-----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, Dlh1FmEoRfqOhmAtLdkPh0NSASM/ckSnV3T5M1LaYiON7ZVG52UPslNCKjfeSKb/ 6si5akvIA01MjtcmbUiQ0A== 0000718903-96-000006.txt : 19960816 0000718903-96-000006.hdr.sgml : 19960816 ACCESSION NUMBER: 0000718903-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOOTHILL INDEPENDENT BANCORP CENTRAL INDEX KEY: 0000718903 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953815805 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11337 FILM NUMBER: 96613189 BUSINESS ADDRESS: STREET 1: 510 S GRAND AVE CITY: GLENDORA STATE: CA ZIP: 91741 BUSINESS PHONE: 9095999351 MAIL ADDRESS: STREET 1: 510 S. GRAND AVENUE CITY: GLENDORA STATE: CA ZIP: 91741 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission file number 0-11337 FOOTHILL INDEPENDENT BANCORP ---------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-3815805 -------------------------------- ------------------------------ (State or other jurisdiction (I.R.S. Employer Identification of incorporation or organization) Number) 510 SOUTH GRAND AVENUE, GLENDORA, CALIFORNIA 91741 -------------------------------------------- -------- (Address of principal executive offices) (Zip Code) (818) 963-8551 or (909) 599-9351 (Registrants's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed, since last year) 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 /XX/. NO / /. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. 4,383,392 shares of Common Stock as of July 29, 1996 FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands)
ASSETS JUNE 30, 1996 DECEMBER 31, 1995 Cash and due from banks $ 29,871 $ 26,278 Federal funds sold 14,690 41,750 --------- --------- Total Cash and Cash Equivalents 44,561 68,028 --------- --------- Interest-bearing deposits in other financial institutions 8,994 6,433 --------- --------- Investment Securities Held-To-Maturity (approximate market value $13,061 in 1996 and $23,582 in 1995) U.S. Treasury 2,387 4,958 U.S. Government Agencies 7,300 14,777 Municipal Agencies 3,139 3,506 Other Securities 250 250 --------- --------- Total Investment Securities Held-To-Maturity 13,076 23,491 --------- --------- Investment Securities Available-For-Sale 40,257 18,743 --------- --------- Loans, net of unearned discount and prepaid points and fees 265,491 259,068 Direct lease financing 1,784 2,086 Less reserve for possible loan and lease losses (3,804) (3,644) --------- --------- Total Loans & Leases, net 263,471 257,510 --------- --------- Bank premises and equipment 7,487 7,353 Accrued interest 2,699 2,851 Other real estate owned, net of allowance for possible losses of $786 in 1996 and $909 in 1995 3,799 3,879 Cash surrender value of life insurance 3,401 3,149 Prepaid expenses 1,175 917 Deferred income taxes 1,607 1,607 Other assets 909 1,220 --------- --------- TOTAL ASSETS $ 391,436 $ 395,181 ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Demand deposits $ 104,758 $ 96,478 Savings and NOW deposits 83,726 78,144 Money market deposits 54,507 48,784 Time deposits in denominations of $100,000 or more 48,966 61,457 Other time deposits 63,906 76,251 --------- --------- Total deposits 355,863 361,114 Accrued employee benefits 1,241 1,195 Accrued interest and other liabilities 1,324 1,622 Long-term debt 189 208 --------- --------- Total Liabilities 358,617 364,139 --------- --------- Stockholders' Equity Contributed capital Capital stock-authorized 12,500,000 shares without par value; issued and outstanding 4,382,362 shares in 1996 and 3,936,583 in 1995 14,610 10,789 Additional Paid-in Capital 456 456 Retained Earnings 18,200 19,999 Valuation Allowance for Investments (447) (202) --------- --------- Total Stockholders' Equity 32,819 31,042 --------- --------- Total Liabilities and Stockholders' Equity $ 391,436 $ 395,181 ========= ========= See accompanying notes to financial statements
