<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-10692
TRANSWORLD BANCORP
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3730637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
15233 Ventura Boulevard
Sherman Oaks, California 91403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (818) 783-7501
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
Common Stock NASDAQ (Over-the-Counter)
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
--- ---
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: $23,904,450
-----------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 2,761,546 shares
of common stock as of March 14,1996. ---------
-------------
1
<PAGE> 2
PART 1
ITEM 1 - BUSINESS
General:
TransWorld Bancorp (the "Bancorp" or "Company") is a California one-bank
holding company organized in 1982 which acquired, in October 1982 under a Plan
of Reorganization and Merger, TransWorld Bank (the "Bank") through approval by
the shareholders and regulatory agencies. Since the Bank continues to be the
only holding of the Bancorp, our discussion will refer to the business of the
Bank.
The Bank, which was incorporated in January 1953, offers a full range of
commercial banking services, including commercial and industrial loans, various
types of consumer loans, real estate loans, checking and savings deposits, safe
deposit boxes, escrow, bankcard merchant services and other customary
non-deposit banking services. The Bank does not have a trust department.
The Bank's customers consist principally of middle market businesses
located in, and individuals who live or work in, Los Angeles and adjacent
areas. The Bank emphasizes personal service in its marketing efforts directed
to these customers. The Bank's operations are conducted through a system of
nine banking offices in Los Angeles County and two offices in Ventura County.
Its main office is in Sherman Oaks and branch offices are located in Canyon
Country, Chatsworth, Granada Hills, North Hollywood, Pacoima, San Fernando,
Woodland Hills, Northridge, Thousand Oaks and Camarillo. All of the Bank's
services are offered at each office. Presently, the Bancorp has no plans to go
into any other of the permissible activities of a holding company.
Competition:
The Bank faces strong competition in attracting deposits and loans. The
Bank's principal competition for deposits comes from other banks, savings and
loan associations, credit unions, and money market funds. Additional
competition for deposits during high interest rate periods comes from
government and private issuers of debt obligations and other investment
alternatives for depositors. The Bank's principal competitors for loans are
other commercial banks, savings and loan associations, insurance companies,
credit unions, finance companies, savings banks and credit companies such as
GMAC, Ford and Chrysler Credit.
The Los Angeles County area contains offices of many of the nation's
largest banks and savings and loan associations, each of which has greater
financial (and other) resources than does the Bank. Among the advantages such
major banks have over the Bank is the ability to conduct large advertising
campaigns and to allocate their investment assets, including loans, to regions
of highest demand and yield. These institutions have higher lending limits
than does the Bank and generally perform certain functions including trust,
investment and international banking services which the Bank is not equipped to
offer. The general strategy of the Bank is to compete with these major and
regional banks by focusing on the small-and medium-sized business and
professional segments of the market and providing more personalized service.
The Bank also competes with other banks of comparable size in the Los Angeles
area. The Bank's services are generally similar to those of banks of
comparable size, i.e., money market accounts, certificates of deposit,
checking, savings plans, consumer, real estate and commercial lending; most
comparable banks do not
2
<PAGE> 3
offer trust services. Competition with banks of comparable size revolves
mainly around service, pricing of loans, and on interest rates paid for
deposits.
Employees:
At December 31, 1995, the Bank had 212 full-time and 36 part-time
employees. Employees are provided with a wide variety of employment benefits.
The Bank's employees are not represented by any union or other collective
bargaining agent, and the Bank considers its relations with its employees to be
excellent.
Supervision and Regulation:
The Bancorp is subject to regulation and supervision by the Federal
Reserve Bank ("FRB"). The Bancorp is also subject to certain reporting
requirements of the Securities and Exchange Commission ("SEC"), including the
requirement that it file with the SEC annual, quarterly, and current reports
under the 1934 Act. The Bancorp's proxy solicitation materials must be
submitted to the SEC for approval under such Act.
The Bank is subject to regulations, supervision and regular examination by
the California Banking Department and the Federal Deposit Insurance Corporation
("FDIC"), which insures the depositors. The regulations of these agencies
affect most aspects of the Bank's business and prescribe permissible types of
loans and investments, the amount of required reserves, the requirements for
branch offices, the permissible scope of the Bank's activities and various
other requirements. While the Bank is not a member of the Federal Reserve
System, it is nevertheless subject to certain regulations of the FRB.
Federal legislation puts certain restrictions on loans to directors,
officers, and principal shareholders of a bank or of its correspondent banks,
and their associates. All loans to such persons must be made on the same terms
and conditions as comparable loans made to the general public and limits have
been placed on the amounts of such loans that may be made to such persons,
depending upon the purpose for which the loan is made. In the opinion of
management, the Bank is in compliance with such limitations.
Interstate Banking:
In September 1986, California adopted an interstate banking law. The law
allows California banks and bank holding companies to be acquired by banking
organizations in other states on a "reciprocal" basis (i.e., provided the other
state's laws permit California banking organizations to acquire banking
organizations in that state on substantially the same terms and conditions
applicable to banking organizations solely within that state). Effective
January 1, 1991, the law allowed interstate acquisitions on a national
"reciprocal" basis.
While it would appear that the enactment of this law has contributed to
the heightened level of merger and acquisition activity involving California
banking organizations, it is impossible to predict what effect, if any, the
California interstate banking law will have on the Company or the market for
the Company's common stock in the future.
3
<PAGE> 4
Supplemental Capital Adequacy Guidelines:
The Federal Reserve Board and FDIC have established risk-based capital
guidelines relating capital to different categories of assets and
off-balance-sheet exposures. There are two categories of capital under the
guidelines Tier I and Tier II. Tier I capital essentially includes common
stockholders' equity. Tier II capital includes other capital components as
well as the allowance for loan and lease losses (limited to 1.25% of
risk-weighted assets). Assets and off-balance-sheet items are assigned to four
weighted risk categories, with higher levels of capital being required for the
categories perceived as representing a greater risk. Under current guidelines,
the minimum risk-based capital ratio is 8% (of which at least 4% should be in
the form of common stockholders' equity). An institution's risk-based capital
can be determined by dividing its qualifying capital by its risk-weighted
assets. The guidelines have made regulatory capital requirements more
sensitive to the differences in risk profiles among banking institutions, take
off-balance-sheet items into account when assessing capital adequacy, and
minimize disincentives to holding liquid low-risk assets.
In addition, the achievement of a minimum leverage ratio of 4% is
required. The leverage ratio basically consists of stockholders' equity
divided by average total assets. As in the case of the risk-based capital
those with high or inordinate levels of risk will be expected to maintain
capital well above the minimum level. The leverage ratio will operate in
conjunction with the risk-based capital guidelines.
<TABLE>
<CAPTION>
December 31,
--------------
Required 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Risk-based capital:
Tier I 4.0% 15.42% 13.72%
Tier II 8.0% 16.62% 14.84%
Leverage ratio 4.0% 8.43% 6.69%
</TABLE>
4
<PAGE> 5
STATISTICAL DISCLOSURE
I. A & B DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Assets Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases: (1) (2)
Real Estate $ 50,646 $ 5,520 10.9% $ 53,528 $ 5,161 9.6% $ 54,808 $ 4,895 8.9%
Commercial (3) 60,403 6,398 10.6 53,650 5,011 9.3 55,362 4,540 8.2
Installment 11,839 1,283 10.8 13,828 1,364 9.9 18,935 1,916 10.1
Lease financing 1,249 113 9.0 956 95 9.9 918 110 12.0
- ---------------------------------------------------------------------------------------------------------------
Total loans and leases 124,137 13,314 10.7 121,962 11,631 9.5 130,023 11,461 8.8
Investment securities: (3)
Taxable 145,181 8,748 6.0 110,572 5,817 5.3 70,699 3,911 5.5
Non-taxable 14,573 1,062 7.3 14,641 1,083 7.4 13,485 1,067 7.9
- ---------------------------------------------------------------------------------------------------------------
Total securities 159,754 9,810 6.1 125,213 6,900 5.5 84,184 4,978 5.9
Federal funds sold 57,551 3,431 6.0 70,900 3,004 4.2 62,645 1,893 3.0
- ---------------------------------------------------------------------------------------------------------------
Total earning assets $341,442 $26,555 7.8% $318,075 $21,535 6.8% $276,852 $18,332 6.6%
- ---------------------------------------------------------------------------------------------------------------
Cash and due from banks 25,043 25,743 21,416
Premises and equipment 3,435 3,557 3,837
Real estate owned 982 2,153 1,596
Other non-earning assets 2,610 2,023 1,519
- ---------------------------------------------------------------------------------------------------------------
Total assets $373,512 $351,551 $305,220
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes non-accrual loans
(2) Interest income includes loan fees of $178,000 in 1995, $171,000 in 1994
and $231,000 in 1993.
(3) Interest income and the average yield are presented on a fully taxable
equivalent basis using a tax rate of 34%. The resulting tax equivalent
adjustments are $367,000 in 1995, $374,000 in 1994 and $371,000 in 1993.
5
<PAGE> 6
I. A & B (continued)
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' Average Yield/ Average Yield/ Average Yield/
EQUITY Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing liabilities
Deposits:
Interest bearing demand $ 30,070 $ 301 1.0% $ 33,179 $ 333 1.0% $ 28,181 $ 351 1.2%
Money market savings 67,741 1,956 2.9 80,043 2,003 2.5 75,800 1,941 2.6
Regular savings 50,462 1,164 2.3 53,865 1,144 2.1 42,410 934 2.2
Time Deposits 64,801 3,255 5.0 49,048 1,693 3.5 50,713 1,738 3.4
- -----------------------------------------------------------------------------------------------------------------
Total interest
bearing deposits 213,074 6,676 3.1 216,135 5,173 2.4 197,104 4,964 2.5
Securities sold under
repurchase agreements 20,879 937 4.5 257 7 2.7 8 0 3.7
Interest bearing demand
notes issued to the
U.S. Treasury 2,760 131 4.7 2,748 91 3.3 2,879 80 2.8
Mortgage indebtedness and
obligation under capital
lease 230 37 16.1 260 41 15.8 357 39 10.9
Other 0 11 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $236,943 $7,792 3.3% $219,400 $5,312 2.4% $200,348 $5,083 2.5%
- -----------------------------------------------------------------------------------------------------------------
Noninterest bearing demand
deposits 107,484 107,020 81,783
Other noninterest bearing
liabilities 1,484 1,132 776
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity 27,601 23,999 22,313
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $373,512 $351,551 $305,220
- -----------------------------------------------------------------------------------------------------------------
Net yield on earning assets 5.5% 5.1% 4.8%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
I. C
The following table sets forth for the periods indicated a summary of the
changes (increase (decrease)) in interest earned and interest paid resulting
from changes in volume and changes in rates:
<TABLE>
<CAPTION>
Change 1995/1994 Change 1994/1993
- ---------------------------------------------------------------------------------------------------
Due to Due to
Yield/Rate Volume Yield/Rate Volume
(in thousands) Total (1) (2) Total (1) (2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and leases:
Real estate $ 359 $ 637 $ (278) $ 266 $ 380 $ (114)
Commercial 1,387 756 631 471 611 (140)
Installment (81) 115 (196) (552) (35) (517)
Lease financing 18 (11) 29 (15) (20) 5
- ---------------------------------------------------------------------------------------------------
Total loans and leases 1,683 1,497 186 170 936 (766)
Investment securities
Taxable 2,931 1,110 1,821 1,906 (300) 2,206
Non-taxable (21) (16) (5) 16 (75) 91
- ---------------------------------------------------------------------------------------------------
Total investment
securities 2,910 1,094 1,816 1,922 (375) 2,297
Federal funds sold 427 993 (566) 1,111 862 249
- ---------------------------------------------------------------------------------------------------
Total interest income $ 5,020 $ 3,584 $ 1,436 $ 3,203 $ 1,423 $ 1,780
===================================================================================================
</TABLE>
(1) Change in yield/rate multiplied by volume of current period, this
includes changes in rate/volume (change in yield/rate multiplied by change
in volume).
