-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALxqaUWkYWBB8iFl7Ya2eVtSEDlyuEit66llLo9H2JntASkuMxozguaBLJNHaNKe ehfJ6mGOEO1kYdM7yXy3nA== 0001019056-08-000604.txt : 20080509 0001019056-08-000604.hdr.sgml : 20080509 20080509085722 ACCESSION NUMBER: 0001019056-08-000604 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080509 DATE AS OF CHANGE: 20080509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FNB BANCORP/CA/ CENTRAL INDEX KEY: 0001163199 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 922115369 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-49693 FILM NUMBER: 08816132 BUSINESS ADDRESS: STREET 1: 975 EL CAMINO REAL 3RD FL STREET 2: C/O FIRST NATIONAL BANK CITY: S. SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 6505886800 MAIL ADDRESS: STREET 1: 975 EL CAMINO REAL 3RD FL STREET 2: C/O FIRST NATIONAL BANK CITY: S. SAN FRANCISCO STATE: CA ZIP: 94080 10-Q 1 fnb_1q08.htm FORM 10-Q

 

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 March 31, 2008



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)

Registrant’s 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

 

 

Non-accelerated filer o

 

Smaller reporting company 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 issuer’s classes of common stock, as of the latest practicable date: Common Stock as of May 4, 2008: 2,965,717 shares.



PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

FNB BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

March 31,
2008

 

December 31,
2007

 

(Dollar amounts in thousands)

 

 

 

 

 


 


 

ASSETS

Cash and due from banks

 

$

20,214

 

$

15,750

 

Federal funds sold

 

 

1,885

 

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash and equivalents

 

 

22,099

 

 

15,750

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

87,107

 

 

94,432

 

Loans, net

 

 

491,400

 

 

489,574

 

Bank premises, equipment, and leasehold improvements

 

 

13,880

 

 

13,686

 

Other real estate owned

 

 

3,955

 

 

440

 

Goodwill

 

 

1,841

 

 

1,841

 

Accrued interest receivable and other assets

 

 

29,262

 

 

28,742

 

 

 



 



 

 

 

 

 

 

 

 

 

Total assets

 

$

649,544

 

$

644,465

 

 

 



 



 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

 

 

 

 

 

 

 

Demand, noninterest bearing

 

 

120,140

 

 

120,423

 

Demand, interest bearing

 

 

63,017

 

 

61,215

 

Savings and money market

 

 

183,460

 

 

181,276

 

Time

 

 

133,062

 

 

136,341

 

 

 



 



 

 

 

 

 

 

 

 

 

Total deposits

 

 

499,679

 

 

499,255

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

75,000

 

 

66,000

 

Federal funds purchased

 

 

 

 

5,595

 

Accrued expenses and other liabilities

 

 

7,794

 

 

7,070

 

 

 



 



 

 

 

 

 

 

 

 

 

Total liabilities

 

 

582,473

 

 

577,920

 

 

 



 



 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding 2,963,000 shares on at March 31, 2008
and 2,965,000 shares at December 31, 2007

 

 

42,785

 

 

42,858

 

Additional paid-in capital

 

 

255

 

 

231

 

Retained earnings

 

 

23,035

 

 

23,039

 

Accumulated other comprehensive income

 

 

996

 

 

417

 

 

 



 



 

Total stockholders’ equity

 

 

67,071

 

 

66,545

 

 

 



 



 

Total liabilities and stockholders’ equity

 

$

649,544

 

$

644,465

 

 

 



 



 

See accompanying notes to consolidated financial statements.

2


FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)

 

 

 

 

 

 

 

 

(Dollar amounts in thousands, except per share amounts)

 

Three months ended
March 31,

 

 

 

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

Interest income:

 

 

 

 

 

 

 

Interest and fees on loans

 

$

9,389

 

$

8,741

 

Interest on taxable securities

 

 

513

 

 

368

 

Interest on tax-exempt securities

 

 

428

 

 

525

 

Federal funds sold

 

 

41

 

 

270

 

 

 



 



 

Total interest income

 

 

10,371

 

 

9,904

 

 

 



 



 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

 

2,456

 

 

2,672

 

FHLB advances

 

 

852

 

 

413

 

Federal funds purchased

 

 

14

 

 

1

 

 

 



 



 

Total interest expense

 

 

3,322

 

 

3,086

 

 

 



 



 

Net interest income

 

 

7,049

 

 

6,818

 

Provision for loan losses

 

 

990

 

 

150

 

 

 



 



 

Net interest income after provision for loan losses

 

 

6,059

 

 

6,668

 

 

 



 



 

Noninterest income:

 

 

 

 

 

 

 

Service charges

 

 

702

 

 

612

 

Credit card fees

 

 

164

 

 

199

 

Gain on sale of securities

 

 

138

 

 

 

Other income

 

 

257

 

 

193

 

 

 



 



 

Total noninterest income

 

 

1,261

 

 

