SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: 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
Indicate by check mark if disclosure of delinquent filers pursuant to item
405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
Aggregate market value of the voting stock held by
non-affiliates of the registrant at February 29, 1996:
Common Stock, no par value,
$3,900,000
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at February 29, 1996
Common Stock, no par value 1,118,195
Documents Incorporated by Reference:
PARTS I, II, & IV - Annual Report to Shareholders for the year ended December
31, 1995 ("1995 Annual Report").
PART III - The Proxy Statement for the Annual Meeting of Stockholders will be
filed by registrant within 120 days after the end of the fiscal year covered
by
this report.
<PAGE>
PART I
Item 1. Business
General
Trans Pacific Bancorp, a California Corporation ("Bancorp") is the Bank
holding company of Trans Pacific National Bank (the "Bank"), its wholly owned
subsidiary, a national bank conducting a commercial banking business which
opened for business on August 21, 1984. Other than acting as the holding
company for the Bank and as the lessee of the Bank's premises, Bancorp does not
currently conduct any other substantial activities. Accordingly, the reported
consolidated net income for 1995 resulted primarily from the Bank's
operations.
The Bank is headquartered in the "South of Market" area of the City of
San Francisco and is engaged in a wide variety of business operations
customarily conducted by independent commercial banks in California,
including the acceptance of checking and savings deposits, the issuance of
certificates of deposit, and the making of loans. The Bank's primary
lending activities are commercial loans, commercial lines of credit and
short-term real estate-related loans. Additionally, the Bank continues to
provide credit to the communities from which it draws deposits, with added
emphasis on small business loans in low and moderate income areas. To a
lesser extent, the Bank has engaged in consumer lending in the form of loans
to individuals for household, family and other personal expenditures. As of
December 31, 1995, the Bank had net loans totalling $38.3 million.
Commercial loans and lines of credit represent 48 percent of the Bank's total
loan portfolio and real estate loans represent 46 percent, and consumer and
other loans 6 percent.
The Bank also offers safe deposit boxes, ATM cards, traveler's checks,
collection accounts and other customary bank services to its customers. The
Bank's customers are generally individuals who live or work in the vicinity
of the Bank's offices, small to medium size businesses and professional firms.
As of December 31, 1995, most of the Bank's deposits had been obtained from
local individuals, small businesses, professional firms, and state and local
governments. The Bank had approximately 2,000 accounts totalling over $57
million in deposits as of December 31, 1995. Demand deposits, both interest-
bearing and non-interest bearing represent 65 percent of the Bank's total
deposits portfolio, time deposits represent 33 percent, and savings deposits
2 percent.
In 1988, the Bank opened its International Department to provide banking
products for customers dealing in international trade. The International
Department provides a broad range of trade finance products, such as foreign
exchange and foreign drafts, import and export letters of credit, documentary
collections, standby letters of credit, and bankers acceptances. The
International Department provides the Bank with an opportunity to offer trade
finance services to U.S.-based small business and middle-market customers, a
service which is generally not offered by community banks. Bancorp's
headquarters location in San Francisco, a major international port city, is
ideally located for trade activity with Pacific Rim countries.
Also, in 1988, the Bank opened its second branch office, in downtown
Alameda, in order to expand into the East Bay market of Northern California.
To supplement the Alameda branch's deposit base, the Bank in 1990 acquired
the deposits of the Webster Street branch of Southern California Savings and
Loan in Alameda. This acquisition of a large base of retail time deposits and
savings accounts enabled the Bank to increase its market share and customer
base in Alameda and the surrounding areas.<PAGE>
Competition
The banking business in the Bank's market area, the San Francisco Bay
Area, is extremely competitive and has become increasingly so in recent years
as major California banks have entered the small-business loan market.
Additionally, the Bank competes with agencies of foreign banks, savings and
loans, credit unions, finance companies and other non-banking institutions,
such as brokerage firms, insurance companies and investment banking firms,
all who offer similar services to customers.
Among the competitive advantages that larger financial institutions have
are the resources and ability to conduct large-scale marketing campaigns and
to allocate investment assets, including loans, to regions of higher demand and
yield. The larger institutions also have higher lending limits available to
customers with large credit needs. The Bank's current maximum legal lending
limits to a single borrower and related parties was $1 million on an
unsecured basis and $1.7 million on a fully secured basis.
For borrowers requiring loans in excess of the Bank's legal lending
limits, the Bank has underwritten and will continue to underwrite such loans
on a participating basis with its correspondent banks and with other independent
banks, retaining that portion of such loans that is within its lending
limits.
The Bank believes it can continue to successfully compete by emphasizing
personal customer contact and by providing a higher degree of personalized
banking service to its customers. While Management believes that its service
approach can help build customer loyalty and can offset competitive
disadvantages resulting from legal and regulatory constraints due to its
size, no assurances can be given that the Bank will succeed in this extremely
competitive industry.
Federal Reserve Monetary Policy
The earnings of Bancorp are not only affected by general economic
conditions, but also by the policies of various governmental regulatory
authorities in the United States and abroad. In particular, the Federal
Reserve System exerts a significant influence on interest rates and credit
conditions, primarily through open market operations in U.S. Government
securities, varying the discount rate on member bank borrowings and setting
reserve requirements against deposits. Federal Reserve monetary policies
have had a significant effect on the operating results of financial
institutions in the past and are expected to continue to do so in the future.
Supervision and Regulation
Under the Bank Holding Company Act (the Act), Bancorp is required to
file reports of its operations with the Board of Governors of the Federal
Reserve System (the Federal Reserve) and is subject to examination by
regulators. Further, the Act restricts activities in which Bancorp may
engage and the activities of any company in which the Bancorp owns more than
5 percent of the voting shares. Generally, permissible activities are
limited to banking, the business of managing and controlling banks and
activities closely related to banking as determined by the Federal Reserve.
The Bank, as a national bank, is subject to regulation and examination
by the Office of the Comptroller of the Currency (OCC), the Federal Reserve and
the Federal Deposit Insurance Corporation. Additionally, there are numerous
requirements and restrictions in the laws of the United States and the State
of California affecting the Bank and its operations including: the requirement
to maintain reserves against deposits; restrictions on the nature and amount of
loans that it may make; requirements for community reinvestment; restrictions
relating to its investments; restrictions relating to the places at which it
may operate branches and its ability to acquire other banks and financial
institutions. Throughout 1993 and for part of 1994, the Bank was operating
under a Formal Agreement with the OCC, which required specific capital ratios
and required management to implement certain steps to strengthen the Bank's
operations. The Formal Agreement was terminated in September 1994, as the
Bank had achieved full compliance with its terms.
