-----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, WsvJUIe2S4BvToHAH30IopSprYtSRaIZY3BJQikAuz2TpnmeIcsvTu9PSA0eMQQN UXvvTbyAs/CxpBwjyyJnrQ== 0001017062-97-001431.txt : 19970806 0001017062-97-001431.hdr.sgml : 19970806 ACCESSION NUMBER: 0001017062-97-001431 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970805 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: 97651479 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 FORM 10-QSB ================================================================================ 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 June 30, 1997 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 August 4, 1997 was 2,214,783. THIS REPORT INCLUDES A TOTAL OF 20 PAGES ================================================================================ PNB FINANCIAL GROUP Index To Form 10-QSB For the quarter ended June 30, 1997
PART I FINANCIAL INFORMATION PAGE NUMBER ------ ITEM 1. Financial Statement Condensed Consolidated Balance Sheets (unaudited) - 3 June 30, 1997 and December 31, 1996 Condensed Consolidated Statements of Income 4 (unaudited) - Six Months ended June 30, 1997 and 1996 Condensed Consolidated Statements of Income 5 (unaudited) - Three Months ended June 30, 1997 and 1996 Consolidated Statements of Cash Flows (unaudited) - Six 6 Months ended June 30, 1997 and 1996 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial 8-18 Condition and Results of Operations PART II OTHER INFORMATION ITEM 1. Legal Proceedings 19 ITEM 2. Changes in Securities 19 ITEM 3. Defaults upon Senior Securities 19 ITEM 4. Submission of Matters to a Vote of Securities Holders 19 ITEM 5. Other Information 19 ITEM 6. Exhibits and Reports on Form 8-KSB 19 Signatures of Registrants 20
2 PNB FINANCIAL GROUP Condensed Consolidated Balance Sheets June 30, 1997 (unaudited)
June 30, 1997 December 31, 1996 -------------- ------------------ Assets - ------ Cash and due from banks $ 13,406,000 $ 12,700,000 Investment securities 7,216,000 7,381,000 Federal funds sold 8,000,000 6,000,000 Mortgage loans held for sale 63,988,000 62,620,000 Loans 107,359,000 104,226,000 Less allowance for possible loan losses (1,751,000) (1,812,000) ------------ ------------ Net loans 105,608,000 102,414,000 Premises and equipment, net 1,035,000 1,150,000 Other real estate owned 3,184,000 3,483,000 Other assets 2,728,000 2,450,000 ------------ ------------ Total assets $205,165,000 $198,198,000 ============ ============ Liabilities and Shareholders' Equity - ------------------------------------ Deposits $181,019,000 $170,039,000 Short term borrowings 328,000 7,000,000 Other liabilities 2,729,000 2,476,000 ------------ ------------ Total liabilities 184,076,000 179,515,000 Shareholders' equity: Common stock, no par value, 20,000,000 shares authorized; 2,211,783 and 2,170,783 shares issued and outstanding at June 30, 1997 and December 31, 1996 16,298,000 16,012,000 Retained earnings 4,829,000 2,734,000 Net unrealized loss on investment securities available for sale (38,000) (63,000) ------------ ------------ Total shareholders' equity 21,089,000 18,683,000 ------------ ------------ Total liabilities and shareholders' equity $205,165,000 $198,198,000 ============ ============
See accompanying notes 3 PNB FINANCIAL GROUP Condensed Consolidated Statements of Income Six Months Ended June 30, 1997 and 1996 (unaudited)
1997 1996 ---------- ---------- Interest income: Loans, including fees $7,188,000 $6,392,000 Investment securities 209,000 222,000 Federal funds sold 151,000 116,000 ---------- ---------- Total interest income 7,548,000 6,730,000 Interest expense 1,833,000 1,915,000 ---------- ---------- Net interest income 5,715,000 4,815,000 Provision for possible loan losses 195,000 600,000 ---------- ---------- Net interest income after provision for possible loan losses 5,520,000 4,215,000 Other income: Income from mortgage banking operations 6,658,000 5,397,000 Service charges, fees and other 561,000 405,000 Gain on sale of SBA loans 286,000 321,000 ---------- ---------- Total other income 7,505,000 6,123,000 Other expenses: Mortgage banking operations 4,783,000 3,998,000 Salaries & employee benefits 2,240,000 1,980,000 Occupancy 716,000 802,000 Other 1,709,000 1,581,000 ---------- ---------- Total other expense 9,448,000 8,361,000 Income before income taxes 3,577,000 1,977,000 Provision for income taxes 1,483,000 227,000 ---------- ---------- Net income $2,094,000 $1,750,000 ========== ========== Earnings per common and common equivalent share Primary $ .91 $ .76 ========== ========== Fully diluted $ .90 $ .76 ========== ========== Weighted average number of shares for computing per share computation Primary 2,301,099 2,318,404 Fully diluted 2,326,667 2,318,404
See accompanying notes 4 PNB FINANCIAL GROUP Condensed Consolidated Statements of Income Three Months Ended June 30, 1997 and 1996 (unaudited)