1,004

 

 

 



 



 

Noninterest expense:

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

3,517

 

 

3,225

 

Occupancy expense

 

 

515

 

 

449

 

Equipment expense

 

 

475

 

 

381

 

Professional fees

 

 

259

 

 

386

 

Telephone, postage and supplies

 

 

232

 

 

291

 

Bankcard expenses

 

 

153

 

 

179

 

Other expense

 

 

1,026

 

 

847

 

 

 



 



 

Total noninterest expense

 

 

6,177

 

 

5,758

 

 

 



 



 

Earnings before income tax expense

 

 

1,143

 

 

1,914

 

Income tax expense

 

 

256

 

 

455

 

 

 



 



 

NET EARNINGS

 

$

887

 

$

1,459

 

 

 



 



 

 

 

 

 

 

 

 

 

Earnings per share data:

 

 

 

 

 

 

 

Basic

 

$

0.30

 

$

0.49

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.30

 

$

0.48

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

2,966

 

 

2,985

 

 

 

 

 

 

 

 

 

Diluted

 

 

2,975

 

 

3,037

 

          See accompanying notes to consolidated financial statements.

3


FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months ended
March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

Net earnings

 

$

887

 

$

1,459

 

Unrealized gain on AFS securities

 

 

579

 

 

31

 

 

 



 



 

Total comprehensive income

 

$

1,466

 

$

1,490

 

 

 



 



 

          See accompanying notes to consolidated financial statements.

4


FNB BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months ended
March 31

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

Cash flow from operating activities:

 

 

 

 

 

 

 

Net earnings

 

$

887

 

$

1,459

 

Adjustments to reconcile net earnings to net cash provided by operating activities

 

 

 

 

 

 

 

Gain on sale of securities available-for-sale

 

 

(138

)

 

 

Depreciation, amortization and accretion

 

 

396

 

 

273

 

Stock-based compensation expense

 

 

24

 

 

8

 

Provision for loan losses

 

 

990

 

 

150

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

(520

)

 

(1,480

)

Accrued expenses and other liabilities

 

 

(124

)

 

(344

)

 

 



 



 

Net cash provided by operating activities

 

 

1,515

 

 

66

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of securities available-for-sale

 

 

(11,816

)

 

(10,964

)

Proceeds from matured/called/sold securities available-for-sale

 

 

20,253

 

 

13,220

 

Net increase in loans

 

 

(6,331

)

 

(21,200

)

Purchases of bank premises, equipment, leasehold improvements

 

 

(582

)

 

(535

)

 

 



 



 

Net cash provided by investing activities

 

 

1,524

 

 

(19,479

)

 

 



 



 

Cash flows from financing activities

 

 

 

 

 

 

 

Net increase in demand and savings deposits

 

 

3,703

 

 

23,555

 

Net increase (decrease) in time deposits

 

 

(3,279

)

 

9,415

 

Net increase in Federal Home Loan Bank advances

 

 

9,000

 

 

 

Net decrease in federal funds purchased

 

 

(5,595

)

 

 

Dividends paid

 

 

(446

)

 

(428

)

Issuance of common stock

 

 

39

 

 

 

Repurchases of common stock

 

 

(112

)

 

 

 

 



 



 

Net cash provided by financing activities

 

 

3,310

 

 

32,542

 

 

 



 



 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

6,349

 

 

13,129

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

15,750

 

 

27,022

 

 

 



 



 

Cash and cash equivalents at end of period

 

$

22,099

 

$

40,151

 

 

 



 



 

 

 

 

 

 

 

 

 

Additional cash flow information

 

 

 

 

 

 

 

Interest paid

 

 

3,351

 

 

2,964

 

Income taxes paid

 

 

155

 

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Accrued dividends

 

 

445

 

 

427

 

Change in unrealized gain (loss) in available for-sale securities

 

 

579

 

 

31

 

Loans transferred to Other Real Estate Owned

 

 

3,515

 

 

 

          See accompanying notes to consolidated financial statements.

5


FNB BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(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 annual 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, 2007.

          Results of operations for interim periods are not necessarily indicative of results for the full year.

NOTE B – 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.

          Earnings per share have been computed based on the following (dollars in thousands):

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months ended
March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

Net earnings

 

$

887

 

$

1,459

 

 

 

 

 

 

 

 

 

Average number of shares outstanding

 

 

2,966,000

 

 

2,985,000

 

Effect of dilutive options

 

 

9,000

 

 

52,000

 

Average number of shares outstanding used to calculate diluted earnings per share

 

 

2,975,000

 

 

3,037,000

 

174,738 and 43,316 antidilutive options were excluded in the 2008 and 2007 computations, respectively.

6


NOTE C – 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 available-for-sale. Comprehensive income for the three months ended March 31, 2008 was $1,466,000 compared to $1,490,000 for the three months ended March 31, 2007.

