Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FNBG > SEC Filings for FNBG > Form 10-Q on 12-Aug-2014All Recent SEC Filings

Show all filings for FNB BANCORP/CA/

Form 10-Q for FNB BANCORP/CA/


12-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information and Uncertainties Regarding Future Financial Performance.

This report, including management's 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 Company's 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 and competitive market pricing, which 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. These factors could reduce our ability to attract new deposits and loans and leases.

Liquidity Risk. The stability of funding sources and continued availability of borrowings; our ability to raise capital or incur debt on reasonable terms.

Possible Adverse Changes in Economic Conditions. Adverse changes in national or local economic conditions over an extended period of time 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 possible loan losses, thereby adversely affecting operating results; and (iii) lead to reductions in real property values that, due to the Company's 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 and conditions, such as increases in inflation or declines in economic output often prompt changes in Federal Open Market Committee ("FOMC") monetary policies that could reduce interest income or increase the cost of funds to the Company, either of which could result in reduced earnings. In addition, deterioration in economic conditions that could result in increased loan and lease losses.

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, liquidity requirements, and the risks associated with concentration in real estate related loans 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.

Critical Accounting Policies And Estimates

Management's discussion and analysis of its financial condition and results of operations are based upon the Company's 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 required 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 Company's loan loss experience, known and inherent risks in the portfolio, current economic conditions, known adverse situations that may affect the borrower's 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 our borrowers' ability to repay their loans. Determination of the allowance is based upon objective and subjective judgments by management from the information currently available. Adverse changes in information could result in higher than expected charge-offs and loan loss provisions.

Goodwill

Goodwill arises when the Company's purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of 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 Company's consolidated statements of earnings. 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.

Other Than Temporary Impairment

Other than temporary impairment ("OTTI") is triggered if the Company has the intent to sell the security, it is likely that it will be required to sell the security before recovery, or if the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or it is likely it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the Company does not intend to sell the security and it is not likely that the Company will be required to sell the security but the Company does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The credit loss is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected of a security. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment loss related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, would be recognized as a charge to other comprehensive income ("OCI"). Impairment losses related to all other factors are to be presented as a separate category within OCI.

For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated accordingly based on the procedures described above.

Provision for and Deferred Income Taxes

The Company is subject to income tax laws of the United States, its states, and the municipalities in which it operates. The Company considers its 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 tax authorities.

Recent Accounting Pronouncements

In April 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740). This ASU requires an entity to present in the financial statements an unrecognized tax benefit as a liability and the unrecognized tax benefit should not be combined with deferred tax assets to the extent that a net operating loss carry-forward, tax loss or credit carry-forward is also not available at the reporting date. The amendment is to be applied prospectively to all unrecognized tax benefits and are effective for annual and interim reporting periods beginning after December 15, 2013. This ASU did not have a material impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon foreclosure. ASU 2014-04 clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective for annual and interim reports beginning on or after December 15, 2014 and can be applied with a modified retrospective transition method or prospectively. The adoption of ASU 2014-04 is not expected to have a material impact on the Company's consolidated financial statement.

Earnings Analysis

Net earnings for the quarter ended June 30, 2014 were $1,629,000, compared to net earnings of $1,379,000 for the quarter ended June 30, 2013, an increase of 18%. Net earnings for the six months ended June 30, 2014 were $3,463,000, an increase of $1,154,000 from the same period in 2013. Net earnings during the three months and six months ended June 30, 2014 compared to the same period during 2013 benefitted from favorable expense comparisons due partly to the closure of our island of Guam office during the 2nd quarter of 2013 and reductions in the provision for loan losses. Net earnings for the first quarter of 2014 were $1,834,000, and for the fourth quarter of 2013 were $1,999,000.

Net interest income for the quarter ended June 30, 2014 was $8,712,000, compared to $8,727,000 for the quarter ended June 30, 2013, a decrease of $15,000, or 0.2%. Net interest income for the six months ended June 30, 2014 was $17,220,000, compared to $17,434,000 for the six months ended June 30, 2013. Declines in net interest during 2014 compared to 2013 were due primarily to the decline in interest rates on earning assets. Short term market interest rates are currently being held to low levels due to accommodating policy decisions made by the Federal Open Market Committee of the Federal Reserve Bank.

The following tables present an analysis of net interest income and average earning assets and liabilities for the three-and six-month periods ended June 30, 2014 compared to the three-and six-month periods ended June 30, 2013.