(2) Changes in volume multiplied by yield/rate of prior period, this includes
no changes in rate/volume.
7
<PAGE> 8
I. C (continued)
<TABLE>
<CAPTION>
Change 1995/1994 Change 1994/1993
- --------------------------------------------------------------------------------------------------------
Due to Due to
Yield/Rate Volume Yield/Rate Volume
(in thousands) Total (1) (2) Total (1) (2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Deposits:
Interest bearing demand $ (32) $ (1) $ (31) $(18) $(80) $ 62
Money market savings (47) 261 (308) 62 (47) 109
Regular savings 20 92 (72) 210 (42) 252
Time Deposits 1,562 1,018 544 (45) 12 (57)
- --------------------------------------------------------------------------------------------------------
Total interest on
deposits 1,503 1,370 133 209 (157) 366
Securities sold under
repurchase agreements 930 368 562 7 0 0
Interest bearing demand notes
issued to the U.S. Treasury 40 40 0 11 15 (4)
Mortgage indebtedness and
obligation under
capital lease (4) 1 (5) 2 13 (11)
Other 11 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Total interest expense 2,480 1,779 690 229 (129) 351
- -------------------------------------------------------------------------------------------------------
Net interest income $ 2,540 $ 1,805 $ 746 $ 2,974 $(1,552) $ 1,429
=======================================================================================================
</TABLE>
(1) Change in yield/rate multiplied by volume of current period, this
includes changes in rate/volume (change in yield/rate multiplied by change
in volume).
(2) Changes in volume multiplied by yield/rate of prior period, this
includes no changes in rate/volume.
8
<PAGE> 9
II. INVESTMENT PORTFOLIO
The carrying value of investment securities is presented below for each
reported period:
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities $ 2,988 $ 2,997 $ 2,000
U.S. Government agencies and corporations 107,782 86,606 56,722
U.S. Government agencies mortgage-backed securities 7,317 7,192 5,777
Obligations of states and political subdivisions 23,097 32,112 23,420
Corporate debt securities - - -
Equity securities - - -
- ----------------------------------------------------------------------------------
Total investment securities held to maturity $141,184 $128,907 $87,919
==================================================================================
Investment securities available for sale:
U.S. Government agencies and corporations $ 11,655 $ 13,933 $ -
Obligations of state and political subdivisions - 253 -
Corporate debt securities 7,502 5,193 6,983
Equity securities 4,000 4,000 5,500
- ----------------------------------------------------------------------------------
Total investment securities available for sale $ 23,157 $ 23,379 $12,483
==================================================================================
</TABLE>
9
<PAGE> 10
II. INVESTMENT PORTFOLIO (cont.)
The maturity distribution of investment securities at December 31, 1995
together with weighted average yields (effective yields weighted for scheduled
maturities) for each range of maturity are presented below:
<TABLE>
<CAPTION>
Within After One but After Five but After
One Year Within Five Years Within Ten Years Ten Years
------------- ----------------- ---------------- --------------
(in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity at cost:
U.S. Treasury securities $ 999 7.44% $ 1,989 6.00% $ - -% $ - -%
U.S. Government agencies and
corporations 84,815 5.99 22,967 6.13 - - - -
U.S. Government agencies mortgage-
backed securities 384 8.36 4,858 6.61 1,872 6.51 203 8.09
Obligations of states and political
subdivisions 12,513 6.32 10,042 7.05 542 6.22 - -
- --------------------------------------------------------------------------------------------------------------------------
Total investment securities
held to maturity $98,711 6.06% $39,856 6.42% $2,414 6.45% $203 8.09%
==========================================================================================================================
Investment securities available for sale
at market value:
U.S. Government agencies and corporations $10,008 6.49% $1,647 5.76% $ - -% $ - -%
Corporate debt securities 3,369 6.04 4,133 7.02 - - - -
Equity securities 4,000 6.32 - - - - - -
- --------------------------------------------------------------------------------------------------------------------------
Total investment securities
available for sale $17,377 6.36% $5,780 6.66% $ - -% $ - -%
==========================================================================================================================
</TABLE>
* Yields on tax-exempt obligations computed on tax equivalent basis using the
composite tax rate of 34%.
10
<PAGE> 11
III. LOAN AND LEASE PORTFOLIO
A. The carrying value for loans (before deductions of the reserve for loan
losses) by major categories is presented below for the Registrant and the Bank
at the end of each reported period:
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 66,209 $ 59,575 $ 54,872 $ 56,150 $ 58,672
Real estate
Mortgage 48,701 48,371 48,600 46,656 40,910
Construction 1,747 3,593 7,386 4,493 13,910
Installment 10,971 12,409 16,252 22,139 35,328
Lease financing 1,242 1,261 786 1,149 1,640
- --------------------------------------------------------------------------------------------
Total loans and leases $128,870 $125,209 $127,896 $130,587 $150,460
============================================================================================
</TABLE>
B. The following table summarizes the maturity distribution of loans, net of
unearned income of $161,000 and non-accrual loans of $665,000 (excluding
installment loans, real estate mortgage loans and lease financing receivables)
by interest rate structure at December 31, 1995:
<TABLE>
After One but After
Within Five Years Five Years
----------------- ---------------
Within Fixed Floating Fixed Floating
(in thousands) One Year Rate Rate Rate Rate Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $58,745 $6,799 $ - $ - $ - $65,544
Real estate construction 1,747 - - - - 1,747
- ----------------------------------------------------------------------------------------------
Total $60,038 $6,799 $ - $ - $ - $67,291
==============================================================================================
</TABLE>
11
<PAGE> 12
III. LOAN AND LEASE PORTFOLIO (continued)
C. Risk Elements
1. Non-accrual, Past Due and Restructured Loans
Following is a schedule of non-accrual, past due and restructured loans along
with the associated interest income for the loans on non-accrual:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------- -------------------------------- --------------------------------
Gross Interest Gross Interest Gross Interest
Principal Interest Included In Principal Interest Included In Principal Interest Included In
(in thousands) Amount Income Net Income Amount Income Net Income Amount Income Net Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> C>
Non-accrual loans $1,025 $ 111 $ 5 $1,123 $202 $28 $1,033 $82 $21
Accruing loans past due
90 days or more 5 456 432
Restructured loans - - -
------ ------ ------
Total non-performing
loans $1,030 $1,579 $1,465
===========================================================================================================================
<CAPTION>
1992 1991
-------------------------------- --------------------------------
Gross Interest Gross Interest
Principal Interest Included In Principal Interest Included In
(in thousands) Amount Income Net Income Amount Income Net Income
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $1,124 $143 $7 $1,088 $120 $69
Accruing loans past due
90 days or more 679 941
Restructured loans - -
------ ------
Total non-performing
loans $1,803 $2,029
===========================================================================================================================
</TABLE>
12
<PAGE> 13
III. LOAN AND LEASE PORTFOLIO (continued)
C. Risk Elements (continued)
Management's general policy is to place a loan on non-accrual status when there
is reasonable doubt as to the ability of the creditor to make repayment, with
consideration given to any collateral.
2. Potential Problem Loans
None
3. Foreign Outstandings
None
4. Loan Concentrations
None
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing loans to total loans 0.80% 1.26% 1.15% 1.38% 1.35%
Non-performing assets to total assets 0.48% 1.01% 1.18% 1.64% .80%
Loan loss allowance to non-performing loans 221.55% 128.75% 138.50% 78.54% 74.17%
Loan loss and ORE allowance to non-performing assets 137.98% 57.63% 57.36% 37.23% 74.17%
</TABLE>
13
<PAGE> 14
IV. SUMMARY OF CREDIT LOSS EXPERIENCE
A. The following summarizes the reserve for credit losses for the five years
ended December 31, 1995:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,033 $2,029 $1,416 $1,505 $2,364
Provision charged to operations 830 921 1,711 745 1,050
Recoveries:
Commercial, financial and agricultural 29 22 31 29 24
Real estate - construction - - - - -
Real estate - mortgage - 27 - - -
Installment 86 52 77 25 42
Lease financing 1 8 - 1 87
- ------------------------------------------------------------------------------------
Total recoveries 116 109 108 55 153
Charge-offs:
Commercial, financial and agricultural 182 569 782 444 1,759
Real estate - construction - - - - -
Real estate - mortgage 4 - 120 - -
Installment 511 442 304 426 303
Lease financing - 15 - 19 -
- ------------------------------------------------------------------------------------
Total charge-offs ( 697) (1,026) (1,206) ( 889) (2,062)
Net charge-offs ( 581) ( 917) (1,098) ( 834) (1,909)
Balance at end of period $2,282 $2,033 $2,029 $1,416 $1,505
====================================================================================
Ratio of net charge-offs during the
period to average loans outstanding 0.47% 0.75% 0.84% 0.62% 1.31%
====================================================================================
</TABLE>
The amount charged to operations during the year and the related balance in the
reserve for credit losses is based on periodic evaluations of the loan
portfolio by senior management. These evaluations consider several factors
including, but not limited to, examinations of monthly reports from the loan
adjustment department, examinations done by the Federal and State regulators,
loan portfolio composition, economic factors, and prior credit loss experience.
As a result of provisions made pursuant to these evaluations, it is
management's opinion that the aggregate reserves of the Bank are currently
sufficient to provide for possible losses in the Bank's loan portfolio.
However, since each of the criteria is subject to change, there can be no
assurance that the Bank may not, in subsequent years, sustain actual losses
which are substantial in relationship to the size of the reserve.
14
<PAGE> 15
IV. SUMMARY OF CREDIT LOSS EXPERIENCE (continued)
B. The following allocation is based primarily on analysis of prior loss
experience, present and anticipated volume levels by individual categories and
on management's evaluation of prevailing economic conditions as they may affect
segments of the portfolio. Accordingly, since each of these criteria is
subject to change, the allocation of the reserve below is not necessarily
indicative of the trend of future loan losses in any particular loan category.
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
(in thousands) Amount loans Amount loans Amount loans Amount loans Amount loans
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $1,070 47% $ 899 48% $1,124 43% $ 910 43% $1,050 39%
Real estate 785 34 874 41 488 44 303 39 120 36
Installment 417 18 249 10 417 13 173 17 315 24
Lease financing 10 1 11 1 - - 30 1 20 1
- ---------------------------------------------------------------------------------------------------------------
Total reserve
for credit losses $2,282 100% $2,033 100% $2,029 100% $1,416 100% $1,505 100%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The 1995 loss expectations are based upon a review of historical loan
charge-offs by category, a comparison of loan portfolio mix by category, and
the Company's internal classifications. Changes in market conditions and the
loan portfolio could cause an increase in actual losses.
15
<PAGE> 16
V. DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $107,484 - $107,020 - $ 81,783 -
Interest bearing demand 30,070 1.0% 33,179 1.0% 28,181 1.2%
Money market savings 67,741 2.9% 80,043 2.5% 75,800 2.6%
Regular savings 50,462 2.3% 53,865 2.1% 42,410 2.2%
Time deposits 64,801 5.0% 49,048 3.5% 50,713 3.4%
- -----------------------------------------------------------------------------------------
Total deposits $320,558 $323,155 $278,887
=========================================================================================
</TABLE>
The following table sets forth, by time remaining to maturity, time
certificates of deposit of $100,000 and over outstanding at December 31, 1995:
(in thousands)
Remaining Maturity of Time Certificates of Deposits
<TABLE>
<S> <C>
Three months or less $27,557
Over three through six months 4,615
Over six through twelve months 2,110
Over twelve months 100
-------------------------------------------------------------
Total $100,000 time deposits $34,382
=============================================================
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
<TABLE>
<S> <C>
1995 1994 1993
----------------------------------------------------------------------------
Return on average total assets 1.08% .73% .45%
Return on average equity 14.53% 10.74% 6.19%
Average stockholders' equity to average total assets 7.40% 6.82% 7.31%
</TABLE>
16
<PAGE> 17
ITEM 2 - PROPERTIES
The Bancorp's and Bank's administrative offices and the Bank's main banking
office in Sherman Oaks, and branch offices in Camarillo, Chatsworth,
Northridge, Granada Hills, North Hollywood, San Fernando, Thousand Oaks,
Woodland Hills and a service center in Chatsworth are leased under long-term
leases with expirations at various dates from 1996 through 2013. The Bank has
renewal options under such leases, other than the lease for its Woodland Hills
premises, ranging from 5 to 10 years. The Bank owns the land and buildings for
its Pacoima and Canyon Country offices.