1997 1996 ---------- ---------- Interest income: Loans, including fees $3,769,000 $3,338,000 Investment securities 106,000 113,000 Federal funds sold 51,000 38,000 ---------- ---------- Total interest income 3,926,000 3,489,000 Interest expense 919,000 992,000 ---------- ---------- Net interest income 3,007,000 2,497,000 Provision for possible loan losses 120,000 300,000 ---------- ---------- Net interest income after provision for possible loan losses 2,887,000 2,197,000 Other income: Income from mortgage banking operations 3,523,000 3,067,000 Service charges, fees and other 359,000 281,000 Gain on sale of SBA loans 117,000 194,000 ---------- ---------- Total other income 3,999,000 3,542,000 Other expenses: Mortgage banking operations 2,545,000 2,274,000 Salaries & employee benefits 1,129,000 1,026,000 Occupancy 342,000 393,000 Other 912,000 767,000 ---------- ---------- Total other expense 4,928,000 4,460,000 Income before income taxes 1,958,000 1,279,000 Provision for income taxes 803,000 227,000 ---------- ---------- Net income $1,155,000 $1,052,000 ========== ========== Earnings per common and common equivalent share Primary $ .50 $ .46 ========== ========== Fully diluted $ .49 $ .46 ========== ========== Weighted average number of shares for computing per share computation Primary 2,322,812 2,311,006 Fully diluted 2,362,335 2,311,006
See accompanying notes 5 PNB FINANCIAL GROUP Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1997 and 1996 (unaudited)
1997 1996 ----------- ----------- Net cash provided by (used in) operating activities $ 1,595,000 $(8,387,000) ----------- ----------- Cash flows from investing activities: Net change in loans (5,308,000) 1,439,000 Net change in investment securities 130,000 1,952,000 Other (2,203,000) 464,000 ----------- ----------- Net cash provided by (used in) investing activities (2,975,000) 3,855,000 ----------- ----------- Cash flows from financing activities: Net change in deposits 10,988,000 16,581,000 Net change in short term borrowings (7,023,000) 795,000 Net change in common stock 128,000 (144,000) ----------- ----------- Net cash provided by financing activities 4,085,000 17,232,000 ----------- ----------- Net increase in cash and cash equivalents 2,705,000 12,700,000 Cash and cash equivalents at beginning of period 18,701,000 16,313,000 ----------- ----------- Cash and cash equivalents at end of period $21,406,000 $29,013,000 =========== ===========
See accompanying notes 6 PNB FINANCIAL GROUP Notes to Condensed Consolidated Financial Statements June 30, 1997 (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 June 30, 1997, and the consolidated results of operations and statements of cash flows for the six and three month periods ended June 30, 1997 and June 30, 1996. Results for the six and three months ended June 30, 1997 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. 4. Impact of Recently Issued Accounting Standards - Earnings Per Share ------------------------------------------------------------------- The FAST has issued a statement No. 128 "Earnings Per Share" ("EPS") which becomes effective for periods ending after December 15, 1997. This statement requires restatement of all prior period EPS data presented. This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15 and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with the presentation of basic EPS. It also requires dual presentation of and diluted EPS on the fact of the income statement for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion 15. The Company's proforma basic and diluted EPS for the six and three month period ending June 30, 1997 is $.96 and $.90, and $.53 and $.49, respectively. 7 PNB FINANCIAL GROUP Management's Discussion and Analysis of Financial Condition and Results of Operations June 30, 1997 Item 2. ------- Summary ------- The Company reported net income of $2,094,000 or $ .90 per fully diluted share, for the six months ended June 30, 1997 compared to a net income of $1,750,000 or $ .76 per fully diluted share, for the same period in 1996. The increase in earnings was a result of several items including a significant decrease in nonperforming assets which resulted in an increase in the net interest margin and a decrease in the provision for loan losses. In addition, the Bank's residential mortgage division reported improved earnings due to an increase in the volume of residential mortgage loans funded and sold. As a result of these items, the Company reported a $1,600,000 (81%) increase in income before income taxes. This increase was substantially offset with an increase in the provision for income taxes. The increase in the provision for income taxes was the result of the utilization of a net deferred tax asset during the six months ended June 