FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

Quarter Ended		March 31, 2005
Commission File Number		0-10232

 

 

FIRST REGIONAL BANCORP

(Exact name of registrant as specified in its charter)

 

California		95-3582843
State or other jurisdiction of incorporation or organization		IRS Employer Identification Number
1801 Century Park East, Los Angeles, California		90067
Address of principal executive offices		Zip Code

 

(310) 552-1776

Registrant’s telephone number, including area code

 

Not applicable

Former name, former address, and former fiscal year, if changed since last report

 

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  ý   No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes  o  No  ý

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding in each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Common Stock, No Par Value		4,070,195
Class		Outstanding on May 6, 2005

 

 

FIRST REGIONAL BANCORP

INDEX

 

Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Condition (unaudited)
	Condensed Consolidated Statements of Earnings (unaudited)
	Condensed Consolidated Statements of Cash Flows (unaudited)
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II - Other Information
Item 1.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits
Signatures

 

2

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars In Thousands)

(Unaudited)

 

		March 31, 2005			December 31, 2004
ASSETS
Cash and due from banks		$	61,184		$	51,480
Federal funds sold		12,450			68,025
Cash and cash equivalents		73,634			119,505
Investment securities, available for sale, at fair value (with amortized cost of $15,081 in 2005 and $3,434 in 2004)		15,079			3,434
Interest-bearing deposits in financial institutions		3,249			3,236
Loans, net of allowance for losses of $13,355 in 2005 and $11,825 in 2004		1,237,975			1,144,229
Premises and equipment, net of accumulated depreciation		3,632			3,091
Accrued interest receivable and other assets		32,995			32,623
Total Assets		$	1,366,564		$	1,306,118
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Noninterest bearing		$	428,534		$	361,873
Interest bearing:
Savings deposits		35,513			38,914
Money market deposits		463,816			437,761
Time deposits		171,183			161,504
Total deposits		1,099,046			1,000,052
Federal Home Loan Bank advances		130,000			176,687
Note payable		525			562
Accrued interest payable and other liabilities		12,697			10,133
Subordinated debentures		41,238			41,238
Total Liabilities		1,283,506			1,228,672
Commitments and contingencies
Shareholders’ Equity:
Common Stock, no par value, 50,000,000 shares authorized; 4,064,000 and 4,051,000 shares outstanding in 2005 and 2004, respectively		48,306			47,970
Less: Unearned ESOP shares; 56,000 and 59,000 outstanding on 2005 and 2004, respectively		(497		)	(533		)
Total common stock, no par value; outstanding 4,008,000 and 3,992,000 in 2005 and 2004		47,809			47,437
Retained earnings		35,251			30,009
Net unrealized losses on available-for-sale securities		(2		)	0
Total Shareholders’ Equity		83,058			77,446
Total Liabilities and Shareholders’ Equity		$	1,366,564		$	1,306,118

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In Thousands Except Per Share Amounts)

(Unaudited)

 

		Three Months Ended March 31,
		2005			2004
INTEREST INCOME:
Interest and fees on loans		$	20,454		$	10,663
Interest on investment securities		21			8
Interest on deposits in financial institutions		16			8
Interest on federal funds sold		102			33
Total interest income		20,593			10,712
INTEREST EXPENSE:
Interest on deposits		2,231			992
Interest on subordinated debentures		525			375
Interest on FHLB advances		694			145
Interest on other borrowings		0			1
Total interest expense		3,450			1,513
Net interest income		17,143			9,199
PROVISION FOR LOAN LOSSES		1,200			887
Net interest income after provision for loan losses		15,943			8,312
OTHER OPERATING INCOME:
Customer service fees		1,366			1,162
Other, net		115			157
Total other operating income		1,481			1,319
OPERATING EXPENSES:
Salaries and related benefits		5,317			4,534
Occupancy expense		796			425
Equipment expense		216			193
Promotion expense		109			77
Professional service expense		578			437
Customer service expense		307			224
Supply/communication expense		263			232
Other expenses		736			719
Total operating expenses		8,322			6,841
Income before provision for income taxes		9,102			2,790
PROVISION FOR INCOME TAXES		3,860			1,128
NET INCOME		$	5,242		$	1,662
EARNINGS PER SHARE (Note 2)
Basic		$	1.31		$	0.59
Diluted		$	1.12		$	0.50