Additionally, for part of 1993 and throughout 1994, Trans Pacific
Bancorp operated under a Memorandum of Understanding (MOU) with the Federal
Reserve Bank, which required filing of progress reports and restricted certain
operations, including the payment of cash dividends and issuance of
additional debt. This MOU was terminated in February, 1995.
Major regulatory changes affecting the Bank, and the financial services
industry in general have occurred in the last several years and can be
expected to occur increasingly in the future. The most significant recent
change affecting banks was the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA). In addition to providing for the
recapitalization of the Bank Insurance Fund, this law makes a number of far-
reaching changes in the legal environment for insured banks, including
reductions in insurance coverage for certain kinds of deposits, increases in
consumer-oriented requirements and disclosures, and major revisions to
conform the process of supervision and examination of depository
institutions, with an emphasis on risk-weighted capital levels. It is
expected that this law and any other current proposals for regulatory change
should not have a material effect on the operations, capital resources or
liquidity of Bancorp or the Bank.
Employees
The Bank employed 35 full time equivalent persons at December 31, 1995.
Management believes that its employee relations are excellent and that the
compensation and benefits provided by the Bank to its employees are
competitive. Benefits for Bank employees include stock options, an Employee
Stock Ownership Plan and a 401(k) plan. Bancorp had no salaried employees at
December 31, 1995.
<PAGE>
STATISTICAL DISCLOSURES
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Information on the distribution of assets, liabilities, and stockholder
equity and on interest rates and interest differential is incorporated by
references from pages 8 and 9 of the 1995 Annual Report.
II. Investment Portfolio
Carrying Value of Investments, Maturity Ranges, Weighted Average Yield
The following table list the carrying value, in thousands, and yield by
expected remaining principal maturity date of the investment portfolio at
December 31, 1995. The weighted average yield is calculated based on the
amortized cost of securities.
Weighted
Average
Available for sale securities Amortized Cost Fair Value Yield
US Treasury securities
and other government agency:
Due within 1 year $ 4,511 $ 4,519 5.86%
Due after 1 year through 5 years 4,775 4,784 5.75%
9,286 9,303 5.80%
Mortgage-backed securities 2,692 2,699 6.65%
Other securities:
Due within 1 year 727 725 4.70%
Due after 1 year through 5 years 830 780 4.86%
Due after 10 years 365 365 4.96%
1,922 1,870 4.96%
$ 13,900 $ 13,872 5.85%
Other securities consist principally of corporate bonds. Expected
remaining maturities may differ from remaining contractual maturities because
borrowers have the right to prepay certain obligations with or without
penalties.
Information regarding the carrying value of investments at December 31,
1994 is incorporated by reference from pages 30 and 31 of the 1995 Annual
Report.
<PAGE>
III. Loan Portfolio
Loans Outstanding by Type
Information regarding types of domestic loans and loan concentrations at
December 31, 1995 and 1994 is incorporated by reference from pages 21, 32 and
33 of the 1995 Annual Report. The Bank had no foreign loans at December 31,
1995.
Maturities and Sensitivity to Changes in Interest Rates
Final loan maturities, in thousands, and rate sensitivities of the loan
portfolio at December 31, 1995 are as follows:
Within One-Five After
One Year Years Five Years Total
Loans at fixed interest rates:
Commercial $ 5,124 2,753 - 7,877
Real Estate 18 2,552 500 3,070
Installment 7 140 - 147
Other 40 - - 40
Total fixed interest-rate loans5,189 5,445 500 11,134
Loans at variable interest rates:
Commercial 10,620 - - 10,620
Real Estate 12,627 2,345 - 14,972
Installment 20 - - 20
Preference Line 1,998 - - 1,998
Total variable
interest-rate loans 25,265 2,345 - 27,610
Total $ 30,454 7,790 500 38,744
Non Performing Assets
Information on non-performing assets and risk elements is incorporated by
reference from pages 12 and 13 of the 1995 Annual Report.
IV. Summary of Loan Loss Experience
Allocation of the Allowance for Loan Losses
Information on the allocation of the allowance for loan losses by loan
type is incorporated by reference from pages 13 through 15 of the 1995 Annual
Report.
Annual Credit Loss Experience
Information on annual credit loss experience is incorporated by reference
from pages 15 and 16 of the 1995 Annual Report.
<PAGE>
V. Deposits
Average Amount and Rates Paid
Information on average deposits amounts and rates paid on domestic
deposits is incorporated by reference from page 9 of the 1995 Annual Report.
At December 31, 1995 and 1994, deposits of foreign depositors were not
material.
Time Certificates of Deposit Greater Than $100,000
Information on time certificates of deposits greater than $100,000 is
incorporated by reference from page 36 of the 1995 Annual Report.
VI. Return on Equity and Assets
Years ended December 31,
1995 1994 1993
Return on average assets 0.73% 0.30% (.89)%
Return on average equity 7.14% 3.03% (9.90)%
Dividend payout ratio - - -
Equity to assets ratio 10.08% 10.48% 9.12 %
VII. Short-Term Borrowings
Outstanding amounts, in thousands, of selected short-term borrowings were
as follows:
Years ended
December 31,
1995 1994 1993
Federal funds purchased and
repurchase agreements:
Average amount outstanding $ 47 .3 293
Daily average rate 6.43% 4.81% 3.31%
Highest month-end balance $ 900 - 2,049
Year-end balance $ - - -
Rate on outstandings at year end - - -
Other borrowed funds:
Average amount outstanding $ 212 885 623
Daily average rate 6.10% 5.22% 5.46%
Highest month-end balance $ 454 1,329 1,006
Year-end balance $ 186 540 603
Rate on outstandings at year end 5.24% 5.15% 4.61%
Federal funds borrowed are repaid the following business day. Repurchase
agreements and other borrowed funds generally have original maturities not
exceeding 180 days.
Item 2. Properties
Bancorp and the Bank's headquarters are located at 46 Second Street in
San Francisco, California in the city's downtown Financial District. The
building, with 8,500 square feet of usable space is under lease, which
expires in April, 2001, with a 3 year renewal option available under similar
terms.