30, 1996. This utilization reduced the Company's provision for income taxes to 11.5% of pretax income during the six months ended June 30, 1996, compared to 41% during the same period in 1997. As of June 30, 1997, the Company had total assets of $205.2 million, total loans of $107.4 million, and total deposits of $181.0 million, as compared to total assets of $198.2 million, total loans of $104.2 million, and total deposits of $170.0 million as of December 31, 1996. Average deposits for the first six months of 1997 were $168.2 million as compared to an average deposit level of $153.9 million during the first six months of 1996. The increase in deposits was primarily due to an increase in the deposits of the Bank's escrow and title customers and the utilization of brokered deposits. As of June 30, 1997, the Bank had $9.5 million of brokered deposits which it is utilizing in place of more expensive borrowings to partially fund its mortgage loans held for sale. The following section sets forth the Company's condensed consolidated average balances of each principal category of assets, liabilities, and shareholders' equity for the six month period ended June 30, 1997 as compared to the same period in 1996. 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) June 30, 1997
1997 1996 ------------- ------------- Assets - ------ Cash and due from banks $ 12,277,000 $ 11,239,000 Investment securities 7,314,000 8,392,000 Federal funds sold 5,909,000 4,569,000 Mortgage loans held for sale 54,235,000 44,121,000 Loans 103,941,000 101,109,000 Less allowance for loan losses (1,785,000) (2,480,000) ------------ ------------ Net loans 102,156,000 98,629,000 Premises and equipment, net 1,083,000 1,279,000 Other real estate owned 3,896,000 2,643,000 Other assets 2,411,000 2,169,000 ------------ ------------ Total assets $189,281,000 $173,041,000 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Deposits: Noninterest-bearing $ 68,874,000 $ 55,814,000 Interest-bearing 95,815,000 98,111,000 Short-term borrowings 2,243,000 974,000 Other liabilities 2,361,000 2,127,000 ------------ ------------ Total liabilities 169,293,000 157,026,000 ------------ ------------ Shareholders' equity: Capital stock 16,086,000 16,013,000 Retained earnings 3,957,000 133,000 Net unrealized loss on investment securities available for sale (55,000) (131,000) ------------ ------------ Total shareholders' equity 19,988,000 16,015,000 ------------ ------------ Total liabilities and shareholders' equity $189,281,000 $173,041,000 ============ ============
9 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 Capital Resources - ----------------- The federally-mandated minimum capital requirements and the actual capitalization of the Company and the Bank as of June 30, 1997 are set forth below. CAPITAL REQUIREMENTS AS OF JUNE 30, 1997
Pacific PNB Regulatory National Financial Requirements Bank Group ------------- --------- ---------- Leverage Capital Ratio 4.0% 9.6% 10.9% Risk Based Capital: Tier 1 Capital 4.0% 13.6% 15.3% Total Capital 8.0% 14.8% 16.5%
As of June 30, 1997, the Company and the Bank are categorized as well capitalized under the regulatory framework for prompt corrective action, as well as under the FDIC's deposit insurance assessment risk ratings. Accordingly, the Company's Board of Directors believes the Company has excess capital which could be better utilized to increase earnings and shareholder value. The Board has investigated numerous strategic opportunities to deploy this excess capital and, on July 31, 1997, the Board authorized the Company to invest a maximum of $2.5 million, up to a maximum 5% of the outstanding voting shares, in a newly formed company called Westlake Mortgage, Inc. ("Westlake"). The Board believes that this investment will increase the Company's earnings and shareholder value and that the benefits of the investment outweighs the inherent risks associated with a start-up business. Westlake will be a corporation which will elect to be subject to income tax as a real estate investment trust ("REIT"). A REIT is allowed to pass through its earnings to its shareholders without those earnings being subject to corporate income taxes. This REIT will specialize in the purchase and management of mortgage loans and mortgage-backed securities on single family and multifamily real estate properties throughout the United States. Westlake will be structured to generate earnings from net interest margin, the spread between the interest rate it receives on its assets, and the interest rate it pays on its liabilities. Westlake wishes to raise between forty and fifty million dollars of equity capital before year end 1997. The capital will be used along with borrowings (primarily under reverse repurchase agreements) to purchase adjustable rate mortgage assets. To minimize