Cash and due from banks $ 11,888,000 $ 13,814,000 Interest bearing deposits 2,378,000 - Investment securities 7,488,000 10,626,000 Federal funds sold 17,000,000 2,500,000 Mortgage loans held for sale 41,803,000 41,968,000 Loans 97,131,000 103,737,000 Less allowance for possible loan losses (2,065,000) (2,659,000) ------------ ------------ Net loans 95,066,000 101,078,000 Premises and equipment, net 1,122,000 1,340,000 Other real estate owned 5,798,000 1,337,000 Other assets 2,958,000 2,129,000 ------------ ------------ Total assets $185,501,000 $174,792,000 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits $164,950,000 $157,303,000 Other liabilities 2,936,000 2,261,000 ------------ ------------ Total liabilities 167,886,000 159,564,000 Shareholders' equity: Common stock, no par value, 20,000,000 shares authorized; 2,167,283 and 2,187,933 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 16,001,000 16,134,000 Retained earnings (deficit) 1,731,000 (822,000) Net unrealized loss on investment securities available for sale (117,000) (84,000) ------------ ------------ Total shareholders' equity 17,615,000 15,228,000 ------------ ------------ Total liabilities and shareholders' equity $185,501,000 $174,792,000 ============ ============
See accompanying notes 3 PNB FINANCIAL GROUP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ----------- ----------- Interest income: Loans, including fees $ 9,623,000 $ 8,883,000 Investment securities 331,000 617,000 Federal funds sold 342,000 88,000 Deposits with banks 3,000 - ----------- ----------- Total interest income 10,299,000 9,588,000 Interest expense 2,920,000 2,491,000 ----------- ----------- Net interest income 7,379,000 7,097,000 Provision for possible loan losses 750,000 953,000 ----------- ----------- Net interest income after provision for possible loan losses 6,629,000 6,144,000 Other income: Commissions and other revenue from mortgage banking operations 8,363,000 3,725,000 Service charges, fees and other 1,177,000 629,000 ----------- ----------- Total other income 9,540,000 4,354,000 Other expenses: Mortgage banking operations 6,292,000 2,801,000 Salaries & employee benefits 2,983,000 2,710,000 Occupancy 1,178,000 1,243,000 Other 2,688,000 2,365,000 ----------- ----------- Total other expense 13,141,000 9,119,000 Income before income taxes 3,028,000 1,379,000 Provision (benefit) for income taxes 475,000 ( 99,000) ----------- ----------- Net income $ 2,553,000 $1,478,000 =========== =========== Net income per share $1.11 $.66 =========== =========== Weighted average number of shares 2,324,199 2,239,394
See accompanying notes 4 PNB FINANCIAL GROUP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ---------- ---------- Interest income: Loans, including fees $3,231,000 $3,180,000 Investment securities 109,000 180,000 Federal funds sold 226,000 29,000 Deposits with banks 3,000 - ---------- ---------- Total interest income 3,569,000 3,389,000 Interest expense 1,005,000 923,000 ---------- ---------- Net interest income 2,564,000 2,466,000 Provision for possible loan losses 150,000 490,000 ---------- ---------- Net interest income after provision for possible loan losses 2,414,000 1,976,000 Other income: Commissions and other revenue from mortgage banking operations 2,966,000 1,786,000 Service charges, fees and other 451,000 205,000 ---------- ---------- Total other income 3,417,000 1,991,000 Other expenses: Mortgage banking operations 2,294,000 1,220,000 Salaries & employee benefits 1,003,000 885,000 Occupancy 376,000 407,000 Other 1,107,000 727,000 ---------- ---------- Total other expense 4,780,000 3,239,000 Income before income taxes 1,051,000 728,000 Provision for income taxes 248,000 - ---------- ---------- Net income $ 803,000 $ 728,000 ========== ========== Net income per share $.35 $.32 ========== ========== Weighted average number of shares 2,319,484 2,249,483
See accompanying notes 5 PNB FINANCIAL GROUP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
1996 1995 ----------- ------------ Net cash provided by operating activities $ 3,344,000 $(13,804,000) Cash flows from investing activities: Net change in loans 301,000 (5,467,000) Net change in investment securities 3,105,000 8,168,000 Other 335,000 2,621,000 ----------- ------------ Net cash provided by investing activities 3,741,000 5,322,000 Cash flows from financing activities: Net change in deposits 7,648,000 8,343,000 Net change in short-term borrowings 353,000 - Payments for repurchase of common stock (133,000) - ----------- ------------ Net cash provided by financing activities 7,868,000 8,343,000 Net increase (decrease) in cash and cash equivalents 14,953,000 (139,000) Cash and cash equivalents at beginning of period 16,313,000 12,836,000 ----------- ------------ Cash and cash equivalents at end of period $31,266,000 $ 12,697,000 =========== ============
