<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, 1996
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: $36,667,206
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 3,451,965 shares of
common stock as of March 14,1997.
<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 ten 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, Valencia, 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,
2
<PAGE> 3
consumer, real estate and commercial lending; most comparable banks do not 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, 1996, 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.
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 1996 1995
<S> <C> <C> <C>
- - - ----------------------------------------------------------------------------------
Risk-based capital:
Tier I 4.0% 16.66% 15.42%
Tier II 8.0% 17.89% 16.62%
Leverage ratio 4.0% 8.86% 8.43%
</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) 1996 1995 1994
- - - -----------------------------------------------------------------------------------------------------------------------------------
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 $ 50,382 $ 5,245 10.4% $ 50,646 $ 5,520 10.9% $ 53,528 $ 5,161 9.6%
Commercial (3) 68,451 7,105 10.4 60,403 6,398 10.6 53,650 5,011 9.3
Installment 12,363 1,378 11.1 11,839 1,283 10.8 13,828 1,364 9.9
Lease financing 979 92 9.4 1,249 113 9.0 956 95 9.9
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 132,175 13,820 10.5 124,137 13,314 10.7 121,962 11,631 9.5
Investment securities: (3)
Taxable 153,397 9,519 6.2 145,181 8,748 6.0 110,572 5,817 5.3
Non-taxable 18,872 1,299 6.9 14,573 1,062 7.3 14,641 1,083 7.4
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total securities 172,269 10,818 6.3 159,754 9,810 6.1 125,213 6,900 5.5
- - - -----------------------------------------------------------------------------------------------------------------------------------
Federal funds sold 32,051 1,719 5.4 57,551 3,431 6.0 70,900 3,004 4.2
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $336,495 $ 26,357 7.8% $341,442 $ 26,555 7.8% $318,075 $21,535 6.8%
- - - -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 27,577 25,043 25,743
Premises and equipment 4,339 3,435 3,557
Real estate owned 596 982 2,153
Other non-earning assets 4,388 2,610 2,023
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $373,395 $373,512 $351,551
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes non-accrual loans
(2) Interest income includes loan fees of $205,000 in 1996, $178,000 in 1995
and $171,000 in 1994.
(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 $446,000 in 1996, $367,000 in 1995 and $374,000 in 1994.
5
<PAGE> 6
I. A & B (continued)
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- - - ------------------------------------------------------------------------------------------------------------------------------------
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 $ 26,898 $ 270 1.0% $ 30,070 $ 301 1.0% $ 33,179 $ 333 1.0%
Money market savings 64,342 2,261 3.5 67,741 1,956 2.9 80,043 2,003 2.5
Regular savings 46,095 1,093 2.4 50,462 1,164 2.3 53,865 1,144 2.1
Time Deposits 92,255 4,720 5.1 64,801 3,255 5.0 49,048 1,693 3.5
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total interest
bearing deposits 229,590 8,344 3.6 213,074 6,676 3.1 216,135 5,173 2.4
Securities sold under
repurchase agreements 2,710 91 3.4 20,879 937 4.5 257 7 2.7
Interest bearing demand
notes issued to the
U.S. Treasury 2,317 101 4.4 2,760 131 4.7 2,748 91 3.3
Mortgage indebtedness and
obligation under capital
lease 151 26 17.2 230 37 16.1 260 41 15.8
Other 0 0 0 0 11 0 0 0 0
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $234,768 $8,562 3.6% $236,943 $7,792 3.3% $219,400 $5,312 2.4%
- - - ------------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing demand
deposits 105,720 107,484 107,020
Other noninterest bearing
liabilities 1,725 1,484 1,132
- - - ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 31,182 27,601 23,999
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $373,395 $373,512 $351,551
- - - ------------------------------------------------------------------------------------------------------------------------------------
Net yield on earning assets 5.3% 5.5% 5.1%
- - - ------------------------------------------------------------------------------------------------------------------------------------
</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 1996/1995 Change 1995/1994
- - - ---------------------------------------------------------------------------------------------------------------------------
Due to Due to
Total Yield/Rate Volume Total Yield/Rate Volume
(in thousands) (1) (2) (1) (2)
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and leases:
Real estate $( 275) $( 246) $( 29) $ 359 $ 637 $( 278)
Commercial 707 ( 145) 852 1,387 756 631
Installment 95 38 57 ( 81) 115 ( 196)
Lease financing ( 21) 3 ( 24) 18 ( 11) 29
- - - ---------------------------------------------------------------------------------------------------------------------------
Total loans and leases 506 ( 350) 856 1,683 1,497 186
Investment securities
Taxable 771 276 495 2,931 1,110 1,821
Non-taxable 237 ( 76) 313 ( 21) ( 16) ( 5)
- - - ---------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,008 200 808 2,910 1,094 1,816
Federal funds sold (1,712) ( 192) ( 1,520) 427 993 ( 566)
- - - ---------------------------------------------------------------------------------------------------------------------------
Total interest income $( 198) $( 342) $ 144 $ 5,020 $ 3,584 $ 1,436
===========================================================================================================================
</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 1996/1995 Change 1995/1994
- - - -----------------------------------------------------------------------------------------------------------------------
Due to Due to
Total Yield/Rate Volume Total Yield/Rate Volume
(in thousands) (1) (2) (1) (2)
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Deposits:
Interest bearing demand $( 31) $ 1 $( 32) $( 32) $( 1) $( 31)
Money market savings 305 403 ( 98) ( 47) 261 ( 308)
Regular savings ( 71) 30 ( 101) 20 92 ( 72)
Time Deposits 1,465 86 1,379 1,562 1,018 544
- - - -----------------------------------------------------------------------------------------------------------------------
Total interest on deposits 1,668 520 1,148 1,503 1,370 133
Securities sold under repurchase
agreements ( 846) ( 31) ( 815) 930 368 562
Interest bearing demand notes
issued to the U.S. Treasury ( 30) ( 9) ( 21) 40 40 0
Mortgage indebtedness and obligation
under capital lease ( 11) 2 ( 13) ( 4) 1 ( 5)
Other ( 11) 0 0 11 0 0
- - - -----------------------------------------------------------------------------------------------------------------------
Total interest expense 770 482 299 2,480 1,779 690
- - - -----------------------------------------------------------------------------------------------------------------------
Net interest income $( 968) $( 824) $( 155) $ 2,540 $ 1,805 $ 746
=======================================================================================================================
</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) 1996 1995 1994
- - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities $ 4,986 $ 2,988 $ 2,997
U.S. Government agencies and corporations 116,700 107,782 86,606
U.S. Government agencies mortgage-backed securities 5,572 7,317 7,192
Obligations of states and political subdivisions 21,251 23,097 32,112
Corporate debt securities -- -- --
Equity securities -- -- --
- - - ----------------------------------------------------------------------------------------
Total investment securities held to maturity $148,509 $141,184 $128,907
========================================================================================
Investment securities available for sale:
U.S. Government agencies and corporations $ 26,215 $ 11,655 $ 13,933
Obligations of state and political subdivisions -- -- 253
Corporate debt securities 6,775 7,502 5,193
Equity securities 300 4,000 4,000
- - - ----------------------------------------------------------------------------------------
Total investment securities available for sale $ 33,290 $ 23,157 $ 23,379
========================================================================================