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands) Six Months Ended June 30, Three Months Ended June 30, 1996 1995 1996 1995 INTEREST INCOME Interest and fees on loans $ 14,986 $ 14,297 $ 7,362 $ 7,262 Interest on investment securities U.S. Treasury 108 290 48 115 Obligations of other U.S. government agencies 1,075 458 629 276 Municipal agencies 216 43 110 20 Other securities 102 67 50 33 Interest on deposits 229 45 118 29 Interest on Federal funds sold 495 792 161 538 Lease financing income 60 122 29 72 -------- -------- -------- -------- Total Interest Income 17,271 16,114 8,507 8,345 -------- -------- -------- -------- INTEREST EXPENSE Interest on savings & NOW deposits 613 617 315 307 Interest on money market deposits 791 603 397 323 Interest on time deposits in denominations of $100,000 or more 1,719 1,455 790 853 Interest on other time deposits 1,913 1,535 898 870 Interest on borrowings 10 24 5 6 -------- -------- -------- -------- Total Interest Expense 5,046 4,234 2,405 2,359 -------- -------- -------- -------- Net Interest Income 12,225 11,880 6,102 5,986 PROVISION FOR LOAN AND LEASE LOSSES 1,025 1,500 535 870 -------- -------- -------- -------- Net Interest Income After Provisions for Loan and Lease Losses 11,200 10,380 5,567 5,116 -------- -------- -------- --------
OTHER INCOME Fees and service charges 2,365 2,127 1,185 1,055 Other 189 253 122 89 -------- -------- -------- -------- Total other income 2,554 2,380 1,307 1,144 -------- -------- -------- -------- OTHER EXPENSES Salaries and benefits 5,120 4,758 2,615 2,484 Occupancy expenses, net of revenue of $31,061 in 1996 and $30,546 in 1995 1,002 930 493 489 Furniture and equipment expenses 724 621 381 306 Other expenses (Note 2) 4,031 3,735 1,834 1,530 -------- -------- -------- -------- Total other expenses 10,877 10,044 5,323 4,809 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 2,877 2,716 1,551 1,451 -------- -------- -------- -------- PROVISION FOR INCOME TAXES 1,101 1,033 598 552 -------- -------- -------- -------- NET INCOME $ 1,776 $ 1,683 $ 953 $ 899 ======== ======== ======== ======== EARNINGS PER SHARE OF COMMON STOCK $ 0.41 $ 0.39 $ 0.22 $ 0.21 (Note 3) ======== ========= ======== ======== See accompanying notes to financial statements
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (dollars in thousands) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 VALUATION NUMBER OF ADDITIONAL ALLOWANCE SHARES CAPITAL PAID-IN RETAINED FOR OUTSTANDING STOCK CAPITAL EARNINGS INVESTMENT TOTAL ----------- -------- --------- -------- ---------- ----------- BALANCE, January 1, 1995 3,547,565 $ 7,440 $ 456 $ 19,361 $ (386) $ 26,871 10% stock dividend distributed 5/1/95 356,433 2,940 (2,940) - Fractional shares of stock dividend paid in cash (3) (3) Exercise of stock options 6,300 39 39 Common stock issued under employee benefit and dividend reinvestment plans 26,285 214 214 Net income for six months 1,683 1,683 Net unrealized loss on marketable equity securities available for sale 102 102 Change in net unrealized loss on securities available for sale 35 35 ----------- -------- --------- -------- ---------- ----------- BALANCE, June 30, 1995 3,936,583 $ 10,633 $ 456 $ 18,101 $ (249) $ 28,941 =========== ======== ========= ======== ========== ===========
BALANCE, January 1, 1996 3,955,761 $ 10,789 $ 456 $ 19,999 $ (202) $ 31,042 10% stock dividend distributed 4/5/96 396,840 3,572 (3,572) - Fractional shares of stock dividend paid in cash (3) (3) Common stock issued under employee benefit and dividend reinvestment plans 29,761 249 249 Net income for the six months 1,776 1,776 Net unrealized loss on marketable equity securities available for sale (118) (118) Change in net unrealized loss on securities available for sale (127) (127) ----------- -------- --------- -------- ---------- ----------- BALANCE, June 30, 1996 4,382,362 $ 14,610 $ 456 $ 18,200 $ (447) $ 32,819 =========== ======== ========= ======== ========== =========== See accompanying notes to financial statements