See accompanying notes 6 PNB FINANCIAL GROUP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) 1. Basis of Presentation --------------------- The accompanying consolidated financial statements include the accounts of PNB Financial Group (the "Bank Holding Company") and its wholly-owned subsidiary, Pacific National Bank (the "Bank"), (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements contain all adjustments (consisting only of normal, recurring accruals) which are, in the opinion of Management, necessary to present fairly the consolidated financial position of the Company at September 30, 1996, and the consolidated results of operations and statements of cash flows for the nine and three month periods ended September 30, 1996 and September 30, 1995. Results for the nine and three months ended September 30, 1996 are not necessarily indicative of results which may be expected for any other interim period, or for the year as a whole. These condensed consolidated financial statements do not include all disclosures associated with the Company's annual financial statements and, accordingly, should be read in conjunction with such statements. 2. Consolidated Statement of Cash Flows ------------------------------------ For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash on hand, cash due from banks, interest-bearing deposits in other banks and federal funds sold. 3. Preferred Stock --------------- The Company has authorized 10,000,000 shares, no par value, preferred stock. No shares of preferred stock have been issued. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1996 Item 2. Summary - ------- The Company reported net income of $2,553,000 for the nine months ended September 30, 1996 compared to a net income of $1,478,000 for the same period in 1995. For the three months ended September 30, 1996 the Company reported a net income of $803,000 compared to net income of $728,000 for the same period in 1995. The increase in earnings was primarily a result of an increase in profits in the Bank's residential mortgage division which was a result of increased lending activity. During the first nine months of 1996, the bank funded 4,770 mortgage loans totalling $592.4 million compared to the first nine months of 1995 during which the Bank funded 1,865 mortgage loans totaling $226.7 million. In addition, the third quarter 1996 earnings were negatively effected by a special assessment of $300,000 levied by the FDIC following passage of legislation in September to recapitalize the Savings Association Insurance Fund ("SAIF"). As a result of this one time assessment, management believes a portion of the Bank's deposit insurance premiums paid to the FDIC will be reduced so that a full payback of the special assessment is achieved over a three to four year period. A portion of the deposit insurance premiums paid by the Bank to the FDIC are currently allocated to the SAIF fund as a result of the acquisition of a savings and loan association in 1991. The increase in mortgage lending activity is a result of a continual effort to increase its market share within its current market, along with a continual effort to expand into new marketing areas. In October 1996, the Bank will open a San Diego office of its mortgage department which is expected to service the entire San Diego area. Management is excited about expanding its coverage to include this new market. In addition, the Bank has entered into an agreement with American Savings to process government loans which American Savings loan officers originate through their branch system. Management believes these two activities will increase volume further and management will continue to look at other growth opportunities. As of September 30, 1996, the Company had total assets of $185.5 million, total loans of $97.1 million and total deposits of $164.9 million, as compared to total assets of $174.8 million, total loans of $103.7 million and total deposits of $157.3 million as of December 31, 1995. Average deposits for the first nine months of 1996 were $157.5 million as compared to an average deposit level of $141.3 million during the first nine months of 1995. The increase in deposits is due to the improved state of the local economy along with the continual marketing effort toward expanding the deposit base of the Bank. This marketing effort was aided by the local business market's renewed confidence in the Bank's stability. The following section sets forth the Company's condensed consolidated average balance of each principal category of assets, liabilities, and shareholders' equity for the nine month period ended September 30, 1996 as compared to the same period in 1995. Average balances are based on daily averages for the Bank, and monthly averages for the Bank Holding Company, since the Bank Holding Company does not maintain daily average information. Management believes that the difference between monthly and daily average data (where monthly data has been used) is not significant. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996
1996 1995 ------------ ------------ Assets - ------ Cash and due from banks $ 11,060,000 $ 9,325,000 Interest-bearing deposits in other banks 76,000 - Investment securities 8,206,000 16,262,000 Federal funds sold 8,912,000 2,077,000 Mortgage loans held for sale 44,866,000 17,609,000 Loans 99,704,000 108,483,000 Less allowance for possible loan losses (2,348,000) (2,708,000) ------------ ------------ Net loans 97,356,000 105,775,000 Premises and equipment, net 1,244,000 1,542,000 Other assets 5,387,000 4,441,000 ------------ ------------ Total assets $177,107,000 $157,031,000 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits: Noninterest-bearing $ 56,341,000 $ 49,705,000 Interest-bearing 101,135,000 91,581,000 Short-term borrowings 382,000 961,000 Other liabilities 2,745,000 1,296,000 ------------ ------------ Total liabilities 160,603,000 143,543,000 Shareholders' equity: Capital stock 16,007,000 16,129,000 Retained earning (deficit) 647,000 (2,222,000) Net unrealized loss on investment securities available for sale (150,000) (419,000) ------------ ------------ Total shareholders' equity 16,504,000 13,488,000 Total liabilities and shareholders' equity $177,107,000 $157,031,000 ============ ============