</TABLE>
9
<PAGE> 10
II. INVESTMENT PORTFOLIO (cont.)
The maturity distribution of investment securities at December 31, 1996 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 $ 1,996 5.99% $ 2,990 6.33% $ - -% $ - -%
U.S. Government agencies and
corporations 98,015 6.11 18,685 6.31 - - - -
U.S. Government agencies mortgage-
backed securities 725 5.81 4,690 6.69 157 8.07 - -
Obligations of states and political
subdivisions 7,485 7.14 13,766 6.61 - - - -
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities
held to maturity $108,221 6.18% $40,131 6.46% $157 8.07%
===================================================================================================================================
Investment securities available for sale
at market value:
U.S. Government agencies and corporations $24,564 6.37% $ 1,651 5.76% $ - -% $ - -%
Corporate debt securities 1,522 7.40 5,155 6.44 - - 98 7.13
Equity securities 300 5.65 - - - - - -
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities
available for sale $26,386 6.42% $ 6,806 6.27% $ - -% $ 98 7.13%
===================================================================================================================================
</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) 1996 1995 1994 1993 1992
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 70,573 $ 66,209 $ 59,575 $ 54,872 $ 56,150
Real estate
Mortgage 50,498 48,701 48,371 48,600 46,656
Construction 1,635 1,747 3,593 7,386 4,493
Installment 12,897 10,971 12,409 16,252 22,139
Lease financing 920 1,242 1,261 786 1,149
- - - ----------------------------------------------------------------------------------------------
Total loans and leases $136,523 $128,870 $125,209 $127,896 $130,587
==============================================================================================
</TABLE>
B. The following table summarizes the maturity distribution of loans, net of
unearned income of $208,000 and non-accrual loans of $282,000 (excluding
installment loans, real estate mortgage loans and lease financing receivables)
by interest rate structure at December 31, 1996:
<TABLE>
<CAPTION>
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 $62,253 $ 7,428 $ - $ 610 $ - $70,291
Real estate construction 1,635 - - - - 1,635
- - - ----------------------------------------------------------------------------------------------------------------------
Total $63,888 $ 7,428 $ - $ 610 $ - $71,926
======================================================================================================================
</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>
1996 1995 1994
----------------------------------- ---------------------------------- ---------------------------------
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 IncomeNet Income
- - - ------------------------------------------------------------ ---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans $1,594 $ 172 $ 84 $1,025 $ 111 $ 5 $1,123 $ 202 $ 28
Accruing loans past due
90 days or more 284 5 456
Restructured loans - - -
------ ------ ------
Total non-performing
loans $1,878 $1,030 $1,579
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1993 1992
----------------------------------- ----------------------------------
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 $1,033 $ 82 $ 21 $1,124 $ 143 $ 7
Accruing loans past due
90 days or more 432 679
Restructured loans - -
------ ------
Total non-performing
loans $1,465 $1,803 _
======================================================================================================================
</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>
1996 1995 1994 1993 1992
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing loans to total loans 1.38% 0.80% 1.26% 1.15% 1.38%
Non-performing assets to total assets 0.78% 0.48% 1.01% 1.18% 1.64%
Loan loss allowance to non-performing loans 130.35% 221.55% 128.75% 138.50% 78.54%
Loan loss and ORE allowance to non-performing assets 84.78% 137.98% 57.63% 57.36% 37.23%
</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, 1996:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994 1993 1992
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,282 $2,033 $2,029 $1,416 $1,505
Provision charged to operations 430 830 921 1,711 745
Recoveries:
Commercial, financial and agricultural 5 29 22 31 29
Real estate - construction - - - - -
Real estate - mortgage - - 27 - -
Installment 42 86 52 77 25
Lease financing - 1 8 - 1
- - - ---------------------------------------------------------------------------------------------------------------
Total recoveries 47 116 109 108 55
Charge-offs:
Commercial, financial and agricultural 200 182 569 782 444
Real estate - construction - - - - -
Real estate - mortgage - 4 - 120 -
Installment 111 511 442 304 426
Lease financing - - 15 - 19
- - - ---------------------------------------------------------------------------------------------------------------
Total charge-offs ( 311) ( 697) (1,026) (1,206) ( 889)
Net charge-offs ( 264) ( 581) ( 917) (1,098) ( 834)
Balance at end of period $2,448 $2,282 $2,033 $2,029 $1,416
===============================================================================================================
Ratio of net charge-offs during the
period to average loans outstanding 0.20% 0.47% 0.75% 0.84% 0.62%
===============================================================================================================
</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, 1996 1995 1994 1993 1992
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
- - - -------------------------------------------------------------------------------------------------------------------------
loans
Commercial, financial
and agricultural $1,056 52% $1,070 51% $ 899 48% $1,124 43% $ 910 43%
Real estate 1,038 38 785 39 874 41 488 44 303 39
Installment 345 9 417 9 249 10 417 13 173 17
Lease financing 9 1 10 1 11 1 - - 30 1
- - - -------------------------------------------------------------------------------------------------------------------------
Total reserve
for credit losses $2,448 100% $2,282 100% $2,033 100% $2,029 100% $1,416 100%
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1996 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>
1996 1995 1994
- - - ----------------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $105,720 - $107,484 - $107,020 -
Interest bearing demand 26,898 1.0% 30,070 1.0% 33,179 1.0%
Money market savings 64,342 3.5% 67,741 2.9% 80,043 2.5%
Regular savings 46,095 2.4% 50,462 2.3% 53,865 2.1%
Time deposits 92,255 5.1% 64,801 5.0% 49,048 3.5%
- - - ----------------------------------------------------------------------------------------------------------
Total deposits $335,310 $320,558 $323,155 _
==========================================================================================================
</TABLE>
The following table sets forth, by time remaining to maturity, time certificates
of deposit of $100,000 and over outstanding at December 31, 1996:
(in thousands)
Remaining Maturity of Time Certificates of Deposits
<TABLE>
<CAPTION>
<S> <C>
Three months or less $24,279
Over three through six months 6,555
Over six through twelve months 8,296
Over twelve months 337
- - - --------------------------------------------------------------------
Total $100,000 time deposits $39,467
====================================================================
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1996 1995 1994
- - - ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average total assets .99% 1.08% .73%
Return on average equity 11.85% 14.53% 10.74%
Average stockholders' equity to average total assets 8.35% 7.40% 6.82%
</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 2008. 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
(a) A special meeting of Shareholders of TransWorld Bancorp was held on
February 26, 1997.
(b) N/A
(c) Matters voted upon were:
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
To approve the Agreement and plan of Merger dated as of November
1, 1996 by and among the Company and Glendale Federal Bank, a
Federal Savings Bank as described in the proxy statements dated
January 22, 1997, Including, without limitation, the merger of a
subsidiary of Glendale Federal with and into the Company, whereby
each outstanding share of the Company's Common Stock would be
converted into the right to receive $18.25 in cash, without
interest.
FOR AGAINST ABSTAIN
2,811,408 131,147 3,841
2. OTHER BUSINESS
FOR AGAINST ABSTAIN
2,755,509 75,677 29,693
(d) N/A
17
<PAGE> 18
PART II
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>
1996 1995
- - - ------------------------------------------------------------------------------------------------------------------------------
By Quarter 1st* 2nd 3rd 4th 1st 2nd 3rd 4th
- - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price
High $15.75 $15.25 $14.88 $18.00 $20.25 $12.75 $13.75 $15.25
Low $11.88 $11.50 $13.38 $13.75 $ 9.63 $10.50 $12.50 $13.00
=============================================================================================================================
</TABLE>
* A five-for-four split was paid March 15, 1996 to stockholders of record on
February 23, 1996.
The Bancorp had approximately 1,633 stockholders of record as of December 31,
1996.
The following investment banking firms were making a market in the Bancorp's
Common Stock at December 31, 1996:
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 ChaseMellon Shareholder Services,
L.L.C.
18
<PAGE> 19
ITEM 6 - SELECTED FINANCIAL DATA
Consolidated Five-year Financial Summary
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) 1996 1995 1994 1993 1992
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 25,911 $ 26,188 $ 21,161 $ 17,961 $ 18,061
Interest expense ( 8,562) ( 7,792) ( 5,312) ( 5,083) ( 5,762)
- - - --------------------------------------------------------------------------------------------------------------------------------
Net interest income 17,349 18,396 15,849 12,878 12,299
Noninterest income 4,791 4,088 3,878 4,823 4,606
Provision for credit
losses ( 430) ( 830) ( 921) ( 1,711) ( 745)
Noninterest expense ( 15,915) ( 15,195) ( 14,856) ( 14,462) ( 13,403)
- - - --------------------------------------------------------------------------------------------------------------------------------
Income before income
tax 5,795 6,459 3,950 1,528 2,757
Income tax ( 2,100) ( 2,448) ( 1,381) ( 337) ( 856)
- - - --------------------------------------------------------------------------------------------------------------------------------
Income before accounting
change 3,695 4,011 2,569 1,191 1,901
Cumulative affect of
accounting change - - - 190 -
- - - --------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,695 $ 4,011 $ 2,569 $ 1,381 $ 1,901
================================================================================================================================
Weighted average shares
outstanding 3,451,517 3,448,037 3,417,098 3,417,098 3,417,098
Net income per share
before accounting
change $ 1.07 $ 1.16 $ 0.75 $ 0.35 $ 0.56
Cumulative effect of
accounting change - - - 0.05 -
- - - --------------------------------------------------------------------------------------------------------------------------------
Net income per share $ 1.07 $ 1.16 $ 0.75 $ 0.40 $ 0.56
================================================================================================================================
At Year End: (in thousands)
Total Assets $ 379,516 $ 359,924 $ 371,152 $ 313,386 $ 251,218
Deposits $ 341,921 $ 318,695 $ 341,585 $ 285,997 $ 224,018
Loans and Leases $ 136,523 $ 128,870 $ 125,209 $ 127,896 $ 130,587
Capital lease $ 205 $ 113 $ 120 $ 125 $ 129
Long term debt $ - $ - $ - $ - $ -
Stockholders' equity $ 33,222 $ 29,700 $ 25,330 $ 22,975 $ 21,476
Shares outstanding 3,451,715 3,451,462 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.
