<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
TRANSWORLD BANCORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
TransWorld Bancorp Common Shares, no par value.
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,451,715 Common Shares of TransWorld Bancorp.
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
The amount on which the filing fee of $12,599 is calculated was
determined pursuant to Rule 0-11(c) of the Exchange Act by multiplying 1/50th
of 1% by the proposed cash payment, which consists of the product of (A)
$18.25, the Merger Consideration per share, and (B) 3,451,715, the total number
of outstanding shares of TransWorld Bancorp.
(4) Proposed maximum aggregate value of transaction:
$62,993,799
----------------------------------------------------------------------
(5) Total fee paid:
$12,599
----------------------------------------------------------------------
/X / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
TRANSWORLD BANCORP
15233 VENTURA BOULEVARD
SHERMAN OAKS, CALIFORNIA 91403
January 22, 1997
Dear Shareholder:
The attached Notice of Special Meeting of Shareholders and Proxy Statement
relates to a Special Meeting of Shareholders of TransWorld Bancorp (the
"Company") to be held at 10:00 a.m., on Wednesday, February 26, 1997, at the
administrative office of the Company located at TransWorld Bank Plaza, 15233
Ventura Boulevard, Sherman Oaks, California 91403.
The purpose of the special meeting is to consider and act upon a proposal
to adopt and approve an Agreement and Plan of Merger which, if adopted and
approved, will result in the merger of a newly formed, wholly-owned subsidiary
of Glendale Federal Bank into the Company and the payment by Glendale Federal of
$18.25 in cash, without interest, for each share of the Company's Common Stock.
Approval of this proposal requires the affirmative vote of at least a majority
of the outstanding shares of Common Stock of the Company. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AND UNANIMOUSLY
RECOMMENDS APPROVAL BY THE SHAREHOLDERS.
The attached Proxy Statement describes the proposed transaction in detail,
sets forth the basis of the affirmative recommendation by the Board of Directors
and the opinion of Wedbush Morgan Securities Inc., as to the fairness from a
financial point of view of the consideration to be paid to the shareholders. The
proposed merger is subject to a number of conditions more fully described in the
Proxy Statement, including approval of federal and state banking authorities. I
urge you to give this material your careful attention.
Shareholders of the Company who comply with the procedures of Sections 1300
through 1312 of the California General Corporation Law, which are described in
the accompanying Proxy Statement in the section entitled "Terms of the
Merger -- Rights of Dissenting Shareholders of the Company," will be entitled,
if the merger is consummated, to certain appraisal rights with respect to their
shares.
Whether or not you attend the Special Meeting in person and regardless of
the number of shares you own, we request that you complete, sign, date and
return the enclosed proxy promptly in the accompanying prepaid envelope. You
may, of course, attend the Special Meeting and vote in person, even if you have
previously returned your proxy.
Please do not send in any stock certificates at this time. If the Merger is
consummated, you will be sent instructions regarding the surrender of your stock
certificates.
Sincerely,
/s/ LOUIS J. GALEN
------------------------------------
Louis J. Galen
Chairman of the Board of Directors
<PAGE> 3
TRANSWORLD BANCORP
15233 VENTURA BOULEVARD
SHERMAN OAKS, CALIFORNIA 91403
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 26, 1997
------------------------
To the Shareholders of TransWorld Bancorp:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of TransWorld Bancorp, a California corporation (the "Company"), will
be held on Wednesday, February 26, 1997, at the administrative office of the
Company located at TransWorld Bank Plaza, 15233 Ventura Boulevard, Sherman Oaks,
California 91403, commencing at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to adopt and approve an Agreement
and Plan of Merger dated as of November 1, 1996 (the "Merger Agreement")
and the transactions contemplated thereby, pursuant to which a
subsidiary of Glendale Federal Bank, a Federal Savings Bank ("Glendale
Federal"), would merge into the Company, the Company would become a
wholly-owned subsidiary of Glendale Federal and the shareholders of the
Company would be entitled to receive a payment from Glendale Federal of
$18.25 in cash, without interest, for each share of the Company's Common
Stock held by them (other than shares held by the Company or its
subsidiaries as treasury stock or shares as to which statutory appraisal
rights have been properly exercised), all in accordance with the terms
of the Merger Agreement described in the accompanying Proxy Statement, a
copy of which is attached to the Proxy Statement as Annex I; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock is required for adoption and approval of the
Merger Agreement. Record holders of Common Stock at the close of business on
January 14, 1997, are entitled to notice of and to vote at the Special Meeting
and any adjournments or postponements thereof. Certain shareholders of the
Company, including Louis J. Galen and David H. Hender, owning in aggregate
approximately 37% of the outstanding Common Stock of the Company as of the
Record Date have agreed with Glendale Federal to vote their shares in favor of
the Merger.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND
CONSIDERATION OF THE TERMS OF THE MERGER AGREEMENT AND OTHER FACTORS, INCLUDING
THE OPINION OF WEDBUSH MORGAN SECURITIES INC., AS TO THE FAIRNESS OF THE MERGER
FROM A FINANCIAL POINT OF VIEW, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS.
PLEASE EXECUTE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD WHETHER OR NOT
YOU EXPECT TO ATTEND THE SPECIAL MEETING. YOUR PROXY, ONCE GIVEN, MAY BE REVOKED
AT ANY TIME PRIOR TO THE SPECIAL MEETING BY FILING A PROXY BEARING A LATER DATE
AND PRESENTING IT AT THE SPECIAL MEETING OR BY YOUR APPEARING AT THE SPECIAL
MEETING AND VOTING IN PERSON. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE FOR
MAILING IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ ELIZABETH A. NIELSEN
-----------------------------------
Elizabeth A. Nielsen
Secretary
January 22, 1997
Sherman Oaks, California
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
- --------------------------------------------------------------------------------
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.............................................................................. ii
INTRODUCTION......................................................................... 1
General............................................................................ 1
Record Date; Proxies............................................................... 1
Persons Making the Solicitation.................................................... 2
Quorum............................................................................. 2
Vote Required...................................................................... 2
THE MERGER........................................................................... 3
Background......................................................................... 3
Recommendation of the Board of Directors of the Company; Reasons for the Merger.... 4
Opinion of the Financial Advisor................................................... 5
Transaction Summary................................................................ 6
Stock Trading History.............................................................. 7
Analysis of Selected Publicly Traded Companies..................................... 7
Analysis of Selected Merger Transactions........................................... 7
Discounted Projected Future Value Analysis......................................... 8
Miscellaneous...................................................................... 9
Interests of Certain Persons in the Merger......................................... 9
Management of the Company After the Merger......................................... 9
TERMS OF THE MERGER.................................................................. 9
Effective Date of the Merger....................................................... 10
Effect of the Merger............................................................... 10
Payment for Shares; Exchange Agent................................................. 10
Treatment of Stock Options......................................................... 11
Representations and Warranties..................................................... 11
Conditions to the Merger........................................................... 11
Restrictions on the Company........................................................ 12
Additional Agreements.............................................................. 13
Termination of the Merger Agreement................................................ 13
Cancellation Fee; Expenses......................................................... 13
Regulatory Approvals............................................................... 14
Rights of Dissenting Shareholders of the Company................................... 14
Certain Federal Income Tax Consequences of the Merger.............................. 15
Accounting Treatment of the Merger................................................. 16
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY...................................... 17
SELECTED FINANCIAL DATA OF THE COMPANY............................................... 18
CERTAIN INFORMATION CONCERNING THE COMPANY........................................... 19
DOCUMENTS INCORPORATED BY REFERENCE.................................................. 20
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT.......................... 21
GLENDALE FEDERAL BANK................................................................ 22
INDEPENDENT AUDITORS................................................................. 22
OTHER MATTERS........................................................................ 23
AVAILABLE INFORMATION................................................................ 23
Annex I Agreement and Plan of Merger
Annex II Opinion of Wedbush Morgan Securities Inc.
Annex III Chapter 13 of the California General Corporation Law
</TABLE>
i
<PAGE> 5
SUMMARY
Certain information contained in this Proxy Statement is summarized below.
This summary is not intended to be complete and is qualified in all respects by
the detailed information appearing elsewhere in this Proxy Statement and the
Annexes hereto. Shareholders are urged to review carefully the entire Proxy
Statement, the Agreement and Plan of Merger which is attached hereto as Annex I
and the other Annexes attached hereto, and the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, which
are attached hereto. Cross-references in this summary are to captions in the
Proxy Statement.
THE COMPANY
TransWorld Bancorp, a California corporation (the "Company"), owns all the
issued and outstanding stock of TransWorld Bank, a California corporation (the
"Bank"). The Bank offers a full range of commercial banking services, including
commercial and industrial loans, consumer loans, real estate loans, checking and
savings deposits, safe deposit boxes, escrow, bankcard merchant services and
other customary non-deposit banking services. The principal executive offices of
the Company are located at TransWorld Bank Plaza, 15233 Ventura Boulevard,
Sherman Oaks, California 91403, and its telephone number is (818) 783-7501. See
"Certain Information Concerning the Company."
GLENDALE FEDERAL BANK
During fiscal 1996, Glendale Federal Bank, a Federal Savings Bank
("Glendale Federal") implemented a strategic initiative to convert its
traditional savings and loan operations into a broad-based community bank
offering a new line of business banking products and expanding its line of
consumer banking products. Glendale Federal is now engaged in business banking,
consumer banking and real estate lending, as well as, through certain
subsidiaries, general insurance and securities brokerage services. Glendale
Federal's common stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange. The principal executive offices of Glendale Federal are located
at 414 North Central Boulevard, Glendale, California 91203, and its telephone
number is (818) 500-2000. See "Glendale Federal Bank."
DATE, TIME, PLACE AND PURPOSE OF SPECIAL MEETING
The Special Meeting of Shareholders of the Company (the "Special Meeting")
will be held on Wednesday, February 26, 1997, at 10:00 a.m., local time, at the
administrative office of the Company located at TransWorld Bank Plaza, 15233
Ventura Boulevard, Sherman Oaks, California 91403. At the Special Meeting, the
shareholders of the Company will consider and vote upon a proposal to adopt and
approve an Agreement and Plan of Merger dated as of November 1, 1996 among
Glendale Federal, the Company and the Bank (the "Merger Agreement").
The Merger Agreement provides that, at the effective time of the Merger, a
wholly-owned subsidiary of Glendale Federal will be merged with and into the
Company (the "Merger") and thereafter the Company will be a wholly-owned
subsidiary of Glendale Federal. Glendale Federal has advised the Company that it
intends to merge the Company into Glendale Federal after consummation of the
Merger. In the Merger, each outstanding share of Common Stock, without par value
(the "Common Stock"), of the Company, other than shares held by the Company and
its subsidiaries as treasury stock or shares as to which statutory appraisal
rights are perfected, will be converted into the right to receive $18.25 in
cash, without interest (the "Merger Consideration"). Upon consummation of the
Merger, shareholders will cease to have any further ownership or interest in the
Company.
RECORD DATE; QUORUM
Only holders of record of the Common Stock of the Company at the close of
business on January 14, 1997 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. Holders of
ii
<PAGE> 6
Common Stock are entitled to one vote for each share held by them. The presence,
either in person or by a properly executed proxy, of the holders of a majority
of the outstanding shares of Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum at the Special Meeting. See
"Introduction -- Quorum."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt and approve the Merger Agreement. As of the
Record Date, there were 3,451,715 shares of Common Stock outstanding. Certain
shareholders of the Company, including Louis J. Galen and David H. Hender,
owning in the aggregate approximately 37% of the outstanding Common Stock of the
Company as of the Record Date have agreed with Glendale Federal to vote their
shares in favor of the Merger. See "Introduction -- Record Date; Proxies" and
"Introduction -- Vote Required."
BACKGROUND OF THE MERGER
The Merger was negotiated by representatives of the Company and Glendale
Federal in a series of information exchanges and meetings which began in April
1996. See "The Merger -- Background." In connection with such negotiations, the
Board of Directors of the Company has reviewed the Company's financial condition
and strategic alternatives and has determined that the terms of the Merger are
fair and in the best interests of the Company's shareholders.
APPROVAL BY THE COMPANY'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS ADOPTION OF THE MERGER AGREEMENT BY THE SHAREHOLDERS OF
THE COMPANY. For a discussion of the factors considered by the Company's Board
of Directors in approving the Merger Agreement and the transactions contemplated
thereby, see "The Merger -- Recommendation of the Board of Directors of the
Company; Reasons for the Merger." In arriving at its decision, the Board of
Directors considered the opinion of Wedbush Morgan Securities Inc., which was
retained to act as financial advisor to the Board of Directors with respect to
the Merger, that the Merger Consideration proposed to be received by the holders
of Common Stock is fair to the Company's shareholders from a financial point of
view. See "The Merger -- Opinion of Financial Advisor."
EFFECTIVE DATE OF THE MERGER
The Merger will become effective immediately upon the filing of an
Agreement of Merger with the Secretary of State of the State of California (or
such later date and time as may be specified therein) (the "Effective Date").
The Effective Date currently is expected to occur during the second quarter of
1997, subject to the approval and adoption of the Merger Agreement at the
Special Meeting and satisfaction or waiver of the conditions precedent to the
Merger set forth in the Merger Agreement, including receipt of regulatory
approvals. See "Terms of the Merger -- Conditions to the Merger."
CONDITIONS TO THE MERGER
The obligations of the Company and Glendale Federal to effect the Merger
are subject to the satisfaction or waiver of certain conditions, including the
receipt of regulatory approvals and certain opinions of counsel by the Company
and Glendale Federal. See "Terms of the Merger -- Conditions to the Merger."
SURRENDER OF THE COMPANY'S STOCK CERTIFICATES
As of the Effective Date, holders of Common Stock will be entitled to
receive the Merger Consideration, on demand following compliance with certain
procedures. Promptly after consummation of the Merger, holders of the Company's
Common Stock will be furnished with a transmittal letter to be used to exchange
their certificates for payment of the Merger Consideration for each share
represented thereby. After the Effective Date, holders of the Company's Common
Stock certificates should retain such certificates until receipt of a letter of
transmittal. See "Terms of the Merger -- Payment for Shares; Exchange Agent."
iii
<PAGE> 7
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The exchange by shareholders of their shares of Common Stock for cash
pursuant to the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction for state, local, foreign, and
other tax purposes. See "Terms of the Merger -- Certain Federal Income Tax
Consequences of the Merger." Shareholders are urged to consult their own tax
advisors with respect to the federal, state, local and other tax consequences of
the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, Glendale Federal has agreed to make
severance payments to certain employees of the Company, including certain
officers, whose employment is involuntarily terminated within one year after the
Effective Date. In addition, David Hender, the Chief Executive Officer and a
director of the Company, and Glendale Federal have entered into a
non-competition and consulting agreement which will become effective upon the
consummation of the Merger. Under the agreement, Mr. Hender has agreed not to
compete with Glendale Federal in the banking business within specified
geographic regions for a period of three years and has agreed to render
consulting services to Glendale Federal for a one-year period after the
Effective Date. Total payments to Mr. Hender for the non-competition agreement
and consulting services will be $500,000.
RIGHTS OF DISSENTING SHAREHOLDERS OF THE COMPANY
Record holders of the Company's Common Stock have the right to dissent from
the Merger and, subject to certain conditions, to receive a cash payment equal
to the fair market value of their shares rather than the Merger Consideration,
but, except in the case of shares which are restricted as to transfer, only if
demands for payment are made with respect to five percent or more of the
outstanding shares of the Company's Common Stock. Shareholders should note that
such fair market value is determined as of the day before the first public
announcement of the Merger and that such fair market value as so determined is
not permitted to include any appreciation or depreciation in consequence of the
proposed Merger. Such fair market value may be less than, the same as or greater
than the amount of Merger Consideration to which such shareholders are entitled
under the Merger Agreement. In order to perfect his or her dissenter's rights, a
record holder of the Company's Common Stock must comply with all of the
procedural requirements of Sections 1300 through 1312 of the California General
Corporation Law, a description of which is set forth under the caption "Terms of
the Merger -- Rights of Dissenting Shareholders of the Company," and the full
text of which is attached to this Proxy Statement as Annex III.
Failure to take any of the steps required under California law may result
in a loss of such dissenters' rights. Pursuant to the terms of the Merger
Agreement, Glendale Federal may abandon the Merger if the holders of shares of
Common Stock representing ten percent or more of the shares of Common Stock
perfect their dissenters' rights.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq Stock Market (the "NASDAQ"). On
November 1, 1996, the last trading day prior to the public announcement of the
execution of the Merger Agreement, the last reported sale price of the Common
Stock on the NASDAQ was $15.75 per share. The last reported sale price of the
Common Stock on the NASDAQ on January 14, 1997 was $17.69 per share. See "Price
Range of Common Stock and Dividend Policy." Shareholders are urged to obtain
current market quotations for the Common Stock.
SELECTED FINANCIAL DATA OF THE COMPANY
For certain financial information concerning the Company, see "Selected
Financial Data," as well as the more detailed consolidated financial information
included in the Annual Report on Form 10-K for the year ended December 31, 1995
and the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996 and September 30, 1996, which are included with this
Proxy Statement and incorporated by reference herein. For a description of
certain recent developments with respect to the Company's affairs, see "Certain
Information Concerning the Company."
iv
<PAGE> 8
TRANSWORLD BANCORP
15233 VENTURA BLVD.
SHERMAN OAKS, CALIFORNIA 91403
------------------------
PROXY STATEMENT
------------------------
INTRODUCTION
GENERAL
This Proxy Statement is being furnished by TransWorld Bancorp, a California
bank holding company (the "Company"), to the holders of outstanding shares of
Common Stock, without par value (the "Common Stock"), of the Company in
connection with the solicitation of proxies by the Board of Directors of the
Company from holders of such shares. The proxies are to be used at the Special
Meeting of Shareholders of the Company (the "Special Meeting") to be held at the
administrative office of the Company located at TransWorld Bank Plaza, 15233
Ventura Boulevard, Sherman Oaks, California 91403, at 10:00 a.m., local time, on
Wednesday, February 26, 1997, and at any adjournments or postponements thereof.
Holders of Common Stock are entitled to one vote for each share held by
them. The purpose of the Special Meeting is to consider and vote upon a proposal
to adopt and approve the Agreement and Plan of Merger, dated as of November 1,
1996 (the "Merger Agreement"), between the Company, TransWorld Bank, a
wholly-owned subsidiary of the Company (the "Bank") and Glendale Federal Bank,
Federal Savings Bank ("Glendale Federal"). As a result of the Merger, the
Company will become a wholly-owned subsidiary of Glendale Federal. Glendale
Federal has advised the Company that it intends to merge the Company into
Glendale Federal after consummation of the Merger.
In the Merger, each outstanding share of Common Stock (other than shares
held by the Company or its subsidiaries as treasury stock and shares as to which
statutory appraisal rights are perfected) will be converted into the right to
receive from Glendale Federal a cash payment of $18.25, without interest (the
"Merger Consideration").
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the transactions contemplated thereby. The Board of Directors of
the Company unanimously recommends adoption of the Merger Agreement by the
shareholders of the Company. For a discussion of the factors considered by the
Company's Board of Directors in approving the Merger Agreement and the
transactions contemplated thereby, see "The Merger -- Recommendation of the
Board of Directors of the Company; Reasons for the Merger."
The principal executive offices of the Company are located at 15233 Ventura
Boulevard, Sherman Oaks, California 91403, and its telephone number is (818)
783-7501.
This Proxy Statement is first being mailed to shareholders of the Company
on or about January 22, 1997.
RECORD DATE; PROXIES
The Board of Directors of the Company has fixed the close of business on
January 14, 1997 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Special Meeting. Only
holders of record of shares of Common Stock at the close of business on the
Record Date will be entitled to notice of, and to vote at, the Special Meeting.
A proxy card for use at the Special Meeting is enclosed. Shares of Common
Stock represented by properly executed proxies, unless such proxies have been
previously revoked, will be voted in accordance with the instructions indicated
in such proxies. If no instructions are so indicated, such shares will be voted
in favor of the adoption and approval of the Merger Agreement and in the
discretion of the proxy holder as to any other matter that properly may come
before the Special Meeting. The Board of Directors of the Company knows of no
business that will be presented for consideration at the Special Meeting other
than consideration of the Merger Agreement. A shareholder who has given a proxy
may revoke it at any time prior to its exercise at the
1
<PAGE> 9
Special Meeting by filing an instrument revoking it with the Company, by duly
executing a proxy bearing a later date and presenting it at the Special Meeting
or by appearing at the Special Meeting and voting in person. The mere presence
at the Special Meeting of the person who has given a proxy will not revoke such
proxy.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is being made by the Board of Directors of the
Company. All expenses associated with soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, will be
borne by the Company. It is contemplated that proxies will be solicited
principally through the use of the mail, but officers, directors and employees
of the Company may solicit proxies personally or by telephone, without receiving
special compensation therefor. In addition, the Company will reimburse banks,
brokerage houses, and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to their principals.
QUORUM
The presence, either in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to adopt and approve the Merger Agreement. As of the
Record Date, 3,451,715 shares of Common Stock were outstanding and held by 1,578
record holders. Each shareholder of the Company is entitled to one vote for each
share of Common Stock held in his or her name on the Record Date. Votes cast by
proxy or in person at the Special Meeting will be counted by an inspector of
elections appointed for the meeting. The inspector of elections will treat
shares represented by proxies that reflect abstentions as shares that are
present and entitled to vote, for purposes of determining the presence of a
quorum and for purposes of determining the outcome of any matter submitted to
the shareholders for a vote. Because approval of the Merger Agreement will
require the affirmative vote of the holders of a majority of the outstanding
shares of common stock, any abstentions or other failures to vote will have the
effect of a vote "against" the Merger Agreement. With respect to any other
matters that may come before the special meeting (none are anticipated),
abstentions will not constitute a vote "for" or "against" any matter and thus
will be disregarded in the calculation of "votes cast."
The inspector of elections will treat shares referred to as "broker
non-votes" (i.e., shares held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
that the broker or nominee does not have discretionary power to vote on a
particular matter) as shares that are present and entitled to vote for purposes
of determining the presence of a quorum. For purposes of determining the outcome
of any matter as to which the broker has indicated on the proxy that it does not
have discretionary authority to vote, those shares will be treated as not
present and not entitled to vote with respect to that matter (even though those
shares are considered entitled to vote for quorum purposes and may be entitled
to vote on other matters). As described with respect to abstentions above,
however, the failure of such shares to be voted in favor of the Merger Agreement
will have the effect of a vote against it.
Certain shareholders of the Company, including Louis J. Galen and David H.
Hender, owning in the aggregate approximately 37% of the outstanding Common
Stock of the Company as of the Record Date have agreed with Glendale Federal to
vote their shares in favor of the Merger.
2
<PAGE> 10
THE MERGER
BACKGROUND
In April 1996, the Company was approached by Barton Gurewitz, a managing
director of the Investment Banking Department of Wedbush Morgan Securities
("Wedbush Morgan") and Charlotte Chamberlain, Vice President of Wedbush Morgan's
Research Department, to discuss Glendale Federal's publicly-announced interest
in expanding its banking business through, among other means, acquisitions of
Southern California community banks. Mr. Gurewitz suggested that Wedbush Morgan
act as financial advisor to the Company in connection with any transaction.
David Hender, Chief Executive Officer of the Company, discussed the matter with
Louis J. Galen, Chairman of the Board, advising him of this. Subsequently the
Company engaged Wedbush Morgan to act as the Company's financial advisor with
respect to a proposed transaction.
In mid-April 1996, Mr. Gurewitz met with Vincent Beatty, Executive Vice
President of Glendale Federal, to discuss the Company's business and to provide
copies of publicly available information regarding the Company. On April 18,
1996, Mr. Gurewitz presented to Mr. Hender a letter in which Glendale Federal
indicated its preliminary interest in acquiring the Company, subject to certain
terms and conditions. Thereafter, representatives of Wedbush Morgan met with Mr.
Hender and Mr. Galen to discuss the continued interest of Glendale Federal in a
possible acquisition of the Company. This information was reported to the
Company's full Board at its regular meeting held on April 23, 1996.
In early May, Mr. Hender and representatives of Wedbush Morgan met with
several of Glendale Federal's executive officers to further discuss a possible
business acquisition. It was agreed that a confidentiality agreement should be
entered into so that Glendale Federal could obtain non-public information on the
Company in order to determine whether Glendale Federal wished to continue
discussions regarding a business combination.
Following considerable discussion, meetings and exchanges of public
information regarding the Company and Glendale Federal, including Glendale
Federal's published financial statements and other publicly available
information, a special meeting of the Company's Board of Directors was held on
May 24, 1996. In addition to the members of the Board, the Company's legal
counsel, Ellen Marshall of the law firm of Morrison & Foerster LLP, and Mr.
Gurewitz and Charlotte Chamberlain of Wedbush Morgan were in attendance. At that
time, Mr. Gurewitz and Ms. Chamberlain presented an analysis of Glendale
Federal's proposal and information on California bank acquisitions, including
valuation data. Ms. Marshall reviewed the legal aspects of such a transaction
and reported that the confidentiality agreement had been finalized. There was
considerable discussion regarding possible structures for any proposed
transaction, including a discussion of the type of consideration to be paid to
shareholders in any acquisition. The meeting culminated in a resolution by the
Board, directing Messrs. Hender and Galen to continue discussions with Glendale
Federal regarding a proposed business combination.
After the submission by Glendale Federal in early May of its due diligence
request for information, the Company outlined in a June 10, 1996 letter to
Glendale Federal anticipated parameters of a proposed transaction. On Monday,
June 17, 1996, Glendale Federal opted to withdraw from further negotiations and
discussions between the parties ceased.
After several months, and following discussions between representatives of
Wedbush Morgan and certain officers of Glendale Federal, discussions between
Glendale Federal and the Company with respect to a potential acquisition were
reopened. Glendale Federal then began a more extensive due diligence process.
During the ensuing period, Messrs. Hender and Galen, with representatives of
Wedbush Morgan, met with executives of Glendale Federal on several occasions to
discuss the terms of a proposed transaction.
At the September 1996 regular meeting of the Company's Board of Directors,
and following the aforementioned extensive due diligence on the part of Glendale
Federal and extensive discussion between the parties regarding the terms of a
business combination, a formal resolution was adopted by the Company's Board of
Directors authorizing Mr. Galen to negotiate an all cash merger with Glendale
Federal.
3
<PAGE> 11
In September 1996, Glendale Federal proposed an all cash merger at a price
of $18.25 per share for all of the outstanding shares of the Company, subject to
the parties reaching agreement on the definitive terms of an acquisition. The
parties agreed to begin negotiation of the definitive terms of a proposed
transaction through their respective legal counsel.
During the negotiation of the Merger Agreement, Glendale Federal indicated
that, as a condition to Glendale Federal's entering into the Merger Agreement,
certain shareholder agreements (including agreements with Messrs. Galen and
Hender) would be required as a part of the transaction, whereby such
shareholders would each be obligated to vote in favor of the approval of the
Merger. Also included in the terms was a non-compete and consulting agreement
with Mr. Hender whereby he would assist, for a minimum of one year, in the
transition of customer relationships and other banking operations and business
in connection with Glendale Federal's acquisition of the Company. At the
Company's October 31, 1996 Board meeting, legal counsel to the Company reviewed
the draft merger agreement and legal obligations of both parties. Wedbush Morgan
again reviewed their updated analysis of Glendale Federal's offer and the
fairness of the offer from a financial point of view. Following the
presentations and discussion, the Board of Directors unanimously approved the
Merger Agreement, and authorized Mr. Hender to negotiate and finalize several
remaining open issues.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY; REASONS FOR THE MERGER
At a meeting of the Board of Directors held on October 31, 1996, the Board
of Directors approved the terms of the Merger and the Merger Agreement by
unanimous vote and recommended approval of the Merger and the Merger Agreement
to the holders of Common Stock. In determining to approve the Merger and the
Merger Agreement, the Board of Directors considered a number of factors,
including, but not limited to, the following:
(i) the oral and written presentations of Wedbush Morgan with respect
to its determination as to the fairness of the Merger from a financial
point of view to the Company's public shareholders, and the analyses,
methodologies and conclusions underlying such determination (see "The
Merger -- Opinion of Financial Advisor");
(ii) the historical and recent earnings performance of the Company;
(iii) the Company's future prospects, including the uncertainty
associated with consolidation in the banking industry;
(iv) the prices and premiums paid in recent acquisitions of companies
deemed to be similar in certain respects to the Company;
(v) the advantages to the holders of Common Stock of an all cash offer
for their shares notwithstanding the tax consequences of such an offer to
the Company's shareholders;
(vi) the likelihood that the Merger could be consummated, noting the
timing of and conditions to the Merger, and the expected effect of the
announcement of the Merger on the Company's relationships with its
customers, employees and suppliers; and
(vii) the terms and conditions set forth in the Merger Agreement,
including, but not limited to, the provisions in the Merger Agreement
permitting the Board of Directors to consider and respond to unsolicited
bona fide third party offers to acquire the Company, subject to certain
limitations (see "Terms of the Merger -- Restrictions on the Company").
Based upon an analysis of these factors, the Board of Directors determined
unanimously that the terms and conditions of the Merger Agreement are fair and
in the best interests of the Company and its shareholders.
The Board of Directors did not find it practicable to, and did not attempt
to, assign relative weights to the specific factors considered by it.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT BY THE SHAREHOLDERS OF THE COMPANY.
4
<PAGE> 12
OPINION OF THE FINANCIAL ADVISOR
Pursuant to a letter agreement (the "Wedbush Morgan Agreement") dated May
10, 1996, as revised November 1, 1996, the Company retained Wedbush Morgan as an
independent financial advisor in connection with the Company's proposed merger
transaction with Glendale Federal. Wedbush Morgan is an investment banking firm
that is regularly engaged as part of its business in the evaluation of
businesses and their securities in connection with mergers and acquisitions and
other corporate transactions. Wedbush Morgan was selected by the Company based
on Wedbush Morgan's experience, expertise, reputation, and familiarity with the
Company.
Pursuant to the terms of the Wedbush Morgan Agreement, the Company
requested that Wedbush Morgan evaluate the fairness, from a financial point of
view, of the consideration to be paid by Glendale Federal to the Company's
shareholders in connection with the proposed merger. No limitations were imposed
by the Company's Board of Directors on Wedbush Morgan with respect to the
investigations made or procedures followed in rendering its opinion. At a
meeting of the Company's Board of Directors held on October 31, 1996, at which
the Board of Directors approved and adopted the Merger Agreement, Wedbush Morgan
delivered its oral opinion to the Board of Directors that, as of October 31,
1996, the consideration to be received by the holders of shares of the Company's
Common Stock pursuant to the Merger Agreement was fair, from a financial point
of view, to such shareholders. Wedbush Morgan confirmed its October 31, 1996
oral opinion in writing on January 14, 1997. In connection with its January 14,
1997 written opinion, Wedbush Morgan updated certain of its analyses, as
necessary, and reviewed the assumptions on which such analyses were based and
the factors considered in connection therewith. Wedbush Morgan made no
recommendation in either its October 31, 1996 oral opinion or in its January 14,
1997 written opinion to the Company or to the Company's shareholders with
respect to any approval of the proposed transaction. Wedbush Morgan did make
recommendations to the Company's Board of Directors with respect to the amount
of consideration to be paid by Glendale Federal.
THE FULL TEXT OF WEDBUSH MORGAN'S FAIRNESS OPINION (THE "FAIRNESS OPINION")
WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED
AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX II TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE
SUMMARY OF THE OPINION OF WEDBUSH MORGAN SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. HOLDERS
OF THE COMPANY'S COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION IN ITS
ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED MERGER. THE
FAIRNESS OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS OF THE COMPANY ONLY AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT
SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING.
In connection with rendering the Fairness Opinion, Wedbush Morgan reviewed,
among other things: (i) the Merger Agreement; (ii) the Preliminary Proxy
Statement filed by the Company with the Securities and Exchange Commission on
December 11, 1996, and a draft of the definitive form of this Proxy Statement;
(iii) the Company's audited consolidated financial statements and notes thereto
and management's discussion and analysis of the financial condition and results
of operations contained in the Annual Reports to the Company's shareholders for
each of the five years ended December 31, 1995; (iv) the Company's unaudited
consolidated financial statements and management's discussion and analysis of
the financial condition and results of operations contained in the quarterly
reports on Form 10-Q for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996; (v) certain projections prepared by the Company's management
with respect to the Company for the year ending December 31, 1996; (vi) views of
management regarding the past and current business operations, financial
condition and future prospects of the Company; (vii) the reported market prices
and historical trading activity of the Company's Common Stock, including a
comparison of certain financial and stock market information for the Company
with similar information for comparable publicly traded securities and indices;
(viii) the financial terms, to the extent publicly available, of certain recent
business combinations in the banking industry; (ix) the current market
environment and the California
5
<PAGE> 13
banking environment in particular; and (x) such other information, studies,
analyses and examinations as Wedbush Morgan deemed appropriate.
In performing its review, Wedbush Morgan assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial and
other information provided to Wedbush Morgan by the Company. Wedbush Morgan did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing the assets or the liabilities of the Company, or the
collectibility of any such assets (relying, where relevant, on the analyses of
the Company's management). Wedbush Morgan was not retained to and did not
conduct a physical inspection of any of the properties or facilities of the
Company and did not review any individual credit files. With respect to
financial projections prepared by and reviewed with management of the Company,
Wedbush Morgan assumed that such projections were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the Company's
management of the future financial performance of the Company, and that such
performance would be realized in the amounts and in the time periods currently
estimated. Wedbush Morgan also assumed that there has been no material change in
the Company's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements noted above. Wedbush
Morgan further assumed that all conditions to the Merger Agreement would be
satisfied and not waived.
Certain of the projections reviewed by Wedbush Morgan were prepared by the
management of the Company. The Company does not publicly disclose internal
management projections of the type provided to Wedbush Morgan in connection with
the review of the Merger. Such projections were not prepared with a view toward
public disclosure. The projections were based on numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to interest rates and general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such projections.
Set forth below is a brief summary of the analyses conducted by Wedbush
Morgan in connection with its written Fairness Opinion dated January 14, 1997.
Wedbush Morgan used substantially the same type of analysis in connection with
providing the Board of the Company with its oral opinion on October 31, 1996.
Such summary does not purport to be a complete description of Wedbush Morgan's
analyses. Preparation of a fairness opinion is a complex process involving
subjective judgments and Wedbush Morgan believes that its analyses must be
considered as a whole. Selecting portions of such analyses and factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and processes underlying Wedbush Morgan's
opinion. In performing its analyses, Wedbush Morgan made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of the Company, Glendale Federal and Wedbush Morgan. Any estimates
contained in Wedbush Morgan's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of the values of companies do not purport to be appraisals
or necessarily reflect prices at which such companies or their securities may
actually be sold. Because such estimates are inherently subject to uncertainty,
neither the Company nor Wedbush Morgan assumes responsibility for their
accuracy.
Transaction Summary
Wedbush Morgan analyzed the Merger consideration of $18.25 in cash without
interest (the "Consideration") for each share of Company Common Stock and the
implied total transaction value of $62,993,799 (based on 3,451,715 shares of
Company Common Stock). Wedbush Morgan noted that the Merger Consideration of
$18.25 per share represented a multiple of 16.9x 1996 projected earnings per
share (based on year ended December 31, 1996 earnings projected by management of
the Company of $1.08 per share), and a multiple of 1.96x book value per share
and 1.98x tangible book value per share, in each case at September 30, 1996.
Wedbush Morgan also noted that the Merger Consideration represented a premium of
12.3% to the $16.25 per share closing price of Company Common Stock on the
trading day prior to Wedbush Morgan's presentation to the Company's Board of
Directors (October 30, 1996), and a premium of 30.4% to the $14.00 per share
closing price of Company Common Stock one month prior thereto (September 30,
1996).
6
<PAGE> 14
Stock Trading History
Wedbush Morgan examined the historic trading prices and volume of the
Company's Common Stock, the relationship between the movements in the prices of
the Company's Common Stock to movements in certain indices, including the
Standard and Poor's 500 Index, the Standard and Poor's Regional Bank Index, and
a composite group of publicly traded banks in geographic proximity and of
similar asset size. This analysis showed that the closing price of the Company's
Common Stock was between $6.35 and $17.81 for the final trading day of each week
from January 13, 1995 to January 10, 1997. The average weekly trading volume for
this period was 14,875 shares, with a volume ranging from 125 shares to 109,700
shares traded. During the same period, on a relative performance basis (index
price to beginning of period) the Company's Common Stock overperformed the
Standard and Poor's 500 Index by 71%, overperformed the Standard and Poor's
Regional Bank Index by 44%, and overperformed the comparison composite index by
36%.
Analysis of Selected Publicly Traded Companies
Using publicly available information, Wedbush Morgan compared selected
financial data of the Company with similar data of selected publicly traded bank
holding companies and banks engaged in businesses considered by Wedbush Morgan
to be appropriate for comparison with those of the Company. Although such
companies and banks were considered similar to the Company, none of such
companies has the same management, makeup, size or combination of business as
the Company.
Wedbush Morgan considered the following bank holding companies and banks
("the Comparison Companies") appropriate for comparison to the Company: Bank of
Commerce, Bank of Los Angeles, Bank of Yorba Linda, Capital Corp of the West,
California Independent Bancorp, Civic BanCorp, California State Bank, CU
Bancorp, Desert Community Bank, Foothill Independent Bancorp, FP Bancorp, Inc.,
First Regional Bancorp, Greater Bay Bancorp, Professional Bancorp, North County
Bancorp, Orange National Bancorp, Pacific Bank, N.A., Redwood Empire Bancorp, SC
Bancorp, SJNB Financial Corporation, Santa Monica Bank, SierraWest Bancorp, and
TriCo Bancshares.
For each of the Comparison Companies, Wedbush Morgan analyzed the market
price per share on January 13, 1997 of such companies as a multiple of: (i)
publicly reported latest twelve months earnings per share, which yielded a
median multiple of 13.42x; (ii) estimated earnings per share for the years ended
December 31, 1996 and 1997 (based upon a composite of research analysts'
estimates as reported by the Institutional Brokers Estimate Service for each of
the Comparison Companies and, with respect to 1996 estimated earnings only,
management projections for the Company), which yielded a median multiple of
14.35x for 1996, and of 11.94x for 1997; (iii) latest publicly reported book
value of shareholders' equity, which yielded a median multiple of 1.48x; and
(iv) latest publicly reported tangible book value of shareholders' equity, which
yielded a median multiple of 1.59x. Wedbush Morgan applied the above five median
multiples, respectively, to the Company's latest publicly reported earnings per
share for the last twelve months of $1.08, to an estimate of the Company's 1996
earnings per share (provided by management) of $1.08, to an estimate of the
Company's 1997 earnings per share (provided by Wedbush Morgan) of $1.21, to the
Company's latest publicly reported book value of $9.33 per share, and to the
Company's latest publicly reported tangible book value of $9.24 per share.
Wedbush Morgan's calculations yielded an implied equity valuation of from $13.77
to $15.50 per share of the Company's Common Stock.
Analysis of Selected Merger Transactions
Wedbush Morgan reviewed certain publicly available information regarding
selected merger and acquisition transactions (i) involving companies engaged in
similar businesses to the Company and located in the western United States, (ii)
announced between January 1, 1994 and January 13, 1997, and (iii) with a
transaction value of between $20 and $200 million. The selection of the
comparison transactions involved complex considerations and judgments concerning
similarities and differences in financial, operational, and other
characteristics of potentially comparable companies. None of the acquired
companies utilized in the selected merger and acquisition comparison evaluation
was identical to the Company and none of the transactions was identical to the
Merger.