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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FIRST REGIONAL BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

		Three Months Ended March 31,
		2005			2004
OPERATING ACTIVITIES
Net Income		$	5,242		$	1,662
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,200			887
Depreciation and amortization		194			107
Accretion of investment security discounts		(21		)	(8		)
Net loss on sale/disposal of premises and equipment		3			0
Increase in interest receivable		(583		)	(195		)
Increase in interest payable		192			95
Increase in taxes payable		6,233			827
Net decrease (increase) in other assets		211			(2,163		)
Net (decrease) increase in other liabilities		(3,861		)	905
Net cash provided by operating activities		8,810			2,117
INVESTING ACTIVITIES
Increase in investment in time deposits with other financial institutions		(13		)	(7		)
Purchases of investment securities		(14,076		)	(1,449		)
Proceeds from maturities of investment securities		2,450			4,050
Decrease in guaranteed loans		537			756
Net increase in other loans		(95,483		)	(87,946		)
Proceeds from sale of premises and equipment		12			0
Purchases of premises and equipment		(750		)	(206		)
Net cash used in investing activities		(107,323		)	(84,802		)
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits, money market deposits, and other deposits		89,315			49,086
Net increase in time deposits		9,679			15,470
Decrease in note payable		(37		)	(37		)
Decrease in Federal Home Loan Bank advances		(46,687		)	(9,500		)
Issuance of subordinated debentures		0			7,732
Proceeds from issuance of common stock, net		0			16,395
Other changes in shareholders’ equity		372			(140		)
Net cash provided by financing activities		52,642			79,006
Decrease in cash and cash equivalents		(45,871		)	(3,679		)
Cash and cash equivalents, beginning of period		119,505			43,006
Cash and cash equivalents, end of period		$	73,634		$	39,327
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	3,257		$	1,417
Income taxes paid		$	1,842		$	300

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

 

FIRST REGIONAL BANCORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2005

(Unaudited)

 

NOTE 1 -                       First Regional Bancorp, a bank holding company (the “Company”), and one of its wholly-owned subsidiaries, First Regional Bank, a California state-chartered bank (the “Bank”), primarily serve Southern California through their branches. The Company’s primary source of revenue is providing loans to customers, which are predominantly small and midsize businesses.

 

Certain amounts in the 2004 financial statements have been reclassified to be comparable with the classifications used in the 2005 financial statements.

 

In the opinion of the Company, the interim condensed consolidated financial statements contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and the results of operations for the interim periods.  Interim results may not be indicative of annual operations.

 

While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company’s 2004 annual report on Form 10-K.

 

Stock Compensation Plans

 

At March 31, 2005, the Company had two stock-based employee incentive plans, which are described more fully in Note 11 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations.  No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant.  No stock options were granted during the first three months of 2005 or 2004.  The following table illustrates the pro forma net income and pro forma earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

 

		Three Months Ended
		March 31, 2005			March 31, 2004
Net income to common shareholders:
As Reported		$	5,242,000		$	1,662,000
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(62,000		)	(63,000		)
Pro forma net income		$	5,180,000		$	1,599,000
Basic earnings per share:
As reported		$	1.31		$	0.59
Pro forma		$	1.29		$	0.57
Diluted earnings per share:
As reported		$	1.12		$	0.50
Pro forma		$	1.11		$	0.48

 

6

 

Recent Accounting Pronouncements

 