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995 Cash Flows From Operating Activities: Interest and fees received $ 17,375 $ 16,037 Service fees and other income received 2,279 2,130 Financing revenue received under leases 60 122 Interest paid (5,273) (4,021) Cash paid to suppliers and employees (10,346) (12,300) Income taxes paid (1,104) (1,292) ---------- ---------- Net Cash Provided by Operating Activities 2,991 676 ---------- ---------- Cash Flows From Investing Activities: Proceeds from maturity of investment securities 125,581 25,961 Purchase of investment securities (136,994) (28,103) Proceeds from maturity of deposits in other financial institutions 791 495 Purchase of deposits in other financial institutions (3,352) (2,376) Net (increase) decrease in credit card and revolving credit receivables 79 (75) Recoveries on loans previously written off 245 326 Net (increase) decrease in loans (7,614) 900 Net (increase) decrease in leases 338 946 Capital expenditures (600) (2,009) Proceeds from sale of property, plant and equipment 36 128 ---------- ---------- Net Cash Used in Investing Activities (21,490) (3,807) ---------- ---------- Cash Flows From Financing Activities: Net increase (decrease) in demand deposits, NOW accounts, savings accounts, and money market deposits 19,644 13,825 Net increase (decrease) in certificates of deposit with maturities of three months or less (6,510) 582 Net increase (decrease) in certificates of deposit with maturities of more than three months (18,328) 33,592 Proceeds from exercise of stock options - 39 Proceeds from stock issued under employee benefit and dividend reinvestment plans 249 214 Principal payment on long term debt (19) (18) Dividends paid (4) (355) ---------- ---------- Net Cash Provided by Financing Activities (4,968) 47,879 ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents (23,467) 44,748 Cash and Cash Equivalents at Beginning of Year 68,028 36,668 ---------- ---------- Cash and Cash Equivalents at June 30, 1996 & 1995 $ 44,561 $ 81,416 ========== ========== See accompanying notes to financial statements
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) SIX MONTHS ENDED JUNE 30, 1996 AND 1995 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES 1996 1995 Net Income $ 1,776 $ 1,683 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation and amortization 532 232 Provision for possible credit losses 1,025 1,500 (Gain) loss on disposition of property, plant & equipment (23) (105) (Increase) decrease in taxes payable (3) (259) (Increase) decrease in other assets 17 (2,152) Increase (decrease) in interest receivable 164 45 (Increase) decrease in interest payable (227) 214 Increase (decrease) in fees and other receivables (252) (145) (Increase) decrease in accrued expenses and other liabilities 10 (289) Gain on sale of investments and other assets (28) (48) ---------- ---------- Total Adjustments 1,215 (1,007) ---------- ---------- Net Cash Provided by Operating Activities $ 2,991 $ 676 ========== ========== DISCLOSURE OF ACCOUNTING POLICY - ------------------------------- For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and Federal funds sold. Generally, Federal funds are purchased and sold for one-day periods. See accompanying notes to financial statements
FOOTHILL INDEPENDENT BANCORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (dollars in thousands) JUNE 30, 1996 AND 1995 NOTE #1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods presented have been included. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K the year ended December 31, 1995. The results of operations for the three month period ended June 30, 1996 are not necessarily indicative of the results to be expected for the full year.