The Bank maintains another branch at 1442 Webster Street in Alameda,
California. The premises, purchased by Bancorp in 1988 and sold to the Bank
in 1993, contains approximately 4,700 square feet.
Bancorp believes that its facilities are well maintained and are
generally adequate for its present and anticipated future needs.
Item 3. Legal Proceedings
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, after review with independent legal
counsel, the ultimate liability resulting from such claims and lawsuits will
not have a material adverse effect on the financial position, results of
operations, or liquidity of the Company.
There were no material proceedings adverse to the Bank or Bancorp to
which any director, officer, affiliate of the Bank or Bancorp, or 5 percent
shareholder of the Bank or Bancorp, or any associate of any such director,
officer, affiliate or 5 percent shareholder of the Bank or Bancorp, was a
party adverse to the Bank or Bancorp. Additionally, none of the above
persons had a material interest adverse to the Bank or Bancorp.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of Bancorp's fiscal year covered by this report.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Market Information
The common stock of Trans Pacific Bancorp (symbol: TPAE) is publicly
traded in limited and infrequent transactions on the NASDAQ Bulletin Board.
According to information made available to Bancorp, the range of high and low
bids for such common stock for each calendar quarter since January 1994 is as
follows:
Calendar Year 1995 High Low
First Quarter $ 2.50 2.25
Second Quarter 2.75 2.25
Third Quarter 4.50 2.50
Fourth Quarter 4.88 4.50
Calendar Year 1994 High Low
First Quarter $ 2.00 2.00
Second Quarter 2.00 2.00
Third Quarter 2.00 2.00
Fourth Quarter 2.25 2.00
The last bid price known to Bancorp for its common stock was $4.75.
There are no current plans to offer any common stock of Bancorp in a
public offering.
Holders
As of December 31, 1995, there were 301 holders of the common stock of
Bancorp. There are no other classes of common equity outstanding.
Dividends
Through December 31, 1995, Bancorp had never paid a cash dividend to
stockholders. On February 23, 1996 a special dividend was declared to
shareholders of record March 8, 1996. Bancorp has no current plans to pay
regular dividends.
Item 6. Selected Financial Data
Selected financial data for the five years 1991 through 1995 is
incorporated by reference from page 6 of the 1995 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations is incorporated by reference from pages 7 through 19 of the
1995 Annual Report.
Item 8. Financial Statements and Supplementary Data
The Report of Independent Auditors and the Consolidated Financial
Statements of Bancorp are incorporated by reference from pages 20 through 44
of the 1995 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During fiscal years 1995 and 1994, Bancorp neither changed its
accountants nor reported a disagreement on Form 8-K on any matter of
accounting principles or practices or financial statements disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and persons nominated to become
directors of Bancorp is incorporated by reference to the text under the
captions "Item 1: Election of Directors", "Security Ownership of Management",
and "Executive Compensation" in the Proxy Statement for the May 23, 1996
Annual Meeting of Shareholders of Bancorp.
Information concerning executive officers of the Bank as of March 1, 1996
is set forth below.
Name Age Position with Registrant
Eddy S.F. Chan 48 President and Chief Executive Officer
Robert A. Hinkle 51 Executive Vice President and Chief
Lending Officer
John K. Wong 47 Executive Vice President
Bonnie L. Hao 48 Senior Vice President
Kiran C. Mehta 46 Senior Vice President
Grant B. Schley 54 Senior Vice President
Dennis B. Jang 33 Vice President and Chief Financial
Officer
Crystal Z. Hundahl 38 Vice President
Lorraine S. Braud 50 Vice President
Eddy S.F. Chan was appointed President and Chief Executive Officer of Bancorp
on January 1, 1984. He was appointed Chairman of the Bank on January 1, 1983
and President and Chief Executive Officer of the Bank on January 1, 1984.
Robert A. Hinkle was appointed Executive Vice President on April 1, 1995 in
addition to his title of Chief Lending Officer. He had served as Senior Vice
President and Chief Lending Officer of the Bank since December 1, 1992.
Previously, he served as Executive Vice President and Chief Operating Officer
of Century Bank, San Francisco from 1987 to 1992.
John K. Wong was appointed Executive Vice President on April 1, 1995.
Previously he was a Senior Vice President of the Bank, appointed on January
1, 1989. He was elected as a director of Bancorp in 1983 and as a director
of the Bank in 1984.
Bonnie L. Hao was appointed Senior Vice President of the Bank on April 1,
1995. Previously, she was Vice President of the Bank from 1992 to 1995, and was
Vice President of California National Bank, San Francisco from 1989 to 1992.
Kiran C. Mehta was appointed Senior Vice President, Credit Administration of
the Bank on January 1, 1989.
Grant B. Schley was appointed Senior Vice President of the Bank on January 1,
1994. From 1992 to 1994, he was the Regional Branch Manager. Previously, he
served as Vice President of Financial Center Bank, San Francisco from 1985 to
1990.
Dennis B. Jang was appointed Chief Financial Officer on March 1, 1996, in
addition to his title as Vice President and Corporate Secretary. He was
appointed Vice President on January 1, 1994. Previously, he was Assistant
Vice President of the Bank from 1990 to 1994.
Crystal Z. Hundahl was appointed Vice President of the Bank on January 1,
1994, in addition to her title as Controller. Previously, she was Assistant
Vice President of the Bank from 1988 to 1994.
Lorraine S. Braud was appointed Vice President of the Bank on February 16,
1995. Previously, she served as Vice President of Bank of San Francisco from
1986 to 1993.
All Executive Officers serve at the pleasure of the Board. Crystal Z.
Hundahl is the niece of Eddy S.F. Chan. There are no other family relationships
between any other officers.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated by
reference from the text under the captions, "Item 1: Election of Directors" and
"Executive Compensation" in the Proxy Statement for the May 23, 1996 Annual
Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning ownership of equity stock of the Parent by certain
beneficial owners and management is incorporated by reference from the text
under the captions, "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Management" in the Proxy Statement for the May 23,
1996 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
with officers and directors is incorporated by reference from the text under the
caption, "Item 1: Election of Directors" in the Proxy Statement for the May
23, 1996 Annual Meeting of Shareholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Document filed as part of this report:
1. Financial Statements
The Consolidated Financial Statements, Notes thereto, and
Independent Auditors' Report are incorporated herein by
reference from pages 20 through 44 of the 1995 Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulations of the Securities Exchange Commission
are not required under the related instructions or are not
applicable and, therefore, have been omitted.
