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: June 30, 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 (IRS 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: July 31, 1995
Common Stock, no par value 1,118,195
<PAGE>
Part I - Financial Information
Item 1: Financial Statements
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets June 30, December 31,
1995 1994
Cash and due from banks $4,191,525 3,127,239
Federal funds sold 7,225,000 4,250,000
Interest-bearing deposits with banks 390,713 687,017
Securities held to maturity at amortized cost (fair value
of $7,177,000 and $9,518,000, respectively) 7,187,200 9,742,510
Securities available for sale at fair value 4,100,395 4,077,976
Loans:
Commercial 17,903,227 14,965,760
Real estate 16,657,006 15,905,639
Installment 179,755 279,054
Preference lines 1,725,547 1,594,057
Other 14,880 14,322
Total Loans 36,480,415 32,758,832
Allowance for possible loan losses 536,035 390,465
Loans, net 35,944,380 32,368,367
Premises and equipment, net 982,745 1,036,590
Customer acceptance liabilities 202,366 119,150
Intangible assets 486,631 536,121
Other assets 787,763 825,802
$ 61,498,718 56,770,772
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS - continued
(unaudited)
Liabilities and Stockholders' Equity June 30, December 31,
1995 1994
Liabilities:
Non-interest-bearing demand deposits $10,150,820 11,355,927
Interest-bearing demand deposits 24,660,694 20,352,897
Savings 1,391,833 1,222,948
Time deposits 18,477,411 16,868,465
Total deposits 54,680,758 49,800,237
Accrued interest payable 124,837 107,163
Other borrowed funds 32,818 513,917
Borrowings for Employee Stock Ownership Plan 3,750 26,250
Acceptances outstanding 202,366 119,150
Other liabilities 221,787 253,216
Total liabilities 55,266,316 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 483,329 323,266
Deferred Compensation - Employee
Stock Ownership Plan (3,750) (26,250)
Unrealized losses on securities available for sale (31,500) (130,500)
Total Stockholders' Equity 6,232,402 5,950,839
$ 61,498,718 56,770,772
See accompanying notes to the unaudited interim consolidated financial
statements.
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
3 months ended June 30, 6 months ended June 30,
1995 1994 1995 1994
Interest income:
Loans $ 929,475 776,957 1,829,423 1,581,159
Investment securities 173,071 152,082 362,543 286,100
Deposits with banks 6,149 9,898 9,079 21,014
Federal funds sold 60,560 65,123 69,040 124,371
Total interest income 1,169,255 1,004,060 2,270,085 2,012,644
Interest expense:
Deposits 431,594 307,940 776,685 650,120
Federal funds purchased and securities sold
under agreements to repurchase - - 3,026 -
Other borrowed funds 3,180 10,808 10,405 19,861
Total interest expense 434,774 318,748 790,116 669,981
Net interest income 734,481 685,312 1,479,969 1,342,663
Provision for possible loan losses 30,000 - 40,000 -
Net interest income after provision
for possible loan losses 704,481 685,312 1,439,969 1,342,663
Non-interest income:
Service charges on deposit accounts 64,782 76,314 129,819 153,110
Other real estate owned - - - 50,427
Other charges and fees 73,025 91,426 138,066 157,778
Total non-interest income 137,807 167,740 267,885 361,315
Non-interest expense:
Salaries and employee benefits 405,767 390,929 826,113 796,057
Occupancy expense 75,587 73,844 146,528 175,810
Furniture and equipment expense 23,776 22,020 50,346 46,851
Other real estate owned - 86,104 - 100,191
Other operating expenses 239,199 252,315 453,804 482,889
Total non-interest expense 744,329 825,212 1,476,791 1,601,798
Income before income taxes 97,959 27,840 231,063 102,180
Income tax expense 29,000 17,500 71,000 43,500
Net income $ 68,959 10,340 160,063 58,680
Average shares outstanding 1,118,195 1,130,008 1,118,195 1,136,565
Net income per share (note 2) $ 0.06 0.01 0.14 0.05
See accompanying notes to the unaudited interim consolidated financial
statements.
