SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: March 31, 1995 Commission file number: 2-86902
TRANS PACIFIC BANCORP
(Exact name of registrant as specified in its charter)
California 94-2917713
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Number of shares outstanding of each of the registrant`s classes of common
stock, as of the latest practicable date:
Class: Outstanding at: April 30, 1995
Common Stock, no par value 1,118,195
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
Assets
March 31, December 31,
1995 1994
Cash and due from banks $4,115,194 3,127,239
Federal funds sold 750,000 4,250,000
Interest-bearing deposits with banks 291,713 687,017
Securities held to maturity at amortized cost,
(fair value of $8,615,055 and
$9,518,140, respectively) 8,713,491 9,742,510
Securities available for sale, at fair value 4,378,691 4,077,976
Loans:
Commercial 18,504,608 14,965,760
Real estate 15,606,545 15,905,639
Installment 211,186 279,054
Preference lines 1,697,529 1,594,057
Other 13,340 14,322
Total Loans 36,033,208 32,758,832
Allowance for possible loan loss 508,651 390,465
Loans, net 35,524,557 32,368,367
Premises and equipment, net 1,008,854 1,036,590
Customer acceptance liabilities 250,125 119,150
Deferred tax asset 28,500 46,000
Other assets 2,830,353 1,315,923
$ 57,891,478 56,770,772
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
March 31, December 31,
1995 1994
Liabilities:
Noninterest-bearing demand deposits $9,145,734 11,355,927
Interest-bearing demand deposits 21,804,246 20,352,897
Savings 1,294,373 1,222,948
Time deposits 18,404,884 16,868,465
Total deposits 50,649,237 49,800,237
Accrued interest payable 111,131 107,163
Other borrowed funds 278,907 513,917
Borrowings for Employee Stock Ownership Plan 15,000 26,250
Acceptances outstanding 250,125 119,150
Other liabilities 481,385 253,216
Total liabilities 51,785,785 50,819,933
Commitments and contingencies
Stockholders' Equity:
Common stock, no par value;
10,000,000 shares authorized, 1,118,195
shares outstanding 5,784,323 5,784,323
Retained Earnings 414,370 323,266
Deferred Compensation - Employee
Stock Ownership Plan (15,000) (26,250)
Unrealized losses on securities
available for sale (78,000) (130,500)
Total Stockholders' Equity 6,105,693 5,950,839
$ 57,891,478 56,770,772
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
3 months ended March 31,
1995 1994
Interest income:
Loans $ 899,948 804,202
Investment securities 189,472 134,018
Deposits with banks 2,930 11,116
Federal funds sold 8,480 59,248
Total interest income 1,100,830 1,008,584
Interest expense:
Deposits 345,091 342,180
Federal funds purchased and securities sold
under agreements to repurchase 3,026 -
Other borrowed funds 7,225 9,053
Total interest expense 355,342 351,233
Net interest income 745,488 657,351
Provision for possible loan losses 10,000 -
Net interest income after provision
for possible loan losses 735,488 657,351
Non-interest income:
Service charges on deposit accounts 65,037 76,796
Other real estate owned - 35,847
Other charges and fees 65,041 80,932
Total non-interest income 130,078 193,575
Non-interest expense:
Salaries and employee benefits 420,346 405,128
Occupancy expense 70,941 101,966
Furniture and equipment expense 26,570 24,831
Other real estate owned - 14,087
Other operating expenses 214,605 230,574
Total non-interest expense 732,462 776,586
Income before income taxes 133,104 74,340
Income tax expense 42,000 26,000
Net income $ 91,104 48,340
Average shares outstanding 1,118,195 1,143,195
Net income per share (note 2) $ 0.08 0.04
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
3 months ended March 31,
1995 1994
Cash flows from operating activities:
Net income $ 91,104 48,340
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 49,592 84,113
Provision for loan losses 10,000 -
Gain on sale of other real estate owned, net - (2,992)
Increase (decrease) in accrued interest payable 3,968 (18,679)
Increase (decrease) in other liabilities 228,169 (48,588)
(Increase) decrease in other assets (1,531,353) 111,657
Total adjustments (1,239,624) 125,511
Net cash (used in) provided by
operating activities (1,148,520) 173,851
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (3,166,190) 4,466,512
Net decrease in deposits with banks 395,304 94,127
Proceeds from principal repayments and
matured investment securities 1,158,123 5,388,170
Purchase of securities available for sale (359,819) -
Purchase of securities held to maturity - (4,094,545)
Proceeds from sale of other real estate owned - 2,416,691
Purchase of fixed assets (4,933) (2,577)
Net cash (used in) provided by
investing activities (1,977,515) 8,268,378
Cash flows from financing activities:
Net decrease in demand deposits
and savings accounts (687,419) (1,517,532)
Net increase in time deposits 1,536,419 113,901
Proceeds from other borrowed funds 70,911 1,224,907
Repayment of other borrowed funds (305,921) (859,082)
Net cash provided by (used in)
financing activities 613,990 (1,037,806)
Net (decrease) increase in cash
and cash equivalents (2,512,045) 7,404,423
Cash and cash equivalents at beginning of period 7,377,239 6,537,689
Cash and cash equivalents at end of period $4,865,194 13,942,112
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
3 months ended March 31,
1995 1994
Supplemental disclosures of cash flow information
Non-cash investing and financing activities:
Reduction of guaranteed ESOP obligation $ 11,250 11,250
Change in unrealized losses on securities
available for sale, net of taxes 52,500 (55,500)
Cash paid during the period for:
Interest 351,374 369,912
Income taxes - -
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are sold for one-day periods.
