SECURITIES AND
EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2007
|
FNB BANCORP |
(Exact name of registrant as specified in its charter) |
California
(State or other jurisdiction of incorporation)
|
|
|
000-49693 |
|
92-2115369 |
(Commission File Number) |
|
(IRS Employer Identification No.) |
|
|
|
975 El Camino Real, South San Francisco, California |
|
94080 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: (650) 588-6800
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o |
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common Stock as of October 31, 2007: 2,828,936 shares.
PART IFINANCIAL INFORMATION
Item 1. Financial Statements.
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September
30, |
|
December
31, |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
16,799 |
|
$ |
18,297 |
|
Federal funds sold |
|
|
465 |
|
|
8,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents |
|
|
17,264 |
|
|
27,022 |
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
|
91,127 |
|
|
94,945 |
|
Loans, net |
|
|
486,127 |
|
|
419,437 |
|
Bank premises, equipment, and leasehold improvements |
|
|
13,604 |
|
|
13,476 |
|
Goodwill |
|
|
1,841 |
|
|
1,841 |
|
Accrued interest receivable and other assets |
|
|
28,565 |
|
|
24,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
638,528 |
|
$ |
581,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
Demand, noninterest bearing |
|
|
124,204 |
|
|
123,884 |
|
Demand, interest bearing |
|
|
55,423 |
|
|
60,378 |
|
Savings and money market |
|
|
189,232 |
|
|
162,915 |
|
Time |
|
|
138,154 |
|
|
134,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
507,013 |
|
|
481,567 |
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
12,620 |
|
|
|
|
Federal Home Loan Bank advances |
|
|
45,000 |
|
|
30,000 |
|
Accrued expenses and other liabilities |
|
|
8,859 |
|
|
7,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
573,492 |
|
|
519,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
Common stock, no par value, authorized 10,000,000 shares; issued and outstanding 2,846,000 shares on at September 30, 2007 and 2,853,000 shares at December 31, 2006 |
|
|
39,478 |
|
|
39,824 |
|
Additional paid-in capital |
|
|
186 |
|
|
141 |
|
Retained earnings |
|
|
25,367 |
|
|
22,102 |
|
Accumulated other comprehensive income (loss) |
|
|
5 |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
65,036 |
|
|
62,063 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
638,528 |
|
$ |
581,270 |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended |
|
Nine
months ended |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
9,856 |
|
$ |
7,947 |
|
$ |
28,202 |
|
$ |
23,203 |
|
Interest on taxable securities |
|
|
472 |
|
|
761 |
|
|
1,241 |
|
|
2,008 |
|
Interest on nontaxable securities |
|
|
501 |
|
|
538 |
|
|
1,549 |
|
|
1,464 |
|
Federal funds sold |
|
|
52 |
|
|
256 |
|
|
447 |
|
|
592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
10,881 |
|
|
9,502 |
|
|
31,439 |
|
|
27,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
3,060 |
|
|
2,355 |
|
|
8,676 |
|
|
6,419 |
|
Fed Home Loan Bank advances |
|
|
443 |
|
|
421 |
|
|
1,339 |
|
|
458 |
|
Federal funds purchased |
|
|
28 |
|
|
10 |
|
|
31 |
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,531 |
|
|
2,786 |
|
|
10,046 |
|
|
6,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
7,350 |
|
|
6,716 |
|
|
21,393 |
|
|
20,362 |
|
Provision for loan losses |
|
|
180 |
|
|
163 |
|
|
510 |
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
7,170 |
|
|
6,553 |
|
|
20,883 |
|
|
19,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of other equity securities |
|
|
|
|
|
4 |
|
|
|
|
|
1,352 |
|
Gain on sale of other real estate owned |
|
|
|
|
|
|
|
|
|
|
|
756 |
|
Service charges |
|
|
667 |
|
|
630 |
|
|
1,926 |
|
|
1,861 |
|
Credit card fees |
|
|
203 |
|
|
193 |
|
|
609 |
|
|
602 |
|
Other income |
|
|
223 |
|
|
219 |
|
|
704 |
|
|
618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,093 |
|
|
1,046 |
|
|
3,239 |
|
|
5,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
3,258 |
|
|
3,005 |
|
|
9,589 |
|
|
9,209 |
|
Occupancy expense |
|
|
504 |
|
|
440 |
|
|
1,455 |
|
|
1,276 |
|
Equipment expense |
|
|
385 |
|
|
393 |
|
|
1,163 |
|
|
1,230 |
|
Professional fees |
|
|
322 |
|
|
326 |
|
|
1,024 |
|
|
869 |
|
Telephone, postage and supplies |
|
|
231 |
|
|
278 |
|
|
786 |
|
|
773 |
|
Bankcard expenses |
|
|
183 |
|
|
189 |
|
|
551 |
|
|
576 |
|
Other expense |
|
|
878 |
|
|
715 |
|
|
2,759 |
|
|
2,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
5,761 |
|
|
5,346 |
|
|
17,327 |
|
|
16,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense |
|
|
2,502 |
|
|
2,253 |
|
|
6,795 |
|
|
8,897 |
|
Income tax expense |
|
|
707 |
|
|
787 |
|
|
1,814 |
|
|
2,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
$ |
1,795 |
|
$ |
1,466 |
|
$ |
4,981 |
|
$ |
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.63 |
|
$ |
0.52 |
|
$ |
1.74 |
|
$ |
2.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.62 |
|
$ |
0.51 |
|
$ |
1.72 |
|
$ |
2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2,861,000 |
|
|
2,842,000 |
|
|
2,859,000 |
|
|
2,840,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
2,881,000 |
|
|
2,901,000 |
|
|
2,888,000 |
|
|
2,905,000 |
|
See accompanying notes to consolidated financial statements.