19
<PAGE> 20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FINANCIAL HIGHLIGHTS OVERVIEW
Earnings for 1996 were the second best in TransWorld Bancorp's history. Net
income was $3,695,000, up 44% over 1994, although down 8% from the record
performance of 1995. Book value continued to increase, ending 1996 at $9.62, up
from $8.61 in 1995 and $7.41 in 1994. Return on equity was 11.9% compared to
14.5% in 1995 and 10.8% in 1994. Earnings per share were $1.07 compared to $1.16
in 1995 and $0.75 in 1994.
Deposits increased 7% during the year to $341.9 million, reversing the
downturn in 1995. Loans improved 6% during the year reaching $136.5 million
compared to $128.9 million in 1995 and $125.2 million in 1994.
The Company announced on November 4, 1996 that it had entered into an
agreement whereby Glendale Federal Bank will acquire TransWorld Bancorp and its
subsidiary, TransWorld Bank, in a cash transaction valued at $63.0 million, or
$18.25 per share. Shareholders approved the transaction at a special meeting
held on February 26, 1997. The transaction, which is still subject to regulatory
approval, is expected to be completed during the second quarter of 1997.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income declined 6% from 1995 but gained 9% over 1994. The 1996
decrease came primarily from an increase in the cost of deposits, which were up
25% over 1995 and 61% over the level recorded in 1994. The higher cost of
deposits was partially offset by increased interest income generated by the
larger investment and loan portfolios. The increase in 1995 net interest income
came from a shift of fed funds sold to higher yielding earning assets and
increased yields in all earning asset categories.
Interest and fees on loans improved by $506,000, or 4% over 1995 and
$2,190,000, or 19% over 1994. This resulted from increased loan totals, not rate
changes. Most of the Company's loans are tied to the prime rate, which has not
changed since it decreased in February 1996. Interest earned on investment
securities also improved due to the increased size of the portfolio and
improvement in yields. The yield on the investment portfolio improved to 6.3% in
1996, from 6.1% in 1995 and 5.5% in 1994.
Interest costs increased from 2.4% in 1994 to 3.3% in 1995 and to 3.6% in
1996. This came about as a result of changes in deposit mix and an increase in
savings rates over the past two years. 1994 was a year of low interest rates as
well as having a large account with up to $40 million in checking and low
yielding money market accounts. These funds were moved in 1995 into repurchase
agreements and then left the bank in October of 1995. The Bank replaced these
funds over the next year with higher cost time deposits increasing the overall
cost of interest bearing deposits from 3.1% in 1995 to 3.6% in 1996.
20
<PAGE> 21
PROVISION FOR CREDIT LOSSES
The Company's credit loss provision has been declining since 1993,
coinciding with improvements in the quality of the Company's loan portfolio and
the California economy. The provision was $430,000 in 1996 compared to $830,000
in 1995 and $921,000 in 1994. Net charge-offs have been steadily decreasing from
$917,000 in 1994 to $581,000 in 1995 to $264,000 in 1996. The Company has
maintained its reserve at a level consistent with the risks in the portfolio.
Currently the level of reserves is at 1.79% of outstanding loans.
Improvement in the Southern California economy has helped to keep the level
of non-performing loans at an acceptable level. At the end of 1996
non-performing loans were at $1,878,000, or 1.38% of loans. This was up slightly
from the $1,032,000, or 0.8% of loans at the of 1995 and the $1,579,000, or
1.26% of outstanding loans at the end of 1994. Currently the Company does not
see any negative trends that would lead to an economic slowdown or erosion of
credit quality.
NONINTEREST INCOME
Noninterest income has shown significant growth in 1996. Noninterest income
increased $703,000, or 17% over 1995 and $913,000, or 24% over the amount earned
in 1994. Major items contributing to this growth were service charges on deposit
accounts and other operating income. Service charges on business accounts had
the greatest growth due to both an increase in the number of accounts as well as
an increase in the number of services used by our business customers. Pricing
remained virtually unchanged during 1996, so increased income came strictly from
growth.
Other operating income grew from $865,000 in 1994, to $1,033,000 in 1995,
to $1,420,000 during 1996. The large gain in 1996 is partly attributable to an
insurance recovery received in the third quarter for a fire loss sustained at
our North Hollywood office in October, 1995. The SBA lending program (started in
1994) has also been a large contributor to other noninterest income through fees
earned on sales and servicing of SBA loans and has also benefited the loan
portfolio by increasing the Company's total loans over the past three years.
NONINTEREST EXPENSE
Noninterest expense was up 5%, or $720,000 over 1995 which is greater than
the 2% increase we had in 1995 over 1994. 1996 saw the first full year of
operations for the Camarillo office as well as the expense of opening a new
Valencia office in June. The costs associated with these offices represented a
substantial portion of our increase in noninterest expense.
Salaries and employee benefits experienced the largest single increase,
gaining $519,000, or 7% compared to the same 7% increase in 1995. The addition
of a new president and chief operating officer of the Bank in May, 1996, the
additional staff for two new offices and merit increases for the existing staff
caused the increase. Occupancy costs also grew due to rent for two new offices
and higher depreciation costs for replacement of the furniture, equipment and
leasehold improvements at our North Hollywood and San Fernando offices.
Additionally, we paid double rent in San Fernando for the five months of
construction time needed to
21
<PAGE> 22
build the new facility. Most of the costs associated with the North Hollywood
fire have been recovered from insurance and were reported in other income.
During 1996 we finished a computer equipment upgrade which began in 1995.
This increased our data processing costs as well as depreciation costs. The new
computers add to the Bank's ability to enhance the service offered to our
customers. FDIC insurance costs, which were substantial in 1994 and 1995, were
only $2,000 for 1996. An overall review of the insurance reserve was done by the
FDIC in 1996 and a new rate structure was set as a result. The Company's FDIC
costs under this new rate structure are projected to approximate $45,000 in
1997.
Other operating expenses increased $365,000 in 1996 compared to an increase
of $329,000 in 1995. The major components contributing to the 1996 increase were
marketing and professional service fees. Marketing costs were increased in 1996
to generate increased loan demand and to promote the opening of our Valencia
office and the relocations of our North Hollywood and San Fernando offices.
Professional fees grew as a result of increased legal and accounting fees and
the need to improve branch security services as a result of the regions'
increased number of bank robberies.
ASSETS AND LIABILITIES
The loan portfolio grew 3% in 1995 and improved 6% during 1996 bringing the
portfolio total to $136,523,000. The 1996 growth outpaced the growth in overall
assets, thus increasing our loan to asset ratio. We will maintain our efforts
during 1997 to increase the portfolio to a larger percent of assets which should
improve interest margins. The reason for the sluggish growth is due to slow
economic improvement and competition by large California banks (primarily Bank
of America, Wells Fargo) as they target smaller commercial loan customers. In
prior years the large banks had not been competing with community banks in this
loan segment. In many cases the pricing being offered by competition is thinner
than we have been willing to accept.
The Company had stated in last year's discussion that it planned on
increasing the investment portfolio and correspondingly decreasing the federal
funds position during 1996 and that was the case. The investment portfolio was
increased by $17,458,000, or 11%, and federal funds sold was decreased almost
$15,000,000, or 43%. This move helped to improve the net interest margin.