ITEM 3 - LEGAL PROCEEDINGS
The Bank is involved as plaintiff or defendant in various legal actions
incident to its business, none of which is believed by management to be
material to the Bank's financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Bancorp's Common Stock trades on the NASDAQ stock market under the symbol
TWBC. Daily quotations can be found in the Wall Street Journal and major
newspapers.
The prices of the Bancorp's Common Stock ranged as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------
By Quarter 1st* 2nd 3rd 4th 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price
High $20.25 $12.75 $13.75 $15.25 $16.00 $15.00 $16.00 $16.75
Low $ 9.63 $10.50 $12.50 $13.00 $13.00 $13.75 $14.25 $15.25
========================================================================================
</TABLE>
* A two-for-one split was paid March 7, 1995 to stockholders of record on
February 24, 1995.
The Bancorp had approximately 1,633 stockholders of record as of December 31,
1995.
The following investment banking firms were making a market in the Bancorp's
Common Stock at December 31, 1995:
Herzog, Heine, Geduld, Inc.
Hoefer & Arnett, Inc.
Sutro & Co., Inc.
Wedbush Morgan Securities, Inc.
Source: National Association of Securities Dealers, Inc.
The Transfer Agent and Registrar is First Interstate Bank of California, Los
Angeles, California.
17
<PAGE> 18
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Five-year Financial Summary
<TABLE>
Year Ended December 31
--------------------------------------------------------------
(in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 26,188 $ 21,161 $ 17,961 $ 18,061 $ 21,527
Interest expense (7,792) (5,312) (5,083) (5,762) (8,722)
- ---------------------------------------------------------------------------------------
Net interest income 18,396 15,849 12,878 12,299 12,805
Noninterest income 4,088 3,878 4,823 4,606 3,791
Provision for credit
losses (830) (921) (1,711) (745) (1,050)
Noninterest expense (15,195) (14,856) (14,462) (13,403) (13,002)
- ---------------------------------------------------------------------------------------
Income before income
tax 6,459 3,950 1,528 2,757 2,544
Income tax (2,448) (1,381) (337) (856) (754)
- ---------------------------------------------------------------------------------------
Income before accounting
change 4,011 2,569 1,191 1,901 1,790
Cumulative affect of
accounting change - - 190 - -
- ---------------------------------------------------------------------------------------
Net income $ 4,011 $ 2,569 $ 1,381 $ 1,901 $ 1,790
=======================================================================================
Weighted average shares
outstanding 3,448,037 3,417,098 3,417,098 3,417,098 3,416,324
Net income per share
before accounting
change $ 1.16 $ 0.75 $ 0.35 $ 0.56 $ 0.52
Cumulative effect of
accounting change - - 0.05 - -
- ---------------------------------------------------------------------------------------
Net income per share $ 1.16 $ 0.75 $ 0.40 $ 0.56 $ 0.52
=======================================================================================
At Year End: (in thousands)
Total Assets $ 359,924 $ 371,152 $ 313,386 $ 251,218 $ 253,470
Deposits $ 318,695 $ 341,585 $ 285,997 $ 224,018 $ 228,135
Loans and Leases $ 128,870 $ 125,209 $ 127,896 $ 130,587 $ 150,460
Capital lease $ 113 $ 120 $ 125 $ 129 $ 132
Long term debt $ - $ - $ - $ - $ 250
Shares outstanding 3,451,462 3,417,098 3,417,098 3,417,098 3,417,098
</TABLE>
The above summary of operations is not covered by the independent auditors'
report. This summary should be used in conjunction with the consolidated
financial statements and related footnotes included elsewhere in this report.
18
<PAGE> 19
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FINANCIAL HIGHLIGHTS OVERVIEW
TransWorld Bancorp had the highest yearly earnings in its history during 1995.
Earnings were up $1,442,000, or 56% over 1994, also a record year, with 1994
increasing 86% over 1993. The positive earnings trend has occurred despite a
Southern California economy that is still recovering from the 1993 recession.
Return on average equity was 14.5%, up from 10.8% in 1994 and 6.2% in 1993.
The Company declared a 2 for 1 stock split that was paid March 7, 1995.
Adjusting for the split, the per share price increased by approximately 90%
from December 1994 to December 1995. The Board of Directors also declared a 5
for 4 stock split on January 30, 1996. This ninth stock dividend in the past
nine years was paid on March 15, 1996 to shareholders of record on February
23, 1996. All of the per share figures in this report have been adjusted for
both of these stock splits.
Loans and leases outstanding increased by $3,661,000, or 3%, reversing a trend
of declining loan totals during this last recessionary period. The increase in
loans helped improve net interest income, as did interest earned on the
investment portfolio, the two primary factors behind the increase in net
income. 1995's return on average assets improved to 1.08% compared to 0.73% in
1994 and 0.45% in 1993.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased for the second year in a row, rising by
$2,547,000, or 16%, over 1994. Net interest income for 1994 was up 23% over
1993 which in turn was up 5% over 1992. The 1995 increase came from a shift to
higher yielding earning assets as well as increased yields across all earning
asset categories. The increase in net interest income in 1994 came from
improved yields on earning assets as well as growth in total earning assets.
The net interest margin on earning assets was 5.5% in 1995 compared with 5.1%
in 1994 and 4.8% in 1993.
Interest and fees on loans improved by $1,684,000, or 14%, over 1994 due to
improved yields, versus growth of only $171,000, or 1% in 1994. Prime rate
increases in the fourth quarter of 1994 and again in February of 1995 increased
loan yield, but were partially offset by the prime rate reduction in June of
1995 and again in December of 1995. The latest reductions in prime rate will
have a negative impact on 1996 yields which optimally will be offset by
increasing the loans outstanding.
Interest earned on the investment portfolio (on a fully taxable equivalent
basis) grew by $2,910,000, or 42% compared to 39% growth in 1994 and 13%
growth in 1993. The improved 1995 results were due to both an increase in the
average level of the securities portfolio and an increase in the portfolio
yield from 5.5% in 1994 to 6.1% in 1995. The portfolio yield increased because
rates available in the bond market were up and we were able to use our
liquidity to invest in securities. We were also able to
19
<PAGE> 20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
take advantage of the rising rate environment by investing cash from maturing
securities. Maintaining yield without lengthening maturities or increasing
risk is our primary investment objective in 1996.
Interest expense increased during 1995 by $2,480,000, or 47%, compared to an
increase of 5% in 1994 and a decrease of 12% in 1993. The increase by the
Federal Reserve Board in interest rates during 1994 and the beginning of 1995
substantially affected the overall cost of funds which increased from 2.4% in
1994 to 3.3% in 1995, reversing the decrease from 2.5% in 1993 to 2.4% in 1994.
This increase in the cost of liabilities was split mainly between interest paid
on deposits (which was up $1,503,000) and interest paid on securities sold
under agreements to repurchase which increased $930,000. The increase in
interest on repurchase agreements came from the movement of an average $20
million of deposits into repurchase agreements by a large national customer in
the first quarter of 1995. This company eventually moved their deposits of
approximately $20 million and their repurchase agreements to a large financial
institution with national capabilities in the beginning of the fourth quarter
of 1995.
PROVISION FOR CREDIT LOSSES
The credit loss provision charged to expense for 1995 was $830,000, a decrease
from the $921,000 provided for 1994 and the $1,711,000 provided in 1993. The
Company was able to reduce its expense provision because of a reduction in net
charge-offs (which declined to $581,000 for 1995 compared to $917,000 in 1994
and $1,098,000 in 1993). The balance in the reserve for loan losses has
continued to increase over the same time from $2,029,000 in 1993 to $2,282,000
in 1995. The Company's credit risk analysis indicates that its current level
of reserves is adequate to cover any current known risks in the portfolio. The
current level of reserve to outstanding loans at year end was 1.77%.
The Southern California economy showed modest improvement in the second half of
1995. We anticipate this will continue through 1996 and, as a result, do not
currently anticipate any material credit erosion in the loan portfolio.
Non-performing loans at the end of 1995 dropped to $1,032,000, or 0.8% of
outstanding loans and leases compared to $1,579,000, or 1.26% of outstanding
loans and leases at the end of 1994. The Company underwent examinations by the
California State Banking Department in 1994 and the Federal Deposit Insurance
Corporation as of December 31, 1995, both of which management deemed
satisfactory.
NONINTEREST INCOME
Noninterest income increased by $210,000, or 5% over 1994, reversing a decline
in noninterest income from 1993 to 1994. The decline in 1994 was due to sale
of the bankcard merchant processing unit in late 1993. The Company continues to
receive income from bankcard merchant servicing but at a smaller, net of
expenses basis from the outsourcing provider. Service charges on deposit
accounts increased by $61,000, or 2%, after decreasing in 1994. Increased sales
of cash management products modestly helped to securities that had been
purchased at discounts.
20
<PAGE> 21
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
Other operating income showed the best improvement in the noninterest income
category during 1995, rising $168,000, or 19%, from 1994. The improvement was
generated by the Small Business Administration (SBA) Department during its
second full year of operation. Loan servicing income increased by $30,000
while fees taken into income from the sale of SBA loans increased from $55,000
in 1993 to $103,000 in 1994 and to $303,000 in 1995. With the temporary
shutdown of the Small Business Administration in Washington in late 1995,
income generation from our SBA department for the first quarter of 1996 will be
significantly reduced.
NONINTEREST EXPENSE
The Company was able to control noninterest expenses in 1995, keeping the
overall increase to 2% over 1994 and 5% over 1993. The addition of a new, full
service branch in the second quarter of 1995 was the reason we were not able to
decrease expenses below 1994 levels. As has been pointed out in prior reports,
the first quarter of 1994 was affected by the Northridge earthquake which
accounted for approximately $300,000 in one-time building repair expenses.
The larger than normal 7% increase in salaries and employee benefits can be
attributed to the new office in Camarillo, California. Occupancy expenses
declined by 3% and were not affected by the new office because no lease
payments were due until 1996. Furniture, fixtures and equipment expenses
increased due to the costs of outfitting the new office, while depreciation
costs increased for new computer and ATM equipment in other offices. The
Company will continue to upgrade and replace old computer and ATM equipment in
other offices during 1996. Both occupancy and furniture, fixtures and
equipment expense will be impacted in 1996 with the relocation of the San
Fernando branch office. This lease expires in April 1996 and the Company is
moving from an office we have occupied for 35 years to new, larger quarters
about three blocks away. Rental expenses will be comparable with the old
office but leasehold and equipment expense will be increased due to the
relocation.
The Company lost its North Hollywood branch office to a fire in October, 1995
which destroyed the interior of the office and all its contents. The exterior
structure was also severely damaged. No employees or customers were hurt as
the fire occurred on a weekend. We were able to immediately reestablish
operations and relocated in a trailer while we began the process of rebuilding
the office. The damage, and the additional expenses incurred, are completely
covered by insurance and the Company will suffer no financial loss from the
fire. Deposit and loan totals have not been impacted.
FDIC insurance costs declined substantially from the levels of 1994 and 1993.
The reduction is due to a rate reduction by the FDIC because of the Bank
Insurance Fund (BIF) reaching its level of 1.25% of deposits sooner than
expected. The expense for 1996 could be minimal if Congress does not assess
banks to replenish the Savings and Loan Insurance Fund (SAIF). If they do, the
cost will be higher. Data processing costs increased due to volume changes in
the cash management services and services we purchase
21
<PAGE> 22
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
from third party vendors. Increases in other operating expenses are due to
normal volume growth and increased pricing on other outside services used by
the Company.