7
<PAGE> 15
The transactions deemed appropriate for comparison (the "Comparison Merger
Transactions") involved the following sets of institutions: US Bancorp and
Business & Professional Bank; Dartmouth Capital and Eldorado Bancorp; Monarch
Bancorp and California Commercial Bancshares; Santa Barbara Bancorp and First
Valley Bank; City National Corporation and Riverside National Bank; Bank SinoPac
and Far East National Bank; City National Corporation and Ventura County
National Bancorp; Glacier Bancorp and Missoula Bancshares; Pacific Capital
Bancorp and South Valley Bancorp; FBOP Corporation and SDNB Financial
Corporation; Mid-Peninsula Bancorp and Cupertino National Bancorp; First
Interstate Bancsystem of Montana, Inc., First Interstate Bank of Montana, N.A.,
and First Interstate Bank of Wyoming, N.A.; Monarch Bancorp and Western Bank;
First Savings Bank of Washington and Inland Empire Bank; Darthmouth Capital and
Commerce Security Bank; Zions Bancorp and Southern Arizona Bancorp; InterWest
Bancorp and Central Bancorp; Home Interstate Bancorp and CU Bancorp; Washington
Mutual and Western Bank; City National Corporation and First Los Angeles Bank;
California State Bank and Landmark Bancorp; Washington Mutual and Enterprise
Bank; ValliCorp Holdings and El Capitan Bancshares; Commercial Bancorp and West
Coast Bancorp; First Banks, Inc. and CCB Bancorp Inc.; Comerica Inc. and
University Bank and Trust Company; Metrobank and Aktiv Bank Holding Company;
First Interstate Bancorp and Levy Bancorp, Inc.; Westamerica Bancorp and PV
Financial; West One Bancorp and National Security Bank; and ValliCorp Holdings
and Mineral King Bancorp.
For each of the Comparison Merger Transactions, Wedbush Morgan analyzed the
transaction's value as a multiple of (i) latest twelve month publicly reported
earnings, which yielded a median multiple of 16.24x, (ii) latest publicly
reported book value of shareholders' equity, which yielded a median multiple of
1.84x, and (iii) latest publicly reported tangible book value of shareholders'
equity, which yielded a median multiple of 1.89x. Wedbush Morgan applied the
above three median multiples, respectively, to the Company's latest publicly
reported earnings per share for the last twelve months of $1.08, to the
Company's latest publicly reported book value of $9.33 per share, and to the
Company's latest publicly reported tangible book value of $9.24 per share.
Wedbush Morgan's calculations yielded an implied equity valuation of from $17.19
to $17.54 per share of the Company's Common Stock.
Discounted Projected Future Value Analysis
Wedbush Morgan also analyzed the value of the Company utilizing a
discounted projected future value analysis. This analysis is based upon
historical data and trends, earnings estimates provided by management of the
Company for 1996, and certain projections made by Wedbush Morgan of the
Company's future performance for 1997 through 2001, among other things.
Using discounted projected future value analysis, Wedbush Morgan estimated
the future earnings streams that the Company would produce over the period from
January 1, 1997 through December 31, 2001. In so doing, Wedbush Morgan assumed
that the Company would perform in accordance with the projection model prepared
by Wedbush Morgan and discussed with management which analyzed historical
trends, current performance and other factors deemed appropriate by Wedbush
Morgan and which projected, for each year from 1997 to 2001, federal funds
interest income, security interest income, loan interest income, interest
expense, loan loss provisions, the exercise of certain options on the Company's
Common Stock, interest earning assets, non-interest earning assets, total
interest-bearing liabilities and total non-interest bearing liabilities, among
other things. Using this model, Wedbush Morgan estimated the future value of the
Company's Common Stock as of December 31, 2001 by applying multiples of from
1.3x to 1.5x to the Company's projected 2001 book value per share. Wedbush
Morgan discounted the projected future value at discount rates ranging from 12%
to 15%. The foregoing analysis indicated an implied present value reference
range of from $11.62 to $15.31 per share of the Company's Common Stock. Wedbush
Morgan also estimated the future value of the Company's Common Stock as of
December 31, 2001 by applying multiples of from 12x to 14x to the Company's
projected 2001 earnings per share. Wedbush Morgan discounted the projected
future value at discount rates ranging from 12% to 15%. The foregoing analysis
indicated an implied present value reference range of between $13.10 and $17.45
per share of the Company's Common Stock.
In determining the discount rates used in the projected future value
analysis of the Company, Wedbush Morgan noted, among other things, factors such
as inflation, prevailing market interest rates, the business risk
8
<PAGE> 16
inherent to the Company, and rates of return deemed achievable in comparable
investments. In determining the range of earnings per share multiples and book
value per share multiples used in the discounted projected future value analysis
of the Company, Wedbush Morgan noted, among other things, the multiples at which
the Company's Common Stock historically traded, the multiples at which public
companies Wedbush Morgan deemed appropriate for comparison to the Company
historically traded, and the multiples observed in historical business
combination transactions which Wedbush Morgan deemed relevant.
Miscellaneous
Pursuant to the terms of the Wedbush Morgan Agreement, the Company will pay
Wedbush Morgan a transaction fee in connection with the Merger, a substantial
portion of which is contingent upon the consummation of the Merger. Under the
terms of the Wedbush Morgan Agreement, the Company will pay Wedbush Morgan a
transaction fee equal to 1.0% of the aggregate purchase price paid in the
transaction for the Common Stock outstanding, or approximately $629,938, all of
which is payable upon the closing of the Merger. In addition, the Company has
paid Wedbush Morgan a fee of $125,000 for rendering the Fairness Opinion. The
Company has also agreed to reimburse Wedbush Morgan for its reasonable
out-of-pocket expenses incurred in connection with its engagement and to
indemnify Wedbush Morgan and its employees, agents, officers, attorneys,
shareholders and any person who controls or is deemed to control Wedbush Morgan,
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of business, Wedbush Morgan and its affiliates may
actively trade the equity securities of the Company and of Glendale Federal for
their own account and for accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. Wedbush Morgan in the
past has provided financial advisory and investment banking services to the
Company unrelated to the Merger, and has received compensation for the rendering
of such services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, Glendale Federal has agreed to make
severance payments to certain employees of the Company, including certain
officers, whose employment is involuntarily terminated within one year after the
Effective Date.
In addition, David Hender, who is a director, President and Chief Executive
Officer of the Company, and Glendale Federal have entered into a non-competition
and consulting agreement which will become effective upon the consummation of
the Merger. Under the agreement, Mr. Hender has agreed not to compete with
Glendale Federal in the banking business within specified geographic regions for
a period of three years after the Effective Date (as defined below) and has
agreed to render consulting services to Glendale Federal for a one-year period
after the Effective Date. Total payments to Mr. Hender for the non-competition
agreement and consulting services will be $500,000.
Under the terms of the Merger Agreement, the Company will purchase prior to
the Effective Date a directors' and officers' insurance policy that will remain
in effect for a period of three years after the Effective Date and will cover
acts or omissions of the Company's directors and officers prior to the Effective
Date.
MANAGEMENT OF THE COMPANY AFTER THE MERGER
On the Effective Date, the directors and officers of Glendale Federal's
wholly-owned subsidiary (the "Merger Sub") immediately prior thereto shall
become the directors and officers of the surviving corporation.
TERMS OF THE MERGER
THE DETAILED TERMS OF AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE
MERGER AGREEMENT, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX I. THE
DESCRIPTION IN THIS PROXY STATEMENT OF THE TERMS OF THE MERGER AGREEMENT IS
QUALIFIED BY, AND MADE SUBJECT TO, THE MORE COMPLETE INFORMATION SET FORTH IN
THE MERGER AGREEMENT.
9
<PAGE> 17
EFFECTIVE DATE OF THE MERGER
The Merger will become effective upon the filing of a properly executed and
certified copy of the Agreement of Merger which is attached as Exhibit A to the
Merger Agreement with the California Secretary of State in accordance with the
applicable provisions of the California General Corporation Law; provided that,
the Agreement of Merger may provide that the Merger shall become effective at a
later date or time designated by Glendale Federal and the Company. The date and
time at which such effectiveness occurs is referred to as the "Effective Date."
It is anticipated that such filing will be made promptly after the
requisite approval of shareholders of the Company has been obtained, all
regulatory approvals have been received on terms as required by the Merger
Agreement and all other conditions to the Merger have been satisfied or waived.
Each of the parties to the Merger Agreement will have certain rights to
terminate the Merger Agreement in the event that the Merger is not consummated
on or before April 30, 1997. See "Terms of the Merger -- Termination of the
Merger Agreement." Although it is anticipated that the Merger Agreement will be
filed and the Effective Date will occur on or before April 30, 1997, there can
be no assurance that there will not be a delay between the date of the Special
Meeting and the Effective Date, that the conditions to the Merger will be
satisfied or waived or that the Merger will occur. See "Terms of the
Merger -- Conditions to the Merger."
EFFECT OF THE MERGER
On the Effective Date, each share of Common Stock issued and outstanding
(other than shares owned by the Company or its subsidiaries as treasury stock
and shares as to which statutory appraisal rights have be perfected
(collectively, the "Excluded Shares")), will be converted into the right to
receive the Merger Consideration, without interest. Upon consummation of the
Merger, shareholders will cease to have any further ownership interest in the
Company.
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
the Company at the effective time of the Merger, and the Company will thereupon
be the surviving corporation (the "Surviving Corporation") pursuant to the terms
and conditions of the Merger Agreement. The Company as the Surviving Corporation
will succeed to all the assets, rights, properties, obligations and liabilities
of Merger Sub and shall retain all of the assets, rights, properties,
obligations and liabilities that the Company held or to which the Company was
subject immediately prior to the Effective Date, all as provided in the
applicable provisions of the California General Corporation Law. The Surviving
Corporation will become a wholly-owned subsidiary of Glendale Federal. Merger
Sub will cease to exist following the Effective Date. Glendale Federal has
advised the Company that it intends to merge the Company into Glendale Federal
after consummation of the Merger.
PAYMENT FOR SHARES; EXCHANGE AGENT
Upon the consummation of the Merger, each issued and outstanding share of
Common Stock (other than the Excluded Shares) will be deemed for all purposes to
represent only the right of the holders thereof to receive the Merger
Consideration. An independent bank or trust company selected by Glendale Federal
and approved by the Company will act as exchange agent (the "Exchange Agent") in
order to facilitate the payment in exchange for certificates theretofore
representing shares of Common Stock.
Instructions for the surrender of stock certificates, together with a
letter of transmittal to be used for this purpose, will be mailed to
shareholders as promptly as practicable, but in no event later than five
business days, after the Effective Date. Shareholders should surrender
certificates for shares of Common Stock only with a letter of transmittal.
Glendale Federal will make appropriate provisions with the Exchange Agent to
enable shareholders to deliver certificates to the Exchange Agent in person
commencing on or not later than the business day following the Effective Date.
Each holder will have the choice of delivering the stock certificate or
certificates representing his or her shares of Common Stock and related
documentation in person or of mailing such stock certificate or certificates and
related documentation to the Exchange Agent, in either case for payment, as
promptly as practicable, by return mail. SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
10
<PAGE> 18
Upon the proper surrender of a certificate or certificates, together with a
properly completed and duly executed letter of transmittal, to the Exchange
Agent, the holder of such certificate or certificates will be entitled to
receive in exchange therefor a check (or in the case of a shareholder owning
20,000 or more shares of Company Common Stock, a wire transfer to an account
specified by the shareholder) in an amount equal to the product determined by
multiplying the Merger Consideration by the number of shares of Common Stock
represented by such stock certificate or certificates. No interest will be paid
or accrued on the Merger Consideration.
If any payment for shares of Common Stock is to be made in a name other
than that in which the certificate for such shares surrendered is registered on
the stock transfer books of the Company as of the Effective Date, such payment
will be made only if each certificate representing such Company Common Stock is
presented to the Exchange Agent, accompanied by documents sufficient, in the
judgment of Glendale Federal, (i) to evidence and effect such transfer and (ii)
to evidence that all applicable stock transfer taxes have been paid.
At or prior to the Effective Date, Glendale Federal will deposit cash with
the Exchange Agent in the amount equal to the aggregate Merger Consideration to
be paid to the holders of the shares of Company Common Stock pursuant to Section
1.2 of the Merger Agreement.
TREATMENT OF STOCK OPTIONS
As of the Record Date, options to purchase approximately 44,248 shares of
Common Stock granted by the Company pursuant to Company employee stock option
plans were outstanding at exercise prices ranging from $9.40 to $12.95 per
share. Pursuant to the terms of the Merger Agreement, the Company will offer to
purchase each stock option that has not theretofore been exercised or
terminated, whether or not then otherwise fully vested or fully exercisable, at
a price equal to (i) the difference between (x) the per share amount of the
Merger Consideration and (y) the per share exercise price applicable to such
options multiplied by (ii) the number of such shares of Common Stock then
subject to such option.
The Company will make the payments required to be made to holders of
options immediately prior to the Effective Date. Any such option not purchased
by the Company pursuant to such offer and not exercised prior to the Effective
Date will expire on the Effective Date.
REPRESENTATIONS AND WARRANTIES
The Company and Glendale Federal have made certain customary
representations and warranties in the Merger Agreement, including
representations and warranties relating to, among other things (i) organization
and similar corporate matters, (ii) the authorization, execution, delivery and
performance of the Merger Agreement and other matters relating to its
enforceability, and (iii) the absence of any undisclosed consents, approvals or
authorizations required for the execution of the Merger Agreement and the
consummation of the transactions contemplated thereby.
The Company has also made certain customary representations and warranties
relating to, among other things (i) the absence of material adverse changes and
undisclosed liabilities, (ii) the Company's capital structure and subsidiary,
(iii) the Company's compliance with the reporting requirements of the Securities
and Exchange Commission and the accuracy of filings made pursuant thereto, (iv)
the accuracy and preparation of certain financial statements of the Company, and
(v) other matters relating to the conduct of the Company's business including,
among other things, the Company's employees, benefit plans, litigation,
compliance with environmental laws, payment of taxes, absence of defaults, and
other contracts.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of certain
conditions set forth in the Merger Agreement, including, but not limited to (i)
the approval of the Merger and the Merger Agreement by shareholders of the
Company, (ii) the receipt of all necessary regulatory approvals, consents and
waivers, without the imposition of any conditions or requirements materially
adverse to Glendale Federal, and the
11
<PAGE> 19
expiration of all applicable statutory waiting periods including, but not
limited to, approval of the Merger by the Office of Thrift Supervision ("OTS")
(see "Terms of the Merger -- Regulatory Approvals"), (iii) no temporary
restraining order, injunction or other order preventing the Merger having been
issued by any court or other competent governmental or regulatory authority and
remaining in effect, and there being no litigation pending that seeks the
issuance thereof or the imposition of damages against Glendale Federal, Merger
Sub or the Company if the Merger is consummated which has a reasonable
probability of resulting in such order, injunction or damages, and (iv) no
statute, rule or regulation having been enacted that would prohibit or make the
consummation of the Merger illegal.
In addition, the obligation of Glendale Federal and Merger Sub to
consummate the Merger is subject to the satisfaction or waiver of certain
further conditions, which include, but are not limited to (i) the
representations and warranties of the Company set forth in the Merger Agreement
being true and correct as of the date of the Merger Agreement and as of the
Effective Date as though made on and as of the Effective Date (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date), with only such exceptions as are not, individually
or in the aggregate, materially adverse, (ii) the Company having performed in
all material respects all obligations required to be performed prior to the
Effective Date, (iii) Glendale Federal having received certificates signed by
the Chief Executive Officer and Chief Financial Officer of the Company dated the
Effective Date, with respect to the satisfaction of the requirements in (i) and
(ii), (iv) counsel to the Company having delivered an opinion to Glendale
Federal with respect to certain matters, including, without limitation, the
organization and good standing of the Company, the execution and delivery of the
Merger Agreement and the legal effect of the Merger, (v) no material adverse
change in the financial condition, business or assets of the Company and its
subsidiary taken as a whole having occurred since December 31, 1995 and (vi)
dissenting shareholders having exercised dissenters' rights with respect to no
more than ten percent of the outstanding Common Stock.
The obligation of the Company to consummate the Merger is subject to the
satisfaction or waiver of certain further conditions, which include, but are not
limited to (i) the representations, warranties and covenants of Glendale Federal
being true and correct in all material respects as of the date of the Merger
Agreement and as of the Effective Date as though made on and as of the Effective
Date (or on the date when made in the case of any representation or warranty
which specifically relates to an earlier date), with only such exceptions as are
not, individually or in the aggregate, materially adverse, (ii) Glendale Federal
having performed, in all material respects, all obligations required to be
performed by it prior to the Effective Date, (iii) the Company having received
certificates signed by the Chief Executive Officer and the Chief Financial
Officer of Glendale Federal, dated the Effective Date, to the foregoing effect,
and (iv) the Company having received an opinion, dated the Effective Date, from
counsel to Glendale Federal, to the effect that all regulatory approvals,
consents or waivers of governmental authorities that are required to be obtained
by Glendale Federal under federal law in order to permit the consummation by it
of the transactions contemplated by the Merger Agreement having been obtained,
and all filings required to be made by Glendale Federal under federal law in
order to permit the consummation by it of the transactions contemplated by the
Merger Agreement have been made.
RESTRICTIONS ON THE COMPANY
The shareholders of the Company will retain their equity interest in the
Company until the Effective Date. Pursuant to the Merger Agreement, each of the
Company and the Bank are required to refrain from taking certain actions without
the consent of Glendale Federal (unless such actions are contemplated by the
Merger Agreement), including, but not limited to (i) taking certain actions
outside the ordinary course of the Company's business, (ii) declaring or paying
dividends on the Common Stock or issuing or acquiring any shares of or rights
relating to the Company's capital stock, (iii) amending its Articles of
Incorporation or Bylaws or adopting any plan of liquidation, whether formal or
informal, (iv) making any acquisition or disposition of any business, entity or
assets that would be material to the Company, (v) incurring any additional
obligation or liability other than in the ordinary course of business and
consistent with past practice, (vi) making any change to compensation payable to
officers, directors and employees, under any benefit plan or otherwise (other
than pursuant to existing arrangements in the ordinary course of business), or
entering into
12
<PAGE> 20
any new employment agreements or arrangements, or (vii) making any material
change in the conduct of the business or operations of the Company.
The Merger Agreement also provides that the Company and the Bank will not,
without the consent of Glendale Federal, knowingly (i) solicit, initiate or
further the submission of proposals from, or enter into any agreement with, any
person, group or entity relating to the acquisition of all or a material portion
of the assets of or any equity interest in the Company or any merger,
consolidation or business combination with the Company, (ii) except to the
extent required by fiduciary obligations under applicable law as advised by
counsel, participate in any discussions or negotiations regarding, or furnish
any confidential information with respect to, such a transaction, or (iii)
otherwise knowingly cooperate with, assist or facilitate any attempt by a third
party to engage in such a transaction (the "Nonsolicitation Obligation"). The
Company has agreed in the Merger Agreement to notify Glendale Federal promptly
of the terms and conditions of any third party offer or proposal.
ADDITIONAL AGREEMENTS
In the Merger Agreement the Company has made certain additional covenants
to Glendale Federal. The Company has agreed, among other things (i) to afford
Glendale Federal reasonable access to the Company's properties, books,
contracts, commitments, records, officers, employees, accountants, counsel and
other representatives, to disclose to Glendale Federal such documents relating
to the Company as Glendale Federal may reasonably request, (ii) to submit the
Merger Agreement to its shareholders for approval, to hold a special meeting to
act on the Merger Agreement and, subject to the fiduciary obligations of the
Board of Directors, to recommend the approval of the Merger Agreement to its
shareholders; (iii) to make certain filings necessary for consummation of the
Merger, and (iv) to use all reasonable efforts to cause all things necessary,
proper and advisable for the consummation of the Merger to occur.
With respect to the matters contained in clauses (iii) and (iv) of the
preceding paragraph, Glendale Federal has made reciprocal covenants to the
Company. In addition, Glendale Federal has agreed, among other things, to cause
certain insurance policies to remain in effect following the Merger, as more
fully described in "The Merger -- Interests of Certain Persons in the Merger."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and abandoned prior to the Effective
Time, either before or after its approval by the Company's shareholders: (i) by
mutual consent of the Company and Glendale Federal, (ii) by each of the Company
or Glendale Federal, if its board of directors so determines by vote of a
majority of the members of its entire board, in event of (x) the failure of the
shareholders of the Company to approve the Merger Agreement, or (y) a material
breach of the Merger Agreement by the other party hereto of any material
representation, warranty, covenant or agreement contained herein which is not
cured or not curable within 30 days after written notice of such breach is given
to the party committing such breach by the other party, (iii) by the Company or
Glendale Federal by written notice to the other party if either (x) all
regulatory approvals, consents and waivers shall not have been obtained by April
30, 1997; or (y) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by the Merger Agreement, or (iv)
by the Company or Glendale Federal, if its board of directors so determines by
vote of a majority of the members of its entire board, in the event that the
Merger is not consummated by April 30, 1997, unless the failure to so consummate
by such time is due to the material breach of any representation, warranty or
covenant contained in the Merger Agreement by the party seeking to terminate.
CANCELLATION FEE; EXPENSES
The Merger Agreement provides that if it is terminated pursuant to its
terms, other than with respect to certain specific terminations, the Company
will promptly pay Glendale Federal a cancellation fee of $1.9 million in the
event that any of the following occurs within 12 months after the date of such
termination: (i) any person or entity (other than Glendale Federal) shall become
the beneficial owner of 20% or more of
13
<PAGE> 21
the outstanding shares of the Common Stock, (ii) the Board of Directors of the
Company shall fail to recommend, or shall have withdrawn its recommendation, to
the Company's shareholders that they vote to approve the Merger Agreement and
the Merger, or (iii) the Company or the Bank recommends or proposes, or publicly
announces an intention to recommend or propose, enters into, or approves an
agreement with any person or entity (other than Glendale Federal) to (x) effect
a merger, consolidation or similar transaction involving either the Company or
the Bank, (y) sell, lease or otherwise dispose of assets of the Company or the
Bank representing 15% or more of the consolidated assets of the Company or the
Bank, or (z) issue, sell or otherwise dispose of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of the Company or the Bank.
The Merger Agreement provides that each party thereto shall separately bear
its own expenses incurred in the negotiation and performance of the Merger
Agreement.
REGULATORY APPROVALS
The Merger requires approvals from, or notices to, certain federal and
state governmental bodies and agencies (collectively, "Regulatory Approvals").
The Merger requires the approval of the OTS. As of the date of this Proxy
Statement, the OTS application has been filed and all other required regulatory
filings are expected to be made shortly. While it is anticipated that all
necessary approvals will be obtained in the first quarter of 1997, no approvals
have yet been obtained and there can be no assurance that all Regulatory
Approvals will be obtained in a timely manner or at all.
RIGHTS OF DISSENTING SHAREHOLDERS OF THE COMPANY
The following is a brief summary of the rights of dissenting shareholders,
does not purport to be a complete statement thereof and is qualified in its
entirety by reference to the applicable statutory provisions of the California
General Corporation Law which are set forth in Annex III hereto.
Record holders of the Common Stock will have the right to dissent with
respect to the Merger and, subject to certain conditions, receive a cash payment
equal to the fair market value of their shares under the California General
Corporation Law, which value may be less or more than or the same as the Merger
Consideration. In order to perfect his or her dissenter's rights, a record
holder of the Common Stock must (i) vote his or her dissenting shares against
the Merger, (ii) make written demand upon the Company not later than the date of
the Special Meeting, February 26, 1997, to purchase his or her dissenting
shares, (iii) submit the stock certificates representing his or her dissenting
shares to the Company or its transfer agent, for notation that they represent
dissenting shares, within thirty days after the mailing by the Company to
shareholders who voted against the Merger of a notice stating that the Merger
has been approved by the shareholders, and (iv) if the Company and the
shareholder are unable to reach agreement on the price to be paid for the
dissenting shares, file an action in court within six months after the date on
which the notice stating that the Merger has been approved by the shareholders
is mailed to the Company's shareholders who voted against the Merger, all as
more particularly described below. Failure to take any of the required steps
described herein may result in a loss of such dissenters' rights. If demands for
payment referred to in clause (ii) above are not filed with respect to five
percent or more of the outstanding shares of the Common Stock, no shareholder of
the Company, other than a holder of shares which are restricted as to transfer,
will have dissenters' rights, even if all of the above conditions are satisfied.
Dissenters' rights cannot be validly exercised by persons other than the
record holders of the Common Stock, regardless of the beneficial ownership
thereof. Persons who are beneficial owners of the Common Stock but whose shares
are held of record by another person, such as a broker, a bank or a nominee,
should instruct the record holder to follow the procedure outlined below if they
wish to dissent from the Merger with respect to any or all of their shares.
Under Sections 1300 to 1312 of the California General Corporation Law, any
shareholder of record of the Company who votes any or all of his or her shares
against the Merger and who intends to exercise his or her dissenter's rights
must, on or before the date of the Special Meeting, February 26, 1997, submit to
the Company at its principal executive offices, TransWorld Bank Plaza, 15233
Ventura Boulevard, Sherman Oaks,
14
<PAGE> 22
California 91403, Attention: Secretary, a written demand that the Company
purchase for cash some or all of his or her shares voted against or not in favor
of the Merger, which demand shall state the number of shares which he or she
demands that the Company purchase and the amount which the shareholder claims to
be the fair market value of those shares as of November 1, 1996, the day before
the first announcement of the terms of the proposed Merger, excluding any
appreciation or depreciation in consequence of the proposed Merger.
Dissenters' rights may not be perfected with respect to any shares unless
such shares are voted against the Merger. A record shareholder may vote part of
the shares which he or she is entitled to vote in favor of the Merger without
jeopardizing appraisal rights as to shares voted against the Merger. Voting
against the Merger will not of itself, absent compliance with the other
provisions summarized herein, satisfy the requirements of the California General
Corporation Law for exercise of dissenters' rights.
If any shareholder of the Company has a right to require the Company to
purchase his or her shares for cash under the provisions of the California
General Corporation Law, the Company will mail within ten days after shareholder
approval of the Merger to each such shareholder a notice of such shareholder
approval stating the price determined by the Company to represent the fair
market value of the dissenting shares and a brief description of the procedure
to be followed if the shareholder desires to exercise his or her dissenter's
right.
A dissenting shareholder must submit to the Company at the address set
forth above, within thirty days after the Company mails notice of shareholder
approval of the Merger to him or her, certificates representing the dissenting
shares which he or she demands that the Company purchase, to be stamped or
endorsed with a statement that the shares are dissenting shares or to be
exchanged for certificates of appropriate denomination so stamped or endorsed.
The notice of shareholder approval of the Merger will specify the date by which
the submission of certificates for endorsement must be made to the Company, and
a submission made after such date will not be effective for any purpose. No
other notices will be given by the Company of any dates upon which any
shareholder action is required to exercise dissenters' rights.
If the Company and a dissenting shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the Company, upon
surrender of the certificates evidencing such shares, will make payment of that
amount (plus interest thereon from the date of such agreement) within thirty
days after the date of such agreement or within thirty days after the
satisfaction of any statutory or contractual conditions, whichever is later. Any
agreement fixing the fair market value of any dissenting shares between a
dissenting shareholder and the Company must be filed with the Secretary of the
Company.
If the Company denies that the shares are dissenting shares, or the Company
and the dissenting shareholder fail to agree on the fair market value of the
shares, the dissenting shareholder may, within six months after the date on
which the notice of shareholder approval of the Merger was mailed to the
shareholder, but not thereafter, file a complaint in the Superior Court of the
County of Los Angeles, State of California, requesting that the Court determine
whether the shares are dissenting shares and the fair market value of such
dissenting shares. The costs of the action will be assessed or apportioned as
the Court considers equitable, but, if the appraised fair market value is
determined to exceed the price offered to the shareholder by the Company by more
than 25%, the Company will be required to pay the costs of the action and may be
required to pay counsel fees.
A dissenting shareholder may not withdraw his or her dissent or demand for
payment without the consent of the Company by its Board of Directors. The right
of dissenting shareholders to demand payment terminates if, among other things,
the Merger is abandoned or if the shares are transferred prior to submission for
endorsement as dissenting shares.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary is a general discussion of certain anticipated
federal income tax consequences of the Merger to shareholders. The summary
assumes that shareholders are individuals or corporations who do not have
special tax status (e.g., nonresident aliens, individual retirement accounts,
tax-exempt organizations). The discussion is based upon existing federal tax law
and does not address any state, local or foreign tax
15
<PAGE> 23
consequences of the Merger. The discussion also does not describe certain
special tax rules that may apply to shareholders who acquired their stock
pursuant to incentive stock options or other stock compensation arrangements.
The exchange by shareholders of their shares of Common Stock for the Merger
Consideration pursuant to the Merger will be a taxable transaction for federal
income tax purposes. A shareholder whose shares are exchanged generally will
recognize gain or loss equal to the difference between the amount of cash
received pursuant to the Merger and the tax basis of the shares exchanged
therefor. Such gain or loss will constitute capital gain or loss if the shares
exchanged in the Merger were held as capital assets. Capital gain or loss will
constitute long-term capital gain or loss if the shareholder's holding period
with respect to the shares is greater than one year and otherwise will
constitute short-term capital gain or loss.
Under current federal income tax law, the highest marginal tax rate
applicable to ordinary income of individuals is 39.6% and the highest rate
applicable to corporations is 35%. Net capital gains (the excess of net long
term capital gains over net short term capital losses) currently are taxed at
28% for individuals and the regular corporate rates for corporations.
Individuals may use up to $3,000 of net capital losses to offset ordinary
income.
Compensatory stock option holders whose options are canceled in connection
with the Merger in exchange for a cash payment will recognize ordinary
compensation income in the amount of such cash payment. The Company will be
required to withhold applicable federal and state taxes from such payment.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER. THE
FOREGOING SUMMARY IS INTENDED AS A GENERAL DESCRIPTION ONLY OF CERTAIN MATERIAL
TAX CONSEQUENCES AND DOES NOT CONSIDER THE PARTICULAR CIRCUMSTANCES OF EACH
SHAREHOLDER.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for under the "purchase" method whereby the
purchase price paid for Common Stock will be allocated based upon the fair value
of the assets acquired and the liabilities assumed pursuant to the Merger.
16
<PAGE> 24
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock trades on the NASDAQ under the symbol "TWBC." At
January 14, 1997, there were 1,578 record holders of Common Stock. The following
table sets forth, for the periods indicated, the high and low sale prices per
share of the Common Stock, as reported by the NASDAQ, as adjusted for a
two-for-one stock split on March 7, 1995 and a five-for-four stock split on
March 15, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Calendar 1997
First Quarter (through January 14, 1997)......... $18.00 $17.65
Calendar 1996
First Quarter.................................... 13.00 11.40
Second Quarter................................... 15.25 11.50
Third Quarter.................................... 15.25 12.50
Fourth Quarter................................... 18.00 13.75
Calendar 1995
First Quarter.................................... 9.00 6.10
Second Quarter................................... 10.80 8.40
Third Quarter.................................... 11.00 10.00
Fourth Quarter................................... 12.40 10.40
</TABLE>
On November 1, the last trading day prior to the public announcement by the
Company of the execution of the Merger Agreement, the last reported sale price
of the Common Stock on the NASDAQ was $15.75 per share. The last reported sale
price of the Common Stock on the NASDAQ on January 14, 1997, the last full
trading day prior to the printing of this Proxy Statement, was $17.69 per share.
Shareholders are urged to obtain current market quotations for the Common Stock.
The Company has never paid any cash dividends and does not intend to do so
in the near future, preferring to retain earnings for expansion and development
of the Company's business. The Merger Agreement prevents the Company from
declaring or paying any dividend or any other form of cash, stock or property
distribution without Glendale Federal's consent while the Merger Agreement
remains in effect.
The Transfer Agent and Registrar for Company's Common Stock is ChaseMellon
Shareholder Services, Los Angeles, California.
17
<PAGE> 25
SELECTED FINANCIAL DATA OF THE COMPANY
The following table summarizes certain selected financial data of the
Company for each of the five fiscal years in the period ended December 31, 1995
and for the nine months ended September 30, 1996 and 1995. This information
should be read in conjunction with the more detailed consolidated financial
information included in the Company's Annual Report on Form 10-K with respect to
the year ended December 31, 1995 (the "Annual Report") and the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996 and September 30, 1996, which are incorporated by reference herein. No cash
dividends were paid on the Common Stock during the periods indicated below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1995 1994 1993 1992 1991 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................. $ 26,188 $ 21,161 $ 17,961 $ 18,061 $ 21,527 $ 19,219 $ 19,961
Interest expense................ (7,792) (5,312) (5,083) (5,762) (8,722) (6,359) (5,929)
--------- --------- --------- --------- --------- --------- ---------
Net interest income......... $ 18,396 $ 15,849 $ 12,878 $ 12,299 $ 12,805 $ 12,860 $ 14,032
Noninterest income.............. 4,088 3,878 4,823 4,606 3,791 3,688 2,995
Provision for credit losses..... (830) (921) (1,711) (745) (1,050) (345) (665)
Noninterest expense............. (15,195) (14,856) (14,462) (13,403) (13,002) (11,789) (11,444)
Income before income tax........ 6,459 3,950 1,528 2,757 2,544 4,414 4,918
Income tax...................... (2,448) (1,381) (337) (856) (754) (1,623) (1,861)
Income before accounting
change........................ 4,011 2,569 1,191 1,901 1,790 2,791 3,057
Cumulative affect of accounting
change........................ -- -- 190 -- -- -- --
Net income...................... $ 4,011 $ 2,569 $ 1,381 $ 1,901 $ 1,790 $ 2,791 $ 3,057
========= ========= ========= ========= ========= ========= =========
Weighted average shares
outstanding................... 3,448,037 3,417,098 3,417,098 3,417,098 3,416,324 3,451,465 3,446,882
Net income per share before
accounting change............. $ 1.16 $ 0.75 $ 0.35 $ 0.56 $ 0.52 $ 0.81 $ 0.89
Cumulative effect of accounting
change........................ -- -- 0.05 -- -- -- --
Net income per share............ $ 1.16 $ 0.75 $ 0.40 $ 0.56 $ 0.52 $ 0.81 $ 0.89
========= ========= ========= ========= ========= ========= =========
ROA............................. 1.08% .73% .45% .76% .76% 1.01% 1.07%
ROE............................. 14.53% 10.74% 6.19% 9.21% 9.51% 12.16% 15.10%
At Period End: (in thousands)
Total Assets.................... $ 359,924 $ 371,152 $ 313,386 $ 251,218 $ 253,470 $ 375,288 $ 382,041
Deposits........................ $ 318,695 $ 341,585 $ 285,997 $ 224,018 $ 228,135 $ 337,776 $ 313,584
Loans and Leases................ $ 128,870 $ 125,209 $ 127,896 $ 130,587 $ 150,460 $ 136,426 $ 126,777
Capital lease................... $ 113 $ 120 $ 125 $ 129 $ 132 $ 107 $ 115
Long-term debt.................. $ -- $ -- $ -- $ -- $ 250 $ -- $ --
Stockholders' equity............ $ 29,700 $ 25,300 $ 22,975 $ 21,476 $ 19,585 $ 32,207 $ 28,715
Shares outstanding.............. 3,451,462 3,417,098 3,417,098 3,417,098 3,417,098 3,451,465 3,451,465
</TABLE>
18
<PAGE> 26
CERTAIN INFORMATION CONCERNING THE COMPANY
GENERAL
The Company is a California bank holding company organized in 1982 which
acquired, in October 1982 under a Plan of Reorganization and Merger, TransWorld
Bank (the "Bank"). Since the Bank continues to be the only holding of the
Company, the discussion below 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, Valencia, Woodland Hills,
Northridge, Thousand Oaks and Camarillo. All of the Bank's services are offered
at each office. Presently, the Company has no plans to go into any other of the
permissible activities of a holding company.
COMPETITION
The Bank faces strong competition in attracting deposits and loans. The
Bank's principal competition for deposits comes from other banks, savings and
loan associations, credit unions, and money market funds. Additional competition
for deposits during high interest rate periods comes from government and private
issuers of debt obligations and other investment alternatives for depositors.
The Bank's principal competitors for loans are other commercial banks, savings
and loan associations, insurance companies, credit unions, finance companies,
savings banks and credit companies such as GMAC, Ford and Chrysler Credit.
The Los Angeles County area contains offices of many of the nation's
largest banks and savings and loan associations, each of which has greater
financial (and other) resources than does the Bank. Among the advantages such
major banks have over the Bank is the ability to conduct large advertising
campaigns and to allocate their investment assets, including loans, to regions
of highest demand and yield. These institutions have higher lending limits than
does the Bank and generally perform certain functions, including trust,
investment and international banking services, which the Bank is not equipped to
offer. The general strategy of the Bank is to compete with these major and
regional banks by focusing on the small and medium-sized business and
professional segments of the market and providing more personalized service. The
Bank also competes with other banks of comparable size in the Los Angeles area.
The Bank's services are generally similar to those of banks of comparable size,
i.e., money market accounts, certificates of deposit, checking, savings plans,
consumer, real estate and commercial lending; most comparable banks do not offer
trust services. Competition with banks of comparable size revolves mainly around
service, pricing of loans, and on interest rates paid for deposits.
SUPERVISION AND REGULATION
The Company is subject to regulation and supervision by the Federal Reserve
Board ("FRB"). The Company 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 Securities
Exchange Act of 1934, as amended (the "1934 Act").
The Bank is subject to regulations, supervision and regular examination by
the California State Banking Department and the Federal Deposit Insurance
Corporation ("FDIC"), which insures the Bank's deposits. 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
19
<PAGE> 27
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.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company have been filed with the Securities
and Exchange Commission (the "Commission") and are incorporated by reference
herein: (i) the Company's Annual Report on Form 10-K for the year ended December
31, 1995; (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996; and (iii) the Company's Current
Report on Form 8-K, dated November 1, 1996, as filed with the Commission on
November 15, 1996.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents with the Commission. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement. The Company will provide, upon
written or oral request, without charge, to each person to whom a Proxy
Statement is delivered a copy of any and all of the information that is
incorporated herein by reference (not including exhibits to the information that
is incorporated by reference unless such exhibits are specifically incorporated
by reference into the information this Proxy Statement incorporates). Requests
for such information should be directed to Elizabeth Nielsen, Secretary,
TransWorld Bancorp, 15233 Ventura Boulevard, Sherman Oaks, California 91403;
(818) 783-7501.
20
<PAGE> 28
PRINCIPAL SHAREHOLDERS
AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning the shares of the
Common Stock beneficially owned, as of the Record Date, by directors and by all
directors and executive officers of the Company as a group. 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 NUMBER AMOUNT AND NATURE OF
OF PERSONS IN GROUP BENEFICIAL OWNERSHIP PERCENT 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, 125,000
shares held by the L.J. Galen Charitable Remainder Trust, 500,000 shares
held by the L.J. Galen & Helene Galen Charitable Remainder Trust, 125,000
shares held by the Helene V. Galen Charitable Remainder Trust, 35,106 shares
held by 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.
(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 held in the Phillips Children Trust of which Mr. Phillips is a
Trustee. 375 shares are held by Mr. Philips 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.