Noninterest bearing deposits grew at a rapid pace, increasing 8%, or
$8,080,000 over 1995 year-end totals. Most of the increase came from business
checking, which has been the main goal for the Company. Interest bearing
deposits also showed good growth, increasing 7%, or $15,146,000. Most of this
growth was generated by a new product introduced earlier in the year named the
"Investors Money Market Account". This money market savings account pays
interest similar to account offerings at most investment banking firms. Balances
in this account grew to approximately $38,000,000 at year end, with one third in
personal accounts and two thirds in business accounts.
Securities sold under repurchase agreements declined as the customers using
this instrument transferred their funds to the new money market account and/or
used the funds for other purposes.
22
<PAGE> 23
Equity capital continued its improvement as a result of good earnings and
the corresponding increase in retained earnings. Equity capital increased 12%
over year-end 1995. With the rise in interest rates during 1996 the market value
of "available for sale" securities declined from a net gain of $72,000 at
December 31, 1995 to a net loss of ($104,000) at December 31, 1996. Book value
of the Company stock increased to $9.62 from an adjusted $8.61 at December 31,
1995.
LIQUIDITY AND CAPITAL
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability policy is used to monitor and maintain the
Company's interest rate risk. Liquidity and profitability are evaluated and
projected as they are affected by changes in interest rates. Management uses gap
analysis to measure interest rate risk in terms of the mismatch between the
stated repricing and maturities of earning assets and liabilities within defined
time frames. The cumulative one year gap position at December 31, 1996 was
$80,402,000 which increased from $36,251,000 at December 31, 1995. This higher
sensitivity is due to the fact that our merger agreement with Glendale Federal
Bank prohibited TransWorld Bank from investing in securities other than US
Treasury and/or US agency securities with maturities of more than one year.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
Immediately >0-3 >3-6 >6-12 >1-5 >5
(in thousands) Adjustable Months Months Months Years Years
- - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities $ 100 $ 66,925 $ 34,640 $ 33,204 $ 23,027 $ 23,903
Fed funds sold 20,075 - - - - -
Loans 120,643 2,428 8,318 1,134 1,754 2,246
- - - --------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS $140,818 $ 69,353 $ 42,958 $ 34,338 $ 24,781 $ 26,149
==========================================================================================================================
SOURCES
Interest bearing deposits $ 96,694 $ 62,025 $ 17,816 $ 27,609 $ 25,635 $ 1,268
Short-term borrowings 2,413 - - - - -
Long-term debt - 2 2 4 156 41
Demand deposits - - - - - 110,874
Securities sold under
agreement to repurchase 500 - - - - -
- - - --------------------------------------------------------------------------------------------------------------------------
TOTAL SOURCES $ 99,607 $ 62,027 $ 17,818 $ 27,613 $ 25,791 $ 112,183
==========================================================================================================================
Incremental gap $ 41,211 $ 7,326 $ 25,140 $ 6,725 $(1,010) $(86,034)
Percent of earning assets 12.3% 2.2% 7.5% 2.0% ( 0.3)% ( 25.6)%
Cumulative gap $ 41,211 $ 48,537 $ 73,677 $ 80,402 $ 79,392 $( 6,642)
Percent of earning assets 12.3% 14.6% 22.0% 23.9% 23.6% ( 2.0)%
</TABLE>
23
<PAGE> 24
With 21% of assets sensitive to interest rate changes within one year, the
Company is in a position that an increase in interest rates will immediately
increase the net interest margin. The opposite is also true, in that an interest
rate decline will quickly decrease the net interest margin. The Company does not
use off-balance sheet interest rate instruments to hedge interest rate risk.
LIQUIDITY MANAGEMENT
The object of liquidity management is to maintain cash flow sufficient to
meet the cash needs of depositors and borrowers and to fund the Company's
operations. The Company continues to remain liquid with short-term assets more
than ample to cover any fluctuations in the cash flow needs of the Company.
The statement of cash flows shows that during 1996 we decreased the cash
and cash equivalent position by approximately $8.4 million to $50.4 million.
This still leaves the Company highly liquid, particularly since increases in
investment portfolio assets were in liquid short-term agency securities.
CAPITAL
The Company's capital position strengthened during 1996. The risk- based
capital ratio at the end of 1996 improved to 17.9%, compared to 16.6% at
December 31, 1995, continuing well above the regulatory minimum ratio of 8%. The
Company improved the Tier I capital ratio to 16.7% at year-end compared to 15.4%
at the end of 1995. The leverage ratio (which measures equity capital as a
percent of total assets) was 8.9% compared to 8.4% at December 31, 1995. The
FDIC definition for a well capitalized bank requires a total risk-based 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.
FUTURE OPERATIONS
The Company will continue operations on a normal basis until the completion
of the acquisition by Glendale Federal Bank, which was approved by shareholder's
on February 26, 1996. The transaction is expected to close by the middle of May,
1997.
24
<PAGE> 25
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TransWorld Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1996 1995
- - - ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,369,000 $ 23,878,000
Federal funds sold 20,075,000 35,000,000
Investment securities held to maturity
(approximate market value:
1996-$148,532,000; 1995-$141,864,000) 148,509,000 141,184,000
Investment securities available for
sale at market value 33,290,000 23,157,000
- - - ------------------------------------------------------------------------------------
Total investment securities 181,799,000 164,341,000
Loans and leases 136,523,000 128,870,000
Less allowance for credit losses 2,448,000 2,282,000
- - - ------------------------------------------------------------------------------------
Net loans and leases 134,075,000 126,588,000
Premises and equipment, net 5,021,000 3,695,000
Other real estate owned, net 1,022,000 601,000
Other assets 7,155,000 5,821,000
- - - ------------------------------------------------------------------------------------
TOTAL ASSETS $ 379,516,000 $ 359,924,000
====================================================================================
LIABILITIES
Deposits:
Noninterest bearing $ 110,874,000 $ 102,794,000
Interest bearing 231,047,000 215,901,000
- - - ------------------------------------------------------------------------------------
Total deposits 341,921,000 318,695,000
Interest bearing demand notes issued
to the US Treasury 2,413,000 2,186,000
Mortgage indebtedness and obligation
under capital lease 205,000 113,000
Securities sold under agreement
to repurchase 500,000 7,839,000
Other liabilities 1,255,000 1,391,000
- - - ------------------------------------------------------------------------------------
TOTAL LIABILITIES 346,294,000 330,224,000
STOCKHOLDERS' EQUITY
Common stock, no par value;
authorized 6,000,000 shares;
3,451,715 shares issued and
outstanding in TransWorld Bancorp
in 1996 and 3,451,465 in 1995 8,033,000 8,030,000
Surplus 2,926,000 2,926,000
Retained earnings 22,367,000 18,672,000
Unrealized gain/(loss) on securities
available for sale (net of deferred
taxes of $74,000 in 1996 and
($53,000) in 1995) (104,000) 72,000
- - - ------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 33,222,000 29,700,000
- - - ------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 379,516,000 $ 359,924,000
====================================================================================
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
TransWorld Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $13,820,000 $13,314,000 $11,630,000
Interest on state and municipal
securities 1,279,000 967,000 1,461,000
Interest on other investment
securities 9,093,000 8,476,000 5,066,000
Interest on Federal funds sold 1,719,000 3,431,000 3,004,000
- - - --------------------------------------------------------------------------------
Total interest income 25,911,000 26,188,000 21,161,000
Interest expense:
Interest on deposits 8,344,000 6,676,000 5,173,000
Interest on short-term borrowings 218,000 1,116,000 139,000
- - - --------------------------------------------------------------------------------
Total interest expense 8,562,000 7,792,000 5,312,000
Net interest income 17,349,000 18,396,000 15,849,000
Provision for credit losses 430,000 830,000 921,000
- - - --------------------------------------------------------------------------------
Net interest income after provision
for credit losses 16,919,000 17,566,000 14,928,000
Noninterest income:
Service charges on deposit accounts 3,231,000 2,870,000 2,809,000
Bankcard merchant discount 139,000 133,000 204,000
Gain on sale of securities 1,000 52,000 --
Other operating income 1,420,000 1,033,000 865,000
- - - --------------------------------------------------------------------------------
Total noninterest income 4,791,000 4,088,000 3,878,000
Noninterest expense:
Salaries and employee benefits 8,380,000 7,861,000 7,375,000
Net occupancy expense 2,283,000 2,199,000 2,268,000
Furniture, fixtures and equipment 1,361,000 1,275,000 1,123,000
Data processing 256,000 209,000 178,000
FDIC insurance costs 2,000 383,000 663,000
Other operating expense 3,633,000 3,268,000 2,939,000
Earthquake expense -- -- 310,000
- - - --------------------------------------------------------------------------------
Total noninterest expense 15,915,000 15,195,000 14,856,000
Income before income taxes 5,795,000 6,459,000 3,950,000
Income taxes 2,100,000 2,448,000 1,381,000
- - - --------------------------------------------------------------------------------
Net income $ 3,695,000 $ 4,011,000 $ 2,569,000
================================================================================
Net income per share $ 1.07 $ 1.16 $ 0.75
================================================================================
Weighted average shares outstanding 3,451,517 3,448,037 3,417,098
================================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