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
6 months ended June 30,
1995 1994
Cash flows from operating activities:
Net income $ 160,063 58,680
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 114,228 127,012
Provision for loan losses 40,000 -
Provision for other real estate owned - 75,000
Gain on sale of other real estate owned, net - (14,580)
Increase (decrease) in accrued interest payable 17,674 (4,502)
Decrease in other liabilities (31,429) (150,101)
Decrease in other assets 5,039 150,615
Total adjustments 145,512 183,444
Net cash provided by operating activities 305,575 242,124
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (3,616,013) 3,705,495
Net decrease in deposits with banks 296,304 193,117
Purchase of securities held to maturity - (5,072,983)
Purchase of securities available for sale (133,891) -
Proceeds from principal repayments and
matured investment securities 2,798,782 6,142,175
Proceeds from sale of other real estate owned - 2,538,278
Purchase of fixed assets (10,893) (4,180)
Net cash (used in) provided by
investing activities (665,711) 7,501,902
Cash flows from financing activities:
Net increase (decrease) in
demand deposits and savings 3,271,575 (1,638,286)
Net increase (decrease) in time deposits 1,608,946 (1,807,680)
Proceeds from short term borrowings 103,728 1,684,762
Repayment of short term borrowings (584,827) (1,235,483)
Common stock repurchased - (50,504)
Net cash provided by (used in)
financing activities 4,399,422 (3,047,191)
Net increase in cash and cash equivalents 4,039,286 4,696,835
Cash and cash equivalents at beginning of period 7,377,239 6,537,689
Cash and cash equivalents at end of period $11,416,525 11,234,524
See accompanying notes to the unaudited interim consolidated
financial statements. continued . . .<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - continued
(unaudited)
6 months ended June 30,
1995 1994
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 772,442 674,483
Income taxes 37,400 800
Non-cash investing and financing activities:
Real estate acquired in settlement of loans - 402,759
Reduction of guaranteed ESOP obligation 22,500 22,500
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 a one-day period.
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 six month and three month periods ended
June 30, 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's 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 periods. Average common share
equivalents were anti-dilutive and have been excluded for the per share
computations.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
I. Overview
Trans Pacific Bancorp reported earnings of $68,959, or $0.06 per share,
in the second quarter of 1995, compared to earnings of $10,340, or $0.01
per share, in the second quarter of 1994. Net income for the first six
months of 1995 was $160,063 or $0.14 per share, compared to a net income of
$58,680, or $0.05 per share, in the first six months of 1994.
Return on average assets, or ROA, was 0.46 percent for the second quarter
of 1995, versus 0.07 percent in the same period for 1994. ROA was 0.54
percent for the first six months of 1995, compared to 0.19 percent for the
first six months of 1994. Return on average equity, or ROE, was 4.47 percent
for the second quarter of 1995, versus 0.70 percent in the same period for
1994. ROE was 5.27 percent for the first six months of 1995, compared to
1.99 percent for the first six months of 1994.
The second quarter 1995 results compared to 1994 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
1995. Accordingly, 1995 earnings are higher compared to the 1994 results due
to an increase in net interest income. Also, the absence of foreclosed
properties during 1995 allowed the Bank to reduce non-operating expenses.
At June 30, 1995, total assets were $61.5 million, up 6 percent from March
31, 1995,and up 8 percent from December 31, 1994. Total deposits were $54.7
million at June 30, up 8 and 10 percent from March 31 and December 31,
respectively, while total loans were $36.5 million, up 1 and 10 percent from
March 31 and December 31, respectively.
II. Results of Operations
The following details the components of net income for the six months
ended June 30, 1995 and 1994:
(as a percentage of average earning assets) 1995 1994
Net interest income 5.60 % 4.80 %
Provision for loan losses (0.15) -
Non-interest income 1.01 1.29
Non-interest expense (5.58) (5.72)
Income tax expense (0.27) (0.16)
Net income 0.61 % 0.21 %
<PAGE>
Net interest income was $1.5 million for the first six months of 1995, up
10 percent from $1.3 million for the same period ending June 1994. The net
yield on interest-earning assets was 5.63 percent for the first six months
of 1995 versus 4.80 percent in the first six months of 1994. This 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 lower yielding investment
securities but was offset by a lower level of (average) earning assets during
1995. For the second quarter, net interest-earning assets yield was 5.63
percent in 1995, higher than the 4.79 percent in the second quarter of 1994,
but lower than the 5.87 percent in the first quarter of 1995, as cost of
funds rose.
Non-interest income was $268 thousand versus $361 thousand for the first six
months of 1995 and 1994, respectively, a decrease of 26 percent. Non-interest
income was $138 thousand in the second quarter of 1995, down 18 percent
versus $168 thousand in the second quarter of 1994. The decrease reflects
income from other real estate owned (OREO) that was collected in 1994 but
not in 1995, due to the sale of all OREO properties. Additionally, deposit
account service charges, collections fees and letter of credit commissions
were lower in 1995.