NOTE D – FAIR VALUE

          Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” which requires enhanced disclosures about financial instruments carried at fair value. SFAS No. 157 establishes a disclosure framework that quantifies fair value estimates by the level of pricing precision utilized in measuring financial instruments, impaired loans and Other Real Estate Owned properties at fair value. The degree of judgment utilized in measuring the fair value of assets generally correlates to the level of pricing precision. Financial instruments rarely traded or not quoted will generally have a higher degree of judgment utilized in measuring fair value. Pricing precision is impacted by a number of factors including the type of asset, the availability of the asset, the market demand for the asset, and other conditions that were considered at the time of the valuation. See “Fair Value Measurements” for additional information about the level of pricing transparency associated with the financial instruments carried at fair value.

          Fair Value Measurement. The following table presents information about the Company’s assets and liabilities measured at fair value as of March 31, 2008, and indicates the fair value techniques used by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

7


          Loans. The Bank does not record loans at fair value. However, from time to time, if a loan is considered impaired, and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement, are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2008, the Bank held no impaired loans. In accordance with SFAS No. 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. If the fair value of the collateral is based on an observable market price or a current appraised value, the Bank records the impaired loans as nonrecurring Level 2. When an appraised value is not available, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loans as nonrecurring Level 3.

          Goodwill and Premium on Purchased Deposits. Goodwill and premium on purchased deposits are subject to impairment testing. A projected cash flow valuation method is used in the completion of impairment testing. This valuation method requires a significant degree of management judgment. In the event the projected undiscounted net operating cash flows are less than the carrying value, the asset is recorded at fair value as determined by the valuation model. As such, the Bank classifies goodwill and premium on purchased deposits subjected to nonrecurring fair value adjustments as Level 3. As of March 31, 2008, there were no impairments of goodwill or the premium on purchased deposits.

The following table presents the recorded amount of assets measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

 

 

 

Fair Value Measurements
at March 31, 2008, Using

 

 

 

 

 

 


 

Description

 

Fair Value
March 31, 2008

 

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

 

Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Available-for-sale securities

 

$

87,107

 

$

 

$

87,107

 

$

 

 

 



 



 



 



 

Total assets measured at fair value

 

$

87,107

 

$

 

$

87,107

 

$

 

 

 



 



 



 



 

The following methods were used to estimate the fair value of each class of financial instrument above:

Available-for-sale Securities – Fair values established for available-for-sale investment securities are based on estimates of fair values quoted for similar types of securities with similar maturities, risk and yield characteristics.

8


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 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 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, 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.

          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.

9


          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 borrowers’ ability to repay loans. Determination of the allowance is in part objective and in part a subjective judgment by 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 Company’s 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 Company’s 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 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.

10


          Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) announced that it had revised Statement 141, Business Combinations, with 141(R). The revised Statement No. 141 was written to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer:

 

 

a.

Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree

 

 

b.

Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase

 

 

c.

Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination

This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect this Standard to have a material effect on the Company’s financial statements.

          In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement No. 160, “Noncontrolling Interest in Consolidated Financial Statements – an amendment of ARB No. 51.” Statement No. 160 clarifies reporting and disclosure requirements related to noncontrolling interest included in an entity’s consolidated financial statements. This Statement clarifies that noncontrolling interests are to be reported in the noncontrolling section of the balance sheet and requires net income to include amounts from both the parent and the noncontrolling interest. This Statement also requires the parent company to recognize a gain or loss in net income when a subsidiary is deconsolidated. This Statement is effective for fiscal years (and interim periods within those years), beginning on or after December 15, 2008. The Company will apply this Statement prospectively and does not expect the Statement to have a material impact on the Company’s financial statements.

          In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement No. 161 “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” Statement No. 161 changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Company does not expect this Standard to have a material impact on the Company’s financial statements.

          Earnings Analysis

          Net earnings for the quarter ended March 31, 2008 were $887,000, compared to net earnings of $1,459,000 for the quarter ended March 31, 2007, a decrease of $572,000, or 39.2%. Earnings before income tax expense for the quarter ended March 31, 2008 were $1,143,000, compared to $1,914,000 for the quarter ended March 31, 2007, a decrease of $771,000, or 40.3%.

11


          Net interest income for the quarter ended March 31, 2008 was $7,049,000, compared to $6,818,000 for the quarter ended March 31, 2007, an increase of $231,000, or 3.39%. Beginning in September of 2007, the Federal Open Market Committee (“FOMC”) began a series of significant reductions in the intended federal funds rate. Beginning in September 2007 and continuing through March 2008, the FOMC reduced the intended federal funds rate six times, for a total reduction of 300 basis points to a target of 2.25% as of March 31, 2008. This significant reduction in short term rates has negatively affected the Company’s net interest margin. The rate of decrease in the rates paid for interest bearing liabilities has not kept pace with the rate of decrease in rates earned on interest earning assets during the first quarter of 2008, effectively causing a rate related drop in net interest income compared to the same period in 2007.