TransWorld Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 3,695,000 $ 4,011,000 $2,569,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Gain on calls and redemptions of
securities held to maturity ( 1,000) ( 54,000) -
Loss on sale of securities available for sale - 2,000 -
Net amortization of premium on investments 288,000 29,000 354,000
Provision for credit losses 430,000 830,000 921,000
Accretion of deferred loan fees and costs ( 360,000) ( 236,000) (170,000)
Loan origination costs capitalized ( 177,000) ( 161,000) (165,000)
Depreciation and amortization 617,000 634,000 608,000
(Increase)in accrued interest receivable ( 88,000) ( 465,000) (856,000)
(Decrease)increase in accrued interest payable ( 161,000) 379,000 30,000
Benefits (provision) for deferred taxes 174,000 ( 268,000) (155,000)
(Decrease)increase in current income taxes payable ( 197,000) 233,000 7,000
Provision for OREO losses - 96,000 105,000
Increase in other, net 77,000 310,000 62,000
- - - -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,297,000 5,340,000 3,310,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity 37,335,000 28,955,000 12,811,000
Proceeds from matured securities available for sale 9,300,000 30,300,000 6,750,000
Proceeds from calls and redemptions
of securities held to maturity 49,532,000 39,291,000 10,265,000
Proceeds from calls and redemptions
of securities available for sale 6,650,000 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 (94,358,000) (80,393,000) (63,479,000)
Purchase of securities available for sale (26,401,000) (47,083,000) (18,848,000)
Net(increase)in loans (10,761,000) ( 9,510,000) (2,475,000)
Proceeds from sale of SBA loans 1,663,000 4,697,000 3,455,000
Loan origination fees received 861,000 664,000 556,000
Proceeds from sale of other real estate owned 430,000 1,518,000 607,000
Purchase of premises and equipment ( 1,958,000) ( 985,000) (297,000)
(Increase)decrease in other, net ( 1,228,000) ( 600,000) 330,000
- - - -----------------------------------------------------------------------------------------------------------------------------
Net cash(used in)investing activities (28,935,000) (16,208,000) (50,264,000)
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits 8,080,000 (10,806,000) 24,367,000
Net increase (decrease) in interest bearing deposits 15,146,000 (12,084,000) 31,221,000
Net(decrease)increase in repurchase agreements ( 7,339,000) 7,639,000 200,000
Increase(decrease)in interest bearing demand notes 227,000 ( 554,000) (503,000)
Increase(decrease)in capital lease and
mortgage indebtedness 92,000 ( 207,000) (13,000)
Dividends paid in lieu of fractional shares issued ( 5,000) - (11,000)
Exercise of stock purchase plan options 3,000 217,000 -
- - - -----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities 16,204,000 (15,795,000) 55,261,000
- - - -----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents ( 8,434,000) (26,663,000) 8,307,000
- - - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 58,878,000 85,541,000 77,234,000
- - - -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $50,444,000 $58,878,000 $85,541,000
=============================================================================================================================
</TABLE>
27
<PAGE> 28
TransWorld Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental disclosures of cash flows information:
<TABLE>
<CAPTION>
Cash paid during the year: 1996 1995 1994
- - - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $8,525,000 $7,427,000 $5,147,000
Income taxes $2,110,000 $3,016,000 $1,491,000
- - - -------------------------------------------------------------------------------------
Transfer from loans to other real estate owned $ 857,000 $ 155,000 $ 655,000
=====================================================================================
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
Common Stock on Securities
- - - --------------------------------------------------- Available Retained
Shares Amount For Sale Surplus Earnings
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994 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
Net income 4,011,000
- - - -----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 2,761,546 8,030,000 72,000 2,926,000 18,677,000
Stock split-5 for 4
(declared January 30,1996
paid March 15, 1996) 689,919 (5,000)
Change in unrealized
gain/(loss) on securities (176,000)
Issuance of common stock 250 3,000
Net income 3,695,000
- - - -----------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 3,451,715 $8,033,000 $(104,000) $2,926,000 $22,367,000
=====================================================================================================
</TABLE>
See notes to consolidated financial statements
28
<PAGE> 29
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND PRESENTATION:
The accompanying consolidated balance sheets as of December 31, 1996 and 1995
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 12
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 1996 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 affect 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.
29
<PAGE> 30
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 Impairment 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.
30
<PAGE> 31
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:
Income tax expense is 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.
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, 1996 and 1995. 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, except those discussed in Note
15, that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since the balance sheet date and, therefore, current estimates of
fair value may differ significantly from the amounts presented in the
accompanying Notes.
31
<PAGE> 32
NOTE 1 - PRESENTATION AND ACCOUNTING POLICIES: (continued)
RECENT ACCOUNTING PRONOUNCEMENTS:
On January 1, 1996 the Company adopted Statement of Financial Accounting
standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-Lived Assets to Be Disposed Of." This statement requires that
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, or disposed of, be reviewed for impairment
based on the fair value of the asset. Furthermore, this statement requires that
certain long-lived assets and identifiable intangibles to be disposed of, be
reported at the lower of carrying amount or fair value less cost to sell. The
Company has determined that the impact of this statement on its operations and
financial position is not material for the year ended December 31, 1996.
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities, and is applied prospectively to financial
statements for fiscal years beginning after December 31, 1996. In 1996, the FASB
also issued SFAS No. 127, Deferral of the Effective date of Certain Provisions
of FASB Statement No. 125," which defers for one year the effective date of
certain provisions within SFAS No. 125. The Company does not believe the impact
on its operations and financial position will be material upon adoption of SFAS
No. 125 or SFAS No. 127.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The pro forma effects
of adoption are disclosed in Note 9.
32
<PAGE> 33
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, 1996 Cost Gain Loss Fair Value
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities $ 4,986,000 $ 20,000 $ -- $ 5,006,000
U.S. Government agencies and
corporations 116,700,000 266,000 411,000 116,555,000
U.S. Government agencies mortgage-
backed securities 5,572,000 17,000 10,000 5,579,000
Obligations of states and political
subdivisions 21,251,000 175,000 34,000 21,392,000
- - - -----------------------------------------------------------------------------------------------------
Total investment securities held to
maturity $148,509,000 $478,000 $455,000 $148,532,000
=====================================================================================================
Investment securities available for sale:
U.S. Government agencies and
corporations $ 26,391,000 $ -- $176,000 $ 26,215,000
U.S. Government agencies mortgage-
backed securities -- -- -- --
Corporate debt securities 6,776,000 33,000 34,000 6,775,000
Equity securities 300,000 -- -- 300,000
- - - -----------------------------------------------------------------------------------------------------
Total investment securities available
for sale $ 33,467,000 $ 33,000 $210,000 $ 33,290,000
=====================================================================================================
December 31, 1995
- - - -----------------------------------------------------------------------------------------------------
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
=====================================================================================================
</TABLE>
33
<PAGE> 34
NOTE 2 - INVESTMENT SECURITIES (continued):
The amortized cost and estimated fair value of debt securities at December 31,
1996, and 1995 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>
<CAPTION>
1996 1995
- - - -------------------------------------------------------------------------------------------------
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 $108,221,000 $108,056,000 $ 98,710,000 $ 98,934,000
Due in one year through five years 40,131,000 40,316,000 39,856,000 40,281,000
Due in five years through ten years 157,000 160,000 2,414,000 2,438,000
Due after ten years -- -- 204,000 211,000
- - - -------------------------------------------------------------------------------------------------
Total $148,509,000 $148,532,000 $141,184,000 $141,864,000
=================================================================================================
Debt securities available for sale:
Due in one year or less $ 26,248,000 $ 26,085,000 $ 13,356,000 $ 13,377,000
Due in one year through five years 6,819,000 6,806,000 5,676,000 5,780,000
Due in five years through ten years -- -- -- --
Due after ten years 100,000 99,000 -- --
- - - -------------------------------------------------------------------------------------------------
Total $ 33,167,000 $ 32,990,000 $ 19,032,000 $ 19,157,000
=================================================================================================
</TABLE>
Gains of $1,000 and $54,000 were realized on a called securities held to
maturity in 1996 and 1995 respectively. A loss of $2,000 on a sale of one
available for sale security was realized in 1995. There were no sales of
investment securities in 1994.