ASSETS AND LIABILITIES
It was pointed out last year that one of our primary objectives for 1995 was to
increase the size of the loan portfolio. The 3% growth achieved was below our
expectations. Loan activity did not pick up until the fourth quarter of the
year. Positively, unfunded lines of credit increased to $40,062,000 at
December 31, 1995 compared to $32,357,000 at the end of 1994 which should
manifest in borrowings when loan demand increases. Based on current conditions
we believe commercial customers will increase use of their lines of credit in
1996.
We also anticipate adding to the investment portfolio during 1996, primarily in
U.S. agency securities in the one-to-five year range. Federal funds sold
should remain approximately 8% of assets. Cash and due from banks decreased
both at year end 1995 and in average balances for the year. The Company has
been able to reduce float, and the average reserve requirement has decreased
with the closure of the large deposit account referred to earlier.
Although noninterest bearing deposits decreased somewhat at year end, the
average outstanding balance for the year was up $464,000 over the average
outstanding for 1994. While interest bearing deposits decreased at year end by
5% the average for the year decreased only 1%. The mix of deposits changed in
1995 as customers moved money from checking and savings and lower yielding
money market accounts into certificates of deposit. This raised our interest
costs during 1995, but since most of these certificates carried maturities of
less than one year, current renewal costs are substantially lower on these
CD's.
Other real estate owned (ORE) decreased substantially in 1995, falling from
$2,048,000 to $601,000 at December 31, 1995, primarily as a result of the sale
of one large piece of ORE totaling $1,400,000 in March of 1995. With the
economy improving the Company is not anticipating ORE to increase noticeably in
1996.
Equity capital improved by 17%, or $4,370,000, during 1995, as a result of an
increase in retained earnings and the exercise of employee stock options
totaling $217,000. The unrealized gain/loss on securities available for sale
also improved from a $75,000 loss at December 31, 1994 to a $72,000 gain at
December 31, 1995. These items increased the book value of our common stock
from an adjusted $7.41 at 1994 year end to $8.61 at year end 1995.
22
<PAGE> 23
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
LIQUIDITY AND CAPITAL
ASSET/LIABILITY MANAGEMENT
The policy our Asset/Liability Committee uses to maintain and monitor the
Company's sensitivity to changing rates has worked well in helping the
Company's profitability in light of the fluctuations in interest rates,
deposits, and borrowed funds. The Company uses gap analysis to measure
interest rate risk in terms of the mismatch between the stated repricing and
maturities of the Company's earning assets and liabilities within defined time
frames. The Company's cumulative one-year gap position at December 31, 1995
was $36,251,000 or 11% of earning assets as seen in the interest rate
sensitivity table. This means that the Company is asset sensitive and that an
increase in interest rates will cause earnings to increase as a larger portion
of assets than liabilities reprice in 1996. Additionally, the Company is more
sensitive to decreases in interest rates, thus earnings would be impacted if
interest rates continue to drop in 1996.
INTEREST RATE SENSITIVITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Immediately >0-3 >3-6 >6-12 >1-5 >5
(in thousands) Adjustable Months Months Months Years Years
- ----------------------------------------------------------------------------------------------------------
ASSETS
Securities $ - $ 52,845 $25,268 $37,974 $45,636 $ 2,618
Fed funds sold 35,000 - - - - -
Loans 95,775 6,416 1,496 3,229 21,308 646
- ----------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS $130,775 $ 59,261 $26,764 $41,203 $66,944 $ 3,264
==========================================================================================================
SOURCES
Interest bearing deposits $ 93,023 $ 84,984 $19,994 $13,719 $ 4,177 $ 4
Short-term borrowings 2,186 - - - - -
Long-term debt - 1 2 4 47 59
Demand deposits - - - - - 102,794
Securities sold under
agreement to repurchase 1,880 5,959 - - - -
- ----------------------------------------------------------------------------------------------------------
TOTAL SOURCES $ 97,089 $ 90,944 $19,996 $13,723 $ 4,224 $102,857
==========================================================================================================
Incremental gap $ 33,686 $(31,683) $ 6,768 $27,480 $67,720 $(99,593)
Percent of earning assets 10.3% (9.7)% 2.1% 8.4% 19.1% (30.3)%
Cumulative gap $ 33,686 $ 2,003 $ 8,771 $36,251 $98,971 $ (622)
Percent of earning assets 10.3% 0.6% 2.7% 11.1% 30.2% (0.2)%
</TABLE>
Immediately adjustable loans are defined as loans that are tied to the prime
rate or other indexes which can change at any time. Immediately adjustable
deposits are those where the Company can adjust the rate without prior notice.
The Company uses adjustable deposits to fund adjustable rate loans. The
remaining assets and liabilities are categorized by either the next time the
asset or liability may be repriced
23
<PAGE> 24
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
or the maturity date, whichever is sooner. The Company does not use
off-balance sheet interest rate instruments to hedge interest rate risk.
LIQUIDITY MANAGEMENT
Liquidity refers to the Company's ability to maintain cash flow sufficient to
meet the cash needs of depositors and borrowers and to fund its operations. The
Company continues to have a stable, low cost base of core deposits generated
from our eleven office branch system. In reviewing the statement of cash flows
for 1995 we find that operating activities generated $5,340,000 in cash for
1995 compared to the $3,310,000 generated in 1994. Cash flows from investing
activities showed that the Company used a portion of its excess cash funds to
increase yield by investing a greater portion of balance sheet assets in loans
and securities. High levels of cash and cash equivalents were being maintained
during 1993 and 1994 because of the highly volatile deposit balances from the
previously mentioned large national deposit account that left in late 1995.
These liquid Instruments have been reduced to a lower level of $58,878,000 at
year end reflecting the current liquidity needs of the Company. Liquidity
remains strong, and gives the Company more than adequate funds to increase the
loan portfolio during 1996.
CAPITAL
The Company's capital position materially strengthened in 1995. The risk-based
capital ratio at the end of 1995 improved to 16.6%, up from 14.8% at December
31, 1994, well above the minimum risk-based capital ratio required by the FDIC
and Federal Reserve Bank of 8%. The Company improved its Tier I ratio to
15.4% at December 31, 1995 compared to 13.7% in 1994. The leverage ratio
(which measures equity capital as a percent of total assets) was 8.4% at
December 31, 1995 compared to 6.7% at December 31, 1994. The FDIC definition
for a well capitalized bank requires a total risk-based capital ratio equal to,
or greater than, 10%, a Tier I risk-based ratio equal to, or greater than, 6%
and a Tier I leverage ratio equal to, or greater than, 5%. Your Company
exceeds all of the above requirements.
The Company will continue to use earnings as the main source of additional
capital in 1996 and sees no problems in maintaining proper capital ratios.
FUTURE OPERATIONS
The Camarillo office opened in May, 1995 in temporary quarters and moved into
its permanent facility in January, 1996. During 1996 the Company will be
moving the San Fernando office to a new location plus rebuilding the fire
damaged North Hollywood office. The Company opened its first off-site ATM
machine on the campus of California Lutheran University in January of 1996. To
date this new ATM facility (located in the vicinity of the Thousand Oaks branch
office) has surpassed expectations for activity.
24
<PAGE> 25
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION (continued)
During the fourth quarter of 1995, the Company applied for, and received,
approval for a new branch office in Valencia, California. The new office,
which is expected to open in the second quarter of 1996, will be the Company's
twelfth branch office and its second office in the Santa Clarita Valley. Our
location next to the Valencia Town Center puts us at the heart of this
attractive commercial, residential and industrial community.
As a result of Mr. Hender's announced retirement, the Board of Directors has
hired Craig Collette an experienced banker as president and chief operating
officer to ensure a smooth transition for the Company. Mr. Hender will
continue as vice chairman and chief executive officer until his retirement in
May, 1997.
During 1995 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation" which encourages companies to account for stock
compensation awards based on their fair market value at the date the awards are
granted. This Statement does not require the application of the fair market
value method and allows the continuance of the current accounting method, which
requires accounting for stock compensation awards based on their intrinsic
value as of the grant date. However, SFAS No. 123 requires program disclosure
of net income and, if presented, earnings per share, as if the fair market
value based method of accounting defined in this Statement had been applied.
The accounting and disclosure requirements of this statement are effective with
financial statements reporting on fiscal years beginning after December 15,
1995, though earlier adoption is encouraged. The Company has chosen not to
adopt the fair market value provisions of this statement. The Company feels
that the adoption of SFAS No. 123 will not have any material effect on per
share numbers as presented.