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. This Statement supersedes APB Opinion No. 25, and its related implementation guidance, is a revision of SFAS No. 123, and amends SFAS No. 95, Statement of Cash Flows. This revision of SFAS No. 123 eliminates the ability for public companies to measure share-based compensation transactions at the intrinsic value allowed by APB Opinion No. 25, and requires that such transactions be accounted for based on the grant date fair value of the award. This Statement also amends SFAS No. 95, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. Under the intrinsic value method allowed under APB Opinion No. 25, the difference between the quoted market price as of the date of the grant and the contractual purchase price of the share is charged to operations over the vesting period, and no compensation expense is recognized for fixed stock options with exercise prices equal to the market price of the stock on the dates of grant. Under the fair value based method as prescribed by SFAS No. 123R, the Company is required to charge the value of all newly granted stock-based compensation to expense over the vesting period based on the computed fair value of the award on the grant date. Additionally, the fair value of the award is to be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period are to be recognized as compensation cost over that period. The Statement does not specify a valuation technique to be used to estimate the fair value but states that the use of option-pricing models such as a lattice model (e.g. a binomial model) or a closed-end model (e.g. the Black-Scholes model) would be acceptable. The revised accounting for stock-based compensation requirements must be adopted no later than the beginning of the first fiscal year beginning after June 15, 2005.

 

The Company will adopt this Standard effective January 1, 2006, using the modified prospective method, recording compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Currently, the Company does not recognize compensation expense for stock-based compensation. Management does not anticipate that this will have a material effect on the Company’s results of operations, financial position or cash flows. Had the Company adopted SFAS No. 123R in prior periods, the impact on net income and earnings per share would have been similar to the pro forma net income and earnings per share in accordance with SFAS No. 123 as previously disclosed.

 

NOTE 2 -                       Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during each period.  The computation of diluted earnings per share also considers the number of shares issuable upon the assumed exercise of outstanding common stock options and during 2004 the shares issuable upon the assumed conversion of convertible subordinated debentures.  A reconciliation of the numerator and the denominator used in the computation of basic and diluted earnings per share is:

 

7

 

		Three Months Ended March 31, 2005
		Income (Numerator)			Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS
Income available to common shareholders		$	5,242,000		4,001,000		$	1.31
Effect of Dilutive Securities
Incremental shares from assumed exercise of outstanding options					665,000		(0.19		)
Diluted EPS
Income available to common shareholders		$	5,242,000		4,666,000		$	1.12

 

		Three Months Ended March 31, 2004
		Income (Numerator)			Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS
Income available to common shareholders		$	1,662,000		2,829,000		$	0.59
Effect of Dilutive Securities
Incremental shares from assumed exercise of outstanding options					200,000		(0.04		)
Incremental shares from assumed conversion of convertible subordinated debentures		133,000			545,000		(0.05		)
Diluted EPS
Income available to common shareholders		$	1,795,000		3,574,000		$	0.50

 

NOTE 3 -                       As of March 31, 2005 the Bank had a total of $4,163,000 in standby letters of credit outstanding.  No losses are anticipated as a result of these transactions.

 

NOTE 4 -                       The Company’s comprehensive income includes all items which comprise net income plus the unrealized holding losses on available-for-sale securities.  For the three month periods ended March 31, 2005 and 2004, the Company’s comprehensive income was as follows:

 

		Three Months Ended
		March 31, 2005			March 31, 2004
		(Dollars in Thousands)
Net Income		$	5,242		$	1,662
Other comprehensive loss		(2		)	0
Total comprehensive income		$	5,240		$	1,662

 

NOTE 5 -                       Management has evaluated the Company’s overall operation and determined that its business consists of certain reportable business segments as of March 31, 2005 and 2004:  core banking operations, the administrative services in relation to TASC (as defined below), and Trust Services.  The following describes these three business segments:

 

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Core Bank Operations - The principal business activities of this segment are attracting funds from the general public and originating commercial and real estate loans for small and midsize businesses in Southern California.  This segment’s primary sources of revenue are interest income from loans and investment securities and fees earned in connection with loans and deposits.  This segment’s principal expenses consist of interest paid on deposits, personnel, and other general and administrative expenses.  Core banking services also includes the Bank’s merchant services operations, which provides credit card deposits and clearing services to retailers and other credit card accepting businesses, which generates fee income.