          Basic earnings per share were $0.30 for the first quarter of 2008 compared to $0.49 for the first quarter of 2007. Diluted earnings per share were $0.30 for the first quarter of 2008 compared to $0.48 for the first quarter of 2007.

          The following table presents an analysis of net interest income and average earning assets and liabilities for the three-month period ended March 31, 2008 compared to the three-month period ended March 31, 2007.

12



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 1

NET INTEREST INCOME AND AVERAGE BALANCES
FNB BANCORP AND SUBSIDIARY

 

 

 

 

 

 

 

Three months ended March 31,

 

 

 


 

 

 

2008

 

2007

 

 

 


 


 

(Dollar amounts In thousands)

 

Average
Balance

 

Interest

 

Annualized
Average
Yield

 

Average
Balance

 

Interest

 

Annualized
Average
Yield

 

 

 


 


 

INTEREST EARNING ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, gross (1) (2)

 

$

501,831

 

$

9,389

 

 

7.52

%

$

429,405

 

$

8,741

 

 

8.26

%

Taxable securities (3)

 

 

40,405

 

 

515

 

 

5.13

%

 

31,351

 

 

368

 

 

4.76

%

Nontaxable securities (3)

 

 

47,408

 

 

557

 

 

4.73

%

 

59,041

 

 

683

 

 

4.69

%

Federal funds sold

 

 

4,979

 

 

41

 

 

3.31

%

 

20,683

 

 

270

 

 

5.29

%

 

 



 



 

 

 

 



 



 

 

 

 

Total interest earning assets

 

$

594,623

 

$

10,502

 

 

7.10

%

$

540,480

 

$

10,062

 

 

7.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EARNING ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

16,922

 

 

 

 

 

 

 

$

18,043

 

 

 

 

 

 

 

Premises and equipment

 

 

13,928

 

 

 

 

 

 

 

 

13,700

 

 

 

 

 

 

 

Other assets

 

 

27,003

 

 

 

 

 

 

 

 

23,803

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total noninterest earning assets

 

$

57,853

 

 

 

 

 

 

 

$

55,546

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

TOTAL ASSETS

 

$

652,476

 

 

 

 

 

 

 

$

596,026

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST BEARING LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, interest bearing

 

$

60,154

 

($

99

)

 

0.66

%

$

60,911

 

($

103

)

 

0.69

%

Money market

 

 

138,120

 

 

(961

)

 

2.80

%

 

120,075

 

 

(965

)

 

3.26

%

Savings

 

 

45,715

 

 

(31

)

 

0.27

%

 

50,469

 

 

(65

)

 

0.52

%

Time deposits

 

 

134,479

 

 

(1,365

)

 

4.08

%

 

141,109

 

 

(1,539

)

 

4.42

%

FederalHome Loan Bank advances

 

 

77,643

 

 

(852

)

 

4.41

%

 

30,000

 

 

(413

)

 

5.58

%

Federal funds purchased

 

 

1,468

 

 

(14

)

 

3.84

%

 

100

 

 

(1

)

 

4.06

%

 

 



 



 

 

 

 



 



 

 

 

 

Total interest bearing liabilities

 

$

457,579

 

($

3,322

)

 

2.92

%

$

402,664

 

($

3,086

)

 

3.11

%

 

 



 



 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST BEARING LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

118,251

 

 

 

 

 

 

 

 

122,530

 

 

 

 

 

 

 

Other liabilities

 

 

8,899

 

 

 

 

 

 

 

 

8,240

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

Total noninterest bearing liabilities

 

$

127,150

 

 

 

 

 

 

 

$

130,770

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$

584,729

 

 

 

 

 

 

 

$

533,434

 

 

 

 

 

 

 

Stockholders’ equity

 

$

67,747

 

 

 

 

 

 

 

$

62,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

652,476

 

 

 

 

 

 

 

$

596,026

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

NET INTEREST INCOME AND MARGIN ON TOTAL EARNING ASSETS (4)

 

 

 

 

$

7,180

 

 

4.86

%

 

 

 

$

6,976

 

 

5.23

%

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

(1) Interest on non-accrual loans is recognized into income on a cash received basis.

(2) Amounts of interest earned included loan fees of $403,000 and $376,000 for the quarters ended March 31, 2008 and 2007, respectively.

(3) Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the nontaxable securities portfolio are $129,000 and $158,000 for the quarters ended March 31, 2008 and 2007, respectively. Tax equivalent adjustments included in the nontaxable securities portfolio were derived from nontaxable municipal interest income. Tax equivalent adjustments recorded at the statutory rate of 34% that are included in taxable securities portfolio were created by a dividends received deduction of $2,000 and $0 in the quarters ended March 31, 2008 and 2007, respectively. Tax equivalent adjustments recorded at the statutory rate of 34% that are included in the taxable investment securities portfolio were created by Freddie Mac Preferred stock.

(4) Net interest margin is computed by dividing net interest income by total average interest earning assets.