21
<PAGE> 29
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 Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT 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.
GLENDALE FEDERAL BANK
During fiscal 1996, Glendale Federal implemented a strategic initiative to
convert its traditional savings and loan operations into a broad-based community
bank offering a new line of business banking products and expanding its line of
consumer banking products. Glendale Federal is currently engaged in business
banking, consumer banking, and real estate lending, as well as, through certain
subsidiaries, general insurance and securities brokerage services.
Business banking focuses on small businesses, primarily professionals,
wholesalers, distributors and light manufacturers with annual sales of up to
$150 million, located in the markets served by Glendale Federal's retail banking
offices. Glendale Federal offers business checking account programs, account
analysis, payroll services, electronic banking and merchant draft servicing. To
meet the credit needs of its business customers, Glendale Federal offers
revolving lines of credit and term loans (primarily secured) with maturities of
up to five years and with prime-based adjustable interest rates. The maximum
loan offered is $15 million. Through consumer banking, Glendale Federal seeks to
increase the number and balance of low-cost demand deposit accounts as well as
the number and balance of higher-yielding consumer lending products. Glendale
Federal's, real estate lending is principally focused on traditional
single-family residential loans.
At June 30, 1996, Glendale Federal and its subsidiaries reported assets of
$14.5 billion. Its consolidated net earnings for the year ended June 30, 1996
were $42.1 million.
Glendale Federal was chartered as a federal mutual savings and loan
association in 1934 and converted from the mutual to the stock form of
organization in 1983. Glendale Federal's common stock is listed on the New York
Stock Exchange and the Pacific Stock Exchange. Neither Glendale Federal nor any
of its subsidiaries is affiliated with the Company.
Except where otherwise noted, all information relating to Glendale Federal
set forth in this Proxy Statement is based upon the Annual Report on Form 10-K
of Glendale Federal for the fiscal year ended June 30, 1996, and documents
incorporated therein by reference.
INDEPENDENT AUDITORS
A representative of Deloitte & Touche, LLP, the Company's independent
auditors, is not expected to be present at the Special Meeting.
22
<PAGE> 30
OTHER MATTERS
Management knows of no other business to be transacted at the Special
Meeting, but, if any other matters do properly come before the Special Meeting,
the persons named as proxies or their substitutes will vote or act with respect
to such other matters in accordance with the direction of a majority of the
Board of Directors of the Company.
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Shareholders, if such meeting is held, must have been received at the
Company's principal executive offices in Sherman Oaks, California, prior to
November 26, 1996, in order to be included in the form of proxy and proxy
statement to be issued by the Board of Directors for that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports, proxy statements and other information filed by the Company
pursuant to the Exchange Act can be inspected and copied, at prescribed rates,
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the following Regional
Offices of the Commission: 230 South Dearborn Street, Chicago, Illinois 60604,
and 75 Park Place, New York, New York 10007. In addition, certain of the
information regarding the Company is available through the internet by accessing
the Securities and Exchange Commission website at http://www.sec.gov. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
By Order of the Board of Directors,
January 22, 1997
/s/ ELIZABETH NIELSEN
---------------------
Elizabeth Nielsen
Secretary
23
<PAGE> 31
ANNEX I
AGREEMENT AND PLAN OF MERGER
BETWEEN
GLENDALE FEDERAL BANK,
FEDERAL SAVINGS BANK
AND
TRANSWORLD BANCORP
AND
TRANSWORLD BANK
------------------------
DATED AS OF NOVEMBER 1, 1996
------------------------
<PAGE> 32
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS............................................................................. A-1
ARTICLE I THE MERGER............................................................ A-1
1.1 Structure of Merger................................................... A-1
1.2 Effect on Outstanding Shares.......................................... A-1
1.3 Exchange Procedures................................................... A-2
1.4 Dissenters' Rights.................................................... A-3
1.5 Options............................................................... A-3
1.6 Alternative Structure................................................. A-3
ARTICLE II CONDUCT PENDING THE MERGER............................................ A-4
2.1 Conduct of Business Prior to the Effective Time....................... A-4
2.2 Forbearance by the TW Entities........................................ A-4
2.3 Cooperation........................................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................ A-6
3.1 Disclosure Letter..................................................... A-6
3.2 Standards............................................................. A-6
3.3 Representations and Warranties of the TW Entities..................... A-6
3.4 Representations and Warranties of the Acquiror........................ A-14
ARTICLE IV COVENANTS............................................................. A-14
4.1 Acquisition Proposals................................................. A-14
4.2 Certain Policies of the TW Entities................................... A-15
4.3 Employees............................................................. A-15
4.4 Access to Information................................................. A-16
4.5 Regulatory Matters.................................................... A-17
4.6 Actions............................................................... A-17
4.7 Publicity............................................................. A-17
4.8 Proxy Statement....................................................... A-17
4.9 Shareholder Action.................................................... A-18
4.10 Notification of Certain Matters....................................... A-18
4.11 Tax Matters........................................................... A-18
4.12 Merger Sub............................................................ A-18
4.13 Updated Discloure Letter.............................................. A-18
4.14 D&O Insurance......................................................... A-18
ARTICLE V CONDITIONS TO CONSUMMATION............................................ A-19
5.1 Conditions to All Parties' Obligations................................ A-19
5.2 Conditions to Obligations of the Acquiror............................. A-19
5.3 Conditions to Obligations of the TW Entities.......................... A-20
ARTICLE VI TERMINATION........................................................... A-20
6.1 Termination........................................................... A-20
6.2 Effect of Termination................................................. A-21
6.3 Termination Payment................................................... A-21
ARTICLE VII EFFECTIVE DATE AND EFFECTIVE TIME..................................... A-21
7.1 Effective Date and Effective Time..................................... A-21
</TABLE>
i
<PAGE> 33
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VIII OTHER MATTERS......................................................... A-22
8.1 Certain Definitions: Interpretation................................... A-22
8.2 Survival.............................................................. A-23
8.3 Waiver................................................................ A-23
8.4 Counterparts.......................................................... A-23
8.5 Governing Law......................................................... A-23
8.6 Expenses.............................................................. A-23
8.7 Notices............................................................... A-23
8.8 Entire Agreement; No Third Party Beneficiaries........................ A-24
8.9 Parties Bound; Assignment............................................. A-24
8.10 Severability.......................................................... A-24
8.11 Captions.............................................................. A-24
</TABLE>
EXHIBITS
Exhibit A -- Agreement of Merger
Exhibit B -- TransWorld Retention Bonus Plan
Exhibit C -- Legal Opinion of TW Entities' Counsel
ii
<PAGE> 34
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
November 1, 1996 between GLENDALE FEDERAL BANK, FEDERAL SAVINGS BANK (the
"Acquiror"), on the one hand, and TRANSWORLD BANCORP ("TW Holding") and its
wholly-owned subsidiary, TRANSWORLD BANK ("TW Bank" and, together with TW
Holding, the "TW Entities"), on the other, with respect to the following facts:
RECITALS
A. The Acquiror is a federal savings bank regulated by the office of Thrift
Supervision of the Department of the Treasury (the "OTS "). Its customer deposit
accounts are insured by the Savings Association Insurance Fund (the "SAIF ") of
the Federal Deposit Insurance Corporation (the "FDIC ").
B. TW Holding is a corporation organized under the laws of the State of
California that owns all of the issued and outstanding stock of TW Bank. TW
Holding is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA "), and is regulated as such by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board "). TW Bank
is a commercial bank organized under the laws of the State of California that is
not a member bank of the Federal Reserve System. TW Bank is regulated by the
California State Banking Department and the FDIC. Its customer deposit accounts
are insured by the Bank Insurance Fund (the "BIF ") of the FDIC.
C. The respective boards of directors of the Acquiror and the TW Entities
have determined that it is desirable and in the best interests of their
respective shareholders and depositors that a newly created, wholly-owned
interim subsidiary corporation of the Acquiror organized under California law
("Merger Sub") be merged with and into TW Holding in a merger transaction in
which the shareholders of TW Holding will receive solely cash in, the amount
provided for herein in exchange for their shares, all on the terms and subject
to the conditions set forth in this Agreement and such boards of directors have
approved this Agreement and the execution, delivery and performance hereof by
the officers of their respective companies.
D. As a condition and inducement to the Acquiror's willingness to enter
into this Agreement, certain shareholders of TW Holding are concurrently
herewith entering into a Shareholder Agreements dated as of the date hereof (the
"Shareholder Agreements") pursuant to which such signatory shareholders agree to
vote all shares of Holding Common Stock owned or controlled by them to approve
this Agreement and the transactions provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. THE MERGER
Section 1.1. Structure of Merger. At the Effective Time (as defined in
Section 7.1), Merger Sub will be merged (the "Merger") with and into TW Holding
pursuant to the Agreement of Merger (the "Merger Agreement") attached as Exhibit
A hereto and applicable law and regulations. TW Holding shall be the surviving
corporation in the Merger (the "Surviving Corporation"). The separate corporate
existence of Merger Sub shall thereupon cease and the Surviving Corporation
shall succeed to all of the assets, rights, properties, obligations and
liabilities of Merger Sub, and shall retain all of the assets, rights,
properties, obligations and liabilities that TW Holding held or to which TW
Holding was subject immediately prior to the Effective Time, all as provided in
the applicable provisions of the California General Corporation Law. At the
Effective Time, the articles of incorporation and by-laws of TW Holding, as in
effect immediately prior to the Effective Time, shall become the articles of
incorporation and by-laws of the Surviving Corporation. Also at the Effective
Time, the directors and officers of Merger Sub immediately prior thereto shall
become the directors and officers of the Surviving Corporation.
Section 1.2. Effect on Outstanding Shares. (a) By virtue of the Merger,
automatically and without necessity of any action on the part of the holders of
the outstanding shares of Holding Common Stock, each
A-1
<PAGE> 35
share of the common stock, without par value, of TW Holding ("Holding Common
Stock") issued and outstanding at the Effective Time (other than "Excluded
Shares," as defined below) shall be converted into the right solely to receive
$18.25 in cash, without interest (the "Merger Consideration").
(b) By virtue of the Merger, the shares of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall at the
Effective Time, automatically and without necessity of any action on the part of
the Acquiror, be converted into shares of the Surviving Corporation and shall
thereafter constitute all of the issued and outstanding shares of the capital
stock of the Surviving Corporation.
(c) "Excluded Shares" shall mean (i) shares of Holding Common Stock held by
any holder (a "Dissenting Shareholder") who shall have taken the necessary steps
to seek appraisal of and to demand payment for such shares of Holding Common
Stock pursuant to the dissenters rights provisions of California law (the
"Dissenting Shares"), and (ii) shares of Holding Common Stock held as treasury
stock by TW Holding or TW Bank.
(d) Dissenting Shares shall be treated as provided in Section 1.4. All
other Excluded Shares shall be canceled and retired and no payment shall be made
with respect thereto.
Section 1.3. Exchange Procedures. (a) At and after the Effective Time, the
certificates that previously represented shares of Holding Common Stock
outstanding immediately prior to the Effective Time (each, a "Certificate")
shall represent only the right to receive the Merger Consideration, without
interest.
(b) At or prior to the Effective Time, the Acquiror shall deposit cash in
the amount equal to the aggregate Merger Consideration to be paid to the holders
of shares of Holding Common Stock pursuant to Section 1.2 with a bank, savings
and loan association or trust company to be selected by the Acquiror located, or
with an office, in Los Angeles County, California and reasonably acceptable to
TW Holding (the "Exchange Agent").
(c) As soon as practicable, but in no event later than five business days,
after the Effective Time the Acquiror shall cause the Exchange Agent to mail to
each holder of a Certificate or Certificates of record as of the close of
business on the Effective Date, the following: (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, which shall be in such form and contain such reasonable provisions as the
Acquiror shall determine; and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. The
Acquiror shall also make appropriate provisions with the Exchange Agent to
enable such holders of a Certificate or Certificates to deliver such Certificate
or Certificates to the Exchange Agent in person commencing on or not later than
the business day following the Effective Time. Upon the proper surrender of a
Certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder of such Certificate shall be entitled
to receive in exchange therefor a check (or in the case of a shareholder owning
20,000 or more shares of Holding Common Stock, a wire transfer to an account
specified by such shareholder) representing the Merger Consideration which such
holder has the right to receive in respect of the Certificate or Certificates
surrendered pursuant to the provisions hereof, and the Certificate or
Certificates so surrendered shall forthwith be canceled. The Exchange Agent
shall as soon as practicable upon receipt of each Certificate make payment of
the Merger Consideration to such holder. No interest shall be paid or accrued on
the Merger Consideration. In the case of a transfer of ownership of any shares
of Holding Common Stock not registered in the transfer records of TW Holding, a
check for the Merger Consideration may only be issued (or wire transfer sent) to
the transferee if each Certificate representing such Holding Common Stock is
presented to the Exchange Agent, accompanied by documents sufficient, in the
judgment of the Acquiror, (i) to evidence and effect such transfer and (ii) to
evidence that all applicable stock transfer taxes have been paid.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer records of TW Holding of any shares of Holding Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Acquiror or the Surviving
Corporation, they shall only be canceled and exchanged for the Merger
Consideration deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Section 1.3.
A-2
<PAGE> 36
(e) Any portion of the aggregate Merger Consideration or the proceeds of
any investments thereof that remains unclaimed by the shareholders of TW Holding
for twelve months after the Effective Time shall be repaid by the Exchange Agent
to the Acquiror. Any shareholders of TW Holding who have not theretofore
complied with this Section 1.3 shall thereafter only be entitled to look to the
Acquiror for payment of the Merger Consideration deliverable to them in respect
of each share of Holding Common Stock such shareholder holds of record as
determined pursuant to this Agreement. If outstanding Certificates are not
surrendered or the payment for the Holding Common Stock represented thereby is
not claimed prior to the date on which such payments would otherwise escheat to
or become the property of any governmental unit or agency, the unclaimed
Certificates and the funds payable in respect thereof shall, to the extent
permitted by applicable abandoned property, escheat or other applicable law,
become the property of the Acquiror (and to the extent not in its possession
shall be paid over to it), free and clear of all claims or interest of any
person previously entitled thereto. Notwithstanding the foregoing, none of the
Acquiror, the Surviving Corporation, the Exchange Agent or any other person
shall be liable to any former holder of Holding Common Stock for any amount
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to have been lost, stolen or destroyed and, if required by the
Exchange Agent or the Acquiror, the posting by such person of a bond in such
amount as the Exchange Agent or the Acquiror, as the case may be, may reasonably
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration deliverable in respect
thereof pursuant to this Agreement.
Section 1.4. Dissenters' Rights. Dissenting Shares shall not be converted
into the right to receive the Merger Consideration at or after the Effective
Time unless and until the holder of such Dissenting Shares withdraws his or her
demand for appraisal and payment with respect to such Dissenting Shares with the
consent of the Acquiror or TW Holding, if such consent is required, or becomes
ineligible for such appraisal and payment. If a holder of Dissenting Shares
shall withdraw in writing his or her demand for such appraisal and payment with
the consent of the Acquiror or TW Holding, if such consent is required, or shall
become ineligible for such appraisal and payment (through failure to comply with
the requirements of applicable law therefor or otherwise), then, as of the later
of the Effective Time or the occurrence of such event, such holder's Dissenting
Shares shall automatically be converted into and represent the right to receive
the Merger Consideration (without interest thereon). TW Holding shall give the
Acquiror prompt notice of any demands for such appraisal, withdrawals of demands
for such appraisal and any other instruments served pursuant to applicable law
that are received by TW Holding or its representatives. TW Holding shall not
voluntarily make any payment with respect to any such demands for appraisal and
shall not, except with the prior written consent of the Acquiror, settle or
offer to settle any such demands. Each holder of Dissenting Shares shall have
only such rights and remedies as are granted to such holder under the provisions
of applicable law and regulations. Dissenting Shares shall not, after the
Effective Time, be entitled to vote for any purpose or be entitled to the
payment of dividends or other distributions (except any such dividends or other
distributions as may have been payable to the shareholders of TW Holding of
record prior to the Effective Time).
Section 1.5. Options. TW Holding shall offer to purchase each option
granted by TW Holding to purchase shares of Holding Common Stock pursuant to
employee stock options theretofore granted pursuant to employee stock option
plans of TW Holding described in the TW Disclosure Letter (as defined in Section
3.1) that has not theretofore been exercised or terminated, whether or not then
otherwise fully vested or fully exercisable, at a price equal to (i) the
difference between (x) the per share amount of the Merger Consideration and (y)
the per share exercise price applicable to such option multiplied by (ii) the
number of such shares of Holding Common Stock then subject to such option. TW
Holding will make the payments required to be made to holders of options under
this Section 1.5 immediately prior to the Effective Time. Any such option not
purchased by TW Holding pursuant to such offer and not exercised prior to the
Effective Time shall expire at the Effective Time.
Section 1.6. Alternative Structure. Notwithstanding anything in this
Agreement to the contrary, the Acquiror may specify that the TW Entities, the
Acquiror and any subsidiary or affiliate of the Acquiror shall
A-3
<PAGE> 37
enter into transactions other than those described in Article I hereof in order
to effect the acquisition of the TW Entities by the Acquiror, and the TW
Entities and the Acquiror shall take all action necessary and appropriate to
effect, or cause to be effected, such transactions; provided, however, that no
such transaction, regardless of whether it is structured as a merger or
otherwise, may (i) alter or change the amount or kind of the Merger
Consideration as defined by Section 1.2(a), (ii) materially and adversely affect
the economic benefits of the Merger to the holders of Holding Common Stock, or
(iii) materially increase the possibility that the amount of time required to
complete the acquisition of the TW Entities by the Acquiror will extend beyond
the Termination Date (as defined in Section 6.1(d)).
ARTICLE II. CONDUCT PENDING THE MERGER
Section 2.1. Conduct of Business Prior to the Effective Time. Except as
required by applicable law, rule or regulation, as expressly provided in this
Agreement, as agreed to by the Acquiror in writing during the period from the
date of this Agreement to the Effective Time or as set forth in the TW
Disclosure Letter, the TW Entities shall each (i) conduct its business and
maintain its books and records in the usual, regular and ordinary course, and in
a manner consistent with past practice, (ii) use all commercially reasonable
efforts to maintain and preserve intact its business organization, properties,
leases, and advantageous business relationships and to retain the services of
its officers and employees, (iii) take no action which could reasonably be
expected to adversely affect or delay the ability of the TW Entities, the
Acquiror or Merger Sub to obtain any necessary approvals, consents or waivers of
any governmental authority or other person required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under this Agreement, and (iv) take no action that could reasonably be expected
to have a material adverse effect on the TW Entities.
Section 2.2. Forbearance by the TW Entities. During the period from the
date of this Agreement to the Effective Time, and except as contemplated by this
Agreement, the TW Entities shall not, without the prior written consent of the
Acquiror:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other person; provided, however, that neither of the TW Entities shall in
any event incur any indebtedness for borrowed money, including reverse
repurchase agreements and whether or not in the ordinary course of business,
with a maturity exceeding thirty days (it being agreed that any reverse
repurchase agreements permitted by this Section 2.2(a) may be renewed for
additional thirty-day periods, provided that no advance commitment to so renew
may be given to the customer);
(b) issue, redeem or purchase any shares of its capital stock, except
pursuant to existing options to purchase shares of Holding Common Stock that are
listed in the TW Disclosure Letter; adjust, split, combine or reclassify any
shares of capital stock; make, declare or pay any dividend or make any other
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock, or any securities or obligations
convertible into or exchangeable for any shares of its capital stock; or grant
any stock appreciation rights or grant, sell or issue to any individual,
corporation or other person any right or option to acquire, or securities
evidencing a right to convert into or acquire, any shares of its capital stock;
(c) other than in the ordinary course of business consistent with past
practice and with the other terms, covenants and conditions of this Agreement,
sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties, leases or assets to any person (it being agreed that sales in
accordance with TW Bank's past practice of real estate acquired through
foreclosure or by transfer in lieu of foreclosure shall be. considered to be in
the ordinary course of business), or cancel, release or assign any indebtedness
of any such person, except pursuant to contracts or agreements requiring the
same that are in force at the date of this Agreement and have been disclosed to
the Acquiror in the TW Disclosure Letter;
(d) hire any replacement employee above the level of Assistant Vice
President, enter into, renew, amend or modify any employment agreement with any
employee or director, increase in any manner the compensation or fringe benefits
of any of its employees or directors, or create or institute, or make any
payments
A-4
<PAGE> 38
pursuant to, any severance plan or package, or pay any pension or retirement
allowance not required by any existing plan or agreement to any such employees
or directors, or become a party to, amend, commit itself to, or otherwise
establish any trust or account related to, any Employee Agreement (as defined in
Section 3.3(n)), with or for the benefit of any employee, other than general
increases in compensation in the ordinary course of business consistent with
past practice, or voluntarily accelerate the vesting of any stock options or
other compensation or benefit or declare or pay any bonus (except that the TW
Entities shall be permitted to pay annual bonuses previously accrued for and
payable in accordance with the TW Entities' existing compensation policies);
(e) other than in the ordinary course of business consistent with past
practice (it being agreed that credit bids for collateral shall be considered to
be in the ordinary course of business), make any investment in any person or
entity, whether by purchase of stock or other securities or contributions to the
capital of such entity, make any property transfers to any person or entity, or
purchase any property or assets of any person or entity; provided, that no such
investment or series of related investments, whether or not made in the ordinary
course of business, shall be made in excess of $50,000 except in (i) securities
which would be reported under the caption "Cash and Cash Equivalents" on the TW
Entities' balance sheets or statements of financial condition, and (ii) United
States Treasury securities and securities of agencies and instrumentalities of
the federal government that represent full faith and credit obligations of such
agencies and instrumentalities (collectively, "Federal Government Securities")
with a maturity of not more than six months; provided, further, that (iii) TW
Bank may invest the proceeds received by it at the maturity of its securities
investments at the date of this Agreement in Federal Government Securities
having remaining terms to maturity as of the date of investment not exceeding
one year; and (iv) in no event shall the TW Entities make any acquisition of
equity securities or business operations;
(f) enter into, renew or terminate any contract or agreement requiring
payment by any TW Entity of more than $36,000 in any year, of more than six
months in duration, or that is not cancelable without penalty on not more than
sixty days notice (except for any contract to sell real estate by foreclosure or
by deed or other transfer in lieu of foreclosure entered into in the ordinary
course of business) or amend, modify or terminate any material leases or
contracts of any TW Entity;
(g) settle any claim, action or proceeding involving any liability of any
TW Entity for money damages in excess of $25,000 or that would have a material
adverse effect on any TW Entity or that would involve material restrictions upon
the operations of any TW Entity;
(h) except in the ordinary course of business, waive or release any
material right or collateral or cancel or compromise any extension of credit or
other debt or claim;
(i) except in the ordinary course of business, make, renegotiate, renew,
increase, modify, extend or purchase any loan, lease, advance, credit
enhancement or other extension of credit, or make any commitment in respect of
any of the foregoing;
(j) except as contemplated by Section 4.2, change any of its methods of
accounting as the same were in effect at December 31, 1995, except as required
by changes in generally accepted accounting principles, as concurred in by the
independent auditors of TW Holding, or as required by regulatory accounting
principles or other regulatory requirements;
(k) enter into any new activities or lines of business, solicit or accept
brokered deposits, or cease to conduct any material activities or lines of
business that it conducts on the date hereof, materially change its deposit
pricing policy or mix of deposits, or conduct any material business activity not
consistent with past practice;
(l) amend its articles of incorporation or its by-laws or adopt any plan of
liquidation, whether formal or informal;
(m) make any capital expenditure other than in the ordinary course of
business or as necessary to maintain its assets, and in any event, whether or
not in the ordinary course of business, not exceeding $50,000; or
A-5
<PAGE> 39
(n) agree, or make any commitment, to take any of the actions prohibited by
this Section 2.2.
Section 2.3. Cooperation. The TW Entities, the Acquiror and Merger Sub
shall each cooperate with one another in completing the transactions
contemplated hereby and shall not take, cause to be taken or agree, or make any
commitment, to take any action: (i) that is intended or may reasonably be
expected to cause any of their respective representations or warranties set
forth in this Agreement not to be true and correct, or (ii) that is inconsistent
with or prohibited by the provisions of this Agreement.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Disclosure Letter. On or prior to the date of the execution
and delivery hereof, the TW Entities have delivered a letter (the "TW Disclosure
Letter") to the Acquiror setting forth, among other things, facts, circumstances
and events the disclosure of which is required or appropriate in relation to its
representations and warranties set forth in Section 3.3 (and making specific
reference to the Section or Sections of this Agreement to which they relate).
The inclusion of a fact, circumstance or event in the TW Disclosure Letter,
however, shall not be deemed an admission that such item represents a material
exception or that the absence of such item would cause the representation or
warranty to which it relates to be untrue or incorrect.
Section 3.2. Standards. No representation or warranty of the TW Entities or
the Acquiror contained in Sections 3.3 or 3.4, respectively, shall be deemed
untrue or incorrect, and no party hereto shall be deemed to have breached a
representation or warranty, on account of the existence of any fact,
circumstance or event unless such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of Sections 3.3 or 3.4, as applicable, (A) is material and adverse
to the business, financial condition or results of operations of the TW Entities
or the Acquiror, as applicable, and their respective subsidiaries taken as a
whole, (B) significantly and adversely affects the ability of the TW Entities or
the Acquiror, as applicable, to consummate the Merger by the Termination Date or
to perform its material obligations hereunder or (C) enables any person to
prevent the consummation of the Merger by the Termination Date.
Section 3.3. Representations and Warranties of the TW Entities. Except as
set forth in the TW Disclosure Letter, each of the TW Entities represents and
warrants to the Acquiror that:
(a) Organization. (i) TW Holding has been duly organized and is validly
existing and in good standing as a corporation under the laws of the State of
California. TW Holding has all requisite corporate and other power and authority
(including all federal, state and local administrative and other governmental
and regulatory authorizations) to carry on its business as it is now being
conducted and to own its properties and assets. Without limiting the generality
of the foregoing, TW Holding is registered as a bank holding company under the
BHCA and is not subject to any special restrictions, conditions or other
limitations, not applicable to bank holding companies under the BHCA generally;
(ii) TW Bank has been duly organized and is validly existing and in
good standing as a state-chartered commercial bank under the laws of the
State of California. The customer deposit accounts of TW Bank are insured
by the BIF to the extent provided for commercial banks generally in the
Federal Deposit Insurance Act, without any special limitation or
restriction. TW Bank has all requisite corporate and other power and
authority (including all federal, state and local administrative and other
governmental and regulatory authorizations) to carry on its business as it
is now being conducted and to own its properties and assets.
(b) Qualifications. Each of the TW Entities is duly qualified and in good
standing in all jurisdictions where such qualification is required to carry on
its business as it is now being conducted and to own all its properties and
assets.
(c) Capital Stock. The authorized capital stock of TW Holding consists
solely of 6,000,000 shares of common stock, without par value, of which
3,451,715 shares are issued and outstanding as of the date of this Agreement. TW
Holding has no outstanding voting securities other than the outstanding shares
of Holding
A-6
<PAGE> 40
Common Stock referred to in the first sentence of this paragraph. Except for
shares of Holding Common Stock that are issuable pursuant to the employee stock
options granted pursuant to duly adopted stock option plans that are listed in
the TW Disclosure Letter, no shares of capital stock of TW Holding are reserved
for issuance upon the exercise of outstanding options, warrants or other rights
of any kind or upon conversion of or in exchange for any other securities or
pursuant to any other contractual arrangement or understanding. All outstanding
shares of capital stock of the TW Entities are duly authorized, validly issued
and outstanding, fully paid and, subject (with respect to TW Bank only) to
Section 662 of the California Financial Code, non-assessable. None of the shares
of authorized capital stock of the TW Entities is subject to any statutory or
contractual preemptive or similar rights.
(d) TW Bank; Significant Investments. All of the outstanding shares of
capital stock of TW Bank are owned of record and beneficially, and not subject
to any lien, charge, encumbrance, restriction on transfer or adverse ownership
or other claim of any third party, solely by TW Holding. TW Holding has no
subsidiaries (as defined in Section 8.1) other than TW Bank. Except as stated in
the preceding sentence, neither of the TW Entities owns any equity securities,
any security convertible or exchangeable into an equity security or any rights
to acquire any equity security, other than any equity securities held as
collateral for loans.
(e) Authority and Shareholder Approvals. (i) This Agreement is a valid and
binding agreement of the TW Entities enforceable against them in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
Upon the receipt of the shareholder approval of this Agreement by the holders of
Holding Common Stock, the completion of the transactions contemplated by this
Agreement will have been authorized by all necessary corporate action of TW
Holding.
(ii) The only shareholder vote required for approval of this Agreement
and consummation of the Merger and the other transactions contemplated
hereby on the part of the TW Entities is the vote of the outstanding shares
of Holding Common Stock required under applicable California law.
(f) No Violations. The execution, delivery and performance of this
Agreement by the TW Entities do not, and the consummation of the transactions
contemplated hereby by the TW Entities will not, constitute (i) a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, or agreement, indenture or
instrument of the TW Entities or to which the TW Entities (or any of their
respective properties) is subject, or enable any person to enjoin the Merger or
the other transactions contemplated hereby, (ii) a breach or violation of, or a
default under, the articles of incorporation or by-laws or similar
organizational documents of the TW Entities or (iii) a breach or violation of,
or a default under (or an event which with due notice or lapse of time or both
would constitute a default under), or result in the termination of, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of the TW Entities under, any of the terms, conditions or provisions of
any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which either of the TW Entities is a party, or to
which any of their respective properties or assets may be bound or affected; and
the consummation of the transactions contemplated hereby will not require the TW
Entities to obtain any approval, consent or waiver under any such law, rule,
regulation, judgment, decree, order, governmental permit or license or the
approval, consent or waiver of any other party to any such agreement, indenture
or instrument, other than (i) the required approvals, consents and waivers of
governmental authorities or other persons referred to in Section 5.1(b), (ii)
the approval of the shareholders of the TW Entities referred to in Section
3.3(e), and (iii) such approvals, consents or waivers, if any, as are required
under federal and state securities laws in connection with the transactions
contemplated by this Agreement.
(g) Reports. (i) As of their respective dates, neither the annual report on
Form 10-K filed by TW Holding with the Securities and Exchange Commission
("SEC ") nor the audited financial statements of the TW Entities for the fiscal
year ended December 31, 1995, and no other document filed by the TW Entities
subsequent to December 31, 1993 (including, without limitation, annual or
quarterly reports on Forms 10-K and 10-Q or other reports, unaudited or
subsequent audited financial statements filed with the SEC, the Federal Reserve
Board, the FDIC, or the California State Banking Department (all of the
financial
A-7
<PAGE> 41
statements and other documents referred to in this clause (i) being collectively
referred to in this Agreement as, the "Reports"), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. True and complete copies of all such Reports filed on or after
December 31, 1993 have been delivered to the Acquiror, and the TW Entities shall
provide the Acquiror with true and complete copies of all Reports filed
subsequent to the date hereof immediately after such Reports are filed. Each of
the statements of financial condition or balance sheets contained or
incorporated by reference in the Reports (including in each case any related
notes and schedules) fairly presented or will fairly present, as the case may
be, the financial position of the entity or entities to which it relates as of
its date and each of the statements of operations or income, statements of cash
flows and statements of shareholders' equity, contained or incorporated by
reference in the Reports (including in each case any related notes and
schedules), fairly presented or will fairly present, as the case may be, the
results of operations, shareholders' equity and cash flows, as the case may be,
of the entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect and to the lack of
complete footnotes), in each case in accordance with generally accepted
accounting principles and applicable regulatory accounting principles and
instructions consistently applied throughout the periods involved, except as may
be stated therein. Consistent with the foregoing, the allowances for possible
loan and lease losses reflected in the Reports were or, in the case of Reports
dated after the date hereof, will be in the opinion of the TW Entities'
management (based on the facts known to them at the time of filing of such
Reports and their review of applicable law and regulations) adequate as of the
respective dates thereof under generally accepted accounting principles and
regulatory accounting principles as applicable to commercial banks and their
holding companies.
(ii) The TW Entities have timely filed all material reports and
statements, together with any amendments required to be made with respect
thereto, with the SEC, the Federal Reserve Board, the FDIC, the California
State Banking Department and any other applicable Government Regulators (as
defined in Section 3.3(k)), and all other material reports and statements
required to be filed by them and have paid all fees and assessments due and
payable in connection therewith.
(h) Absence of Certain Changes or Events. Except as disclosed in the
Reports and except as contemplated by this Agreement or disclosed in the TW
Disclosure Letter, since December 31, 1995: (i) the TW Entities have not
incurred any liability, except in the ordinary course of their businesses
consistent with past practice; (ii) the TW Entities have conducted their
respective businesses only in the ordinary and usual course of such businesses;
and (iii) there has not been any change in the financial condition, properties,
business, or results of operations of the TW Entities which, individually or in
the aggregate, is reasonably likely to have a material adverse effect on the TW
Entities taken as a whole.
(i) Taxes. All federal, state, local, and foreign tax returns required to
be filed by or on behalf of the TW Entities have been timely filed or requests
for extensions have been timely filed, any such requested extensions have been
granted and have not expired, and all such filed returns are complete and
accurate in all material respects. All taxes shown on such returns to be due
have been paid in full or adequate provision has been made for any such taxes in
the financial statements of the TW Entities in accordance with generally
accepted accounting principles. There is no audit, examination, deficiency
assessment, or refund litigation currently pending with respect to any taxes of
the TW Entities. All taxes, interest, additions and penalties due with respect
to completed and settled examinations or concluded litigation relating to the TW
Entities have been paid in full or adequate provision has been made for any such
taxes in the financial statements of the TW Entities in accordance with
generally accepted accounting principles. No extensions or waivers of statutes
of limitations have been given by or requested with respect to any taxes of the
TW Entities. Neither TW Holding nor TW Bank has within the past three years
adopted any plan, whether formal or informal, of liquidation of TW Holding or TW
Bank. No shares of stock of TW Holding and no shares of stock of TW Bank have
been redeemed within the past three years. During the three-year period ending
at the Effective Time, no assets of TW Holding or TW Bank will have been
disposed of otherwise than in the ordinary course of business. Neither TW
Holding nor TW Bank has or will have acquired assets in any nontaxable
transaction occurring within the three-year period ending at the Effective Time.
Any other transactions undertaken by TW Holding
A-8
<PAGE> 42
or TW Bank contemporaneously with, in anticipation of, in conjunction with, or
in any way related to the Merger have been fully disclosed to the Acquiror.
(j) Absence of Claims. No litigation, proceeding or controversy before any
court or governmental agency is pending, and there is no pending claim, action
or proceeding against the TW Entities, and, to the best knowledge of the TW
Entities, no such litigation, proceeding, controversy, claim or action has been
threatened, nor, to the best knowledge of the TW Entities, is there any basis
therefor. No claim (statutory or otherwise), demand, proceeding or other action
is pending against the TW Entities by (i) any of their present or former
employees or (ii) any person who sought to become employed by the TW Entities,
and, to the best knowledge of the TW Entities, no such claim, demand,
proceeding, or other action has been threatened, nor, to the best knowledge of
the TW Entities, is there any basis therefor.
(k) Absence of Regulatory Actions. Neither of the TW Entities is a party to
any cease and desist order, written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions relating to the
foregoing at the request of, federal or state governmental authorities,
including without limitation the SEC and regulatory agencies charged with the
supervision or regulation of depository institutions or depository institution
holding companies or engaged in the insurance of bank and/or savings and loan
deposits, (collectively, "Government Regulators") nor has it been advised by any
Government Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
The TW Entities are not aware of any special facts or circumstances relating to
the TW Entities that have not been disclosed to the Acquiror that would cause
any of the Government Regulators or any other person or entity to fail to give
any of the approvals, consents or waivers referred to in Section 5.1(b).
(1) Contracts. (i) Except for arrangements made in the ordinary course of
business, neither of the TW Entities is bound by any material contract to be
performed after the date hereof that is not listed in the TW Disclosure Letter.
Neither of the TW Entities is a party to an oral or written (A) consulting
agreement involving the payment of more than $25,000 per annum, in the case of
any such agreement with an individual, or $75,000 per annum, in the case of any
other such agreement, (B) agreement with any executive officer or other key
employee of the TW Entities, the benefits of which are contingent, or the terms
of which are materially altered or any payments or rights pursuant to which are
accelerated, upon the occurrence of a transaction involving the TW Entities of
the nature contemplated by this Agreement and which provides for the payment of
in excess of $25,000, (C) agreement with respect to any executive officer of the
TW Entities providing any term of employment or compensation guarantee, (D)
agreement or plan, including without limitation any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement, (E) agreement containing covenants that limit the ability of the TW
Entities to compete in any line of business or with any person, or that involve
any restriction on the geographic area in which, or method by which, the TW
Entities (including any successor thereof) may carry on its business (other than
as may be required by law or any regulatory agency), or (F) agreement not
referred to in any of the preceding clauses and providing for the payment by the
TW Entities of $50,000 or more per annum.
(ii) Neither of the TW Entities is in default under or in violation of
any provision of the contracts or any material note, bond, indenture,
mortgage, deed of trust, loan agreement, lease or other agreement to which
it is a party or by which it is bound or to which any of its respective
properties or assets is subject, and, to the knowledge of the TW Entities,
there has not occurred any event that with the lapse of time or the giving
of notice or both would constitute such a default.
(m) Labor Matters. Neither of the TW Entities is a party to, or is bound
by, any collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization, nor are the TW Entities
the subject of any proceeding asserting that it has committed an unfair labor
practice or seeking
A-9
<PAGE> 43
to compel it to bargain with any labor organization as to wages or conditions of
employment, nor is any strike, other labor dispute or organizational effort
involving either of the TW Entities pending or, to the best knowledge of the TW
Entities, threatened.
