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: September 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: October 31, 1995
Common Stock, no par value 1,118,195
<PAGE>
Part I - Financial Information
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets September 30, December 31,
1995 1994
Cash and due from banks $4,689,706 3,127,239
Federal funds sold 6,530,000 4,250,000
Interest-bearing deposits with banks 390,713 687,017
Securities held to maturity (fair value of
$6,622,000 and $9,518,000, respectively) 6,628,458 9,742,510
Securities available for sale, at fair value 6,188,824 4,077,976
Loans:
Commercial 18,593,603 14,965,760
Real estate 17,415,260 15,905,639
Preference lines 1,807,599 1,594,057
Installment and other loans 173,034 293,376
Total Loans 37,989,496 32,758,832
Allowance for possible loan losses 422,629 390,465
Loans, net 37,566,867 32,368,367
Premises and equipment, net 977,538 1,036,590
Customer acceptance liabilities 277,604 119,150
Intangible assets 461,887 536,121
Other assets 778,876 825,802
$ 64,490,475 56,770,772
See accompanying notes to the unaudited interim consolidated financial
statements.
continued
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Liabilities and Stockholders' Equity September 30, December 31,
1995 1994
Liabilities:
Noninterest-bearing demand deposits $ 11,360,340 11,355,927
Interest-bearing demand deposits 25,677,836 20,352,897
Savings 1,106,954 1,222,948
Time deposits 19,200,755 16,868,465
Total deposits 57,345,884 49,800,237
Accrued interest payable 168,379 107,163
Other borrowed funds 87,887 513,917
Borrowings for Employee Stock Ownership Plan - 26,250
Acceptances outstanding 277,604 119,150
Other liabilities 216,928 253,216
Total liabilities 58,096,681 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 637,971 323,266
Deferred Compensation - Employee
Stock Ownership Plan - (26,250)
Unrealized losses on securities
available for sale (28,500) (130,500)
Total Stockholders' Equity 6,393,794 5,950,839
$ 64,490,475 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 9 months ended
September 30, September 30,
1995 1994 1995 1994
Interest income:
Loans $ 963,758 857,532 2,793,181 2,438,691
Investment securities 176,989 170,040 539,532 456,140
Deposits with banks 6,784 7,429 15,863 28,443
Federal funds sold 82,089 81,517 151,069 205,888
Total interest income 1,229,560 1,116,518 3,499,645 3,129,162
Interest expense:
Deposits 492,822 330,490 1,269,507 980,610
Other borrowed funds 696 14,826 14,127 34,687
Total interest expense 493,518 345,316 1,283,634 1,015,297
Net interest income 736,042 771,202 2,216,011 2,113,865
Provision for
possible loan losses - 32,000 40,000 32,000
Net interest income after provision
for possible loan losses 736,042 739,202 2,176,011 2,081,865
Non-interest income:
Service charges on
deposit accounts 78,505 63,138 208,324 216,248
Other real estate owned - - - 35,847
Other charges and fees 82,773 81,479 220,839 253,837
Total non-interest income 161,278 144,617 429,163 505,932
Non-interest expense:
Salaries and employee benefits 377,486 389,599 1,203,599 1,185,656
Occupancy expense 72,337 76,371 218,865 252,181
Furniture and equipment expense 25,348 21,978 75,694 68,829
Other real estate owned 214 6,029 214 106,220
Other operating expenses 199,293 223,540 653,097 706,429
Total non-interest expense 674,678 717,517 2,151,469 2,319,315
Income before income taxes 222,642 166,302 453,705 268,482
Income tax expense 68,000 56,000 139,000 99,500
Net income $ 154,642 110,302 314,705 168,982
Average shares outstanding 1,118,195 1,118,195 1,118,195 1,130,419
Net income per share (note 2) $ 0.14 0.10 0.28 0.15
See accompanying notes to the unaudited interim consolidated financial
statements.<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
9 months ended September 30,
1995 1994
Cash flows from operating activities:
Net income $ 314,705 168,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 171,725 192,368
Provision for loan losses 40,000 32,000
Provision for other real estate owned - 75,000
Gain on sale of other real estate owned, net - (14,656)
Increase (decrease) in accrued interest payable 61,216 (3,842)
Decrease in other liabilities (33,788) (30,838)
Decrease in other assets 10,422 192,064
Total adjustments 249,575 442,096
Net cash provided by operating activities 564,280 611,078
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (5,238,500) 4,366,511
Net decrease (increase) in deposits with banks 296,304 (33,848)
Proceeds from principal repayments and
matured investment securities 3,525,440 7,419,245
Purchase of securities held to maturity - (6,553,879)
Purchase of securities available for sale (2,386,236) (1,506,485)
Proceeds from sale of other real estate owned - 3,046,355
Purchase of premises and equipment (38,439) (170,775)
Net cash (used in) provided
by investing activities (3,841,431) 6,567,124
Cash flows from financing activities:
Net increase (decrease) in demand deposits
and savings accounts 5,213,358 (1,240,597)
Net increase (decrease) in time deposits 2,332,290 (5,115,456)
Proceeds from short term borrowings 223,400 2,655,531
Repayment of short term borrowings (649,430) (2,217,912)
Common stock repurchased - (50,504)
Net cash provided by (used in)
financing activities 7,119,618 (5,968,938)
Net increase in cash and cash equivalents 3,842,467 1,209,264
Cash and cash equivalents at beginning of period 7,377,239 6,537,689
Cash and cash equivalents at end of period $11,219,706 7,746,953
See accompanying notes to the unaudited interim consolidated financial
statements.continued <PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
9 months ended September 30,
1995 1994
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,222,418 1,019,139
Income taxes 137,400 800
Non-cash investing and financing activities:
Real estate acquired in settlement of loans - 402,759
Reduction of guaranteed ESOP obligation 26,250 33,750
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 nine month and three month periods
ended September 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 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 $154,642, or $0.14 per share,
in the third quarter of 1995, compared to earnings of $110,302, or $0.10 per
share, in the third quarter of 1994. Net income for the first nine months
of 1995 was $314,705 or $0.28 per share, compared to net income of $168,982,
or $0.15 per share, in the first nine months of 1994.
