SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 3)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2006, or
[ ] Transition report pursuant to Section 13 or 15 (d) of Securities Exchange
Act of 1934
Commission File No. 000-49693
FNB BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 92-2115369
---------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
975 El Camino Real, South San Francisco, California 94080
---------------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
(650) 588-6800
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: ____________
Title of Class: Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this 10-K [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
Aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant, computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrant's most
recently completed second fiscal quarter: $80,097,545
Number of shares outstanding of each of the registrant's classes of common
stock, as of October 30, 2007
No par value Common Stock - 2,828,936 Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated
by reference into this Form 10-K: Part III, Items 10 through 14 from
Registrant's definitive proxy statement for the 2007 annual meeting of
shareholders.
2
EXPLANATORY NOTE
This Form 10-K/A amends our report on Form 10-K for the fiscal year ended
December 31, 2006 solely for the purpose of amending the Report of Independent
Registered Public Accounting Firm on Internal Control over Financial Reporting,
which appeared on page 50 of the original report on Form 10-K for the fiscal
year ended December 31, 2006, to include our independent registered public
accounting firm's opinion on (i) management's assessment of the effectiveness of
internal control over financial reporting; and (ii) the effectiveness of our
internal control over financial reporting in all material respects. The amended
Report of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting (the "Amended Report") set forth below includes these
opinions. In addition, we have included as exhibits to this Form 10-K/A: (i)
currently dated certifications from our Chief Executive Officer and Chief
Financial Officer, and (ii) a Consent of Independent Registered Public
Accounting Firm to use of the Amended Report in certain Securities Act filings
into which the Amended Report is incorporated by reference. Also included is the
Report of Independent Registered Public Accounting firm of KPMG LLP, covering
the accompanying consolidated states of earnings, stockholder's equity and
comprehensive income and cash flows of FNB Bancorp and Subsidiary for the year
ended December 31, 2004. Management acknowledges that we are responsible for the
adequacy and accuracy of all of the disclosures in the filing.
Except as described above, no attempt has been made in this Form 10-K/A to
modify or update other disclosures presented in the original report on Form 10-K
for the fiscal year ended December 31, 2006. Accordingly, this Form 10-K/A does
not reflect events occuring after the date of the original filing of the Form
10-K or modify or update those disclosures affected by subsequent events.
Consequently, all other information not affected by this Form 10-K/A is
unchanged by this Form 10-K/A and reflects the disclosures made at the time of
the original filing of the Form 10-K on March 14, 2007. For a description of
subsequent events, this Form 10-K/A should be read in conjunction with our
filings made subsequent to March 14, 2007, including our report on Form 10-Q for
the quarters ended March 31, and June 30, 2007 and each of our reports on Form
8-K since March 14, 2007.
FNB BANCORP
Unless the context otherwise requires, all references to this Annual Report on
Form 10-K/A to "the Company" refer to FNB Bancorp and its subsidiary, first
National Bank of Northern California.
3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Reports of Independent Registered Public Accounting Firms .................................................................. 50
Consolidated Balance Sheets, December 31, 2006 and 2005 .................................................................... 53
Consolidated Statements of Earnings for the years ended December 31, 2006, 2005 and 2004 ................................... 54
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 31, 2006, 2005
and 2004 ................................................................................................................. 55
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004 ................................. 56
Notes to Consolidated Financial Statements ................................................................................. 57
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Directors
FNB Bancorp
We have audited the accompanying consolidated balance sheets of FNB Bancorp and
subsidiary (the Company) as of December 31, 2006 and 2005 and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income and cash flows for the two years ended December 31, 2006. We have also
audited management's assessment, included in the accompanying Management Report
on Internal Control over Financial Reporting, that the Company maintained
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is responsible for these financial statements,
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an
opinion on management's assessment, and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether internal control over
financial reporting was maintained in all material respects. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. An audit of internal
control over financial reporting includes obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed 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. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made in accordance with authorizations of management and directors of the
company; and (3) provide
50
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
the effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FNB Bancorp and subsidiary as
of December 31, 2006 and 2005 and the results of their operations and cash flows
for the two years ended December 31, 2006 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion management's assessment that FNB Bancorp and subsidiary maintained
effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on criteria established in
Internal Control - Integrated Framework issued by the COSO. Furthermore, in our
opinion, FNB Bancorp and subsidiary maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control - Integrated Framework issued
by the COSO.
As discussed in notes 1 and 16 to the financial statements, effective January 1,
2006, the Company changed its method of accounting for share-based payment
arrangements to conform to Statement of Financial Accounting Standard No.
123(R), "Share-Based Payment".
/s/ Moss Adams LLP
Stockton, California
March 14, 2007
51
KPMG
[GRAPHIC LOGO OMITTED]
KPMG LLP
55 Second Street
San Francisco, CA 94105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders FNB Bancorp:
We have audited the accompanying consolidated balance sheets of FNB Bancorp and
subsidiary (the Company) as of December 31, 2004 and 2003, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
March 3, 2005
52
FNB BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2006 and 2005
2006 2005
----------- -----------
Assets
Cash and due from banks 18,297,000 19,068,000
Federal funds sold 8,725,000 16,230,000
----------- -----------
Cash and cash equivalents 27,022,000 35,298,000
Securities available-for-sale 94,945,000 113,463,000
Loans, net 419,437,000 380,224,000
Bank premises, equipment, and leasehold improvements 13,476,000 12,028,000
Other real estate owned -- 2,600,000
Goodwill 1,841,000 1,841,000
Accrued interest receivable and other assets 24,549,000 23,860,000
----------- -----------
Total Assets 581,270,000 569,314,000
=========== ===========
Liabilities and stockholders' equity
Deposits:
Demand, noninterest bearing 123,884,000 123,641,000
Demand, interest bearing 60,378,000 62,581,000
Savings 162,915,000 180,489,000
Time 134,390,000 140,833,000
----------- -----------
Total deposits 481,567,000 507,544,000
----------- -----------
Federal Home Loan Bank advances 30,000,000 --
Accrued expenses and other liabilities 7,640,000 6,527,000
----------- -----------
Total liabilities 519,207,000 514,071,000
----------- -----------
Commitments and contingencies (notes 9 and 13)
Stockholders' equity:
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 2,853,000 and 2,700,000 shares
on December 31, 2006 and 2005, respectively 39,824,000 34,793,000
Additional paid-in capital 141,000 19,000
Retained earnings 22,102,000 20,832,000
Accumulated other comprehensive loss (4,000) (401,000)
----------- -----------
Total stockholders' equity 62,063,000 55,243,000
----------- -----------
Total liabilities and stockholders' equity 581,270,000 569,314,000
=========== ===========
See accompanying notes to consolidated financial statements.