Non-interest expense for the first six months of 1995 was $1.5 million,
down 8 percent from $1.6 million for the same period of 1994. The major
difference between 1995 and 1994 non-interest expense was the absence of
OREO expenses during 1995, compared to $100 thousand incurred in the first
six months of 1994. Personnel expense was up 4 percent from 1994, with
headcount up slightly. Occupancy and furniture and equipment expense decreased
by 17 percent in 1995 as certain fixed assets became fully depreciated in the
second quarter of 1994. For the first six months of 1995, other operating
expenses were $453 thousand, down 6 percent compared to the first six months
of 1994, as FDIC insurance and legal expenses were lower in 1995.
Tax expense was $71 thousand for the first six months of 1995 versus tax
expense of $44 thousand for the same six months of 1994. The effective tax
rate for 1995 and 1994 was 31 percent and 43 percent, respectively.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels despite a
slight increase during the second quarter of 1995 and continues to be
monitored closely. Classified assets, comprised of classified loans and other
real estate owned, totalled $2.8 million at June 30, 1995 compared to $2.3
million at March 31, 1995, and $2.2 million at December 31, 1994. Non-
performing assets, comprised of non-accrual loans and other real estate owned,
totalled $1.1 million, or 1.86 percent of total assets at June 30, 1995,
compared to $712 thousand at March 31, 1995, and $350 thousand at December
31, 1994. There was no real estate owned as of June 30, 1995.
The allowance for possible loan losses increased to $536 thousand, or
1.47 percent of total loans at June 30, 1995 compared to $390 thousand, or
1.19 percent of total loans at December 31, 1994. Most of the increase in
the allowance was the result of recoveries during 1995 of loans previously
charged off. For the first six months of 1995, net recoveries were
$106 thousand, or 0.01 percent (annualized) of loans as of June 30, 1995. For
the same period of 1994, net loan chargeoffs were $27 thousand.<PAGE>
The provision for possible loan losses was $30,000 for the second quarter of
1995, and the 1995 year-to-date provision is $40,000 compared to none
provided in the first six months 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 loan 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.
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 and 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 support 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 $15.2 million, or 25 percent
of assets at June 30, 1995. Additionally, the Bank has established unsecured
lines of credit with its 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 increased to $11.4 million at June 30, 1995,
compared to $7.4 million as of December 31, 1994. Cash flows from increased
deposits and collections on investments provided $7.7 million. Cash was
used primarily to fund loans.
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 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, particularly the Bank's
prime rate, 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 June 30, 1995,
approximately 77 percent of the Bank's total interest rate sensitive assets
and 94 percent of the Bank's total rate sensitive liabilities mature or
reprice within one year.
V. Capital Resources
The capital position of 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 Office of the
Comptroller of the Currency (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 June 30, 1995 and December 31,
1994 are as follows:
June 30, December 31, Regulatory
1995 1994 Minimum
Bancorp:
Tier 1 capital ratio 14.56% 15.99% 4.00%
Total capital ratio 15.81% 17.06% 8.00%
Leverage ratio 10.02% 9.80% 3.00%
Bank:
Tier 1 capital ratio 15.37% 16.08% 4.00%
Total capital ratio 16.62% 17.14% 8.00%
Leverage ratio 10.58% 9.90% 3.00%
Bancorp's and the Bank's capital and leverage ratios in compliance with
the regulatory minimums as of June 30, 1995. Capital ratios were slightly
lower at June 30, 1995 as risk-weighted assets, principally loans, grew at
a faster rate than capital during the first six months of 1995. The leverage
ratios were slightly higher at June 30, 1995 as adjusted average total
assets were lower during the second quarter of 1995 versus the fourth quarter
of 1994.
<PAGE>
Part II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held May 18, 1995, the following
matters were submitted to a vote of holders of common stock:
1. The Election of Directors: Each of the following persons nominated was
elected:
Nominee Votes for Votes Withheld Votes Abstained
James A. Babcock 744,129 2,700 -0-
Eddy S. F. Chan 744,129 2,700 -0-
Merle S. Konigsberg 744,329 2,500 -0-
Frankie G. Lee 744,129 2,700 -0-
John K. Lee 744,129 2,700 -0-
Warren K. Miller 744,329 2,500 -0-
Masayuki Nakahira 745,329 1,500 -0-
John T. Stewart 745,329 1,500 -0-
Simon S. Teng 744,329 2,500 -0-
Frank K. W. Wong 744,129 2,700 -0-
John K. Wong 743,129 3,700 -0-
2. A proposal to ratify the selection of KPMG Peat Marwick as independent
auditors for 1995 which was approved.
Votes for Votes Withheld Votes Abstained
743,129 1,200 2,500
<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
Daniel Y. Lee, Chief Financial Officer
Date: August 10, 1995
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