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 Capital Resources - ----------------- The federally-mandated minimum capital requirements and the actual capitalization of the Company and the Bank as of September 30, 1996 are set forth below. CAPITAL REQUIREMENTS AS OF SEPTEMBER 30, 1996
Pacific PNB Regulatory National Financial Requirements Bank Group ------------- --------- ---------- Leverage Capital Ratio 4.0% 7.8% 9.6% Risk Based Capital: Tier 1 Capital 4.0% 11.9% 14.2% Tier 2 Capital 8.0% 13.2% 15.5%
Liquidity - --------- Liquidity, as it relates to the Bank Holding Company, represents the ability to obtain funds to support its investment activities and operating needs. The Bank Holding Company's principal sources of funds are its cash balances and short-term loan portfolio and, to a lesser extent, its ability to raise capital by selling additional shares of common stock. In addition, due to the well capitalized position of the Bank, the Holding Company can receive a dividend from its wholly owned subsidiary. In May, 1996, the Bank Holding Company purchased at a substantial discount two troubled real estate dependent loans for $1.1 million. Of this amount, $800,000 was financed with the seller. During July, one of these loans was liquidated for a profit of $244,000. The other loan was foreclosed upon and as of September 30, 1996, the property is owned by the Company. Management anticipates that this asset will be sold at a gain before March 31, 1997. As of September 30, 1996, the Bank Holding Company has cash balances of approximately $112,000. These liquid assets, along with cash generated from the sale of REO, will support its operating requirements through 1997. Liquidity, as it relates to banking, represents the ability to obtain funds to meet loan commitments and to satisfy demand for deposit withdrawals. The principal sources of funds that provide liquidity to the Bank are its cash balances, federal funds sold, investment securities and a portion of its mortgage loans held for sale. During the third quarter of 1996, the Bank's average liquid assets as a percentage of average assets equaled 25.9% compared to 22.6% during the third quarter of 1995. The Bank's average commercial loan to deposit ratio during the third quarter of 1996 was 57.8% compared to an average commercial loan to deposit ratio of 73.4% during the third quarter of 1995. The change in these liquidity ratios is the result of an increase in the average deposit level and decrease of the average commercial loan balance of the Bank. A large portion of the Bank's deposits consist of deposits maintained by escrow and title insurance companies. During the third quarter of 1996, the average deposits from escrow and title companies were $23.9 million or approximately 14.5% of total average deposits. This is compared to total escrow and title 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 deposits of $18.2 million in the third quarter of 1995 or 12.2% of total average deposits. Currently, no escrow or title customer accounts for over 3% of the Bank's total deposits. To cushion against unanticipated fluctuations in its liquidity position, the Bank has secured secondary lines of credit with its correspondent bank and the Federal Home Loan Bank ("FHLB") of approximately $10.8 million as of September 30, 1996. The FHLB line of credit is collateralized by a portion of the Bank's loan portfolio. The Bank also can borrow money against a portion of its investment portfolio. Additionally, the majority of the Bank's mortgage loans held for sale, while not considered a primary source of liquidity, can significantly aid in the Bank's ability to meet its liquidity requirements. Results of Operations for the Nine Months Ended September 30, 1996 and September 30, 1995 ----------------------------------------------- Total interest and loan fee income - ---------------------------------- Total interest and loan fee income increased $711,000 (7.4%) between the periods presented primarily due to the increase in volume of interest earning assets which was partially offset by the decrease in rate of interest earning assets. The increase in volume was centered in mortgage loans held for sale and is due to the increased activity in the Bank's mortgage loan business. This increase in volume of mortgage loans was partially offset with a decrease in volume of loans and investment securities. The decrease in interest income due to interest rate, was primarily the result of the decrease in interest rate on loans. This was due to the decrease in prime from 1995 to 1996. The table below sets forth the Company's rate and volume analysis for interest-earning assets for the nine months ended September 30, 1996 as compared to the nine months ended September 30, 1995.