53
FNB BANCORP AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 2006, 2005 and 2004
2006 2005 2004
------------ ------------ -----------
Interest income:
Interest and fees on loans $ 31,898,000 $ 26,754,000 21,226,000
Interest and dividends on securities 2,576,000 2,173,000 1,418,000
Interest on tax-exempt securities 2,039,000 1,512,000 1,250,000
Federal funds sold 683,000 293,000 152,000
------------ ------------ -----------
Total interest income 37,196,000 30,732,000 24,046,000
Interest expense:
Deposits 8,839,000 5,440,000 2,460,000
Federal Home Loan Bank advances 880,000 41,000 --
Federal funds purchased 102,000 52,000 73,000
------------ ------------ -----------
Total interest expense 9,821,000 5,533,000 2,533,000
------------ ------------ -----------
Net interest income 27,375,000 25,199,000 21,513,000
Provision for loan losses 683,000 628,000 408,000
------------ ------------ -----------
Net interest income after provision for loan losses 26,692,000 24,571,000 21,105,000
------------ ------------ -----------
Noninterest income:
Gain on sale of other equity securities 1,352,000 -- --
Gain on sale of other real estate owned 756,000 -- --
Service charges 2,463,000 2,305,000 2,500,000
Credit card fees 839,000 856,000 886,000
Gain (loss) on impairment and sale of investment securities (11,000) (101,000) (31,000)
Other 860,000 781,000 432,000
------------ ------------ -----------
Total noninterest income 6,259,000 3,841,000 3,787,000
------------ ------------ -----------
Noninterest expense:
Salaries and employee benefits 12,300,000 11,344,000 10,521,000
Occupancy expense 1,728,000 1,444,000 1,288,000
Equipment expense 1,665,000 1,624,000 1,662,000
Advertising expense 770,000 710,000 472,000
Data processing expense 452,000 416,000 344,000
Professional fees 1,278,000 952,000 1,086,000
Director expense 207,000 180,000 180,000
Surety insurance 479,000 555,000 479,000
Telephone, postage, supplies 1,056,000 939,000 1,103,000
Bankcard expenses 797,000 802,000 803,000
Other 1,028,000 1,289,000 689,000
------------ ------------ -----------
Total noninterest expense 21,760,000 20,255,000 18,627,000
------------ ------------ -----------
Earnings before income tax expense 11,191,000 8,157,000 6,265,000
Income tax expense 3,609,000 2,429,000 1,577,000
------------ ------------ -----------
Net earnings $ 7,582,000 $ 5,728,000 4,688,000
============ ============ ===========
Earnings per share data:
Basic $ 2.67 $ 2.02 $ 1.63
Diluted $ 2.60 $ 1.98 $ 1.60
Weighted average shares outstanding:
Basic weighted average shares outstanding 2,845,000 2,834,000 2,883,000
Diluted weighted average shares outstanding 2,915,000 2,893,000 2,934,000
See accompanying notes to consolidated financial statements.
54
FNB BANCORP AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 2006, 2005 and 2004
Accumulated
Common stock Additional other
----------------------- paid-in Retained comprehensive Comprehensive
Shares Amount capital earnings income income Total
--------- ------------ ---------- ---------- ------------- ------------- ----------
Balance at December 31, 2003 2,519,000 $ 28,903,000 3,000 22,041,000 1,040,000 51,987,000
Net earnings -- -- -- 4,688,000 -- 4,688,000 4,688,000
Other comprehensive income:
Unrealized gain on securities, net of
tax benefit of $330,000 -- -- -- -- (474,000) (474,000) (474,000)
-------------
Comprehensive income $ 4,214,000
=============
Cash dividends of $0.12 per share,
quarterly -- -- -- (1,210,000) -- -- (1,210,000)
Special cash dividend of $0.12 per share (316,000) (316,000)
Stock dividend of 5% 124,000 4,514,000 (4,514,000) --
Stock-based compensation
expense -- -- 6,000 -- -- 6,000
Stock repurchased and retired (69,000) (2,324,000) -- -- -- (2,324,000)
Stock options exercised 12,000 272,000 -- -- -- 272,000
--------- ------------ ---------- ---------- ------------- ----------
Balance at December 31, 2004 2,586,000 31,365,000 9,000 20,689,000 566,000 52,629,000
Net earnings -- -- -- 5,728,000 -- 5,728,000 5,728,000
Other comprehensive income:
Unrealized loss on securities,
net of tax benefit of $671,000 -- -- -- -- (967,000) (967,000) (967,000)
-------------
Comprehensive income $ 4,761,000
=============
Cash dividends of $0.15
per share, quarterly -- -- -- (1,535,000) -- (1,535,000)
Stock dividend of 5% 128,000 4,043,000 (4,043,000) --
Cash on fractional shares related
to stock dividend (7,000) (7,000)
Stock-based compensation
expense -- -- 10,000 -- -- 10,000
Stock repurchased and retired (21,000) (765,000) -- -- -- (765,000)
Stock options exercised 7,000 150,000 -- -- -- 150,000
--------- ------------ ---------- ---------- ------------- ----------
Balance at December 31, 2005 2,700,000 34,793,000 19,000 20,832,000 (401,000) 55,243,000
Net earnings -- -- -- 7,582,000 -- 7,582,000 7,582,000
Other comprehensive income:
Unrealized gain on securities,
net of tax provision of
$276,000 -- -- -- -- 397,000 397,000 397,000
-------------
Comprehensive income $ 7,979,000
=============
Cash dividends of $0.15 per share
share, quarterly -- -- -- (1,625,000) -- (1,625,000)
Stock dividend of 5% 136,000 4,679,000 (4,679,000) --
Stock-based compensation expense 39,000 39,000
Cash on fractional shares related
To stock dividend expense (8,000) (8,000)
Stock repurchased and retired (2,000) (73,000) -- -- -- (73,000)
Stock options exercised, including
tax benefit of $83,000 19,000 425,000 83,000 -- -- 508,000
--------- ------------ ---------- ---------- ------------- ----------
Balance at December 31, 2006 2,853,000 $ 39,824,000 141,000 22,102,000 (4,000) 62,063,000
========= ============ ========== ========== ============= ==========
See accompanying notes to consolidated financial statements.
55
FNB BANCORP AND SUBSIDIARY
Consolidated Statements of Cash Flows
December 31, 2006, 2005 and 2004
2006 2005 2004
------------- ------------- -------------
Cash flows from operating activities:
Net earnings $ 7,582,000 5,728,000 4,688,000
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation, amortization and accretion, net 1,220,000 1,594,000 1,790,000
Loss on sale of investment securities 11,000 101,000 31,000
Gain on sale of other equity securities (1,352,000)
Securities write-down -- 116,000 --
Stock-based compensation expense 39,000 10,000 6,000
Gain on sale of other real estate owned (756,000)
Provision for loan losses 683,000 600,000 480,000
Deferred taxes (7,000) (181,000) 74,000
Changes in assets and liabilities:
Accrued interest receivable and other assets 669,000 (5,149,000) (6,422,000)
Accrued expenses and other liabilities 1,011,000 1,720,000 2,083,000
------------- ------------- -------------
Net cash provided by operating activities 9,100,000 4,539,000 2,730,000
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sold, matured, called securities available-for-sale 65,092,000 31,207,000 34,203,000
Purchases of securities available-for-sale (45,949,000) (43,386,000) (74,689,000)
Proceeds from sale of other real estate owned 3,356,000 -- --
Net decrease (increase) in loans (40,069,000) 892,000 (28,457,000)
Proceeds from sales of bank premises, equipment, and
leasehold improvements 541,000 156,000 121,000
Purchases of bank premises, equipment, and leasehold
Improvements (3,172,000) (1,733,000) (2,101,000)
Cash and equivalents received in bank acquisition, net of cash paid -- 9,602,000 --
------------- ------------- -------------
Net cash used in investing activities (20,201,000) (3,262,000) (70,923,000)
------------- ------------- -------------
Cash flows from financing activities:
Net increase (decrease) in demand and savings deposits (19,534,000) 16,215,000 39,392,000
Net increase (decrease) in time deposits (6,443,000) 22,051,000 (353,000)
Net increase in Federal Home Loan Bank advances 30,000,000
Net (decrease) increase in federal funds purchased -- (19,172,000) 19,172,000
Cash dividends paid (1,633,000) (1,542,000) (1,526,000)
Repurchases of common stock (73,000) (765,000) (2,324,000)
Exercise of stock options including tax benefit of $83,000 in 2006 508,000 150,000 272,000
------------- ------------- -------------
Net cash provided by financing activities 2,825,000 16,937,000 54,633,000
------------- ------------- -------------
Net increase (decrease) in cash and cash Equivalents (8,276,000) 18,214,000 (13,560,000)
Cash and cash equivalents at beginning of year 35,298,000 17,084,000 30,644,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 27,022,000 35,298,000 17,084,000
============= ============= =============
Additional cash flow information:
Interest paid $ 9,533,000 4,980,000 2,467,000
Income taxes paid 4,020,000 2,224,000 1,691,000
Noncash - stock dividend 4,679,000 4,043,000 4,514,000
See accompanying notes to consolidated financial statements.