3
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
month ended |
|
Nine
months ended |
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
||||||
Net earnings |
|
$ |
1,795 |
|
$ |
1,466 |
|
$ |
4,981 |
|
$ |
6,023 |
|
Unrealized gain on AFS securities |
|
|
581 |
|
|
903 |
|
|
9 |
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
2,376 |
|
$ |
2,369 |
|
$ |
4,990 |
|
$ |
6,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Nine
months ended |
|
||||
|
|
|
|
||||
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net earnings |
|
$ |
4,981 |
|
$ |
6,023 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
875 |
|
|
944 |
|
Stock-based compensation expense |
|
|
45 |
|
|
31 |
|
Provision for loan losses |
|
|
510 |
|
|
519 |
|
Gain on sale of other equity securities |
|
|
|
|
|
(1,352 |
) |
Gain on sale of real estate owned |
|
|
|
|
|
(756 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Decrease (increase) in accrued interest receivable and other assets |
|
|
(1,939 |
) |
|
1,021 |
|
Increase in accrued expenses and other liabilities |
|
|
783 |
|
|
981 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
5,255 |
|
|
7,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Purchase of securities available-for-sale |
|
|
(28,642 |
) |
|
(45,105 |
) |
Proceeds from matured/called/securities available-for-sale |
|
|
30,423 |
|
|
23,135 |
|
Proceeds from sale of other real estate owned |
|
|
|
|
|
3,356 |
|
Net increase in loans |
|
|
(67,200 |
) |
|
(14,351 |
) |
Proceeds from sale of bank premises, equipment and leasehold improvements |
|
|
|
|
|
491 |
|
Purchases of bank premises, equipment, leasehold improvements |
|
|
(1,028 |
) |
|
(2,651 |
) |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
(66,447 |
) |
|
(35,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Net increase (decrease) in demand and savings deposits |
|
|
21,682 |
|
|
(16,264 |
) |
Net increase (decrease) in time deposits |
|
|
3,764 |
|
|
(14,402 |
) |
Net increase in federal funds purchased |
|
|
12,620 |
|
|
10,622 |
|
Net increase in Federal Home Loan Bank advances |
|
|
15,000 |
|
|
30,000 |
|
Dividends paid |
|
|
(1,287 |
) |
|
(1,217 |
) |
Repurchase of common stock |
|
|
(631 |
) |
|
(73 |
) |
Issuance of common stock |
|
|
286 |
|
|
425 |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
51,434 |
|
|
9,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(9,758 |
) |
|
(18,623 |
) |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
27,022 |
|
|
35,298 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
17,264 |
|
$ |
16,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional cash flow information |
|
|
|
|
|
|
|
Interest paid |
|
$ |
9,433 |
|
$ |
6,720 |
|
Income taxes paid |
|
$ |
1,409 |
|
$ |
3,185 |
|
|
|
|
|
|
|
|
|
Non-cash financial activity |
|
|
|
|
|
|
|
Accrued dividends |
|
$ |
430 |
|
$ |
406 |
|
See accompanying notes to consolidated financial statements.
4
FNB BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(UNAUDITED)
NOTE A BASIS OF PRESENTATION
FNB Bancorp (the Company) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was incorporated under the laws of the State of California on February 28, 2001. The consolidated financial statements include the accounts of FNB Bancorp and its wholly owned subsidiary, First National Bank of Northern California (the Bank). The Bank provides traditional banking services in San Mateo and San Francisco counties.
All intercompany transactions and balances have been eliminated in consolidation. The financial statements include all adjustments of a normal and recurring nature, which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods.
The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2006.
Results of operations for interim periods are not necessarily indicative of results for the full year.
NOTE B STOCK OPTION PLANS
The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U. S. Treasury yield curve in effect at the time of the grant. A total of 52,275 options were granted in June 2007 with a weighted average fair value of $5.87 per share.
The following assumptions were used for options granted during 2007:
|
|
|
|
|
Expected volatility |
|
|
11.32 |
% |
Expected dividends |
|
|
1.97 |
% |
Expected term (in years) |
|
|
6.38 |
|
Risk-free rate |
|
|
5.11 |
% |
5
The amount of compensation expense for options recorded in the quarters ended September 30, 2007 and September 30, 2006 was $23,000 and $8,000, respectively. The income tax benefit recognized in the income statements for these amounts was under $1,000 for the same two periods. The amount of compensation expense for options recorded in the nine months ended September 30, 2007 and September 30 2006 was $45,000 and $31,000, respectively. The income tax benefit recognized in the income statements for these amounts was $2,000 for the nine months of 2007, but under $1,000 for the same period in 2006.
The total intrinsic value of options exercised during the quarter ended September 30, 2007 was $4,000 under the 2002 Plan and $3,000 under the 1997 Plan. The total intrinsic value of options exercised during the nine months ended September 30, 2007 was $57,000 under the 2002 Plan and $85,000 under the 1997 Plan.
The amount of total unrecognized compensation expense related to non-vested options at September 30, 2007 was $325,000, and the weighted average period it will be amortized over is 2.6 years.
NOTE C EARNINGS PER SHARE CALCULATION
Earnings per common share (EPS) are computed based on the weighted average number of common shares outstanding during the period. Basic EPS excludes dilution and is computed by dividing net earnings by the weighted average of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Average shares outstanding and earnings per share for 2006 have been adjusted to reflect the 5% stock dividend effected on December 15, 2006.
Earnings per share have been computed based on the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
|
|
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net earnings |
|
$ |
1,795 |
|
$ |
1,466 |
|
$ |
4,981 |
|
$ |
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding |
|
|
2,861,000 |
|
|
2,842,000 |
|
|
2,859,000 |
|
|
2,840,000 |
|
Effect of dilutive options |
|
|
20,000 |
|
|
59,000 |
|
|
29,000 |
|
|
65,000 |
|
Average number of shares outstanding used to calculate diluted earnings per share |
|
|
2,881,000 |
|
|
2,901,000 |
|
|
2,888,000 |
|
|
2,905,000 |
|
All outstanding options were included in the 2007 and 2006 computations.
NOTE D COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income consists of net unrealized gains and losses on investment securities
6
available-for-sale. Comprehensive income for the three months ended September 30, 2007 was $2,376,000 compared to $2,369,000 for the three months ended September 30, 2006. Comprehensive income for the nine months ended September 30, 2007 was $4,990,000 compared to $6,469,000 for the nine months ended September 30, 2006.
NOTE E SALE OF SHARES OF PACIFIC COAST BANKERS BANCSHARES.
During the first quarter of 2006, a sale of 3,950 shares of Pacific Coast Bankers Bancshares was arranged by Pacific Coast Bankers Bancshares (PCBB) as part of its desire to expand the number of PCBB shareholders. The Bank continues to hold a remaining 1,450 shares. The sale resulted in a pre-tax gain on sale of equity securities of $1,348,000 during the first quarter of 2006.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Information and Uncertainties Regarding Future Financial Performance.
This report, including managements discussion below, concerning earnings and financial condition, contains forward-looking statements. Forward-looking statements are estimates of or statements about expectations or beliefs regarding the Companys future financial performance or anticipated future financial condition that are based on current information and that are subject to a number of risks and uncertainties that could cause actual operating results in the future to differ significantly from those expected at the current time. Those risks and uncertainties include, although they are not limited to, the following:
Increased competition. Increased competition from other banks and financial service businesses, mutual funds and securities brokerage and investment banking firms that offer competitive loan and investment products could require us to reduce interest rates and loan fees to attract new loans or to increase interest rates that we offer on time deposits, either or both of which could, in turn, reduce interest income and net interest margins.
Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions could (i) reduce loan demand which could, in turn, reduce interest income and net interest margins; (ii) adversely affect the financial capability of borrowers to meet their loan obligations, which, in turn, could result in increases in loan losses and require increases in provisions for loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Companys reliance on real property to secure many of its loans, could make it more difficult to prevent losses from being incurred on non-performing loans through the sale of such real properties.
Possible Adverse Changes in National Economic Conditions and Federal Reserve Board Monetary Policies. Changes in national economic policies, such as increases in inflation or declines in economic output often prompt changes in Federal Reserve Board monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings.