(n) Employee Agreements. The TW Disclosure Letter contains a complete list
of all employee agreements and all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, employment,
termination, severance, medical, health and other benefit plans, contracts,
agreements, arrangements, including, but not limited to, "employee benefit
plans," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), incentive and welfare policies, contracts,
plans and arrangements and all trust agreements related thereto in respect of
any present or former directors, officers, or other employees of the TW Entities
or with respect to which any of the TW Entities or any entity that would-be
treated as a single employer with the TW Entities under section 414(b) or (c) of
the Code (which entities are referred to herein as "ERISA Affiliates") may have
any liability (all of the foregoing being hereinafter collectively referred to
as the "Employee Agreements"). Except as set forth on the TW Disclosure Letter,
(i) all of the Employee Agreements comply, and have been administered, in all
material respects with all applicable requirements of ERISA, the Internal
Revenue Code of 1986, as amended (the "Code"), and all other applicable laws and
regulations and no event has occurred which will or could cause any such
Employee Agreement to fail to comply with such requirements and no notice has
been issued by any governmental authority questioning or challenging such
compliance; (ii) none of the TW Entities, or any of their ERISA Affiliates has
the right or obligation to accelerate the time of payment or vesting of any
benefit or compensation payable under any Employee Agreement; (iii) a true and
correct copy of each of the Employee Agreements and all contracts relating
thereto, or to the funding thereof, including, without limitation, all trust
agreements, insurance contracts, administration contracts, investment management
agreements, subscription and participation agreements, and recordkeeping
agreements, each as in effect on the date hereof, has been supplied or made
available to the Acquiror; (iv) to the extent applicable, a true and correct
copy of the most recent annual report, actuarial report, accountant's opinion of
the plan's financial statements, summary plan description and Internal Revenue
Service determination letter with respect to each Employee Agreement has been
supplied to the Acquiror and there have been no material changes in the
financial condition in the respective plans from that stated in the annual
reports and actuarial reports supplied; (v) all Employee Agreements which are
employee pension benefit plans (as defined in section 3(2) of ERISA) comply in
form and in operation with all applicable requirements of sections 401(a) and
501(a) of the Code, there have been no amendments to such plans which are not
the subject of a favorable determination letter issued with respect thereto by
the Internal Revenue Service and no event has occurred which will or could give
rise to disqualification of any such plan under such sections or to a tax under
section 511 of the Code; (vi) there have been no "prohibited transactions" (as
described in section 406 of ERISA or section 4975 of the Code) with respect to
any Employee Agreement and none of the TW Entities or any ERISA Affiliate has
engaged in any prohibited transaction; (vii) there have been no acts or
omissions by the TW Entities or any of their ERISA Affiliates which have given
rise to or may give rise to fines, penalties, taxes or related charges under,
section 502 of ERISA or Chapters 43, 47 or 68 of the Code for which the TW
Entities or any of their ERISA Affiliates may be liable; (viii) there are no
actions, suits or claims (other than routine claims for benefits) pending or
threatened involving any Employee Agreement or the assets thereof and to the
best knowledge of the TW Entities no facts exist which could give rise to any
such actions, suits or claims (other than routine claims for benefits); (ix) no
Employee Agreement is subject to Title IV of ERISA and no Employee Agreement is
a multiemployer plan (as defined in section 3(37) or ERISA); and (x) none of the
TW Entities or any of their ERISA Affiliates has any liability or contingent
liability for providing, under any Employee Agreement or otherwise, any
post-retirement medical or life insurance benefits, other than statutory
liability for providing group health plan continuation coverage under Part 6 of
Title I of ERISA and section 4980B of the Code.
(o) Title to Assets. Neither of the TW Entities owns any real estate or
interest therein (other than real property security interests) that is not
described in the TW Disclosure Letter. Each of the TW Entities has good title to
its properties and assets (including any intellectual property asset, such as,
without limitation, any trademark, service mark, trade name or copyright, used
in its business), other than (i) as reflected in the
A-10
<PAGE> 44
Reports, (ii) property as to which it is lessee (as listed in the TW Disclosure
Letter) and (iii) real estate owned as a result of foreclosure, transfer in lieu
of foreclosure or other transfer in satisfaction of a debtor's obligation
previously contracted.
(p) Compliance with Law. Each of the TW Entities:
(i) has all permits, licenses, certificates of authority, orders and
approvals of, and has made all filings, applications and registrations
with, federal, state, local and foreign governmental or regulatory bodies
that are required in order to permit it to carry on its business as it is
presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect, and, to the knowledge of
the TW Entities, no suspension or cancellation of any of them is
threatened; and
(ii) is in compliance in the conduct of its business with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to
the employees conducting such businesses, including, without limitation,
the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, the Americans With
Disabilities Act, and all other fair lending laws or other laws relating to
discrimination, and the Bank Secrecy Act.
(q) Fees. Other than financial advisory services performed for TW Holding
by Wedbush Morgan Securities, Inc. in an amount and pursuant to the agreement
both disclosed to the Acquiror prior to the execution and delivery of this
Agreement, neither the TW Entities, nor any of their respective officers,
directors, employees or agents, has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions, or
finder's fees. No broker or finder has acted directly or indirectly for either
of the TW Entities in connection with this Agreement or the transactions
contemplated hereby.
(r) Environmental Matters.
(i) With respect to the TW Entities:
A. Each of the TW Entities is, and has been, in compliance with all
Environmental Laws (as defined below);
B. Neither of the TW Entities has any knowledge of any
noncompliance with any Environmental Laws with respect to the Loan
Properties (as defined below);
C. There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or,
to the best knowledge of the TW Entities, threatened, before any court,
governmental agency or board or other forum against the TW Entities (x)
for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence
of or release into the environment of any Hazardous Material (as defined
below), whether or not occurring at or on a site owned, leased or
operated by the TW Entities;
D. To the best knowledge of the TW Entities, there is no suit,
claim, action, demand, executive or administrative order, directive,
investigation or proceeding pending or threatened before any court,
governmental agency or board or other forum relating to or against any
Loan Property (or the TW Entities in respect of such Loan Property) (x)
relating to alleged noncompliance (including by any predecessor) with,
or liability under, any Environmental Law or (y) relating to the
presence of or release into the environment of any Hazardous Material
whether or not occurring at or on a site owned, leased or operated by a
Loan Property;
E. To the best knowledge of the TW Entities, there are no existing
facts or circumstances that could reasonably be expected to give rise to
any suit, claim, action, demand, executive or administrative order,
directive or proceeding of a type described in Section 3.3(r)(i)(B) or
(C) above;
F. The properties currently or formerly owned or operated by the TW
Entities (including, without limitation, soil, groundwater or surface
water on, under or adjacent to the properties, and
A-11
<PAGE> 45
buildings thereon) are not contaminated with and, with the exception of
commercially available office and cleaning supplies, do not otherwise
contain any Hazardous Material that could reasonably be expected to give
rise to liability to the TW Entities;
G. The TW Entities have not received any notice, demand letter,
executive or administrative order, directive or request for information
from any federal, state, local or foreign governmental entity or any
third party indicating that it may be in violation of, or liable under,
any Environmental Law;
H. During the period of the TW Entities' ownership or operation of
any of their respective current properties, there has been no
contamination by or release of Hazardous Material in, on, under or
affecting such properties which constituted a violation of any
Environmental Laws. Prior to the period of the TW Entities' ownership or
operation of any of their respective current properties, there was no
contamination by or release of Hazardous Material or oil in, on, under
or affecting any such property which constituted a violation of any
Environmental Laws and as to which the TW Entities may have liability;
and
I. Neither of the TW Entities participates in the management of a
Loan Property to an extent that it would be deemed an "owner or
operator" as defined in 42 U.S.C. Section 9601 or any similar
Environmental Law.
(ii) The following definitions apply for purposes of this Section
3.3(r): (w) "Loan Property" means any property in which either of the TW
Entities holds a security interest, and, where required by the context,
includes the owner or operator of such property, but only with respect to
such property; (x) "Environmental Law" means (i) any federal, state or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, directive, executive or
administrative order, judgment, decree, injunction, requirement or
agreement with any governmental entity, relating to (A) the protection,
preservation or restoration of the environment (which includes, without
limitation, air, water vapor, surface water, groundwater, drinking water
supply, structures, soil, surface land, subsurface land, plant and animal
life or any other natural resource), or (B) the exposure to, or the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of, Hazardous
Materials, in each case as amended and as now or hereafter in effect,
including all current Environmental Laws, all future interpretations of
current Environmental Laws and all future Environmental Laws and subsequent
interpretations thereof. The term "Environmental Law" includes (i) all
federal, state and local laws, rules, regulations or requirements relating
to the protection of the environment including, without limitation, the
federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
federal Water Pollution Control Act of 1972, the federal Clean Air Act, the
federal Clean Water Act, the federal Resource Conservation and Recovery Act
of 1976 (including the Hazardous and Solid Waste Amendments thereto), the
federal Solid Waste Disposal Act and the federal Toxic Substances Control
Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970, the Federal Hazardous Materials
Transportation Act, or any so-called "Superfund" or "Superlien" law, each
as amended and as now or hereafter in effect, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Material; and (y) "Hazardous Material" means any substance in any
concentration which is or could be detrimental to human health or safety or
to the environment, currently or hereafter listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or by quantity,
including any substance containing any such substance as a component. The
term "Hazardous Material" includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous
waste, special waste, industrial substance, oil or petroleum or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead,
lead-based paint and polychlorinated biphenyl.
A-12
<PAGE> 46
(s) Allowance. The TW Entities have disclosed to the Acquiror in writing
prior to the date hereof the amounts of all loans, leases, advances, credit
enhancements, other extensions of credit, commitments and interest-bearing
assets of the TW Entities with an original principal amount in excess of
$100,000 that, as of September 30, 1996, have been criticized or classified by
it as "Other Loans Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss," "Classified," "Criticized," "Credit Risk Assets," "Concerned
Loans" or words or concepts of similar import.
(t) Material Interests of Certain Persons. No officer or director of the TW
Entities, or any "associate" (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of any such
officer or director, has any material interest in any material contract or
property (real or personal), tangible or intangible, used in or pertaining to
the business of the TW Entities.
(u) Insurance. The TW Entities are insured for such reasonable amounts with
financially sound and reputable insurance companies, and against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by the TW Entities are in full force and effect, the TW Entities are
not in default thereunder and all material claims thereunder have been filed in
due and timely fashion. No claim by the TW Entities on or in respect of an
insurance policy or bond has been declined or refused by the relevant insurer or
insurers. Between the date hereof and the Effective Time, the TW Entities will
use commercially reasonable efforts to maintain the levels of insurance coverage
in effect on the date hereof.
(v) Books and Records. The books and records of the TW Entities have been,
and are being, maintained in accordance with all applicable legal, regulatory
and accounting requirements and reflect in all material respects the substance
of events and transactions that are required to and should be included therein.
(w) Corporate Documents. Each of the TW Entities has delivered to the
Acquiror true and complete copies of its articles of incorporation and by-laws,
as each of them is in effect on the date hereof.
(x) Company Action. The Board of Directors of each of the TW Entities (at a
meeting duly called and held) has by the requisite vote of all directors present
(i) determined that the Merger is advisable and in the best interests of the TW
Entities and their shareholders, (ii) approved this Agreement, and the
transactions contemplated hereby, and (iii) directed that, subject to the
provisions of applicable law, this Agreement be submitted for approval by the
respective shareholders of the TW Entities.
(y) Indemnification. Other than the indemnification agreements listed in
the TW Disclosure Letter (true and complete copies of which have been delivered
to the Acquiror with the TW Disclosure Letter) and pursuant to the provisions of
its articles of incorporation and by-laws, neither of the TW Entities is a party
to any indemnification agreement with any of its present or former directors,
officers, employees, agents or other persons who serve or served in any other
capacity with any other enterprise at the request of TW Holding (a "Covered
Person").
(z) Loans. Each loan reflected as an asset on the TW Entities' balance
sheets as of December 31, 1995 and each balance sheet date subsequent thereto
(i) is evidenced by notes, agreements or other evidences of indebtedness which
are true, genuine and what they purport to be, and (ii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles.
(aa) Derivatives Contracts; Structured Notes; Etc. Neither of the TW
Entities is a party to or has agreed to enter into an exchange traded or
over-the-counter equity, interest rate, foreign exchange or other swap, forward,
future, option, cap, floor or collar or any other contract that is not fully
disclosed in its most current Reports and financial statements, and is a
derivative contract (including various combinations thereof) (each a
"Derivatives Contract") or owns securities that (i) are referred to generically
as "structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (ii) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of
business,
A-13
<PAGE> 47
consistent with safe and sound banking practices and regulatory guidance, and
listed (as of the date hereof) in the TW Disclosure Letter or disclosed in its
Reports filed on or prior to the date hereof.
(ab) Disclosure. No written statement, certificate, schedule, list or other
written information furnished by or on behalf of the TW Entities to the Acquiror
pursuant to this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 3.4. Representations and Warranties of the Acquiror. The Acquiror
represents and warrants to TW Holding that:
(a) Organization. The Acquiror has been duly organized and is validly
existing in good standing as a federal savings bank under the laws of the United
States. All of the shares of the capital stock of Merger Sub, when issued, will
be owned directly by the Acquiror. The Acquiror has the requisite corporate and
other power and authority to carry on its respective businesses as they are now
being conducted and to own its properties and assets.
(b) Qualifications. The Acquiror is in good standing as a foreign
corporation in each jurisdiction in which the business conducted by it requires
such qualification.
(c) Corporate Authority. The Acquiror has the requisite corporate or other
power and authority and has taken all corporate or other action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of the
Acquiror enforceable against the Acquiror in accordance with its terms, subject
as to enforcement to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting the rights of creditors of federal savings banks and to general
equitable principles regardless of whether such enforcement is sought at law or
in equity.
(d) No Violations. The Acquiror is not in breach or violation or default
under (and no event has occurred which with due notice or lapse of time or both
would constitute a default under) any agreement, indenture or instrument which
breach, violation or default would materially and adversely affect or delay the
ability of the Acquiror to obtain any necessary approvals, consents or waivers
of any governmental authority required for the transactions contemplated hereby
or to perform its covenants and agreements on a timely basis under this
Agreement.
(e) Access to Funds. The Acquiror has, or on the Effective Date will have,
all funds necessary to consummate the Merger and pay the aggregate Merger
Consideration.
(f) Absence of Regulatory Actions. Neither the Acquiror nor any of its
subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
related thereto at the request of any Government Regulator nor has it been
advised by any Government Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking. The Acquiror is not aware of any special facts or
circumstances relating to the Acquiror that have not been disclosed to TW
Holding that would cause any of the Government Regulators or any other person or
entity to fail to give any of the approvals, consents or waivers referred to in
Section 5.1(b).
ARTICLE IV. COVENANTS
Section 4.1. Acquisition Proposals. TW Holding and TW Bank each agrees that
neither it nor any of its officers or directors shall, and each of TW Holding
and TW Bank shall direct and use its best efforts to cause its employees, agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its subsidiaries) not to,
directly or indirectly, initiate, solicit, or encourage, subject to fiduciary
duties, any inquiries or the making of any proposal or offer (including, without
limitation,
A-14
<PAGE> 48
any proposal or offer to shareholders of TW Holding) with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the consolidated assets, deposits or any equity
securities of, the TW Entities (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal ") or, except to the extent legally
required for the discharge by the directors of TW Holding of their fiduciary
duties as advised by legal counsel with respect to an unsolicited offer from a
third party, engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. TW Holding shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties (other than the Acquiror) conducted heretofore with respect to any of
the foregoing. TW Holding will take the necessary steps to inform promptly the
appropriate individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 4.1. TW Holding agrees that it will
notify the Acquiror immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with TW Holding. TW Holding
also agrees that it promptly shall request each other person (other than the
Acquiror) that has heretofore executed a confidentiality agreement in connection
with its consideration of acquiring TW Holding or TW Bank to return all
confidential information heretofore furnished to such person by or on behalf of
TW Holding or TW Bank and enforce any such confidentiality agreements.
Section 4.2. Certain Policies of the TW Entities. At the request of the
Acquiror, TW Holding shall, to the extent consistent with generally accepted
accounting principles, modify and change its loan, litigation and real estate
valuation policies and practices (including loan classifications and levels of
reserves) after the date on which all required regulatory approvals are received
and not earlier than 15 days prior to nor later than the day prior to, the
Effective Time so as to be consistent with those of the Acquiror, taking into
account the Acquiror's intended operations after the closing; provided, however,
that TW Holding shall not be required to take such action unless the Acquiror
agrees in writing that, based on the information provided to it by TW Holding or
otherwise known to the Acquiror at such time, all conditions to the Acquiror's
obligation to consummate the Merger shall have been satisfied. The TW Entities'
representations, warranties and covenants contained in this Agreement shall not
be deemed to be untrue or breached in any respect for any purpose as a
consequence of any modifications or changes undertaken solely on account of this
Section 4.2.
Section 4.3. Employees. (a) Prior to the Effective Time and as soon as
practicable after the date hereof, the Acquiror shall evaluate the employees and
existing operations of the TW Entities to determine which positions in and
employees of the TW Entities will be required for the continuing operations of
the Surviving Corporation and the Acquiror as of and after the Effective Time.
The TW Entities shall cooperate in good faith with the Acquiror in assisting the
Acquiror's investigation by, among other things, making available to the
Acquiror employee evaluations and other records to the extent permitted by law,
and facilitating interviews with TW Entities employees.
(b) Prior to the Effective Time and as soon as practicable after the
receipt of all necessary regulatory approvals to the transactions contemplated
herein, the Acquiror shall identify to the TW Entities those employees of the TW
Entities to whom the Acquiror desires to offer employment as of and after the
Effective Time. Those employees whose positions will be eliminated and to whom
the Acquiror determines not to offer employment shall be given notice prior to
the Effective Date by the TW Entities and the Acquiror of their termination
effective as of the Effective Time. The Acquiror shall endeavor in good faith to
identify employment opportunities for any such employees with the Acquiror. Such
efforts shall include posting of employment opportunities with the Acquiror and
interviewing any such employee of the TW Entities who desires to be considered
for such a position with the Acquiror.
(c) It is the intention of the Acquiror to train all employees of the TW
Entities that the Acquiror expects to employ with the Acquiror in the Acquiror's
procedures prior to the Effective Date. The TW Entities shall cooperate in good
faith with the Acquiror in facilitating such training, including, without
limitation by making such employees available for such training for reasonable
periods during normal business hours.
A-15
<PAGE> 49
(d) Any employee accepting employment with the Acquiror will not receive a
guarantee of any minimum period of employment, it being the intention and
understanding of the parties that such employment shall be solely at the will of
the Acquiror. Employees who are employed by the Acquiror after the Effective
Time will receive credit for their prior service with the TW Entities for
purposes of eligibility and vesting only, and not for purposes of determining
the amount of benefits payable, under the Acquiror's existing employee benefit
plans and programs other than the Acquiror's defined benefit retirement plan, as
to which such employees shall be treated for all purposes as new employees, and
except that such employees shall receive prior service credit for purposes of
determining eligibility for annual amounts of permitted vacation time and for
determining amounts of accrued sick days.
(e) Full time and part time employees of the TW Entities on the date hereof
who are involuntarily terminated other than for cause after the Effective Time
and within one year after the Effective Date shall be eligible for benefits to
the extent and as provided under the TW Retention Bonus Plan attached as Exhibit
B hereto (the "Retention Bonus Plan"). Those employees of the TW Entities that
are terminated as of the Effective Time pursuant to paragraph (b) above shall
also be entitled to benefits under the Retention Bonus Plan.
(f) This Agreement is intended to result solely in the acquisition by the
Acquiror of the TW Entities and is not intended to confer any continuing rights
to employment on the part of the employees of the TW Entities after the
Effective Time. The TW Entities shall make no representations to their employees
regarding employment by the Acquiror. The TW Entities shall remain solely
responsible for their employees, representatives and agents during their
employment with the TW Entities prior to the Effective Time and with respect to
all matters arising during or from such employment with the TW Entities during
such period, including, without limitation, the payment of any accrued vacation
pay, sick pay, severance payments or other payments to which such employees may
be entitled. Such payments and the TW Entities' obligations to make such
payments shall be fully and fairly reflected in the TW Entities' financial
statements prior to and as of the Effective Time to the extent required by
generally accepted accounting principles.
Section 4.4. Access to Information. (a) Upon reasonable notice during the
period prior to the Effective Time, each of the TW Entities shall afford access
to the officers, employees, accountants, counsel and other representatives of
the Acquiror, during normal business hours (provided such access does not
unreasonably interfere with the operations of TW Bank), to all its properties,
books, contracts, commitments, records, officers, employees, accountants,
counsel and other representatives and, during such period, the TW Entities shall
make available to the Acquiror (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal or state securities laws or federal or state
banking laws (other than any reports or documents which the TW Entities are not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as the Acquiror may reasonably
request. The TW Entities shall not be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of the TW Entities' customers, jeopardize any attorney-client
privilege or contravene any law, rule, regulations, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement; provided, that the TW Entities shall make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply that will provide all information to the Acquiror that
may be material to its consideration of the TW Entities. The Acquiror will hold
all such information in confidence in accordance with the provisions of the
confidentiality agreement, dated May 1, 1996, between the Acquiror and TW
Holding (the "Confidentiality Agreement").
(b) No investigation by the Acquiror hereunder shall affect the
representations, warranties, covenants or agreements of the TW Entities herein.
(c) Each of the TW Entities shall promptly after the end of each month
inform the Acquiror of any new criticism or classification of its assets (as
referred to in Section 3.3(s)) that is determined or modified at any time after
the date hereof and of any changes in the TW Entities' allowance for loan and
lease losses from the prior monthend, including an explanation of the reasons
therefor.
A-16
<PAGE> 50
Section 4.5. Regulatory Matters. (a) The parties hereto shall cooperate
with each other and use their best efforts promptly to prepare and file within
thirty days of the date hereof all necessary applications, and thereafter to
effect all documentation, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and governmental authorities which are necessary or advisable
to consummate the transactions contemplated by this Agreement. The TW Entities
and the Acquiror shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
the TW Entities or the Acquiror, as the case may be, and any of their respective
subsidiaries, which appear in any filing made with, or written materials
submitted to, any third party or any governmental authority in connection with
the transactions contemplated by this Agreement. The Acquiror shall provide
copies of all non-confidential portions of applications made by it with the OTS
and shall periodically update the TW Entities on the status of such
applications. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and governmental authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(b) The Acquiror and the TW Entities shall, upon request, furnish each
other with all information concerning themselves, their subsidiaries, directors,
officers and shareholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement (as defined in Section 4.8)
or any other statement, filing, notice or application made by or on behalf of
the Acquiror or the TW Entities to any governmental authority in connection with
the Merger and the other transactions contemplated by this Agreement.
(c) The Acquiror and the TW Entities shall promptly furnish each other with
copies of written communications received by the Acquiror or the TW Entities, as
the case may be, or any of their "affiliates" or "associates" (as such terms are
defined in Rule 12b-2 under the Exchange Act as in effect on the date of this
Agreement) from, or delivered by any of the foregoing to, any governmental
authority in respect of the transactions contemplated hereby.
Section 4.6. Actions. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable best efforts to take
promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
using efforts to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable governmental entities,
effecting all necessary registrations, applications and filings (including,
without limitation, filings under federal and any applicable state securities
laws) and obtaining any required contractual consents and approvals (which shall
be the obligation of the party hereto bound by the contract in question), and
cause the closing of the transactions contemplated hereby to occur as soon as
practicable after the receipt of all approvals, consents and waivers required by
Section 5.1(b). The TW Entities shall also use their best efforts to enable the
Acquiror to succeed to TW Bank's Preferred Lender status under applicable
programs of the United States Small Business Administration (it being understood
that such status is determined solely by the Small Business Administration). In
addition, each of the Acquiror and the TW Entities shall appoint a person who
shall be responsible for coordinating with the other party in order to consider
and respond to any requests for consents hereunder and otherwise to complete the
transactions contemplated hereby as soon as practicable.
Section 4.7. Publicity. The initial press release announcing this Agreement
shall be mutually agreed and, thereafter, subject to the provisions of
applicable law, the TW Entities And the Acquiror shall mutually agree with each
other prior to issuing any press releases or otherwise making any statements,
public or otherwise, with respect to the other or the transactions contemplated
hereby and in making any filings with any governmental entity or with any
national securities exchange with respect thereto.
Section 4.8. Proxy Statement. Within thirty days of the date hereof TW
Holding shall prepare a proxy statement in such form as shall be necessary to
obtain all required shareholder action with respect to the
A-17
<PAGE> 51
Merger and this Agreement (the "Proxy Statement"), shall file the same with the
SEC, and thereafter shall use its best efforts to (i) timely respond to comments
of the staff of the SEC with respect thereto and (ii) promptly mail the Proxy
Statement to all holders of record (as of the applicable record date) of shares
of Holding Common Stock. TW Holding represents and covenants that the Proxy
Statement and any amendment or supplement thereto, at the date of mailing to
shareholders of TW Holding and at all relevant times thereafter, will be in
compliance with all applicable rules and regulations And will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Acquiror and
TW Holding shall cooperate with each other in the preparation of the Proxy
Statement.
Section 4.9. Shareholder Action. TW Holding shall take all action
necessary, in accordance with applicable law and regulations, and its articles
of incorporation and by-laws, to obtain, as promptly as practicable, approval of
this Agreement and the transactions contemplated hereby by the vote of
shareholders of TW Holding required under applicable law and regulations. Except
to the extent legally required for the discharge by such board of directors of
its fiduciary duties as advised in writing by legal counsel, the board of
directors of TW Holding shall recommend to the holders of the Holding Common
Stock that they vote in favor of and approve the Merger and adopt and approve
this Agreement and the transactions contemplated hereby.
Section 4.10. Notification of Certain Matters. The TW Entities shall give
prompt notice to the Acquiror of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by them subsequent to the date of this
Agreement and prior to the Effective Time, under any contract material to the
financial condition, properties, businesses or results of operations of the TW
Entities taken as a whole to which either of them is a party or is subject; (b)
any material adverse change in the financial condition, properties, business or
results of operations of the TW Entities taken as a whole or the occurrence of
any event which, so far as reasonably can be foreseen at the time of its
occurrence, is reasonably likely to result in any such change; and (c) any event
or occurrence which may adversely affect the likelihood that a condition set
forth in Article V will be satisfied. The TW Entities shall give prompt notice
to the Acquiror of any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
Section 4.11. Tax Matters. The TW Entities shall keep the Acquiror fully
apprised of their progress in the preparation of its or their tax returns and
shall provide to the Acquiror copies of draft returns prior to filing. In
addition, the TW Entities agree that they shall consult with the Acquiror prior
to making any significant decisions with respect to tax reporting or other tax
matters, in order to ensure to the extent possible that such decisions are
consistent with the consummation of the transactions contemplated hereby.
Section 4.12. Merger Sub. The Acquiror shall cause Merger Sub to be duly
organized and shall vote its shares of Merger Sub in favor of, and otherwise
cause Merger Sub to take all necessary action to consummate, the transactions
contemplated hereby; provided, however, that the organization of Merger Sub
pursuant to this Section 4.12 shall not be required in the event that the
Acquiror acts to effectuate the transactions contemplated in this Agreement in
an alternative fashion as permitted pursuant to the provisions of Section 1.6.
Section 4.13. Updated Disclosure Letter. The TW Entities shall provide the
Acquiror with an updated TW Disclosure Letter within two days prior to the
Effective Date.
Section 4.14. D&O Insurance. Notwithstanding anything to the contrary set
forth in Section 2.2(f), TW Holding may, prior to the Effective Time, obtain an
extension of coverage commonly referred to as "tail coverage" under its existing
directors and officers liability insurance, within the range of cost and scope
of coverage previously disclosed to the Acquiror, for a period of five years
following the Effective Date. The Acquiror shall not seek an early termination
of such coverage after the Effective Time.
A-18
<PAGE> 52
ARTICLE V. CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to All Parties' Obligations. The respective
obligations of the Acquiror, Merger Sub and TW Holdings to effect the Merger
shall be subject to the satisfaction or waiver prior to the Effective Time of
the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of TW Holding, by the
Acquiror as the sole shareholder of Merger Sub and by the board of directors of
Merger Sub, all in accordance with applicable law.
(b) All necessary regulatory approvals, consents and waivers with respect
to this Agreement and the transactions contemplated hereby shall have been
received and all applicable statutory waiting periods shall have expired;
provided, however, that no approval, consent or waiver referred to in this
Section 5.1(b) shall be deemed to have been received if it shall include any
condition or requirement that, individually or in the aggregate, would
materially and adversely impact the economic and business benefits of the
transactions contemplated hereby to the Acquiror so as to render it inadvisable
in the judgment of the Acquiror to proceed with the transactions contemplated
hereby.
(c) All other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger or any other transaction contemplated by this
Agreement, and no litigation or proceeding shall be pending against the Acquiror
or the TW Entities or any of their subsidiaries brought by any governmental
agency seeking to prevent consummation of the transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated, interpreted, applied or enforced by any
governmental authority which prohibits, or makes illegal consummation of the
Merger or any other transaction contemplated by this Agreement.
Section 5.2. Conditions to Obligations of the Acquiror. The obligations of
the Acquiror and, when duly incorporated, Merger Sub, to effect the Merger shall
be subject to the satisfaction or waiver prior to the Effective Time of the
following additional conditions:
(a) Each of the representations and warranties of the TW Entities contained
in this Agreement shall have been true and correct in all material respects on
the date hereof and shall be true and correct on the Effective Date as if made
on such date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date), with only such
exceptions as are fairly and accurately described in the updated TW Disclosure
Letter provided pursuant to Section 4.14 and are not, individually or in the
aggregate, materially adverse; the TW Entities shall each have performed, in all
material respects, each of its covenants and agreements contained in this
Agreement; there shall have been no material adverse change in the financial
condition, business or assets of the TW Entities taken as a whole since December
31, 1995, it being agreed that a decline in the investment income of the TW
Entities arising solely from the limitations on permitted investments set forth
in Section 2.2(a) shall not in and of itself be deemed to constitute such a
material adverse change; the Acquiror shall have received a certificate signed
by the Chief Executive Officer and the Chief Financial Officer of each of the TW
Entities, dated the Effective Date, to the foregoing effect.
(b) The Acquiror shall have received an opinion, dated the Effective Date,
from counsel to the TW Entities, substantially in the form attached as Exhibit C
hereto, and containing such qualifications and exceptions as are customary in
transactions of this type, and such other documents and certificates as the
Acquiror shall reasonably request or that are customary in transactions of this
type.
(c) The Acquiror shall have received the updated TW Disclosure Letter from
the TW Entities required by Section 4.14.
A-19
<PAGE> 53
(d) Dissenting Shareholders shall have exercised their dissenters rights
with respect to no more than ten percent of the outstanding Holding Common
Stock.
(e) The Shareholder Agreements referred to in the Recitals hereto shall be
in full force and effect and the shareholders of TW Holding signatory thereto
shall be in full compliance with the terms thereof.
Section 5.3. Conditions to Obligations of the TW Entities. The obligation
of the TW Entities to effect the Merger shall be subject to the satisfaction or
waiver prior to the Effective Time of the following additional conditions:
(a) Each of the representations, warranties and covenants of the Acquiror
contained in this Agreement shall have been true and correct on the date hereof
and shall be true and correct on the Effective Date as if made on such date (or
on the date when made in the case of any representation or warranty which
specifically relates to an earlier date), with only such exceptions as are not,
individually or in the aggregate, materially adverse; the Acquiror shall have
performed, in all material respects, each of its covenants and agreements
contained in this Agreement; and TW Holding shall have received certificates
signed by the Chief Executive Officer and the Chief Financial Officer of the
Acquiror, dated the Effective Date, to the foregoing effect.
(b) TW Holding shall have received an opinion, dated the Effective Date,
from counsel to the Acquiror, to the effect that all regulatory approvals,
consents or waivers of governmental authorities that are required to be obtained
by the Acquiror under federal law in order to permit the consummation by it of
the transactions contemplated by this Agreement have been obtained, and all
filings required to be made by the Acquiror under federal law in order to permit
the consummation by it of the transactions contemplated by this Agreement have
been made.
(c) TW Holding shall have received an updated letter from Wedbush Morgan
Securities Inc., dated as of a date within five days of the date of the Proxy
Statement, confirming that in the opinion of such firm the consideration to be
paid to the shareholders of TW Holding in the Merger in exchange for their
shares of TW Common Stock is fair to such shareholders from a financial point of
view.
ARTICLE VI. TERMINATION
Section 6.1. Termination. This Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time, either before or after its approval by
the shareholders of TW Holding:
(a) by the mutual consent of the Acquiror and TW Holding;
(b) by the Acquiror or TW Holding, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event of (i)
the failure of the shareholders of TW Holding to approve this Agreement, or (ii)
a material breach by the other party hereto of any material representation,
warranty, covenant or agreement contained herein which is not cured or not
curable within 30 days after written notice of such breach is given to the party
committing such breach by the other party; provided, however, that neither party
shall have the right to terminate this Agreement pursuant to this Section 6.1(b)
unless any breach of representation or warranty asserted as the basis for such
termination, together with all other such breaches, would entitle the party
receiving such representation or warranty not to consummate the transactions
contemplated hereby under Section 5.2(a) (in the case of a breach of
representation or warranty by the TW Entities) or Section 5.3(a) (in the case of
a breach of representation or warranty by the Acquiror);
(c) by the Acquiror or TW Holding by written notice to the other party if
either (i) the condition set forth in Section 5.1(b) shall not have been
satisfied by the Termination Date; or (ii) any governmental authority of
competent jurisdiction shall have issued a final, unappealable order enjoining
or otherwise prohibiting consummation of the transactions contemplated by this
Agreement; or
(d) by the Acquiror or TW Holding, if its board of directors so determines
by vote of a majority of the members of its entire board, in the event that the
Merger is not consummated by the Termination Date, unless the failure to so
consummate by such time is due to the breach of any material representation,
warranty or covenant contained in this Agreement by the party seeking to
terminate. The term "Termination Date" shall
A-20
<PAGE> 54
mean April 30, 1997; provided, however, that either party hereto shall have the
right to extend such Termination Date for up to an additional 45 days if, prior
to the Termination Date, such party notifies the other party in writing that
such party believes that the approvals, consents or waivers to be obtained by
such party are imminent and a reasonable factual basis for such party's belief
that such approvals, consents or waivers are imminent is set forth in such
written notice.
Section 6.2. Effect of Termination. In the event of the termination of this
Agreement by either the Acquiror or TW Holding, as provided above, this
Agreement shall thereafter become void and, subject to the last sentence of
Section 8.2, there shall be no liability on the part of any party hereto or
their respective officers or directors, except that any such termination shall
be without prejudice to the rights of any party hereto arising out of the
willful breach by any other party of any covenant or willful misrepresentation
contained in this Agreement including, without limitation, rights to recover any
out of pocket or transaction-related expenses arising from the transactions
contemplated by this Agreement.
Section 6.3. Termination Payment. If this Agreement is terminated pursuant
to its terms (other than termination by mutual agreement of the parties pursuant
to Section 6.1(a), termination by either party pursuant to Section 6.1(b)(i) if
there was no Acquisition Proposal and the stockholders signatory to the
Shareholder Agreements referred to in the Recitals hereto have voted for
approval of the Merger, termination solely by TW Holding pursuant to Section
6.1(b)(ii) because of a material breach of this Agreement by the Acquiror, or
termination by either party pursuant to Section 6.1(c) in the event the
governmental or regulatory approvals referred to therein are not given or
received for reasons not relating to an Acquisition Event (as defined below))
and an Acquisition Event shall occur within 12 months after the date of such
termination, TW Holding shall pay the sum of $1,900,000 to the Acquiror
promptly, but in no event later than two business days after the occurrence of
such Acquisition Event, by wire transfer of immediately available Federal Funds
to such account as the Acquiror shall designate. For purposes of this Section
6.3, the term Acquisition Event shall mean any of the following: (i) any person
or entity (other than the Acquiror) shall have acquired, whether pursuant to a
tender offer or otherwise, beneficial ownership of 20% or more of the
outstanding shares of Holding Common Stock; (ii) the Board of Directors of TW
Holding shall fail to recommend, or shall have withdrawn its recommendation, to
the TW stockholders that they vote to approve this Agreement and the Merger; or
(iii) either of the TW Entities shall have recommended or proposed, or shall
have publicly announced an intention to recommend or propose, or shall have
entered into or approved through action of its Board of Directors, an agreement
with any person or entity (other than the Acquiror) to (A) effect a merger,
consolidation or similar transaction involving either of the TW Entities, (B)
sell, lease or otherwise dispose of assets of either of the TW Entities
representing 15% or more of the consolidated assets of either of the TW
Entities, or (C) issue, sell or otherwise dispose of (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of either of the TW Entities. For
purposes of this Agreement, the mere inclusion in the Proxy Statement referred
to in Section 4.8 of a description of an Acquisition Proposal, without
endorsement or recommendation thereof by TW Holding, shall not be deemed a
recommendation or proposal thereof within the meaning of clause (iii) of the
preceding sentence.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time. The Merger shall become
effective when the Merger Agreement is properly filed with the California
Secretary of State in accordance with the applicable provisions of the
California General Corporation Law; provided that, the Articles of Combination
may provide that the Merger shall become effective at a later date or time
designated by the Acquiror and TW Holding. When used in this Agreement, the term
"Effective Date" shall mean the date on which, and the term "Effective Time"
shall mean the date and time at which, the Merger Agreement is filed with the
California Secretary of State (or such later date and time as may be specified
therein).
A-21
<PAGE> 55
ARTICLE VIII. OTHER MATTERS
Section 8.1. Certain Definitions: Interpretation.
(a) As used in this Agreement, the following terms shall have the meanings
indicated:
"person" includes an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization; and
"subsidiary," with respect to a person, means any other person controlled
by such person.
(b) The following terms used in this Agreement are defined in the
respective Sections of this Agreement indicated opposite each such term below:
<TABLE>
<CAPTION>
SECTIONS
------------------
<S> <C>
Acquiror................................................ Preamble
Acquisition Event....................................... 6.3
Acquisition Proposal.................................... 4.1
affiliate............................................... 1.6 and 4.5(c)
Agreement............................................... Preamble
associate............................................... 3.3(t)
BHCA.................................................... Recitals
BIF..................................................... Recitals
Certificate............................................. 1.3(a)
Code.................................................... 3.3(n)
Confidentiality Agreement............................... 4.4(a)
Covered Person.......................................... 3.3(y)
Derivatives Contract.................................... 3.3(aa)
Dissenting Shareholder.................................. 1.2(c)
Dissenting Shares....................................... 1.2(c)
Effective Date.......................................... 7.1
Effective Time.......................................... 7.1
Employee Agreements..................................... 3.3(n)
employee benefit plans.................................. 3.3(n)
Environmental Law....................................... 3.3(r)(ii)
ERISA................................................... 3.3(n)
ERISA Affiliates........................................ 3.3(n)
Exchange Act............................................ 3.3(t)
Exchange Agent.......................................... 1.3(b)
Excluded Shares......................................... 1.2(c)
FDIA.................................................... 3.3(a)(ii)
FDIC.................................................... Recitals
Federal Reserve Board................................... Recitals
Government Regulators................................... 3.3(k)
Hazardous Material...................................... 3.3(r)(ii)
Holding Common Stock.................................... Recitals
Loan Property........................................... 3.3(r)(ii)
Merger.................................................. 1.1
Merger Agreement........................................ 1.1
Merger Consideration.................................... 1.2(a)
Merger Sub.............................................. Recitals
OTS..................................................... Recitals
</TABLE>
A-22
<PAGE> 56
<TABLE>
<CAPTION>
SECTIONS
------------------
<S> <C>
owner or operator....................................... 3.3(r)(i)(I)
person.................................................. 8.1
Proxy Statement......................................... 4.8
Reports................................................. 3.3(g)(i)
Retention Bonus Plan.................................... 4.3(d)
SAIF.................................................... Recitals
SEC..................................................... 3.3(g)
Shareholders Agreement.................................. Recitals
Stock Option Agreement.................................. Recitals
subsidiary.............................................. 8.1
Surviving Corporation................................... 1.1
Termination Date........................................ 6.1(d)
TW Bank................................................. Preamble
TW Disclosure Letter.................................... 3.1
TW Entities............................................. Preamble
TW Holding.............................................. Preamble
</TABLE>
(c) When a reference is made in this Agreement to Articles or Sections such
reference shall be to an Article or a Section of this Agreement unless otherwise
indicated. The table of contents and headings, contained in this Agreement are
for ease of reference only and shall not affect the meaning or interpretation of
this Agreement. Whenever the words "include," "includes," or "including" are
used in this Agreement, they shall be deemed followed by the words "without
limitation", whether or not so stated. Any singular term in this Agreement shall
be deemed to include the plural, and any plural term the singular.