56
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(1) The Company and Summary of Significant Accounting Policies
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.
The Bank and the Company entered into an Agreement and Plan of
Reorganization dated November 1, 2001 (the Plan of Reorganization), and
the shareholders of the Bank approved the Plan of Reorganization at a
Special Meeting of the Shareholders of the Bank held on February 27, 2002.
The Plan of Reorganization was consummated on March 15, 2002. Each
outstanding share of the common stock, par value $1.25 per share, of the
Bank (other than any shares as to which dissenters' rights of appraisal
have been properly exercised) was converted into one share of the no par
common stock of the Company, and the former holders of Bank common stock
became the holders of all of the Company common stock. The change in
capital structure has been included for all periods presented.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and revenue and expenses during the reporting period. Actual results could
differ from those estimates. For the Bank, the significant accounting
estimate is the allowance for loan losses (note 1f). A summary of the
significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.
(a) Basis of Presentation
The accounting and reporting policies of the Company and its wholly
owned subsidiary are in accordance with accounting principles
generally accepted in the United States of America. All intercompany
balances and transactions have been eliminated.
57
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(b) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from
banks, and federal funds sold. Generally, federal funds are sold for
one-day periods. The cash equivalents are readily convertible to
known amounts of cash and present insignificant risk of changes in
value due to original maturity dates of 90 days or less. Included in
cash and cash equivalents are amounts restricted for the Federal
Reserve requirement of approximately $1,219,000 and $2,358,000 at
December 31, 2006 and 2005, respectively.
(c) Investment Securities
Investment securities consist of U.S. Treasury securities, U.S.
agency securities, obligations of states and political subdivisions,
obligations of U.S. corporations, mortgage-backed securities and
other securities. At the time of purchase of a security, the Company
designates the security as held-to-maturity or available-for-sale,
based on its investment objectives, operational needs, and intent to
hold. The Company does not purchase securities with the intent to
engage in trading activity. Held to maturity securities are recorded
at amortized cost, adjusted for amortization of premiums or
accretion of discounts. The Company did not have any investments in
the held-to-maturity portfolio at December 31, 2006 or 2005.
Available-for-sale securities are recorded at fair value with
unrealized holding gains or losses, net of the related tax effect,
reported as a separate component of stockholders' equity until
realized.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary results in a charge to earnings and the corresponding
establishment of a new cost basis for the security. Amortization of
premiums and accretion of discounts on debt securities are included
in interest income over the life of the related held-to-maturity or
available-for-sale security using the effective interest method.
Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the
specific identification method for determining the cost of
securities sold.
(d) Derivatives
All derivatives are recognized as either assets or liabilities in
the balance sheet and measured at fair value. The Company did not
hold any derivatives at December 31, 2006 and 2005.
58
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(e) Loans
Loans are reported at the principal amount outstanding, net of
deferred loan fees and the allowance for loan losses. A loan is
considered impaired when, based on current information and events,
it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. For a loan that
has been restructured, the contractual terms of the loan agreement
refer to the contractual terms specified by the original loan
agreement, not the contractual terms specified by the restructuring
agreement. An impaired loan is measured based upon the present value
of future cash flows discounted at the loan's effective rate, the
loan's observable market price, or the fair value of collateral if
the loan is collateral dependent. Interest on impaired loans is
recognized on a cash basis. If the measurement of the impaired loan
is less than the recorded investment in the loan, an impairment is
recognized by a charge to the allowance for loan losses.
Unearned discount on installment loans is recognized as income over
the terms of the loans by the interest method. Interest on other
loans is calculated by using the simple interest method on the daily
balance of the principal amount outstanding.
Loan fees net of certain direct costs of origination, which
represent an adjustment to interest yield, are deferred and
amortized over the contractual term of the loan using the interest
method.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full and
timely collection of interest or principal when a loan becomes
contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on nonaccrual status, all
interest previously accrued but not collected is reversed against
current period interest income. Interest accruals are resumed on
such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and
interest. Restructured loans are loans on which concessions in terms
have been granted because of the borrowers' financial difficulties.
Interest is generally accrued on such loans in accordance with the
new terms. Net interest written off in 2006 was not considered
material (see Allowance for Loan Losses caption on page 34 in the
Management Discussion and Analysis section).
59
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(f) Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged off against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb probable
losses inherent in existing loans, standby letters of credit,
overdrafts, and commitments to extend credit based on evaluations of
collectibility and prior loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans and current and anticipated economic
conditions that may affect the borrowers' ability to pay. While
management uses these evaluations to determine the level of the
allowance for loan losses, future provisions may be necessary based
on changes in the factors used in the evaluations.
Material estimates relating to the determination of the allowance
for loan losses are particularly susceptible to significant change
in the near term. Management believes that the allowance for loan
losses is adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, the
banking regulators, as an integral part of its examination process,
periodically review the Bank's allowance for loan losses. The
banking regulators may require the Bank to recognize additions to
the allowance based on their judgment about information available to
them at the time of their examination.
(g) Premises and Equipment
Premises and equipment are reported at cost less accumulated
depreciation using the straight-line method over the estimated
service lives of related assets ranging from 3 to 50 years original
life. Those set up for 50 years were before 1986, when the IRS rules
shortened the allowable lives for assets. Leasehold improvements are
amortized over the lives of the respective leases or the service
lives of the improvements, whichever is shorter.
(h) Cash Dividends
The Company's ability to pay cash dividends is subject to
restrictions set forth in the California General Corporation Law.
Funds for payment of any cash
60
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
dividends by the Company would be obtained from its investments as
well as dividends and/or management fees from First National Bank.
First National Bank's ability to pay cash dividends is subject to
restrictions imposed under the National Bank Act and regulations
promulgated by the Office of the Comptroller of the Currency.
(i) Stock Dividend
On October 27, 2006, the Company announced that its Board of
Directors had declared a stock dividend of approximately 135,947
shares, payable at the rate of one share of Common Stock for every
twenty (20) shares of Common Stock owned. The stock dividend was
paid on December 15, 2006, to shareholders of record on December 1,
2006. The earnings per share data presented have been adjusted for
this stock dividend.
(j) Income Taxes
Deferred income taxes are determined using the assets and
liabilities method. Under this method, the net deferred tax asset or
liability is recognized for tax consequences of temporary
differences by applying current tax rates to differences between the
financial reporting and the tax basis of existing assets and
liabilities. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes.
(k) Earnings per Share
Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding. Diluted earnings per
share reflects potential dilution from outstanding stock options,
using the treasury stock method. There were no antidilutive shares
in the years ended December 31, 2006, 2005 and 2004. For each of the
years presented, net income is the same for basic and diluted
earnings per share. Reconciliation of weighted average shares used
in computing basic and diluted earnings per share is as follows:
61
Year ended December 31,
---------------------------------
2006 2005 2004
--------- --------- ---------
Weighted average common shares outstanding-used
in computing basic earnings per share 2,845,000 2,834,000 2,883,000
Dilutive effect of stock options outstanding,
using the treasury stock method 70,000 59,000 51,000
Shares used in computing diluted earnings per share 2,915,000 2,893,000 2,934,000
(l) Stock Option Plans
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment". This Statement requires that compensation
costs related to share-based payment transactions be recognized in
the financial statements. Measurement of the cost of stock options
granted is based on the grant-date fair value of each stock option
granted using the Black-Scholes valuation model. The cost is then
amortized to expense ratably over each option's five year vesting
period. The amortized expense of the stock option's fair value has
been included in salaries and employee benefits expense for the
three years ended December 31, 2006, 2005 and 2004. Net income and
earnings per share calculations include the amortized cost of stock
options that vested during each year.
Effective January 1, 2006, the Company adopted SFAS No. 123(R)
"Share-Based Payment", on a modified prospective basis.