Change in interest income due to: Volume Rate Total ---------- --------- ----------- Loans $ (427,000) $(343,000) $ (770,000) Mortgage loans held for sale 1,429,000 36,000 1,465,000 Investment securities (328,000) 42,000 (286,000) Federal funds sold 276,000 (21,000) 255,000 ---------- --------- ---------- Total $ 950,000 $(286,000) $ 664,000 ========== ========= Change in loan fees 47,000 ---------- Total change in interest and loan fee income $ 711,000 ==========
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 Total interest expense - ---------------------- Total interest expense increased $429,000 (17.2%) between the periods presented due to an increase in the volume and rate of time deposits. The average volume of time deposits increased from $35.8 million for the nine months ended September 30,1995 to $43.1 million for the nine months ended September 30, 1996, and the average interest rate paid on these deposit increased from 5.10% to 5.43% during the same time frame. The following table sets forth the Company's rate and volume analysis for interest-bearing liabilities for the nine months ended September 30, 1996 as compared to the corresponding period ended September 30, 1995.
Change in interest expense due to: Volume Rate Total ----------- -------- --------- Short-term borrowing $ (38,000) $ 28,000 $ (10,000) Savings deposits (20,000) (11,000) (31,000) Time deposits 291,000 100,000 391,000 Interest-bearing demand deposits 63,000 16,000 79,000 ----------- -------- --------- Total $ 296,000 $133,000 $ 429,000 =========== ======== =========
Allowance for loan losses - ------------------------- An analysis of the allowance for loan losses is summarized as follows:
Nine Months Ended September 30 ------------------------------ 1996 1995 ----------- ---------- Balance at beginning of period $ 2,659,000 $2,727,000 ----------- ---------- Charge-offs (1,567,000) (1,253,000) Recoveries 223,000 57,000 ----------- ---------- Net charge-offs (1,344,000) (1,196,000) ----------- ---------- Contribution to allowance for loan losses 750,000 953,000 ----------- ---------- Balance at end of period $ 2,065,000 $2,484,000 =========== ========== Allowance as a percentage of total loans 2.1% 2.3%
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 The following table sets forth the total amount of nonaccrual loans, accruing loans past due 90 days or more, troubled debt restructurings, classified loans and other real estate owned as of September 30, 1996 and 1995 as well as December 31, 1995.