7
Changes in Regulatory Policies. Changes in federal and national bank regulatory policies, such as increases in capital requirements or in loan loss reserve or asset/liability ratio requirements, could adversely affect earnings by reducing yields on earning assets or increasing operating costs.
Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the date of this report, or to make predictions based solely on historical financial performance. The Company also disclaims any obligation to update forward-looking statements contained in this report.
Corporate Reform Legislation
President George W. Bush signed the Sarbanes-Oxley Act of 2002 (the Act) on July 30, 2002, in response to corporate accounting scandals. Among other matters, the Act increased the penalties for securities fraud, established new rules for financial analysts to prevent conflicts of interest, created a new independent oversight board for the accounting profession, imposed restrictions on the consulting activities of accounting firms that audit company records and required certification of financial reports by corporate executives. The SEC has adopted a number of rule changes to implement the provisions of the Act. The SEC has also approved new rules proposed and adopted by the New York Stock Exchange and the Nasdaq Stock Market to strengthen corporate governance standards for listed companies.
Critical Accounting Policies And Estimates
Managements discussion and analysis of its financial condition and results of operations are based upon the Companys financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to its loans and allowance for loan losses. The Company bases its estimates on current market conditions, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. All adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented have been reflected as require by Regulation S-X, Rule 10-01. The Company believes the following critical accounting policy requires significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses is periodically evaluated for adequacy by management. Factors considered include the Companys loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrowers ability to repay, regulatory policies, and the estimated value of underlying collateral. The evaluation of the adequacy of the allowance is based on the above factors along with prevailing and anticipated economic conditions that may impact borrowers ability to repay loans. Determination of the allowance is in part objective and in part a subjective judgment by
8
management based on the information it currently has in its possession. Adverse changes in any of these factors or the discovery of new adverse information could result in higher than expected charge-offs and loan loss provisions.
Goodwill
Goodwill arises from the Companys purchase price exceeding the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of this goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Companys consolidated statements of income. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss.
Provision for Income Taxes
The Company is subject to income tax laws of the United States, its states, and municipalities in which it operates. The Company considers our income tax provision methodology to be critical, as the determination of current and deferred taxes based on complex analyses of many factors including interpretation of federal and state laws, the difference between tax and financial reporting bases of assets and liabilities (temporary differences), estimates of amounts due or owed, the timing of reversals of temporary differences and current financial standards. Actual results could differ significantly from the estimates due to tax law interpretations used in determining the current and deferred income tax liabilities. Additionally, there can be no assurances that estimates and interpretations used in determining income tax liabilities may not be challenged by federal and state taxing authorities.
Recent Accounting Changes
In June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes. This interpretation guides the accounting and reporting of income taxes where interpretation of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 31, 2006. The Company adopted this Statement on January 1, 2007. As a result of the implementation of FIN 48, it was necessary for the Company to recognize an increase in the liability for unrecognized tax benefits of $35,000. The total amount of unrecognized tax benefits as of the adoption of FIN 48, including estimated penalties and interest, was $35,000 and relates to the level of Enterprise Zone credits that have been claimed on filed California tax returns.
The statute of limitations for assessment of additional taxes on income for Federal income and California franchise tax purposes are closed for years prior to 2004 and 2003, respectively.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expenses.
9
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 159 The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115. Statement No. 159 establishes a fair value option that allows an entity to designate individual financial assets and liabilities as fair value option instruments. Under the fair value option, the change in unrealized gains and losses created by the change in fair value of financial instruments shall be reported in an entitys earnings for each reporting period. Additional disclosures regarding fair value for financial assets and liabilities accounting for under the fair value option are also required. This statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No, 157, Fair Value Measurements, makes the choice within 120 days of the beginning of the fiscal year of adoption, and provided the entity has not yet issued interim financial statements in the year of adoption. If an entity elects early adoption, any unrealized gains and losses related to assets and liabilities that are accounted for using the fair value option that existed as of the beginning of the reporting period shall be charged to the opening balance of retained earnings. The Company did not early adopt and does not expect these standards to have a material impact on the Companys financial statements.
Earnings Analysis
Net earnings for the quarter ended September 30, 2007 were $1,795,000, compared to net earnings of $1,466,000 for the quarter ended September 30, 2006, an increase of $329,000, or 22.44%. Net earnings for the nine months ended September 30, 2007 were $4,981,000 compared to $6,023,000 for the nine months ended September 30, 2006, a decrease of $1,042,000, or 17.30%. Earnings before income tax expense for the quarter ended September 30, 2007 were $2,502,000, compared to $2,253,000 for the quarter ended September 30, 2006, an increase of $249,000, or 11.05%. Earnings before income tax were $6,795,000 for the nine months ended September 30, 2007 compared to $8,897,000 for the nine months ended September 30, 2006, a decrease of $2,102,000, or 23.63%. Two major contributors to the increased income in 2006 were a gain on sale of other equity securities (common stock of Pacific Coast Bankers Bancshares), which resulted in a pre tax profit of $1,348,000 in the first quarter of 2006, and a $756,000 pre tax gain on sale of Other Real Estate Owned in the second quarter of 2006. However, average gross loans outstanding increased by $95,123,000, or 24.88%, which resulted in the increased earnings for the third quarter of 2007 compared to the same quarter in 2006.
Net interest income for the quarter ended September 30, 2007 was $7,350,000, compared to $6,716,000 for the quarter ended September 30, 2006, an increase of $634,000, or 9.44%. Net interest income for the nine months ended September 30, 2007 was $21,393,000 compared to $20,362,000 for the nine months ended September 30, 2006, an increase of $1,031,000, or 5.06%. The prime lending rate was 8.25% for the entire third quarter of 2006 and dropped to 7.75% on September 18, 2007. The Federal Home Loan Bank of San Franciscos Weighted Monthly Cost of Funds Index for the three months ended September 2007 (based on the three Index Months ended August 31) averaged 4.31%, compared to 4.18% for the three months ended September 2006. The rate of increase in the rates paid for interest bearing liabilities exceeded the rate of increase in rates earned on interest earning assets in the quarter and nine-month periods ended September 30, 2007, effectively causing a rate related drop in net interest income compared to the same periods in 2006. The improvement in net interest income was due to a greater increase in average interest earning assets, which rose $39,030,000 in the third quarter of 2007 ccompared to the same quarter in 2006, while interest bearing liabilities increased by only
10
$31,625,000. For the nine months of 2007 compared to the nine months of 2006, average interest earning assets increased by $43,653,000, whereas interest bearing liabilities increased by $36,127,000.
Basic earnings per share were $0.63 for the third quarter of 2007 compared to $0.52 for the third quarter of 2006. Diluted earnings per share were $0.62 for the third quarter of 2007 compared to $0.51 for the third quarter of 2006. Basic earnings per share were $1.74 for the nine months ended September 30, 2007 compared to $2.12 for the nine months ended September 30, 2006. Diluted earnings per share were $1.72 for the nine months ended September 30, 2007 compared to $2.07 for the nine months ended September 30, 2006.