The expected term of options granted is derived from the output of
the option valuation model and represents the period of time that
options granted are expected to be outstanding. The risk-free rate
for periods within the contractual life of the option is based on
the U. S. Treasury yield curve in effect at the time of the grant.
FNB Bancorp stock has limited liquidity and limited trading
activity. Volatility was calculated using historical price changes
on a monthly basis over the expected life of the option.
(m) Fair Values of Financial Instruments
The notes to financial statements include various estimated fair
value information as of December 31, 2006 and 2005. Such
information, which pertains to the Company's financial instruments,
does not purport to represent the aggregate net fair value of the
Company. Further, the fair value estimates are based on various
assumptions, methodologies and subjective consideration, which vary
widely among different financial institutions and which are subject
to change.
62
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(n) Income Tax Credits
At December 31, 2006, the Bank had a $2,077,000 equity investment in
three partnerships, which own low-income affordable housing projects
that generate tax benefits in the form of federal and state housing
tax credits. As a limited partner investor in these partnerships,
the Company receives tax benefits in the form of tax deductions from
partnership operating losses and federal and state income tax
credits. The federal and state income tax credits are earned over a
10-year period as a result of the investment properties meeting
certain criteria and are subject to recapture for noncompliance with
such criteria over a 15-year period. The expected benefit resulting
from the low-income housing tax credits is recognized in the period
for which the tax benefit is recognized in the Company's
consolidated tax returns. These investments are accounted for using
the effective yield method and are recorded in other assets on the
balance sheet. Under the effective yield method, the Company
recognizes tax credits as they are allocated and amortizes the
initial cost of the investments to provide a constant effective
yield over the period that tax credits are allocated to the Company.
The effective yield is the internal rate of return on the
investment, based on the cost of the investment and the guaranteed
tax credits allocated to the Company. Any expected residual value of
the investment was excluded from the effective yield calculation.
Cash received from operations of the limited partnership or sale of
the properties, if any, will be included in earnings when realized
or realizable. These investments are included in other securities in
securities available-for-sale.
(o) Reclassifications
Certain prior year information has been reclassified to conform to
current year presentation.
63
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005, and 2004
(p) Bank Owned Life Insurance
The Corporation purchased insurance on the lives of certain
employees. The policies accumulate asset values to meet future
liabilities including the payment of employee benefits such as the
deferred compensation plan. Increases in the cash surrender value
are recorded as other noninterest income in the consolidated
statements of income. The cash surrender value of bank owned life
insurance is reflected in other assets on the consolidated balance
sheets in the amount of $7,267,000 and $7,011,000 at December 31,
2006 and 2005, respectively.
(q) Acquisition
On May 2, 2005, the Company announced that its wholly owned
subsidiary, First National Bank of Northern California, completed
its acquisition of Sequoia National Bank, which had two offices in
San Francisco. Sequoia was consolidated with and merged into First
National Bank of Northern California effective April 30, 2005.
Sequoia had approximately $62,000,000 in total assets on an
historical cost basis. A table showing the fair values of the assets
acquired follows this note. Under the terms of the Acquisition
Agreement, holders of Sequoia shares of common stock and options
received approximately $10,450,000 in cash, after adjustments for
certain contingencies specified in the Acquisition Agreement. At
closing of the transaction $9,350,000 was paid to the former Sequoia
National Bank shareholders, and on November 1, 2005, after
submission and payment of all such claims and expenses, the escrow
was terminated and the approximately $1,100,000, the balance of
funds remaining in escrow, was distributed to the former
shareholders of Sequoia National Bank in accordance with their
interests. Effective April 30, 2005, the former banking offices of
Sequoia National Bank began operating as branch offices of First
National Bank of Northern California. In accordance with SFAS No.
141 the Bank recorded the assets acquired and liabilities assumed at
their fair values at the acquisition date. The total acquisition
cost exceeded the fair value of the new assets acquired by
$4,781,000. This amount was recognized at acquisition date as
intangible assets consisting of Goodwill of $3,235,000, Loan Premium
of $271,000 and Core Deposit intangibles of $1,275,000. Goodwill has
been adjusted for tax benefits of $1,394,000, net of deferred income
tax liability of $525,000, related to Sequoia National Bank net
operating losses that became available to the Company, the Core
Deposit Intangibles, and the book reserve for possible loan losses.
The tax benefits (Net deferred tax assets) are included in Other
Assets, and the Loan Premium included in Net Loans in the table
shown below.
64
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed by First National Bank of
Northern California at the date of the acquisition:
Assets:
Cash and due from banks $ 3,218,000
Federal funds sold 17,365,000
Securities available for sale 627,000
Loans, net 40,652,000
Other assets 2,210,000
Core deposit intangibles 1,275,000
Goodwill 1,841,000
------------
Total Assets 67,188,000
------------
Liabilities:
Deposits:
Noninterest-bearing 6,945,000
Interest-bearing 49,080,000
------------
Total deposits 56,025,000
Accrued interest payable and other liabilities 274,000
------------
Total Liabilities 56,299,000
------------
Net Assets $ 10,889,000
------------
The following table summarizes the carrying amount of goodwill:
Gross acquisition consideration in excess
of identifiable asset values $ 4,781,000
Less allocation to the following:
Core deposit premium 1,275,000
Loan premium 271,000
Deferred tax asset 1,394,000
Goodwill at December 31, 2005 $ 1,841,000
65
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
During 2006 and 2005, Core Deposit Intangible and Loan Premium were
amortized $106,000 and $15,000, respectively.
In accordance with SFAS No. 142 "Goodwill and Other Intangible
Assets", goodwill will not be expensed over a fixed period of time,
but will be tested for impairment at least annually. None of the
goodwill is deductible for income tax purposes. Identifiable
intangible assets, namely core deposit intangibles and premium on
loans, are amortized over their period of benefit. In the fourth
quarter of 2006, the annual review of goodwill for impairment was
performed, and it was determined that no adjustment was necessary.
Additionally, the core deposit intangible and loan premium were
evaluated for impairment at the end of each quarter, and no
adjustments were determined to be necessary.
66
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The following table shows proforma earnings of FNB Bancorp and its subsidiary
combined with Sequoia National Bank as if the acquisition had taken place as of
January 1, 2004:
(thousands, except per share data) Consolidated Statements of Earnings
Year ended December 31
2005 2004
-------------- -------------
Interest income $ 31,858 $ 27,379
Interest expense 5,836 3,402
-------------- -------------
Net interest income 26,022 23,977
Provision for loan losses 610 480
-------------- -------------
Net interest income after
provision for loan losses 25,412 23,497
Noninterest income 3,938 4,136
Noninterest expense 21,860 21,310
-------------- -------------
Earnings before income tax expense 7,490 6,323
Income tax expense 2,232 1,593
-------------- -------------
Net earnings $ 5,258 $ 4,730
============== =============
Earnings per share data:
Basic $ 1.95 $ 1.72
Diluted $ 1.91 $ 1.69
Weighted average shares outstanding:
Basic 2,699,000 2,748,000
Diluted 2,758,000 2,799,000
(2) Restricted Cash Balance
Cash and due from banks includes balances with the Federal Reserve Bank
(the FRB). The Bank is required to maintain specified minimum average
balances with the FRB, based primarily upon the Bank's deposit balances.
As of December 31, 2006 and 2005, the Bank maintained deposits in excess
of the FRB reserve requirement.
67
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(3) Securities Available-for-Sale
The amortized cost and carrying values of securities available-for-sale
are as follows:
Amortized Unrealized Unrealized Carrying
cost gains losses Value
December 31, 2006:
Obligations of U.S.
Government agencies $ 29,197,000 2,000 (67,000) 29,132,000
Obligations of states
and political subdivisions 59,693,000 297,000 (229,000) 59,761,000
Corporate debt 3,984,000 -- (10,000) 3,974,000
Other securities 2,078,000 -- -- 2,078,000
------------- ---------- ---------- -----------
$ 94,952,000 299,000 (306,000) 94,945,000
============= ========== ========== ===========
December 31, 2005:
Obligations of U.S.