Sept. 30, 1996 Dec. 31, 1995 Sept. 30, 1995 -------------- ------------- -------------- Loans accounted for on a nonaccrual basis $4,686,000 $ 9,666,000 $11,571,000 Accruing loans contractually past due 90 days or more 399,000 382,000 321,000 Total classified loans 8,750,000 20,534,000 17,148,000 Other real estate owned 5,798,000 1,337,000 1,553,000 Troubled debt restructurings (Included in non-accrual 1,749,000 3,589,000 2,234,000 and classified loans)
The Company's provision for loan losses was $750,000 for the first nine months of 1996 compared to $953,000 during the same period in 1995. The reduced provision is a result of the significant reduction of classified and nonaccrual loans. Classified loans have decreased $11.8 million from December 31, 1995, while nonaccrual loans have decreased $5.0 million over the same period. This contribution to the provision resulted in an allowance of 2.1% of total outstanding loans at September 30, 1996, compared to 2.3% at September 30, 1995. The allowance is a result of Management's analysis of the estimated inherent losses in the Bank's loan portfolio. This analysis takes into consideration the level and trend of loan losses, loan delinquencies, classified loan volumes and Management's analysis of current market conditions. Management believes that the allowance at September 30, 1996 is adequate to absorb the inherent risks in the Company's loan portfolio. The decline in the September 30, 1996 allowance for loan losses compared to the September 30, 1995 allowance is due to the write off of a portion of several large real estate loans during 1996. These write-offs were a result of real estate foreclosures and equal the amount of collateral deficiency in the loan. These write-offs had no major impact on additional provisions to the allowance for loan losses because they were specifically reserved for and were part of the past year's allowance for loan losses. Classified loans are those that have some identified weaknesses as determined by Management that may jeopardize the orderly collection of the debt in the future. This decrease in classified loans over the past nine months is due to the collection of several loans along with the transfer of several loans to other real estate owned. Due to the pending foreclosure on two real estate loans, classified loans and nonaccrual loans are expected to continue to decline in the next two quarters. The allowance for loan losses should not be effected by these foreclosures. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 Other Income - ------------ Other income increased $5,186,000 (119%) between the periods presented. The increase was primarily due to higher revenue generated from the Bank's residential mortgage operation. During the first nine months of 1996, gross revenue from the mortgage operation was $8,363,000 compared to $3,725,000 in the corresponding period in 1995. The increase in the mortgage divisions gross revenue resulted in the division posting a pretax income, before administration allocation, of $2,062,000 during the first nine months of 1996, compared to $771,000 during the same period in 1995. Outside of the mortgage division, the increase in other income was due to the $360,000 gain on sale of REO during the first nine months of 1996. Other Expenses - -------------- Other expenses increased $4,022,000 (44.1%) between the periods presented. Outside of the mortgage division, the Company's other expenses increased $531,000 (8.4%), while the Bank's residential mortgage division's expenses increased $3,491,000 (125%). The increase in the mortgage division's expenses was due to the increased level of activity and was substantially associated with the increase in salaries and benefits and commissions. The increase in the Company's other expenses was primarily due to the special SAIF assessment of $300,000 and an increase in the Bank's salary and benefits. Provision for Income Taxes - -------------------------- As of December 31, 1995, the Company had net deferred tax assets totalling $890,000 which the Company had not recognized. These deferred tax assets include Federal and State net operating loss carryforwards of $901,000 and $34,000, respectively. A large portion of these unrecorded deferred tax assets were utilized during the first nine months of 1996 to offset the Company's profits. As of September 30, 1996, the Company had recognized deferred tax assets of $758.000. Management anticipates recording the remaining deferred tax assets during the fourth quarter. Cash and Cash Equivalents - ------------------------- As of September 30, 1996, cash and cash equivalents increased $15.0 million from December 31, 1995 balances primarily due to a increase of deposits of $7.6 million and cash provided from operating activities of $3.3 million along with a decrease in investment securities of $3.1 million. The cash provided by operating activities primarily consists of cash generated from the profits of the Company. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 Results of Operations for the Three Months Ended September 30, 1996 and September 30, 1995 ----------------------------------------------- Total interest and loan fee income - ---------------------------------- Total interest and loan fee income increased $180,000 (5.3%) between the periods presented primarily due to the increase in volume of mortgage loans which was partially offset by the decrease in volume of investment securities and loans. The table below sets forth the Company's rate and volume analysis for interest-earning assets for the three months ended September 30, 1996 as compared to the three months ended September 30, 1995.
Change in interest income due to: Volume Rate Total ----------- ---------- --------- Loans $ (251,000) $ (84,000) $(335,000) Mortgage loans held for sale 334,000 52,000 386,000 Investment securities (87,000) 17,000 (70,000) Federal funds sold 211,000 199,000 ---------- ---------- --------- Total $ 207,000 $ (27,000) $ 180,000 ========== ========== Change in loan fees - --------- Total change in interest and loan fee income $ 180,000 =========
Total interest expense - ---------------------- Total interest expense increased $82,000 (8.9%) between the periods presented due to an increase in the volume of interest bearing demand deposits and time deposits. The following table sets forth the Company's rate and volume analysis for interest-bearing liabilities for the three months ended September 30, 1996 as compared to the corresponding period ended September 30, 1995.