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Note 1. Basis of Presentation
The financial information of Trans Pacific Bancorp (Bancorp) and its
wholly-owned subsidiary, Trans Pacific National Bank (the Bank), included
herein is unaudited; however, such information reflects all adjustments,
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods. These adjustments are all normal and
recurring in nature.
The results of operations for the three month period ended March 31, 1995
are not necessarily indicative of the results to be expected for the full
year. This report should be read in conjunction with the Bancorp's Annual
Report on Form 10-K for the year ended December 31, 1994.
Certain amounts in prior periods have been reclassified to conform to the
current period presentation.
Note 2. Net Income per Share
Net income per share is computed by dividing the net income by the
average number of shares outstanding during the period. Average common share
equivalents were anti-dilutive and have been excluded from the per share
computations.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
I. Overview
Trans Pacific Bancorp reported earnings of $91,104, or $0.08 per share,
in the first quarter of 1995, up from earnings of $48,340, or $0.04 per share
in the first quarter of 1994. Return on average assets, or ROA, was 0.64
percent for the first quarter of 1995, versus 0.30 percent in the same period
for 1994. Return on average equity, or ROE, was 6.04 percent for the first
quarter of 1995, versus 3.26 percent in the same period for 1994.
These results reflect the Bank's increased business development efforts
and the improved San Francisco Bay Area economy. The combination of these two
factors enabled the Bank to shift more assets from lower-yielding investments
to higher-yielding loans during the first quarter of 1995. Accordingly, 1995
earnings were higher compared to the 1994 results primarily through the
increase in net interest income.
At March 31, 1995, total loans were $36.0 million, up 10 percent from
$32.8 million at 1994 year end, while total deposits were $50.6 million, up
2 percent from $49.8 million at 1994 year end. Total assets were $57.9
million, up 2 percent from $56.8 million at 1994 year end.
II. Results of Operations
The following details the components of net income for the three months
ended March 31, 1995 and 1994:
(as a percentage of average earning assets) 1995 1994
Net interest income 5.87 % 4.52 %
Provision for loan losses (0.08) (0.00)
Non-interest income 1.02 1.33
Non-interest expense (5.76) (5.34)
Income tax expense (0.33) (0.18)
Net income 0.72 % 0.33 %
Net interest income grew to $745 thousand for the first three months of
1995, up 13 percent from $657 thousand for the same period ending March 1994.
The net yield on interest-earning assets, or net interest margin, was 5.87
percent for the first quarter of 1995 versus 4.52 percent in the first
quarter of 1994. The increase in net interest margin was due to a
combination of a higher prime rate in 1995 and the shifting of earning assets
to loans from lesser-yielding investment securities. The increase was offset
by lower levels of earning assets: average earning assets for the first
quarter of 1995 were $50.8 million compared to $58.2 million for the first
quarter of 1994.
Non-interest income decreased to $130 thousand in the first quarter of
1995, down 33 percent from $194 thousand in the first quarter of 1994.
Accounting for a major portion of this difference in non-interest income was
the absence in 1995 of rental income on other real estate owned due to the
sale of a rent-generating property in late 1994.
Non-interest expense decreased to $732 thousand in the first quarter of
1995 from $777 thousand in the same period of 1994, a reduction of 6 percent
in total. Separately, for the first three months of 1995, personnel expense
was up 4 percent from the previous year, due primarily to salary increases.
Headcount remained the same. Occupancy and equipment expense were lower by
30 percent and higher by 7 percent, respectively for the first three months
of 1995 as depreciation expense on leasehold improvements fell. Other real
estate owned (OREO) expenses were zero for the first quarter of 1995 versus
$14 thousand in 1994, reflecting the absence of foreclosed properties. For
the first three months of 1995, other operating expenses were $215 thousand,
down 7 percent from $231 thousand for the first three months of 1994.
The provision for income taxes was $42 thousand in the first quarter of
1995 versus $26 thousand in the first quarter of 1994. The effective tax
rates for 1995 and 1994 were 32 percent and 35 percent, respectively.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels during the
first quarter of 1995. Classified assets, comprised of classified loans and
other real estate owned, totalled $2.3 million at March 31, 1995 compared to
$2.2 million at December 31, 1994. Non-performing assets, comprised of non-
accrual loans, totalled $712 thousand, or 2 percent of loans at March 31,
1995, compared to $350 thousand or 1 percent of loans at December 31, 1994.
The allowance for possible loan losses increased to $509 thousand, or 1.41
percent of total loans at March 31, 1995 compared to $390 thousand at
December 31, 1994, which was 1.19 percent of total loans at 1994 year end.