Government agencies $ 50,571,000 65,000 (510,000) 50,126,000
Obligations of states
and political subdivisions 56,208,000 384,000 (564,000) 56,028,000
Corporate debt 5,918,000 8,000 (62,000) 5,864,000
Other securities 1,445,000 -- -- 1,445,000
------------- ---------- ---------- -----------
$ 114,142,000 457,000 (1,136,000) 113,463,000
============= ========== ========== ===========
An analysis of gross unrealized losses of the available for sale
investment securities portfolio as of December 31, 2006 and December 31,
2005 follows.
December 31, 2006:
Less than 12 Months
12 Months or Longer Total
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Obligations of U.S.
government agencies $ 14,708,000 (10,000) 11,945,000 (57,000) 26,653,000 (67,000)
Obligations of states
and political subdivisions 7,053,000 (25,000) 22,009,000 (204,000) 29,062,000 (229,000)
Corporate debt 2,973,000 (3,000) 1,001,000 (7,000) 3,974,000 (10,000)
Other securities -- -- -- -- -- --
------------------------------------------------------------------------
Total 24,734,000 (38,000) 34,955,000 (268,000) 59,689,000 (306,000)
========================================================================
Less than 12 Months
12 Months or Longer Total
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
Obligations of U.S.
government agencies $ 23,184,000 (212,000) 24,676,000 (298,000) 47,860,000 (510,000)
Obligations of states
and political subdivisions 29,456,000 (463,000) 8,082,000 (101,000) 37,538,000 (564,000)
Corporate debt 4,019,000 (39,000) 1,011,000 (23,000) 5,030,000 (62,000)
Other securities -- -- -- -- -- --
------------------------------------------------------------------------
Total 56,659,000 (714,000) 33,769,000 (422,000) 90,428,000 (1,136,000)
========================================================================
68
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
A total of 78 securities make up the amount of securities in an unrealized
loss position for greater than 12 consecutive months. Management
periodically evaluates each security in an unrealized loss position to
determine if the impairment is temporary or other-than-temporary.
Management has determined that no investment security is
other-than-temporarily impaired. The unrealized losses are due solely to
interest rate changes and the Company has the ability and intent to hold
all investment securities with identified impairments resulting from
interest rate changes to the earliest of forecasted recovery or the
maturity of the underlying investment security.
The amortized cost and carrying value of debt securities as of December
31, 2006, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Amortized Carrying
Cost Value
Available -for-sale:
Due in one year or less $ 28,628,000 28,557,000
Due after one year though five years 34,023,000 33,975,000
Due after five years through ten years 29,094,000 29,210,000
Due after ten years 3,207,000 3,203,000
------------ ------------
$ 94,952,000 94,945,000
============ ============
For the years ended December 31, 2006, 2005, and 2004, gross realized
gains amounted to $185,000, $15,000, and $4,000, respectively. For the
years ended December 31, 2006, 2005, and 2004, gross realized losses
amounted to $196,000, $116,000, and $35,000, respectively.
At December 31, 2006 and 2005, securities with an amortized cost of
$49,551,000 and $57,801,000 and fair value of $49,635,000 and $57,646,000,
respectively, were pledged as collateral for public deposits and for other
purposes required by law.
As of December 31, 2006 and 2005, the Bank had investments in Federal
Reserve Bank stock classified as other assets in the accompanying balance
sheets of $702,000. These investments in Federal Reserve Bank stock are
carried at cost, and evaluated periodically for impairment.
69
BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(4) Loans, Net
Loans are summarized as follows at December 31:
2006 2005
------------- -------------
Real estate $ 318,655,000 302,813,000
Construction 37,094,000 26,243,000
Commercial 66,139,000 53,070,000
Consumer & other 3,279,000 3,420,000
------------- -------------
425,167,000 385,546,000
Allowance for loan losses (5,002,000) (4,374,000)
Net deferred loan fees (728,000) (948,000)
------------- -------------
$ 419,437,000 380,224,000
============= =============
The Bank had total impaired loans of $2,628,000 and$17,000 at December 31,
2006 and 2005, respectively. The allowance for loan losses related to the
impaired loans was $51,000 and $9,000 as of December 31, 2006 and 2005,
respectively. The amount of the recorded investment in impaired loans for
which there is no related allowance is $2,577,000 and $8,000 as of
December 31, 2006 and 2005. During 2006 and 2005, nonaccrual loans
represented all impaired loans. The average recorded investment in
impaired loans during 2006, 2005 and 2004 was $610,000, $1,205,000 and
$4,010,000, respectively. Interest income on impaired loans of $3,000, $0,
and $4,800, was recognized for cash payments received in 2006, 2005, and
2004, respectively. The amount of interest on impaired loans not collected
in 2006, 2005 and 2004, respectively was $70,000, $2,000 and $255,000.
70
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(5) Allowance for Loan Losses
Changes in the allowance for loan losses are summarized as follows for the
years ended December 31:
2006 2005 2004
----------- ------------ -----------
Balance, beginning of year $ 4,374,000 3,133,000 3,155,000
----------- ------------ -----------
Loans charged off (59,000) (110,000) (431,000)
Recoveries 4,000 23,000 1,000
----------- ------------ -----------
Net loans charged off (55,000) (87,000) (430,000)
Provision for loan losses 683,000 628,000 408,000
Allowance acquired in
business combination -- 700,000 --
----------- ------------ -----------
Balance, end of year $ 5,002,000 4,374,000 3,133,000
=========== ============ ===========
(6) Related Party Transactions
In the ordinary course of business, the Bank made loans and advances under
lines of credit to directors, officers, and their related interests. The
Bank's policies require that all such loans be made at substantially the
same terms as those prevailing at the time for comparable transactions
with unrelated parties and do not involve more than normal risk or
unfavorable features. The following summarizes activities of loans to such
parties in 2006 and 2005:
2006 2005
------------ -----------
Balance, beginning of year $ 3,918,000 3,376,000
Additions 3,354,000 5,673,000
Repayments 3,751,000 5,131,000
------------ -----------
Balance, end of year $ 3,521,000 3,918,000
============ ===========
(7) Bank Premises, Equipment, and Leasehold Improvements
Bank premises, equipment and leasehold improvements are stated at cost,
less accumulated depreciation and amortization, and are summarized as
follows at December 31:
2006 2005
------------ -----------
Buildings $ 8,619,000 7,969,000
Equipment 10,226,000 8,642,000
Leasehold improvements 1,093,000 1,173,000
------------ -----------
19,938,000 17,784,000
Accumulated depreciation and amortization (10,876,000) (9,817,000)
------------ -----------
9,062,000 7,967,000
Land 4,414,000 4,061,000
------------ -----------
$ 13,476,000 12,028,000
============ ===========
71
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
Depreciation expense for the years ended December 31, 2006, 2005, and 2004
was $1,183,000, $1,163,000 and $1,282,000, respectively.
(8) Deposits
The aggregate amount of jumbo time certificates, each with a minimum
denomination of $100,000 or more, was $77,039,000 and $77,572,000 at
December 31, 2006 and 2005, respectively.
At December 31, 2006, the scheduled maturities of all time certificates
are as follows:
Year ending December 31:
2007 $ 119,567,000
2008 10,536,000
2009 4,022,000
2010 265,000
-------------
$ 134,390,000
=============
(9) Commitments and Contingencies
The Bank leases a portion of its facilities and equipment under
noncancelable operating leases expiring at various dates through 2009.
Some of these leases provide that the Bank pay taxes, maintenance,
insurance, and other occupancy expenses applicable to leased premises.
Generally, the leases provide for renewal for various periods at
stipulated rates.