Change in interest expense due to: Volume Rate Total -------- ------ ------- Short-term borrowings $(10,000) $ 5,000 $ (5,000) Savings deposits (6,000) (4,000) (10,000) Time deposits 42,000 (18,000) 24,000 Interest-bearing demand deposits 58,000 15,000 73,000 --------- -------- --------- Total $ 84,000 $ (2,000) $ 82,000 ========= ========= =========
15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996
Allowance for possible loan losses - ---------------------------------- An analysis of the allowance for possible loan losses is summarized as follows: Three Months Ended September 30 ------------------------------- 1996 1995 ---------- ---------- Balance at beginning of period $2,175,000 $2,693,000 ---------- ---------- Charge-offs (448,000) (713,000) Recoveries 188,000 14,000 ---------- ---------- Net charge-offs (260,000) (699,000) ---------- ---------- Contribution to allowance for possible loan losses 150,000 490,000 ---------- ---------- Balance at end of period $2,065,000 $2,484,000 ========== ========== Allowance as a percentage of total loans 2.1% 2.3%
Other Income - ------------ Other income increased $1,426,000 (71.6%) between the periods presented. The increase was due to higher revenue generated from the Bank's residential mortgage division. During the third quarter of 1996, gross revenue from the mortgage division was $2,966,000 compared to $1,786,000 in the corresponding period in 1995. The increase in the mortgage division's gross revenue resulted in the division posting a pretax income, before administration allocation, of $669,000 during the third quarter of 1996, compared to pretax income of $403,000 during the same period in 1995. The increase in other income outside of the mortgage income was due to a $244,000 gain on the sale of REO recognized during the third quarter of 1996. Other Expenses - -------------- Other expenses increased $1,541,000 (47.6%) between the periods presented. The Bank's residential mortgage division's expenses increased $1,074,000 (88%), while expenses relating to other areas of the Company increased $467,000 (23%). The increase in the mortgage division's expenses was due to increased level of activity and was primarily associated with increases in salaries and benefits and commissions. The increase in the Company's other expense was due to the special one time SAIF assessment of $300,000 and an increase in the Bank's salaries and benefits. 16 MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SEPTEMBER 30, 1996 Provision for Income Taxes - -------------------------- At the end of each interim period the company makes its best estimate of the effective tax rate expected to be applicable for the full year. The rate determined is then used on a current year to date basis. During the third quarter, the Company revised its earnings estimate for the year and, therefore, the third quarter's provision as a percent of income was higher than the first and second quarter's provision as a percent of income. 17 PART II - OTHER INFORMATION --------------------------- SEPTEMBER 30, 1996 Item 1. Legal Proceedings. - ------- ------------------ There are no pending legal proceedings to which the Company or the Bank is a party or to which any of their respective subsidiaries are subject, other than ordinary routine litigation incidental to the Bank's business. Item 2. Changes in Securities. - ------- ---------------------- Not applicable. Item 3. Defaults Upon Senior Securities. - ------- -------------------------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. - ------- ---------------------------------------------------- Not applicable. Item 5. Other Information. - ------- ------------------ Item 6. Exhibits and Reports on Form 8-KSB. - ------- ---------------------------------- (a) Exhibits Filed - none required. -------------- (b) Reports on Form 8-KSB. During the third quarter of 1996, the Company --------------------- did not file a report on Form 8-KSB. 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 thereto duly authorized. PNB Financial Group Date: 11/12/96 By: /s/ ALLEN C. BARBIERI - ---------------------------- ---------------------------------- Allen C. Barbieri Chief Operating Officer Date: 11/12/96 By: /s/ DOUG L. HELLER - ---------------------------- --------------------------------- Doug L. Heller Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 11,888 2,378 17,000 0 7,488 0 0 97,131 2,065 185,501 167,886 353 2,582 0 0 0 16,001 1,614 185,501 9,623 331 345 10,299 2,886 2,920 7,379 750 0 13,141 3,028 3,028 0 0 2,553 1.11 1.11 .061 4,686 399 1,749 8,750 2,658 1,567 223 2,065 2,065 0 0
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