its interest rate risk, Westlake will utilize various hedging techniques to match the interest rate structure of its liabilities to that of its assets. The Company and two other individuals have been involved in Westlake's formation. These two individuals have significant experience and expertise in the purchase and management of mortgage loans and will become executive officers of Westlake. Due to his expertise, Mr. Barbieri, the CEO and President of the Company and the Bank, will be an officer and board member of Westlake. In addition, two members of the Board of Directors of the Company will also be on the Board of Directors of Westlake. The Company believes that this affiliation is necessary to oversee its investment in the new company. In addition, it is 10 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 anticipated that the Bank will initially perform and be compensated for certain services, such as accounting and data processing for Westlake. The Bank and Westlake will also work together to design new mortgage products with terms and pricing that meet the needs of Westlake's portfolio, and can be offered by the Bank through its extensive network of mortgage brokers as "portfolio products". The Bank does not currently offer any portfolio products and management believes that this could greatly enhance the mortgage division's product line. The Company's investment in Westlake will be partially funded with a dividend of approximately $1.5 million from the Bank to the Bank Holding Company. The Bank's proforma capital ratios as of June 30, 1997, after this proposed dividend would be as follows:
Pro-Forma June 30, 1997 Capital Ratios ---------------------------- Leverage Capital 8.9% Risk Based Capital: Tier 1 Capital 12.5% Total Capital 13.7%
With the proforma capital ratios as of June 30, 1997, the Bank would still be considered well capitalized under the regulatory framework for prompt corrective action as well as the FDIC's deposit insurance assessment ratings. 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, short-term loan portfolio, cash dividends from its subsidiary bank, as well as its ability to raise capital by selling additional shares of common stock. During the first quarter of 1997, in order to fund a new loan, the Bank Holding Company received a $500,000 cash dividend from its subsidiary bank. As of June 30, 1997, the Bank Holding Company has cash balances of approximately $450,000. These liquid assets, along with cash generated from its loan portfolio, as well as any additional cash dividend from the Bank, will support its 1997 operating requirements. In April 1997, the Board of Directors ("Board") authorized management to purchase back up to $1.0 million of the Company's common stock at a maximum price established by the Board. The Board believes that the Company's stock is a good investment that should benefit all shareholders. Due to the limited supply of the Company's stock, management does not anticipate the full utilization of the $1.0 million. 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, securities available for sale and a portion of mortgage loans held 11 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 for sale. The Bank's portfolio loan-to-deposit ratio (excluding residential mortgage loans held for sale) at June 30, 1997 was 59.3% as compared to 61.2% at June 30, 1996 and 60.0% as of December 31, 1996. The Bank's residential mortgage division utilizes the Bank's funding sources to fund its mortgage loans held for sale. Management can slow down or speed up the shipping and sale of these loans, and manages the balance of the mortgage loans held for sale to match its funds available. In this way, management maximizes the yield on its liquid assets. Due to the fluctuations in funding and sale of mortgage loans, along with changes in the deposit balances of the Bank, the matching of liquid assets and mortgage loans held for sale is not always achieved. At certain times during the year, the Bank utilizes its borrowing relationships to help fund the mortgage loans held for sale. These borrowing sources include an unsecured line of credit with one of its correspondent banks, a line of credit secured by a portion of its real estate loans with the Federal Home Loan Bank, borrowings against the Bank's securities, and the use of brokered deposits. A large portion of the Bank's deposits consist of deposits maintained by escrow companies and, to a lesser degree, title insurance companies. At June 30, 1997 and December 31, 1996, escrow and title insurance companies' deposits totaled approximately $32.5 million or 17.9% of total deposits and $28.2 million or 16.6% of total deposits, respectively. This compared to escrow and title insurance deposits of approximately $27.4 million or 16.4% of total deposits at June 