Return on average assets, or ROA, was 0.98 percent for the third quarter
of 1995, versus 0.73 percent in the same period for 1994. ROA was 0.69
percent for the first nine months of 1995, compared to 0.36 percent for the
first nine months of 1994. Return on average equity, or ROE, was 9.80
percent for the third quarter of 1995, versus 7.45 percent in the same period
for 1994. ROE was 6.80 percent for the first nine months of 1995, compared
to 3.79 percent for the first nine months of 1994.
The third quarter 1995 results compared to third quarter 1994 reflect
the Bank's increased business development and cost control efforts, which
led to increased service charge income and lower non-interest expense. For
the nine month periods, net income was higher in 1995 versus 1994 reflecting
improved net interest income and reduced operating expenses.
At September 30, 1995, total assets were $64.5 million, up 5 percent
from June 30, 1995 and up 14 percent from December 31, 1994. Total deposits
were $57.3 million, up 5 percent and 15 percent from June 30 and December 31,
respectively, while total loans were $38.0 million, up 4 and 16 percent from
June 30 and December 31, respectively.
II. Results of Operations
The following details the components of net income for the nine months
ended September 30, 1995 and 1994:
(as a percentage of average earning assets) 1995 1994
Net interest income 5.47 % 5.04 %
Provision for possible loan losses (0.10) (0.08)
Non-interest income 1.06 1.23
Non-interest expense (5.31) (5.61)
Income tax expense (0.34) (0.24)
Net income 0.78 % 0.34 %
<PAGE>
Net interest income was $2.2 million for the first nine months of 1995,
compared to $2.1 million for the first nine months of 1994. The net yield on
interest-earning assets was 5.47 percent for the first nine months of 1995
versus 5.04 percent in the first nine 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 third quarter, the net interest-earning assets yield was 5.31
percent in 1995, lower than the 5.63 percent in the second quarter of 1995
and lower than the 5.60 percent in 1994.
Non-interest income was $161 thousand in the third quarter of 1995, up
11 percent, versus $145 thousand in the third quarter of 1994. Year-to-date
non-interest income was $429 thousand versus $506 thousand at September 30,
1995 and 1994, respectively. The decrease in year-to-date income was due
mainly to a decline in International trade finance related commissions and
absence of other real estate owned (OREO) income in 1995.
Non-interest expense was lower as the Bank held down expenses and did
not have OREO; for the first nine months of 1995, total non-interest expense
was $2.2 million, down 7 percent from $2.3 million for the first nine months
of 1994. Personnel expense was $1.2 million, relatively unchanged from 1994.
Occupancy was lower for the first nine months of 1995 as certain fixed assets
have become fully depreciated. OREO expenses for the first nine months of
1995 were less than $1 thousand compared to $106 thousand in the first nine
months of 1994. For the first nine months of 1995, other operating expenses
were 8 percent lower than the first nine months of 1994, primarily due to
both lower FDIC insurance premiums and a one-time refund from the FDIC.
Tax expense was $139 thousand for the first nine months of 1995 versus
$100 thousand for the same nine months of 1994. The effective tax rate for
1995 and 1994 was 31 percent and 37 percent, respectively. The rate for 1995
was lower due to the utilization of certain net operating losses incurred in
previous years.
III. Asset Quality
Asset quality continues to be monitored closely and remains a major area
of focus for the Company. Classified assets, comprised of classified loans
and OREO, totalled $2.7 million at September 30, 1995 compared to $2.8
million at June 30, 1995, and $2.2 million at December 31, 1994. Non-
performing assets, comprised of five non-accrual loans and no OREO, totalled
$1.0 million, or 1.70 percent of total assets at September 30, 1995, compared
to $1.1 million (1.86 percent) at June 30, 1995, and $350 thousand (0.62
percent) at December 31, 1994.