Investment securities with a carrying value of $22,100,000 at December 31, 1996
and $19,967,000 at December 31, 1995 were pledged to secure public deposits and
for other purposes.
34
<PAGE> 35
NOTE 3 - LOANS AND LEASES:
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans
Mortgage $ 50,498,000 $ 48,701,000
Construction 1,635,000 1,747,000
Commercial loans 70,573,000 66,209,000
Consumer loans 12,897,000 10,971,000
Leases 920,000 1,242,000
- - - --------------------------------------------------------------------------------
Total loans and leases $136,523,000 $128,870,000
================================================================================
</TABLE>
The Bank had undisbursed commitments on real estate loans of $1,184,000 at
December 31, 1996 and $428,000 at December 31, 1995. At December 31, 1996 and
1995, the Bank had outstanding letters of credit in the amount of $2,579,000 and
$802,000, respectively.
The aggregate amount of loans outstanding to officers, directors, and principal
security holders and associates was $2,569,000 at December 31, 1996 and
$1,817,000 at December 31, 1995. The amount of new and renewed loans was
$1,238,000 and repayments were $486,000 during 1996. 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 1996 1995 1996 1995
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate loans $284,000 $5,000 $1,307,000 $ 620,000
Commercial loans -- -- 282,000 404,000
Consumer loans -- -- 5,000 1,000
Leases -- 2,000 -- --
- - - -----------------------------------------------------------------------------
Total $284,000 $7,000 $1,594,000 $1,025,000
=============================================================================
</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, 1996, the Bank had
commitments to extend credit of $47,487,000 and obligations under standby
letters of credit of $2,410,000.
35
<PAGE> 36
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 - ALLOWANCES FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED:
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $2,282,000 $2,033,000 $2,029,000
Provision charged to operations 430,000 830,000 921,000
Recoveries 47,000 116,000 109,000
- - - --------------------------------------------------------------------------------
2,759,000 2,979,000 3,059,000
Less: Loans charged off 311,000 697,000 1,026,000
- - - --------------------------------------------------------------------------------
Balance, December 31 $2,448,000 $2,282,000 $2,033,000
================================================================================
</TABLE>
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 83,000 $135,000 $ 93,000
Provision charged to operations -- 96,000 105,000
- - - --------------------------------------------------------------------------------
83,000 231,000 198,000
Less: OREO reserves charged off 13,000 148,000 63,000
- - - --------------------------------------------------------------------------------
Balance, December 31 $ 70,000 $ 83,000 $135,000
================================================================================
</TABLE>
Classified loans with specific reserves were $1,271,000 at December 31, 1996,
and $373,000 at December 31, 1995. Specific reserves related to impairment were
$141,000 at December 31,1996, and $212,000 at December 31, 1995. The recorded
investment in loans with no specific loss reserves determined in accordance with
SFAS No. 114, were $648,000 at December 31, 1996, and $652,000 at December 31,
1995. The average recorded investment in impaired loans was $2,119,000 during
the year ended December 31, 1996 and $1,036,000 during the year ended December
31, 1995. Interest income of $84,000 during 1996 and $5,000 during 1995 was
recognized on impaired loans. Non-accrual loans and foregone interest totaled
$1,594,000 and $172,000 respectively, at December 31, 1996 and $1,025,000 and
$111,000 at December 31, 1995.
36
<PAGE> 37
NOTE 5 - PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
- - - --------------------------------------------------------------------------------
1996 1995
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 262,000 $ 262,000
Buildings 976,000 964,000
Furniture, fixtures and equipment 5,708,000 4,895,000
Leasehold improvements 4,486,000 4,053,000
Leased property under capital leases 150,000 150,000
- - - --------------------------------------------------------------------------------
11,582,000 10,324,000
Less: Accumulated depreciation and
amortization 6,561,000 6,629,000
- - - --------------------------------------------------------------------------------
Total $ 5,021,000 $ 3,695,000
================================================================================
</TABLE>
The amounts of depreciation and amortization included in noninterest expense
were $617,000 in 1996, $634,000 in 1995 and $608,000 in 1994. The Bank is
obligated under noncancelable operating leases for branch locations,
administrative premises, and equipment that expire at various dates from 1996
through 2008. 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 $1,595,000 in 1996,
$1,476,000 in 1995, and $1,532,000 in 1994, net of sublease rentals of $189,000
in 1996, $191,000 in 1995, and $180,000 in 1994.
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>
1997 $ 28,000 $ 1,604,000
1998 28,000 1,556,000
1999 28,000 1,569,000
2000 28,000 1,569,000
2001 28,000 1,569,000
Thereafter 47,000 8,441,000
- - - ---------------------------------------------------------------------
Total $187,000 $16,308,000
-----------
Less: Amount representing interest 81,000
- - - ------------------------------------------------
Present value of net minimum lease
payments due through 2008 $106,000
================================================
</TABLE>
The future payments on operating leases have been reduced by rental income to be
received on subleases of $139,000 in 1997 and $93,000 in 1998.
37
<PAGE> 38
NOTE 6 - TAXES ON INCOME:
Provisions (benefits) for taxes on income are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal - Current $1,329,000 $1,932,000 $1,076,000
- Deferred 144,000 (226,000) (124,000)
- - - ---------------------------------------------------------------------------------------------------------------------------------
1,473,000 1,706,000 952,000
- - - ----------------------------------------------------------------------------------------------------------------------------------
State - Current 597,000 784,000 460,000
- Deferred 30,000 (42,000) ( 31,000)
- - - ---------------------------------------------------------------------------------------------------------------------------------
627,000 742,000 429,000
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total $2,100,000 $2,448,000 $1,381,000
==================================================================================================================================
</TABLE>
The tax liability (receivable) was comprised of the following:
<TABLE>
<CAPTION>
December 31
- - - ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current - Federal $ (127,000) $ 11,000
- State (56,000) 3,000
- - - ----------------------------------------------------------------------------------------------------------------------------------
(183,000) 14,000
- - - ----------------------------------------------------------------------------------------------------------------------------------
Deferred - Federal (633,000) (686,000)
- State (181,000) (177,000)
- - - ----------------------------------------------------------------------------------------------------------------------------------
(814,000) (863,000)
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total $(997,000) $(849,000)
==================================================================================================================================
</TABLE>
Current taxes receivable of ($183,000) in 1996 and $14,000 payable in 1995 are
included in other assets and other liabilities, respectively. 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
1996 1995 1994
- - - ---------------------------------------------------------------------------------------------------------------------------------
<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 ( 4.3) ( 3.3) ( 5.7)
State taxes on income, net of
federal income tax benefit 7.1 7.3 7.2
Preferred stock dividends ( .4) ( .6) ( .8)
Other ( 1.2) ( .1) ( .3)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total 36.2% 38.3% 35.4%
=================================================================================================================================
</TABLE>
38
<PAGE> 39
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>
<CAPTION>
Year Ended December 31
Federal 1996 1995
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for credit losses $(512,000) $(456,000)
OREO reserve ( 24,000) ( 28,000)
State income tax (150,000) (192,000)
Tax under (over) book depreciation 148,000 ( 19,000)
Direct lease financing 96,000 104,000
Unrealized gain (loss) on securities (53,000) 37,000
Other (138,000) (132,000)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $(633,000) $(686,000)
=================================================================================================================================
State
Provision for credit losses $(180,000) $(156,000)
OREO reserve ( 8,000) ( 9,000)
Tax under (over) book depreciation 40,000 ( 16,000)
Direct lease financing 32,000 34,000
Unrealized gain (loss) on securities ( 20,000) 14,000
Other ( 45,000) ( 44,000)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $(181,000) $(177,000)
=================================================================================================================================
</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>
<CAPTION>
December 31 1996 1995
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $110,874,000 $102,794,000
Savings deposits 70,556,000 73,886,000
Money Market deposits 72,078,000 47,688,000
Time deposits - Under $100,000 48,946,000 59,945,000
Time deposits $100,000 & over maturing within 1yr 39,130,000 34,282,000
Time deposits $100,000 & over maturing 1yr-5yr 337,000 100,000
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total $341,921,000 $318,695,000
=================================================================================================================================
</TABLE>
Interest expense on time certificates of deposit with balances of $100,000 or
more amounted to $2,206,000 in 1996, $908,000 in 1995, and $496,000 in 1994.