Section 8.2. Survival. Only those agreements and covenants of the parties
that are by their terms applicable in whole or in part after the Effective Time
shall survive the Effective Time. All representations and warranties, and all
other agreements and covenants shall be deemed to be conditions of this
Agreement and shall not survive the Effective Time. If this Agreement shall be
terminated, the agreements of the parties in the last sentence of Sections
4.4(a) and 8.6 shall survive such termination.
Section 8.3. Waiver. Any provision of this Agreement may be: (i) waived by
the party benefited by the provision, or (ii) as permitted by applicable law,
amended or modified (including the structure of the transaction), either prior
to or after this Agreement and the transactions contemplated hereby are approved
by the shareholders of TW Holding; provided, that any such waiver, amendment or
modification shall be effective only if given or made by an agreement in writing
between the parties hereto approved by their respective boards of directors.
Section 8.4. Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
Section 8.5. Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the United States and the State of
California without regard to the conflict of laws principles thereof.
Section 8.6. Expenses. Each party hereto will pay all expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby.
TW Holding shall be liable for all fees and expenses of Wedbush Morgan
Securities, Inc. but shall not be liable for any financial services advisory
fees incurred by the Acquiror. The Acquiror shall not be liable for any
financial services advisory fees incurred by TW Holding, including the fees and
expenses of Wedbush Morgan Securities, Inc.
Section 8.7. Notices. All notices, requests, acknowledgments and other
communications hereunder to a party, or changes to this notice provision, shall
be in writing and shall be deemed to have been duly given when delivered by hand
or private courier, or when transmitted by telecopy or telegram to such party at
its address set forth below or such other address as such party may specify by
notice to the other party hereto.
A-23
<PAGE> 57
If to the TW Entities, to:
David H. Hender
President and Chief Executive Officer
TransWorld Bancorp
15233 Ventura Boulevard
Sherman Oaks, California 91403
Facsimile: (818) 905-7294
With copies to:
Ellen R. Marshall
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92715
Facsimile: (714) 251-0900
If to the Acquiror or Merger Sub:
Richard A. Fink,
Senior Executive Vice President
Glendale Federal Bank, Federal Savings Bank
414 North Central Avenue
Glendale, California 91203
Facsimile: (818) 409-3151
With copies to:
James R. Walther, Esq.
Mayer, Brown & Platt
350 South Grand Avenue
25th Floor
Los Angeles, California 90071
Facsimile: (213) 625-0248
Section 8.8. Entire Agreement; No Third Party Beneficiaries. This
Agreement, the Shareholder Agreements referred to in the Recitals hereto and the
Confidentiality Agreement referenced in Section 4.4(a) represent the entire
agreement and understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made. Nothing in this Agreement is intended to
confer upon any person other than the Acquiror and the TW Entities any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.9. Parties Bound; Assignment. All terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. This Agreement may not be
assigned by any party hereto without the written prior consent of the other
parties hereto.
Section 8.10. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, the remainder of this Agreement and
the application of such provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
Section 8.11. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
A-24
<PAGE> 58
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
GLENDALE FEDERAL BANK, TRANSWORLD BANCORP
FEDERAL SAVINGS BANK
<TABLE>
<S> <C>
By: /s/ RICHARD A. FINK By: /s/ LOUIS J. GALEN
Richard A. Fink Louis J. Galen
Senior Executive Vice President Chairman of the Board of Directors
</TABLE>
By: /s/ DAVID H. HENDER
David H. Hender
President and Chief Executive
Officer
TRANSWORLD BANK
By: /s/ LOUIS J. GALEN
Louis J. Galen
Chairman of the Board of Directors
By: /s/ DAVID H. HENDER
David H. Hender
Vice Chairman and Chief
Executive Officer
A-25
<PAGE> 59
EXHIBIT A
AGREEMENT OF MERGER
BETWEEN
[MERGER SUB]
AND
TRANSWORLD BANCORP
THIS AGREEMENT OF MERGER ("Agreement") is dated as of , 19 and
is entered into between [Merger Sub] ("Merger Sub"), a California corporation,
and TransWorld Bancorp, a California corporation ("TW Holding"), which
corporations are sometimes hereinafter collectively referred to as the
"Constituent Corporations" and, individually as a "Constituent Corporation", on
the basis of the following facts:
A. TW Holding is a corporation duly organized and existing under the laws
of the State of California. TW Holding has authorized capital stock of 6,000,000
shares of common stock, without par value (the "Holding Common Stock"), of which
3,451,715 shares are issued and outstanding at the date hereof.
B. Merger Sub is a corporation duly organized and existing under the laws
of the State of California. Merger Sub has authorized capital stock of
shares of common stock, par value $0.01 per share (the "Merger Sub
Common Stock"), of which shares are issued and outstanding at the date
hereof.
C. Merger Sub is a wholly owned subsidiary of Glendale Federal Bank,
Federal Savings Bank ("Acquiror "). Acquiror, TW Holding and TW Holding's wholly
owned subsidiary, TransWorld Bank, a commercial bank organized under the laws of
the State of California (TW Holding and TransWorld Bank being collectively
referred to herein as the "TW Entities"), are parties to that certain Agreement
and Plan of Merger, dated as of November 1, 1996 (the "Plan of Merger ")
providing for the acquisition of the TW Entities by Acquiror.
D. The Plan of Merger requires Merger Sub and TW Holding to execute and
file this Agreement with the California Secretary of State.
E. The Board of Directors of Acquiror and the respective shareholders and
Boards of Directors of Merger Sub and the TW Entities have each approved the
Plan of Merger, this Agreement and the transactions contemplated thereby and
hereby in accordance with applicable law.
NOW, THEREFORE, the Constituent Corporations hereby agree as follows:
1. Merger. At the Effective Time (as defined below) Merger Sub shall be
merged with and into TW Holding (the "Merger ") in accordance with the
applicable provisions of the California General Corporation Law, and on the
terms and conditions set forth herein. TW Holding shall be the surviving
corporation in the Merger and is referred to in this Agreement in such capacity
as the "Surviving Corporation".
2. Effective Time. The Merger shall be effective at the time (the
"Effective Time") when a copy of this Agreement is filed with the California
Secretary of State in accordance with Section 1103 of the California General
Corporation Law.
3. Effect of Merger. At the Effective Time (i) the separate corporate
existence of Merger Sub shall cease, and (ii) the Surviving Corporation shall
succeed, without other transfer, to all of the assets, rights, properties,
obligations and liabilities of each of the Constituent Corporations and shall be
subject to all the debts and liabilities of each of the Constituent Corporations
in the same manner as if the Surviving Corporation had itself incurred them, all
as provided in the applicable provisions of the California General Corporation
Law. All rights of creditors and all liens upon the property of each of the
Constituent Corporations shall be preserved unimpaired after the Merger,
provided that such liens upon property of a disappearing corporation shall be
limited to the property affected thereby immediately prior to the Effective Time
of the Merger.
<PAGE> 60
4. Conversion of Stock. The manner of converting the shares of the capital
stock of the Constituent Corporations upon the Merger shall, by virtue of the
Merger and without the need of any action on the part of any one thereof or
their respective shareholders, be as follows:
(a) Each share of the Holding Common Stock issued and outstanding
immediately prior to the Effective Time (other than (i) shares of Holding
Common Stock held by any holder (a "Dissenting Shareholder") who shall have
taken the necessary steps to seek appraisal of and to demand payment for
such shares of Holding Common Stock pursuant to the dissenters, rights
provisions of California law ("Dissenting Shares"), and (ii) shares of
Holding Common Stock held as treasury stock by either of the TW Entities
(collectively, the "Excluded Shares")), shall be converted into the right
solely to receive $18.25 in cash, without interest (the "Merger
Consideration"). Dissenting Shares shall be treated as provided in Section
4(c) below. All other Excluded Shares shall be canceled and retired and no
payment shall be made with respect thereto.
(b) Each share of the Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall at the Effective Time be
converted into one share of the common stock of the Surviving Corporation
and shall thereafter constitute all of the issued and outstanding shares of
the capital stock of the Surviving Corporation.
(c) Dissenting Shares shall not be converted into the right to receive
the Merger Consideration at or after the Effective Time unless and until
the holder of such Dissenting Shares withdraws his or her demand for
appraisal and payment with respect to such Dissenting Shares with the
consent of the Acquiror or TW Holding, if such consent is required, or
becomes ineligible for such appraisal and payment. If a holder of
Dissenting Shares shall withdraw in writing his or her demand for such
appraisal and payment with the consent of the Acquiror or TW Holding, if
such consent is required, or shall become ineligible for such appraisal and
payment (through failure to comply with the requirements of applicable law
therefor or otherwise), then, as of the later of the Effective Time or the
occurrence of such event, such holder's Dissenting Shares shall
automatically be converted into and represent the right to receive the
Merger Consideration (without interest thereon). TW Holding shall give the
Acquiror prompt notice of any demands for such appraisal, withdrawals of
demands for such appraisal and any other instruments served pursuant to
applicable law that are received by TW Holding or its representatives. TW
Holding shall not voluntarily make any payment with respect to any such
demands for appraisal and shall not, except with the prior written consent
of the Acquiror, settle or offer to settle any such demands. Each holder of
Dissenting Shares shall have only such rights and remedies as are granted
to such holder under the provisions of applicable law and regulations.
Dissenting Shares shall not, after the Effective Time, be entitled to vote
for any purpose or be entitled to the payment of dividends or other
distributions (except any such dividends or other distributions as may have
been payable to the shareholders of TW Holding of record prior to the
Effective Time).
5. Articles and By-Laws of the Surviving Corporation. At the Effective
Time, the articles of incorporation and by-laws of TW Holding, as in effect
immediately prior to the Effective Time, shall become the articles of
incorporation and by-laws of the Surviving Corporation in accordance with
Section 1103 of the California General Corporation Law.
6. Directors and Officers of the Surviving Corporation. At the Effective
Time, the directors and officers of Merger Sub immediately prior thereto shall
become the directors and officers of the Surviving Corporation.
7. Name of the Surviving Corporation. The name of the Surviving Corporation
shall be TransWorld Bancorp.
-2-
<PAGE> 61
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers pursuant to the approval and authority
duly given by resolutions of their respective Boards of Directors, all as of the
date set forth above.
[MERGER SUB]
By
President
Attest:
Secretary
TRANSWORLD BANCORP
By
President
Attest:
Secretary
-3-
<PAGE> 62
ANNEX II
[LETTERHEAD OF WEDBUSH MORGAN SECURITIES]
January 14, 1997
Board of Directors
TransWorld Bancorp
15233 Ventura Boulevard
Sherman Oaks, CA 91403
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares (the "Shareholders") of common
stock (the "Shares"), of TransWorld Bancorp ("TransWorld" of the consideration
to be received by the Shareholders pursuant to the terms of the Agreement and
Plan of Merger dated as of November 1, 1996 (the "Merger Agreement"), between
Glendale Federal Bank, Federal Savings Bank ("Glendale Federal") and TransWorld.
Pursuant to the Merger Agreement, Merger Sub, a wholly-owned subsidiary of
Glendale Federal, will be merged into TransWorld (the "Merger") and, by virtue
of the Merger, each Share issued and outstanding as of the effective date of the
Merger will be converted into the right to receive solely $18.25 in cash without
interest (the "Merger Consideration"), and TransWorld will offer to purchase
each stock option that has not theretofore been exercised or terminated, whether
or not then otherwise fully vested or fully exercisable, at a price equal to (i)
the difference between (x) the per share amount of the Merger Consideration and
(y) the per share exercise price applicable to such option multiplied by (ii)
the number of such shares of Common Stock then subject to such option. The terms
of the Merger are more fully set forth in the Merger Agreement.
Wedbush Morgan Securities is an investment banking firm and a member of the
New York Stock Exchange and other principal stock exchanges in the United
States, and is regularly engaged as part of its business in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements, secondary distributions of listed
and unlisted securities, and valuations for corporate, estate and other
purposes.
For purposes of this opinion and in connection with our review of the
Merger, we have reviewed, among other things: (i) the Merger Agreement; (ii) the
Preliminary Proxy Statement filed by TransWorld with the Securities and Exchange
Commission on December 11, 1996, and a draft of the final Proxy Statement; (iii)
TransWorld's audited consolidated financial statements and notes thereto and
management's discussion and analysis of the financial condition and results of
operations contained in the Annual Report to Shareholders for each of the five
years ended December 31, 1995; (iv) TransWorld's unaudited consolidated
financial statements and management's discussion and analysis of the financial
condition and results of operations contained in the quarterly reports on Form
10-Q for the periods ended March 31, 1996, June 30, 1996 and September 30, 1996;
(v) certain projections prepared by TransWorld's management with respect to
TransWorld for the year ending December 31, 1996; (vi) views of management
regarding the past and current business operations, financial condition and
future prospects of TransWorld; (vii) the reported market prices and historical
trading activity of TransWorld common stock, including a comparison of certain
financial and stock market information for TransWorld with similar information
for comparable publicly traded securities and indices; (viii) the financial
terms, to the extent publicly available, of certain recent business combinations
in the banking industry; (ix) the current market environment and the California
banking environment in particular; and (x) such other information, studies,
analyses, and examinations as we deemed appropriate.
<PAGE> 63
We have relied upon and assumed without independent verification the
accuracy and completeness of all of the financial and other information provided
to us by TransWorld. We did not make an independent evaluation or appraisal of
the specific assets, the collateral securing the assets or the liabilities of
TransWorld, or the collectibility of any such assets (relying, where relevant,
on the analyses and estimates of TransWorld's management). We were not retained
to and we did not conduct a physical inspection of any of the properties or
facilities of TransWorld, and did not review any individual credit files. With
respect to financial projections prepared by and reviewed with management, we
have assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of the future
financial performance of TransWorld, and that such performance will be realized
in the amounts and in the time periods currently estimated. We have also assumed
that there has been no material change in TransWorld's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements noted above. We further assumed that all conditions to
the Merger Agreement will be satisfied and not waived.
Our opinion is based on economic, market and other conditions as in effect
on, and the information made available to us as of, the date hereof. Events
occurring after the date hereof could materially affect the assumptions used in
preparing this opinion. We have not undertaken to reaffirm or revise this
opinion or otherwise comment upon any events occurring after the date hereof.
We have acted as TransWorld's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. In the past, Wedbush Morgan has
performed investment banking services for TransWorld and has been compensated
for such services.
In the ordinary course of our business, we may actively trade the common
stock of TransWorld and/or Glendale Federal for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in TransWorld and/or Glendale Federal common stock.
It is understood that this letter is for the information of the Board of
Directors of TransWorld and may not be used for any other purpose without our
prior written consent. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy statement distributed in connection with the
Merger.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the Shareholders in the Merger is fair,
from a financial point of view, to the Shareholders.
Very truly yours,
[SIG]
-----------------------------
WEDBUSH MORGAN SECURITIES INC.
-2-
<PAGE> 64
ANNEX III
CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW
SEC. 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET VALUE;
"DISSENTING SHARES"; "DISSENTING SHAREHOLDER". (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SEC. 1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION
APPROVAL; DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND. (a) If, in the case
of a reorganization, any shareholders of a corporation have a right under
Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision
(b) thereof, to require the corporation to purchase their shares for cash, such
corporation shall mail to each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section 152) within 10 days after the
date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304
and this section, a statement of the price determined by the corporation to
represent the fair market value of the dissenting shares, and a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
<PAGE> 65
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SEC. 1302. STAMPING OR ENDORSING DISSENTING SHARES. Within 30 days after
the date on which notice of the approval by the outstanding shares or the notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
SEC. 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE TO BE PAID. (a) If the corporation and the shareholder agree
that the shares are dissenting shares and agree upon the price of the shares,
the dissenting shareholder is entitled to the agreed price with interest thereon
at the legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the corporation
and the holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SEC. 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE DISSENTING
SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH; JOINDER OF
SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES; APPOINTMENT OF
APPRAISERS. (a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
-2-
<PAGE> 66
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF REPORT;
DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND PAYMENT; APPEAL;
COSTS OF ACTION. (a) If the court appoints an appraiser or appraisers, they
shall proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make and
file a report in the office of the clerk of the court. Thereupon, on the motion
of any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SEC. 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR
MARKET VALUE; EFFECT. To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market value, they
shall become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
SEC. 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES. Cash dividends
declared and paid by the corporation upon the dissenting shares after the date
of approval of the reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be credited against the
total amount to be paid by the corporation therefor.
SEC. 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF DEMAND
FOR PAYMENT. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SEC. 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS. Dissenting shares lose
their status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
-3-
<PAGE> 67
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION PENDING
LITIGATION. If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SEC. 1311. SHARES TO WHICH CHAPTER INAPPLICABLE. This chapter, except
Section 1312, does not apply to classes of shares whose terms and provisions
specifically set forth the amount to be paid in respect to such shares in the
event of a reorganization or merger.
SEC. 1312. ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER;
RIGHTS OF SHAREHOLDERS; BURDEN OF PROOF. (a) No shareholder of a corporation who
has a right under this chapter to demand payment of cash for the shares held by
the shareholder shall have any right at law or in equity to attack the validity
of the reorganization or short-form merger, or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test whether
the number of shares required to authorize or approve the reorganization have
been legally voted in favor thereof; but any holder of shares of a class whose
terms and provisions specifically set forth the amount to be paid in respect to
them in the event of a reorganization or short-form merger is entitled to
payment in accordance with those terms and provisions or, if the principal terms
of the reorganization are approved pursuant to subdivision (b) of Section 1202,
is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
-4-
<PAGE> 68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 0-10692
TRANSWORLD BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(818) 783-7501
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- -------------------------------------------- --------------------------------------------
<S> <C>
COMMON STOCK NASDAQ (OVER-THE-COUNTER)
</TABLE>
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months(or for such shorter period that the
registrant was required to file such reports), and(2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $23,904,450
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 2,761,546 shares of
common stock as of MARCH 14, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 69
PART 1
ITEM 1 -- BUSINESS
GENERAL:
TransWorld Bancorp (the "Bancorp" or "Company") is a California one-bank
holding company organized in 1982 which acquired, in October 1982 under a Plan
of Reorganization and Merger, TransWorld Bank (the "Bank") through approval by
the shareholders and regulatory agencies. Since the Bank continues to be the
only holding of the Bancorp, our discussion will refer to the business of the
Bank.
The Bank, which was incorporated in January 1953, offers a full range of
commercial banking services, including commercial and industrial loans, various
types of consumer loans, real estate loans, checking and savings deposits, safe
deposit boxes, escrow, bankcard merchant services and other customary
non-deposit banking services. The Bank does not have a trust department.
The Bank's customers consist principally of middle market businesses
located in, and individuals who live or work in, Los Angeles and adjacent areas.
The Bank emphasizes personal service in its marketing efforts directed to these
customers. The Bank's operations are conducted through a system of nine banking
offices in Los Angeles County and two offices in Ventura County. Its main office
is in Sherman Oaks and branch offices are located in Canyon Country, Chatsworth,
Granada Hills, North Hollywood, Pacoima, San Fernando, Woodland Hills,
Northridge, Thousand Oaks and Camarillo. All of the Bank's services are offered
at each office. Presently, the Bancorp has no plans to go into any other of the
permissible activities of a holding company.
COMPETITION:
The Bank faces strong competition in attracting deposits and loans. The
Bank's principal competition for deposits comes from other banks, savings and
loan associations, credit unions, and money market funds. Additional competition
for deposits during high interest rate periods comes from government and private
issuers of debt obligations and other investment alternatives for depositors.
The Bank's principal competitors for loans are other commercial banks, savings
and loan associations, insurance companies, credit unions, finance companies,
savings banks and credit companies such as GMAC, Ford and Chrysler Credit.
The Los Angeles County area contains offices of many of the nation's
largest banks and savings and loan associations, each of which has greater
financial (and other) resources than does the Bank. Among the advantages such
major banks have over the Bank is the ability to conduct large advertising
campaigns and to allocate their investment assets, including loans, to regions
of highest demand and yield. These institutions have higher lending limits than
does the Bank and generally perform certain functions including trust,
investment and international banking services which the Bank is not equipped to
offer. The general strategy of the Bank is to compete with these major and
regional banks by focusing on the small-and medium-sized business and
professional segments of the market and providing more personalized service. The
Bank also competes with other banks of comparable size in the Los Angeles area.
The Bank's services are generally similar to those of banks of comparable size,
i.e., money market accounts, certificates of deposit, checking, savings plans,
consumer, real estate and commercial lending; most comparable banks do not offer
trust services. Competition with banks of comparable size revolves mainly around
service, pricing of loans, and on interest rates paid for deposits.
EMPLOYEES:
At December 31, 1995, the Bank had 212 full-time and 36 part-time
employees. Employees are provided with a wide variety of employment benefits.
The Bank's employees are not represented by any union or other collective
bargaining agent, and the Bank considers its relations with its employees to be
excellent.
SUPERVISION AND REGULATION:
The Bancorp is subject to regulation and supervision by the Federal Reserve
Bank ("FRB"). The Bancorp is also subject to certain reporting requirements of
the Securities and Exchange Commission
1
<PAGE> 70
("SEC"), including the requirement that it file with the SEC annual, quarterly,
and current reports under the 1934 Act. The Bancorp's proxy solicitation
materials must be submitted to the SEC for approval under such Act.
The Bank is subject to regulations, supervision and regular examination by
the California Banking Department and the Federal Deposit Insurance Corporation
("FDIC"), which insures the depositors. The regulations of these agencies affect
most aspects of the Bank's business and prescribe permissible types of loans and
investments, the amount of required reserves, the requirements for branch
offices, the permissible scope of the Bank's activities and various other
requirements. While the Bank is not a member of the Federal Reserve System, it
is nevertheless subject to certain regulations of the FRB.
Federal legislation puts certain restrictions on loans to directors,
officers, and principal shareholders of a bank or of its correspondent banks,
and their associates. All loans to such persons must be made on the same terms
and conditions as comparable loans made to the general public and limits have
been placed on the amounts of such loans that may be made to such persons,
depending upon the purpose for which the loan is made. In the opinion of
management, the Bank is in compliance with such limitations.
INTERSTATE BANKING:
In September 1986, California adopted an interstate banking law. The law
allows California banks and bank holding companies to be acquired by banking
organizations in other states on a "reciprocal" basis (i.e., provided the other
state's laws permit California banking organizations to acquire banking
organizations in that state on substantially the same terms and conditions
applicable to banking organizations solely within that state). Effective January
1, 1991, the law allowed interstate acquisitions on a national "reciprocal"
basis.
While it would appear that the enactment of this law has contributed to the
heightened level of merger and acquisition activity involving California banking
organizations, it is impossible to predict what effect, if any, the California
interstate banking law will have on the Company or the market for the Company's
common stock in the future.
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-balancesheet
items into account when assessing capital adequacy, and minimize disincentives
to holding liquid low-risk assets.
In addition, the achievement of a minimum leverage ratio of 4% is required.
The leverage ratio basically consists of stockholders' equity divided by average
total assets. As in the case of the risk-based capital those with high or
inordinate levels of risk will be expected to maintain capital well above the
minimum level. The leverage ratio will operate in conjunction with the
risk-based capital guidelines.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
REQUIRED 1995 1994
-------- ----- -----
<S> <C> <C> <C>
Risk-based capital:
Tier I........................................... 4.0% 15.42% 13.72%
Tier II.......................................... 8.0% 16.62% 14.84%
Leverage ratio................................... 4.0% 8.43% 6.69%
</TABLE>
2
<PAGE> 71
STATISTICAL DISCLOSURE
I. A & B DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
ASSETS
<TABLE>
<CAPTION>
1995 1994 1993
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans and leases:(1)(2)
Real Estate........................ $ 50,646 $ 5,520 10.9% $ 53,528 $ 5,161 9.6% $ 54,808 $ 4,895 8.9%
Commercial (3)..................... 60,403 6,398 10.6 53,650 5,011 9.3 55,362 4,540 8.2
Installment........................ 11,839 1,283 10.8 13,828 1,364 9.9 18,935 1,916 10.1
Lease financing.................... 1,249 113 9.0 956 95 9.9 918 110 12.0
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total loans and leases........... 124,137 13,314 10.7 121,962 11,631 9.5 130,023 11,461 8.8
Investment securities: (3)
Taxable............................ 145,181 8,748 6.0 110,572 5,817 5.3 70,699 3,911 5.5
Non-taxable........................ 14,573 1,062 7.3 14,641 1,083 7.4 13,485 1,067 7.9
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total securities................. 159,754 9,810 6.1 125,213 6,900 5.5 84,184 4,978 5.9
Federal funds sold................... 57,551 3,431 6.0 70,900 3,004 4.2 62,645 1,893 3.0
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total earning assets............. $341,442 $ 26,555 7.8% $318,075 $ 21,535 6.8% $276,852 $ 18,332 6.6%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Cash and due from banks.............. 25,043 25,743 21,416
Premises and equipment............... 3,435 3,557 3,837
Real estate owned.................... 982 2,153 1,596
Other non-earning assets............. 2,610 2,023 1,519
-------- -------- --------
Total assets..................... $373,512 $351,551 $305,220
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Interest bearing demand.......... $ 30,070 $ 301 1.0% $ 33,179 $ 333 1.0% $ 28,181 $ 351 1.2%
Money market savings............. 67,741 1,956 2.9 80,043 2,003 2.5 75,800 1,941 2.6
Regular savings.................. 50,462 1,164 2.3 53,865 1,144 2.1 42,410 934 2.2
Time Deposits.................... 64,801 3,255 5.0 49,048 1,693 3.5 50,713 1,738 3.4
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
deposits..................... 213,074 6,676 3.1 216,135 5,173 2.4 197,104 4,964 2.5
Securities sold under repurchase
agreements....................... 20,879 937 4.5 257 7 2.7 8 0 3.7
Interest bearing demand notes
issued to the U.S. Treasury...... 2,760 131 4.7 2,748 91 3.3 2,879 80 2.8
Mortgage indebtedness and
obligation under capital lease... 230 37 16.1 260 41 15.8 357 39 10.9
Other.............................. 0 11 0 0 0 0 0 0 0
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing
liabilities.................... $236,943 $ 7,792 3.3% $219,400 $ 5,312 2.4% $200,348 $ 5,083 2.5%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Noninterest bearing demand
deposits......................... 107,484 107,020 81,783
Other noninterest bearing
liabilities...................... 1,484 1,132 776
-------- -------- --------
Stockholders' equity............... 27,601 23,999 22,313
-------- -------- --------
Total liabilities and stockholders'
equity........................... $373,512 $351,551 $305,220
-------- -------- --------
Net yield on earning assets........ 5.5% 5.1% 4.8%
---- ---- ----
</TABLE>
- ---------------
(1) Includes non-accrual loans.
(2) Interest income includes loan fees of $178,000 in 1995, $171,000 in 1994 and
$231,000 in 1993.
(3) Interest income and the average yield are presented on a fully taxable
equivalent basis using a tax rate of 34%. The resulting tax equivalent
adjustments are $367,000 in 1995, $374,000 in 1994 and $371,000 in 1993.
3
<PAGE> 72
I. C
The following table sets forth for the periods indicated a summary of the
changes (increase (decrease)) in interest earned and interest paid resulting
from changes in volume and changes in rates:
<TABLE>
<CAPTION>
CHANGE 1995/1994 CHANGE 1994/1993
---------------------------------- ----------------------------------
DUE TO DUE TO
TOTAL YIELD/RATE(1) VOLUME(2) TOTAL YIELD/RATE(1) VOLUME(2)
------ ------------- --------- ------ ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and leases:
Real estate.................................. $ 359 $ 637 $ (278) $ 266 $ 380 $ (114)
Commercial................................... 1,387 756 631 471 611 (140)
Installment.................................. (81) 115 (196) (552) (35) (517)
Lease financing.............................. 18 (11) 29 (15) (20) 5
------ ------ ------ ------ ------- ------
Total loans and leases..................... 1,683 1,497 186 170 936 (766)
Investment securities:
Taxable........................................ 2,931 1,110 1,821 1,906 (300) 2,206
Non-taxable.................................... (21) (16) (5) 16 (75) 91
------ ------ ------ ------ ------- ------
Total investment securities.................. 2,910 1,094 1,816 1,922 (375) 2,297
Federal funds sold............................. 427 993 (566) 1,111 862 249
Total interest income........................ $5,020 $ 3,584 $ 1,436 $3,203 $ 1,423 $ 1,780
====== ====== ====== ====== ======= ======
INTEREST EXPENSE
Deposits:
Interest bearing demand...................... $ (32) $ (1) $ (31) $ ( 18) $ ( 80) $ 62
Money market savings......................... (47) 261 (308) 62 (47) 109
Regular savings.............................. 20 92 (72) 210 (42) 252
Time Deposits................................ 1,562 1,018 544 (45) 12 (57)
------ ------ ------ ------ ------- ------
Total interest on deposits................. 1,503 1,370 133 209 (157) 366
Securities sold under repurchase agreements.... 930 368 562 7 0 0
Interest bearing demand notes issued to the
U.S. Treasury................................ 40 40 0 11 15 (4)
Mortgage indebtedness and obligation under
capital lease................................ (4) 1 (5) 2 13 (11)
Other.......................................... 11 0 0 0 0 0
------ ------ ------ ------ ------- ------
Total interest expense..................... 2,480 1,779 690 229 (129) 351
------ ------ ------ ------ ------- ------
Net interest income............................ $2,540 $ 1,805 $ 746 $2,974 $(1,552) $ 1,429
====== ====== ====== ====== ======= ======
</TABLE>
- ---------------
(1) Change in yield/rate multiplied by volume of current period, this includes
changes in rate/volume (change in yield/rate multiplied by change in
volume).
(2) Changes in volume multiplied by yield/rate of prior period, this includes no
changes in rate/volume.
4
<PAGE> 73
II. INVESTMENT PORTFOLIO
The carrying value of investment securities is presented below for each
reported period:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities........................................................ $ 2,988 $ 2,997 $ 2,000
U.S. Government agencies and corporations....................................... 107,782 86,606 56,722
U.S. Government agencies mortgage-backed securities............................. 7,317 7,192 5,777
Obligations of states and political subdivisions................................ 23,097 32,112 23,420
Corporate debt securities....................................................... -- -- --
Equity securities............................................................... -- -- --
-------- -------- -------
Total investment securities held to maturity.................................. $141,184 $128,907 $ 87,919
======== ======== =======
Investment securities available for sale:
U.S. Government agencies and corporations....................................... $ 11,655 $ 13,933 $ --
Obligations of state and political subdivisions................................. -- 253 --
Corporate debt securities....................................................... 7,502 5,193 6,983
Equity securities............................................................... 4,000 4,000 5,500
-------- -------- -------
Total investment securities available for sale................................ $ 23,157 $ 23,379 $ 12,483
======== ======== =======
</TABLE>
The maturity distribution of investment securities at December 31, 1995
together with weighted average yields (effective yields weighted for scheduled
maturities) for each range of maturity are presented below:
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN FIVE WITHIN TEN AFTER
ONE YEAR YEARS YEARS TEN YEARS
--------------- --------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------- ----- ------ ----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity at cost:
U.S. Treasury securities........................... $ 999 7.44% $ 1,989 6.00% $ -- --% $ -- --%
U.S. Government agencies and corporations.......... 84,815 5.99 22,967 6.13 -- -- -- --
U.S. Government agencies mortgage-backed
securities....................................... 384 8.36 4,858 6.61 1,872 6.51 203 8.09
Obligations of states and political subdivisions... 12,513 6.32 10,042 7.05 542 6.22 -- --
------- ---- ------- ---- ------ ---- ---- ----
Total investment securities held to maturity..... $98,711 6.06% $39,856 6.42% $2,414 6.45% $203 8.09%
======= ==== ======= ==== ====== ==== ==== ====
Investment securities available for sale at market
value:
U.S. Government agencies and corporations.......... $10,008 6.49% $ 1,647 5.76% $ -- --% $ -- --%
Corporate debt securities.......................... 3,369 6.04 4,133 7.02 -- -- -- --
Equity securities.................................. 4,000 6.32 -- -- -- -- -- --
------- ---- ------- ---- ------ ---- ---- ----
Total investment securities available for sale... $17,377 6.36% $ 5,780 6.66% $ -- --% $ -- --%
======= ==== ======= ==== ====== ==== ==== ====
</TABLE>
- ---------------
* Yields on tax-exempt obligations computed on tax equivalent basis using the
composite tax rate of 34%.
5
<PAGE> 74
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
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural............................ $ 66,209 $ 59,575 $ 54,872 $ 56,150 $ 58,672
Real estate
Mortgage......................................................... 48,701 48,371 48,600 46,656 40,910
Construction..................................................... 1,747 3,593 7,386 4,493 13,910
Installment........................................................ 10,971 12,409 16,252 22,139 35,328
Lease financing.................................................... 1,242 1,261 786 1,149 1,640
-------- -------- -------- -------- --------
Total loans and leases..................................... $128,870 $125,209 $127,896 $130,587 $150,460
======== ======== ======== ======== ========
</TABLE>
B. The following table summarizes the maturity distribution of loans, net
of unearned income of $161,000 and non-accrual loans of $665,000 (excluding
installment loans, real estate mortgage loans and lease financing receivables)
by interest rate structure at December 31, 1995:
<TABLE>
<CAPTION>
AFTER ONE BUT AFTER
WITHIN FIVE YEARS FIVE YEARS
------------------- -------------------
WITHIN FIXED FLOATING FIXED FLOATING
ONE YEAR RATE RATE RATE RATE TOTAL
-------- ------ -------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural.............. $58,745 $6,799 $ -- $ -- $ -- $65,544
Real estate construction............................. 1,747 -- -- -- -- 1,747
------- ------ ------ ------ ------ -------
Total........................................ $60,038 $6,799 $ -- $ -- $ -- $67,291
======= ====== ====== ====== ====== =======
</TABLE>
C. Risk Elements
1. Non-accrual, Past Due and Restructured Loans
Following is a schedule of non-accrual, past due and restructured loans
along with the associated interest income for the loans on non-accrual:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------- --------------------------------- ---------------------------------
INTEREST INTEREST INTEREST
GROSS INCLUDED GROSS INCLUDED GROSS INCLUDED
PRINCIPAL INTEREST IN PRINCIPAL INTEREST IN PRINCIPAL INTEREST IN
AMOUNT INCOME NET INCOME AMOUNT INCOME NET INCOME AMOUNT INCOME NET INCOME
--------- -------- ---------- --------- -------- ---------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans..... $ 1,025 $111 $5 $ 1,123 $202 $ 28 $ 1,033 $ 82 $ 21
Accruing loans past
due 90 days or
more................ 5 456 432
Restructured loans.... -- -- --
------ ------ ------
Total non-performing
loans............. $ 1,030 $ 1,579 $ 1,465
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1992 1991
--------------------------------- ---------------------------------
INTEREST INTEREST
GROSS INCLUDED GROSS INCLUDED
PRINCIPAL INTEREST IN PRINCIPAL INTEREST IN
AMOUNT INCOME NET INCOME AMOUNT INCOME NET INCOME
--------- -------- ---------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans..................................... $ 1,124 $143 $ 7 $ 1,088 $120 $ 69
Accruing loans past due 90 days or more............... 679 941
Restructured loans.................................... -- --
------ ------
Total non-performing loans.......................... $ 1,803 $ 2,029
====== ======
</TABLE>
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.
6
<PAGE> 75
2. Potential Problem Loans
None
3. Foreign Outstandings
None
4. Loan Concentrations
None
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Non-performing loans to total loans.................................... 0.80% 1.26% 1.15% 1.38% 1.35%
Non-performing assets to total assets.................................. 0.48% 1.01% 1.18% 1.64% .80%
Loan loss allowance to non-performing loans............................ 221.55% 128.75% 138.50% 78.54% 74.17%
Loan loss and ORE allowance to non-performing assets................... 137.98% 57.63% 57.36% 37.23% 74.17%
</TABLE>
IV. SUMMARY OF CREDIT LOSS EXPERIENCE
A. The following summarizes the reserve for credit losses for the five
years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................................... $2,033 $ 2,029 $ 1,416 $1,505 $ 2,364
Provision charged to operations................................... 830 921 1,711 745 1,050
Recoveries:
Commercial, financial and agricultural.......................... 29 22 31 29 24
Real estate -- construction..................................... -- -- -- -- --
Real estate -- mortgage......................................... -- 27 -- -- --
Installment..................................................... 86 52 77 25 42
Lease financing................................................. 1 8 -- 1 87
------ ------- ------- ------ -------
Total recoveries.......................................... 116 109 108 55 153
Charge-offs:
Commercial, financial and agricultural.......................... 182 569 782 444 1,759
Real estate -- construction..................................... -- -- -- -- --
Real estate -- mortgage......................................... 4 -- 120 -- --
Installment..................................................... 511 442 304 426 303
Lease financing................................................. -- 15 -- 19 --
------ ------- ------- ------ -------
Total charge-offs......................................... (697) (1,026) (1,206) (889) (2,062)
Net charge-offs................................................... (581) (917) (1,098) (834) (1,909)
Balance at end of period.......................................... $2,282 $ 2,033 $ 2,029 $1,416 $ 1,505
====== ======= ======= ====== =======
Ratio of net charge-offs during the period to average loans
outstanding..................................................... 0.47% 0.75% 0.84% 0.62% 1.31%
</TABLE>
The amount charged to operations during the year and the related balance in
the reserve for credit losses is based on periodic evaluations of the loan
portfolio by senior management. These evaluations consider several factors
including, but not limited to, examinations of monthly reports from the loan
adjustment department, examinations done by the Federal and State regulators,
loan portfolio composition, economic factors, and prior credit loss experience.
As a result of provisions made pursuant to these evaluations, it is
management's opinion that the aggregate reserves of the Bank are currently
sufficient to provide for possible losses in the Bank's loan portfolio. However,
since each of the criteria is subject to change, there can be no assurance that
the Bank may not, in subsequent years, sustain actual losses which are
substantial in relationship to the size of the reserve.
7
<PAGE> 76
IV. SUMMARY OF CREDIT LOSS EXPERIENCE (CONTINUED)
B. The following allocation is based primarily on analysis of prior loss
experience, present and anticipated volume levels by individual categories and
on management's evaluation of prevailing economic conditions as they may affect
segments of the portfolio. Accordingly, since each of these criteria is subject
to change, the allocation of the reserve below is not necessarily indicative of
the trend of future loan losses in any particular loan category.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural........... $1,070 47% $ 899 48% $1,124 43% $ 910 43% $1,050 39%
Real estate.............. 785 34 874 41 488 44 303 39 120 36
Installment.............. 417 18 249 10 417 13 173 17 315 24
Lease financing.......... 10 1 11 1 -- -- 30 1 20 1
------ --- ------ --- ------ --- ----- --- ------ ---
Total reserve for
credit
losses......... $2,282 100% $2,033 100% $2,029 100% $1,416 100% $1,505 100%
------ --- ------ --- ------ --- ----- --- ------ ---
</TABLE>
The 1995 loss expectations are based upon a review of historical loan
charge-offs by category, a comparison of loan portfolio mix by category, and the
Company's internal classifications. Changes in market conditions and the loan
portfolio could cause an increase in actual losses.
V. DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand................................ $107,484 -- $107,020 -- $ 81,783 --
Interest bearing demand................................... 30,070 1.0% 33,179 1.0% 28,181 1.2%
Money market savings...................................... 67,741 2.9% 80,043 2.5% 75,800 2.6%
Regular savings........................................... 50,462 2.3% 53,865 2.1% 42,410 2.2%
Time deposits............................................. 64,801 5.0% 49,048 3.5% 50,713 3.4%
------- --- ------- --- ------- ---
Total deposits.......................................... $320,558 $323,155 $278,887
======= ======= =======
</TABLE>
The following table sets forth, by time remaining to maturity, time
certificates of deposit of $100,000 and over outstanding at December 31, 1995:
<TABLE>
<CAPTION>
REMAINING MATURITY OF TIME CERTIFICATES OF DEPOSITS (IN THOUSANDS)
--------------------------------------------------------------------
<S> <C>
Three months or less................................................ $ 27,557
Over three through six months....................................... 4,615
Over six through twelve months...................................... 2,110
Over twelve months.................................................. 100
-------
Total $100,000 time deposits................................ $ 34,382
=======
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Return on average total assets............................................................. 1.08% .73% .45%
Return on average equity................................................................... 14.53% 10.74% 6.19%
Average stockholders' equity to average total assets....................................... 7.40% 6.82% 7.31%
</TABLE>
8
<PAGE> 77
ITEM 2 -- PROPERTIES
The Bancorp's and Bank's administrative offices and the Bank's main banking
office in Sherman Oaks, and branch offices in Camarillo, Chatsworth, Northridge,
Granada Hills, North Hollywood, San Fernando, Thousand Oaks, Woodland Hills and
a service center in Chatsworth are leased under long-term leases with
expirations at various dates from 1996 through 2013. The Bank has renewal
options under such leases, other than the lease for its Woodland Hills premises,
ranging from 5 to 10 years. The Bank owns the land and buildings for its Pacoima
and Canyon Country offices.
ITEM 3 -- LEGAL PROCEEDINGS
The Bank is involved as plaintiff or defendant in various legal actions
incident to its business, none of which is believed by management to be material
to the Bank's financial condition.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Bancorp's Common Stock trades on the NASDAQ stock market under the
symbol TWBC. Daily quotations can be found in the Wall Street Journal and major
newspapers.
The prices of the Bancorp's Common Stock ranged as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ---------------------------------
BY QUARTER 1ST* 2ND 3RD 4TH 1ST 2ND 3RD 4TH
- -------------------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price
High.......................... $20.25 $12.75 $13.75 $15.25 $16.00 $15.00 $16.00 $16.75
Low........................... $ 9.63 $10.50 $12.50 $13.00 $13.00 $13.75 $14.25 $15.25
</TABLE>
- ---------------
* A two-for-one split was paid March 7, 1995 to stockholders of record on
February 24, 1995.
The Bancorp had approximately 1,633 stockholders of record as of December
31, 1995.
The following investment banking firms were making a market in the
Bancorp's Common Stock at December 31, 1995:
Herzog, Heine, Geduld, Inc.
Hoefer & Arnett, Inc.
Sutro & Co., Inc.
Wedbush Morgan Securities, Inc.
Source: National Association of Securities Dealers, Inc.
The Transfer Agent and Registrar is First Interstate Bank of California,
Los Angeles, California.
9
<PAGE> 78
ITEM 6 -- SELECTED FINANCIAL DATA
Consolidated Five-year Financial Summary
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income................... $ 26,188 $ 21,161 $ 17,961 $ 18,061 $ 21,527
Interest expense.................. (7,792) (5,312) (5,083) (5,762) (8,722)
--------- --------- --------- --------- ---------
Net interest income............. 18,396 15,849 12,878 12,299 12,805
Noninterest income................ 4,088 3,878 4,823 4,606 3,791
Provision for credit losses....... (830) (921) (1,711) (745) (1,050)
Noninterest expense............... (15,195) (14,856) (14,462) (13,403) (13,002)
--------- --------- --------- --------- ---------
Income before income tax.......... 6,459 3,950 1,528 2,757 2,544
Income tax........................ (2,448) (1,381) (337) (856) (754)
--------- --------- --------- --------- ---------
Income before accounting change... 4,011 2,569 1,191 1,901 1,790
Cumulative affect of accounting
change.......................... -- -- 190 -- --
--------- --------- --------- --------- ---------
Net income........................ $ 4,011 $ 2,569 $ 1,381 $ 1,901 $ 1,790
========= ========= ========= ========= =========
Weighted average shares
outstanding..................... 3,448,037 3,417,098 3,417,098 3,417,098 3,416,324
Net income per share before
accounting change............... $ 1.16 $ 0.75 $ 0.35 $ 0.56 $ 0.52
Cumulative effect of accounting
change.......................... -- -- 0.05 -- --
--------- --------- --------- --------- ---------
Net income per share.............. $ 1.16 $ 0.75 $ 0.40 $ 0.56 $ 0.52
========= ========= ========= ========= =========
At Year End: (in thousands)
Total Assets...................... $ 359,924 $ 371,152 $ 313,386 $ 251,218 $ 253,470
Deposits.......................... $ 318,695 $ 341,585 $ 285,997 $ 224,018 $ 228,135
Loans and Leases.................. $ 128,870 $ 125,209 $ 127,896 $ 130,587 $ 150,460
Capital lease..................... $ 113 $ 120 $ 125 $ 129 $ 132
Long term debt.................... $ -- $ -- $ -- $ -- $ 250
Shares outstanding................ 3,451,462 3,417,098 3,417,098 3,417,098 3,417,098
</TABLE>
The above summary of operations is not covered by the independent auditors'
report. This summary should be used in conjunction with the consolidated
financial statements and related footnotes included elsewhere in this report.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FINANCIAL HIGHLIGHTS OVERVIEW
TransWorld Bancorp had the highest yearly earnings in its history during
1995. Earnings were up $1,442,000, or 56% over 1994, also a record year, with
1994 increasing 86% over 1993. The positive earnings trend has occurred despite
a Southern California economy that is still recovering from the 1993 recession.
Return on average equity was 14.5%, up from 10.8% in 1994 and 6.2% in 1993.
The Company declared a 2 for 1 stock split that was paid March 7, 1995.
Adjusting for the split, the per share price increased by approximately 90% from
December 1994 to December 1995. The Board of Directors also declared a 5 for 4
stock split on January 30, 1996. This ninth stock dividend in the past nine
years was paid on March 15, 1996 to shareholders of record on February 23, 1996.
All of the per share figures in this report have been adjusted for both of these
stock splits.
Loans and leases outstanding increased by $3,661,000, or 3%, reversing a
trend of declining loan totals during this last recessionary period. The
increase in loans helped improve net interest income, as did interest
10
<PAGE> 79
earned on the investment portfolio, the two primary factors behind the increase
in net income. 1995's return on average assets improved to 1.08% compared to
0.73% in 1994 and 0.45% in 1993.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased for the second year in a row, rising by
$2,547,000, or 16%, over 1994. Net interest income for 1994 was up 23% over 1993
which in turn was up 5% over 1992. The 1995 increase came from a shift to higher
yielding earning assets as well as increased yields across all earning asset
categories. The increase in net interest income in 1994 came from improved
yields on earning assets as well as growth in total earning assets. The net
interest margin on earning assets was 5.5% in 1995 compared with 5.1% in 1994
and 4.8% in 1993.
Interest and fees on loans improved by $1,684,000, or 14%, over 1994 due to
improved yields, versus growth of only $171,000, or 1% in 1994. Prime rate
increases in the fourth quarter of 1994 and again in February of 1995 increased
loan yield, but were partially offset by the prime rate reduction in June of
1995 and again in December of 1995. The latest reductions in prime rate will
have a negative impact on 1996 yields which optimally will be offset by
increasing the loans outstanding.
Interest earned on the investment portfolio (on a fully taxable equivalent
basis) grew by $2,910,000, or 42% compared to 39% growth in 1994 and 13% growth
in 1993. The improved 1995 results were due to both an increase in the average
level of the securities portfolio and an increase in the portfolio yield from
5.5% in 1994 to 6.1% in 1995. The portfolio yield increased because rates
available in the bond market were up and we were able to use our liquidity to
invest in securities. We were also able to take advantage of the rising rate
environment by investing cash from maturing securities. Maintaining yield
without lengthening maturities or increasing risk is our primary investment
objective in 1996.
Interest expense increased during 1995 by $2,480,000, or 47%, compared to
an increase of 5% in 1994 and a decrease of 12% in 1993. The increase by the
Federal Reserve Board in interest rates during 1994 and the beginning of 1995
substantially affected the overall cost of funds which increased from 2.4% in
1994 to 3.3% in 1995, reversing the decrease from 2.5% in 1993 to 2.4% in 1994.
This increase in the cost of liabilities was split mainly between interest paid
on deposits (which was up $1,503,000) and interest paid on securities sold under
agreements to repurchase which increased $930,000. The increase in interest on
repurchase agreements came from the movement of an average $20 million of
deposits into repurchase agreements by a large national customer in the first
quarter of 1995. This company eventually moved their deposits of approximately
$20 million and their repurchase agreements to a large financial institution
with national capabilities in the beginning of the fourth quarter of 1995.
PROVISION FOR CREDIT LOSSES
The credit loss provision charged to expense for 1995 was $830,000, a
decrease from the $921,000 provided for 1994 and the $1,711,000 provided in
1993. The Company was able to reduce its expense provision because of a
reduction in net charge-offs (which declined to $581,000 for 1995 compared to
$917,000 in 1994 and $1,098,000 in 1993). The balance in the reserve for loan
losses has continued to increase over the same time from $2,029,000 in 1993 to
$2,282,000 in 1995. The Company's credit risk analysis indicates that its
current level of reserves is adequate to cover any current known risks in the
portfolio. The current level of reserve to outstanding loans at year end was
1.77%.
The Southern California economy showed modest improvement in the second
half of 1995. We anticipate this will continue through 1996 and, as a result, do
not currently anticipate any material credit erosion in the loan portfolio.
Nonperforming loans at the end of 1995 dropped to $1,032,000, or 0.8% of
outstanding loans and leases compared to $1,579,000, or 1.26% of outstanding
loans and leases at the end of 1994. The Company underwent examinations by the
California State Banking Department in 1994 and the Federal Deposit Insurance
Corporation as of December 31, 1995, both of which management deemed
satisfactory.
11
<PAGE> 80
NONINTEREST INCOME
Noninterest income increased by $210,000, or 5% over 1994, reversing a
decline in noninterest income from 1993 to 1994. The decline in 1994 was due to
sale of the bankcard merchant processing unit in late 1993. The Company
continues to receive income from bankcard merchant servicing but at a smaller,
net of expenses basis from the outsourcing provider. Service charges on deposit
accounts increased by $61,000, or 2%, after decreasing in 1994. Increased sales
of cash management products modestly helped to securities that had been
purchased at discounts.
Other operating income showed the best improvement in the noninterest
income category during 1995, rising $168,000, or 19%, from 1994. The improvement
was generated by the Small Business Administration (SBA) Department during its
second full year of operation. Loan servicing income increased by $30,000 while
fees taken into income from the sale of SBA loans increased from $55,000 in 1993
to $103,000 in 1994 and to $303,000 in 1995. With the temporary shutdown of the
Small Business Administration in Washington in late 1995, income generation from
our SBA department for the first quarter of 1996 will be significantly reduced.
NONINTEREST EXPENSE
The Company was able to control noninterest expenses in 1995, keeping the
overall increase to 2% over 1994 and 5% over 1993. The addition of a new, full
service branch in the second quarter of 1995 was the reason we were not able to
decrease expenses below 1994 levels. As has been pointed out in prior reports,
the first quarter of 1994 was affected by the Northridge earthquake which
accounted for approximately $300,000 in one-time building repair expenses.
The larger than normal 7% increase in salaries and employee benefits can be
attributed to the new office in Camarillo, California. Occupancy expenses
declined by 3% and were not affected by the new office because no lease payments
were due until 1996. Furniture, fixtures and equipment expenses increased due to
the costs of outfitting the new office, while depreciation costs increased for
new computer and ATM equipment in other offices. The Company will continue to
upgrade and replace old computer and ATM equipment in other offices during 1996.
Both occupancy and furniture, fixtures and equipment expense will be impacted in
1996 with the relocation of the San Fernando branch office. This lease expires
in April 1996 and the Company is moving from an office we have occupied for 35
years to new, larger quarters about three blocks away. Rental expenses will be
comparable with the old office but leasehold and equipment expense will be
increased due to the relocation.
The Company lost its North Hollywood branch office to a fire in October,
1995 which destroyed the interior of the office and all its contents. The
exterior structure was also severely damaged. No employees or customers were
hurt as the fire occurred on a weekend. We were able to immediately reestablish
operations and relocated in a trailer while we began the process of rebuilding
the office. The damage, and the additional expenses incurred, are completely
covered by insurance and the Company will suffer no financial loss from the
fire. Deposit and loan totals have not been impacted.
FDIC insurance costs declined substantially from the levels of 1994 and
1993. The reduction is due to a rate reduction by the FDIC because of the Bank
Insurance Fund (BIF) reaching its level of 1.25% of deposits sooner than
expected. The expense for 1996 could be minimal if Congress does not assess
banks to replenish the Savings and Loan Insurance Fund (SAIF). If they do, the
cost will be higher. Data processing costs increased due to volume changes in
the cash management services and services we purchase from third party vendors.
Increases in other operating expenses are due to normal volume growth and
increased pricing on other outside services used by the Company.
ASSETS AND LIABILITIES
It was pointed out last year that one of our primary objectives for 1995
was to increase the size of the loan portfolio. The 3% growth achieved was below
our expectations. Loan activity did not pick up until the fourth quarter of the
year. Positively, unfunded lines of credit increased to $40,062,000 at December
31, 1995 compared to $32,357,000 at the end of 1994 which should manifest in
borrowings when loan demand
12
<PAGE> 81
increases. Based on current conditions we believe commercial customers will
increase use of their lines of credit in 1996.
We also anticipate adding to the investment portfolio during 1996,
primarily in U.S. agency securities in the one-to-five year range. Federal funds
sold should remain approximately 8% of assets. Cash and due from banks decreased
both at year end 1995 and in average balances for the year. The Company has been
able to reduce float, and the average reserve requirement has decreased with the
closure of the large deposit account referred to earlier.
Although noninterest bearing deposits decreased somewhat at year end, the
average outstanding balance for the year was up $464,000 over the average
outstanding for 1994. While interest bearing deposits decreased at year end by
5% the average for the year decreased only 1%. The mix of deposits changed in
1995 as customers moved money from checking and savings and lower yielding money
market accounts into certificates of deposit. This raised our interest costs
during 1995, but since most of these certificates carried maturities of less
than one year, current renewal costs are substantially lower on these CD's.
Other real estate owned (ORE) decreased substantially in 1995, falling from
$2,048,000 to $601,000 at December 31, 1995, primarily as a result of the sale
of one large piece of ORE totaling $1,400,000 in March of 1995. With the economy
improving the Company is not anticipating ORE to increase noticeably in 1996.
Equity capital improved by 17%, or $4,370,000, during 1995, as a result of
an increase in retained earnings and the exercise of employee stock options
totaling $217,000. The unrealized gain/loss on securities available for sale
also improved from a $75,000 loss at December 31, 1994 to a $72,000 gain at
December 31, 1995. These items increased the book value of our common stock from
an adjusted $7.41 at 1994 year end to $8.61 at year end 1995.
LIQUIDITY AND CAPITAL
ASSET/LIABILITY MANAGEMENT
The policy our Asset/Liability Committee uses to maintain and monitor the
Company's sensitivity to changing rates has worked well in helping the Company's
profitability in light of the fluctuations in interest rates, deposits, and
borrowed funds. The Company uses gap analysis to measure interest rate risk in
terms of the mismatch between the stated repricing and maturities of the
Company's earning assets and liabilities within defined time frames. The
Company's cumulative one-year gap position at December 31, 1995 was $36,251,000
or 11% of earning assets as seen in the interest rate sensitivity table. This
means that the Company is asset sensitive and that an increase in interest rates
will cause earnings to increase as a larger portion of assets than liabilities
reprice in 1996. Additionally, the Company is more sensitive to decreases in
interest rates, thus earnings would be impacted if interest rates continue to
drop in 1996.
13
<PAGE> 82
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
IMMEDIATELY 0-3 3-6 6-12 1-5 5
ADJUSTABLE MONTHS MONTHS MONTHS YEARS YEARS
----------- -------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities................... $ -- $ 52,845 $25,268 $37,974 $45,636 $ 2,618
Fed funds sold............... 35,000 -- -- -- -- --
Loans........................ 95,775 6,416 1,496 3,229 21,308 646
-------- --------- ------- ------- ------- --------
TOTAL EARNING ASSETS....... $ 130,775 $ 59,261 $26,764 $41,203 $66,944 $ 3,264
======== ========= ======= ======= ======= ========
SOURCES
Interest bearing deposits.... $ 93,023 $ 84,984 $19,994 $13,719 $ 4,177 $ 4
Short-term borrowings........ 2,186 -- -- -- -- --
Long-term debt............... -- 1 2 4 47 59
Demand deposits.............. -- -- -- -- -- 102,794
Securities sold under
agreement to repurchase.... 1,880 5,959 -- -- -- --
-------- --------- ------- ------- ------- --------
TOTAL SOURCES.............. $ 97,089 $ 90,944 $19,996 $13,723 $ 4,224 $102,857
======== ========= ======= ======= ======= ========
Incremental gap................ $ 33,686 $(31,683) $ 6,768 $27,480 $67,720 $(99,593)
Percent of earning assets...... 10.3% (9.7)% 2.1% 8.4% 19.1% (30.3)%
Cumulative gap................. $ 33,686 $ 2,003 $ 8,771 $36,251 $98,971 $ (622)
Percent of earning assets...... 10.3% 0.6% 2.7% 11.1% 30.2% (0.2)%
</TABLE>
Immediately adjustable loans are defined as loans that are tied to the
prime rate or other indexes which can change at any time. Immediately adjustable
deposits are those where the Company can adjust the rate without prior notice.
The Company uses adjustable deposits to fund adjustable rate loans. The
remaining assets and liabilities are categorized by either the next time the
asset or liability may be repriced or the maturity date, whichever is sooner.
The Company does not use off-balance sheet interest rate instruments to hedge
interest rate risk.
LIQUIDITY MANAGEMENT
Liquidity refers to the Company's ability to maintain cash flow sufficient
to meet the cash needs of depositors and borrowers and to fund its operations.
The Company continues to have a stable, low cost base of core deposits generated
from our eleven office branch system. In reviewing the statement of cash flows
for 1995 we find that operating activities generated $5,340,000 in cash for 1995
compared to the $3,310,000 generated in 1994. Cash flows from investing
activities showed that the Company used a portion of its excess cash funds to
increase yield by investing a greater portion of balance sheet assets in loans
and securities. High levels of cash and cash equivalents were being maintained
during 1993 and 1994 because of the highly volatile deposit balances from the
previously mentioned large national deposit account that left in late 1995.
These liquid Instruments have been reduced to a lower level of $58,878,000 at
year end reflecting the current liquidity needs of the Company. Liquidity
remains strong, and gives the Company more than adequate funds to increase the
loan portfolio during 1996.
CAPITAL
The Company's capital position materially strengthened in 1995. The
risk-based capital ratio at the end of 1995 improved to 16.6%, up from 14.8% at
December 31, 1994, well above the minimum risk-based capital ratio required by
the FDIC and Federal Reserve Bank of 8%. The Company improved its Tier I ratio
to 15.4% at December 31, 1995 compared to 13.7% in 1994. The leverage ratio
(which measures equity capital as a percent of total assets) was 8.4% at
December 31, 1995 compared to 6.7% at December 31, 1994. The FDIC definition for
a well capitalized bank requires a total risk-based capital ratio equal to, or
greater than, 10%, a Tier I risk-based ratio equal to, or greater than, 6% and a
Tier I leverage ratio equal to, or greater than, 5%. Your Company exceeds all of
the above requirements.
14
<PAGE> 83
The Company will continue to use earnings as the main source of additional
capital in 1996 and sees no problems in maintaining proper capital ratios.
FUTURE OPERATIONS
The Camarillo office opened in May, 1995 in temporary quarters and moved
into its permanent facility in January, 1996. During 1996 the Company will be
moving the San Fernando office to a new location plus rebuilding the fire
damaged North Hollywood office. The Company opened its first off-site ATM
machine on the campus of California Lutheran University in January of 1996. To
date this new ATM facility (located in the vicinity of the Thousand Oaks branch
office) has surpassed expectations for activity.
During the fourth quarter of 1995, the Company applied for, and received,
approval for a new branch office in Valencia, California. The new office, which
is expected to open in the second quarter of 1996, will be the Company's twelfth
branch office and its second office in the Santa Clarita Valley. Our location
next to the Valencia Town Center puts us at the heart of this attractive
commercial, residential and industrial community.
As a result of Mr. Hender's announced retirement, the Board of Directors
has hired Craig Collette an experienced banker as president and chief operating
officer to ensure a smooth transition for the Company. Mr. Hender will continue
as vice chairman and chief executive officer until his retirement in May, 1997.
During 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting
for Stock-Based Compensation" which encourages companies to account for stock
compensation awards based on their fair market value at the date the awards are
granted. This Statement does not require the application of the fair market
value method and allows the continuance of the current accounting method, which
requires accounting for stock compensation awards based on their intrinsic value
as of the grant date. However, SFAS No. 123 requires program disclosure of net
income and, if presented, earnings per share, as if the fair market value based
method of accounting defined in this Statement had been applied.
The accounting and disclosure requirements of this statement are effective
with financial statements reporting on fiscal years beginning after December 15,
1995, though earlier adoption is encouraged. The Company has chosen not to adopt
the fair market value provisions of this statement. The Company feels that the
adoption of SFAS No. 123 will not have any material effect on per share numbers
as presented.
15
<PAGE> 84
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash and due from banks......................................... $ 23,878,000 $ 30,541,000
Federal funds sold.............................................. 35,000,000 55,000,000
Investment securities held to maturity (approximate market
value: 1995 -- $141,864,000; 1994 -- $124,383,000)............ 141,184,000 128,907,000
Investment securities available for sale at market value........ 23,157,000 23,379,000
------------ ------------
Total investment securities........................... 164,341,000 152,286,000
Loans and leases................................................ 128,870,000 125,209,000
Less allowance for credit losses.............................. 2,282,000 2,033,000
------------ ------------
Net loans and leases.................................. 126,588,000 123,176,000
Premises and equipment, net..................................... 3,695,000 3,345,000
Other real estate owned, net.................................... 601,000 2,048,000
Other assets.................................................... 5,821,000 4,756,000
------------ ------------
TOTAL ASSETS.......................................... $359,924,000 $371,152,000
============ ============
LIABILITIES
Deposits:
Noninterest bearing........................................... $102,794,000 $113,600,000
Interest bearing.............................................. 215,901,000 227,985,000
------------ ------------
Total deposits........................................ 318,695,000 341,585,000
Interest bearing demand notes issued to the U.S. Treasury....... 2,186,000 2,740,000
Mortgage indebtedness and obligation under capital lease........ 113,000 320,000
Securities sold under agreement to repurchase................... 7,839,000 200,000
Other liabilities............................................... 1,391,000 977,000
------------ ------------
Total Liabilities..................................... 330,224,000 345,822,000
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 6,000,000 shares;
3,451,462 shares issued and outstanding in TransWorld Bancorp
in 1995 and 3,417,098 in 1994................................. 8,030,000 7,813,000
Surplus......................................................... 2,926,000 2,926,000
Retained earnings............................................... 18,672,000 14,666,000
Unrealized gain/(loss) on securities available for sale (net of
deferred taxes of ($53,000)in 1995 and $53,000 in 1994)....... 72,000 (75,000)
------------ ------------
Total Stockholders' Equity............................ 29,700,000 25,330,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $359,924,000 $371,152,000
============ ============
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 85
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $13,314,000 $11,630,000 $11,459,000
Interest on state and municipal securities............ 967,000 1,461,000 1,031,000
Interest on other investment securities............... 8,476,000 5,066,000 3,578,000
Interest on Federal funds sold........................ 3,431,000 3,004,000 1,893,000
----------- ----------- -----------
Total interest income......................... 26,188,000 21,161,000 17,961,000
Interest expense:
Interest on deposits.................................. 6,676,000 5,173,000 4,964,000
Interest on short-term borrowings..................... 1,116,000 139,000 119,000
----------- ----------- -----------
Total interest expense........................ 7,792,000 5,312,000 5,083,000
Net interest income..................................... 18,396,000 15,849,000 12,878,000
Provision for credit losses........................... 830,000 921,000 1,711,000
----------- ----------- -----------
Net interest income after provision for credit losses... 17,566,000 14,928,000 11,167,000
Noninterest income:
Service charges on deposit accounts................... 2,870,000 2,809,000 3,077,000
Bankcard merchant discount............................ 133,000 204,000 855,000
Gain on sale of securities............................ 52,000 -- 5,000
Other operating income................................ 1,033,000 865,000 886,000
----------- ----------- -----------
Total noninterest income...................... 4,088,000 3,878,000 4,823,000
Noninterest expense:
Salaries and employee benefits........................ 7,861,000 7,375,000 7,068,000
Net occupancy expense................................. 2,199,000 2,268,000 2,167,000
Furniture, fixtures and equipment..................... 1,275,000 1,123,000 1,176,000
FDIC insurance costs.................................. 383,000 663,000 538,000
Data processing....................................... 209,000 178,000 283,000
Bankcard merchant expense............................. -- 2,000 497,000
Other operating expense............................... 3,268,000 2,937,000 2,733,000
Earthquake expense.................................... -- 310,000 --
----------- ----------- -----------
Total noninterest expense..................... 15,195,000 14,856,000 14,462,000
Income before income taxes.............................. 6,459,000 3,950,000 1,528,000
Income taxes............................................ 2,448,000 1,381,000 337,000
----------- ----------- -----------
Income before accounting change............... 4,011,000 2,569,000 1,191,000
Cumulative effect of accounting change.................. -- -- 190,000
----------- ----------- -----------
Net income.................................... $ 4,011,000 $ 2,569,000 $ 1,381,000
=========== =========== ===========
Income per share before accounting change............... $ 1.16 $ 0.75 $ 0.35
Cumulative effect of accounting change.................. -- -- 0.05
----------- ----------- -----------
Net income per share.......................... $ 1.16 $ 0.75 $ 0.40
=========== =========== ===========
Weighted average shares outstanding..................... 3,448,037 3,417,098 3,417,098
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 86
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income..................................................... $ 4,011,000 $ 2,569,000 $ 1,381,000
Adjustment to reconcile net income to net cash provided by
operating activities:
Gain on calls and redemptions of securities held to
maturity................................................. (54,000) -- (5,000)
Gain on calls and redemptions of securities available for
sale..................................................... -- -- --
Gain on sale of securities held to maturity................ -- -- --
Loss on sale of securities available for sale.............. 2,000 -- --
Net amortization of premium on investments................. 29,000 354,000 502,000
Provision for credit losses................................ 830,000 921,000 1,711,000
Accretion of deferred loan fees and costs.................. (236,000) (170,000) (231,000)
Loan origination costs capitalized......................... (161,000) (165,000) (169,000)
Depreciation and amortization.............................. 634,000 608,000 646,000
(Increase)in accrued interest receivable................... (465,000) (856,000) (191,000)
Increase (decrease) in accrued interest payable............ 379,000 30,000 (26,000)
Provision for deferred taxes............................... (268,000) (155,000) (366,000)
Increase in current income taxes payable................... 233,000 7,000 203,000
Provision for OREO losses.................................. 96,000 105,000 135,000
Increase in other, net..................................... 310,000 62,000 7,000
------------ ------------ ------------
Net cash provided by operating activities............. 5,340,000 3,310,000 3,597,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity.......... 28,955,000 12,811,000 14,932,000
Proceeds from matured securities available for sale........ 30,300,000 6,750,000 --
Proceeds from calls and redemptions of securities held to
maturity................................................. 39,291,000 10,265,000 15,877,000
Proceeds from calls and redemptions of securities available
for sale................................................. 16,440,000 61,000 --
Proceeds from sale of securities held to maturity.......... -- -- --
Proceeds from sale of securities available for sale........ 498,000 -- --
Purchase of securities held to maturity.................... (80,393,000) (63,479,000) (68,548,000)
Purchase of securities available for sale.................. (47,083,000) (18,848,000) --
Net (increase)in loans..................................... (9,510,000) (2,475,000) (1,918,000)
Proceeds from sale of SBA loans............................ 4,697,000 3,455,000 1,086,000
Loan origination fees received............................. 664,000 556,000 696,000
Proceeds from sale of other real estate owned.............. 1,518,000 607,000 2,149,000
Purchase of premises and equipment......................... (985,000) (297,000) (358,000)
(Increase) decrease in other, net.......................... (600,000) 330,000 (668,000)
------------ ------------ ------------
Net cash (used in)investing activities................ (16,208,000) (50,264,000) (36,752,000)
Cash flows from financing activities:
Net (decrease) increase in noninterest bearing deposits.... (10,806,000) 24,367,000 28,392,000
Net (decrease) increase in interest bearing deposits....... (12,084,000) 31,221,000 33,587,000
Net increase in repurchase agreements...................... 7,639,000 200,000 --
(Decrease)in interest bearing demand notes................. (554,000) (503,000) (1,357,000)
(Decrease)in capital lease and mortgage indebtedness....... (207,000) (13,000) (175,000)
Dividends paid in lieu of fractional shares issued......... -- (11,000) (10,000)
Exercise of stock purchase plan options.................... 217,000 -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities... (15,795,000) 55,261,000 60,437,000
------------ ------------ ------------
Net increase in cash and cash equivalents...................... (26,663,000) 8,307,000 27,282,000
Cash and cash equivalents, beginning of year................... 85,541,000 77,234,000 49,952,000
------------ ------------ ------------
Cash and cash equivalents, end of year......................... $ 58,878,000 $ 85,541,000 $ 77,234,000
============ ============ ============
Supplemental disclosures of cash flows information:
Cash paid during the year:
Interest..................................................... $ 7,427,000 $ 5,147,000 $ 5,109,000
Income taxes................................................. $ 3,016,000 $ 1,491,000 $ 506,000
------------ ------------ ------------
Non-cash activities:
Transfer from loans to other real estate owned............... $ 155,000 $ 655,000 $ 2,184,000
</TABLE>
See notes to consolidated financial statements
18
<PAGE> 87
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, 1993........... 1,238,292 $6,166,000 $2,926,000 $12,384,000
Stock dividend (5%)............... 61,090 764,000 (774,000)
Unrealized gain on securities..... $ 128,000
Net income........................ 1,381,000
--------- ---------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1993......... 1,299,382 6,930,000 128,000 2,926,000 12,991,000
Stock dividend (5%)............... 64,209 883,000 (894,000)
Change in unrealized gain/(loss)
on securities.................. (203,000)
Net income........................ 2,569,000
--------- ---------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1994......... 1,363,591 7,813,000 (75,000) 2,926,000 14,666,000
Issuance of common stock.......... 17,788 217,000
Stock split-2 for 1............... 1,380,167
Change in unrealized gain/(loss)
on securities.................. 147,000
Stock split-5 for 4 (declared
January 30, 1996 paid March 15,
1996).......................... 689,916 (5,000)
Net income.......................... 4,011,000
--------- ---------- --------- ---------- -----------
BALANCES, DECEMBER 31, 1995......... 3,451,462 $8,030,000 $ 72,000 $2,926,000 $18,672,000
========= ========== ========= ========== ===========
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 88
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- PRESENTATION AND ACCOUNTING POLICIES:
Principles of Consolidation and Presentation:
The accompanying consolidated balance sheets as of December 31, 1995 and
1994 are those of TransWorld Bancorp (The Company) and its subsidiary TransWorld
Bank (Bank). The Bank's primary source of revenue is providing loans to
customers, who are predominately small to mid-sized businesses through
operations of its 11 banking offices located in southern California. The
consolidated financial statements include the accounts of the respective parent
company and subsidiary. All significant intercompany balances and transactions
have been eliminated. Certain amounts in the financial statements for prior
years have been reclassified to conform with the 1995 financial statement
presentation.
The consolidated statements of cash flows illustrate the change in cash and
cash equivalents as disclosed in the consolidated balance sheet. For purpose of
reporting cash flows, cash and cash equivalents include cash, due from banks and
federal funds sold. Generally, federal funds sold are sold for one day periods.
Use of Estimates in the Preparation of the Financial Statements:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Investment Securities:
The Bank classifies its investment securities as follows:
Held to Maturity Securities -- Debt securities that the Bank has the
positive intent and ability to hold to maturity. These securities are
reported at amortized cost.
Trading Securities -- Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term. These
securities are reported at fair value, with unrealized gains and losses
included in earnings. The Bank holds no trading securities.
Available for Sale Securities -- Debt and equity securities not classified
as either held to maturity or trading securities. These securities are to
be reported at estimated fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity (net of tax effects).
Accreted discounts and amortized premiums on investment securities are
included in interest income, and unrealized and realized gains or losses related
to holding or selling securities are calculated using the specific
identification method.
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.
20
<PAGE> 89
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loan origination fees and costs are being recognized over the life of the
loans using the effective interest method or on a basis that approximates the
interest method.
Provisions for credit losses are charged to operations in amounts deemed
appropriate by management based upon its evaluation of the loan and lease
portfolio.
On January 1, 1995 the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No.118, "Accounting by Creditors for Impairmant of a
Loan -- Income Recognition and Disclosures." This statement prescribes that a
loan is impaired when it is probable that the creditor will be unable to collect
all contractual principal and interest payments under the terms of the loan
agreement. This statement generally requires impaired loans to be measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or as an expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Periodically, the Bank sells the guaranteed portion of SBA loans. Gains on
sales of SBA loans are deferred for 90 days at which time the gain is allocated
to the guaranteed and unguaranteed portions of the loan. The amount allocated to
the guaranteed portion of the loan is recognized as other income. The amount of
gain allocated to the unguaranteed portion of the loan (including excess
servicing income, if any) is deferred and amortized over the life of the loan as
an adjustment of yield.
Other Real Estate Owned:
Other real estate owned, which represents real estate acquired through
foreclosure in satisfaction of commercial and real estate loans, is stated at
the fair value of the real estate less estimated costs to sell. Loan balances in
excess of the fair value of the real estate acquired at the date of acquisition
are charged against the allowance for credit losses. Any subsequent operating
expenses or income, reduction in estimated values, and gains or losses on
disposition of such properties are recorded in current operations.
Premises and Equipment:
Premises and equipment are stated at cost, less accumulated depreciation,
and are depreciated using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements and leased property under capital
leases are amortized using the straight-line method over the useful lives of the
assets or the term of the lease, whichever is shorter.
Taxes on Income:
Effective January 1, 1993, the Bank adopted SFAS No. 109, "Accounting for
Income Taxes" (SFAS No. 109). Accordingly, income tax expense for 1993, 1994 and
1995 was computed using the liability method, which recognizes a liability or
asset representing the tax effects, based on current tax law, of future
deductible or taxable amounts attributable to events that have been recognized
in the consolidated financial statements. The principal temporary differences
relate to different methods used for tax and financial reporting purposes to
account for credit losses, depreciation and direct lease financing.
The cumulative effect of the change in accounting for income taxes on years
prior to January 1, 1993 of $190,000 is included in the 1993 statement of
earnings.
Net Income Per Share:
Net income per share is computed on the weighted average number of shares
of common stock outstanding during each year. Shares available under stock
option plans are not included in the computation,
21
<PAGE> 90
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
as their effect would not be material. The weighted average number of shares is
adjusted to give retroactive recognition to stock dividends declared in 1995 and
in previous years, and the five for four stock split declared January 31, 1996,
paid March 15, 1996.
Disclosures about Fair Value of Financial Instruments:
SFAS No. 107 specifies the disclosure of the estimated fair value of
financial instruments. The Bank's estimated fair value amounts are reflected in
Note 12 and have been determined by the Bank using available market information
and appropriate valuation methodologies.
However, considerable judgment is required to develop the estimates of fair
value. Accordingly, the estimates presented in Note 12 are not necessarily
indicative of the amounts the Company could have realized in a current market
exchange as of December 31, 1995 and 1994. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since the
balance sheet date and, therefore, current estimates of fair value may differ
significantly from the amounts presented in the accompanying Notes.
Identifiable Intangible Assets:
In conjunction with the acquisition of Premier Bank's insured deposits,
which were acquired from the FDIC in April, 1993, core deposit intangibles,
included in other assets totaling $701,000 are being amortized over a six-year
period on a straight line basis. The amortized value is $389,000 at December 31,
1995.
Recent Accounting Pronouncements:
During 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation", (SFAS No. 123) which encourages companies to account for stock
compensation awards based on their fair value at the date the awards are
granted.
This Statement does not require the application of the fair value method
and allows the continuance of current accounting method, which requires
accounting for stock compensation awards based on their intrinsic value as of
the grant date. However, SFAS No. 123 requires proforma disclosure of net income
and, if presented, earnings per share, as if the fair value based method of
accounting defined in this Statement had been applied.
The accounting and disclosure requirements of this statement are effective
for financial statements for fiscal years beginning after December 15, 1995,
though earlier adoption is encouraged. The Company has chosen not to adopt the
fair value provisions of this statement.
22
<PAGE> 91
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- INVESTMENT SECURITIES:
The amortized cost and estimated fair values of investments in securities
are shown below. Most debt securities are publicly traded and the fair value was
obtained from an independent pricing service. Securities dealers supplied fair
values for securities not actively traded. Money market (auction rate) preferred
stocks are essentially substitutes for money market investments such as
commercial paper and are closer in their characteristics to debt than equity.
The Company has received permission from the FDIC and state banking regulators
to invest in this type of security. Auction rate preferred stocks are included
as equity stock securities below at par value as they are rate-adjusted every 49
days.
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1995 COST GAIN LOSS FAIR VALUE
- --------------------------------------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities............. $ 2,988,000 $ 42,000 $ -- $ 3,030,000
U.S. Government agencies and
corporations...................... 107,782,000 512,000 157,000 108,137,000
U.S. Government agencies mortgage-
backed securities................. 7,317,000 50,000 8,000 7,359,000
Obligations of states and political
subdivisions...................... 23,097,000 261,000 20,000 23,338,000
------------ -------- ---------- ------------
Total investment securities held to
maturity............................. $ 141,184,000 $ 865,000 $ 185,000 $ 141,864,000
============ ======== ========== ============
Investment securities available for
sale:
U.S. Government agencies and
corporations...................... $ 11,641,000 $ 16,000 $ 2,000 $ 11,655,000
U.S. Government agencies mortgage-
backed securities................. -- -- -- --
Corporate debt securities............ 7,391,000 112,000 1,000 7,502,000
Equity securities.................... 4,000,000 -- -- 4,000,000
------------ -------- ---------- ------------
Total investment securities available
for sale............................. $ 23,032,000 $ 128,000 $ 3,000 $ 23,157,000
============ ======== ========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
- ---------------------------------------
<S> <C> <C> <C> <C>
Investment securities held to maturity:
U.S. Treasury securities............. $ 2,997,000 $ -- $ 34,000 $ 2,963,000
U.S. Government agencies and
corporations...................... 86,606,000 7,000 3,898,000 82,715,000
U.S. Government agencies mortgage-
backed securities................. 7,192,000 4,000 302,000 6,894,000
Obligations of states and political
subdivisions...................... 32,112,000 106,000 407,000 31,811,000
------------- ---------- ----------- -------------
Total investment securities held to
maturity............................. $ 128,907,000 $ 117,000 $ 4,641,000 $ 124,383,000
=========== ======== ========= ===========
Investment securities available for
sale:
U.S. Government agencies and
corporations...................... $ 13,949,000 $ -- $ 16,000 $ 13,933,000
Obligations of states and political
subdivisions...................... 251,000 2,000 -- 253,000
Corporate debt securities............ 5,307,000 5,000 119,000 5,193,000
Equity securities.................... 4,000,000 -- -- 4,000,000
------------- ---------- ----------- -------------
Total investment securities available
for sale............................. $ 23,507,000 $ 7,000 $ 135,000 $ 23,379,000
=========== ======== ========= ===========
</TABLE>
23
<PAGE> 92
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and estimated fair value of debt securities at December
31, 1995, and 1994 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Debt securities held to maturity:
Due in one year or less......... $ 98,710,000 $ 98,934,000 $ 40,325,000 $ 39,486,000
Due in one year through five
years........................ 39,856,000 40,281,000 82,391,000 79,077,000
Due in five years through ten
years........................ 2,414,000 2,438,000 4,857,000 4,513,000
Due after ten years............. 204,000 211,000 1,334,000 1,307,000
------------ ------------ ------------ ------------
Total................... $ 141,184,000 $ 141,864,000 $ 128,907,000 $ 124,383,000
============ ============ ============ ============
Debt securities available for
sale:
Due in one year or less......... $ 13,356,000 $ 13,377,000 $ 16,098,000 $ 16,081,000
Due in one year through five
years........................ 5,676,000 5,780,000 3,309,000 3,212,000
Due in five years through ten
years........................ -- -- 100,000 86,000
Due after ten years............. -- -- -- --
------------ ------------ ------------ ------------
Total................... $ 19,032,000 $ 19,157,000 $ 19,507,000 $ 19,379,000
============ ============ ============ ============
</TABLE>
A gain of $54,000 was realized on called securities Held to Maturity in
1995 and a loss of $2,000 on a sale of one Available for Sale security. A gain
of $5,000 was realized on a called security Held to Maturity in 1993 and there
were no sales of investment securities in 1993 or 1994.