30, 1996. The increase in these types of deposits are a result of the Bank's continual marketing effort along with an increase in real estate activity in Southern California. Management expects these deposits, along with others, to continue to increase in the third and fourth quarters of 1997. The Bank's policy is to maintain these deposits at a level not to exceed 25% of total deposits. The Bank monitors the deposit levels of this group closely. During the past two years, no single escrow or title insurance customer accounted for over 3% of the Bank's total deposits. Results of Operations for the Six Months Ended June 30, 1997 and June 30, 1996 ------------------------------------- Total interest and loan fee income ---------------------------------- Total interest and loan fee income increased $818,000 (12.2%) between the periods presented primarily due to the significant increase in the average balance of mortgage loans held for sale and, to a lesser degree, the increase in the average balance of its portfolio loans. The increase in the average balance of mortgage loans held for sale is due to the increased activity in the Bank's residential mortgage loan department and to management's efforts to increase profitability by increasing the holding period of these loans. During the first six months of 1997, the Bank funded $485 million of mortgage loans, compared to the first six months of 1996, during which the Bank funded mortgage loans totaling $390 million. The increase in total interest income was also due in part to the significant decrease in nonaccrual loans. This is reflected in the loan rate component of the table below. During the first six months ended June 30, 1997, nonaccrual loans averaged $2.5 million compared to average nonaccrual loans of $10.1 million during the same period in 1996. Although not as significant, the increase in interest income was also the result of a quarter of a point increase in the prime lending rate which occurred in March of 1997. The table below sets forth the Company's rate and volume analysis for interest-earning assets for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. 12 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 Change in interest income due to:
Volume Rate Total ---------- --------- ---------- Loans $128,000 $202,000 $330,000 Mortgage loans held for sale 392,000 41,000 433,000 Investment securities (29,000) 17,000 (12,000) Federal funds sold 34,000 1,000 35,000 -------- -------- -------- Total $525,000 $261,000 $786,000 ======== ======== -------- Change in loan fees 32,000 -------- Total change in interest and loan fee income $818,000 ========
Total interest expense ---------------------- Total interest expense decreased $82,000 (4.5%) between the periods presented primarily due to a decrease in the rate of time deposits which was partially offset with an increase in the volume of short term borrowings. The Bank has reduced its interest rates paid on time deposits and has used its short-term borrowings to fund its mortgage loans held for sale more often during the first six months of 1997 than the first six months of 1996. In order to attract new depositors and overall business relationships, the Bank is offering, for a limited period, a high rate personal money market account which should increase the interest bearing demand deposit interest expense during the third quarter of 1997. Management expects to attract $5.0 to $10.0 million of deposits under this promotion. The following table sets forth the Company's rate and volume analysis for interest-bearing liabilities for the six months ended June 30, 1997 as compared to the corresponding period ended June 30, 1996. Change in interest expense due to:
Volume Rate Total --------- ---------- --------- Interest-bearing demand deposit $(25,000) $ (9,000) $(34,000) Time deposits 8,000 (101,000) (93,000) Savings deposits 4,000 - 4,000 Short-term borrowings 36,000 5,000 41,000 -------- --------- -------- Total $ 23,000 $(105,000) $(82,000) ======== ========= ========
13 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 Allowance for loan losses ------------------------- An analysis of the allowance for loan losses is summarized as follows:
Six Months Ended June 30 ------------------------- 1997 1996 ---------- ----------- Balance at beginning of period $1,812,000 $ 2,658,000 ---------- ----------- Charge-offs (467,000) (1,119,000) Recoveries 211,000 36,000 ---------- ----------- Net charge-offs (256,000) (1,083,000) ---------- ----------- Contribution to allowance for loan losses 195,000 600,000 ---------- ----------- Balance at end of period $1,751,000 $ 2,175,000 ========== =========== Allowance as a percentage of total loans 1.6% 2.2%
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 June 30,1997 and 1996 as well as December 31, 1996.