 

Administrative Services - The principal business activity of the Bank’s sudsidiary, Trust Administration Services Corporation (referred to as “Administrative Services” or “TASC”) is providing administrative services for self-directed retirement plans.  The primary source of revenue for this segment is fee income from self-directed accounts.  The segment’s principal expenses consist of personnel, rent, data processing, and other general and administrative expenses.

 

Trust Services - The principal business activity of this segment is providing trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters. The primary source of revenue for this segment is fee income.  The segment’s principal expenses consist of personnel, data processing, professional fees, and other general and administrative expenses.

 

Total assets of TASC at March 31, 2005 and December 31, 2004 were $869,000 and $651,000, respectively, and total assets of Trust Services at March 31, 2005 and December 31, 2004 were $51,000 and $55,000, respectively.  The remaining assets reflected on the balance sheets of the Company are associated with the core banking operations.

 

The following table shows the net income (in thousands) for the core banking operations, administrative services, and trust services for the three month periods ended March 31, 2005 and 2004.

 

		Three Month Period Ended March 31, 2005
		Core Banking Operations			Administrative Services			Trust Services			Combined Operations
Net interest income		$	17,143								$	17,143
Provision for loan losses		1,200									1,200
Other operating income		567			$	601		$	313		1,481
Other operating expenses		7,943			177			202			8,322
Provision for income taxes		3,641			174			45			3,860
Net income		$	4,926		$	250		$	66		$	5,242

 

		Three Month Period Ended March 31, 2004
		Core Banking Operations			Administrative Services			Trust Services			Combined Operations
Net interest income		$	9,199								$	9,199
Provision for loan losses		887									887
Other operating income		729			$	381		$	209		1,319
Other operating expenses		6,460			190			191			6,841
Provision for income taxes		1,043			78			7			1,128
Net income		$	1,538		$	113		$	11		$	1,662

 

In addition, the operations of the administrative services positively affect the results of core banking operations by providing a low-cost source of deposits.

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

SUMMARY

 

First Regional Bancorp did not conduct any significant business activities independent of First Regional Bank and the Bank’s subsidiary, TASC.  The following discussion and analysis relates primarily to the Bank.

 

For a more complete understanding of the Company and its operations reference should be made to the financial statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.  Certain statements in this report on Form 10-Q constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical fact, included herein may constitute forward-looking statements.  Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Important factors that could cause actual results to differ materially from management’s expectations include fluctuations in interest rates, inflation, government regulations, and economic conditions and competition in the geographic and business areas in which First Regional Bancorp conducts its operations.  For additional information concerning these factors, see “Item 1. Business” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

 

The Company has established various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company’s financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of assets and liabilities and the results of operations of the Company. The Company believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its condensed consolidated financial statements. In estimating the allowance for loan losses, management utilizes historical experience as well as other factors including the effect of changes in the local real estate market on collateral values, the effect on the loan portfolio of current economic indicators and their probable impact on borrowers and increases or decreases in nonperforming and impaired loans. Changes in these factors may cause management’s estimate of the allowance to increase or decrease and result in adjustments to the Company’s provision for loan losses.