The following table presents an analysis of net interest income and average earning assets and liabilities for the three-and nine-month periods ended September 30, 2007 compared to the three-and nine-month periods ended September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 1 |
|
Three months ended September 30 |
|
||||||||||||||||
|
|
|
|
||||||||||||||||
|
|
2007 |
|
2006 |
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
(Dollars in thousands) |
|
Average |
|
Interest |
|
Annualized |
|
Average |
|
Interest |
|
Annualized |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans, gross |
|
$ |
477,460 |
|
$ |
9,856 |
|
|
8.19 |
% |
$ |
382,337 |
|
$ |
7,947 |
|
|
8.25 |
% |
Taxable securities |
|
|
36,006 |
|
|
472 |
|
|
5.20 |
|
|
71,183 |
|
|
761 |
|
|
4.24 |
|
Nontaxable securities |
|
|
53,934 |
|
|
501 |
|
|
3.69 |
|
|
59,195 |
|
|
538 |
|
|
3.61 |
|
Fed funds sold |
|
|
3,928 |
|
|
52 |
|
|
5.25 |
|
|
19,583 |
|
|
256 |
|
|
5.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot int earn assets |
|
|
571,328 |
|
|
10,881 |
|
|
7.56 |
|
|
532,298 |
|
|
9,502 |
|
|
7.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due |
|
$ |
17,243 |
|
|
|
|
|
|
|
$ |
19,418 |
|
|
|
|
|
|
|
Premises |
|
|
13,716 |
|
|
|
|
|
|
|
|
13,241 |
|
|
|
|
|
|
|
Other assets |
|
|
25,233 |
|
|
|
|
|
|
|
|
20,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot nonint earning assets |
|
$ |
56,192 |
|
|
|
|
|
|
|
$ |
53,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
627,520 |
|
|
|
|
|
|
|
$ |
585,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, int bearing |
|
$ |
58,063 |
|
($ |
110 |
) |
|
(0.75 |
) |
$ |
63,648 |
|
($ |
106 |
) |
|
(0.66 |
) |
Money market |
|
|
145,305 |
|
|
(1,320 |
) |
|
(3.60 |
) |
|
120,987 |
|
|
(961 |
) |
|
(3.15 |
) |
Savings |
|
|
47,732 |
|
|
(62 |
) |
|
(0.52 |
) |
|
53,224 |
|
|
(72 |
) |
|
(0.54 |
) |
Time deposits |
|
|
140,728 |
|
|
(1,568 |
) |
|
(4.42 |
) |
|
127,267 |
|
|
(1,216 |
) |
|
(3.79 |
) |
FHLB advances |
|
|
33,435 |
|
|
(443 |
) |
|
(5.26 |
) |
|
30,000 |
|
|
(421 |
) |
|
(5.57 |
) |
Fed funds purchased |
|
|
1,984 |
|
|
(28 |
) |
|
(5.60 |
) |
|
496 |
|
|
(10 |
) |
|
(8.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot int bear liab |
|
$ |
427,247 |
|
($ |
3,531 |
) |
|
(3.28 |
) |
$ |
395,622 |
|
($ |
2,786 |
) |
|
(2.79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
126,344 |
|
|
|
|
|
|
|
|
122,163 |
|
|
|
|
|
|
|
Other liabilities |
|
|
8,989 |
|
|
|
|
|
|
|
|
7,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot nonint bear liabilities |
|
$ |
135,333 |
|
|
|
|
|
|
|
$ |
129,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
$ |
562,580 |
|
|
|
|
|
|
|
$ |
525,584 |
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
64,940 |
|
|
|
|
|
|
|
$ |
59,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOT LIAB & STOCK-HOLDERS EQUITY |
|
$ |
627,520 |
|
|
|
|
|
|
|
$ |
585,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS |
|
|
|
|
$ |
7,350 |
|
|
5.10 |
% |
|
|
|
$ |
6,716 |
|
|
5.01 |
% |
Interest income is reflected on an actual basis, not on a fully taxable basis. Yield on gross loans was not adjusted for nonaccrual loans, which were not considered material for this
11
calculation. Fee income included in interest income was $408,000 and $339,000 for the quarters ended September 30, 2007 and 2006 respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2 |
|
Nine months ended September 30 |
|
||||||||||||||||
|
|
|
|
2007 |
|
Annualized |
|
|
|
2006 |
|
Annualized |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
(Dollars in thousands) |
|
Average |
|
Interest |
|
|
Average |
|
Interest |
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans, gross |
|
$ |
457,711 |
|
$ |
28,202 |
|
|
8.24 |
% |
$ |
377,475 |
|
$ |
23,203 |
|
|
8.22 |
% |
Taxable securities |
|
|
32,886 |
|
|
1,241 |
|
|
5.05 |
|
|
66,326 |
|
|
2,008 |
|
|
4.05 |
|
Nontaxable securities |
|
|
57,096 |
|
|
1,549 |
|
|
3.63 |
|
|
55,490 |
|
|
1,464 |
|
|
3.53 |
|
Fed funds sold |
|
|
11,427 |
|
|
447 |
|
|
5.23 |
|
|
16,176 |
|
|
592 |
|
|
4.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot int earn assets |
|
|
559,120 |
|
|
31,439 |
|
|
7.52 |
|
|
515,467 |
|
|
27,267 |
|
|
7.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due |
|
$ |
17,547 |
|
|
|
|
|
|
|
$ |
19,521 |
|
|
|
|
|
|
|
Premises |
|
|
13,727 |
|
|
|
|
|
|
|
|
12,684 |
|
|
|
|
|
|
|
Other assets |
|
|
24,791 |
|
|
|
|
|
|
|
|
22,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot nonint earning assets |
|
$ |
56,065 |
|
|
|
|
|
|
|
$ |
54,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
615,185 |
|
|
|
|
|
|
|
$ |
569,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, int bearing |
|
$ |
59,917 |
|
($ |
316 |
) |
|
(0.71 |
) |
$ |
62,453 |
|
($ |
247 |
) |
|
(0.53 |
) |
Money market |
|
|
134,380 |
|
|
(3,455 |
) |
|
(3.44 |
) |
|
120,729 |
|
|
(2,477 |
) |
|
(2.74 |
) |
Savings |
|
|
49,345 |
|
|
(191 |
) |
|
(0.52 |
) |
|
54,662 |
|
|
(195 |
) |
|
(0.48 |
) |
Time deposits |
|
|
142,497 |
|
|
(4,714 |
) |
|
(4.42 |
) |
|
134,270 |
|
|
(3,500 |
) |
|
(3.49 |
) |
FHLB advances |
|
|
33,062 |
|
|
(1,339 |
) |
|
(5.41 |
) |
|
11,099 |
|
|
(458 |
) |
|
(5.52 |
) |
Fed funds purchased |
|
|
748 |
|
|
(31 |
) |
|
(5.54 |
) |
|
609 |
|
|
(28 |
) |
|
(6.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot int bear liab |
|
$ |
419,949 |
|
($ |
10,046 |
) |
|
(3.20 |
) |
$ |
383,822 |
|
($ |
6,905 |
) |
|
(2.41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
122,841 |
|
|
|
|
|
|
|
|
120,208 |
|
|
|
|
|
|
|
Other liabilities |
|
|
8,650 |
|
|
|
|
|
|
|
|
7,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tot nonint bear liabilities |
|
$ |
131,491 |
|
|
|
|
|
|
|
$ |
127,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
$ |
551,440 |
|
|
|
|
|
|
|
$ |
511,643 |
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
63,745 |
|
|
|
|
|
|
|
$ |
58,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOT LIAB & STOCK-HOLDERS EQUITY |
|
$ |
615,185 |
|
|
|
|
|
|
|
$ |
569,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS |
|
|
|
|
$ |
21,393 |
|
|
5.12 |
% |
|
|
|
$ |
20,362 |
|
|
5.28 |
% |
Interest income is reflected on an actual basis. Yield on gross loans was not adjusted for nonaccrual loans, which were not considered material for this calculation. Fee income included in interest income was $1,222,000 and $1,147,000 for the nine months ended September 30, 2007 and 2006 respectively.