3. Exhibits
EXHIBIT DESCRIPTION
NUMBER
3.1 Articles of Incorporation of Trans Pacific Bancorp, incorporated by
reference to Exhibit 3.1 to Bancorp's Registration Statement on
Form S-1 (No. 2-86902).
3.2 Amended By-Laws of Trans Pacific Bancorp, incorporated by reference
to Exhibit 3.2 to Bancorp's Registration Statement on Form S-1 (No.
2-86902).
3.3 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.3 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
3.4 Amendment to Articles of Incorporation, incorporated by reference
to Exhibit 3.4 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988.
4.1 Specimen Stock Certificate, incorporated by reference to Exhibit
4.1 to Bancorp's registration Statement on Form S-1 (No. 2-86902).
10.2 Employee Stock Option Plan, incorporated by reference to Exhibit
10.2 to Bancorp's Registration Statement on Form S-1 (No. 2-86902).
10.10 Amendment to Employee Stock Option Plan incorporated by reference
to Exhibit 10.10 to Bancorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.11 Amendment to Employee Stock Option Plan dated September 21, 1989
incorporated by reference to Exhibit 10.11 to Bancorp's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
10.12 Trans Pacific Bancorp Employee Stock Ownership Plan and Trust is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39190).
10.13 Trans Pacific Bancorp Non Qualified Stock Option Plan is
incorporated by reference to Exhibit 4.1 to Bancorp's Registration
Statement on Form S-8 (No. 33-39191).
22.1 Subsidiaries of the Registrant, incorporated by reference to
Exhibit 22.1 to Bancorp's Registration Statement on Form S-1 (No.
2-86902).
23 Consent of KPMG Peat Marwick LLP.
(b) No reports on Form 8-K were filed by Bancorp during the fourth
quarter of 1995.
<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
Date: March 21, 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 in the capacities indicated on the 21st day of March 1996.
Signature Title
/s/ JAMES A. BABCOCK Director and Chairman of the Board
(James A. Babcock)
/s/ EDDY S.F. CHAN Director, President and CEO
(Eddy S.F. Chan) (Principal Executive Officer)
/s/ JOHN T. STEWART Director and Secretary
(John T. Stewart)
/s/ SIMON S. TENG Director and Treasurer
(Simon S. Teng) (Principal Financial & Accounting Officer)
/s/ FRANKIE G. LEE Director and Vice Chairman
(Frankie G. Lee)
/s/ JOHN K. LEE Director
(John K. Lee)
/s/ MASAYUKI NAKAHIRA Director
(Masayuki Nakahira)
/s/ FRANK K.W. WONG Director
(Frank K.W. Wong)
/s/ JOHN K. WONG Director
(John K. Wong)
1995 Annual Report
<PAGE>
About The Company
Trans Pacific Bancorp is the holding
company of Trans Pacific National Bank,
an independent commercial bank with
branches in San Francisco and Alameda,
California.
Trans Pacific National Bank has been
providing financial services to local
middle-market businesses, professional
companies, and import/export companies
since 1984.
Trans Pacific Bancorp is listed on the
NASDAQ Bulletin Board system under the
symbol TPAE.
<PAGE>
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . .3
LETTER TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .4
FIVE YEAR FINANCIAL SUMMARY. . . . . . . . . . . . . . . . . . . . . . . .6
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Provision for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . . 10
Non-Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Provision for Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
ASSET QUALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ALLOCATION OF THE ALLOWANCE FOR
LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ASSET/LIABILITY MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 16
CAPITAL RESOURCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
REPORT OF THE INDEPENDENT AUDITORS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CONSOLIDATED FINANCIAL STATEMENTS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
TRANS PACIFIC BANCORP
BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 45
TRANS PACIFIC NATIONAL BANK
PRINCIPAL OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 45
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
1995 1994 Increase
For the year
Net Income $ 445,382 $ 180,191 +147%
Earnings Per Share 0.40 0.16 +150
At year end
Loans 38,340,437 32,368,367 +18
Total Assets 64,826,520 56,770,772 +14
Deposits 57,563,988 49,800,237 +16
Shareholders' Equity 6,531,971 5,950,839 +10
Ratios
Return on Average Equity 7.14% 3.03%
Return on Average Assets 0.73% 0.30%
Risk-Based Capital Ratio 16.81% 17.06%
<PAGE>
LETTER TO SHAREHOLDERS
Financial Results
We are pleased to report that 1995 was a year of record earnings for Trans
Pacific Bancorp. In the best performance in our 11 year history, the Company
had net income of $445,382, or $0.40 per share. As discussed in detail
under the "Financial Review" beginning on page 7, the improvement in
financial results was due to higher net interest income, a reduced provision
for loan losses, and reduced non-interest operating expenses. Improved asset
quality also continues to contribute positively to our financial results.
Over the years, our results have been a direct reflection of the trends in
California banking and the California economy, and 1995 was no exception.
During the year, we are pleased to note a positive turnaround in results for
many of the state's financial institutions, including local independent
banks in the San Francisco Bay Area, which had previously been heavily
burdened by asset quality problems.
We were also pleased to note that California's economy as a whole has improved
for local middle-market businesses, professional companies, and import/export
companies, all our traditional sources of business. We believe that the
local economy will continue to improve in 1996 and this will lead to further
job growth, increased personal income and additional capital spending by
businesses, which is favorable for us.
Special Dividend
In order to provide our shareholders with a return, the Board has declared a
special dividend of 8 cents per share to shareholders of record March 8,
1996. The dividend will be paid on March 29, 1996. While we have no
immediate plans to begin paying regular dividends, we may pay dividends in
the future based on our meeting certain profitability and capital goals.
Prospects for the Future
Our Corporate division will continue to its commitment to serve our core
customers, middle-market businesses and professional companies. In 1995,
Trans Pacific began to fund loans in conjunction with the Small Business
Administration and we seek to increase our participation during 1996.
For our International division, we continue to see tremendous opportunity in
the expansion of international trade in the Bay Area. We see international
trade continuing to be a significant part of California's economy and growing
over the next decade, with the Pacific Rim providing the biggest markets for
the state's exports. We continue to be active in trade groups, seeking
to outreach to emerging import/export entrepreneurs.