 

As of March 31, 2005 total assets were $1,366,564,000 compared to $1,306,118,000 at December 31, 2004, an increase of $60,446,000 or 4.6% and the March 31, 2005 asset level represents an increase over the $857,797,000 that existed on the same date in 2004. The 2005 asset increase reflects a corresponding increase in total deposits of $98,994,000 or 9.9%, from $1,000,052,000 at the end of 2004 to $1,099,046,000 at March 31, 2005.  Overall deposits increased with the deposit growth being centered in money market deposits and noninterest bearing deposits while time and savings deposits remained relatively constant. There were several changes in the composition of the Bank’s assets during the first quarter. The Bank’s core loan portfolio grew significantly by $93,746,000 during the three month period, bringing the Bank’s total loans to $1,237,975,000 at March 31, 2005 from the December 31, 2004 total of $1,144,229,000.  The combined effect of the substantial increase in loans and the growth in deposits was a decrease in the level of total liquid

 

10

 

assets (cash and due from banks, Federal funds sold and investment securities). Investment securities increased by $11.6 million, while cash and cash equivalents (cash and due from banks and Federal funds sold) fell by $45.9 million in order to accommodate the changes that took place in the rest of the balance sheet.

 

The Company earned net income of $5,242,000 in the first quarter of 2005, compared to earnings of $1,662,000 in the three months ended March 31, 2004.

 

NET INTEREST INCOME

 

Net interest income is the excess of interest income earned on interest-earning assets over interest expense incurred on interest-bearing liabilities.  Interest income or expense are determined by the average volume of interest-bearing assets or liabilities, and the average rate of interest earned or paid on those assets or liabilities.  As was the case during 2004, in the first three months of 2005 the Company’s continued growth efforts resulted in an increase in interest earning assets, including loans.  The Bank’s core loan portfolio increased significantly during the first three months of 2005.  The 2005 asset growth reflects a corresponding increase in total deposits resulting from an increase in full service bank branches during 2003 and an increase in personnel in 2004 and 2005.

 

Total interest income increased by $9,881,000 (92%) for the three months ended March 31, 2005 compared to the same period in 2004 as total earning assets were substantially higher (59%) in 2005 than in 2004. The majority of the increase in interest income arises from a substantial increase of $9,791,000 (92%) in interest on loans from $10,663,000 for the three months ended March 31, 2004 compared to $20,454,000 for the same period in 2005. Although interest income increased reflecting an increase in the loan portfolio of $446,346,000 (56%) from March 31, 2004 to March 31, 2005, interest income was also affected by the Federal Reserve’s series of interest rate increases.  For the three months ended March 31, 2005 interest expense on deposits increased by $1,239,000 (125%), to $2,231,000 from the 2004 level of $992,000 due to an increase in total deposits of $370,544,000 (51%) from March 31, 2004 to March 31, 2005.  The increases in deposits were primarily in non-interest bearing demand deposit accounts, time deposits and money market deposits.  For the three months ended March 31, 2005 interest expense on subordinated debentures increased by $150,000 (40%), to $525,000 from the 2004 level of $375,000 due to an increase of $5,619,000 in subordinated debentures at March 31, 2005 compared to March 31, 2004.  The net result was an increase in net interest income of $7,944,000 (86%), from $9,199,000 in the first quarter of 2004 to $17,143,000 for the first three months of 2005.

 

Interest Rates and Interest Differential

 

The following table sets forth the average balances outstanding for major categories of interest earning assets and interest bearing liabilities and the average interest rates earned and paid thereon:

 

		For the Three Month Period Ended March 31,
		2005									2004
		Average Balance			Interest Income(2)/ Expense			Average Yield/ Rate%			Average Balance			Interest Income(2)/ Expense			Average Yield/ Rate%
		(Dollars in Thousands)
Interest Earning Assets:
Loans(1)		$	1,181,306		$	20,454		6.9	%		$	746,446		$	10,663		5.7	%
Investment Securities		4,430			21			1.9	%		3,561			8			0.9	%
Interest-bearing deposits in financial institutions		3,241			16			2.0	%		3,019			8			1.1	%
Federal Funds Sold		17,572			102			2.3	%		13,898			33			0.9	%
Total Interest Earning Assets		$	1,206,549		$	20,593		6.8	%		$	766,924		$	10,712		5.6	%