39
<PAGE> 40
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 $46,000 in 1996, $42,000 in
1995, and $38,000 in 1994. An additional $25,000 in 1996, $63,000 in 1995 and
$51,000 in 1994 was contributed to the 401(k) Plan for a total contribution to
both plans of $71,000 in 1996, $105,000 in 1995 and $89,000 in 1994.
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
239,300 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, 1996 there were
180,159 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, 1994 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 canceled or terminated 2,867 12.65 - 12.66
- - - ----------------------------------------------------------------------------
Options outstanding, December 31, 1995 29,500 11.75 - 11.75
Incentive stock options granted 7,373 9.40 - 9.40
Options exercised 250 9.40 - 9.40
Options canceled or terminated 1,312 9.40 - 9.40
- - - ----------------------------------------------------------------------------
Options outstanding, December 31, 1996 35,311 $ 9.40 -$ 9.40
- - - ----------------------------------------------------------------------------
</TABLE>
At December 31, 1996, there were 35,311 shares outstanding with a weighted
average remaining contractual life of 4 years and a weighted average exercise
price of $9.40. The number of exercisable shares at December 31, 1996 was 14,124
with a weighted average exercise price of $9.40.
40
<PAGE> 41
NOTE 9 - STOCK OPTION PLAN (continued):
The estimated fair value of options granted during 1996 and 1995 was $10.34 and
$7.11 per share, respectively. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for its stock options
plan. Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under the plan consistent
with the method of SFAS No. 123, the Company's net income and earnings per share
for the years ended December 31, 1996 and December 31, 1995 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Net Income to Common Shareholders 1996 1995
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As Reported $3,695,000 $4,011,000
Pro Forma 3,675,000 3,996,000
</TABLE>
<TABLE>
<CAPTION>
Net Income per common
and common equivalent share 1996 1995
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As Reported $ 1.07 $ 1.16
Pro Forma 1.06 1.16
</TABLE>
The fair value of options granted under the company's stock option plan during
1996 and 1995 was estimated on the date of grant using the Black- Scholes
option-pricing model with the following weighted-average assumptions used: no
dividend yield, expected volatility of 32%, risk free interest rate of 5.37%,
and expected lives of 5 years.
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.
41
<PAGE> 42
NOTE 10 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (continued):
The periodic expense for postretirement benefits includes the following:
<TABLE>
<CAPTION>
1996 1995
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Service cost $35,000 $21,000
Interest cost 25,000 21,000
Amortization of transition
obligation 9,000 9,000
Amortization of (gain)/loss 1,000 --
- - - --------------------------------------------------------------------------------
Total expense $70,000 $51,000
================================================================================
</TABLE>
The actuarial and recorded liabilities for postretirement benefits were as
follows:
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1996 1995
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ (53,000) $ (56,000)
Fully eligible active plan participants (57,000) (78,000)
Other active plan participants (270,000) (236,000)
- - - --------------------------------------------------------------------------------
Total APBO (380,000) (370,000)
Unrecognized transition obligation 147,000 155,000
Unrecognized net (gain)/loss 33,000 81,000
- - - --------------------------------------------------------------------------------
Prepaid/(Accrued) postretirement
benefit cost $(200,000) $(134,000)
================================================================================
</TABLE>
The average health care cost trend rate used in measuring the accumulated
postretirement benefit obligation and postretirement benefit cost was 10.5% and
12.0% in 1996 and 1995 respectively, gradually declining to 5.25% in 2003 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 $83,000 at December 31, 1996 and $70,000 at December 31,
1995, and would increase the sum of the service cost and interest cost by
$16,000 in 1996 and $9,000 in 1995.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% at December 31, 1996, and 7.0% at
December 31, 1995.
The Company offers no other postemployment, postretirement, or pension benefits.
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 $10,409,000.
42
<PAGE> 43
NOTE 11 - REGULATORY MATTERS (continued):
CAPITAL REQUIREMENTS:
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets(as defined), and of Tier I capital (as defined) to average
assets(as defined) Management believes, as of December 31, 1996, that the
Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Company's actual capital amounts and ratios are presented in the table and
the Bank's capital amounts and ratios are comparable.
<TABLE>
<CAPTION>
To be Categorized
As Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- - - --------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $35,501 17.9% >$15,875 >8.0% >$19,844 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $33,053 16.7% >$ 7,937 >4.0% >$11,906 > 6.0%
- - - -
Tier I Capital
(to average Assets) $33,053 8.9% >$14,923 >4.0% >$18,653 > 5.0%
- - - -
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $31,526 16.6% >$15,173 >8.0% >$18,966 >10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $29,244 15.4% >$ 7,586 >4.0% >$11,380 > 6.0%
- - - -
Tier I Capital
(to average Assets) $29,244 8.4% >$13,871 >4.0% >$17,339 > 5.0%
- - -
</TABLE>
43
<PAGE> 44
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, 1996 and 1995, 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 nonperforming loans with a recorded book value of
$1,878,000 and $1,034,000 at December 31, 1996 and 1995, 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, 1996 and 1995 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, 1996:
Cash and cash equivalents $ 50,444,000 $ 50,444,000
Investment securities 181,799,000 181,822,000
Loans, net 136,523,000 135,971,000
Noninterest bearing deposits 110,874,000 110,874,000
Interest bearing deposits 231,047,000 231,130,000
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
</TABLE>
44
<PAGE> 45
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, 1996:
<TABLE>
<CAPTION>
1996 Quarter Ended
(in thousands) 3-31 6-30 9-30 12-31 Total
- - - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 4,154 $ 4,295 $ 4,411 $ 4,489 $17,349
Noninterest income 1,026 1,121 1,541 1,103 4,791
Provision for credit losses ( 105) ( 130) ( 110) ( 85) ( 430)
Noninterest expense ( 3,868) ( 3,917) ( 4,004) ( 4,126) (15,915)
- - - ------------------------------------------------------------------------------------
Income before income taxes 1,207 1,369 1,838 1,381 5,795
Applicable income taxes 437 499 687 477 2,100
- - - ------------------------------------------------------------------------------------
Net income $ 770 $ 870 $ 1,151 $ 904 $ 3,695
====================================================================================
Net income per share $ 0.22 $ 0.25 $ 0.33 $ 0.26 $ 1.07
====================================================================================
</TABLE>
<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>
45
<PAGE> 46
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 1996 1995
- - - ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash in TransWorld Bank $ 78,000 $ 213,000
Investment in wholly-owned subsidiary 33,193,000 29,404,000
Other assets 55,000 16,000
- - - ----------------------------------------------------------------------------------
TOTAL ASSETS $33,326,000 $29,633,000
==================================================================================
LIABILITIES
Other liabilities $ -- $ --
- - - ----------------------------------------------------------------------------------
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY 33,326,000 29,633,000
- - - ----------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,326,000 $29,633,000
==================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $ -- $ -- $ 50,000
Interest on deposit accounts 9,000 7,000 --
- - - -------------------------------------------------------------------------------------------
Total income 9,000 7,000 50,000
EXPENSE
Other 168,000 86,000 78,000
- - - -------------------------------------------------------------------------------------------
Total expense 168,000 86,000 78,000
Income before income tax benefit
and equity in earnings of
unconsolidated subsidiary (159,000) (79,000) ( 28,000)
Income tax benefit (66,000) (33,000) ( 33,000)
- - - -------------------------------------------------------------------------------------------
Income before equity in earnings
of unconsolidated subsidiary (93,000) (46,000) 5,000
Equity in undistributed income
of subsidiary 3,788,000 4,057,000 2,564,000
- - - -------------------------------------------------------------------------------------------
NET INCOME $ 3,695,000 $ 4,011,000 $ 2,569,000
===========================================================================================
</TABLE>
46
<PAGE> 47
NOTE 14 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT: (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,695,000 $ 4,011,000 $ 2,569,000
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) in investments in wholly
owned subsidiary (3,788,000) (4,057,000) (2,564,000)
Decrease (increase) in other assets (39,000) 9,000 21,000
Decrease in other liabilities -- -- --
- - - ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (132,000) (37,000) 26,000
- - - ------------------------------------------------------------------------------------------------------------
Cash flows from financial activities:
Cash dividends paid (5,000) -- (11,000)
Exercise of stock options 2,000 217,000 --
- - - ------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,000) 217,000 (11,000)
- - - ------------------------------------------------------------------------------------------------------------
Decrease (increase) in cash (135,000) 180,000 15,000
Cash beginning of year 213,000 33,000 18,000
- - - ------------------------------------------------------------------------------------------------------------
Cash at end of year $ 78,000 $ 213,000 $ 33,000
============================================================================================================
Supplemental disclosure to cash flow information:
Interest paid during the year $ -- $ -- $ --
============================================================================================================
</TABLE>
NOTE 15 - SALE OF THE COMPANY
TransWorld Bancorp announced November 4, 1996 that it had agreed to be
purchased by Glendale Federal Bank. The transaction has been approved by the
shareholders of TransWorld Bancorp at a special meeting held February 26, 1997
but is still subject to regulatory approval. It is scheduled to be completed in
May, 1997. Glendale Federal will pay $63 million, or $18.25 per share, for
TransWorld Bancorp stock.