NOTE #2 - OTHER EXPENSES The following is a breakdown of other expenses for the three and six month periods ended June 30, 1996 and 1995. Six Months Ended June 30, Three months Ended June 30, 1996 1995 1996 1995 Data processing $ 450 $ 403 $ 233 $ 185 Marketing expenses 371 286 154 169 Office supplies, postage and telephone 537 520 254 285 Bank insurance & assessment 294 592 144 303 Professional expenses 452 521 237 262 Litigation Settlement Costs 495 - 42 - Provision for OREO loss 170 560 80 (10) Other expenses 1,262 853 690 336 ------- ------- ------- ------- Total Other Expenses $ 4,031 $ 3,735 $ 1,834 $ 1,530 ======= ======= ======= =======
NOTE #3 - EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding during each period. Stock options have been excluded from the computation of earning per share, as their effect is immaterial. The weighted average number of shares used to compute earnings per share was 4,375,891 in 1996 and 4,320,957 in 1995. The weighted average number of shares for 1995 has been adjusted for the 10% stock dividends in 1995 and 1996. NOTE #4 - INCOME TAXES The Bank adopted Statement No. 109 of the Financial Accounting Standard Board, Accounting for Income Taxes, commencing January 1, 1993. This new statement supersedes Statement No. 96 and among other things, changes the criteria for the recognition and measurement of deferred tax assets. This adoption does not create a material change in the financial statements of the Bank or the Company. NOTE #5 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Standards Board Statement 107 is effective for financial statements for fiscal years ended after December 15, 1992. The Statement considers the fair value of financial instruments for both assets and liabilities. The following methods and assumptions were used to estimate the fair value of financial instruments. Investment Securities For U.S. Government and U.S. Agency securities, fair values are based on market prices. For other investment securities, fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities as the basis for a pricing matrix. Loans The fair value for loans with variable interest rates is the carrying amount. The fair value of fixed rate loans is derived by calculating the discounted value of the future cash flows expected to be received by the various homogeneous categories of loans. All loans have been adjusted to reflect changes in credit risk. Deposits The fair value of demand deposits, savings deposits, savings accounts and NOW accounts is defined as the amounts payable on demand at June 30, 1996. The fair value of fixed maturity certificates of deposit is estimated based on the discounted value of the future cash flows expected to be paid on the deposits. Notes Payable Rates currently available to the Bank for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Commitments to Extend Credit and Standby Letter of Credit The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the parties involved. For fixed-rate loan commitments, fair value also considered the difference between current levels of interest rates and committed rates. The fair value of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with parties involved at June 30, 1996. The estimated fair value of the Bank's financial instruments are as follows: JUNE 30, 1996 Carrying Amount Fair Value --------------- -------------- Financial Assets (dollars in thousands) Cash 53,555 53,555 Investment securities 53,332 53,318 Real estate loans 24,158 24,158 Installment loans 12,538 12,670 Commercial loans 225,002 222,116 Direct lease financing 1,772 1,771 Financial Liabilities Deposits 355,863 357,116 Long term debt 189 189 Unrecognized Financial Instruments Commitments to extend credit 32,713 32,713 Standby letters of credit 1,695 1,695 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS General Foothill Independent Bancorp (the "Company") is a one-bank holding company. Its principal asset is the common stock of, and its principal operations are conducted by, Foothill Independent Bank, a California state chartered bank (the "Bank"). The Bank accounts for substantially all of the Company's revenues and income. Results of Operations Net Interest Income. Net interest income is the principal determinant of a bank's income. Net interest income represents the difference or "margin" between the interest earned on interest-earning assets, such as loans and investment securities, Federal funds sold, and deposits held at other financial institutions and the interest paid on interest-bearing liabilities, principally deposits. Net interest income increased by $116,000 or 1.9% in the three months ended June 30, 1996, and by $345,000 or 2.9% in the six months ended June 30, 1996, as compared to the same three and six month periods ended June 30, 1995. These increases were primarily attributable to increases in interest earned on loans and leases, and interest earned on investment