 

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		For the Three Month Period Ended March 31,
		2005									2004
		Average Balance			Income(2)/ Expense			Yield/ Rate%			Average Balance			Income(2)/ Expense			Yield/ Rate%
		(Dollars in Thousands)
Interest Bearing Liabilities:
Savings deposits		$	7,072		$	16		0.9	%		$	6,871		$	12		0.7	%
Money market accounts		477,549			1,355			1.1	%		292,170			518			0.7	%
Time deposits		163,420			860			2.1	%		139,099			462			1.3	%
Subordinated debentures		41,238			525			5.1	%		28,991			375			5.2	%
FHLB advances and other borrowings		111,821			694			2.5	%		53,489			146			1.1	%
Total interest bearing liabilities		$	801,100		$	3,450		1.7	%		$	520,620		$	1,513		1.2	%

 

(1)                                  This figure reflects total loans, including non-accrual loans, and is not net of the allowance for losses, which had an average balance in the first quarter of $12,747,000 in 2005 and $8,129,000 in 2004.

 

(2)                                  Includes loan fees in the first quarter of $1,642,000 in 2005 and $967,000 in 2004.

 

The following table shows the net interest earnings and the net yield on average interest earning assets:

 

		For the Three Month Period Ended March 31,
		2005			2004
		(Dollars in Thousands)
Total interest income (1)		$	20,593		$	10,712
Total interest expense		3,450			1,513
Net interest earnings		$	17,143		$	9,199
Average interest earning assets		$	1,206,549		$	766,924
Average interest bearing liabilities		$	801,100		$	520,620
Net yield on average interest earning assets		5.7		%	4.8		%

 

(1)                                  Includes loan fees in the first quarter of $1,642,000 in 2005 and $967,000 in 2004.

 

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The following table sets forth changes in interest income and interest expense.  The net change as shown in the column “Net Increase (Decrease)” is segmented into the change attributable to variations in volume and the change attributable to variations in interest rates.  Non-performing loans are included in average loans.

 

		Net Increase (Decrease) For the Three Month Periods Ended March 31, 2005 over 2004
		Volume			Rate			Net
		(Dollars in Thousands)
Interest Income(1)
Loans (2)		$	7,178		$	2,613		$	9,791
Interest-bearing deposits In financial institutions		8			0			8
Investment securities		2			11			13
Funds sold		11			58			69
Total interest earning assets		$	7,199		$	2,682		$	9,881
Interest Expense (1)
Savings		$	0		$	4		$	4
Money market		430			407			837
Time		92			306			398
Subordinated debentures		156			(6		)	150
FHLB advances and other borrowings		253			295			548
Total interest bearing liabilities		$	931		$	1,006		$	1,937

 

(1)                                  The change in interest due to both rate and volume has been allocated to the change due to volume and the change due to rate in proportion to the relationship of the absolute dollar amounts of the change in each.

 

(2)                                  Includes loan fees in the first quarter of $1,642,000 in 2005 and $967,000 in 2004.

 

OTHER OPERATING INCOME

 

Other operating income rose to $1,481,000 in the first quarter of 2005 from $1,319,000 in the three months ended March 31, 2004.  The Bank’s Trust Administration Services Corp., a wholly owned subsidiary that provides administrative and custodial services to self-directed retirement plans, had revenue which increased from $381,000 in first quarter of 2004 to $601,000 in the first quarter of 2005. The increase in TASC revenues relates to both an increase in the structure of fees charged to customers and an increase in the number of customer accounts as a result of an aggressive marketing program.  The Bank’s Trust Department, that provides trust services for living trusts, investment agency accounts, IRA rollovers, and all forms of court-related matters, had revenue of $313,000 in first quarter of 2005 and $209,000 in first quarter of 2004.  The Bank’s merchant services operation, which provides credit card deposit and clearing services to retailers and other credit card accepting businesses, had revenue that

 

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