Around us, banking in California as we know it is going through significant
changes as we go forward. The move towards consolidation continues with two
significant local transactions: the acquisition of First Interstate Bank by
Wells Fargo, and the acquisition of California Bancshares by U.S. Bancorp.
In the past, these types of consolidations create great business
development opportunities for companies such as Trans Pacific who emphasize
customer satisfaction and quality service.
Despite the temporary industry upheaval, our plan is to continue to steadily
focus on our goal to seek the best for our shareholders, employees and
clients by striving for consistent growth in performance, profitability and
opportunity.
Acknowledgements
As a final note, we would like to acknowledge the following individuals:
Peter Da Roza played a key part in establishing our International department in
1988. Peter passed away on January 19, 1996, after a lengthy illness. He
was truly a pioneer in the area of trade finance and he will be missed not
only by his co-workers here, but throughout the Bay Area banking community.
Daniel Y. Lee, the Bank's President, left the Company in February 1996 to
become the controller of Wind River Systems in Alameda. In his 10 years at
the Bank, Dan provided us with great leadership, especially during our most
difficult times. We wish him the best of success in the future.
Merle Konigsberg and Warren Miller, two of the Company's founding directors,
retired from the Board at the end of 1995, becoming our first two Directors
Emeriti. Their hard work, wisdom and dedication to locally-owned, independent
banking contributed greatly to the beginning and continued success of the
Company.
/s/ James A. Babcock
Chairman
/s/ Eddy S.F. Chan
Chief Executive Officer
<PAGE>
FIVE YEAR FINANCIAL SUMMARY
Summary of Consolidated Operations
Years ended December 31,
(in thousands except share data) 1995 1994 1993 1992 1991
Interest income $ 4,855 4,259 4,433 5,920 7,550
Interest expense 1,799 1,369 1,617 2,646 4,183
Net interest income 3,056 2,890 2,816 3,274 3,367
Provision for possible loan losses 40 173 889 662 349
Other income 598 664 855 887 866
Other expense 2,962 3,088 3,567 3,579 3,458
Income (loss) before taxes 652 293 (785) (80) 426
Income tax expense (benefit) 207 113 (171) 20 228
Net income (loss) $ 445 180 (614) (100) 198
Net income (loss)
per share $ 0.40 0.16 (0.54) (0.09) 0.17
Average common shares
outstanding 1,118,195 1,127,305 1,143,195 1,141,247 1,138,795
Year-End Financial Position
Years Ended December 31,
(in thousands) 1995 1994 1993 1992 1991
Cash and cash equivalents $ 9,916 7,377 6,538 4,313 8,416
Investment securities 14,359 14,508 12,812 11,314 11,743
Loans, net 38,340 32,368 39,566 50,033 54,165
Premises and equipment, net 933 1,037 1,015 1,281 1,484
Other assets 1,279 1,481 5,078 5,430 2,980
Total assets $64,827 56,771 65,009 72,371 78,788
Deposits $57,564 49,800 57,823 63,916 68,398
Long Term Debt - 26 71 116 161
Other Liabilities 731 994 1,188 1,863 3,720
Total liabilities 58,295 50,820 59,082 65,895 72,279
Stockholders' equity 6,532 5,951 5,927 6,476 6,509
Total liabilities and
equity $64,827 56,771 65,009 72,371 78,788
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The Company earned $445 thousand in 1995. This represented an improvement
over net income in 1994 of $180 thousand, and the loss of $614 thousand in
1993. The 1995 net income reflects the effects of an improving California
economy. Two major results were: More stable real estate values which enabled
the sale of other real estate owned; and the strengthening financial
condition of the Bank's customers, which led to improved asset quality
compared to previous years.
On a per share basis, the 1995 net income was $0.40, compared to net income of
$0.16 and net loss of ($0.54) in 1994 and 1993, respectively. In addition
to the factors discussed above, the improvement in 1995 reflected improved
net interest income, a decreased provision for loan losses and lower non-
interest expense. The improvement in 1994 over 1993 was mostly due to a
decreased provision for loan losses and lower non-interest expense. The
Company's return on average total assets (ROA) was 0.73 percent in 1995, from
0.30 percent and (0.89) percent in the previous two years. Return on equity
(ROE) in 1995 was 7.14 percent, compared with 3.03 percent in 1994 and (9.90)
percent in 1993.
Components of Net Income (Loss)
(percentage of average earning assets) 1995 1994 1993
Net interest income 5.74% 5.35% 4.93%
Provision for loan losses (0.08) (0.32) (1.56)
Non-interest income 1.12 1.23 1.50
Non-interest expense (5.55) (5.72) (6.24)
Taxes (0.39) (0.21) 0.30
Net income (loss) 0.84 0.33 (1.07)
Net income (loss) as a percentage
of average total assets 0.73 0.30 (0.89)
Net Interest Income
Net interest income is the difference between interest income
(which includes yield-related net loan fees) and interest expense. The
following table details the components of net interest income:
Components of Net Interest Income
(in thousands) 1995 1994 1993
Interest Income $ 4,855 4,259 4,433
Interest Expense 1,799 1,369 1,617
Net interest income $ 3,056 2,890 2,816
Average earning assets $ 53,212 53,987 57,121
Net interest margin 5.74% 5.35% 4.93%
Net interest income in 1995 increased by $166 thousand, or 6 percent from 1994
to $3.1 million. Separately, interest income increased $596 thousand, or 14
percent, and interest expense increased $430 thousand, or 31 percent in 1995.
The increase in interest expense was caused by an increase in cost of funds
of 116 basis points due to competitive pressures in market rate and time
deposits. The increase in interest income was due to the continued shift in
the mix of the Bank's earning assets to higher-yielding loans from shorter
term, lower-yielding investment securities, due to increased loan demand.
The net interest margin, which represents the average net yield on earning
assets, rose in 1995; for 1995 the net interest margin was 5.74 percent, a
39 basis point improvement over 1994. In 1994, the net interest
margin was 5.35 percent, which was a 42 basis point improvement over 1993, as
deposit rates were slower to rise than loan rates, due to competitive pressures.
The following table is a summary of the changes in net interest income
attributable to changes in either average balances or average rates for both
interest-earning assets and interest-bearing liabilities in thousands for
the years ended December 31, 1995 and 1994. Because of the numerous
simultaneous volume and rate changes during any period, it is not possible to
precisely allocate changes between volume and rate. For this table, the
changes in interest earned and interest paid due to both rate and volume
have been allocated to changes due to volume and rate in proportion to the
relationship of absolute dollar amounts in each.