25
<PAGE> 26
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TransWorld Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31 1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,878,000 $ 30,541,000
Federal funds sold 35,000,000 55,000,000
Investment securities held to maturity
(approximate market value:
1995-$141,864,000; 1994-$124,383,000) 141,184,000 128,907,000
Investment securities available for
sale at market value 23,157,000 23,379,000
- -------------------------------------------------------------------
Total investment securities 164,341,000 152,286,000
Loans and leases 128,870,000 125,209,000
Less allowance for credit losses 2,282,000 2,033,000
- -------------------------------------------------------------------
Net loans and leases 126,588,000 123,176,000
Premises and equipment, net 3,695,000 3,345,000
Other real estate owned, net 601,000 2,048,000
Other assets 5,821,000 4,756,000
- -------------------------------------------------------------------
TOTAL ASSETS $359,924,000 $371,152,000
===================================================================
LIABILITIES
Deposits:
Noninterest bearing $102,794,000 $113,600,000
Interest bearing 215,901,000 227,985,000
- -------------------------------------------------------------------
Total deposits 318,695,000 341,585,000
Interest bearing demand notes issued
to the U.S. Treasury 2,186,000 2,740,000
Mortgage indebtedness and obligation
under capital lease 113,000 320,000
Securities sold under agreement
to repurchase 7,839,000 200,000
Other liabilities 1,391,000 977,000
- -------------------------------------------------------------------
TOTAL LIABILITIES 330,224,000 345,822,000
STOCKHOLDERS' EQUITY
Common stock, no par value;
authorized 6,000,000 shares;
3,451,462 shares issued and
outstanding in TransWorld Bancorp
in 1995 and 3,417,098 in 1994 8,030,000 7,813,000
Surplus 2,926,000 2,926,000
Retained earnings 18,672,000 14,666,000
Unrealized gain/(loss) on securities
available for sale (net of deferred
taxes of ($53,000)in 1995 and
$53,000 in 1994) 72,000 (75,000)
- -------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 29,700,000 25,330,000
- -------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $359,924,000 $371,152,000
===================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
TransWorld Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $13,314,000 $11,630,000 $11,459,000
Interest on state and municipal
securities 967,000 1,461,000 1,031,000
Interest on other investment
securities 8,476,000 5,066,000 3,578,000
Interest on Federal funds sold 3,431,000 3,004,000 1,893,000
-----------------------------------------------------------------------------
Total interest income 26,188,000 21,161,000 17,961,000
Interest expense:
Interest on deposits 6,676,000 5,173,000 4,964,000
Interest on short-term borrowings 1,116,000 139,000 119,000
-----------------------------------------------------------------------------
Total interest expense 7,792,000 5,312,000 5,083,000
Net interest income 18,396,000 15,849,000 12,878,000
Provision for credit losses 830,000 921,000 1,711,000
-----------------------------------------------------------------------------
Net interest income after provision
for credit losses 17,566,000 14,928,000 11,167,000
Noninterest income:
Service charges on deposit accounts 2,870,000 2,809,000 3,077,000
Bankcard merchant discount 133,000 204,000 855,000
Gain on sale of securities 52,000 - 5,000
Other operating income 1,033,000 865,000 886,000
-----------------------------------------------------------------------------
Total noninterest income 4,088,000 3,878,000 4,823,000
Noninterest expense:
Salaries and employee benefits 7,861,000 7,375,000 7,068,000
Net occupancy expense 2,199,000 2,268,000 2,167,000
Furniture, fixtures and equipment 1,275,000 1,123,000 1,176,000
FDIC insurance costs 383,000 663,000 538,000
Data processing 209,000 178,000 283,000
Bankcard merchant expense - 2,000 497,000
Other operating expense 3,268,000 2,937,000 2,733,000
Earthquake expense - 310,000 -
-----------------------------------------------------------------------------
Total noninterest expense 15,195,000 14,856,000 14,462,000
Income before income taxes 6,459,000 3,950,000 1,528,000
Income taxes 2,448,000 1,381,000 337,000
-----------------------------------------------------------------------------
Income before accounting change 4,011,000 2,569,000 1,191,000
Cumulative effect of accounting change - - 190,000
-----------------------------------------------------------------------------
Net income $ 4,011,000 $ 2,569,000 $ 1,381,000
=============================================================================
Income per share before accounting
change $ 1.16 $ 0.75 $ 0.35
Cumulative effect of accounting change - - 0.05
-----------------------------------------------------------------------------
Net income per share $ 1.16 $ 0.75 $ 0.40
=============================================================================
Weighted average shares outstanding 3,448,037 3,417,098 3,417,098
=============================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
TransWorld Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 4,011,000 $ 2,569,000 $ 1,381,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Gain on calls and redemptions of
securities held to maturity (54,000) - (5,000)
Gain on calls and redemptions of
securities available for sale - - -
Gain on sale of securities held to maturity - - -
Loss on sale of securities available for sale 2,000 - -
Net amortization of premium on investments 29,000 354,000 502,000
Provision for credit losses 830,000 921,000 1,711,000
Accretion of deferred loan fees and costs (236,000) (170,000) (231,000)
Loan origination costs capitalized (161,000) (165,000) (169,000)
Depreciation and amortization 634,000 608,000 646,000
(Increase)in accrued interest receivable (465,000) (856,000) (191,000)
Increase (decrease) in accrued interest payable 379,000 30,000 (26,000)
Provision for deferred taxes (268,000) (155,000) (366,000)
Increase in current income taxes payable 233,000 7,000 203,000
Provision for OREO losses 96,000 105,000 135,000
Increase in other, net 310,000 62,000 7,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,340,000 3,310,000 3,597,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity 28,955,000 12,811,000 14,932,000
Proceeds from matured securities available for sale 30,300,000 6,750,000 -
Proceeds from calls and redemptions
of securities held to maturity 39,291,000 10,265,000 15,877,000
Proceeds from calls and redemptions
of securities available for sale 16,440,000 61,000 -
Proceeds from sale of securities held to maturity - - -
Proceeds from sale of securities available for sale 498,000 - -
Purchase of securities held to maturity (80,393,000) (63,479,000) (68,548,000)
Purchase of securities available for sale (47,083,000) (18,848,000) -
Net (increase)in loans (9,510,000) (2,475,000) (1,918,000)
Proceeds from sale of SBA loans 4,697,000 3,455,000 1,086,000
Loan origination fees received 664,000 556,000 696,000
Proceeds from sale of other real estate owned 1,518,000 607,000 2,149,000
Purchase of premises and equipment (985,000) (297,000) (358,000)
(Increase) decrease in other, net (600,000) 330,000 (668,000)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (16,208,000) (50,264,000) (36,752,000)
Cash flows from financing activities:
Net (decrease) increase in noninterest bearing deposits (10,806,000) 24,367,000 28,392,000
Net (decrease) increase in interest bearing deposits (12,084,000) 31,221,000 33,587,000
Net increase in repurchase agreements 7,639,000 200,000 -
(Decrease)in interest bearing demand notes (554,000) (503,000) (1,357,000)
(Decrease)in capital lease and mortgage indebtedness (207,000) (13,000) (175,000)
Dividends paid in lieu of fractional shares issued - (11,000) (10,000)
Exercise of stock purchase plan options 217,000 - -
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (15,795,000) 55,261,000 60,437,000
- -------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (26,663,000) 8,307,000 27,282,000
Cash and cash equivalents, beginning of year 85,541,000 77,234,000 49,952,000
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 58,878,000 $ 85,541,000 $ 77,234,000
=========================================================================================================================
28
</TABLE>
<PAGE> 29
Supplemental disclosures of cash flows information:
<TABLE>
Cash paid during the year: 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $7,427,000 $5,147,000 $5,109,000
Income taxes $3,016,000 $1,491,000 $ 506,000
- ----------------------------------------------------------------------------------------------------------------
Non-cash activities:
Transfer from loans to other real estate owned $ 155,000 $ 655,000 $2,184,000
================================================================================================================
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Unrealized
Gain/(Loss)
Common Stock on Securities
- ------------------------------------------------------------ Available Retained
Shares Amount For Sale Surplus Earnings
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 1,238,292 $6,166,000 $2,926,000 $12,384,000
Stock dividend (5%) 61,090 764,000 (774,000)
Unrealized gain on securities $128,000
Net income 1,381,000
- ---------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 1,299,382 6,930,000 128,000 2,926,000 12,991,000
Stock dividend (5%) 64,209 883,000 (894,000)
Change in unrealized
gain/(loss) on securities (203,000)
Net income 2,569,000
- ---------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 1,363,591 7,813,000 (75,000) 2,926,000 14,666,000
Issuance of common stock 17,788 217,000
Stock split-2 for 1 1,380,167
Change in unrealized
gain/(loss) on securities 147,000
Stock split-5 for 4 (declared
January 30, 1996 paid
March 15, 1996) 689,916 (5,000)
Net income 4,011,000
- ---------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 3,451,462 $8,030,000 $ 72,000 $2,926,000 $18,672,000
===================================================================================================
</TABLE>
See notes to consolidated financial statements
29
<PAGE> 30
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND PRESENTATION:
The accompanying consolidated balance sheets as of December 31, 1995 and 1994
are those of TransWorld Bancorp (The Company) and its subsidiary TransWorld
Bank (Bank). The Bank's primary source of revenue is providing loans to
customers, who are predominately small to mid-sized businesses through
operations of its 11 banking offices located in southern California. The
consolidated financial statements include the accounts of the respective parent
company and subsidiary. All significant intercompany balances and transactions
have been eliminated. Certain amounts in the financial statements for prior
years have been reclassified to conform with the 1995 financial statement
presentation.
The consolidated statements of cash flows illustrate the change in cash and
cash equivalents as disclosed in the consolidated balance sheet. For purpose
of reporting cash flows, cash and cash equivalents include cash, due from banks
and federal funds sold. Generally, federal funds sold are sold for one day
periods.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVESTMENT SECURITIES:
The Bank classifies its investment securities as follows:
Held to Maturity Securities - Debt securities that the Bank has the positive
intent and ability to hold to maturity. These securities are reported at
amortized cost.
Trading Securities - Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in earnings. The Bank holds no trading securities.
Available for Sale Securities - Debt and equity securities not classified as
either held to maturity or trading securities. These securities are to be
reported at estimated fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity
(net of tax effects).
Accreted discounts and amortized premiums on investment securities are included
in interest income, and unrealized and realized gains or losses related to
holding or selling securities are calculated using the specific identification
method.
30
<PAGE> 31
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES: (continued)
LOANS AND LEASES:
Loans are stated net of unearned income, undisbursed loan funds, and net
deferred loan origination fees and costs. Interest on loans is recognized by
methods which generally result in level rates of return on principal amounts
outstanding. Direct lease financing is carried net of unearned income. Income
from leases is recognized on a level yield basis over the terms of the leases
based upon the unrecovered equity investment. When a loan or lease is placed
on non-accrual, all previously accrued but not collected interest is reversed
against current period income.
Loan origination fees and costs are being recognized over the life of the loans
using the effective interest method or on a basis that approximates the
interest method.
Provisions for credit losses are charged to operations in amounts deemed
appropriate by management based upon its evaluation of the loan and lease
portfolio.
On January 1, 1995 the Bank adopted Statement of Financial Accounting Standards
("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan," as amended
by SFAS No.118, "Accounting by Creditors for Impairmant of a Loan - Income
Recognition and Disclosures." This statement prescribes that a loan is impaired
when it is probable that the creditor will be unable to collect all contractual
principal and interest payments under the terms of the loan agreement. This
statement generally requires impaired loans to be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or as an expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
Periodically, the Bank sells the guaranteed portion of SBA loans. Gains on
sales of SBA loans are deferred for 90 days at which time the gain is
allocated to the guaranteed and unguaranteed portions of the loan. The amount
allocated to the guaranteed portion of the loan is recognized as other income.
The amount of gain allocated to the unguaranteed portion of the loan (including
excess servicing income, if any) is deferred and amortized over the life of the
loan as an adjustment of yield.
OTHER REAL ESTATE OWNED:
Other real estate owned, which represents real estate acquired through
foreclosure in satisfaction of commercial and real estate loans, is stated at
the fair value of the real estate less estimated costs to sell. Loan balances
in excess of the fair value of the real estate acquired at the date of
acquisition are charged against the allowance for credit losses. Any
subsequent operating expenses or income, reduction in estimated values, and
gains or losses on disposition of such properties are recorded in current
operations.
31
<PAGE> 32
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES: (continued)
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated depreciation, and
are depreciated using the straight-line method over the estimated useful lives
of the assets. Leasehold improvements and leased property under capital leases
are amortized using the straight-line method over the useful lives of the
assets or the term of the lease, whichever is shorter.
TAXES ON INCOME:
Effective January 1, 1993, the Bank adopted SFAS No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Accordingly, income tax expense for 1993, 1994
and 1995 was computed using the liability method, which recognizes a
liability or asset representing the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events that have been
recognized in the consolidated financial statements. The principal temporary
differences relate to different methods used for tax and financial reporting
purposes to account for credit losses, depreciation and direct lease financing.
The cumulative effect of the change in accounting for income taxes on years
prior to January 1, 1993 of $190,000 is included in the 1993 statement of
earnings.
NET INCOME PER SHARE:
Net income per share is computed on the weighted average number of shares of
common stock outstanding during each year. Shares available under stock option
plans are not included in the computation, as their effect would not be
material. The weighted average number of shares is adjusted to give
retroactive recognition to stock dividends declared in 1995 and in previous
years, and the five for four stock split declared January 31, 1996, paid March
15, 1996.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107 specifies the disclosure of the estimated fair value of financial
instruments. The Bank's estimated fair value amounts are reflected in Note 12
and have been determined by the Bank using available market information and
appropriate valuation methodologies.
However, considerable judgment is required to develop the estimates of fair
value. Accordingly, the estimates presented in Note 12 are not necessarily
indicative of the amounts the Company could have realized in a current market
exchange as of December 31, 1995 and 1994. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
32
<PAGE> 33
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES: (continued)
the balance sheet date and, therefore, current estimates of fair value may
differ significantly from the amounts presented in the accompanying Notes.
IDENTIFIABLE INTANGIBLE ASSETS:
In conjunction with the acquisition of Premier Bank's insured deposits, which
were acquired from the FDIC in April, 1993, core deposit intangibles, included
in other assets totaling $701,000 are being amortized over a six-year period on
a straight line basis. The amortized value is $389,000 at December 31, 1995.
RECENT ACCOUNTING PRONOUNCEMENTS:
During 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", (SFAS No. 123) which encourages companies to account for stock
compensation awards based on their fair value at the date the awards are
granted.
This Statement does not require the application of the fair value method and
allows the continuance of current accounting method, which requires accounting
for stock compensation awards based on their intrinsic value as of the grant
date. However, SFAS No. 123 requires proforma disclosure of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in this Statement had been applied.
The accounting and disclosure requirements of this statement are effective for
financial statements for fiscal years beginning after December 15, 1995, though
earlier adoption is encouraged. The Company has chosen not to adopt the fair
value provisions of this statement.
33
<PAGE> 34
NOTE 2 - INVESTMENT SECURITIES:
The amortized cost and estimated fair values of investments in securities are
shown below. Most debt securities are publicly traded and the fair value was
obtained from an independent pricing service. Securities dealers supplied fair
values for securities not actively traded. Money market (auction rate)
preferred stocks are essentially substitutes for money market investments such
as commercial paper and are closer in their characteristics to debt than
equity. The Company has received permission from the FDIC and state banking
regulators to invest in this type of security. Auction rate preferred stocks
are included as equity stock securities below at par value as they are
rate-adjusted every 49 days.