securities, which more than offset increases in interest expense of $46,000, or 1.9%, and $812,000, or 19.1%, respectively, in the quarter and six months ended June 30, 1996. The increases in interest earned on loans and leases for the three and six month periods ended June 30, 1996 compared to the same periods of 1995 were primarily attributable to 9.2% and 9.1% increases in the average amount of loans and leases outstanding during the quarter and six months ended June 30, 1996 compared to the same periods of 1995, respectively. The increases in interest earned on investment securities for the quarter and six months ended June 30, 1996 compared to the same periods in 1995 were due to increases in the average amount of investments of approximately 15.9% and 32.7%, respectively, for the quarter and six months ended June 30, 1996. Net interest income is affected by the mix of interest-earning assets and interest-bearing liabilities of the Bank. Generally, a bank realizes higher earnings, or yields, on loans and leases than it does on investment securities, Federal funds sold and funds held on deposit with other depository institutions; and a bank pays no interest on demand deposits and interest at lesser rates on savings and "NOW" accounts than it does on time certificates of deposit ("Time Deposits"). During the quarter and six months ended June 30, 1996, net interest income grew at relatively modest rates primarily because (i) the volume of investment securities grew at a greater rate than did the volume of higher-yielding loans and leases, and (ii) Time Deposits grew significantly during the second half of 1995 and continuing into the first quarter of 1996 as a result of marketing programs designed to attract deposits and, thereby, increase the Bank's liquidity. As a result, the Bank's net interest margin (i.e., net interest income expressed as a percentage of interest income) declined somewhat during the quarter and six months ended June 30, 1996, to 71.7% and 70.8%, respectively, from 71.8% and 73.7%, respectively, in the same periods of 1995. However, during the second quarter of 1996, the Bank's management elected to allow maturing Time Deposits to "run-off" and commenced marketing programs designed to attract additional demand and savings deposits. As a result, at June 30, 1996, the volume of demand and savings (including money market) deposits had increased by $8,280,000, or 8.6%, and 11,305,000, or 8.9%, respectively, from the volume of those deposits outstanding at December 31, 1995; while, during that same period, Time Deposits in denominations of $100,000 or more, on which the Bank pays interest at its highest rates, declined by $12,491,000, or 20.3%. Consequently, the Company expects the Bank's net interest margin to improve in the third quarter of 1996. Provision for Possible Loan Losses. The Bank maintains a reserve for possible losses on loans or leases (the "Loan Loss Reserve" or the "Reserve") that occur from time to time as a incidental part of the banking business. Write-offs of loans and leases (essentially reductions in or write-offs of the carrying values of non-performing loans due to possible losses on their ultimate recovery) are charged against the Reserve and the Reserve is adjusted periodically to reflect changes in the volume of outstanding loans and leases and increases in the risk of potential losses due to a deterioration in the condition of borrowers, in the value of property securing non-performing loans or in local or general economic conditions. Additions to the Loan Loss Reserve are made through a charge against income referred to as the "provision for loan and lease losses." The Bank made provisions for potential loan and lease losses of $535,000 in the second quarter of 1996, as compared to $870,000 in the corresponding quarter of 1995. For the first six months of 1996 the provision for potential loan and lease losses, inclusive of the provision made in the second quarter, totaled $1,025,000, as compared to $1,500,000 for the first six months of 1995. The Loan Loss Reserve was $3,804,000, or 1.4% of total loans and leases outstanding, at June 30, 1996, as compared to $3,644,000, or 1.4% of total loans and leases outstanding, at June 30, 1995. The decrease in the provision made in the second quarter and first six months of 1996, was due primarily to a slowing in the growth of the Bank's volume of outstanding loans and a determination by the Bank's management that the amount of the Loan Loss Reserve was adequate in relation to the volume and condition of the Bank's outstanding loans. Net loan charge-offs aggregated $864,000, or thirty-two hundredths of one percent (0.32%) of average loans and leases outstanding, for the six months ended June 30, 1996. This compares to net loan charge-offs of $401,000, or sixteen hundredths of one percent (0.16%) of average loans and leases outstanding, for the six months ended June 30, 1995. Other Income. Other