The minimum rental commitments under the operating leases as of December
31, 2006 are as follows:
Year ending December 31:
2007 $ 499,000
2008 351,000
2009 163,000
-------------
$ 1,013,000
=============
Total rent expense for operating leases was $554,000, $401,000 and
$284,000, in 2006, 2005, and 2004, respectively.
72
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The Bank is engaged in various lawsuits either as plaintiff or defendant
in the ordinary course of business and in the opinion of management, based
upon the advice of counsel, the ultimate outcome of these lawsuits will
not have a material effect on the Bank's financial statements.
(10) Bank Savings Plan
The Bank maintains a salary deferral 401(k) plan covering substantially
all employees, known as the First National Bank Savings Plan (the Plan).
The Plan allows employees to make contributions to the Plan up to a
maximum allowed by law and the Bank's contribution is discretionary. The
Plan expense for the years ended December 31, 2006, 2005, and 2004 was
$600,000, $626,000 and $540,000, respectively.
(11) Salary Continuation and Deferred Compensation Plans
The Bank maintains a Salary Continuation Plan for certain Bank officers.
Officers participating in the Salary Continuation Plan are entitled to
receive a monthly payment for a period of fifteen to twenty years upon
retirement. The Company accrues such post-retirement benefits over the
individual's employment period. The Salary Continuation Plan expense for
the years ended December 31, 2006, 2005, and 2004 was $239,000, $325,000
and $305,000, respectively. Accrued compensation payable under the salary
continuation plan totaled $1,959,000 and $1,780,000 at December 31, 2006
and 2005, respectively.
The Deferred Compensation Plan allows eligible officers to defer annually
their compensation up to a maximum 80% of their base salary and 100% of
their cash bonus. The officer will be entitled to receive distribution
upon reaching a specified age, passage of at least five years or
termination of employment. As of December 31, 2006 and 2005, the related
liability included in accrued expenses and other liabilities was
$1,935,000 and $1,851,000, respectively.
73
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(12) Income Taxes
The provision for income taxes for the years ended December 31, consists
of the following:
2006 2005 2004
----------- ------------ -----------
Current:
Federal $ 2,789,000 2,223,000 1,275,000
State 827,000 387,000 228,000
----------- ------------ -----------
3,616,000 2,610,000 1,503,000
----------- ------------ -----------
Deferred:
Federal (69,000) (207,000) 62,000
State 62,000 26,000 12,000
----------- ------------ -----------
(7,000) (181,000) 74,000
----------- ------------ -----------
$ 3,609,000 2,429,000 1,577,000
=========== ============ ===========
The reasons for the differences between the statutory federal income tax
rate and the effective tax rates for the years ended December 31, are
summarized as follows:
2006 2005 2004
----------- ------------ -----------
Statutory rate 34.0% 34.0% 34.0%
Increased (decrease)
resulting from:
Income tax exempt for
federal purposes (6.1)% (7.1)% (8.0)%
State taxes on income
net of federal benefit 5.2% 3.3% 2.5%
Benefits from low
income housing credits (1.3)% (1.1)% (2.8)%
Adjustment to prior
year accruals 0.0% 0.0% (0.6)%
Other, net 0.4% 0.6% 0.1%
----------- ------------ -----------
Effective rate 32.2% 29.7% 25.2%
=========== ============ ===========
74
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The tax effect of temporary differences giving rise to the Bank's net
deferred tax asset is as follows:
December 31
------------------------------
2006 2005
-------------- ------------
Deferred tax assets:
Allowance for loan losses $ 2,123,000 1,857,000
Capitalized interest on buildings 27,000 29,000
Expenses accrued on books not yet deductible in tax return 2,060,000 1,720,000
Depreciation 572,000 497,000
Net operating loss carryforward 1,236,000 1,439,000
Unrealized loss on available-for-sale securities 3,000 280,000
-------------- ------------
Total deferred tax assets 6,021,000 5,822,000
-------------- ------------
Deferred tax liabilities:
State income taxes 379,000 312,000
Core deposit intangible 453,000 524,000
Expenses and credits deducted on tax return, not books 37,000 42,000
-------------- ------------
Total deferred tax liabilities 869,000 878,000
-------------- ------------
Net deferred tax asset (included in other assets) 5,152,000 4,944,000
============== ============
As of December 31, 2006, the Bank had no state tax credit carryforwards
for income tax purposes as these were all used during 2005. Accordingly,
there is no valuation allowance as of December 31, 2006 or 2005.
Additionally, management believes that it is more likely than not that the
deferred tax assets will be realized through recovery of taxes previously
paid and/or future taxable income. The Bank had net operating loss
carryforwards resulting from the acquisition of Sequoia National Bank
which expire from December 31, 2008 through December 31, 2020, for a total
balance of $3,547,000.
(13) Financial Instruments
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit in the form of loans or through standby letters of credit. These
instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the balance
sheet.
The Bank's exposure to credit loss is represented by the contractual
amount of those instruments and is usually limited to amounts funded or
drawn. The contract or notional amounts of these agreements, which are not
included in the balance sheets, are an indicator of the Bank's credit
exposure. Commitments to extend credit generally carry variable interest
rates and are subject to the same credit standards used in the lending
process for on-balance-sheet instruments. Additionally, the Bank
periodically reassesses the customer's creditworthiness through ongoing
credit reviews. The Bank generally
75
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, and 2005 and 2004
requires collateral or other security to support commitments to extend
credit. The following table provides summary information on financial
institutions whose contract amounts represent credit risk as of December
31:
2006 2005
------------- ------------
Financial instruments whose contract amounts represent
credit risk:
Undisbursed loan commitments $ 60,591,000 36,607,000
Lines of credit 72,311,000 49,863,000
MasterCard lines 2,968,000 3,463,000
Standby letters of credit 1,351,000 7,768,000
------------- ------------
$ 137,221,000 97,701,000
============= ============
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial and
residential properties.
Equity reserve and unused credit card lines are additional commitments to
extend credit. Many of these customers are not expected to draw down their
total lines of credit, and therefore, the total contract amount of these
lines does not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank issues both
financial and performance standby letters of credit. The financial standby
letters of credit are primarily to guarantee payment to third parties. As
of December 31, 2006, there were $1,223,000 issued in financial standby
letters of credit. The performance standby letters of credit are typically
issued to municipalities as specific performance bonds. As of December 31,
2006 there were $128,000 issued in performance standby letters of credit.
The terms of the guarantees will expire in 2006.
76
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The Bank has experienced no draws on these letters of credit, and does not
expect to in the future; however, should a triggering event occur, the
Bank either has collateral in excess of the letters of credit or embedded
agreements of recourse from the customer.
The following methods and assumptions were used by the Company to estimate
the fair value of financial instruments.
(a) Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and
short-term instruments approximate those assets fair values.
(b) Securities
Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
(c) Loans
Fair values for variable-rate loans that reprice frequently and have
no significant change in credit risk are based on carrying values.
The fair values for other loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
(d) Off-Balance Sheet Commitments
Fair values for the company's off-balance-sheet lending commitments
are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the credit standing of the counterparties.
(e) Deposit Liabilities
The fair values estimated for demand deposits (interest and
noninterest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates for a schedule of the
aggregate expected monthly maturities on time deposits.
77
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(f) Federal Funds Sold/Purchased
The carrying amount of federal funds sold/purchased approximates
their fair values.
(g) The carrying amount of Federal Home Loan Bank advances approximates
their fair values.
(h) Bank Owned Life Insurance
The carrying amount is the cash surrender value for all policies.