Investment securities with a carrying value of $19,967,000 at December 31,
1995 and $12,255,000 at December 31, 1994 were pledged to secure public deposits
and for other purposes.
NOTE 3 -- LOANS AND LEASES:
Loans and leases are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Real estate loans
Mortgage...................................................... $ 48,701,000 $ 48,371,000
Construction.................................................. 1,747,000 3,593,000
Commercial loans................................................ 66,209,000 59,575,000
Consumer loans.................................................. 10,971,000 12,409,000
Leases.......................................................... 1,242,000 1,261,000
------------ ------------
Total loans and leases................................ $ 128,870,000 $ 125,209,000
============ ============
</TABLE>
The Bank had undisbursed commitments on real estate loans of $428,000 at
December 31, 1995 and $521,000 at December 31, 1994. At December 31, 1995 and
1994, the Bank had outstanding letters of credit in the amount of $802,000 and
$1,196,000, respectively.
The aggregate amount of loans outstanding to officers, directors, and
principal security holders and associates was $1,817,000 at December 31, 1995
and $452,000 at December 31, 1994. The amount of new and renewed loans was
$2,315,000 and repayments were $950,000 during 1995. These loans were made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility.
24
<PAGE> 93
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Past due and nonaccrual loans and leases:
<TABLE>
<CAPTION>
PAST DUE OVER 90
DAYS NONACCRUALS
-------------------- --------------------------
DECEMBER 31 1995 1994 1995 1994
------------------------------- ------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Real estate loans.............. $ 5,000 $ 42,000 $ 620,000 $ 183,000
Commercial loans............... -- 413,000 404,000 250,000
Consumer loans................. -- -- 1,000 690,000
Leases......................... 2,000 1,000 -- --
------ -------- ---------- ----------
Total................ $ 7,000 $ 456,000 $ 1,025,000 $ 1,123,000
====== ======== ========== ==========
</TABLE>
The Bank grants loans to customers throughout its primary market area of
Los Angeles County, California and surrounding areas. The Bank makes loans to
borrowers in a number of different industries with no particular concentration
in any industry segment.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The Bank's exposure to credit loss in the event of nonperformance by the
other party to commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. At December 31,
1995, the Bank had commitments to extend credit of $40,062,000 and obligations
under standby letters of credit of $738,000.
Commitments to extend credit are agreements to lend as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support obligations of vendors/suppliers who are customers
of the Bank. All outstanding guarantees have a maturity of one year or less.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for extending loan facilities to customers.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include real estate, certificates of deposit,
accounts receivable, inventory, other property, plant, and equipment.
NOTE 4 -- ALLOWANCE FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED:
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1..................... $ 2,033,000 $ 2,029,000 $ 1,416,000
Provision charged to operations........ 830,000 921,000 1,711,000
Recoveries............................. 116,000 109,000 108,000
---------- ---------- ----------
2,979,000 3,059,000 3,235,000
Less: Loans charged off................ 697,000 1,026,000 1,206,000
---------- ---------- ----------
Balance, December 31................... $ 2,282,000 $ 2,033,000 $ 2,029,000
========== ========== ==========
</TABLE>
25
<PAGE> 94
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1..................... $ 135,000 $ 93,000 $ 123,000
Provision charged to operations........ 96,000 105,000 135,000
-------- -------- --------
231,000 198,000 258,000
Less: OREO reserves recovered.......... -- -- 6,000
Less: OREO reserves charged off........ 148,000 63,000 159,000
-------- -------- --------
Balance, December 31................... $ 83,000 $ 135,000 $ 93,000
======== ======== ========
</TABLE>
At December 31, 1995, the Bank had classified $373,000 of its loans as
impaired with specific reserves related to impairment of $212,000 and $652,000
of its loans impaired with no related specific loss reserve determined in
accordance with SFAS No. 114. The average recorded investment in impaired loans
during the year ended December 31, 1995, was $1,036,000. Interest income of
$5,000 was recognized on impaired loans during the year ended December 31, 1995.
Nonaccrual loans and foregone interest totaled $1,025,000 and $111,000
respectively, at December 31, 1995.
NOTE 5 -- PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
Land................................................. $ 262,000 $ 262,000
Buildings............................................ 964,000 964,000
Furniture, fixtures and equipment.................... 4,895,000 4,271,000
Leasehold improvements............................... 4,053,000 3,786,000
Leased property under capital leases................. 150,000 150,000
----------- ----------
10,324,000 9,433,000
Less: Accumulated depreciation and amortization...... 6,629,000 6,088,000
----------- ----------
Total...................................... $ 3,695,000 $3,345,000
=========== ==========
</TABLE>
The amounts of depreciation and amortization included in noninterest
expense were $634,000 in 1995, $608,000 in 1994, and $646,000 in 1993. The Bank
is obligated under noncancelable operating leases for branch locations,
administrative premises, and equipment that expire at various dates from 1996
through 2013. The leases generally provide for renewal options for periods from
five to ten years and, in certain instances, provide for periodic rate increases
or decreases based on the Consumer Price Index. The Bank is responsible for
executory costs. Rentals under these leases aggregated $1,476,000 in 1995,
$1,532,000 in 1994, and $1,496,000 in 1993, net of sublease rentals of $191,000
in 1995, $180,000 in 1994, and $161,000 in 1993.
26
<PAGE> 95
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The future payments under the terms of these operating and capital leases
are summarized as follows:
<TABLE>
<CAPTION>
YEAR CAPITAL LEASE OPERATING LEASES
-------------------------------------------------- ------------- ----------------
<S> <C> <C>
1996.............................................. $ 28,000 $ 1,699,000
1997.............................................. 28,000 1,432,000
1998.............................................. 28,000 1,339,000
1999.............................................. 28,000 1,342,000
2000.............................................. 28,000 1,341,000
Thereafter........................................ 74,000 8,656,000
-------- -----------
Total................................... $ 214,000 $ 15,809,000
-----------
Less: Amount representing interest................ 101,000
--------
Present value of net minimum lease payments
due through 2008................................ $ 113,000
========
</TABLE>
The future payments on operating leases have been reduced by rental income
to be received on subleases of $172,000 in 1996, $131,000 in 1997 and $84,000 in
1998.
NOTE 6 -- TAXES ON INCOME:
In fiscal year 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Under the provisions of SFAS No. 109, the Company elected not to
restate prior year financial statements, and the cumulative effect of
implementation was an income tax benefit of $190,000 in 1993.
Provisions (benefits) for taxes on income are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Federal -- Current..................... $1,932,000 $1,076,000 $ 466,000
-- Deferred.................... (226,000) (124,000) (264,000)
---------- ---------- ---------
1,706,000 952,000 202,000
---------- ---------- ---------
State -- Current....................... 784,000 460,000 237,000
-- Deferred...................... (42,000) (31,000) (102,000)
---------- ---------- ---------
742,000 429,000 135,000
---------- ---------- ---------
Total........................ $2,448,000 $1,381,000 $ 337,000
========== ========== =========
</TABLE>
The tax liability (receivable) was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Current -- Federal................................... $ 11,000 $ 175,000
-- State.................................... 3,000 72,000
--------- ---------
14,000 247,000
--------- ---------
Deferred -- Federal.................................. (686,000) (536,000)
-- State................................... (177,000) (164,000)
--------- ---------
(863,000) (700,000)
--------- ---------
Total...................................... $(849,000) $(453,000)
========= =========
</TABLE>
Current taxes payable of $14,000 in 1995 and $247,000 in 1994 are also
included in other liabilities. The net deferred tax asset is included in other
assets.
27
<PAGE> 96
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rates are reconciled to the federal statutory
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Federal corporate income tax rate..................... 35.0% 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State and municipal tax-exempt bond and loan
income........................................... (3.3) (5.7) (14.6)
State taxes on income, net of federal income tax
benefit.......................................... 7.3 7.2 5.8
Preferred stock dividends........................... (.6) (.8) (2.4)
Other............................................... (.1) (.3) (1.8)
-- --
---- ---- -
Total....................................... 38.3% 35.4% 22.0%
==== ==== =====
</TABLE>
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,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
FEDERAL
Provision for credit losses.......................... $(456,000) $(312,000)
OREO reserve......................................... (28,000) (46,000)
State income tax..................................... (192,000) (108,000)
Tax under (over) book depreciation................... (19,000) 28,000
Direct lease financing............................... 104,000 11,000
Unrealized gain (loss) on securities................. 37,000 (39,000)
Other................................................ (132,000) (70,000)
--------- ---------
Total...................................... $(686,000) $(536,000)
========= =========
STATE
Provision for credit losses.......................... $(156,000) $(131,000)
OREO reserve......................................... (9,000) (16,000)
Tax under (over) book depreciation................... (16,000) 17,000
Direct lease financing............................... 34,000 4,000
Unrealized gain (loss) on securities................. 14,000 (14,000)
Other................................................ (44,000) (24,000)
--------- ---------
Total...................................... $(177,000) $(164,000)
========= =========
</TABLE>
The Bank files a consolidated federal income tax return and combined state
franchise tax return on a calendar year basis.
28
<PAGE> 97
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- DEPOSITS:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Demand deposits................................. $102,794,000 $113,600,000
Savings deposits................................ 73,886,000 87,933,000
Money Market deposits........................... 47,688,000 90,625,000
Time deposits - Under $100,000.................. 59,945,000 37,388,000
Time deposits $100,000 & over maturing within
1yr........................................... 34,282,000 11,939,000
Time deposits $100,000 & over maturing
1yr-5yr....................................... 100,000 100,000
------------ ------------
Total................................. $318,695,000 $341,585,000
============ ============
</TABLE>
Interest expense on time certificates of deposit with balances of $100,000
or more amounted to $908,000 in 1995, $496,000 in 1994, and $263,157 in 1993.
NOTE 8 -- PROFIT SHARING PLAN:
The Bank has a noncontributory profit sharing plan with a 401(k) option
covering all employees who have been employed by the Bank for more than one
year, work 1,000 hours or more during the calendar year, and meet the age
requirements specified in the plan. The eligibility requirements for the 401(k)
options are the same. Benefits are deferred until retirement with total vesting
in seven years.
The annual profit sharing contribution is subject to the discretion of the
Board of Directors. Contributions to profit sharing were $42,000 in 1995,
$38,000 in 1994, and $34,000 in 1993. An additional $63,000 in 1995, $51,000 in
1994 and $43,000 in 1993 was contributed to the 401(k) Plan for a total
contribution to both plans of $105,000 in 1995, $89,000 in 1994 and $77,000 in
1993.
NOTE 9 -- STOCK OPTION PLAN:
The Bancorp has a stock option and stock appreciation rights plan that was
adopted and approved by the shareholders in 1989. The plan provides for the
grant of "incentive stock options," as defined under the Internal Revenue Code
of 1986, "nonqualified options," and "stock appreciation rights." A total of
191,040 shares of the Bancorp's common stock (which has been adjusted for stock
dividends and splits) has been reserved to be granted prior to January 31, 1999.
Options are granted at prices not less than fair market value at time of grant
and are exercisable over a period of five years. At December 31, 1995 there were
139,672 shares available for future grants. The plan and options have been
adjusted for stock dividends and splits.
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------ ---------------
<S> <C> <C>
Options outstanding, January 1, 1993............... 18,193 $13.93 - $14.63
Incentive stock options granted.................... 905 13.27 - 13.92
------ ---------------
Options outstanding, December 31, 1993............. 19,098 13.27 - 13.92
Incentive stock options granted.................... 951 12.64 - 13.30
------ ---------------
Options outstanding, December 31, 1994............. 20,049 12.64 - 13.30
Incentive stock options granted.................... 30,106 11.75 - 11.75
Options exercised.................................. 17,788 6.65 - 12.66
Options cancelled or terminated.................... 2,867 12.65 - 12.66
------ ---------------
Options outstanding, December 31, 1995............. 29,500 $11.75 - $11.75
------ ---------------
</TABLE>
The Company declared a five for four stock split on January 30, 1996
payable March 15, 1996. This will adjust the shares available for future grants
by 153,152 and adjust the remaining outstanding options by 23,600 shares.
29
<PAGE> 98
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and other benefits for retired
employees. Generally, qualified employees may become eligible for these benefits
if they retire in accordance with the Company's established retirement policy
and are continuously insured under the Company's insurance plans prior to
retirement. All retired employees of the Company who are age 63 with 20 years of
continuous service in a plan offered by the Company are eligible for these
benefits. The Company's postretirement benefit plans currently are not funded.
The Company has the right to modify or terminate these plans.
The effect of adoption of SFAS No. 106 in 1993 of $182,000 is being
amortized over 20 years.
The periodic expense for postretirement benefits includes the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Service cost............................................. $21,000 $24,000
Interest cost............................................ 21,000 19,000
Amortization of transition obligation.................... 9,000 9,000
Amortization of (gain)/loss.............................. -- 1,000
------- -------
Total expense.................................. $51,000 $53,000
======= =======
</TABLE>
The actuarial and recorded liabilities for postretirement benefits were as
follows:
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Retirees............................................. $ (56,000) $ (44,000)
Fully eligible active plan participants.............. (78,000) (55,000)
Other active plan participants....................... (236,000) (148,000)
--------- ---------
Total APBO................................. (370,000) (247,000)
Unrecognized transition obligation................... 155,000 164,000
Unrecognized net (gain)/loss......................... 81,000 (4,000)
--------- ---------
Prepaid/(Accrued) postretirement benefit
cost..................................... $(134,000) $( 87,000)
========= =========
</TABLE>
The average health care cost trend rate used in measuring the accumulated
postretirement benefit obligation and postretirement benefit cost was 12.0% and
8.0% in 1995 and 1994 respectively, gradually declining to 6.5% in 2005 and
remaining at that level thereafter. A 1% increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation by $70,000 at December 31, 1995 and $52,000 at December 31,
1994, and would increase the sum of the service cost and interest cost by $9,000
in 1995 and 1994.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1995, and 8.5% at
December 31, 1994.
The Company offers no other postemployment, postretirement, or pension
benefits.
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
30
<PAGE> 99
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
made by the bank to the stockholders of the bank during such period." The amount
of Bank retained earnings free of restrictions for purpose of dividend
distribution is $7,968,000.
Capital Requirements:
Federal Reserve Bank and FDIC regulations require the maintenance of a
minimum risk-based capital ratio of 8%, with core capital (Tier I) being at
least 4%, and a minimum capital leverage ratio of 4%.
The Company's risk-based capital ratio was 16.62% at December 31, 1995 and
14.84% at December 31, 1994, with a Tier I ratio of 15.42% at December 31, 1995
and 13.72% at December 31, 1994. The leverage ratio was 8.43% at December 31,
1995 and 6.69% at December 31, 1994.
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Bank in estimating
the fair values of its financial instruments:
Cash and Due from Banks -- The fair values and the carrying amounts of cash
and due from banks are the same by definition. There are no factors that will
cause the market value of these assets to differ from book value.
Investment Securities -- Fair values for investment securities are based on
quoted market prices.
Loans -- The fair value for commercial loans has been estimated by
discounting the projected cash flows at December 31, 1995 and 1994, using the
risk-adjusted spreads to the U.S. Treasury curve to approximate current
entry-value interest rates applicable to each category of loans. The fair value
of all other loans has been estimated by discounting the projected cash flows
using the current rate at which similar loans would be made to borrowers with
similar credit ratings, and for the same maturities. In computing the estimated
fair value for all loans, estimated future cash flows have been reduced by
specific and general reserves for loan losses.
No adjustment was made to the entry-value interest rates for changes in
credit of performing loans for which there are no known credit concerns.
Management segregates loans in appropriate risk categories. Management believes
that the risk factor embedded in the entry-value interest rates along with the
general reserves applicable to the performing loan portfolio for which there are
no known credit concerns result in a fair valuation of such loans on an
entry-value basis. The fair value of nonperforming loans with a recorded book
value of $1,034,000 and $1,579,000 at December 31, 1995 and 1994, respectively,
was not estimated because it is not practicable to reasonably assess the credit
adjustment that would be applied in the marketplace for such loans. As such, the
estimated fair value of total loans at December 31, 1995 and 1994 includes the
carrying amount of nonaccrual loans at this date.
31
<PAGE> 100
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deposits -- The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of time certificates of deposit is estimated by discounting
future cash flows using rates currently offered for deposits with similar
remaining maturities.
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ------------
<S> <C> <C>
December 31, 1995:
Cash and cash equivalents.................... $ 58,878,000 $ 58,878,000
Investment securities........................ 164,341,000 165,021,000
Loans, net................................... 128,870,000 128,263,000
Noninterest bearing deposits................. 102,794,000 102,794,000
Interest bearing deposits.................... 215,901,000 216,028,000
December 31, 1994:
Cash and cash equivalents.................... $ 85,541,000 $ 85,541,000
Investment securities........................ 152,286,000 147,762,000
Loans, net................................... 125,209,000 124,413,000
Noninterest bearing deposits................. 113,600,000 113,600,000
Interest bearing deposits.................... 227,985,000 227,970,000
</TABLE>
NOTE 13 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Following is a summary of financial information for each quarterly
reporting period during the two years ended December 31, 1995:
<TABLE>
<CAPTION>
1995 QUARTER ENDED
------------------------------------------------------------
3-31 6-30 9-30 12-31 TOTAL
------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income................. $ 4,720 $ 4,683 $ 4,629 $ 4,364 $ 18,396
Noninterest income.................. 961 982 1,052 1,093 4,088
Provision for credit losses......... (220) (225) (220) (165) (830)
Noninterest expense................. (3,899) (3,850) (3,695) (3,751) (15,195)
------- ------- ------- ------- --------
Income before income taxes.......... 1,562 (1,590) 1,766 1,541 6,459
Applicable income taxes............. 582 608 671 587 2,448
------- ------- ------- ------- --------
Net income.......................... $ 980 $ 982 $ 1,095 $ 954 $ 4,011
------- ------- ------- ------- --------
Net income per share................ $ 0.29 $ 0.28 $ 0.32 $ 0.27 $ 1.16
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
1994 QUARTER ENDED
------------------------------------------------------------
3-31 6-30 9-30 12-31 TOTAL
------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income................. $ 3,273 $ 3,813 $ 4,229 $ 4,534 $ 15,849
Noninterest income.................. 1,065 990 921 902 3,878
Provision for credit losses......... (150) (256) (325) (190) (921)
Noninterest expense................. (3,839) (3,590) (3,637) (3,790) (14,856)
------- ------- ------- ------- --------
Income before income taxes.......... 349 957 1,188 1,456 3,950
Applicable income taxes............. 81 332 424 544 1,381
------- ------- ------- ------- --------
Net income.......................... $ 268 $ 625 $ 764 $ 912 $ 2,569
------- ------- ------- ------- --------
Net income per share................ $ 0.08 $ 0.18 $ 0.22 $ 0.27 $ 0.75
======= ======= ======= ======= ========
</TABLE>
32
<PAGE> 101
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT:
TransWorld Bancorp operates its only subsidiary, TransWorld Bank. The
earnings of the subsidiary are recognized on the equity method of accounting.
Condensed financial statements of the parent company only are presented:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash in TransWorld Bank........................................... $ 213,000 $ 33,000
Investment in wholly-owned subsidiary............................. 29,404,000 25,272,000
Other assets...................................................... 16,000 25,000
----------- -----------
TOTAL ASSETS............................................ $29,633,000 $25,330,000
=========== ===========
LIABILITIES
Other liabilities................................................. $ -- $ --
----------- -----------
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY.............................................. 29,633,000 25,330,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $29,633,000 $25,330,000
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Dividends from subsidiary.............................. $ -- $ 50,000 $ 75,000
Interest on deposit accounts........................... 7,000 -- --
---------- ---------- ----------
Total income................................. 7,000 50,000 75,000
EXPENSE
Other.................................................. 86,000 78,000 70,000
---------- ---------- ----------
Total expense................................ 86,000 78,000 70,000
Income before income tax benefit and equity in earnings
of unconsolidated subsidiary......................... (79,000) (28,000) 5,000
Income tax benefit..................................... (33,000) (33,000) (29,000)
---------- ---------- ----------
Income before equity in earnings of unconsolidated
subsidiary........................................... (46,000) 5,000 34,000
Equity in undistributed income of subsidiary........... 4,057,000 2,564,000 1,347,000
---------- ---------- ----------
NET INCOME................................... $4,011,000 $2,569,000 $1,381,000
========== ========== ==========
</TABLE>
33
<PAGE> 102
TRANSWORLD BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 4,011,000 $ 2,569,000 $ 1,381,000
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) in investments in wholly owned
subsidiary....................................... (4,057,000) (2,564,000) (1,347,000)
Decrease (increase) in other assets................ 9,000 21,000 (8,000)
Decrease in other liabilities...................... -- -- --
----------- ----------- -----------
Net cash provided by operating activities..... (37,000) 26,000 26,000
----------- ----------- -----------
Cash flows from financial activities:
Cash dividends paid................................ -- (11,000) (10,000)
Exercise of stock options.......................... 217,000 -- --
----------- ----------- -----------
Net cash used in financing activities......... 217,000 (11,000) (10,000)
Decrease (increase) in cash............................. 180,000 15,000 16,000
Cash beginning of year.................................. 33,000 18,000 2,000
----------- ----------- -----------
Cash at end of year..................................... $ 213,000 $ 33,000 $ 18,000
=========== =========== ===========
Supplemental disclosure to cash flow information:
Interest paid during the year......................... $ -- $ -- $ --
</TABLE>
34
<PAGE> 103
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 1963
Directors
David H. Hender...................................... President and Chief Executive 1971
Officer, Director
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.
EXECUTIVE OFFICERS OF TRANSWORLD BANCORP AND TRANSWORLD BANK:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY AGE
- ------------------------------------------------------------ ---------------------------- ---
<S> <C> <C>
TransWorld Bancorp
David H. Hender........................................... President and Chief 65
Executive Officer
Howard J. Stanke.......................................... Chief Financial Officer 47
TransWorld Bank
David H. Hender........................................... President and Chief 65
Executive Officer
Howard J. Stanke.......................................... Executive Vice President and 47
Chief Financial Officer
Mel Moss.................................................. Executive Vice President 51
Gary N. Lindgren.......................................... Executive Vice President 55
John Marquis.............................................. Executive Vice President 48
</TABLE>
David H. Hender has been with the Bancorp as its President since inception
and has been President of TransWorld Bank for the past twenty four years.
Howard J. Stanke has been with the Bancorp as Chief Financial Officer since
its inception, and has been with the Bank for the past seventeen years. He
started with the Bank as Controller and was promoted to Senior Vice President,
Finance Division in January 1982 and Executive Vice President, in December 1991.
Mel Moss has been with the Bank for twelve years. He joined the Bank as
Vice President in September 1983 with responsibilities for retail banking. He
was promoted to Sr. Vice President, Retail Banking and Real Estate in May 1984
and Executive Vice President in December 1991. He is a standing member of the
Bank's loan committee.
35
<PAGE> 104
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.
ITEM 11 -- COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth a comprehensive overview of the compensation
of the Bank's executive officers with salary and bonus exceeding $100,000 during
the fiscal year ended December 31, 1995. Comparative data is also provided for
the previous two fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL -------------------- ALL OTHER(1)
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------------------------- ------ -------- ------- ------------
<S> <C> <C> <C> <C>
David H. Hender................................... 1995 $160,000 $32,103 $4,120
President and................................... 1994 $130,016 $31,557 $4,133
Chief Executive Officer......................... 1993 $127,467 $24,750 $3,997
Gary Lindgren..................................... 1995 $ 83,000 $18,900 $ --
Executive Vice President........................ 1994 -- -- --
Chief Credit Officer............................ 1993 -- -- --
</TABLE>
- ---------------
(1) Includes 401(k) contributions by the Bank of $2,310 in 1995 and 1994 and
$2,248 in 1993 and profit sharing contributions by the Bank of $1,810 in
1995, $1,823 in 1994 and $1,749 in 1993.
Directors of the Company are paid $550 for each board meeting they attend,
and $100 for each committee meeting they attend.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the shares of the
Company's common stock beneficially owned by its directors and all directors and
executive officers of the Company as a group as of March 1, 1996. The Company
declared a five-for-four stock split on January 30, 1996 payable March 15, 1996.
The shares listed below have not been adjusted for the stock split. Except as
otherwise noted, each person listed below has sole voting and investment power
with respect to the common stock indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL OR NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Louis J. Galen.................................................. 924,962(1) 33.50(1)
David H. Hender................................................. 131,390 4.76(2)
Douglas D. Bernards............................................. 7,812 .29(3)
Alvin H. Blaine................................................. 4,520 .17
Helene V. Galen................................................. 444 .02(4)
Timothy Harris.................................................. 19,554 .71(5)
Warren W. Kingsley.............................................. 2,878 .11(6)
Gary Lindgren................................................... 3,102 .12(7)
Ralph E. Phillips, Jr........................................... 35,344 1.28(8)
All Directors and Officers as a Group (17 persons).............. 1,167,916(8) 42.30(9)
</TABLE>
- ---------------
(1) Includes 76,548 shares held by Golden West Financial Corporation, of which
Mr. Galen is a director and as to which voting and investment power are
shared. Also includes 819,884 shares held by the L.J. Galen Trust, 28,086
shares in NELAG Partners, a partnership in which Mr. Galen is a general
partner, and 444 shares which are held by Helene V. Galen. Mr. Galen is the
husband of Helene V. Galen.
36
<PAGE> 105
(2) Includes 120 shares held by Scott Hender and 120 shares held by Chris
Hender, both sons of David H. Hender and 98,876 shares held by the Hender
Revocable Intervivos Trust. Also includes 8,000 shares which Mr. Hender has
the right to acquire under the Company's Stock Option and Stock Appreciation
Rights Plan.
(3) Mr. Bernards' shares are held in a profit sharing account.
(4) Mrs. Galen is the wife of Louis J. Galen.
(5) Includes 3,958 shares held in Mr. Harris' profit sharing plan, 9,996 shares
held by Timcor Financial Corporation of which Mr. Harris is President, 4,400
shares in the Harris Trust and 1,410 for Mr. Harris's children.
(6) Shares are held in the Kingsley Family trust of which Mr. Kingsley is a
Trustee.
(7) Includes 2,500 shares which Mr. Lindgren has the right to acquire under the
Company's Stock Option and Stock Appreciation Rights Plan.
(8) 35,044 shares are held in the Phillips Children Trust of which Mr. Phillips
is a Trustee. 300 shares are held by Mr. Phillips's wife.
(9) Includes, in addition to shares which Mr. Hender and Mr. Lindgren have the
right to acquire, 11,000 shares beneficially owned by other officers under
the Company's Stock Option and Stock Appreciation Rights Plan.
Set forth below is information concerning the only persons other than Mr.
Galen who are known to the Company to own beneficially more that 5% of the
outstanding shares of the Company's common stock. The following information was
supplied by Fenimore Asset Management, Inc.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------------------------------- -------------------- --------
<S> <C> <C>
Fenimore Asset Management, Inc.................................. 256,504(1) 9.28
118 N. Grand Street
P.O. Box 310
Cobleskill, New York 12043
Heartland Advisors.............................................. 141,120(2) 5.13
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
- ---------------
(1) Fenimore Asset Management, Inc. reports that it has shared voting power with
respect to the shares indicated above, but does not indicate with whom such
power is shared or whether it has sole or shared dispositive power with
respect to such shares.
(2) Heartland Advisors reports it has sole voting and dispositive power with
respect to such shares.
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
37
<PAGE> 106
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRANSWORLD BANCORP
By: /s/ HOWARD J. STANKE
Howard J. Stanke
Chief Financial Officer
Date: March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<C> <C> <S>
/s/ LOUIS J. GALEN Chairman of the Board March 25, 1996
Louis J. Galen
/s/ DAVID H. HENDER Director and Chief Executive March 25, 1996
David H. Hender Officer
/s/ HOWARD J. STANKE Chief Financial Officer and March 25, 1996
Howard J. Stanke Principal Accounting Officer
/s/ DOUGLAS D. BERNARDS Director March 25, 1996
Douglas D. Bernards
Director March , 1996
Alvin H. Blaine
/s/ HELENE V. GALEN Director March 25, 1996
Helene V. Galen
/s/ TIMOTHY HARRIS Director March 25, 1996
Timothy Harris
/s/ WARREN W. KINGSLEY Director March 25, 1996
Warren W. Kingsley
/s/ RALPH E. PHILLIPS, JR. Director March 25, 1996
Ralph E. Phillips, Jr.
</TABLE>
38
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
TransWorld Bancorp
Sherman Oaks, California
We have audited the accompanying consolidated balance sheets of TransWorld
Bancorp and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of TransWorld Bancorp's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of TransWorld Bancorp and
Subsidiary at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 31, 1996
39
<PAGE> 108
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 0-10692
TRANSWORLD BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
CALIFORNIA 95-3730637
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15233 VENTURA BOULEVARD 91403
SHERMAN OAKS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 783-7501
------------------------
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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 3,451,465 shares of common stock outstanding as of May 6, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 109
PART I
ITEM 1 -- FINANCIAL STATEMENTS
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks......................................... $ 29,382,000 $ 23,878,000
Federal funds sold.............................................. 31,000,000 35,000,000
Investment securities (approximate market value:
1996-$131,489,000; 1995-$141,864,000):........................ 132,011,000 141,184,000
Investment securities available for sale at market value........ 36,070,000 23,157,000
------------ -----------
Total investment securities................................ 168,081,000 164,341,000
Loans and leases................................................ 131,519,000 128,870,000
Less allowance for credit losses.............................. 2,319,000 2,282,000
------------ -----------
Net loans and leases....................................... 129,200,000 126,588,000
Premises and equipment, net..................................... 3,854,000 3,695,000
Other real estate owned......................................... 451,000 601,000
Other assets.................................................... 7,419,000 5,821,000
------------ -----------
TOTAL ASSETS.......................................... $369,387,000 $359,924,000
============ ===========
LIABILITIES
Deposits:
Noninterest bearing........................................... $ 98,212,000 $102,794,000
Interest bearing.............................................. 229,856,000 215,901,000
------------ -----------
Total deposits........................................ 328,068,000 318,695,000
Securities sold under agreement to repurchase................... 6,276,000 7,839,000
Interest bearing demand notes issued to the U.S. Treasury....... 2,714,000 2,186,000
Mortgage indebtedness and obligation under capital lease........ 112,000 113,000
Other liabilities............................................... 2,055,000 1,391,000
------------ -----------
Total liabilities..................................... 339,225,000 330,224,000
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized 6,000,000 shares;
3,451,465 shares issued and outstanding in TransWorld Bancorp
in 1996 and 3,450,250 in 1995................................. 8,030,000 8,022,000
Surplus......................................................... 2,926,000 2,926,000
Retained earnings............................................... 19,443,000 18,672,000
Unrealized gain (loss) on securities (net of deferred taxes of
$168,000 in March 1996 and $(53,000) in Dec 1995)............. (237,000) 72,000
------------ -----------
Total stockholders' equity............................ 30,162,000 29,700,000
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $369,387,000 $359,924,000
============ ===========
</TABLE>
The financial statements reflect all normal interim adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the periods presented.
2
<PAGE> 110
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31,
---------------------------
1996 1995
---------- ----------
(UNAUDITED) ($ IN THOUSANDS)
<S> <C> <C>
Interest income:
Interest and fees on loans...................................... $ 3,394 $ 3,229
Interest on state and municipal securities...................... 323 421
Interest on other investment securities......................... 2,093 1,724
Interest on Federal funds sold.................................. 388 959
--------- ---------
Total interest income................................... 6,198 6,333
Interest expense:
Interest on deposits............................................ 1,969 1,563
Interest on short-term borrowings............................... 75 50
--------- ---------
Total interest expense.................................. 2,044 1,613
Net interest income............................................... 4,154 4,720
Provision for credit losses..................................... 105 220
--------- ---------
Net interest income after provision for credit losses............. 4,049 4,500
Noninterest income:
Service charges on deposit accounts............................. 785 699
Bankcard merchant income........................................ 35 30
Gain on sale of securities......................................
Other operating income.......................................... 206 232
--------- ---------
Total noninterest income................................ 1,026 961
Noninterest expense:
Salaries and employee benefits.................................. 2,085 1,960
Net occupancy expense........................................... 535 579
Furniture, fixtures and equipment............................... 329 314
FDIC insurance costs............................................ 1 188
Data processing................................................. 59 49
Other operating expense......................................... 859 809
--------- ---------
Total noninterest expense............................... 3,868 3,899
Income before income taxes........................................ 1,207 1,562
Income taxes...................................................... 437 582
--------- ---------
Net income...................................................... $ 770 $ 980
========= =========
Net Income Per Share*............................................. $ .22 $ .29
Book value per share*............................................. $ 8.74 $ 7.70
Weighted Average shares outstanding*.............................. 3,451,465 3,439,199
</TABLE>
- ---------------
* Adjusted to reflect the five-for-four split paid on March 15, 1996.
3
<PAGE> 111
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDING MARCH 31,
-----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net Income...................................................... $ 770,000 $ 980,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization of premium on investments................. 81,000 29,000
Provision for credit losses................................ 105,000 220,000
Accretion of deferred loan fees and costs.................. (109,000) (36,000)
Loan origination costs capitalized......................... (38,000) (35,000)
Depreciation and amortization.............................. 157,000 184,000
Decrease (increase) in accrued interest receivable......... 80,000 (400,000)
(Decrease) increase in accrued interest payable............ (64,000) 59,000
Increase (decrease) in current income taxes payable........ 430,000 (469,000)
Provision for OREO losses.................................. -- 73,000
Increase in other, net..................................... 358,000 42,000
------------ ------------
Net cash provided by operating activities................ 1,770,000 1,585,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity.......... 2,835,000 2,252,000
Proceeds from matured securities available for sale........ 2,700,000 14,750,000
Proceeds from calls and redemptions of securities held to
maturity................................................. 28,651,000 5,000
Proceeds from calls and redemptions of securities available
for sale................................................. 6,000,000 --
Proceeds from sale of securities available for sale........ -- --
Purchase of securities held to maturity.................... (23,359,000) (11,815,000)
Purchase of securities available for sale.................. (20,648,000) (15,614,000)
Net (increase) decrease in loans........................... (3,749,000) 183,000
Proceeds from sale of SBA loans............................ 892,000 462,000
Loan or origination fees received.......................... 219,000 111,000
Proceeds from sale of other real estate owned.............. 145,000 1,375,000
Purchase of premises and equipment......................... (316,000) (54,000)
(Increase) in other, net................................... (1,968,000) (274,000)
------------ ------------
Net cash (used in) investing activities:................. (8,598,000) (8,619,000)
Cash flows from financing activities:
Net (decrease) increase in noninterest bearing deposits.... (4,582,000) 2,010,000
Net increase (decrease) in interest bearing deposits....... 13,955,000 (17,543,000)
Net (decrease) increase in repurchase agreements........... (1,563,000) 19,800,000
Increase (decrease) in interest bearing demand notes....... 528,000 (1,303,000)
(Decrease) in capital lease and mortgage indebtedness...... (1,000) (91,000)
Dividends paid in lieu of fractional shares issued......... (5,000) --
Exercise of stock purchase plan options.................... -- 209,000
------------ ------------
Net cash provided by financing activities................ 8,332,000 3,082,000
------------ ------------
Net increase in cash and cash equivalents....................... 1,504,000 (3,952,000)
Cash and cash equivalents, beginning of year.................... 58,878,000 85,541,000
------------ ------------
Cash and cash equivalents, end of period........................ $ 60,382,000 $ 81,589,000
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the year:
Interest...................................................... $ 2,112,000 $ 1,504,000
Income taxes.................................................. $ 14,000 $ 325,000
Non cash activities:
Transfer from loans to other real estate owned................ $ -- $ --
</TABLE>
4
<PAGE> 112
NOTE 1 -- NONPERFORMING ASSETS
Past Due and Nonaccruing Assets:
<TABLE>
<CAPTION>
PAST DUE OVER 90 DAYS
-------------------------- NONACCRUALS
---------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1995 1996 1995
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Real Estate loans.......... $ 5,000 $5,000 $ 591,000 $ 620,000
Commercial loans........... -- -- 351,000 404,000
Consumer loans............. -- -- 1,000 1,000
Leasing.................... 2,000 2,000 -- --
Other Real Estate Owned.... -- -- 451,000 601,000
------ ------ ---------- ----------
Total............ $ 7,000 $7,000 $1,394,000 $1,626,000
</TABLE>
NOTE 2 -- ALLOWANCE FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED:
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Balance, January 1................................. $2,282,000 $2,033,000
Provision charged to operations.................... 105,000 830,000
Recoveries......................................... 27,000 116,000
---------- ----------
2,414,000 2,979,000
Less: Loans charged off............................ 95,000 697,000
---------- ----------
Balance.......................................... $2,319,000 $2,282,000
</TABLE>
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Balance, January 1................................... $83,000 $135,000
Provision charged to operations...................... -- 96,000
------ ------
83,000 231,000
Less: OREO reserves recovered........................ -- --
Less: OREO reserves charged off...................... 4,000 148,000
------ ------
Balance............................................ $79,000 $ 83,000
</TABLE>
NOTE 3 -- ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Nonperforming loans to total loans................... 0.72% 0.80%
Nonperforming assets to total assets................. 0.40% 0.48%
Loan loss allowance to nonperforming loans........... 244.10% 221.55%
Loan loss and OREO allowance to nonperforming
assets............................................. 162.03% 137.98%
</TABLE>
5
<PAGE> 113
ITEM 2 -- MANAGEMENT'S ANALYSIS OF FINANCIAL OPERATIONS
MARCH 31, 1996 VS. DECEMBER 31, 1995
ASSETS
Total Assets on March 31, 1996, were $369,387,000 compared to $359,924,000
at year-end 1995, an increase of $9,463,000 or 3%. Investment securities grew
2%, or $3,740,000 from December 31, 1995, and were invested primarily in U.S.