The determination of the provision for possible 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. The following table summarizes the provision for possible
loan losses, net credit losses and loan loss reserve for the periods indicated:
For the three For the nine
(in thousands) months ended months ended
September 30, September 30,
1995 1994 1995 1994
Balance, beginning of period $ 536 643 390 670
Provision for possible loan losses 0 32 40 32
Credit losses (130) (291) (236) (400)
Credit loss recoveries 17 38 229 120
Net credit losses (113) (253) (7) (280)
Balance, end of period $ 423 422 423 422
Ratio of net credit losses to
average loans outstanding 0.30% 0.71% 0.02% 0.74%
The table below provides a breakdown of the allowance for loan losses by
loan category as of September 30, 1995 and December 31, 1994. Although
management has allocated the allowance to specific loan categories, the
adequacy of the allowance must be considered in its entirety. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgement of information available to them at the time of their examination.
(in thousands) September 30, 1995 December 31, 1994
Allowance % of Loans Allowance % of Loans
Commercial $ 236 1.27% $ 180 1.20%
Real Estate - Construction - - - -
Real Estate - Mortgage 100 0.58% 99 0.62%
Unallocated 87 - 111 -
$ 423 1.11% $ 390 1.19%
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan (SFAS 114)", as amended by Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures (SFAS 118)". Under SFAS 114, a loan is impaired
when, based on current information and events, it is "probable" that a
creditor will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. The measurement of
impairment may be based on (i) the present value of the expected cash flows
of the impaired loan discounted at the loan's original effective interest
rate, (ii) the observable market price of the impaired loan, or (iii) the
fair value of the collateral of a collateral-dependent loan. SFAS 114 does
not apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment.
The Company generally identifies loans to be reported as impaired when
such loans are in non-accrual status or are considered troubled debt
restructurings due to the current year grant of a below market rate of
interest or a partial forgiveness of indebtedness on an existing loan. In
measuring impairment for the purpose of establishing specific loan loss
reserves, the Company reviews all impaired loans classified "Substandard" and
"Doubtful". All "Loss" classified loans are fully reserved under the
Company's standard loan loss reserve methodology. Commercial and real estate
loans that are not classified, and groups of non-classified, smaller balance
loans such as installment and equity lines of credit, are evaluated
collectively for impairment under the Company's standard loan loss reserve
methodology and are, therefore, excluded from the provisions of SFAS 114.
The following summarizes the Company's impaired loans under SFAS 114 at
September 30, 1995:
Non-Accrual Troubled Debt Total Impaired Memo: Specific
Loans Restructurings Loans Reserves
(in thousands)
$ 1,044 $ - $ 1,044 $ 44
The average balances of the Company's impaired loans for the nine months
ended September 1995, was $825 thousand. All these credits were on non-
accrual status. In general, the Company does not recognize any interest
income on loans that are classified as impaired.
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) manage interest
rate risk.
Liquidity: Liquidity is the Bank's ability to meet the present and
future needs of its customers for 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, existing cash and cash equivalents, the growth of core
deposits and the orderly repayment of the Bank's loan portfolio are the
primary source of liquidity. Also, because of the its emphasis on
relationship banking, the Bank has a relatively stable, local deposit base,
and customer deposits 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 $16.1 million, or 25 percent of assets at September
30, 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 Statements of Cash Flows,
cash and cash equivalents increased to $11.2 million at September 30, 1995,
compared to $7.4 million as of December 31, 1994. Cash flows from financing
activities, primarily increased deposit account balances, provided $7.1
million. Cash was used primarily to fund customer 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 analysis 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.
The Bank's interest rate sensitive assets and liabilities reprice fairly
frequently. In total, 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. Within a one year horizon, approximately 74 percent of the Bank's
total interest rate sensitive assets and 94 percent of the Bank's total rate
sensitive liabilities mature or reprice at September 30, 1995.
The Bank evaluates its interest rate risk by analyzing the repricing
characteristics of its balance sheet instruments and monitoring the
difference between the amount of interest rate sensitive assets and
liabilities, which reprice within one year ("one year gap"). At September
30, 1995, the one year gap as a percentage of total earning assets was -3.15
percent, compared to -2.67 percent at December 31, 1994.
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 September 30, 1995 and
December 31, 1994 are as follows:
September 30, December 31, Regulatory
1995 1994 Minimum
Bancorp:
Tier 1 capital ratio 15.43% 15.99% 4.00%
Total capital ratio 16.45% 17.06% 8.00%
Leverage ratio 10.46% 9.80% 3.00%
Bank:
Tier 1 capital ratio 15.22% 16.08% 4.00%
Total capital ratio 16.24% 17.14% 8.00%
Leverage ratio 10.28% 9.90% 3.00%
There are no known trends, events or uncertainties that will have or that
are reasonably likely to have a material effect on the Company's capital
resources, liquidity, asset quality, or results of operations.
<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
/s/ Eddy S.F. Chan
Eddy S.F. Chan, President
/s/ Daniel Y. Lee
Daniel Y. Lee, Chief Financial Officer
Date: November 6, 1995
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