June 30, 1997 Dec. 31, 1996 June 30, 1996 ------------- ------------- ------------- Loans accounted for on a nonaccrual basis $1,313,000 $3,220,000 $10,423,000 Accruing loans contractually past due 90 days or more 455,000 277,000 226,000 Total classified loans 5,885,000 6,087,000 14,848,000 Other real estate owned 3,184,000 3,483,000 2,372,000 Troubled debt restructurings 4,123,000 4,108,000 3,238,000
14 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 The Company's contribution to the provision for loan losses was $195,000 for the first six months of 1997 compared to $600,000 during the same period in 1996. The reduced provision is a result of the significant reduction of classified and nonaccrual loans. Classified loans decreased $9.0 million (60%) from June 30, 1996 to June 30, 1997, while non accrual loans have decreased $9.1 million (87%) over the same period. In addition, the net charge off for the period was $256,000, or a 76% reduction from the net charge off during the same period in 1996. These reductions, along with a very strong outlook for the local economy have been the basis for a reduction of the loan loss reserve from 2.2% of total loans as of June 30, 1996 to 1.6% of total loans as of June 30, 1997. 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. Other Income ------------ Other income increased $1,382,000 (22.6%) between the periods presented. The increase was primarily due to higher revenue generated from the Bank's residential mortgage operation. During the first six months of 1997, gross revenue from the mortgage operation was $6,658,000 compared to $5,397,000 in the corresponding period in 1996. The increase in the mortgage division's gross revenue resulted in the division posting a pretax income, before administration allocation, of $1,865,000 during the first six months of 1997, compared to $1,393,000 during the same period in 1996. The increase in net income of this department is primarily due to the higher volume of loans funded and sold along with a lower provision for indemnification reserve. The increase in service charges, fees and other, is primarily due to the gain on a sale of REO. The SBA Department posted lower revenue due to the timing of the sale of these loans. Management expects an increase in SBA loan sales during the third and fourth quarters. Other Expenses -------------- Other expenses increased $1,087,000 (13%) between the periods presented. The Company's other expenses increased $302,000 (6.9%) while the Bank's residential mortgage division's expenses increased $785,000 (19.6%). 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, employee benefits and commissions. The increase in the Company's other expenses of $302,000 was primarily due to an increase in salaries, employee benefits and REO expenses. These increases were partially offset with decreases in occupancy expenses, insurance, legal and other professional services. Provision for Income Taxes -------------------------- During the first six months of 1996, the Company recorded a provision for income tax of 11.5% of pretax income. This amount was based upon the utilization of a portion of its available net deferred tax assets which had not been recognized in previous periods. These deferred tax assets included Federal and State net operating loss carryforwards. As all of the available deferred tax assets were recorded by the Company through December 31, 1996, the Company will be recording tax expense of approximately 41% from 15 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 December 31, 1996 forward. Accordingly, during the first six months of 1997, the Company recorded a provision of approximately 41%. Cash and Cash Equivalents ------------------------- As of June 30, 1997, cash and cash equivalents increased $2.7 million from December 31, 1996 balances primarily due to an increase in deposits, which was partially offset by a decrease in short term borrowings and an increase in loans. Results of Operations for the Three Months Ended June 30, 1997 and June 30, 1996 ------------------------------------- Total interest and loan fee income ---------------------------------- Total interest and loan fee income increased $437,000 (12.5%) between the periods presented primarily due to the significant decrease in the average balance of nonaccrual loans for the three months ended June 30 1997, compared to the same period in 1996 along with an increase in the average balance of mortgage loans held for sale and, to a lesser degree, its portfolio loans. During the three months ended June 30, 1997, nonaccrual loans averaged $2.1 million compared to an average balance of $11.9 million during the corresponding period in 1996. The increase in the average balance of mortgage loans held for sale is due to the increased activity in the Bank's residential mortgage loan department and to management's efforts to increase profitability by increasing the holding period of these loans. The table below sets forth the Company's rate and volume analysis for interest-earning assets for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996. Change in interest income due to:
Volume Rate Total -------------- --------- ---------- Loans $ 75,000 $219,000 $294,000 Mortgage loans held for sale 135,000 11,000 146,000 Investment securities ( 16,000) 9,000 (7,000) Federal funds sold 11,000 2,000 13,000 --------- -------- -------- Total $ 205,000 $241,000 $446,000 ========= ======== Change in loan fees (9,000) -------- Total change in interest and loan fee income $437,000 ========