          Table 1, above, shows the various components that contributed to changes in net interest income for the three months ended March 31, 2008 and 2007. The principal interest earning assets are loans, from a volume as well as from an earnings rate perspective. For the quarter ended March 31, 2008, average loans outstanding represented 84.4% of average earning assets. For the quarter ended March 31, 2007, they represented 79.4% of average earning assets. The Company achieved significant loan growth during all of 2007 in the Commerciall Real Estate, Construction and Commercial loan segments of the loan portfolio.

13


          The taxable equivalent yield on average interest earning assets for the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007 decreased from 7.55% to 7.10%, or 42 basis points. Although average loans increased by $72,426,000, the average interest on the loan portfolio decreased from 8.26% to 7.52%. Interest income on total interest earning assets increased $440,000 or 4.37%.

          For the three months ended March 31, 2008, compared to the three months ended March 31, 2007, the cost on total interest bearing liabilities decreased from 3.11% to 2.92%, a decrease of 19 basis points. The most expensive as well as principal source of deposit liabilities comes from time deposits. Their average cost decreased from 4.42% to 4.08%, and the expense on these deposits decreased $174,000 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Average Federal Home Loan Bank advances increased $47,643,000, but their interest rate decreased from 5.58% for the quarter ended March 31, 2007, to 4.41% for the quarter ended March 31, 2008.

          For the three month periods ended March 31, 2008 and March 31, 2007, 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 2

FNB BANCORP AND SUBSIDIARY
RATE/VOLUME VARIANCE ANALYSIS

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months ended March 31,
2008 compared to 2007

 

 

 


 

 

 

Interest
Income/expense
Variance

 

 

 

 

 

 

 

 

 

 

Variance
Attributable to

 

 

 

 

Rate

 

Volume

 

 

 


 


 

INTEREST EARNING ASSETS

 

 

 

 

 

 

 

 

 

 

Loans

 

$

648

 

$

(707

)

$

1,355

 

Taxable securities

 

 

147

 

 

32

 

 

115

 

Nontaxable securities

 

 

(126

)

 

11

 

 

(137

)

Federal funds sold

 

 

(229

)

 

(24

)

 

(205

)

 

 



 



 



 

Total

 

 

440

 

 

(688

)

 

1,128

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

INTEREST BEARING LIABILITIES

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

 

(4

)

 

(3

)

 

(1

)

Money market

 

 

(4

)

 

(130

)

 

126

 

Savings

 

 

(34

)

 

(31

)

 

(3

)

Time deposits

 

 

(174

)

 

(102

)

 

(72

)

Federal Home Loan Bank advances

 

 

439

 

 

(84

)

 

523

 

Federal funds purchased

 

 

13

 

 

 

 

13

 

 

 



 



 



 

Total

 

 

236

 

 

(350

)

 

586

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

$

204

 

$

(338

)

$

542

 

 

 



 



 



 

14


Noninterest income

          The following table shows the principal components of noninterest income for the periods indicated.

 

 

TABLE 3

NONINTEREST INCOME


 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months
ended March 30,

 

Variance

 

(Dollars in thousands)

 

2008

 

2007

 

Amount

 

Percent

 

 

 


 


 


 


 

Service charges

 

 

702

 

 

612

 

 

90

 

 

14.7

%

Credit card fees

 

 

164

 

 

199

 

 

(35

)

 

-17.6

%

Gain on sale of securities

 

 

138

 

 

 

 

138

 

 

 

Other income

 

 

257

 

 

193

 

 

64

 

 

33.2

%

 

 



 



 



 

 

 

 

Total noninterest income

 

$

1,261

 

$

1,004

 

$

257

 

 

25.6

%

 

 



 



 



 

 

 

 

          Noninterest income consists mainly of service charges on deposits, credit card fees, and several other miscellaneous types of income. During the first quarter of 2008, $8,271,000 in book value municipal securities were sold resulting in a pretax gain of $138,000. The proceeds from the sale of these securities was used to reduce existing Federal Home Loan Bank borrowing levels.

Noninterest expense

          The following table shows the principal components of noninterest expense for the periods indicated.

 

 

TABLE 4

NONINTEREST EXPENSE


 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months
ended March 31,

 

Variance

 

(Dollars in thousands)

 

2008

 

2007

 

Amount

 

Percent

 

 

 


 


 


 


 

Salaries and employee benefits

 

$

3,517

 

$

3,225

 

$

292

 

$

9.1

%

Occupancy expense

 

 

515

 

 

449

 

 

66

 

 

14.7

%

Equipment expense

 

 

475

 

 

381

 

 

94

 

 

24.7

%

Professional fees

 

 

259

 

 

386

 

 

(127

)

 

-32.9

%

Telephone, postage & supplies

 

 

232

 

 

291

 

 

(59

)

 

-20.3

%

Bankcard expenses

 

 

153

 

 

179

 

 