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Estimated
December 31, 1995 Cost Gain Loss Fair Value
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities $ 2,988,000 $ 42,000 $ - $ 3,030,000
U.S. Government agencies and
corporations 107,782,000 512,000 157,000 108,137,000
U.S. Government agencies mortgage-
backed securities 7,317,000 50,000 8,000 7,359,000
Obligations of states and political
subdivisions 23,097,000 261,000 20,000 23,338,000
- -------------------------------------------------------------------------------------------------------------------
Total investment securities held to
maturity $141,184,000 $865,000 $185,000 $141,864,000
===================================================================================================================
Investment securities available for sale:
U.S. Government agencies and
corporations $ 11,641,000 $ 16,000 $ 2,000 $ 11,655,000
U.S. Government agencies mortgage-
backed securities - - - -
Corporate debt securities 7,391,000 112,000 1,000 7,502,000
Equity securities 4,000,000 - - 4,000,000
- -------------------------------------------------------------------------------------------------------------------
Total investment securities available
for sale $ 23,032,000 $128,000 $ 3,000 $ 23,157,000
===================================================================================================================
December 31, 1994
- -------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity:
U.S. Treasury securities $ 2,997,000 $ - $ 34,000 $ 2,963,000
U.S. Government agencies and
corporations 86,606,000 7,000 3,898,000 82,715,000
U.S. Government agencies mortgage-
backed securities 7,192,000 4,000 302,000 6,894,000
Obligations of states and political
subdivisions 32,112,000 106,000 407,000 31,811,000
- -------------------------------------------------------------------------------------------------------------------
Total investment securities held to
maturity $128,907,000 $117,000 $4,641,000 $124,383,000
===================================================================================================================
Investment securities available for sale:
U.S. Government agencies and
corporations $ 13,949,000 $ - $ 16,000 $ 13,933,000
Obligations of states and
political subdivisions 251,000 2,000 - 253,000
Corporate debt securities 5,307,000 5,000 119,000 5,193,000
Equity securities 4,000,000 - - 4,000,000
- -------------------------------------------------------------------------------------------------------------------
Total investment securities available
for sale $ 23,507,000 $ 7,000 $ 135,000 $ 23,379,000
===================================================================================================================
</TABLE>
34
<PAGE> 35
NOTE 2 - INVESTMENT SECURITIES (continued):
The amortized cost and estimated fair value of debt securities at December 31,
1995, and 1994 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
1995 1994
- --------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities held to maturity:
Due in one year or less $ 98,710,000 $ 98,934,000 $ 40,325,000 $ 39,486,000
Due in one year through five years 39,856,000 40,281,000 82,391,000 79,077,000
Due in five years through ten years 2,414,000 2,438,000 4,857,000 4,513,000
Due after ten years 204,000 211,000 1,334,000 1,307,000
- --------------------------------------------------------------------------------------------
Total $141,184,000 $141,864,000 $128,907,000 $124,383,000
============================================================================================
Debt securities available for sale:
Due in one year or less $ 13,356,000 $ 13,377,000 $ 16,098,000 $ 16,081,000
Due in one year through five years 5,676,000 5,780,000 3,309,000 3,212,000
Due in five years through ten years - - 100,000 86,000
Due after ten years - - - -
- --------------------------------------------------------------------------------------------
Total $ 19,032,000 $ 19,157,000 $ 19,507,000 $ 19,379,000
============================================================================================
</TABLE>
A gain of $54,000 was realized on called securities Held to Maturity in 1995
and a loss of $2,000 on a sale of one Available for Sale security. A gain of
$5,000 was realized on a called security Held to Maturity in 1993 and there
were no sales of investment securities in 1993 or 1994.
Investment securities with a carrying value of $19,967,000 at December 31, 1995
and $12,255,000 at December 31, 1994 were pledged to secure public deposits and
for other purposes.
35
<PAGE> 36
NOTE 3 - LOANS AND LEASES:
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------
1995 1994
- --------------------------------------------------------------
<S> <C> <C>
Real estate loans
Mortgage $ 48,701,000 $ 48,371,000
Construction 1,747,000 3,593,000
Commercial loans 66,209,000 59,575,000
Consumer loans 10,971,000 12,409,000
Leases 1,242,000 1,261,000
- --------------------------------------------------------------
Total loans and leases $128,870,000 $125,209,000
==============================================================
</TABLE>
The Bank had undisbursed commitments on real estate loans of $428,000 at
December 31, 1995 and $521,000 at December 31, 1994. At December 31, 1995 and
1994, the Bank had outstanding letters of credit in the amount of $802,000 and
$1,196,000, respectively.
The aggregate amount of loans outstanding to officers, directors, and principal
security holders and associates was $1,817,000 at December 31, 1995 and
$452,000 at December 31, 1994. The amount of new and renewed loans was
$2,315,000 and repayments were $950,000 during 1995. These loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and
do not involve more than the normal risk of collectibility.
Past due and nonaccrual loans and leases:
<TABLE>
<CAPTION>
Past due over 90 days Nonaccruals
- -------------------------------------------------------------------------
December 31 1995 1994 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate loans $5,000 $ 42,000 $ 620,000 $ 183,000
Commercial loans - 413,000 404,000 250,000
Consumer loans - - 1,000 690,000
Leases 2,000 1,000 - -
- -------------------------------------------------------------------------
Total $7,000 $456,000 $1,025,000 $1,123,000
=========================================================================
</TABLE>
The Bank grants loans to customers throughout its primary market area of Los
Angeles County, California and surrounding areas. The Bank makes loans to
borrowers in a number of different industries with no particular concentration
in any industry segment.
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 and 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 in the event of nonperformance by the other
party to commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. At December 31,
1995, the Bank had commitments to extend credit of $40,062,000 and obligations
under standby letters of credit of $738,000.
36
<PAGE> 37
NOTE 3 - LOANS AND LEASES (continued):
Commitments to extend credit are agreements to lend 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.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support obligations of vendors/suppliers who are customers
of the Bank. All outstanding guarantees have a maturity of one year or less.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for extending loan facilities to customers. 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 of the counterparty.
Collateral held varies but may include real estate, certificates of deposit,
accounts receivable, inventory, other property, plant, and equipment.
NOTE 4 - ALLOWANCE FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED:
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $2,033,000 $2,029,000 $1,416,000
Provision charged to operations 830,000 921,000 1,711,000
Recoveries 116,000 109,000 108,000
- ----------------------------------------------------------------------------------------------
2,979,000 3,059,000 3,235,000
Less: Loans charged off 697,000 1,026,000 1,206,000
- ----------------------------------------------------------------------------------------------
Balance, December 31 $2,282,000 $2,033,000 $2,029,000
==============================================================================================
Transactions in the allowance for other real estate owned were as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------------------
Balance, January 1 $ 135,000 $ 93,000 $ 123,000
Provision charged to operations 96,000 105,000 135,000
- ----------------------------------------------------------------------------------------------
231,000 198,000 258,000
Less: OREO reserves recovered - - 6,000
Less: OREO reserves charged off 148,000 63,000 159,000
- ----------------------------------------------------------------------------------------------
Balance, December 31 $ 83,000 $ 135,000 $ 93,000
==============================================================================================
</TABLE>
At December 31, 1995, the Bank had classified $373,000 of its loans as impaired
with specific reserves related to impairment of $212,000 and $652,000 of its
loans impaired with no related specific loss reserve determined in accordance
with SFAS No. 114. The average recorded investment in impaired loans during
the year ended December 31, 1995, was $1,036,000. Interest income of $5,000
was recognized on impaired loans during the year ended December 31, 1995.
Non-accrual loans and foregone interest totaled $1,025,000 and $111,000
respectively, at December 31, 1995.
37
<PAGE> 38
NOTE 5 - PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
Caption>
December 31
- ---------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 262,000 $ 262,000
Buildings 964,000 964,000
Furniture, fixtures and equipment 4,895,000 4,271,000
Leasehold improvements 4,053,000 3,786,000
Leased property under capital leases 150,000 150,000
- ---------------------------------------------------------------------------
10,324,000 9,433,000
Less: Accumulated depreciation and
amortization 6,629,000 6,088,000
- ---------------------------------------------------------------------------
Total $ 3,695,000 $3,345,000
===========================================================================
</TABLE>
The amounts of depreciation and amortization included in noninterest expense
were $634,000 in 1995, $608,000 in 1994, and $646,000 in 1993. The Bank is
obligated under noncancelable operating leases for branch locations,
administrative premises, and equipment that expire at various dates from 1996
through 2013. The leases generally provide for renewal options for periods
from five to ten years and, in certain instances, provide for periodic rate
increases or decreases based on the Consumer Price Index. The Bank is
responsible for executory costs. Rentals under these leases aggregated
$1,476,000 in 1995, $1,532,000 in 1994, and $1,496,000 in 1993, net of sublease
rentals of $191,000 in 1995, $180,000 in 1994, and $161,000 in 1993.
The future payments under the terms of these operating and capital leases are
summarized as follows:
<TABLE>
<CAPTION>
Year Capital Lease Operating Leases
-------------------------------------------------------------------
<S> <C> <C>
1996 $ 28,000 $ 1,699,000
1997 28,000 1,432,000
1998 28,000 1,339,000
1999 28,000 1,342,000
2000 28,000 1,341,000
Thereafter 74,000 8,656,000
-------------------------------------------------------------------
Total $214,000 $15,809,000
-----------
Less: Amount representing interest 101,000
--------------------------------------------
Present value of net minimum lease
payments due through 2008 $113,000
============================================
</TABLE>
The future payments on operating leases have been reduced by rental income to
be received on subleases of $172,000 in 1996, $131,000 in 1997 and $84,000 in
1998.
38
<PAGE> 39
NOTE 6 - TAXES ON INCOME:
In fiscal year 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes." Under the provisions of SFAS No. 109, the Company elected not to
restate prior year financial statements, and the cumulative effect of
implementation was an income tax benefit of $190,000 in 1993.
Provisions (benefits) for taxes on income are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Federal - Current $1,932,000 $1,076,000 $ 466,000
- Deferred (226,000) (124,000) (264,000)
- --------------------------------------------------------------------
1,706,000 952,000 202,000
- --------------------------------------------------------------------
State - Current 784,000 460,000 237,000
- Deferred (42,000) (31,000) (102,000)
- --------------------------------------------------------------------
742,000 429,000 135,000
- --------------------------------------------------------------------
Total $2,448,000 $1,381,000 $ 337,000
====================================================================
</TABLE>
The tax liability (receivable) was comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Current - Federal $ 11,000 $ 175,000
- State 3,000 72,000
- --------------------------------------------------------------------
14,000 247,000
- --------------------------------------------------------------------
Deferred - Federal (686,000) (536,000)
- State (177,000) (164,000)
- --------------------------------------------------------------------
(863,000) (700,000)
- --------------------------------------------------------------------
Total $ (849,000) $(453,000)
====================================================================
</TABLE>
Current taxes payable of $14,000 in 1995 and $247,000 in 1994 are also included
in other liabilities. The net deferred tax asset is included in other assets.
The effective income tax rates are reconciled to the federal statutory income
tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Federal corporate income tax rate 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State and municipal tax-exempt
bond and loan income (3.3) (5.7) (14.6)
State taxes on income, net of
federal income tax benefit 7.3 7.2 5.8
Preferred stock dividends (.6) (.8) (2.4)
Other (.1) (.3) (1.8)
- --------------------------------------------------------------------
Total 38.3% 35.4% 22.0%
====================================================================
</TABLE>
39
<PAGE> 40
NOTE 6 - TAXES ON INCOME (continued):
Deferred federal and state taxes result from timing differences in the
recognition of revenue and expense for tax and financial statement purposes.