The following table provides summary information on the estimated
fair value of financial instruments at December 31, 2006:
Carrying Fair
amount value
------------- -----------
Financial assets:
Cash and cash equivalents $ 27,022,000 27,022,000
Securities available for sale 94,945,000 94,945,000
Loans, net 419,437,000 428,195,000
Bank owned life insurance 7,267,000 7,267,000
Accrued interest receivable 3,723,000 3,723,000
Financial liabilities:
Deposits 481,567,000 481,785,000
Federal Home Loan Bank advances 30,000,000 30,323,000
Accrued interest payable 1,452,000 1,452,000
Off-balance-sheet commitments:
Undisbursed loan commitments, lines of credit,
Mastercard line, and standby letters of credit -- 936,000
78
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The following table provides summary information on the estimated
fair value of financial instruments at December 31, 2005:
Carrying Fair
amount value
------------- -----------
Financial assets:
Cash and cash equivalents $ 35,298,000 35,298,000
Securities available for sale 113,463,000 113,463,000
Loans, net 380,224,000 387,372,000
Bank owned life insurance 7,011,000 7,011,000
Accrued interest receivable 3,437,000 3,437,000
Financial liabilities:
Deposits 507,544,000 507,604,000
Accrued interest payable 1,165,000 1,165,000
Off-balance-sheet commitments:
Undisbursed loan commitments, lines of credit,
Mastercard line, and standby letters of credit -- 833,000
The carrying amounts of loans include $2,628,000 and $17,000 of nonaccrual
loans (loans that are not accruing interest) at December 31, 2006 and
2005, respectively. Management has determined that primarily because of
the uncertainty of predicting an observable market interest rate,
excessive amounts of time and money would be incurred to estimate the fair
values of nonperforming loans. As such, these loans are recorded at their
carrying amount in the estimated fair value columns. The following
aggregate information is provided at December 31, about the contractual
provisions of these loans:
2006 2005
------------ ------------
Aggregate carrying amount $ 2,628,000 17,000
Effective rate 9.61% 13.11%
Average term to maturity 7 months 5 months
(14) Significant Group Concentrations of Credit Risk
Most of the Bank's business activity is with customers located within San
Mateo and San Francisco counties. Generally, the loans are secured by
assets of the borrowers. The loans are expected to be repaid from cash
flows or proceeds from the sale of selected assets of the borrowers. The
Bank does not have significant concentrations of loans to any one
industry.
79
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of
credit were granted primarily to commercial borrowers.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit, credit-card arrangements, and letters of
credit represent the amounts of potential accounting loss should the
contract be fully drawn upon, the customer default, and the value of any
existing collateral become worthless.
(15) Regulatory matters
The Company, as a bank holding company, is subject to regulation by the
Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the
Bank's assets, liabilities and certain off balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). Management believes,
as of December 31, 2006, that the Company and the Bank have met all
capital adequacy requirements to which they are subject.
As of December 31, 2006, the most recent notification from the regulatory
agencies categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the Bank's categories.
80
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
The consolidated actual capital amounts and ratios of FNB Bancorp and
Subsidiary are also presented in the following table:
To be well capitalized under
For capital prompt corrective action
Actual adequacy purposes provisions
--------------------------- -------------------------- ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ----------- ----------- -----------
December 31, 2006:
Total risk-based capital
(to risk weighted assets)
Consolidated Company $ 64,297,000 12.00% 42,855,000 8.00% 53,569,000 n/a
Bank 64,176,000 11.98 42,855,000 8.00 53,569,000 10.00%
Tier 1 capital (to risk
Weighted assets)
Consolidated Company 59,216,000 11.05 21,431,000 4.00 32,146,000 n/a
Bank 59,095,000 11.03 21,431000 4.00 32,146,000 6.00
Tier 1 capital (to average
assets)
Consolidated Company 59,216,000 10.08 23,497,000 4.00 29,371,000 n/a
Bank 59,095,000 10.06 23,497,000 4.00 29,371,000 5.00
To be well capitalized under
For capital Prompt corrective action
Actual adequacy purposes Provisions
--------------------------- -------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ----------- ----------- -----------
December 31, 2005:
Total risk-based capital
(to risk weighted assets)
Consolidated Company $ 57,181,000 11.59% 39,478,000 8.00% 49,347,000 n/a
Bank 57,045,000 11.56 39,478,000 8.00 49,347,000 10.00%
Tier 1 capital (to risk
Weighted assets)
Consolidated Company 52,634,000 10.67 19,739,000 4.00 29,608,000 n/a
Bank 52,498,000 10.64 19,739,000 4.00 29,608,000 6.00
Tier 1 capital (to average
assets)
Consolidated Company 52,634,000 9.50 22,172,000 4.00 27,715,000 n/a
Bank 52,498,000 9.47 22,172,000 4.00 27,715,000 5.00
(16) Stock Option Plans
In 1997, the Company adopted an incentive employee stock option plan,
known as the 1997 FNB Bancorp Plan. In 2002, the Company adopted an
incentive employee option plan known as the 2002 FNB Bancorp Plan. The
Plans allow the Company to grant options to employees of up to 360,571
shares, which includes the effect of stock dividends of common stock.
Options currently outstanding become exercisable in one to
81
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
five years from the grant date, based on a vesting schedule of 20% per
year and expire 10 years after the grant date. The options exercise price
is the fair value of the options at the grant date.
The amount of compensation expense for options recorded in the years ended
December 31, 2006, December 31 2005 and December 31, 2004 was $39,000,
$10,000 and $6,000, respectively. The income tax benefit recognized in the
income statements for these amounts was under $1,000 for the same three
periods.
The total intrinsic value of options exercised during the year ended
December 31, 2006 was $54,000 under the 2002 Plan and $39,000 under the
1997 Plan.
The amount of total unrecognized compensation expense related to
non-vested options at December 31, 2006 was $91,000, and the weighted
average period it will be amortized over is 2.9 years. The amount of total
unrecognized compensation expense related to non-vested options at
December 31, 2005 was $60,000, and the weighted average period it will be
amortized over is 2.5 years. The amount of total unrecognized compensation
expense related to non-vested options at December 31, 2004 was $46,000,
and the weighted average period it will be amortized over is 1.9 years.
The fair value of each option granted is estimated on the date of grant
using the fair value method with the following weighted average
assumptions used for grants in 2006; dividend yield of 6.66% for the year;
risk-free interest rate of 5.19%; expected volatility of 10.0%; expected
life of 6.5 years; and weighted average fair value of $1.50. The
assumptions for grants in 2005; dividend yield of 6.98% for the year;
risk-free interest rate of 3.91%; expected volatility of 10%; expected
life of 5.0 years; and weighted average fair value of $0.75. The
assumptions used for grants in 2004; dividend yield of 6.85% for the year;
risk-free interest rate of 3.73%; expected volatility of 10%; expected
life of 5.0 years; and weighted average fair value of $0.76.
82
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
A summary of option activity under the 2002 FNB Bancorp Plan as of
December 31, 2006 and changes during the year then ended is presented
below.
2002 FNB Bancorp Plan
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Exercise Term Value
Options Shares Price (in years) (000)
--------------------------------------------------------------------------------
Outstanding at January 1, 2006 162,602 $ 24.60
Granted 45,206 $ 34.52
Exercised (7,014) $ 24.84
Forfeited or expired (4,728) $ 27.63
-------
Outstanding at December 31, 2006 196,066 $ 26.81 7.6 $ 1,116
Exercisable at December 31, 2006 77,784 $ 23.89 6.7 $ 670
The following supplemental information applies to the three years ended
December 31:
2006 2005 2004
---------------------------------------------
Options outstanding 196,066 162,602 122,204
Range of exercise prices $20.57-$34.52 $20.57-$28.07 $20.57-$28.07
Weighted average remaining
contractual life 7.6 8.0 8.1
Fully vested options 77,784 51,573 27,549
Weighted average exercise price $23.89 $22.85 $21.80
Aggregate intrinsic value $670,000 $1,177,000 $264,000
Weighted average remaining
contractual life (in years) 6.7 7.2 7.2
83
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
A summary of option activity under the 1997 FNB Bancorp Plan as of
December 31, 2006, and changes during the year then ended is presented
below. No options have been granted under this plan since 2001.