Government agencies, the majority with three to six month call options.
Loan demand improved modestly during the first quarter with the loan
portfolio at March 31, 1996 at $131,519,000, compared to $128,870,000 at
December 31, 1995, an increase of 2%. The quality of the Company's loan
portfolio continues to be solid with non-performing loans dropping to $950,000,
or 0.72% of total loans at March 31, 1996 compared to $1,032,000, or 0.80%, at
December 31, 1995.
Other Real Estate Owned (OREO) decreased 25%, or $150,000, from year-end
1995. During the first quarter, the Company sold one property for a net loss of
$5,000 but made no additions to OREO. The remaining four properties held in OREO
total $401,000 and represent only 0.1% of total assets.
LIABILITIES
Deposits grew $9,373,000, or 3%, during the first quarter of 1996. Interest
bearing accounts grew $13,955,000, or 6%, while noninterest bearing accounts
declined $4,582,000. Balances in Time Certificates of deposits remained constant
with money market accounts contributing most of the growth in interest bearing
deposits.
CAPITAL AND LIQUIDITY
On January 30, 1996, the Board of Directors approved a five-for-four stock
split that was paid to shareholders March 15, 1996.
Management is not only committed to maintaining capital at a level
sufficient to assure stockholders, customers and regulators that the Company is
financially sound, but to also provide for planned growth and expansion. The
Company's capital position remains strong, and continues to meet the
requirements set by the FDIC for a well capitalized bank. Capital ratios at the
end of the first quarter remained virtually unchanged from year-end 1995. Risk
based capital at March 31, 1996 was 15.3% compared to 15.4% at December 31,
1995. Tier 1 (core capital) ratio was 16.5% at quarter-end versus 16.6% at
year-end, with the leverage ratio (tier 1 capital to quarterly average assets)
at 8.3% at March 31, 1996 compared to 8.4% at December 31, 1995.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality and maturity schedules of earning assets and
supporting liabilities. The Company's liquid assets include cash and demand
balances due from banks, federal funds sold and investment securities available
for sale. Liquid assets represented approximately 26% of the Company's total
assets at March 31, 1996 giving the Company an adequate liquidity to handle
increased loan demand and short-term liability fluctuations.
OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995
Income for the first quarter of 1996 was the second highest first quarter
result in the Company's history, at $770,000. This compares to the Company's
historically best first quarter of $980,000 earned last year. Net income per
share, after adjusting for the five-for-four stock split, was $0.22 for the
first quarter 1996 compared to $0.29 for the same period of 1995. Book value per
share increased to $8.74 at March 31, 1996, versus $7.70 for March 31, 1995.
The net interest margin declined to 5.19% compared to 5.38% during last
years first quarter, causing a drop in net interest income of $566,000.
Increased deposit rates (to meet market competition), coupled with higher
interest bearing deposit balances and a changing mix of deposits increased
interest expense $431,000, or 27%, over the same period last year. At the same
time interest rates in the bank's loan portfolio declined due to two prime rate
drops in late December 1995 and February 1996. Yields on the investment
portfolio also
6
<PAGE> 114
declined compared to the prior year's first quarter. The loan loss provision for
the first quarter 1996 decreased $115,000, or 52%, from the amount provided in
the first quarter of 1995.
Noninterest income increased 7%, or $65,000, over last year. This
improvement resulted from increased service charge income generated from a
larger deposit base and a concerted effort in the collection of all charges due.
Noninterest expenses were properly managed, decreasing $31,000, or 1% from
the same period last year. FDIC insurance premiums declined substantially from
$188,000 in the first quarter of 1995 to $1,000 in the first quarter 1996. The
Company pays the minimum semi-annual assessment for a well capitalized bank.
Increases in salaries and employee benefits as well as furniture, fixtures and
equipment corresponds to the addition of our newest office in Camarillo. Net
occupancy expense and furniture, fixtures and equipment will be further impacted
by the relocation of our San Fernando branch office in June 1996, the future
Valencia office, and the ongoing upgrading of computer equipment in other
offices.
We have received regulatory approval for our twelfth branch office in
Valencia. We anticipate opening this office in a temporary location in June
1996. With the addition of this office we will have two full service banking
facilities in the Santa Clarita Valley area.
7
<PAGE> 115
PART II
ITEM 1 -- LEGAL PROCEEDINGS
None
ITEM 2 -- CHANGES IN SECURITIES
None
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
TRANSWORLD BANCORP AND SUBSIDIARY
(a) Annual meeting of stockholders was held on April 23, 1996
(b) N/A
(c) Matters voted upon were:
1. Election of Directors.
<TABLE>
<CAPTION>
VOTES CAST WITHHOLD
FOR AUTHORITY
---------- ---------
<S> <C> <C>
Louis Galen...................................... 2,538,830 9,044
David Hender..................................... 2,542,692 5,182
Douglas Bernards................................. 2,538,830 9,044
Alvin H. Blaine.................................. 2,542,618 5,256
Helene V. Galen.................................. 2,542,570 5,304
Timothy Harris................................... 2,542,692 5,182
Warren Kingsley.................................. 2,542,618 5,256
Ralph E. Phillips................................ 2,542,680 5,194
</TABLE>
2. Ratification of the selection of Deloitte & Touche as the company's
independent auditors.
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST
FOR AGAINST ABSTAIN
- ---------- ---------- -------
<S> <C> <C>
2,532,361 3,803 11,710
</TABLE>
ITEM 5 -- OTHER INCOME
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
A. FURNISH THE EXHIBITS REQUIRED BY ITEM 601 OF REGULATION 8-K
(27). Financial Data Schedule
B. REPORTS ON FORM 8-K
None
8
<PAGE> 116
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSWORLD BANCORP
Date: May 14, 1996 By: /s/ DIANE M. AUTEN
--------------- --------------------------------
Diane M. Auten
Controller
Date: May 14, 1996 By: /s/ DAVID H. HENDER
--------------- --------------------------------
David H. Hender
Chief Executive Officer
9
<PAGE> 117
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 0-10692
TRANSWORLD BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
CALIFORNIA 95-3730637
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15233 VENTURA BOULEVARD 91403
SHERMAN OAKS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(818) 783-7501
------------------------
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 ___.
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 3,451,465 shares of common stock outstanding as of August 9, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 118
PART I
ITEM 1 -- FINANCIAL STATEMENTS
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks......................................... $ 31,940,000 $ 23,878,000
Federal funds sold.............................................. 32,000,000 35,000,000
Investment securities held to maturity (approximate market
value:
1996-$142,249,000; 1995-$141,864,000;):....................... 143,235,000 141,184,000
Investment securities available for sale, at market value....... 35,694,000 23,157,000
------------ ------------
Total investment securities................................... 178,929,000 164,341,000
Loans and leases.............................................. 132,482,000 128,870,000
Less allowance for credit losses.............................. 2,389,000 2,282,000
------------ ------------
Net loans and leases....................................... 130,093,000 126,588,000
Premises and equipment, net..................................... 4,368,000 3,695,000
Other real estate owned, net.................................... 451,000 601,000
Other assets.................................................... 8,183,000 5,821,000
------------ ------------
TOTAL ASSETS.......................................... $385,964,000 $359,924,000
============ ============
LIABILITIES
Deposits:
Noninterest bearing........................................... $108,728,000 102,794,000
Interest bearing.............................................. 237,753,000 215,901,000
------------ ------------
Total deposits........................................ 346,481,000 318,695,000
Securities sold under agreement to repurchase................... 3,272,000 7,839,000
Interest bearing demand notes issued to the U.S. Treasury....... 3,255,000 2,186,000
Mortgage indebtedness and obligation under capital lease........ 110,000 113,000
Other liabilities............................................... 1,969,000 1,391,000
------------ ------------
Total liabilities..................................... 355,087,000 330,224,000
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized 6,000,000 shares;
3,451,465 shares issued and out-standing in TransWorld Bancorp
in 1996 and 1995.............................................. 8,030,000 8,030,000
Surplus......................................................... 2,926,000 2,926,000
Retained earnings............................................... 20,313,000 18,672,000
Unrealized gain/(loss) on securities (net of deferred taxes of
$253,000 in 1996 and ($23,000) in 1995)....................... (392,000) 72,000
------------ ------------
Total stockholders' equity............................ 30,877,000 29,700,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $385,964,000 $359,924,000
============ ============
</TABLE>
2
<PAGE> 119
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDING SIX MONTHS ENDING
JUNE 30, JUNE 30,
------------------- ---------------------
1996 1995 1996 1995
------ ------ ------- -------
(UNAUDITED) ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.................. $3,431 $3,356 $ 6,825 $ 6,585
Interest on state and municipal
securities............................... 335 402 658 823
Interest on other investment securities..... 2,208 2,021 4,301 3,745
Interest on Federal funds sold.............. 427 949 815 1,908
------ ------ ------- -------
Total interest income............... 6,401 6,728 12,599 13,061
Interest expense:
Interest on deposits........................ 2,054 1,628 4,023 3,191
Interest on short-term borrowings........... 52 417 127 467
------ ------ ------- -------
Total interest expense.............. 2,106 2,045 4,150 3,658
Net interest income........................... 4,295 4,683 8,449 9,403
Provision for credit losses................. 130 225 235 445
------ ------ ------- -------
Net interest income after provision for credit
losses...................................... 4,165 4,458 8,214 8,958
Noninterest income:
Service charges on deposit accounts......... 794 724 1,579 1,423
Bankcard merchant income.................... 37 34 72 64
Other operating income...................... 290 224 496 456
------ ------ ------- -------
Total noninterest income............ $1,121 982 2,147 1,943
Noninterest expense:
Salaries and employee benefits.............. 2,101 1,959 4,186 3,919
Net occupancy expense....................... 567 525 1,102 1,104
Furniture, fixtures and equipment........... 309 314 638 628
FDIC insurance costs........................ 1 188 2 376
Data processing............................. 65 54 124 103
Other operating expense..................... 874 810 1,733 1,619
------ ------ ------- -------
Total noninterest expense........... 3,917 3,850 7,785 7,749
Income before income taxes.................... 1,369 1,590 2,576 3,152
Income taxes.................................. 499 608 936 1,190
------ ------ ------- -------
Net income.................................. $ 870 $ 982 $ 1,640 $ 1,962
====== ====== ======= =======
Net Income Per Share*......................... $ 0.25 $ 0.28 $ 0.47 $ 0.57
====== ====== ======= =======
Book value per share*......................... $ 8.95 $ 8.00
Average shares outstanding*................... 3,451,465 3,450,250 3,451,465 3,444,755
</TABLE>
- ---------------
* Adjusted to reflect the five-for-four split paid on March 15, 1996
3
<PAGE> 120
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30,
-----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net Income...................................................... $ 1,640,000 $ 1,962,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization (accretion) of premium on investments..... 151,000 (74,000)
Provision for credit losses................................ 235,000 445,000
Accretion of deferred loan fees and costs.................. (188,000) (59,000)
Loan origination costs capitalized......................... (97,000) (75,000)
Depreciation and amortization.............................. 311,000 326,000
(Increase) in accrued interest receivable.................. (250,000) (438,000)
Increase (decrease) in accrued interest payable............ 101,000 (205,000)
Increase in current income taxes payable................... 359,000 47,000
Provision for OREO losses.................................. -- 92,000
Increase in other, net..................................... 183,000 185,000
------------ ------------
Net cash provided by operating activities............. 2,445,000 2,616,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity.......... 11,620,000 10,000,000
Proceeds from matured securities available for sale........ 3,700,000 25,650,000
Proceeds from calls and redemptions of securities held to
maturity................................................. 36,476,000 8,315,000
Proceeds from calls and redemptions of securities available
for sale................................................. 6,650,000 1,000,000
Purchase of securities held to maturity.................... (51,028,000) (27,644,000)
Purchase of securities available for sale.................. (22,663,000) (24,919,000)
Net (increase) decrease in loans........................... (5,442,000) 1,756,000
Proceeds from sale of SBA loans............................ 1,530,000 1,295,000
Loan origination fees received............................. 445,000 325,000
Proceeds from sale of other real estate owned.............. 145,000 1,375,000
Purchase of premises and equipment......................... (984,000) (367,000)
(Increase) decrease in other, net.......................... (2,112,000) 277,000
------------ ------------
Net cash (used in) investing activities:.............. (21,663,000) (7,003,000)
Cash flows from financing activities:
Net increase in noninterest bearing deposits............... 5,934,000 1,912,000
Net increase in interest bearing deposits.................. 21,852,000 19,181,000
Net (decrease) increase in repurchase agreements........... (4,567,000) 36,208,000
Increase in interest bearing demand notes.................. 1,069,000 953,000
(Decrease) in capital lease and mortgage indebtedness...... (3,000) (92,000)
Dividends paid in lieu of fractional shares issued......... (5,000) --
Exercise of stock purchase plan options.................... -- 209,000
------------ ------------
Net cash provided by financing activities............. 24,280,000 20,009,000
------------ ------------
Net increase in cash and cash equivalents....................... 5,062,000 15,622,000
Cash and cash equivalents, beginning of year.................... 58,878,000 85,541,000
Cash and cash equivalents, end of period........................ $ 63,940,000 $101,163,000
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the year:
Interest...................................................... $ 4,020,000 $ 2,992,000
Income taxes.................................................. $ 574,000 $ 1,340,000
------------ ------------
Non cash activities:
Transfer from loans to other real estate owned................ $ -- $ 155,000
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 121
NOTE 1 -- NONPERFORMING ASSETS
Past Due and Nonaccruing Assets:
<TABLE>
<CAPTION>
PAST DUE OVER 90 DAYS
------------------------ NONACCRUALS
JUNE ---------------------------
30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1995 1996 1995
------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Real Estate loans........................... $40,000 $5,000 $ 459,000 $ 620,000
Commercial loans............................ -- -- 298,000 404,000
Consumer loans.............................. -- -- -- 1,000
Leasing..................................... -- 2,000 --
Other Real Estate Owned..................... -- -- 451,000 601,000
------- ------ ---------- ----------
Total............................. $40,000 $7,000 $1,208,000 $1,626,000
======= ====== ========== ==========
</TABLE>
NOTE 2 -- ALLOWANCE FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Balance, January 1................................................. $2,282,000 $2,033,000
Provision charged to operations.................................... 235,000 830,000
Recoveries......................................................... 38,000 116,000
---------- ----------
2,555,000 2,979,000
Less: Loans charged off............................................ 166,000 697,000
---------- ----------
Balance.................................................. $2,389,000 $2,282,000
========== ==========
</TABLE>
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
JUNE
30, DECEMBER 31,
1996 1995
------- ------------
<S> <C> <C>
Balance, January 1.................................................... $83,000 $135,000
Provision charged to operations....................................... -- 96,000
------- --------
83,000 231,000
Less: OREO reserves recovered......................................... -- --
Less: OREO reserves charged off....................................... 4,000 148,000
------- --------
Balance..................................................... $79,000 $ 83,000
======= ========
</TABLE>
NOTE 3 -- ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Nonperforming loans to total loans..................................... 0.60% 0.80%
Nonperforming assets to total assets................................... 0.34% 0.48%
Loan loss allowance to nonperforming loans............................. 299.74% 221.55%
Loan loss and OREO allowance to nonperforming assets................... 185.98% 137.98%
</TABLE>
5
<PAGE> 122
ITEM 2 -- MANAGEMENT'S ANALYSIS OF FINANCIAL OPERATIONS
JUNE 30, 1996 VS. DECEMBER 31, 1995
ASSETS
Assets continued to grow during the first half of 1996, gaining 7%, or
$26,040,000, to $385,964,000 at June 30, 1996. The growth in assets was
primarily in the securities portfolio which increased 9%, or $14,588,000 from
year-end 1995, the majority being invested in U.S. Government agency securities.
The loan portfolio grew 3% during the first half of 1996, increasing to
$132,482,000 at June 30, 1996 compared to $128,870,000 at December 31, 1995.
Asset quality remained solid with non-performing loans decreasing during the
first half of 1996 to $797,000, or 0.60% of total loans, compared to $1,032,000,
or 0.80% of total loans, at year-end 1995. The reserve for credit losses
amounted to $2,389,000, or 1.80% of total loans at the end of the second
quarter.
Other real estate owned (OREO) decreased 25%, or $150,000, from year-end
1995 with the sale of one property. No additions to OREO were made in the first
half of the year; the remaining four properties held in OREO total $401,000, or
0.1% of total assets.
LIABILITIES
Deposits grew steadily during the first half of 1996 reaching $346,481,000
at June 30, 1996 versus $318,695,000 at December 31, 1995, an increase of
$27,786,000, or 9%. The most significant contributor to the increased deposits
was the new "Investors Money Market Account", which pays a higher yield (4.77%
at June 30th) as long as the balance remains at $50,000 or above. Deposits in
Investors Money Market Accounts as of June 30, 1996 were $27,948,000.
CAPITAL AND LIQUIDITY
The Company continues to enjoy a strong capital position, which continues
to meet and exceed current regulatory requirements. Capital ratios at the end of
the second quarter remain virtually unchanged from year-end 1995. Risk-based
capital at June 30, 1996 was 15.5% compared to 15.4% at December 31, 1995. Tier
1 (core capital) was 16.7% at quarter-end versus 16.6% at year-end, with the
leverage ratio (Tier 1 capital to quarterly average assets) at 8.3% at June 30,
1996 compared to 8.4% at December 31, 1995.
The objective of liquidity management is to maintain cash flow adequate for
funding the Company's operations and to meet obligations on a timely and cost
effective basis. The Company manages its liquidity position through continuous
monitoring of profitability trends, asset quality and maturity and repricing
schedules of earning assets and supporting liabilities. The Company's liquid
assets include cash and demand balances due from banks, federal funds sold and
investment securities available for sale. Liquid assets at June 30, 1996 were
$99,634,000, or 26% of total assets giving the Company more than adequate funds
to increase the loan portfolio and handle any short term liability fluctuations.
OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 VS. JUNE 30, 1995.
Second quarter earnings were $870,000, up from $770,000 earned in the first
quarter of 1996 and down from a record $982,000 earned in the second quarter of
1995. Second quarter per share earnings were $0.25 versus $0.22 in this year's
first quarter and $0.28 in last year's second quarter.
The net interest margin declined to 5.18% from 5.35% in the same quarter
last year, causing a drop in net interest income of $293,000. The new Investors
Money Market account, coupled with higher levels of other interest bearing
deposits increased interest expense $61,000 over the second quarter last year.
Two prime rate drops in late 1995 and early 1996 lowered the yield on interest
earning assets compared to the prior year second quarter.
Noninterest income increased $139,000, or 14%, over the same period last
year. Service charges on deposits rose 10%, or $70,000, compared to the second
quarter last year. Other income improved during the
6
<PAGE> 123
second quarter with increased investment and insurance sales commissions, up
$4,000, and a gain on the sale of leased equipment of $15,000.
Noninterest expenses rose a modest 2%, or 67,000, over the second quarter
of 1995. A reduction in FDIC insurance premiums partially offset a 6% increase
in salaries, occupancy, and furniture fixtures and equipment costs compared to
the same period last year.
OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 VS. JUNE 30, 1995.
Operating earnings for the six months ended June 30, 1996 were $1,640,000,
down from the $1,962,000 earned for the same period in 1995. Earnings per share
were $0.47 for the first six months compared to $0.57 in 1995. Book value per
share increased $0.95 to $8.95 in 1996.
The net interest margin was reduced during the first half by the rising
interest costs on deposits and prime interest rate drops in late December of
1995 and February of 1996. Net interest income after the provision for credit
losses for the first half was $8,214,000 versus $8,958,000 in 1995.
Noninterest income increased 10%, or $204,000, over last years first half.
Our larger business checking deposit base resulted in increased service charge
income, up $156,000, or 11%, from 1995.
With careful management of expenses, and the decreased FDIC insurance
expense, we were able to keep expenses in line with 1995. Salaries and employee
benefits were up 7% over last year due to the addition of our Camarillo office
in May, 1995 and our Valencia office which opened in June, 1996. Net occupancy
expense and furniture fixtures and equipment will increase during the second
half of 1996 as a result of (1.) Our new Valencia office, (2.) The recent
relocation, after 35 years, of our San Fernando office to new quarters and (3.)
The ongoing upgrading of computer equipment through out the Company.
7
<PAGE> 124
PART II
ITEM 1 -- LEGAL PROCEEDINGS
None
ITEM 2 -- CHANGES IN SECURITIES
None
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 -- OTHER INCOME
None
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27. Financial Data Schedule
B. REPORTS ON FORM 8-K
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSWORLD BANCORP
Date: August 12, 1996 By: /s/ HOWARD J. STANKE
Howard J. Stanke
Chief Financial Officer
Date: August 12, 1996 By: /s/ DIANE M. AUTEN
Diane M. Auten
Controller
8
<PAGE> 125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-10692
TRANSWORLD BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
CALIFORNIA 95-3730637
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15233 VENTURA BOULEVARD 91403
SHERMAN OAKS, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(818) 783-7501
------------------------
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 ___.
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 3,451,715 shares of common stock outstanding as of November 12, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 126
PART I
ITEM 1 -- FINANCIAL STATEMENTS
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
1996 1995
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks......................................... $ 28,263,000 $ 23,878,000
Federal funds sold.............................................. 20,000,000 35,000,000
Investment securities held to maturity (approximate market
value: 1996-$142,564,000; 1995-$151,931,000;):................ 143,179,000 141,184,000
Investment securities available for sale, at market value....... 36,388,000 23,157,000
------------ ------------
Total investment securities........................... 179,567,000 164,341,000
Loans and leases.............................................. 136,426,000 128,870,000
Less allowance for credit losses.............................. 2,395,000 2,282,000
------------ ------------
Net loans and leases....................................... 134,031,000 126,588,000
Premises and equipment, net..................................... 5,099,000 3,695,000
Other real estate owned, net.................................... 840,000 601,000
Other assets.................................................... 7,488,000 5,821,000
------------ ------------
TOTAL ASSETS.......................................... $375,288,000 $ 359,924,000
============ ============
LIABILITIES
Deposits:
Noninterest bearing........................................... $109,850,000 $ 102,794,000
Interest bearing.............................................. 227,926,000 215,901,000
------------ ------------
Total deposits........................................ 337,776,000 318,695,000
Securities sold under agreement to repurchase................... -- 7,839,000
Interest bearing demand notes issued to the U.S. Treasury....... 3,410,000 2,186,000
Mortgage indebtedness and obligation under capital lease........ 207,000 113,000
Other liabilities............................................... 1,688,000 1,391,000
------------ ------------
Total liabilities..................................... 343,081,000 330,224,000
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized 6,000,000 shares;
3,451,465 shares issued and out-standing in TransWorld Bancorp
in 1996 and 1995.............................................. 8,030,000 8,030,000
Surplus......................................................... 2,926,000 2,926,000
Retained earnings............................................... 21,463,000 18,672,000
Unrealized gain/(loss) on securities (net of deferred taxes of
$236,000 in 1996 and ($25,000) in 1995)....................... (212,000) 72,000
------------ ------------
Total stockholders' equity............................ 32,207,000 29,700,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $375,288,000 $ 359,924,000
============ ============
</TABLE>
2
<PAGE> 127
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDING NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(UNAUDITED) ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.................. $ 3,460 $ 3,364 $ 10,285 $ 9,949
Interest on state and municipal
securities............................... 332 325 990 1,148
Interest on other investment securities..... 2,381 2,147 6,682 5,892
Interest on Federal funds sold.............. 447 1,064 1,262 2,972
--------- --------- --------- ---------
Total interest income............... 6,620 6,900 19,219 19,961
Interest expense:
Interest on deposits........................ 2,156 1,744 6,179 4,935
Interest on short-term borrowings........... 53 527 180 994
--------- --------- --------- ---------
Total interest expense.............. 2,209 2,271 6,359 5,929
Net interest income........................... 4,411 4,629 12,860 14,032
Provision for credit losses................. 110 220 345 665
--------- --------- --------- ---------
Net interest income after provision for credit
losses...................................... 4,301 4,409 12,515 13,367
Noninterest income:
Service charges on deposit accounts......... 813 725 2,392 2,148
Bankcard merchant income.................... 33 34 105 98
Gain on sale of securities.................. 1 51 1
Other operating income...................... 694 242 1,190 698
--------- --------- --------- ---------
Total noninterest income............ 1,541 1,052 3,688 2,995
Noninterest expense:
Salaries and employee benefits.............. 2,100 1,978 6,286 5,897
Net occupancy expense....................... 596 554 1,698 1,658
Furniture, fixtures and equipment........... 398 317 1,036 945
FDIC insurance costs........................ 0 (24) 2 352
Data processing............................. 64 50 188 153
Other operating expense..................... 846 820 2,579 2,439
--------- --------- --------- ---------
Total noninterest expense........... 4,004 3,695 11,789 11,444
Income before income taxes.................... 1,838 1,766 4,414 4,918
Income taxes.................................. 687 671 1,623 1,861
--------- --------- --------- ---------
Net income.................................. $ 1,151 $ 1,095 $ 2,791 $ 3,057
========= ========= ========= =========
Net Income Per Share*......................... $ 0.33 $ 0.32 $ 0.81 $ 0.89
========= ========= ========= =========
Book value per share*......................... $ 9.33 $ 8.32
Average shares outstanding*................... 3,451,465 3,451,067 3,451,465 3,446,882
</TABLE>
- ---------------
* Adjusted to reflect the five-for-four split paid on March 15, 1996
3
<PAGE> 128
TRANSWORLD BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net Income........................................................ $ 2,791,000 $ 3,057,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization (accretion) of premium on investments....... 218,000 (49,000)
Provision for credit losses.................................. 345,000 665,000
Accretion of deferred loan fees and costs.................... (279,000) (151,000)
Loan origination costs capitalized........................... (140,000) (120,000)
Depreciation and amortization................................ 455,000 477,000
(Increase) in accrued interest receivable.................... (213,000) (472,000)
(Decrease) increase in accrued interest payable.............. (89,000) 287,000
Decrease (increase) in current income taxes payable.......... 335,000 (132,000)
Provision for OREO losses.................................... -- 92,000
Increase in other, net....................................... 115,000 296,000
------------ ------------
Net cash provided by operating activities.................... 3,538,000 3,950,000
Cash flows from investing activities:
Proceeds from matured securities held to maturity............ 28,169,000 23,638,000
Proceeds from matured securities available for sale.......... 5,200,000 28,650,000
Proceeds from calls and redemptions of securities held to
maturity.................................................... 38,950,000 19,984,000
Proceeds from calls and redemptions of securities available
for sale.................................................... 6,650,000 6,000,000
Proceeds from sale of securities available for sale.......... -- 498,000
Purchase of securities held to maturity...................... (70,090,000) (60,960,000)
Purchase of securities available for sale.................... (24,663,000) (32,936,000)
Net increase in loans........................................ (10,197,000) (4,506,000)
Proceeds from sale of SBA loans.............................. 1,663,000 2,384,000
Loan origination fees received............................... 653,000 481,000
Proceeds from sale of other real estate owned................ 267,000 1,375,000
Purchase of premises and equipment........................... (1,859,000) (686,000)
Increase in other, net....................................... (1,451,000) (78,000)
------------ ------------
Net cash (used in) investing activities:..................... (26,708,000) (16,156,000)
Cash flows from financing activities:
Net increase (decrease) in noninterest bearing deposits...... 7,056,000 (3,174,000)
Net increase (decrease) in interest bearing deposits......... 12,025,000 (24,827,000)
Net (decrease) increase in repurchase agreements............. (7,839,000) 33,789,000
Increase in interest bearing demand notes.................... 1,224,000 1,176,000
Increase (decrease) in capital lease and mortgage
indebtedness................................................ 94,000 (94,000)
Dividends paid in lieu of fractional shares issued........... (5,000) --
Exercise of stock purchase plan options...................... -- 217,000
------------ ------------
Net cash provided by financing activities.................... 12,555,000 7,087,000
------------ ------------
Net increase in cash and cash equivalents......................... (10,615,000) (5,119,000)
Cash and cash equivalents, beginning of year...................... 58,878,000 85,541,000
Cash and cash equivalents, end of period.......................... $48,263,000 $80,422,000
============ ============
Supplemental disclosure of cash flows information:
Cash paid during the year:
Interest........................................................ $ 6,285,000 $ 4,658,000
Income taxes.................................................... $ 1,276,000 $ 2,210,000
------------ ------------
Non cash activities:
Transfer from loans to other real estate owned.................. $ 512,000 $ 155,000
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 129
NOTE 1 -- NONPERFORMING ASSETS
Past Due and Nonaccruing Assets:
<TABLE>
<CAPTION>
PAST DUE OVER 90 DAYS NONACCRUALS
---------------------------- ----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Real Estate loans............................. $ 726,000 $5,000 $ 249,000 $ 620,000
Commercial loans.............................. -- -- 207,000 404,000
Consumer loans................................ -- -- 1,000 1,000
Leasing....................................... -- 2,000 -- --
Other Real Estate Owned....................... -- -- 840,000 601,000
-------- ------ ---------- ----------
Total............................... $ 726,000 $7,000 $ 1,297,000 $1,626,000
======== ====== ========== ==========
</TABLE>
NOTE 2 -- ALLOWANCE FOR CREDIT LOSSES AND OTHER REAL ESTATE OWNED
Transactions in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Balance, January 1................................................... $ 2,282,000 $2,033,000
Provision charged to operations...................................... 345,000 830,000
Recoveries........................................................... 43,000 116,000
---------- ----------
2,670,000 2,979,000
Less: Loans charged off.............................................. 275,000 697,000
---------- ----------
Balance............................................................ $ 2,395,000 $2,282,000
========== ==========
</TABLE>
Transactions in the allowance for other real estate owned were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Balance, January 1................................................... $83,000 $135,000
Provision charged to operations...................................... -- 96,000
------- --------
83,000 231,000
Less: OREO reserves recovered........................................ -- --
Less: OREO reserves charged off...................................... 4,000 148,000
------- --------
Balance............................................................ $79,000 $ 83,000
======= ========
</TABLE>
NOTE 3 -- ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Nonperforming loans to total loans................................... 0.87% 0.80%
Nonperforming assets to total assets................................. 0.56% 0.48%
Loan loss allowance to nonperforming loans........................... 202.45% 221.55%
Loan loss and OREO allowance to nonperforming assets................. 117.70% 137.98%
</TABLE>
5
<PAGE> 130
ITEM 2 -- MANAGEMENT'S ANALYSIS OF FINANCIAL OPERATIONS
SEPTEMBER 30, 1996 VS. DECEMBER 31, 1995
ASSETS
Assets grew $15,364,000, or 4%, to $375,288,000 during the first three
quarters of 1996. The funds were invested primarily in U.S. Government agency
securities which increased by $9,751,000, or 8%, since year-end 1995. The yield
on agency securities has increased from 5.95% at year-end to 6.42% in September
1996.
The bank grew the loan portfolio $7,556,000, or 6%, to $136,426,000
compared to $128,870,000 at December 31, 1995, while maintaining high asset
quality. Non-performing loans totaled $1,183,000, or 0.87%, of total loans at
September 30, 1996 compared to $1,032,000, or 0.80%, of total loans at year-end
1995. The reserve for credit losses amounted to $2,395,000, or 1.76% of total
loans at the end of the third quarter.
Other real estate owned (OREO) totaled $840,000, or 0.22%, of total assets
at the end of the third quarter compared to $601,000, or 0.17%, at year-end
1995. Two sales of OREO were recorded during the third quarter with a net loss
of $6,000. A third sale, at book value, was recorded shortly after the close of
the third quarter. The remaining four properties in OREO, after recording this
latest sale, total $677,000.
LIABILITIES
Deposits grew steadily during the first three quarters of 1996 reaching
$337,776,000 at September 30, 1996 versus $318,695,000 at December 31, 1995, an
increase of $19,081,000, or 6%. The increase in deposits is primarily
attributable to the introduction of our "Investors Money Market Account" which
was introduced in early 1996.
CAPITAL AND LIQUIDITY
The Company continues to maintain a strong capital position, which meets
and exceeds current regulatory requirements. Capital ratios at the end of the
second quarter remain virtually unchanged from year-end 1995. Risk-based capital
at September 30, 1996 was 17.0% compared to 16.6% at December 31, 1995. Tier 1
(core capital) was 15.9% at quarter-end versus 15.4% at year-end, with the
leverage ratio (Tier 1 capital to quarterly average assets) at 8.5% at September
30, 1996 compared to 8.4% at December 31, 1995.
The Company manages its liquidity position through continuous monitoring of
profitability trends, asset quality and maturity and the repricing schedules of
our earning assets and supporting liabilities. Liquid assets include cash and
demand balances due from banks, federal funds sold and investment securities
available for sale. At September 30, 1996 liquid assets were $84,651,000, or
23%, of total assets giving the Company adequate funds to increase the loan
portfolio and handle liability fluctuations.
OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER
30, 1995
Record earnings of $1,151,000 were posted in the third quarter of 1996.
Earnings were up 5% from the $1,095,000 earned in the third quarter 1995. During
this year's third quarter the Company recorded an after tax gain of $241,000
from an insurance settlement related to the fire loss at our North Hollywood
office. Third quarter 1995 earnings also included a one time after tax gain of
$117,000 resulting from an FDIC premium rebate. Per share earnings were $0.33
compared to $0.32 in the prior year.
The net interest margin for the third quarter was 5.32%, up from 5.18% in
the second quarter 1996. The margin in the third quarter of 1995 was 5.38%. Net
interest income, after provision for credit losses, for the three months ended
September 30, 1996 was $4,301,000 compared to $4,409,000 for the same period
last year. Net interest income was down primarily due to lower interest rates on
loans compared to 1995.
Noninterest income increased $489,000, or 46%, over the same period last
year. Included in this year's third quarter was the gain of $412,000 from the
insurance settlement for the fire loss at our North Hollywood office. Service
charges on deposits rose 12%, or $88,000, compared to the third quarter last
year. Last year's third quarter also included a net gain of $51,000 on
securities called or sold.
6
<PAGE> 131
Noninterest expenses rose 8%, or $309,000, over the third quarter of 1995.
Salaries increased 6% and net occupancy expenses were up 8%. Furniture, fixtures
and equipment rose 25% over the same period last year as a result of the
addition of our Valencia office, relocating our San Fernando office and the
continued upgrading of the Company's computer system during 1996. Third quarter
1995 noninterest expenses were reduced by the FDIC premium rebate mentioned
above.
OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER
30, 1995
Operating earnings for the nine months ended September 30, 1996 were
$2,791,000 down 8% from the $3,057,000 earned for the same period in 1995.
Earnings per share were $0.81 for the first nine months versus $0.89 for the
prior year. Book value per share increased $1.01 to $9.33 in 1996.
The net interest margin was reduced during the first nine months by the
rising interest costs on time deposits and prime interest rate drops in late
December of 1995 and February of 1996. Net interest income after the provision
for credit losses for the nine months ended September 30, 1996 was $12,515,000
versus $13,367,000 in 1995.
Noninterest income increased 23%, or $693,000, over last year, which
includes the insurance settlement related to the North Hollywood office fire.
Our larger deposit base resulted in increased service charge income, up
$244,000, or 11%, from 1995.
Continued careful management of expenses, and decreased FDIC insurance
expense, enabled us to hold expenses to a 3% increase over 1995. Salaries and
employee benefits were up 7%, or $389,000 over last year due to the addition of
our Camarillo office in May, 1995 and our Valencia office in June, 1996. Net
occupancy expenses rose 2% over last year with the addition of our Valencia
office. The 10% increase over last year in furniture, fixtures and equipment is
a result of the computer upgrading during 1996, new furniture and fixtures
expense associated with the relocation of our San Fernando Office, and temporary
location costs for North Hollywood.
As announced to our shareholders November 4, 1996, TransWorld Bancorp has
entered into a definitive agreement whereby Glendale Federal Bank will acquire
TransWorld Bancorp and its principal subsidiary, TransWorld Bank. Under terms of
the agreement, shareholders will receive $18.25 per share, equivalent to 1.96
times TransWorld's book value on September 30, 1996. The agreement is subject to
shareholder and regulatory approval and should be completed by early in the
second quarter of 1997. When completed TransWorld's operations will be merged
into Glendale Federal.
7
<PAGE> 132
PART II
ITEM 1 -- LEGAL PROCEEDINGS
None.
ITEM 2 -- CHANGES IN SECURITIES
None.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 -- OTHER INCOME
None.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27. Financial Data Schedule.
B. REPORTS ON FORM 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSWORLD BANCORP
<TABLE>
<S> <C>
Date: October 12, 1996 By: /s/ DAVID H. HENDER
David H. Hender
Vice Chairman, CEO
Date: October 12, 1996 By: /s/ HOWARD J. STANKE
Howard J. Stanke
Chief Financial Officer
</TABLE>
8
<PAGE> 133
PROXY
TRANSWORLD BANCORP
15233 Ventura Boulevard
Sherman Oaks, California 91403
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 26, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder(s) hereby nominate(s) Louis J. Galen and
David H. Hender, the attorneys, agents and proxies of the undersigned, with
full powers of substitution to each, to attend and act as proxy or proxies of
the undersigned at the Special Meeting of Shareholders (the "Special Meeting")
of TransWorld Bancorp, a California corporation (the "Company"), to be held at
the administrative office of the Company located at TransWorld Bank Plaza,
15233 Ventura Boulevard, Sherman Oaks, California 91403, on Wednesday,
February 26, 1997, at 10:00 a.m., local time, and at any and all adjournments
or postponements thereof, and to vote as specified herein the number of shares
which the undersigned, if personally present, would be entitled to vote.
The undersigned hereby revokes any and all proxies heretofore given
by the undersigned to vote at the Special Meeting. The undersigned acknowledges
receipt of the notice of the Special Meeting and the Proxy Statement
accompanying said notice.
PLEASE SIGN AND DATE ON REVERSE SIDE
-- FOLD AND DETACH HERE --
<PAGE> 134
Please mark ----
votes as in X
this example ----
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT AND
APPROVE THE AGREEMENT AND PLAN OF MERGER. THE PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS MADE, IT WILL BE VOTED "FOR"
THE PROPOSAL TO ADOPT AND APPROVE THE AGREEMENT AND PLAN OF MERGER.
FOR AGAINST ABSTAIN
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 Statement accompanying this proxy card, 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.
GRANT WITHHOLD
AUTHORITY AUTHORITY ABSTAIN
2. OTHER BUSINESS. At the direction of a --- --- ---
majority of the Board of Directors, the
holders of this proxy are authorized to --- --- ---
vote upon such other business as may properly come before the Special
Meeting and at any and all adjournments thereof. The Board of Directors
at present knows of no other business to be presented by or on behalf of
the Company or the Board of Directors at the Special Meeting.
Breakdown of number of shares (if applicable): MARK HERE IF NOT VOTING ---
ALL SHARES TOGETHER
FOR____________________________________________ WITH RESPECT TO ---
PROPOSAL NO. 1 AND LIST
AGAINST________________________________________ BREAKDOWN TO LEFT
ABSTAIN________________________________________
Signature(s)_____________________________________________ Date_______________
Please date this proxy and sign below as your name(s) appear(s) on this card.
Joint owners should each sign personally. Corporate proxies should be signed
by an authorized officer. Executors, administrators, trustees, etc. should
give their full titles.
-- FOLD AND DETACH HERE --