TABLE 1                                                       NET INTEREST INCOME AND AVERAGE BALANCES
                                                                     FNB BANCORP AND SUBSIDIARY

                                                                     Three months ended June 30,
                                                        2014                                            2013
(Dollar amounts in thousands)                                        Annualized                                      Annualized
                                       Average                         Average         Average                         Average
                                       Balance        Interest          Yield          Balance        Interest          Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)                 $   568,329     $     7,897            5.64 %   $   553,031     $     8,020            5.88 %
Taxable securities                       188,807             851            1.83 %       185,715             794            1.73 %
Nontaxable securities (3)                 73,331             657            3.63 %        74,548             671            3.65 %
Fed funds sold                                 5               -             n/a              59               -             n/a
Int time depos-other fin
institutions                               4,569              27            2.40 %         8,890              49            2.24 %
Total interest earning assets            835,041           9,432            4.58 %       822,243           9,534            4.70 %

NONINTEREST EARNING ASSETS:
Cash and due from banks                   22,815                                          34,875
Premises                                  12,544                                          12,757
Other assets                              28,417                                          34,546
Total noninterest earning assets          63,776                                          82,178
TOTAL ASSETS                         $   898,817                                     $   904,421

INTEREST BEARING LIABILITIES:
Demand, int bearing                  $    81,566              18            0.09 %   $    78,809              25            0.13 %
Money market                             331,460             314            0.38 %       315,519             359            0.46 %
Savings                                   66,658              17            0.10 %        63,503              25            0.16 %
Time deposits                            109,113             135            0.50 %       157,111             230            0.59 %
FHLB advances                              7,846               3            0.16 %           523               -             n/a
Note payable                               5,939              68            4.64 %             -               -             n/a
Fed funds purchased                            -               -             n/a              17               -             n/a
Total interest bearing liabilities       602,582             555            0.37 %       615,482             639            0.42 %

NONINTEREST BEARING LIABILITIES:
Demand deposits                          197,312                                         184,289
Other liabilities                          9,860                                          10,712
Total noninterest bearing
liabilities                              207,172                                         195,001

TOTAL LIABILITIES                        809,754                                         810,483
Stockholders' equity                      89,063                                          93,938

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY                 $   898,817                                     $   904,421

NET INTEREST INCOME AND MARGIN ON
TOTAL EARNING ASSETS (4)                             $     8,877            4.31 %       206,761     $     8,895            4.39 %

1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

2) Amounts of interest earned included loan fees of $362,000 and $337,000 for the quarters ended June 30, 2014 and 2013, respectively.

3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $165,000 and $168,000 for the quarters ended June 30, 2014 and 2013, respectively, and were derived from nontaxable municipal interest income.

4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

TABLE 2                                                      NET INTEREST INCOME AND AVERAGE BALANCES
                                                                    FNB BANCORP AND SUBSIDIARY

                                                                     Six months ended June 30,
                                                        2014                                           2013
(Dollar amounts in thousands)                                       Annualized                                     Annualized
                                      Average                         Average        Average                         Average
                                      Balance        Interest          Yield         Balance        Interest          Yield
INTEREST EARNING ASSETS
Loans, gross (1) (2)                 $  565,898     $    15,524            5.53 %   $  552,493     $    16,178            5.90 %
Taxable securities                      188,552           1,694            1.81 %      175,963           1,478            1.69 %
Nontaxable securities (3)                72,903           1,308            3.62 %       74,354           1,348            3.66 %
Fed funds sold                               16               -             n/a             36               -             n/a
Int time depos-other fin
institutions                              4,937              46            1.88 %       10,511              90            1.73 %
Tot interest earning assets             832,306          18,572            4.50 %      813,357          19,094            4.73 %

NONINTEREST EARNING ASSETS:
Cash and due from banks                  19,238                                         38,544
Premises                                 12,533                                         12,733
Other assets                             30,134                                         34,597
Tot noninterest earning assets           61,905                                         85,874
TOTAL ASSETS                         $  894,211                                     $  899,231

Demand, int bearing                  $   78,936              34            0.09 %   $   77,346              50            0.13 %
Money market                            321,913             599            0.38 %      304,347             724            0.48 %
Savings                                  65,884              33            0.10 %       65,023              57            0.18 %
Time deposits                           114,575             278            0.49 %      162,110             490            0.61 %
FHLB advances                            15,033              11            0.15 %          610               -             n/a
Note payable                              3,152              68            4.35 %            -               -             n/a
Fed funds purchased                           -               -             n/a             14               -             n/a
Tot interest bearing liabilities        599,493           1,023            0.34 %      609,450           1,321            0.44 %

NONINTEREST BEARING LIABILITIES:
Demand deposits                         196,324                                        184,576
Other liabilities                         9,531                                         10,551
Tot noninterest bearing
liabilities                             205,855                                        195,127

TOTAL LIABILITIES                       805,348                                        804,577
Stockholders' equity                     88,863                                         94,654

TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY             $  894,211                                     $  899,231

NET INTEREST INCOME AND MARGIN ON
TOTAL EARNING ASSETS (4)                            $    17,549            4.25 %                  $    17,773            4.41 %

(1) Interest on non-accrual loans is recognized into income on a cash received basis if the loan has demonstrated performance and full collection is considered probable.