(26

)

 

-14.5

%

Other expense

 

 

1,026

 

 

847

 

 

179

 

 

21.1

%

 

 



 



 



 

 

 

 

Total noninterest expense

 

$

6,177

 

$

5,758

 

$

419

 

 

7.3

%

 

 



 



 



 

 

 

 

          Noninterest expense consists mainly of salaries and employee benefits. For the three months ended March 31, 2008 compared to three months ended March 31, 2007, it represented 56.9% and 56.0% of total noninterest expenses. The increase in salary and employee benefits expense in 2008 compared to the same three month period in 2007 is attributable to normal salary progression and a small increase in full time equivalent employees. Occupancy expense increased $66,000 for the quarter ended March 31, 2008 compared to the same quarter in 2007. This increase was primarily the result of lease rental adjustments on branch premises not owned by the Bank, and depreciation on new leasehold improvements. Equipment expense increased by $94,000. Most of this increase was attributable to $57,000 in depreciation on imaging scanners, acquired after the first quarter of 2007. Professional fees decreased $127,000. The first quarter of 2007 included approximately $136,000 in consulting fees related to placing equipment at a disaster recovery backup computer facility, and the installation and use of check imaging technology. Other expense increased by $179,000, quarter-over-quarter. The significant items in this group of accounts were an $83,000 write-down in Other Real Estate Owned, and an increase of $95,000 in Federal Deposit Insurance Corporation (“FDIC”) assessments. In 2007, banks, with the exception of de novo institutions received a partial credit against their assessment, because the FDIC insurance fund had a surplus that was created in prior years. This surplus has been used up, so the FDIC has returned to their full assessment rates in 2008.

15


Income Taxes

          The effective tax rate for the quarter ended March 31, 2008 was 22.4% compared to 23.8% for the quarter ended March 31, 2007. The effective tax rate is affected primarily 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.

Asset and Liability Management

          Ongoing management of the Company’s interest rate sensitivity limits interest rate risk through monitoring the mix and maturity of loans, investments and deposits. Management regularly reviews the Company’s 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 Company’s ability to convert short-term investments into cash and from the maturity and repayment of loans and investment securities. Liability liquidity comes from Company’s customer base, which provides core deposit growth. The overall liquidity position of the Company is closely monitored and evaluated regularly. Management believes the Company’s liquidity sources at March 31, 2008, are adequate to meet its operating needs in 2008 and going forward into the foreseeable future.

Financial Condition

          Assets. Total assets increased to $649,544,000 at March 31, 2008 from $644,465,000 at December 31, 2007, an increase of $5,079,000. Most of this increase was in cash and equivalents, which increased $6,349,000, and other real estate owned, which increased $3,515,000. These increases were partially offset by a decrease of $7,325,000 in securities available-for-sale. The increase in total assets was funded by an increase in Federal Home Loan Bank advances of $9,000,000, partially offset by a decrease in federal funds purchased of $5,595,000. During the first quarter of 2008, the Bank sold $8,271,000 in municipal securities. The proceeds of this sale were used primarily to pay down existing Federal Home Loan Bank advance debt levels.

16


           Loans. Gross loans at March 31, 2008 were $496,812,000, an increase of $1,536,000 or 0.31% from December 31, 2007. Gross real estate loans decreased $7,014,000, construction loans increased $2,738,000, commercial loans increased $6,462,000, and consumer loans decreased by $650,000. The loan portfolio breakdown was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 5

 

LOAN PORTFOLIO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

Percent

 

December 31

 

Percent

 

(Dollar amounts in thousands)

 

2008

 

 

 

2007

 

 

 

 

 


 

 

 


 

 

 

Real Estate

 

$

345,036

 

 

69.5

%

$

352,050

 

 

71.1

%

Construction

 

 

60,100

 

 

12.1

%

 

57,362

 

 

11.6

%

Commercial

 

 

88,690

 

 

17.8

%

 

82,228

 

 

16.6

%

Consumer

 

 

2,986

 

 

0.6

%

 

3,636

 

 

0.7

%

 

 



 



 



 



 

Gross loans

 

$

496,812

 

 

100.0

%

$

495,276

 

 

100.0

%

 

 

 

 

 



 

 

 

 



 

 

 

 

 

 

 

 

 

 

Net deferred loan cost (fees)

 

 

73

 

 

 

 

(64

)

 

 

Allowance for loan losses

 

 

(5,485

)

 

 

 

(5,638

)

 

 

 

 



 

 

 

 



 

 

 

 

Net loans

 

$

491,400

 

 

 

$

489,574

 

 

 

 

 

 



 

 

 

 



 

 

 

 

           Allowance for loan losses. Management of the Company is responsible for assessing the overall risks within the Bank’s loan 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 Company’s market area, and considering the Company’s 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 three months ended March 31, 2008, and the three months ended March 31, 2007 is as follows:

 

 

 

 

 

 

 

 

TABLE 6

 

ALLOWANCE FOR LOAN LOSSES

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)

 

Three months ended
March 31, 2008

 

Three months ended
March 31, 2007

 

 

 


 


 

Balance, beginning of period

 

$

5,638

 

$

5,002

 

Provision for loan losses

 

 

990

 

 

150

 

Recoveries

 

 

9

 

 

2

 

Amounts charged off

 

 

(1,152

)

 

(23

)

 

 



 



 

Balance, end of period

 

$

5,485

 

$

5,131

 

 

 



 



 

           In management’s judgment, the allowance was adequate to absorb losses currently inherent in the loan portfolio at March 31, 2008. However, changes in prevailing economic conditions in the Company’s 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.