The components of the net deferred tax asset are as follows:
<TABLE>
Year Ended December 31
- --------------------------------------------------------------------
Federal 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Provision for credit losses $(456,000) $(312,000)
OREO reserve (28,000) (46,000)
State income tax (192,000) (108,000)
Tax under (over) book depreciation (19,000) 28,000
Direct lease financing 104,000 11,000
Unrealized gain (loss) on securities 37,000 (39,000)
Other (132,000) (70,000)
- --------------------------------------------------------------------
Total $(686,000) $(536,000)
====================================================================
State
Provision for credit losses $(156,000) $(131,000)
OREO reserve (9,000) (16,000)
Tax under (over) book depreciation (16,000) 17,000
Direct lease financing 34,000 4,000
Unrealized gain (loss) on securities 14,000 (14,000)
Other (44,000) (24,000)
- --------------------------------------------------------------------
Total $(177,000) $(164,000)
====================================================================
</TABLE>
The Bank files a consolidated federal income tax return and combined state
franchise tax return on a calendar year basis.
NOTE 7 - DEPOSITS:
<TABLE>
December 31 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Demand deposits $102,794,000 $113,600,000
Savings deposits 73,886,000 87,933,000
Money Market deposits 47,688,000 90,625,000
Time deposits - under $100,000 59,945,000 37,388,000
Time deposits $100,000 & over maturing
within 1yr 34,282,000 11,939,000
Time deposits $100,000 & over maturing
1yr-5yr 100,000 100,000
- --------------------------------------------------------------------
Total $318,695,000 $341,585,000
====================================================================
</TABLE>
Interest expense on time certificates of deposit with balances of $100,000 or
more amounted to $908,000 in 1995, $496,000 in 1994, and $263,157 in 1993.
40
<PAGE> 41
NOTE 8 - PROFIT SHARING PLAN:
The Bank has a noncontributory profit sharing plan with a 401(k) option
covering all employees who have been employed by the Bank for more than one
year, work 1,000 hours or more during the calendar year, and meet the age
requirements specified in the plan. The eligibility requirements for the 401
(K) options are the same. Benefits are deferred until retirement with total
vesting in seven years.
The annual profit sharing contribution is subject to the discretion of the
Board of Directors. Contributions to profit sharing were $42,000 in 1995,
$38,000 in 1994, and $34,000 in 1993. An additional $63,000 in 1995, $51,000
in 1994 and $43,000 in 1993 was contributed to the 401(k) Plan for a total
contribution to both plans of $105,000 in 1995, $89,000 in 1994 and $77,000 in
1993.
NOTE 9 - STOCK OPTION PLAN:
The Bancorp has a stock option and stock appreciation rights plan that was
adopted and approved by the shareholders in 1989. The plan provides for the
grant of "incentive stock options," as defined under the Internal Revenue Code
of 1986, "nonqualified options," and "stock appreciation rights." A total of
191,040 shares of the Bancorp's common stock (which has been adjusted for stock
dividends and splits) has been reserved to be granted prior to January 31,
1999. Options are granted at prices not less than fair market value at time of
grant and are exercisable over a period of five years. At December 31, 1995
there were 139,672 shares available for future grants. The plan and options
have been adjusted for stock dividends and splits.
<TABLE>
<CAPTION>
Shares Price Range
---------------------------------------------------------------------
<S> <C> <C>
Options outstanding, January 1, 1993 18,193 $13.93 - $14.63
Incentive stock options granted 905 13.27 - 13.92
---------------------------------------------------------------------
Options outstanding, December 31, 1993 19,098 13.27 - 13.92
Incentive stock options granted 951 12.64 - 13.30
---------------------------------------------------------------------
Options outstanding, December 31, 1994 20,049 12.64 - 13.30
Incentive stock options granted 30,106 11.75 - 11.75
Options exercised 17,788 6.65 - 12.66
Options cancelled or terminated 2,867 12.65 - 12.66
---------------------------------------------------------------------
Options outstanding, December 31, 1995 29,500 $11.75 - $11.75
---------------------------------------------------------------------
</TABLE>
The Company declared a five for four stock split on January 30, 1996 payable
March 15, 1996. This will adjust the shares available for future grants by
153,152 and adjust the remaining outstanding options by 23,600 shares.
41
<PAGE> 42
NOTE 10 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and other benefits for retired
employees. Generally, qualified employees may become eligible for these
benefits if they retire in accordance with the Company's established retirement
policy and are continuously insured under the Company's insurance plans prior
to retirement. All retired employees of the Company who are age 63 with 20
years of continuous service in a plan offered by the Company are eligible for
these benefits. The Company's postretirement benefit plans currently are not
funded. The Company has the right to modify or terminate these plans.
The effect of adoption of SFAS No. 106 in 1993 of $182,000 is being amortized
over 20 years.
The periodic expense for postretirement benefits includes the following:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Service cost $21,000 $24,000
Interest cost 21,000 19,000
Amortization of transition
obligation 9,000 9,000
Amortization of (gain)/loss - 1,000
- -----------------------------------------------------------------------
Total expense $51,000 $53,000
=======================================================================
</TABLE>
The actuarial and recorded liabilities for postretirement benefits were as
follows:
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Retirees $( 56,000) $ (44,000)
Fully eligible active plan participants ( 78,000) (55,000)
Other active plan participants (236,000) (148,000)
- ------------------------------------------------------------------------
Total APBO (370,000) (247,000)
Unrecognized transition obligation 155,000 164,000
Unrecognized net (gain)/loss 81,000 (4,000)
- ------------------------------------------------------------------------
Prepaid/(Accrued) postretirement
benefit cost $(134,000) $ (87,000)
========================================================================
</TABLE>
The average health care cost trend rate used in measuring the accumulated
postretirement benefit obligation and postretirement benefit cost was 12.0% and
8.0% in 1995 and 1994 respectively, gradually declining to 6.5% in 2005 and
remaining at that level thereafter. A 1% increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation by $70,000 at December 31, 1995 and $52,000 at December 31,
1994, and would increase the sum of the service cost and interest cost by
$9,000 in 1995 and 1994.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1995, and 8.5% at
December 31, 1994.
The Company offers no other postemployment, postretirement, or pension
benefits.
42
<PAGE> 43
NOTE 11 - REGULATORY MATTERS:
DIVIDEND RESTRICTIONS:
California banking law places the following restrictions on the availability of
surplus and retained earnings for dividend purposes. "A bank may not make
distribution to its stockholders in excess of the lesser of (1) retained
earnings or (2) net income for its last three fiscal years, less the amount of
any such distributions made by the bank to the stockholders of the bank during
such period." The amount of Bank retained earnings free of restrictions for
purpose of dividend distribution is $7,968,000.
CAPITAL REQUIREMENTS:
Federal Reserve Bank and FDIC regulations require the maintenance of a minimum
risk-based capital ratio of 8%, with core capital (Tier I) being at least 4%,
and a minimum capital leverage ratio of 4%.
The Company's risk-based capital ratio was 16.62% at December 31, 1995 and
14.84% at December 31, 1994, with a Tier I ratio of 15.42% at December 31, 1995
and 13.72% at December 31, 1994. The leverage ratio was 8.43% at December 31,
1995 and 6.69% at December 31, 1994.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Bank in estimating the
fair values of its financial instruments:
Cash and Due from Banks - The fair values and the carrying amounts of cash and
due from banks are the same by definition. There are no factors that will
cause the market value of these assets to differ from book value.
Investment Securities - Fair values for investment securities are based on
quoted market prices.
Loans - The fair value for commercial loans has been estimated by discounting
the projected cash flows at December 31, 1995 and 1994, using the risk-adjusted
spreads to the U.S. Treasury curve to approximate current entry-value interest
rates applicable to each category of loans. The fair value of all other loans
has been estimated by discounting the projected cash flows using the current
rate at which similar loans would be made to borrowers with similar credit
ratings, and for the same maturities. In computing the estimated fair value
for all loans, estimated future cash flows have been reduced by specific and
general reserves for loan losses.
No adjustment was made to the entry-value interest rates for changes in credit
of performing loans for which there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that the
risk factor embedded in the entry-value interest rates along with the general
reserves applicable to the performing loan portfolio for which there are no
known credit concerns result in a fair valuation of such loans on an
entry-value basis. The fair value of
43
<PAGE> 44
Note 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS: (continued)
nonperforming loans with a recorded book value of $1,034,000 and $1,579,000 at
December 31, 1995 and 1994, respectively, was not estimated because it is not
practicable to reasonably assess the credit adjustment that would be applied
in the marketplace for such loans. As such, the estimated fair value of total
loans at December 31, 1995 and 1994 includes the carrying amount of nonaccrual
loans at this date.
Deposits - The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of time certificates of deposit is estimated by discounting
future cash flows using rates currently offered for deposits with similar
remaining maturities.
<TABLE>
<CAPTION>
Carrying Amount Fair Value
- ------------------------------------------------------------
<S> <C> <C>
December 31, 1995:
Cash and cash equivalents $ 58,878,000 $ 58,878,000
Investment securities 164,341,000 165,021,000
Loans, net 128,870,000 128,263,000
Noninterest bearing deposits 102,794,000 102,794,000
Interest bearing deposits 215,901,000 216,028,000
December 31, 1994:
Cash and cash equivalents $ 85,541,000 $ 85,541,000
Investment securities 152,286,000 147,762,000
Loans, net 125,209,000 124,413,000
Noninterest bearing deposits 113,600,000 113,600,000
Interest bearing deposits 227,985,000 227,970,000
</TABLE>
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Following is a summary of financial information for each quarterly reporting
period during the two years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 Quarter Ended
(in thousands) 3-31 6-30 9-30 12-31 Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 4,720 $ 4,683 $ 4,629 $ 4,364 $ 18,396
Noninterest income 961 982 1,052 1,093 4,088
Provision for credit losses (220) (225) (220) (165) (830)
Noninterest expense (3,899) (3,850) (3,695) (3,751) (15,195)
- --------------------------------------------------------------------------------------
Income before income taxes 1,562 (1,590) 1,766 1,541 6,459
Applicable income taxes 582 608 671 587 2,448
- --------------------------------------------------------------------------------------
Net income $ 980 $ 982 $ 1,095 $ 954 $ 4,011
======================================================================================
Net income per share $ 0.29 $ 0.28 $ 0.32 $ 0.27 $ 1.16
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 Quarter Ended
(in thousands) 3-31 6-30 9-30 12-31 Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 3,273 $ 3,813 $ 4,229 $ 4,534 $ 15,849
Noninterest income 1,065 990 921 902 3,878
Provision for credit losses (150) (256) (325) (190) (921)
Noninterest expense (3,839) (3,590) (3,637) (3,790) (14,856)
- --------------------------------------------------------------------------------------
Income before income taxes 349 957 1,188 1,456 3,950
Applicable income taxes 81 332 424 544 1,381
- --------------------------------------------------------------------------------------
Net income $ 268 $ 625 $ 764 $ 912 $ 2,569
======================================================================================
Net income per share $ 0.08 $ 0.18 $ 0.22 $ 0.27 $ 0.75
======================================================================================
</TABLE>
44
<PAGE> 45
NOTE 14 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT:
TransWorld Bancorp operates its only subsidiary, TransWorld Bank. The earnings
of the subsidiary are recognized on the equity method of accounting. Condensed
financial statements of the parent company only are presented:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash in TransWorld Bank $ 213,000 $ 33,000
Investment in wholly-owned subsidiary 29,404,000 25,272,000
Other assets 16,000 25,000
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $29,633,000 $25,330,000
=======================================================================================
LIABILITIES
Other liabilities $ - $ -
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY 29,633,000 25,330,000
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,633,000 $25,330,000
=======================================================================================
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $ - $50,000 $75,000
Interest on deposit accounts 7,000 - -
- ---------------------------------------------------------------------------------------
Total income 7,000 50,000 75,000
EXPENSE
Other 86,000 78,000 70,000
- ---------------------------------------------------------------------------------------
Total expense 86,000 78,000 70,000
Income before income tax benefit
and equity in earnings of
unconsolidated subsidiary (79,000) (28,000) 5,000
Income tax benefit (33,000) (33,000) (29,000)
- ---------------------------------------------------------------------------------------
Income before equity in earnings
of unconsolidated subsidiary (46,000) 5,000 34,000
Equity in undistributed income
of subsidiary 4,057,000 2,564,000 1,347,000
- ---------------------------------------------------------------------------------------
NET INCOME $4,011,000 $2,569,000 $1,381,000
=======================================================================================
</TABLE>
45
<PAGE> 46
NOTE 14 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT: (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $4,011,000 $2,569,000 $1,381,000
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) in investments in wholly
owned subsidiary (4,057,000) (2,564,000) (1,347,000)
Decrease (increase) in other assets 9,000 21,000 (8,000)
Decrease in other liabilities - - -
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities (37,000) 26,000 26,000
- --------------------------------------------------------------------------------------------
Cash flows from financial activities:
Cash dividends paid - (11,000) (10,000)
- --------------------------------------------------------------------------------------------
Exercise of stock options 217,000 - -
Net cash used in financing activities 217,000 (11,000) (10,000)
Decrease (increase) in cash 180,000 15,000 16,000
Cash beginning of year 33,000 18,000 2,000
- --------------------------------------------------------------------------------------------
Cash at end of year $213,000 $33,000 $18,000
============================================================================================
Supplemental disclosure to cash flow information:
Interest paid during the year $ - $ - $ -
============================================================================================
</TABLE>
46
<PAGE> 47
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors:
- ---------
<TABLE>
<CAPTION>
Director
Name Position with company since (2)
- ----------------------------------------------------------------
<S> <C> <C>
Louis J. Galen (1) Chairman of the Board of
Directors 1963
David H. Hender President and Chief Executive
Officer, Director 1971
Douglas D. Bernards Director 1983
Alvin H. Blaine (1) Director 1977
Helene V. Galen Director 1992
Timothy Harris Director 1994
Warren W. Kingsley (1) Director 1981
Ralph E. Phillips, Jr. Director 1988
</TABLE>
- -----------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Includes service on the Board of Directors of the Bank.