47
<PAGE> 48
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.
48
<PAGE> 49
Executive Officers of TransWorld Bancorp and TransWorld Bank:
Name Position with company Age
- - - --------------------------------------------------------------------------------
TransWorld Bancorp
- - - ------------------
David H. Hender President and Chief
Executive Officer 66
Howard J. Stanke Chief Financial Officer 48
TransWorld Bank
- - - ---------------
David H. Hender Vice Chairman and Chief
Executive Officer 66
Howard J. Stanke Executive Vice President
and Chief Financial Officer 48
Mel Moss Executive Vice President 52
Gary N. Lindgren Executive Vice President 56
John Marquis Executive Vice President 49
David H. Hender has been with the Bancorp as its President since inception. He
was President and Chief Executive Officer of TransWorld Bank for twenty three
years and was named Vice Chairman and Chief Executive Officer of TransWorld
Bank in 1996.
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.
49
<PAGE> 50
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, 1996. Comparative data is also provided for
the previous two fiscal years.
<TABLE>
<CAPTION>
Name and Principal Fiscal Annual Compensation All Other(1)
Position Year Salary Bonus Compensation
- - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David H. Hender 1996 $170,000 $ 15,451 $ 4,309
President and 1995 $160,000 $ 32,103 $ 4,120
Chief Executive Officer 1994 $130,016 $ 31,557 $ 4,133
</TABLE>
(1) Includes 401(k) contributions by the Bank of $2,375 in 1996 and $2,310
1995 and $2,248 in 1994 and profit sharing contributions by the Bank of
$1,935 in 1996, $1,810 in 1995 and $1,823 in 1994.
Directors of the Company are paid $575 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, 1997. 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 1,156,196(1) 33.50(1)
David H. Hender 154,492 4.48(2)
Douglas D. Bernards 9,765 .29(3)
Alvin H. Blaine 5,650 .17
Helene V. Galen 125,554 3.64(4)
Timothy Harris 24,703 .72(5)
Warren W. Kingsley 3,597 .11(6)
Ralph E. Phillips, Jr. 44,180 1.28(7)
All Directors and Officers as a Group
(17 persons) 1,442,803(8) 41.80(8)
</TABLE>
(1) Includes 95,684 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 274,852 shares held by the L.J. Galen Trust, 35,106
shares in NELAG Partners, a partnership in which Mr. Galen is a general
partner, and 554 shares which are held by Helene V. Galen. Mr. Galen is the
husband of Helene V. Galen, Director.
50
<PAGE> 51
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - - ------------------------------------------------------------------------
(continued)
(2) Includes 150 shares held by Scott Hender and 150 shares held by Chris
Hender, both sons of David H. Hender and 153,442 shares held by the Hender
Revocable Intervivos Trust. Also includes 10,000 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 4,947 shares held in Mr. Harris' profit sharing plan, 12,494
shares held by Timcor Financial Corporation of which Mr. Harris is
President, 5,500 shares in the Harris Trust and 1,762 for Mr. Harris's
children.
(6) Shares are held in the Kingsley Family trust of which Mr. Kingsley is a
Trustee.
(7) 43,055 shares are held in the Phillips Children Trust of which Mr. Phillips
is a Trustee. 375 shares are held by Mr. Phillips wife and 750 shares are
held by Mr. Phillips' grandchildren.
(8) Includes, in addition to shares which Mr. Hender has the right to acquire,
34,248 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 stock. 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. 305,847(1) 8.86
118 N. Grand Street
P.O. Box 310
Cobleskill, New York 12043
Heartland Advisors 176,775(2) 5.12
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.
51
<PAGE> 52
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
52
<PAGE> 53
[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 sheet of TransWorld
Bancorp and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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 audits 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 17, 1997
53
<PAGE> 54
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: Howard J. Stanke
-----------------------------
Howard J. Stanke
Chief Financial Officer
Date: March 27, 1997
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.
Chairman of the Board March 27, 1997
- - - -------------------------
Louis J. Galen
David H. Hender Director and Chief Executive
- - - ------------------------- Officer March 27, 1997
David H. Hender
Howard J. Stanke Chief Financial Officer and
- - - ------------------------- Principal Accounting Officer March 27, 1997
Howard J. Stanke
Douglas D. Bernards Director March 27, 1997
- - - -------------------------
Douglas D. Bernards
Alvin H. Blaine Director March 27, 1997
- - - -------------------------
Alvin H. Blaine
Director March 27, 1997
- - - -------------------------
Helene V. Galen
Timothy Harris Director March 27, 1997
- - - -------------------------
Timothy Harris
Warren W. Kingsley Director March 27, 1997
- - - -------------------------
Warren W. Kingsley
Ralph E. Phillips, Jr. Director March 27, 1997
- - - -------------------------
Ralph E. Phillips, Jr.
54
<PAGE> 1
EXHIBIT - 21 SUBSIDIARY OF REGISTRANT
Transworld bank - Organized and incorporated in the State of California.
<PAGE> 1
EXHIBIT 23
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 17, 1997, appearing in the Annual Report on Form 10-K of TransWorld
Bancorp for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 20, 1997
<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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,369
<INT-BEARING-DEPOSITS> 231,047
<FED-FUNDS-SOLD> 20,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,290
<INVESTMENTS-CARRYING> 148,509
<INVESTMENTS-MARKET> 148,532
<LOANS> 136,523
<ALLOWANCE> 2,448
<TOTAL-ASSETS> 379,516
<DEPOSITS> 341,921
<SHORT-TERM> 2,413
<LIABILITIES-OTHER> 1,960
<LONG-TERM> 0
0
0
<COMMON> 8,033
<OTHER-SE> 25,293
<TOTAL-LIABILITIES-AND-EQUITY> 379,516
<INTEREST-LOAN> 13,820
<INTEREST-INVEST> 10,372
<INTEREST-OTHER> 1,719
<INTEREST-TOTAL> 25,911
<INTEREST-DEPOSIT> 8,344
<INTEREST-EXPENSE> 8,562
<INTEREST-INCOME-NET> 17,349
<LOAN-LOSSES> 430
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 15,915
<INCOME-PRETAX> 5,795
<INCOME-PRE-EXTRAORDINARY> 5,795
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,695
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 7.66
<LOANS-NON> 1,594
<LOANS-PAST> 284
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,282
<CHARGE-OFFS> 311
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 2,448
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,448
</TABLE>