Rate and Volume Analysis Years ended December 31,
1995 versus 1994 1994 versus 1993
Volume Rate Total Volume Rate Total
Increase (decrease) in interest income
due to Interest Earning Assets:
Loans $ 56 489 545 (651) 244 (407)
Investment securities 73 10 83 271 (102) 169
Federal funds sold (78) 59 (19) 20 61 81
Interest-bearing deposits
with banks (12) (1) (13) (8) (9) (17)
Total interest-
earning assets $ 39 557 596 (368) 194 (174)
Increase (decrease) in interest expense
due to Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 23 223 246 4 (26) (22)
Savings (11) 1 (10) 5 (2) 3
Time (70) 296 226 (192) (39) (231)
Other short-term borrowings (27) (3) (30) (2) 4 2
Total interest-
bearing liabilities $ (85) 517 432 (185) (63) (248)
Net interest-earning assets$ 124 40 164 (183) 257 74
<PAGE>
The following table lists the average amounts, in thousands, outstanding for
major categories of interest-earning assets (excluding non-accrual loans) and
interest-bearing liabilities and the average interest rates earned, including
loan fee income, and paid for the periods indicated.
Average Balances and Rates Years ended December 31,
1995 1994
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Earning Assets:
Loans $ 35,866 3,844 10.72% 35,275 3,299 9.35%
Investment securities 12,694 739 5.82% 11,442 656 5.73%
Federal funds sold 4,283 249 5.81% 6,722 268 3.99%
Interest-bearing deposits
with banks 369 23 6.23% 548 36 6.57%
Total interest-earning
assets $53,212 4,855 9.12% 53,987 4,259 7.89%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 23,421 789 3.37% 22,505 544 2.42%
Savings 1,179 26 2.21% 1,680 36 2.14%
Time 18,481 968 5.24% 20,616 743 3.60%
Other short-term borrowings 251 16 6.37% 885 46 5.20%
Total interest-
bearing liabilities $ 43,332 1,799 4.16% 45,686 1,369 3.00%
Net interest income $ 3,056 $ 2,890
Net interest-earning assets yield 5.74% 5.35%
1993
Interest Average
Average Income/ Yield/
Balance Expense Rate
Earning Assets:
Loans $ 43,430 3,706 8.53%
Investment securities 6,939 487 7.02%
Federal funds sold 6,110 187 3.06%
Interest-bearing deposits with banks 642 53 8.26%
Total interest-earning assets $57,121 4,433 7.76%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-bearing $ 22,354 566 2.53%
Savings 1,437 33 2.30%
Time 25,421 974 3.83%
Other short-term borrowings 916 44 4.80%
Total interest-
bearing liabilities $ 50,128 1,617 3.23%
Net interest income $ 2,816
Net interest-earning assets yield 4.93%
<PAGE>
Provision for Loan Losses
The level of the provision for loan losses during the past three years reflects
continuous efforts to improve loan quality by enforcing strict underwriting
and administration procedures and aggressively pursuing collection efforts
with troubled debtors. The determination of the provision for loan losses
and, correspondingly, the level of the allowance for loan losses is based on
evaluation 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 which may affect the borrowers'
ability to pay. The provision for loan losses was $40 thousand in 1995,
compared with $173 thousand in 1994 and $889 thousand in 1993. The decrease
in the provision for loan losses reflected the effects of improving asset
quality, due in part to positive California economic trends.
For further discussion related to the provision for loan losses, see the
section below entitled "Asset Quality".
Non-Interest Income
Components of Non-Interest Income
(in thousands) 1995 1994 1993
Deposit account fees $ 282 268 275
Other charges and fees 316 312 404
Other real estate - 84 146
Gain on sale of securities - - 30
$ 598 664 855
Non-interest income decreased 10 percent in 1995 to $598 thousand. The
decline was due to zero income for other real estate owned, which includes
rental income and the net gain on sales of other real estate owned (OREO),
as the Bank had no foreclosed properties during 1995. Deposit account and
other charges and fees were consistent with 1994 levels. In 1994, non-
interest income decreased 22 percent from the previous year, due mainly to
reduced commissions on letters of credit earned. Income for other real estate
owned, which includes rental income and the net gain on sales of OREO, was
lower as those properties were sold during the year.
<PAGE>
Non-Interest Expense
Components of Non-Interest Expense
(in thousands) 1995 1994 1993
Salaries and employee benefits $ 1,720 1,627 1,587
Occupancy 296 325 430
Data processing 120 119 111
Amortization of deposit premium 99 99 99
Furniture and equipment 97 95 120
Accounting 85 81 85
Federal deposit insurance 58 142 147
Legal fees and costs 36 38 71
Other real estate owned - 107 459
Other expenses 450 456 458
$ 2,961 3,089 3,567
Non-interest expense decreased to $2.96 million in 1995, a drop of 4 percent
as compared to 1994, due primarily to a decrease in federal deposit insurance
and in the expenses related to other real estate owned properties. Salaries
and employee benefits rose 5.7 percent during the year, which includes
incentive payments made under a management incentive plan implemented in 1995.
In 1994, non-interest expense decreased 13 percent versus 1993, due primarily
to a decrease in the expenses related to other real estate owned properties
sold in 1994. Salaries and employee benefits rose 2.5 percent over 1993;
occupancy and furniture and equipment expense were lower by 24 percent and
21 percent, respectively, due to reduced depreciation as certain assets
became fully depreciated in 1994.
Provision for Income Taxes
The 1995 income tax expense was $207 thousand compared to $113 thousand
income tax expense in 1994 and $171 thousand benefit in 1993. The effective
tax rate for 1995 was 32 percent , versus 38 percent in 1994 and (22) percent
in 1993. The effective rate decreased in 1995 was due to a reduction in the
valuation allowance for deferred tax assets. In 1993, the Company recognized
a tax benefit due to the pretax loss which was carried back to recover prior
years' taxes paid. Effective January 1, 1993, the Company adopted SFAS
109. There was no impact on the Company's net income from the adoption of
SFAS 109.
<PAGE>
ASSET QUALITY
The Company closely monitors the markets in which it conducts its lending
operations. The two primary areas of lending for the Company are commercial
and real estate loans, which in total comprise 94 percent of loans
outstanding as of December 31, 1995. To control its exposure and
concentration in real estate loans, the Company has established limits by type
of collateral and purpose. To increase diversification of credit risk in
commercial loans, the Company monitors commercial loans by business type and
location.