income increased by $163,000 or 14.2% and $174,000 or 7.3%, respectively, in the three and six months ended June 30, 1996, as compared to the same three and six months of 1995, primarily as a result of increases in fees and service charges that were attributable primarily to increases in the volume of deposit and other banking transactions. For the six months ended June 30, 1996, this increase was partially offset by (i) a $64,000 decrease in other income from the provision of ancillary services by the Bank, and (ii) the fact that other income in the first six months of 1995 benefited from a one- time gain of $62,000 from a sale and leaseback of the facility at which the Bank's data processing and service center is located. Other Expense. Other expense, consisting primarily of (i) salaries and other employee expenses, (ii) occupancy expenses, (iii) furniture and equipment expenses, and (iv) insurance, assessments and other operating and miscellaneous expenses, increased by approximately $514,000 or 10.7% and $833,000 or 8.3% for the three and six month periods ended June 30, 1996, as compared to the same periods of 1995. Contributing to this increase was (i) a $131,000 or 5.3% and $362,000 or 7.6% increase in salaries and other employee benefits for the three and six month periods ended June 30, 1996, respectively, as compared to 1995. These increases were primarily attributable to staffing requirements for the two new banking offices opened by the Bank in Corona, California in the third quarter of 1995 and in Chino Hills, California in the first quarter of 1996; (ii) a $85,000 increase in marketing expenses for the first six months of 1996 and (iii) non-recurring payments aggregating $42,000 and $495,000 for the quarter and six month periods ended June 30, 1996, respectively, made in settlement of certain outstanding litigation. These increases were partially offset by a $390,000 reduction, during the six months ended June 30, 1996, in the provision for possible losses on real properties that had been acquired by the Bank on or in lieu of foreclosure of defaulted loans ("Other Real Estate Owned" or "OREO"), as compared to the amount of the provision for possible losses on OREO made in the same period of 1995. That reduction was attributable to the disposition by the Bank of certain of those real properties subsequent to the second quarter of 1995 and a determination by the Bank's management that, after giving effect to such dispositions, reserves for OREO were, for the most part, adequate. Financial Condition and Liquidity Between January 1, 1996 and June 30, 1996, the Company's total assets decreased by approximately $3,745,000 or 1.0 %, which is the result of management's decision to reduce the Bank's volume of Time Deposits, which had grown significantly in 1995 primarily as a result of programs designed to attract such deposits to increase the Bank's liquidity. The Company continues to have adequate cash resources with approximately $38,865,000 of cash held on deposit at other financial institutions, $53,333,000 of investment securities and $14,690,000 in Federal funds sold at June 30, 1996. During the latter half of 1995 and continuing into the first quarter of 1996, the Bank conducted marketing programs designed to attract Time Deposits in order to increase the Bank's liquidity. As a result, the average volume of Time Deposits, including Time Deposits in denominations of $100,000 or more ("TCD's"), which bear interest at rates higher than any other types of deposits at the Bank, increased by approximately $14,959,000, or 13.0%, during the six months ended December 31, 1995. TCD's often are of a short-term duration and are quite sensitive to changes in interest rates. As a result, reliance on these types of deposits can pose risks for banking institutions. To reduce such risks, the Bank has made it a policy to seek such deposits primarily from existing customers in its local market areas and not to rely on "brokered" deposits, which tend to be more interest-sensitive and volatile. During the first six months of 1996, the Bank initiated new marketing programs designed to increase the volume of demand, savings and NOW deposits, which are either non-interest bearing or bear interest at rates which are substantially lower than those paid on Time Deposits. As a result, at June 30, 1996, the volume of TCD's had decreased by $24,836,000 or 18.0%, from the volume outstanding at December 31, 1995, while demand deposits had increased by $8,280,000 and savings and NOW deposits had increased by $11,305,000 at June 30, 1996 as compared to the volume of those deposits outstanding at December 31, 1995. Additionally, demand deposits, as a percentage of total deposits, increased from 26.7% at December 31, 1995 to 29.4% at June 30, 1996. During 1995, the Board of Directors made the decision to discontinue the payment of cash dividends in order to retain internally generated funds to support