17


          During the first quarter of 2008, the bank experienced a significant increase in loan charge-offs when compared to the same period in 2007. Overall, an additional provision to the allowance of $990,000 was determined by management to be necessary in order to achieve an adequate allowance for inherent loan losses at March 31, 2008. The allowance is affected by a number of factors, and does not necessarily move in tandem with the level of gross loans outstanding. Management continues to monitor the factors that affect the allowance, and is prepared to make adjustments as they become necessary.

           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 March 31, 2008, there was $14,873,000 in nonperforming assets, compared to $11,905,000 at December 31, 2007. Nonaccrual loans were $10,918,000 at March 31, 2008, compared to $11,465,000 at December 31, 2007. There was $3,955,000 in Other Real Estate Owned at March 31, 2008, and $440,000 at December 31, 2007. There were no loans past due 90 days and still accruing at either date. During the first quarter of 2008, the Bank obtained a land development property consisting of 20 residential lots, located in Martinez, California, that was recorded at the net realizable value of $3,200,000. The Bank also obtained through foreclosure a single family residence in Fairfield valued at $398,000 and a single family residence in San Jose valued at $357,000. Management intends to aggressively market these properties. While management believes these properties will sell, there can be no assurance that these properties will sell quickly given the current real estate market.

           Deposits. Total deposits at March 31, 2008, were $499,679,000 compared to $499,255,000 on December 31, 2007. Of these totals, noninterest-bearing demand deposits were $120,140,000 or 24.0% of the total on March 31, 2008, and $ 120,423,000 or 24.1% on December 31, 2007. Time deposits were $133,062,000 on March 31, 2008, and $136,341,000 on December 31, 2007. During the first three months of 2008, compared to the same period in 2007, the deposit mix has changed to include a higher proportion of deposits in interest bearing demand, and in savings and money market accounts. This change may have been partly driven by the rapidly decreasing interest rate environment.

The following table sets forth the maturity schedule of the time certificates of deposit on March 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

TABLE 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollar amounts in thousands)
Maturities

 

Under
$100,000

 

$100,000
or more

 

Total

 


 


 


 


 

Three months or less

 

$

19,736

 

$

27,652

 

$

47,388

 

Over three through six months

 

 

13,789

 

 

19,723

 

 

33,512

 

Over six through twelve months

 

 

9,541

 

 

27,765

 

 

37,306

 

Over twelve months

 

 

11,199

 

 

3,657

 

 

14,856

 

 

 



 



 



 

Total

 

$

54,265

 

$

78,797

 

$

133,062

 

 

 



 



 



 

18


          The following table shows the risk-based capital ratios and leverage ratios at March 31, 2008 and December 31, 2007 for the Bank:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk-Based Capital Ratios

 

March 31,
2008

 

December 31,
2007

 

 

 

Minimum “Well
Capitalized”
Requirements

 


 


 


 

 

 


 

Tier 1 Capital

 

 

10.39

%

 

10.47

%

 

=

 

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital

 

 

11.31

%

 

11.42

%

 

=

 

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage Ratios

 

 

9.77

%

 

9.84

%

 

=

 

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

           Liquidity. Liquidity is a measure of the Company’s ability to convert assets into cash with minimal loss. As of March 31, 2008, liquid assets were $109,206,000, or 16.8% of total assets. As of December 31, 2007, liquid assets were $110,182,000, or 17.1% of total assets. Liquidity consists of cash and due from banks, federal funds sold, and securities available-for-sale. The Company’s 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 funds borrowing facilities totaling $70,000,000, a Federal Home Loan Bank line of credit up to 25% of total assets, and a Federal Reserve Bank borrowing facility.

           A higher loan to deposit ratio may lead to a loss of liquid assets in the future. This must be balanced against the fact that loans represent the highest interest earning assets. A lower loan to deposit ratio means lower potential income. On March 31, 2008, net loans were at 98% of deposits. On December 31, 2007 net loans were at 98% of deposits.

           Off-Balance Sheet Items

           The Company has certain ongoing commitments under operating leases. These commitments do not significantly impact operating results. As of March 31, 2008 and December 31, 2007, 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 $141,749,000 and $149,161,000 at March 31, 2008 and December 31, 2007, respectively. As a percentage of net loans, these off-balance sheet items represent 28.8% and 30.5% respectively.