1997 FNB Bancorp Plan
Weighted-
Average
Weighted- Remaining Aggregate
Average Contractual Intrinsic
Exercise Term Value
Options Shares Price (in years) (000)
--------------------------------------------------------------------------------
Outstanding at January 1, 2006 72,174 $ 18.89
Granted -- --
Exercised (13,325) $ 18.80
Forfeited or expired --
Outstanding at December 31, 2006 58,849 $ 18.92 3.2 $ 799
-------
Exercisable at December 31, 2006 58,849 $ 18.92 3.2 $ 799
The following supplemental information applies to the three years ended
December 31:
2006 2005 2004
--------------------------------------------
Options outstanding 58,849 72,174 78,455
Range of exercise prices $17.86-$20.63 $17.86-$20.63 $17.86-20.63
Weighted average remaining
contractual life 3.2 4.1 5.2
Fully vested options 58,849 67,205 63,162
Weighted average exercise price $18.92 $18.91 $19.00
Aggregate intrinsic value $799,000 $1,271,000 $781,000
Weighted average remaining
contractual life (in years) 3.2 4.0 4.9
The following is a summary of all options exercised
2006 2005 2004
---------------------------
Weighted average intrinsic value of options exercised $ 12.92 $ 9.75 $ 10.92
Weighted average of fair value of options exercised $ 33.80 $ 29.26 $ 29.85
84
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(17) Quarterly Data (Unaudited)
First Second Third Fourth
----------- --------- --------- ---------
2006:
Interest income $ 8,837,000 8,928,000 9,502,000 9,929,000
Interest expense 1,951,000 2,168,000 2,786,000 2,916,000
----------- --------- --------- ---------
Net interest income 6,886,000 6,760,000 6,716,000 7,013,000
Provision for loan losses 193,000 163,000 163,000 164,000
----------- --------- --------- ---------
Net interest income,
after provision for
loan losses 6,693,000 6,597,000 6,553,000 6,849,000
Non-interest income 2,316,000 1,827,000 1,046,000 1,070,000
Non-interest expense 5,486,000 5,303,000 5,346,000 5,625,000
----------- --------- --------- ---------
Income before income taxes 3,523,000 3,121,000 2,253,000 2,294,000
Provision for income taxes 1,075,000 1,012,000 787,000 735,000
----------- --------- --------- ---------
Net earnings $ 2,448,000 2,109,000 1,466,000 1,559,000
=========== ========= ========= =========
Basic earnings per share $ 0.86 0.74 0.52 0.55
Diluted earnings per share 0.84 0.73 0.51 0.53
First Second Third Fourth
----------- --------- --------- ---------
2005:
Interest income $ 6,515,000 7,455,000 8,033,000 8,729,000
Interest expense 965,000 1,208,000 1,567,000 1,793,000
----------- --------- --------- ---------
Net interest income 5,550,000 6,247,000 6,466,000 6,936,000
Provision for loan losses 127,000 157,000 172,000 172,000
----------- --------- --------- ---------
Net interest income,
after provision for
loan losses 5,423,000 6,090,000 6,294,000 6,764,000
Non-interest income 903,000 1,009,000 993,000 936,000
Non-interest expense 4,895,000 5,222,000 5,060,000 5,078,000
----------- --------- --------- ---------
Income before income taxes 1,431,000 1,877,000 2,227,000 2,622,000
Provision for income taxes 415,000 595,000 674,000 745,000
----------- --------- --------- ---------
Net earnings $ 1,016,000 1,282,000 1,553,000 1,877,000
=========== ========= ========= =========
Basic earnings per share $ 0.36 0.45 0.55 0.66
Diluted earnings per share 0.35 0.45 0.54 0.64
85
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
(18) Condensed Financial Information of Parent Company
The parent company-only condensed balance sheets, condensed statements of
income, and condensed statements of cash flows information are presented as of
and for the year ended December 31, as follows:
FNB Bancorp
Condensed balance sheets 2006 2005
------------ -----------
Assets:
Cash and due from banks $ 37,000 146,000
Investments in subsidiary 61,942,000 55,107,000
Income tax receivable from subsidiary 83,000 --
Other assets 1,000 --
------------ -----------
Total assets $ 62,063,000 55,253,000
============ ===========
Liabilities:
Other liabilities $ -- 10,000
Stockholders' equity 62,063,000 55,243,000
------------ -----------
Total liabilities and stockholders' equity $ 62,063,000 55,253,000
============ ===========
FNB Bancorp
Condensed statements of income 2006 2005 2004
----------------------------------------------- ------------ -----------------------
Income:
Dividend from subsidiary $ 1,172,000 2,269,000 3,446,000
Other income -- -- 1,000
------------ -----------------------
Total income 1,172,000 2,269,000 3,447,000
------------ -----------------------
Expense:
Other expense 27,000 17,000 10,000
------------ -----------------------
Total expense 27,000 17,000 10,000
------------ -----------------------
Income before income taxes and equity in
undistributed earnings of subsidiary 1,145,000 2,252,000 3,437,000
Income tax expense (credit) 1,000 -- (36,000)
------------ -----------------------
Income before equity in undistributed
earnings of subsidiary 1,144,000 2,252,000 3,473,000
Equity in undistributed earnings of subsidiary 6,438,000 3,476,000 1,215,000
------------ -----------------------
Net earnings $ 7,582,000 5,728,000 4,688,000
============ =======================
86
FNB BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
FNB Bancorp
Condensed statements of cash flows 2006 2005 2004
---------------------------------- ------------ ------------------------
Net earnings $ 7,582,000 5,728,000 4,688,000
Income tax receivable-subsidiary (83,000) -- --
Change in other assets (1,000) -- 403,000
Change in other liabilities (10,000) (309,000) (19,000)
Undistributed earnings of subsidiary (6,438,000) (3,476,000) (1,215,000)
Stock-based compensation expense 122,000 10,000 6,000
------------ ------------------------
Cash flows provided by operating activities 1,172,000 1,953,000 3,863,000
------------ ------------------------
Increase in investment to subsidiary -- -- --
------------ ------------------------
Cash flows used in investing activities -- -- --
------------ ------------------------
Proceeds from exercise of common stock options 425,000 150,000 272,000
Dividends paid (1,633,000) (1,542,000) (1,526,000)
Repurchases of common stock (73,000) (765,000) (2,324,000)
------------ ------------------------
Cash flows provided by financing activities (1,281,000) (2,157,000) (3,578,000)
------------ ------------------------
Net (decrease) increase in cash (109,000) (204,000) 285,000
Cash, beginning of year 146,000 350,000 65,000
------------ ------------------------
Cash, end of year $ 37,000 146,000 350,000
============ ========================
87
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report on Form 10-K/A to be signed on
its behalf by the undersigned, thereunto duly authorized.
FNB BANCORP
Dated: November 16, 2007 By: /s/ David A. Curtis
----------------------------------
David A. Curtis
Chief Financial Officer
/s/ Michael R. Wyman Chairman of the Board of Directors November 16, 2007
--------------------------
Michael R. Wyman
/s/ Thomas C. McGraw Director, Chief Executive Officer and November 16, 2007
-------------------------- Secretary (Principal Executive Officer)
Thomas C. McGraw
/s/ David A. Curtis Senior Vice President and Chief Financial November 16, 2007
-------------------------- Officer (Principal Financial and
David A. Curtis Accounting Officer)
/s/ Edward J. Watson Director November 16, 2007
--------------------------
Edward J. Watson
/s/ Lisa Angelot Director November 16, 2007
--------------------------
Lisa Angelot
/s/ Merrie Turner Lightner Director November 16, 2007
--------------------------
Merrie Turner Lightner
/s/ Michael Pacelli Director November 16, 2007
--------------------------
Michael Pacelli
/s/ Jim D. Black Director and President November 16, 2007
--------------------------
Jim D. Black
/s/ Anthony J. Clifford Director, Executive Vice President and November 16, 2007
-------------------------- Chief Operating Officer
Anthony J. Clifford