the growth of the Bank. In addition to the two new offices opened during 1995, the Bank opened its eleventh office, in Chino Hills, California on March 25, 1996. During the first quarter of 1996, the Company declared its second 10% stock dividend in two years, which was distributed on April 5, 1996 and for accounting purposes was recorded as a $3,571,560 reduction in retained earnings, offset by a corresponding $3,571,560 increase in the Company's contributed capital (see, Condensed Consolidated Statement of Changes in Stockholders' Equity included elsewhere in this Report). As a result of the increased earnings and the retention of internally generated funds, the Company's shareholders' equity increased by $1,777,000 to $32,819,000 at June 30, 1996, as compared to $31,042,000 at December 31, 1995. As a result of these increases and a 1.0% decrease in assets, the Bank's "Tier 1 capital ratio" (the ratio of total shareholders' equity-to-total average assets) rose to 8.09% at June 30, 1996, as compared to 7.77% at December 31, 1995, and continued to be above the minimum bank regulatory requirements applicable to the Bank of 6%. Federal bank regulations also require federally insured banks to meet a "risk-based capital ratio" of 8%. Under those regulations, a bank's assets are weighted according to certain risk formulas; and, the higher the risk profile of a bank's assets, the greater the amount of capital that is required to meet the risk-based capital ratio. An asset that poses no risk, such as a U.S. government security, is weighted at 0% and requires no capital; whereas, a commercial loan or lease is weighted at 100% and requires 100% of the capital requirement (i.e., 8%). Based upon the formulas set forth in the risk-based capital regulations, the Bank's ratio of capital to risk-based assets at June 30, 1996 was 11.52%, which is well in excess of the minimum ratio required by these regulations. Under accounting principles that became applicable to the Company in 1994 that address the financial reporting requirements for investments in certain equity and debt securities held by financial institutions, the Company is required to report the unrealized gain or loss on securities that are held for sale and certain other equity securities. Since any such gains or losses are unrealized, and any actual gain or loss will not be determined unless and until there is a sale or other disposition of the securities, any unrealized gain is required to be credited to, and any unrealized losses are required to be charged against, stockholders' equity, rather than being reflected as income or loss for income statement purposes. At June 30, 1996, the Company recorded a valuation reserve for unrealized losses on such securities aggregating approximately $447,000. Of this amount, $370,000 related to certain investments in mutual funds, which are classified as investments in marketable equity securities, and which the Company has held for several years and intends to continue to hold for the foreseeable future. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders was held on May 14, 1996. (b) Set forth below is the name of (i) each director elected at the meeting and (ii) the name of each other director whose term of office as a director continued after the meeting. Opposite the names of each of the directors elected at the meeting are the number of votes cast for their election and the number of votes withheld. As the election was uncontested, there were no broker non-votes. Directors Elected at the Annual Meeting: Name of Number of Number of Nominee/Director Votes "For" Votes "Withheld" George E. Langley 2,926,714 12,107 Douglas F. Tessitor 2,923,826 14,995 Max E. Williams 2,926,807 12,014 Directors Continuing in Office. The terms of office of the following incumbent directors extend to 1997 and, therefore, they did not stand for re-election at the 1996 Annual Meeting: Charles G. Boone, William V. Landecena, Richard H. Barker and O.L. Mestad. ITEM 6, EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: 27. Financial Data Schedule (B) Reports on Form 8-K: None. 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. Date: August 9, 1996 FOOTHILL INDEPENDENT BANCORP By: /S/CAROL ANN GRAF ---------------------------------- CAROL ANN GRAF First Vice President Chief Financial Officer Assistant Secretary INDEX TO EXHIBITS Sequentially Exhibit Numbered Page Exhibit 27. Financial Data Schedule 16 EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S BALANCE SHEET AS OF JUNE 30, 1996 AND THE STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET AND STATEMENT OF INCOME AND THE NOTES THERETO. 6-MOS DEC-31-1996 JUN-30-1996 29,871 8,994 14,690 0 40,257 13,076 13,061 267,275 (3,804) 391,436 355,863 0 2,565 189 0 0 14,610 18,209 391,436 14,986 2,225 60 17,271 5,036 5,046 12,225 1,025 0 10,877 2,877 2,877 0 0 1,776 .41 .41 0 0 0 0 0 0 0 0 0 0 0 0
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