Asset reviews are performed using grading standards and criteria similar to
those employed by bank regulatory agencies. Assets receiving lesser grades
are called classified assets and include all potential problem loans. These
occur when known information about possible credit problems of borrowers
cause management to have doubts as to the ability of such borrowers to comply
with loan repayment terms. These loans have varying degrees of uncertainty
and may become non-performing assets. While historically only a relatively
small amount of classified assets have resulted in losses, such assets
receive an elevated level of Management attention to ensure collection. All
non-performing assets are included in classified assets. Other classified
assets consist of other real estate owned. Classified assets
at December 31, 1995, 1994 and 1993 are summarized below:
(in thousands) 1995 1994 1993
Classified loans $ 1,443 2,208 4,024
Other classified assets - - 3,107
Total classified assets $ 1,443 2,208 7,131
Reserve for loan losses as a
percentage of classified loans 28% 18% 17%
Classified assets at December 31, 1995 decreased to $1.4 million from $2.2
million at prior year-end. This decrease reflects the successful collection
efforts on many loans previously classified. These efforts were aided by an
improving Bay Area real estate market where prices began to stabilize and
improved borrowers' financial conditions. During 1994, classified
decreased from $7.1 million to $2.2 million as the Company sold all foreclosed
real estate during the year and from successful classified loan collections.
The performance of any individual loans can be impacted by external factors
such as the interest rate environment or factors particular to the borrower.
Non-Performing Assets and Restructured Loans
As of December 31, 1995 and 1994 there were no other restructured loans, foreign
outstandings, loan concentrations or potential problem loans except as
discussed below or in the Consolidated Financial Statements and related
footnotes. See Note 1 of the Notes to Consolidated Financial Statements for
a discussion of the Bank's policy on non-accrual loans.
Non-performing assets include non-accrual loans and other real estate owned.
Loans are placed on non-accrual status upon reaching 90 days or more
delinquent, unless the loan is well secured and in the process of collection.
Interest previously accrued on loans placed on non-accrual status is charged
against interest income. Loans secured by real estate, with temporarily
impaired values and commercial loans to borrowers experiencing financial
difficulties, may be placed on non-accrual status even if the borrowers
continue to repay the loans as scheduled. Such loans are reinstated to an
accrual status when all principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable period, and there is a
sustained period of repayment performance in accordance with the contractual
terms. When the ability to fully collect non-accrual loan principal is in
doubt, cash payments received are applied against the principal balance of
the loans until such time as full collection of the remaining recorded
balance is expected, at which point any additional payments received are
recorded as interest income on a cash basis.
Loans 90 days or more past due and still accruing, restructured loans, and non-
performing assets are as follows for December 31, 1995, 1994, and 1993:
December 31,
(in thousands) 1995 1994 1993
Loans 90 days or more past due
and still accruing interest $ - 66 118
Restructured loans 635 635 635
Non-performing assets:
Non-accrual loans 45 352 1,281
Other real estate owned - - 3,107
$ 45 352 4,388
Total $ 680 1,053 5,141
The levels of non-performing assets has decreased significantly over the past
three years due to both internal factors such as improved underwriting and
monitoring of loans, and external factors such as an improving Bay Area
economy and more stable real estate values. Non-performing assets were $45
thousand at December 31, 1995, down 87 percent from $352 thousand at December
31, 1994, due primarily to the resolution of non-accrual loans during
the year. At December 31, 1995, other real estate owned was $0 and there
were no foreclosure activity during the year.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The Bank has an established process to determine the adequacy of the
allowance for loan losses based upon the risk of loss inherent in its
portfolio. This process uses two complementary allocation procedures:
Specific credit allocations for problem loans; and an unallocated portion
provided for the remaining loan portfolio. While management has made
specific and general allocations to various portfolio segments, the total
allowance for loan losses is general in nature and is available for the
portfolio in its entirety.
The Bank's determination of the level of the allowance rests upon various
judgments and assumptions, including portfolio composition and concentrations,
lending policies, delinquency trends and general economic conditions. The
Bank has a credit review and evaluation program which continuously reviews
loan quality, incorporating internal and external credit review. The results
of these reviews are reported to the Board of Directors. Such reviews also
assist management in establishing the level of the allowance.
The table below provides a breakdown of the allowance for loan losses by loan
category. 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.
December 31,
(in thousands) 1995 1994
Allowance % of Loans Allowance % of Loans
Domestic:
Commercial $ 226 1.22% 180 1.20%
Real Estate - Construction - - - -
Real Estate - Mortgage 82 0.45% 99 0.62%
Consumer 9 0.40% - -
Foreign - - - -
Unallocated 87 - 111 -
$ 404 1.04% 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 Standard 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 considered 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 loans, or (iii) the
fair value of the collateral of a collateral-dependent loan. SFAS 114, as
amended by SFAS 118, 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 granting 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 commercial and construction 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, groups of non-
classified, smaller balance loans such as installment loans and preferred
lines of credit, are evaluated collectively for impairment under the
Company's standard loan loss reserve methodology and are, therefore, excluded
from the specific evaluation using SFAS 114.
The following summarizes the Company's impaired loans at December 31, 1995:
Non-Accrual Troubled Debt Total Impaired Specific
(in thousands) Loans Restructurings Loans Reserves
$ 45 - 45 5
The average balances of the Company's impaired loans for the year ended
December 31, 1995 was $838 thousand. In general, the Company does not
recognize any interest income on loans that are classified as impaired.
Changes in the allowance for loan losses for the years 1995 and 1994 were as
follows:
(in thousands) 1995 1994
Balance, beginning of year $ 390 670
Charge-offs:
Domestic:
Commercial, financial and agricultural 63 117
Real estate: construction - -
Real estate: mortgage 221 504
Installment loans to individuals - 21
Lease financing - -
Foreign - -
Total charge-offs 284 642
Recoveries:
Domestic:
Commercial, financial and agricultural 255 157
Real estate: construction - -
Real estate: mortgage 3 32
Installment loans to individuals - -
Lease financing - -
Foreign - -
Total Recoveries 258 189
Net charge-offs 26 453
Provision for possible loan losses 40 173
Balance at end of year $ 404 390
Ratio of net charge-offs during the year to
average loans outstanding during the year 0.08% 1.24%
The Company has experienced reduced levels of chargeoffs over the past
three year period due to both internal factors such as improved underwriting
and monitoring of loans, and external factors such as an improving Bay Area
economy and more stable real estate values. Net chargeoffs in 1995 were $27
thousand or 0.08 percent of average total loans, compared with $453 thousand or
1.24 percent in 1994 and $1 million or 2.23 percent in 1993. During 1993,
the increase in net loan chargeoffs reflected the chargeoff of certain
problem loans caused by a combination of the weak local economy and falling
real estate values in the Bay Area.