Net interest income is the difference between interest yield generated by earning assets and the interest expense associated with the funding of those assets.
Tables 1 and 2, above, show the various components that contributed to changes in net interest income for the three and nine months ended September 30, 2007 and 2006. The principal interest earning assets are loans, from a volume as well as from an earnings rate perspective.
12
For the quarter ended September 30, 2007, average loans outstanding represented 83.6% of average earning assets. For the quarter ended September 30, 2006, they represented 71.8% of average earning assets. For the nine months ended September 30, 2007 and 2006, average loans outstanding represented 81.9% and 73.2%, respectively, of average earning assets.
The yield on total interest earning assets for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006 increased from 7.08% to 7.56%, or 48 basis points. Contributing to this was a larger volume invested in loans, which increased by $95,123,000 or 24.88% quarter to quarter, with a yield decrease of 6 basis points, or 0.73%. Interest income on total interest earning assets increased $1,379,000 or 14.51%. Commercial and construction volumes accounted for the majority of the growth in loans.
For the three months ended September 30, 2007 compared to the three months ended September 30, 2006, the cost on total interest bearing liabilities increased from 2.79% to 3.28%, an increase of 49 basis points. The most expensive as well as principal source of interest bearing deposits comes from time deposits. Their average cost increased from 3.79% to 4.42%, and the expense on these deposits increased $352,000 for the three months ended September 30, 2007 compared to 2006. Their average volume increased by $13,461,000, or 10.58%. The other significant increase was in Federal Home Loan Bank advances, which averaged $33,435,000 in the quarter ended September 30, 2007, at a lower rate of 5.26%, compared to an average of $30,000,000 at a rate of 5.57% during the same quarter of 2006.
For the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, interest income on interest earning assets increased $4,172,000 or 15.30%, and average earning assets increased $43,653,000, or 8.47%. Average loans increased by $80,236,000, or 21.26%. Interest on loans increased $4,999,000 or 21.54%. Their yield increased 2 basis points, or 0.24%. The cost on total interest bearing liabilities increased from 2.41% to 3.20%. Time deposit averages increased $8,227,000 or 6.13%. Their cost increased 93 basis points, or 26.65%. Federal Home Loan Bank advances averaged $33,062,000 at a cost of 5.41% for the nine months ended September 30, 2007 compared to $11,099,000, at a cost of 5.52% for the same nine months of 2006. Money market deposit average balances increased $13,651,000, or 11.31%, and their cost increased 70 basis points, or 25.55%.
For the three and nine month periods ended September 30, 2007 and September 30, 2006, respectively, the following tables show the dollar amount of change in interest income and expense and the dollar amounts attributable to: (a) changes in volume (changes in volume at the current year rate), and (b) changes in rate (changes in rate times the prior years volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.
13
Table 3 |
FNB BANCORP AND SUBSIDIARY |
|
RATE/VOLUME VARIANCE ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|||||||
|
|
|
|
|||||||
|
|
Interest |
|
Variance |
|
|||||
(Dollars in thousands) |
|
Income/Expense |
|
Rate |
|
Volume |
|
|||
|
|
|
|
|
|
|
|
|||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
1,909 |
|
|
(55 |
) |
|
1,964 |
|
Taxable securities |
|
|
(289 |
) |
|
172 |
|
|
(461 |
) |
Nontaxable securities |
|
|
(37 |
) |
|
12 |
|
|
(49 |
) |
Federal funds sold |
|
|
(204 |
) |
|
1 |
|
|
(205 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,379 |
|
|
130 |
|
|
1,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
4 |
|
|
13 |
|
|
(9 |
) |
Money market |
|
|
359 |
|
|
138 |
|
|
221 |
|
Savings deposits |
|
|
(10 |
) |
|
(3 |
) |
|
(7 |
) |
Time deposits |
|
|
352 |
|
|
223 |
|
|
129 |
|
Federal Home Loan Bank advances |
|
|
22 |
|
|
(26 |
) |
|
48 |
|
Federal funds purchased |
|
|
18 |
|
|
(12 |
) |
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
745 |
|
|
333 |
|
|
412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
634 |
|
|
(203 |
) |
|
837 |
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 |
FNB BANCORP AND SUBSIDIARY |
|
RATE/VOLUME VARIANCE ANALYSIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||||
|
|
|
|
|||||||
|
|
Interest |
|
Variance |
|
|||||
(Dollars in thousands) |
|
Income/Expense |
|
Rate |
|
Volume |
|
|||
|
|
|
|
|
|
|
|
|||
INTEREST EARNING ASSETS |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
4,999 |
|
|
67 |
|
|
4,932 |
|
Taxable securities |
|
|
(767 |
) |
|
245 |
|
|
(1,012 |
) |
Nontaxable securities |
|
|
85 |
|
|
41 |
|
|
44 |
|
Federal funds sold |
|
|
(145 |
) |
|
29 |
|
|
(174 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,172 |
|
|
382 |
|
|
3,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST BEARING LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
69 |
|
|
79 |
|
|
(10 |
) |
Money market |
|
|
978 |
|
|
698 |
|
|
280 |
|
Savings deposits |
|
|
(4 |
) |
|
17 |
|
|
(21 |
) |
Time deposits |
|
|
1,214 |
|
|
999 |
|
|
215 |
|
Federal Home Loan Bank advances |
|
|
881 |
|
|
(25 |
) |
|
906 |
|
Federal funds purchased |
|
|
3 |
|
|
(3 |
) |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,141 |
|
|
1,765 |
|
|
1,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME |
|
|
1,031 |
|
|
(1,383 |
) |
|
2,414 |
|
|
|
|
|
|
|
|
|
|
|
|
14
Noninterest income
The following table shows the principal components of noninterest income for the periods indicated.