16 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 Total interest expense - ---------------------- Total interest expense decreased $73,000 (1.0%) between the periods presented due to a decrease in the volume of interest bearing demand and time deposits along with a decrease in the rate of time deposits. These were partially offset with an increase in the volume of short term borrowings. The following table sets forth the Company's rate and volume analysis for interest- bearing liabilities for the three months ended June 30, 1997 as compared to the corresponding period ended June 30, 1997. Change in interest expense due to:
Volume Rate Total ----------- ----------- ---------- Interest-bearing demand deposits $ (34,000) $ (4,000) $(38,000) Time deposits (29,000) (27,000) (56,000) Savings deposits 3,000 - 3,000 Short-term borrowings 21,000 (3,000) 18,000 ---------- ---------- -------- Total $ (39,000) $ (34,000) $(73,000) ========== ========== ========
Allowance for possible loan losses - ----------------------------------- An analysis of the allowance for possible loan losses is summarized as follows:
Three Months Ended June 30 -------------------------- 1997 1996 ---------- ---------- Balance at beginning of period $1,721,000 $2,176,000 ---------- ---------- Charge-offs (199,000) (305,000) Recoveries 109,000 4,000 ---------- ---------- Net charge-offs (90,000) (301,000) ---------- ---------- Contribution to allowance for possible loan losses 120,000 300,000 ---------- ---------- Balance at end of period $1,751,000 $2,175,000 ========== ========== Allowance as a percentage of total loans 1.6% 2.2%
17 Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) June 30, 1997 Other Income ------------ Other income increased $457,000 (12.9%) between the periods presented. The increase was primarily due to higher revenue generated from the Bank's residential mortgage division. During the three months ended June 30,1997, gross revenue from the mortgage division was $3,523,000 compared to $3,067,000 in the corresponding period in 1996. The increase in the mortgage division's gross revenue resulted in the division posting a pretax income, before administration allocation, of $974,000 during the three months ended June 30, 1997, compared to $790,000 during the same period in 1996. The increase in net income of this department is primarily due to the higher volume of loans funded and sold along with a lower provision for indemnification reserve. Other Expenses -------------- Other expenses increased $468,000 (10.5%) between the periods presented. The Company's other expenses increased $197,000 (9%) while the Bank's residential mortgage division's expenses increased $271,000 (11.9%). 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, employee benefits and commissions. The increase in the Company's other expenses of $197,000 was primarily due to an increase in salaries, employee benefits and REO expenses. These increases were partially offset with decreases in occupancy expenses, insurance, legal and other professional services. Provision for Income Taxes -------------------------- During the three months ended June 30, 1996, the Company recorded a provision for income tax of 17.7% of pretax income. This amount was based upon the utilization of a portion of its available net deferred tax assets which had not been recognized in previous periods. These deferred tax assets included Federal and State net operating loss carryforwards. As all of the available deferred tax assets were recorded by the Company through December 31, 1996, the Company will be recording tax expense of approximately 41% from December 31, 1996 forward. Accordingly, during the three months ended June 30, 1997, the Company recorded a provision of approximately 41%. 18 Part II - Other Information --------------------------- June 30, 1997 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. ------- ------------------ On November 30, 1997, the Bank's lease on its branch at 15615 Alton Parkway, Suite 100, Irvine expires. This branch had total loans of $4.4 million and total deposits of $11.2 million as of June 30, 1997. Management believes these customers can be serviced through its two other branches in Orange County and has elected not to renew its lease. The Company does not expect any material cost resulting from the branch closure and expects to save approximately $180,000 per annum in reduced occupancy and employee costs. Item 6. Exhibits and Reports on Form 8-KSB. ------- ---------------------------------- (a) Exhibits Filed - none required. -------------- (b) Reports on Form 8-KSB. During the second quarter of 1997, the --------------------- Company did not file a report on Form 8-KSB. 19 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: By: /s/ ALLEN C. BARBIERI ------------ ---------------------------------- Allen C. Barbieri President and C.E.O. Date: By: /s/ DOUG L. HELLER ------------ --------------------------------- Doug L. Heller Chief Financial Officer 20 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 13,406 0 8,000 0 0 0 0 107,359 1,751 205,165 181,019 328 2,729 0 0 0 16,298 4,791 205,165 3,769 106 51 3,926 882 919 3,007 120 (11) 4,928 1,958 1,958 0 0 1,155 .50 .49 6.86 1,313 455 4,123 5,885 1,721 199 109 1,751 1,751 0 0
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