The increase in the allowance was due primarily to recoveries on loans that
had previously been charged off but at the same time reflects the increase in
loan volume at the Bank. During the first three months of 1995, loan
recoveries were $108 thousand and there were no loans charged off. For the
same period of 1994, chargeoffs net of recoveries were $15 thousand.
The provision for possible loan losses was $10 thousand in the first
quarter of 1995 versus $0 in the first quarter of 1994. The determination of
the provision for loan losses and, correspondingly, the level of the
allowance for loan losses is based on evaluations of changes in the nature
and volume of the loans portfolio, overall portfolio quality, review of
specific problem loans, prior loan loss experiences and current economic
conditions that may affect the borrower's ability to pay.
<PAGE>
IV. Asset/Liability Management
The fundamental objectives of the asset/liability management policy of
Bancorp and the Bank are to: (1) maintain liquidity and (2) minimize interest
rate risk.
Liquidity: Liquidity is the Company's ability to meet the present and
future needs of its customers for funds, primarily the funding of loans and
deposit withdrawals. Liquidity is measured and managed at both the parent
and banking subsidiary levels. Bancorp is funded by dividend income from the
Bank, as well as income from outside sources and through the issuance of
equity. Bancorp uses its proceeds primarily to pay the Bank for administrative
expenses.
In general, the growth of core deposits and the orderly repayment of the
Bank's loan portfolio are the primary source of liquidity. Also, because of
its emphasis on relationship banking, the Bank has a relatively stable, local
deposit base, and customer deposits and withdrawals have been and are
expected to continue to be orderly and manageable. To fund short-term
liquidity needs, the Bank maintains Fed Funds sold, time deposits with other
financial institutions, short-term money market instruments and securities
available for sale that totalled approximately $5.4 million, or 9 percent
of assets at March 31, 1995. Additionally, the Bank has established
unsecured lines of credit with correspondent banks and reverse repurchase
facilities with securities dealers. These credit facilities are subject to
periodic review.
As shown in the unaudited interim Consolidated Statement of Cash Flows,
cash and cash equivalents decreased to $4.9 million at March 31, 1995,
compared to $7.4 million as of December 31, 1994. Cash was used primarily to
fund loans to customers. Cash flows from maturing investments and deposit
growth were the primary sources of cash during the first quarter of 1995.
Interest Rate Risk: Bancorp evaluates its interest rate risk exposure by
analyzing the interest rate sensitivity of its balance sheet accounts.
Interest rate sensitivity measures the interval of time before interest
earning assets and interest bearing liabilities respond to changes in market
rates of interest. The difference between the amount of assets and amount of
liabilities which may be re-priced in the same time period is referred to as
the "gap". If more assets than liabilities are re-priced at a given time,
net interest income tends to improve in a rising rate environment and to
decline with lower interest rates. If more liabilities than assets are re-
priced under the same conditions, the opposite tends to prevail.
In general, the Bank re-prices more assets than liabilities and,
therefore earns greater interest spread as interest rates increase and earns
a lesser interest spread as rates decrease. The Bank evaluates its interest
rate risk by analyzing the repricing characteristics of its balance sheet
instruments. At March 31, 1995, approximately 71 percent of the Bank's total
interest rate sensitive assets and 95 percent of the Bank's total rate
sensitive liabilities mature or reprice within one year.
<PAGE>
V. Capital Resources
The capital position of the Bancorp represents the level of capital
needed to support the operation and expansion of Bancorp and the Bank and
to protect depositors and the deposit insurance fund from potential losses.
The risk-based capital adequacy requirements established by the Federal
Reserve Board calls for a minimum 8 percent total risk-based capital ratio,
including core (Tier 1) capital of 4 percent. The ratio is determined by
weighing assets and off-balance sheet exposures according to their relative
credit risks.
A leverage ratio has also been established by the OCC for its minimum
capital requirement ratio for banks. This ratio, Tier 1 capital to adjusted
average total assets, operates in conjunction with the risk-based capital
guidelines and limits the amount of leverage a bank can undertake. Currently
all banks must maintain at least a 3 percent leverage ratio. In general,
however, only the top-ranked banking organizations may operate at the minimum
leverage levels. Other institutions will be expected to maintain leverage
ratios that are at least 100 to 200 basis points above the minimum levels.
Bancorp's and the Bank's capital ratios at March 31, 1995 and December 31,
1994 are as follows:
March 31, December 31, Regulatory
1995 1994 Minimum
Bancorp:
Tier 1 capital ratio 15.94% 15.99% 4.00%
Total capital ratio 17.19% 17.06% 8.00%
Leverage ratio 11.31% 9.80% 3.00%
Bank:
Tier 1 capital ratio 15.55% 16.08% 4.00%
Total capital ratio 16.80% 17.14% 8.00%
Leverage ratio 10.99% 9.90% 3.00%
<PAGE>
Signatures
Pursuant to the requirements of Section 15(c) 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.
TRANS PACIFIC BANCORP
Eddy S.F. Chan, President
Simon S. Teng, Chief Financial Officer
Date: May 10, 1995
<PAGE>
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