Table 5 |
NONINTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Variance |
|
||||||||
(Dollars in thousands) |
|
2007 |
|
2006 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of other equity sec |
|
$ |
0 |
|
$ |
4 |
|
($ |
4 |
) |
|
-100.0 |
% |
Gain sale other real estate owned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
667 |
|
|
630 |
|
|
37 |
|
|
5.9 |
% |
Credit card fees |
|
|
203 |
|
|
193 |
|
|
10 |
|
|
5.2 |
% |
Other income |
|
|
223 |
|
|
219 |
|
|
4 |
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
1,093 |
|
$ |
1,046 |
|
$ |
47 |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
|
||||
(Dollars in thousands) |
|
2007 |
|
2006 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of other equity sec |
|
$ |
0 |
|
$ |
1,352 |
|
($ |
1,352 |
) |
|
-100.0 |
% |
Gain sale other real estate owned |
|
|
0 |
|
|
756 |
|
|
(756 |
) |
|
-100.0 |
% |
Service charges |
|
|
1,926 |
|
|
1,861 |
|
|
65 |
|
|
3.5 |
% |
Credit card fees |
|
|
609 |
|
|
602 |
|
|
7 |
|
|
1.2 |
% |
Other income |
|
|
704 |
|
|
618 |
|
|
86 |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
3,239 |
|
$ |
5,189 |
|
($ |
1,950 |
) |
|
-37.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income consists mainly of service charges on deposits, credit card fees and miscellaneous types of income. The quarter ended September 30, 2007 stayed relatively unchanged from the same quarter in 2006, increasing $47,000 or 4.49%. For the nine months ended September 30, 2007 compared to the same period in 2006, noninterest income decreased $1,950,000 or 37.58%. Service charges fluctuate with the volume of noninterest bearing demand deposits. These deposits have been holding at year end 2006 levels during the first nine months of 2007. In 2006, there was a pre-tax gain on sale of other equity securities of $1,348,000 and a pre-tax gain on sale of other real estate owned of $756,000. These two non-recurring items accounted for the decrease in noninterest income, net of a minor $154,000 increase in other noninterest income
15
Noninterest expense
The following table shows the principal components of noninterest expense for the periods indicated.
Table 6 |
NONINTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Variance |
|
||||||||
(Dollars in thousands) |
|
2007 |
|
2006 |
|
Amount |
|
Percent |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Salaries and employee benefits |
|
$ |
3,258 |
|
$ |
3,005 |
|
$ |
253 |
|
|
8.4 |
% |
Occupancy expense |
|
|
504 |
|
|
440 |
|
|
64 |
|
|
14.5 |
% |
Equipment expense |
|
|
385 |
|
|
393 |
|
|
(8 |
) |
|
-2.0 |
% |
Professional fees |
|
|
322 |
|
|
326 |
|
|
(4 |
) |
|
-1.2 |
% |
Telephone, postage & supplies |
|
|
231 |
|
|
278 |
|
|
(47 |
) |
|
-16.9 |
% |
Bankcard expenses |
|
|
183 |
|
|
189 |
|
|
(6 |
) |
|
-3.2 |
% |
Other expense |
|
|
878 |
|
|
715 |
|
|
163 |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
5,761 |
|
|
5,346 |
|
$ |
415 |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
|
||||
(Dollars in thousands) |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Salaries and employee benefits |
|
$ |
9,589 |
|
$ |
9,209 |
|
$ |
380 |
|
|
4.1 |
% |
Occupancy expense |
|
|
1,455 |
|
|
1,276 |
|
|
179 |
|
|
14.0 |
% |
Equipment expense |
|
|
1,163 |
|
|
1,230 |
|
|
(67 |
) |
|
-5.4 |
% |
Professional fees |
|
|
1,024 |
|
|
869 |
|
|
155 |
|
|
17.8 |
% |
Telephone, postage & supplies |
|
|
786 |
|
|
773 |
|
|
13 |
|
|
1.7 |
% |
Bankcard expenses |
|
|
551 |
|
|
576 |
|
|
(25 |
) |
|
-4.3 |
% |
Other expense |
|
|
2,759 |
|
|
2,202 |
|
|
557 |
|
|
25.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
17,327 |
|
$ |
16,135 |
|
$ |
1,192 |
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal component of noninterest expense is salaries and employee benefits. It represented 56.6% and 56.2% of total noninterest expense for the quarters ended September 30, 2007 and 2006, respectively. For the nine months ended September 30, 2007 compared to the same period in 2006, it represented 55.3% and 57.1%, respectively. The increase in salaries and benefits is the result of increased support staffing levels and normal salary progression. Occupancy expense increased as several branches experienced annual rent adjustments, which affected the quarter and the year to date. Professional fees increased by 17.8% year to date, due to legal and similar compliance-related expenses, such as SOX 404 and the Gramm-Leach-Bliley Act (GLBA), and consulting projects, but decreased 1.2% in the quarter ended September 30, 2007 compared to the same quarter in 2006, as the initial costs of compliance with the Sarbanes-Oxley Act (SOX 404) decreased. A study of our telephone system resulting in elimination of unused telephone lines and switching cellular telephone plans contributed to a decline in Telephone postage and supplies. On a year to date basis, they were up only 1.7%, and in the quarter ended September 30, 2007, they were down 16.9% over the same period in 2006.
16
The remaining categories that form Other expense increased $163,000 for the quarter and $557,000 for the nine months ended September 30, 2007 compared to the same periods in 2006. For the quarter, Marketing increased $42,000; Low Income Housing Investment losses of $57,000; Correspondent bank charges increased $25,000; and the remaining 39 categories increased a net $39,000. For the nine months ended September 30, 2007 compared to the same period in 2006, Marketing increased $152,000; Office of the Comptroller of the Currency assessment increased $68,000; Low Income Housing Investment losses increased $161,000; and the remaining 39 categories an increased a net $176,000.
Income Taxes
The effective tax rate for the quarter ended September 30, 2007 was 28.3% compared to 34.9% for the quarter ended September 30, 2006. The effective tax rate for the nine months ended September 30, 2007 and September 30, 2006, respectively was 26.7% and 32.3%. This is affected by changing amounts invested in tax-free securities, by available Low Income Housing Credits, by amounts of interest income on qualifying loans in Enterprise Zones, and by the effective state tax rate. 2006 was also affected by the gain on sale of equity securities and the gain on sale of other real estate owned.
Asset and Liability Management
Ongoing management of the Companys interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Companys position and evaluates alternative sources and uses of funds as well as changes in external factors. Various methods are used to achieve and maintain the desired rate sensitivity position including the sale or purchase of assets and product pricing.
In order to ensure that sufficient funds are available for loan growth and deposit withdrawals, as well as to provide for general needs, the Company must maintain an adequate level of liquidity. Asset liquidity comes from the Companys ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from Companys customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Companys liquidity sources at September 30, 2007 are adequate to meet its operating needs in 2007 and going forward into the foreseeable future.