           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. The Company anticipates that it will continue to incur costs to comply with the Act and the rules and regulations promulgated pursuant to the Act by the Securities and Exchange Commission of approximately $150,000 annually.

19


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 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 Company’s interest earning assets and deposits (see discussion of comparative changes in the prime lending rate and the Federal Home Loan Bank of San Francisco’s Weighted Monthly Cost of Funds, in the second paragraph under the preceding “Earnings Analysis” section of this report.

Item 4. Controls and Procedures.

           (a) Disclosure Controls and Procedures: An evaluation of the Company’s 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 Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management as of the end of the Company’s fiscal quarter ended March 31, 2008. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s 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 Company’s 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 Commission’s rules and forms.

          (b) Internal Control Over Financial Reporting: An evaluation of any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), that occurred during the Company’s fiscal quarter ended March 31, 2008, was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s 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 Company’s internal control over financial reporting.

20


PART II—OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

          There are no material legal proceedings adverse to the Company or First National Bank to which any director, officer, affiliate of the Company, or 5% shareholder of the Company, or any associate of any such director, officer, affiliate or 5% shareholder of the Company are a party, and none of the foregoing persons has a material interest adverse to the Company or First National Bank.

          From time to time, the Company and/or First National Bank are a party to claims and legal proceedings arising in the ordinary course of business. The Company’s management is not aware of any material pending legal proceedings to which either it or First National Bank may be a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of the Company and First National Bank, taken as a whole.

 

 

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, 2007.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

c)          ISSUER PURCHASES OF EQUITY SECURITIES*


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

(a)
Total Number

Of Shares (or

Units)

Purchased

 

(b)
Average

Price Paid

Per Share

(or Unit)

 

(c)
Number of Shares

(or Units) Purchased

As Part of Publicly

Announced Plans or

Programs

 

(d)
Maximum Number (or

Approximate dollar Value)

of Shares (or Units) that

May Yet Be Purchased

Under the Plans or

Programs

 











Month #1
January 1
through
January 31, 2008

 

 

 

0

 

 

 

 

 

 

 

 

 

0

 

 

 

 

99,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Month #2
February 1
through
February 29, 2008

 

 

 

0

 

 

 

 

 

 

 

 

 

0

 

 

 

 

99,697

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Month #3
March 1
through
March 31, 2008

 

 

 

3,000

 

 

 

$

24.50

 

 

 

 

3,000

 

 

 

 

96,697

 

 

 























Total

 

 

 

3,000

 

 

 

 

 

 

 

 

 

3,000

 

 

 

 

 

 

 























21


* On August 24, 2007 the Board of Directors of the Company authorized a stock repurchase program which calls for the repurchase of up to five percent (5%) of the Company’s then outstanding 2,863,635 shares of common stock, or 143,182 shares.

 

 

Item 6.

Exhibits

 

 

 

Exhibits


 

 

 

31: Rule 13a-14(a)/15d-14(a) Certifications

 

 

 

32: Section 1350 Certifications

22


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:

 

 

 

May 9, 2008.

By:     /s/ Thomas C. McGraw

 

 


 

 

Thomas C. McGraw

 

 

Chief Executive Officer

 

 

(Authorized Officer)

 

 

 

By:     /s/ David A. Curtis

 

 


 

 

David A. Curtis

 

 

Senior Vice President

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

23


EX-31.1 2 ex31_1.htm EXHIBIT 31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certifications

             I, Thomas C. Mc Graw, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 9, 2008.

/s/ Thomas C. McGraw

 


 

Thomas C. McGraw

 

Chief Executive Officer

24


EX-31.2 3 ex31_2.htm EXHIBIT 31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certifications

                      I, David A. Curtis, certify that:

 

 

 

1          I have reviewed this quarterly report on Form 10-Q of FNB Bancorp;

 

 

 

2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

 

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

 

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

 

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial instruments for external purposes in accordance with generally accepted accounting principles;

 

 

               c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

               d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:


 

 

 

 

a)

     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

 

 

b)

     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 

 

Date: May 9, 2008.

/s/ David A. Curtis

 


 

David A Curtis,

 

Senior Vice President and

 

Chief Financial Officer

25


EX-32 4 ex_32.htm EXHIBIT 32

Exhibit 32

Section 1350 Certifications

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of FNB Bancorp, a California corporation (the “Company”), does hereby certify that:

 

 

 

 

1.

The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

 

 

2.

Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.


 

 

Dated: May 9, 2008.

/s/ Thomas C. McGraw

 


 

Thomas C. Mc Graw

 

Chief Executive Officer

 

 

Dated: May 9, 2008.

/s/ David A. Curtis

 


 

David A. Curtis

 

Senior Vice President

 

and Chief Financial Officer

          A signed original of this statement required by Section 906 has been provided to FNB Bancorp and will be retained by FNB Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

26


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