47
<PAGE> 48
Executive Officers of TransWorld Bancorp and TransWorld Bank:
<TABLE>
<CAPTION>
Name Position with company Age
- -----------------------------------------------------------
<S> <C> <C>
TransWorld Bancorp
- ------------------
David H. Hender President and Chief
Executive Officer 65
Howard J. Stanke Chief Financial Officer 47
TransWorld Bank
- ------------------
David H. Hender President and Chief
Executive Officer 65
Howard J. Stanke Executive Vice President
and Chief Financial Officer 47
Mel Moss Executive Vice President 51
Gary N. Lindgren Executive Vice President 55
John Marquis Executive Vice President 48
</TABLE>
David H. Hender has been with the Bancorp as its President since inception and
has been President of TransWorld Bank for the past twenty four years.
Howard J. Stanke has been with the Bancorp as Chief Financial Officer since its
inception, and has been with the Bank for the past seventeen years. He started
with the Bank as Controller and was promoted to Senior Vice President, Finance
Division in January 1982 and Executive Vice President, in December 1991.
Mel Moss has been with the Bank for twelve years. He joined the Bank as Vice
President in September 1983 with responsibilities for retail banking. He was
promoted to Sr. Vice President, Retail Banking and Real Estate in May 1984 and
Executive Vice President in December 1991. He is a standing member of the
Bank's loan committee.
Gary Lindgren joined the Bank as Executive Vice President, and the Chief Credit
Officer in January 1995. Prior to joining TransWorld Bank Mr. Lindgren served
as Executive Vice President, Senior Lending Officer/Credit Administrator with
First State Bank of the Oaks.
John Marquis joined the Bank in March of 1990 as Sr. Vice President, in charge
of Business Development, Marketing and Branch Administration. He was promoted
to Executive Vice President in March 1994.
48
<PAGE> 49
ITEM 11 - COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth a comprehensive overview of the compensation of
the Bank's executive officers with salary and bonus exceeding $100,000 during
the fiscal year ended December 31, 1995. Comparative data is also provided for
the previous two fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Fiscal --------------------- All Other(1)
Position Year Salary Bonus Compensation
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
David H. Hender 1995 $160,000 $32,103 $4,120
President and 1994 $130,016 $31,557 $4,133
Chief Executive Officer 1993 $127,467 $24,750 $3,997
Gary Lindgren 1995 $ 83,000 $18,900 $ -
Executive Vice President 1994 - - -
Chief Credit Officer 1993 - - -
</TABLE>
(1) Includes 401(k) contributions by the Bank of $2,310 in 1995 and 1994 and
$2,248 in 1993 and profit sharing contributions by the Bank of $1,810 in
1995, $1,823 in 1994 and $1,749 in 1993.
Directors of the Company are paid $550 for each board meeting they attend, and
$100 for each committee meeting they attend.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the shares of the
Company's common stock beneficially owned by its directors and all directors
and executive officers of the Company as a group as of March 1, 1996. The
Company declared a five-for-four stock split on January 30, 1996 payable March
15, 1996. The shares listed below have not been adjusted for the stock split.
Except as otherwise noted, each person listed below has sole voting and
investment power with respect to the common stock indicated.
<TABLE>
<CAPTION>
Name of Individual or Amount and Nature of Percent
Number of Persons in Group Beneficial Ownership of Class
----------------------------------------------------------------------
<S> <C> <C>
Louis J. Galen 924,962 (1) 33.50 (1)
David H. Hender 131,390 4.76 (2)
Douglas D. Bernards 7,812 .29 (3)
Alvin H. Blaine 4,520 .17
Helene V. Galen 444 .02 (4)
Timothy Harris 19,554 .71 (5)
Warren W. Kingsley 2,878 .11 (6)
Ralph E. Phillips, Jr. 35,344 1.28 (7)
All Directors and Officers as a Group
(17 persons) 1,167,916 (8) 42.30 (8)
</TABLE>
(1) Includes 76,548 shares held by Golden West Financial Corporation, of
which Mr. Galen is a director and as to which voting and investment power
are shared. Also includes 819,884 shares held by the L.J. Galen Trust,
28,086 shares in NELAG Partners, a partnership in which Mr. Galen is a
general partner, and 444 shares which are held by Helene V. Galen. Mr
Galen is the husband of Helene V. Galen, Director.
49
<PAGE> 50
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(continued)
(2) Includes 120 shares held by Scott Hender and 120 shares held by Chris
Hender, both sons of David H. Hender and 98,876 shares held by the Hender
Revocable Intervivos Trust. Also includes 8,000 shares which Mr. Hender
has the right to acquire under the Company's Stock Option and Stock
Appreciation Rights Plan.
(3) Mr. Bernards' shares are held in a profit sharing account.
(4) Mrs. Galen is the wife of Louis J. Galen.
(5) Includes 3,958 shares held in Mr. Harris' Profit Sharing Plan, 9,996
shares held by Timcor Financial Corporation of which Mr. Harris is
President, 4,400 shares in the Harris Trust and 1,410 for Mr. Harris's
children.
(6) Shares are held in the Kingsley Family trust of which Mr. Kingsley is a
Trustee.
(7) Includes 2,500 shares which Mr. Lindgren has the right to acquire under
the Company's Stock Option and Stock Appreciation Rights Plan.
(8) 35,044 shares held in the Phillips Children Trust of which Mr.
Phillips is a Trustee. 300 shares are held by Mr. Philips wife.
(9) Includes, in addition to shares which Mr. Hender and Mr. Lindgren have
the right to acquire, 11,000 shares beneficially owned by other officers
under the Company's Stock Option and Stock Appreciation Rights Plan.
Set forth below is information concerning the only persons other than Mr. Galen
who are known to the Company to own beneficially more that 5% of the
outstanding shares of the Company's common stodk. The following information
was supplied by Fenimore Asset Management, Inc.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- -----------------------------------------------------------------
<S> <C> <C>
Fenimore Asset Management, Inc. 256,504 (1) 9.28
118 N. Grand Street
P.O. Box 310
Cobleskill, New York 12043
Heartland Advisors 141,120 (2) 5.13
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
(1) Fenimore Asset Management, Inc. reports that it has shared voting power
with respect to the shares indicated above, but does not indicate with
whom such power is shared or whether it has sole or shared dispositive
power with respect to such shares.
(2) Heartland Advisors reports it has sole voting and dispositive power with
respect to such shares.
50
<PAGE> 51
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans made to officers, directors, and principal security holders are made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and
do not involve more that the normal risk of collectability.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Independent Auditors' Report.
(a) 2. Financial Statement Schedules:
No schedules are included because they are neither required nor
applicable.
(a) 3. Exhibits:
21. Subsidiaries of Registrant.
23. Consent of Independent Auditors'
27. Financial Data Schedule
51
<PAGE> 52
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TransWorld Bancorp
Sherman Oaks, California
We have audited the accompanying consolidated balance sheets of TransWorld
Bancorp and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of TransWorld Bancorp's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of TransWorld Bancorp and
Subsidiary at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 31, 1996
[DELOITTE TOUCHE LETTERHEAD]
<PAGE> 53
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRANSWORLD BANCORP
By: /s/ Howard J. Stanke
-----------------------
Howard J. Stanke
Chief Financial Officer
Date: March 25, 1996
-----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Louis J. Galen Chairman of the Board March 25, 1996
- --------------------------
Louis J. Galen
/s/ David H. Hender Director and Chief Executive
- -------------------------- Officer March 25, 1996
David H. Hender
/s/ Howard J. Stanke Chief Financial Officer and
- -------------------------- Principal Accounting Officer March 25, 1996
Howard J. Stanke
/s/ Douglas D. Bernards Director March 25, 1996
- --------------------------
Douglas D. Bernards
Director March 25, 1996
- --------------------------
Alvin H. Blaine
/s/ Helene V. Galen Director March 25, 1996
- --------------------------
Helene V. Galen
/s/ Timothy Harris Director March 25, 1996
- --------------------------
Timothy Harris
/s/ Warren W. Kingsley Director March 25, 1996
- --------------------------
Warren W. Kingsley
/s/ Ralph E. Phillips, Jr. Director March 25, 1996
- --------------------------
Ralph E. Phillips, Jr.
</TABLE>
53
<PAGE> 1
EXHIBIT - 21 SUBSIDIARY OF REGISTRANT
TransWorld Bank - Organized and incorporated in the State of California.
<PAGE> 1
EXHIBIT - 23 CONSENT OF INDEPENDENT AUDITORS'
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement (No.
33-30390) of TransWorld Bancorp on Form S-8 of our report dated January 31,
1996, appearing in the Annual Report on Form 10-K of TransWorld Bancorp for the
year ended December 31, 1995.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED BALANCE SHEETS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 23,878
<INT-BEARING-DEPOSITS> 215,901
<FED-FUNDS-SOLD> 35,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,157
<INVESTMENTS-CARRYING> 141,184
<INVESTMENTS-MARKET> 164,341
<LOANS> 128,870
<ALLOWANCE> 2,282
<TOTAL-ASSETS> 359,924
<DEPOSITS> 318,695
<SHORT-TERM> 2,186
<LIABILITIES-OTHER> 9,343
<LONG-TERM> 0
<COMMON> 8,030
0
0
<OTHER-SE> 21,670
<TOTAL-LIABILITIES-AND-EQUITY> 359,924
<INTEREST-LOAN> 13,314
<INTEREST-INVEST> 9,443
<INTEREST-OTHER> 3,431
<INTEREST-TOTAL> 26,188
<INTEREST-DEPOSIT> 6,676
<INTEREST-EXPENSE> 7,792
<INTEREST-INCOME-NET> 18,396
<LOAN-LOSSES> 830
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 15,195
<INCOME-PRETAX> 6,459
<INCOME-PRE-EXTRAORDINARY> 6,459
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,011
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> 8.93
<LOANS-NON> 1,025
<LOANS-PAST> 7
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,033
<CHARGE-OFFS> 697
<RECOVERIES> 116
<ALLOWANCE-CLOSE> 2,282
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,282
</TABLE>