The Companys asset/liability gap is the difference between the cash flow amounts of interest-sensitive assets and liabilities that will be refinanced (or repriced) during a given period. For example, if the asset amount to be repriced exceeds the corresponding liability amount for a certain day, month, year or longer period, the institution is in an asset-sensitive gap position. In this situation, net interest income would increase if market interest rates rose or decrease if market interest rates fell. Alternatively, if more liabilities than assets will reprice, the institution is in a liability-sensitive position. Accordingly, net interest income would decline when rates rose and increase when rates fell.
The following table sets forth information concerning interest rate sensitive assets and liabilities as of September 30, 2007. The assets and liabilities are classified by the earlier of maturity or repricing date in accordance with their contractual terms. Since all interest rates and yields do not adjust at the same speed or magnitude, and since volatility is subject to change, the gap is only a general indicator of interest rate sensitivity.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7 |
|
RATE SENSITIVE ASSETS/LIABILITIES |
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing or repricing |
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Three |
|
Over Three |
|
Over One |
|
Over |
|
Not |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
465 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
465 |
|
Securities |
|
|
9,951 |
|
|
23,287 |
|
|
33,005 |
|
|
24,884 |
|
|
|
|
|
91,127 |
|
Loans |
|
|
190,302 |
|
|
54,974 |
|
|
167,446 |
|
|
67,654 |
|
|
11,253 |
|
|
491,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
|
200,718 |
|
|
78,261 |
|
|
200,451 |
|
|
92,538 |
|
|
11,253 |
|
|
583,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,799 |
|
|
16,799 |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,502 |
) |
|
(5,502 |
) |
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,010 |
|
|
44,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
200,718 |
|
$ |
78,261 |
|
$ |
200,451 |
|
$ |
92,538 |
|
$ |
66,560 |
|
$ |
638,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest bearing |
|
$ |
55,423 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
55,423 |
|
Savings and money market |
|
|
189,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,232 |
|
Time deposits |
|
|
51,736 |
|
|
72,409 |
|
|
14,009 |
|
|
|
|
|
|
|
|
138,154 |
|
Federal funds purchased |
|
|
12,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,620 |
|
FHLB advances |
|
|
10,000 |
|
|
15,000 |
|
|
20,000 |
|
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
319,011 |
|
|
87,409 |
|
|
34,009 |
|
|
|
|
|
|
|
|
440,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,204 |
|
|
124,204 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,859 |
|
|
8,859 |
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,036 |
|
|
65,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
319,011 |
|
$ |
87,409 |
|
$ |
34,009 |
|
$ |
|
|
$ |
198,099 |
|
$ |
638,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity GAP |
|
($ |
118,293 |
) |
($ |
9,148 |
) |
$ |
166,442 |
|
$ |
92,538 |
|
($ |
131,539 |
) |
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative int rate sensitivity GAP |
|
($ |
118,293 |
) |
($ |
127,441 |
) |
$ |
39,001 |
|
$ |
131,539 |
|
$ |
|
|
$ |
|
|
Financial Condition
Assets. Total assets increased to $638,528,000 at September 30, 2007 from $581,270,000 at December 31, 2006, an increase of $57,258,000. Most of this increase was in net loans, which increased $66,690,000. Federal funds sold decreased $8,260,000, and the remaining categories decreased by $1,172,000 net. Most of the $57,258,000 increase in total assets was funded by an increase in Federal Home Loan Bank borrowings of $15,000,000, Federal funds purchased of $12,620,000, and an increase in deposits of $25,446,000.
Loans. Gross loans at September 30, 2007 were $491,992,000, an increase of $66,825,000 or 15.72% from December 31, 2006. Gross real estate loans increased $30,558,000, construction loans increased $13,518,000, and commercial loans increased $23,039,000, but consumer loans decreased by $290,000. The portfolio breakdown was as follows.
18
Table 8 |
LOAN PORTFOLIO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
September 30 |
|
Percent |
|
December 31 |
|
Percent |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Real Estate |
|
$ |
349,213 |
|
|
71.0 |
% |
$ |
318,655 |
|
|
74.9 |
% |
Construction |
|
|
50,612 |
|
|
10.3 |
|
|
37,094 |
|
|
8.7 |
% |
Commercial |
|
|
89,178 |
|
|
18.1 |
|
|
66,139 |
|
|
15.6 |
% |
Consumer |
|
|
2,989 |
|
|
0.6 |
|
|
3,279 |
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans |
|
$ |
491,992 |
|
|
100.0 |
% |
$ |
425,167 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan fees |
|
|
(363 |
) |
|
|
|
|
(728 |
) |
|
|
|
Allowance for loan losses |
|
|
(5,502 |
) |
|
|
|
|
(5,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans |
|
$ |
486,127 |
|
|
|
|
$ |
419,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses. The Company has the responsibility of assessing the overall risks in its portfolio, assessing the specific loss expectancy, and determining the adequacy of the allowance for loan losses. The level of the allowance is determined by internally generating credit quality ratings, reviewing economic conditions in the Companys market area, and considering the Companys historical loan loss experience. The Company considers changes in national and local economic conditions, as well as the condition of various market segments. It also reviews any changes in the nature and volume of the portfolio. It watches for the existence and effect of any concentrations of credit, and changes in the level of such concentrations. The Company also reviews the effect of external factors, such as competition and legal and regulatory requirements. Finally, the Company is committed to maintaining an adequate allowance, identifying credit weaknesses by consistent review of loans, and maintaining the ratings and changing those ratings in a timely manner as circumstances change.
A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2007 and the nine months ended September 30, 2006 is as follows.
Table 9 |
ALLOWANCE FOR LOAN LOSSES |
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
9 months ended |
|
9 months ended |
|
||
|
|
|
|
|
|
||
Balance, beginning of period |
|
$ |
5,002 |
|
$ |
4,374 |
|
Provision for loan losses |
|
|
510 |
|
|
519 |
|
Recoveries |
|
|
17 |
|
|
2 |
|
Amounts charged off |
|
|
(27 |
) |
|
(15 |
) |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
5,502 |
|
$ |
4,880 |
|
|
|
|
|
|
|
|
|
In managements judgment, the allowance was adequate to absorb losses currently inherent in the loan portfolio at September 30, 2007. However, changes in prevailing economic conditions in the Companys markets or in the financial condition of its customers could result in changes in the level of nonperforming assets and charge-offs in the future and, accordingly, changes in the allowance.