(2) Amounts of interest earned included loan fees of $658,000 and $591,000 for the six months ended June 30, 2014 and 2013, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $328,000 and $339,000 for the six months ended June 30, 2014 and 2013, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income.

(4) The annualized net interest margin is computed by dividing net interest income by total average interest earning assets and multiplied by an annualization factor.

Tables 1 and 2, above, show the various components that contributed to changes in net interest income for the three and six months ended June 30, 2014 and 2013. The principal interest earning assets are loans, from a volume as well as from a rate or yield perspective. For the quarter ended June 30, 2014, average loans outstanding represented 68.1% of average earning assets. For the quarter ended June 30, 2013, they represented 67.3% of average earning assets. For the six months ended June 30, 2014 and 2013, average loans outstanding represented 68.0% and 67.9%, respectively, of average earning assets.

The taxable equivalent yield on average interest earning assets for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013 decreased from 4.70% to 4.58%, or 12 basis points. Average loans increased by $15,298,000, year over year, while their yield decreased from 5.88% to 5.35%, or 53 basis points. Interest income on total interest earning assets for the quarter decreased $518,000 or 5.43% on a fully-taxable equivalent basis.

For the three months ended June 30, 2014 compared to the three months ended June 30, 2013, the cost on total interest bearing liabilities decreased from 0.42% to 0.37%, a decrease of 5 basis points. Time deposit interest cost decreased from 0.59% to 0.50%. Their average balance outstanding decreased by $47,998,000, or 30.6%, while their expense decreased $95,000.

Customer deposits have been migrating out of time deposits and into money market accounts during both 2013 and 2014. The low rates being offered on term deposits coupled with the possible increase in short term rates by the FOMC are, in part, the explanation for this migration.

For the six months ended June 30, 2014 compared to the six months ended June 30, 2013, interest income on interest earning assets decreased $523,000 or 2.7% on a fully-taxable equivalent basis, and average earning assets increased $18,949,000, or 2.3%. Average loans increased by $13,405,000, or 2.4%. Interest on loans decreased $654,000 or 4.0%, while the yield decreased 37 basis points, or 6.3%. The cost on total interest bearing liabilities decreased from 0.44% to 0.34%. Time deposit averages decreased $47,535,000 or 29.3%. Their yield decreased 12 basis points, or 19.7%. Money market deposit average balances increased $17,566,000, or 5.8%, and their cost decreased $125,000, or 17.3%.

For the three and six month periods ended June 30, 2014 and June 30, 2013, 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 year's volume). In this table, the dollar change in rate/volume is prorated to volume and rate proportionately.

Table 3                                            FNB BANCORP AND SUBSIDIARY
                                                 RATE/VOLUME VARIANCE ANALYSIS

                                                  Three Months Ended June 30,
(Dollar amounts in thousands)                        2014 Compared to 2013
                                                                        Variance
                                           Interest                  Attributable to
                                        Income/Expense             Rate           Volume
INTEREST EARNING ASSETS
Loans                                  $            (123 )      $     (335 )     $    212
Taxable securities                                    57                43             14
Nontaxable securities (1)                            (14 )              (3 )          (11 )
Interest on time deposits
with other financial institutions                    (22 )               2            (24 )
  Total                                $            (102 )      $     (293 )     $    191

INTEREST BEARING LIABILITIES
Demand deposits                        $               7        $        8       $     (1 )
Money market                                          45                60            (15 )
Savings deposits                                       8                 9             (1 )
Time deposits                                         95                25             70
FHLB advances                                         (3 )               -             (3 )
Note payable                                         (68 )               -            (68 )
  Total                                $              84        $      102       $    (18 )
NET INTEREST INCOME                    $             (18 )      $     (191 )     $    173

(1) Includes tax equivalent adjustment of $165,000 and $168,000 in the three months ended June 30, 2014 and June 30, 2013, respectively.

Table 4                                            FNB BANCORP AND SUBSIDIARY
                                                 RATE/VOLUME VARIANCE ANALYSIS

                                                   Six Months Ended June 30,
(Dollar amounts in thousands)                        2014 Compared to 2013
                                                                        Variance
                                           Interest                  Attributable to
                                        Income/Expense             Rate           Volume
INTEREST EARNING ASSETS
Loans                                  $            (654 )      $    (1,047 )    $    393
Taxable securities                                   216                110           106
Nontaxable securities (1)                            (40 )              (14 )         (26 )
Interest on time deposits
with other financial institutions                    (44 )                8           (52 )
  Total                                $            (522 )      $      (943 )    $    421

INTEREST BEARING LIABILITIES
. . .
  Add FNBG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FNBG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.