19
Nonperforming assets. Nonperforming assets consist of nonaccrual loans, foreclosed assets, and loans that are 90 days or more past due but are still accruing interest and other real estate owned. At September 30, 2007, there was $11,253,000 in four loans transferred to non-accrual in the third quarter of 2007. The first loan in the amount of $3,829,000 is a construction loan secured by completed single family homes, with a loan to value of 55% based on a current appraisal. The Bank expects to collect all principal and interest by the first quarter of 2008. The second loan in the amount of $3,539,000 is secured by an apartment building in Pacific Heights, San Francisco. The owner plans to sell the property. The loan to value is 75%, and the Bank expects to collect all principal and interest. The third is a $3,397,000 land development loan, with a loan to value of 87%, based on a current appraisal. The Bank is working with the borrower to develop a strategy to either sell or build out the project. If the project is built out or sold by the borrower, the Bank should collect all principal and interest. Finally, there is a $488,000 loan secured by a single family residence, with an 86% loan to value. It is currently in foreclosure, with a trustees sale expected to occur in November. The Bank expects to collect all principal, and possibly some interest on this loan. At December 31, 2006, there was $2,628,000 in non-accrual loans, all of which has been collected during 2007.
There was no Other Real Estate Owned at September 30, 2007 and December 31, 2006, and there was no Other Real Estate Owned, nor any loans past due 90 days and still accruing.
Deposits. Total deposits at September 30, 2007 were $507,013,000 compared to $481,567,000 on December 31, 2006. Of these totals, noninterest-bearing demand deposits were $124,204,000 or 24.5% of the total on September 30, 2007 and $123,884,000 or 25.7% on December 31, 2006. Time deposits were $138,154,000 on September 30, 2007 and $134,390,000 on December 31, 2006.
The following table sets forth the maturity schedule of the time certificates of deposit on September 30, 2007:
Table 10
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Under |
|
$100,000 |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
Three months or less |
|
$ |
17,901 |
|
$ |
33,835 |
|
$ |
51,736 |
|
Over three through six months |
|
|
13,858 |
|
|
27,261 |
|
|
41,119 |
|
Over six through twelve months |
|
|
13,255 |
|
|
18,035 |
|
|
31,290 |
|
Over twelve months |
|
|
9,582 |
|
|
4,427 |
|
|
14,009 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,596 |
|
$ |
83,558 |
|
$ |
138,154 |
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the risk-based capital ratios and leverage ratios at September 30, 2007 and December 31, 2006 for the Bank:
20
Table 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Based Capital Ratios |
|
September 30, |
|
December 31, |
|
|
|
Minimum Well |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Tier 1 Capital |
|
|
10.34 |
% |
|
11.03 |
% |
|
> |
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital |
|
|
11.28 |
% |
|
11.98 |
% |
|
> |
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratios |
|
|
9.96 |
% |
|
10.06 |
% |
|
> |
|
|
5.00 |
% |
Liquidity. Liquidity is a measure of the Companys ability to convert assets into cash with minimal loss. As of September 30, 2007, Liquid Assets were $108,391,000, or 17.0% of total assets. As of December 31, 2006, Liquid Assets were $121,967,000, or 21.0% of total assets. Liquidity consists of cash and due from other banks accounts, federal funds sold, and securities available-for-sale. The Companys primary uses of funds are loans, and the primary sources of funds are deposits. The relationship between total net loans and total deposits is a useful additional measure of liquidity. The Company also has federal fund borrowing facilities for a total of $70,000,000, a Federal Home Loan Bank line of up to 25% of total assets, and a Federal Reserve Bank facility.
A higher loan to deposit ratio means that assets will be less liquid. This has to be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On September 30, 2007 net loans were at 95.9% of deposits. On December 31, 2006 net loans were at 87.1% of deposits. To insure the Bank has adequate funding sources, Lines of Credit with other banks and the Federal Home Loan Bank of San Francisco have been established. These unused credit lines exceeded exceeded $180,000,000 at September 30, 2007.
Off-Balance Sheet Items
The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of September 30, 2007 and December 31, 2006, commitments to extend credit and letters of credit were the only financial instruments with off-balance sheet risk. The Company has not entered into any contracts for financial derivative instruments such as futures, swaps, options or similar instruments. Loan commitments and letters of credit were $143,526,000 and $137,221,000 at September 30, 2007 and December 31, 2006, respectively. As a percentage of net loans, these off-balance sheet items represent 29.5% and 32.7% respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss to future earnings, to fair values of assets or to future cash flows that may result from changes in the price or value of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates and other market conditions. Market risk is attributed to all market risk sensitive financial instruments, including loans, investment securities, deposits and borrowings. The Company does not engage in trading activities or participate in foreign currency transactions for its own account. Accordingly, exposure to market risk is primarily a function of asset and liability management activities and of changes in market rates of interest. Changes in rates can cause or require increases in the rates paid on deposits that may take effect more rapidly or may be greater than the increases in the interest rates that the Company is able to charge on loans and the yields that it can realize on its
21
investments. The extent of that market risk depends on a number of variables including the sensitivity to changes in market interest rates and the maturities of the Companys interest earning assets and deposits. For the quarter ended September 30, 2007, the prime lending rate was 7.75%. For the quarter ended September 30, 2006, the prime lending rate was unchanged at 8.25%.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures: An evaluation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Chief Financial Officer and other members of the Companys senior management as of the end of the Companys fiscal quarter ended September 30, 2007. The Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Companys management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms.
(b) Internal Control Over Financial Reporting: An evaluation of any changes in the Companys internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Companys fiscal quarter ended September 30, 2007, was carried out under the supervision and with the participation of the Companys Chief Executive Officer, Chief Financial Officer and other members of the Companys senior management. The Companys Chief Executive Officer and Chief Financial Officer concluded that no change identified in connection with such evaluation has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
22
PART IIOTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings currently pending against the Company or Bank, other than ordinary routine litigation incidental to their business.
Item 1A. Risk Factors
There have been no material changes from risk factors previously disclosed by the Company in response to Item 1A, Part 1 of Form 10-K as of December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
c) ISSUER PURCHASES OF EQUITY SECURITIES*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
(a) |
|
|
(b) |
|
(c) |
|
|
(d) |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Month #1 |
|
|
0 |
|
|
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month #2 |
|
|
0 |
|
|
|
|
|
|
|
|
0 |
|
|
|
143,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Month #3 |
|
|
19,000 |
|
|
$ |
29.62 |
|
|
|
19,000 |
|
|
|
124,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19,000 |
|
|
|
|
|
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* On August 24, 2007 the Board of Directors of the Company authorized a stock repurchase program which call for the repurchase of up to five percent (5%) of the Companys then outstanding 2,863,635 shares of common stock, or 143,182 shares.
23
Item 6. Exhibits
Exhibits
|
31: Rule 13a-14(a)/15d-14(a) Certifications |
32: Section 1350 Certifications |
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 hereunto duly authorized.
|
|
|
|
|
FNB BANCORP |
||
|
(Registrant) |
||
|
|
|
|
Dated: November 5, 2007. |
|
|
|
|
|
|
|
|
By: |
|
/s/ Thomas C. McGraw |
|
|
|
|
|
|
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Thomas C. McGraw |
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Chief Executive Officer |
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(Authorized Officer) |
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By: |
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/s/ David A. Curtis |
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David A. Curtis |
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Senior Vice President |
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Chief Financial Officer |
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(Principal Financial Officer) |
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