ASSET/LIABILITY MANAGEMENT
The fundamental objectives of the Company's asset/liability management policy
are to: (1) maintain liquidity and (2) minimize interest rate risk.
Liquidity
Liquidity is the ability to meet the present and future needs of 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 primary source of liquidity for the Bank is the growth of core
deposits (particularly demand deposits), and the orderly repayment of the
Bank's loan portfolio. Because of the Bank's emphasis on relationship
banking, the establishment of both loan and deposit relationships with
customers, the Bank has a relatively stable, local deposit base, and
brokering deposits is not considered necessary. To supplement short-term
liquidity needs, the Bank maintains Fed Funds sold, time deposits with other
financial institutions, short-term money market and securities available for
sale that totalled approximately $19.1 million, or 29 percent of assets, at
December 31, 1995. Additionally, the Bank has established unsecured line of
credits with correspondent banks and reverse repurchase facilities with
securities dealers. These credit facilities are subject to periodic review.
As shown in the Consolidated Statements of Cash Flows, liquidity, or cash and
cash equivalents increased to $9.9 million at December 31, 1995 compared to
$7.4 million at December 31, 1994. Net cash flows of $843 thousand, $896
thousand and $943 thousand were provided by operating activities in 1995,
1994, and 1993, respectively. Net cash flows of $7.4 million in 1995 were
provided by financing activities, primarily due to increases in deposits,
while $8.1 million and $6.5 million were used in financing activities in 1994
and 1993, respectively, principally to fund customer withdrawals of time
deposits.
Net cash flows of $5.7 million were used in investing activities in 1995,
primarily funding of loans. In 1994 and 1993, $8.0 million and $7.8 million,
respectively, were provided by investing activities, primarily from loan
principal repayments and in 1994, the sales of other real estate owned.
Interest Rate Risk
Bancorp evaluates its interest rate risk exposure by analyzing the interest
rate sensitivity ofits 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.
The table below shows the interest rate sensitivity of Bancorp based on asset
and liability repricing characteristics, excluding non-accruing loans, at
December 31, 1995 (in thousands). For this table, assets and liabilities are
assumed to reprice or mature according to contractual repricing or maturity
dates, except for market rate accounts which may be repriced at any time
at the Company's discretion.
Re-pricing Immediately 90 days 91-180 181-365 Over
Opportunity Adjustable or less days days365 days Total
Rate sensitive assets:
Federal funds sold $ 4,725 - - - - 4,725
Interest-bearing deposits - - 196 95 199 490
Securities 191 3,486 1,174 1,972 7,047 13,870
Loans 21,958 4,303 2,935 281 9,223 38,700
Interest earning assets $26,874 7,789 4,305 2,348 16,469 57,785
Rate sensitive liabilities:
Market rate accounts $26,914 - - - - 26,914
Savings 1,024 - - - - 1,024
Time deposits 2,294 8,629 3,577 1,768 2,905 19,173
Other borrowed funds - 71 115 - - 186
Interest paying
liabilities $ 30,232 8,700 3,692 1,768 2,905 47,297
Gap $(3,358) (911) 613 580 13,564 10,488
Cumulative gap $(3,358) (4,269) (3,656) (3,076) 10,488
The table indicates that overall, Bancorp re-prices more assets than
liabilities i.e., is asset-sensitive, and, therefore, generally earns a
greater interest spread as interest rates increase and earns a lower
interest spread as rates decrease. In the short-term, Bancorp reprices more
liabilities than assets, and is liability-sensitive.
Depending on interest rate trends and forecasts, Bancorp has the opportunity
to modify asset pricing or liability rates offered in a particular time
frame in order to reduce interest rate sensitivity. The ability to manage
these changes is affected by economic conditions, the competitive
environment, and the policies of governmental and regulatory authorities.
Additionally, certain assets and liabilities have option-like characteristics
that may affect net interest income through the exercise of those options as
interest rates change. Hedging strategies using interest rate futures and
swaps, while available, are generally not used by Bancorp.
CAPITAL RESOURCES
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of the Company and the Bank and to
protect depositors and the deposit insurance fund from potential losses.
Management regularly reviews capital adequacy to ensure that capital is
consistent with Bancorp's and the Bank's expected growth. Through
December 31, 1995, Bancorp had never paid a cash dividend to stockholders.
On February 23, 1996, a special dividend was declared to shareholders of
record March 8, 1996. Bancorp has no current plans to pay regular dividends.
Stockholder's equity totalled $6.5 million at December 31, 1995, up from
$5.95 million at December 31, 1994 and $5.93 million at December 31, 1993.
The increase in stockholder's equity was due to Bancorp's net income for
1995, the payoff of debt held by Bancorp's Employee Stock Ownership Plan and
a decrease in the level of unrealized losses in the Bank's available-for-
sale securities.
Bancorp and the Bank are subject to risk-based capital adequacy requirements
which call for a minimum 8 percent total risk-based capital ratio, including
a Tier 1 capital ratio of 4 percent. There are two categories of capital
under the guidelines. Tier 1 capital includes common stockholders' equity
and qualifying preferred stock, less certain intangible assets. Tier 2 capital
generally includes, subject to limitations, preferred stock not qualifying as
Tier 1 capital, mandatory convertible debt, subordinated and unsecured senior
debt and the allowance for possible loan losses. The risk-based capital
ratio is determined by weighing assets and off-balance sheet exposures
according to their relative credit risks.
The Federal Reserve has also established a minimum capital requirement ratio.
This ratio, Tier 1 capital to quarterly 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 capital levels. Other institutions
will be expected to maintain ratios that are at least 100 to 200 basis points
above the minimum levels of capital. It is management's intent to maintain
capital ratios for Bancorp and the Bank above the regulatory well-capitalized
levels, which are 6 percent for the Tier 1 capital ratio, 10 percent for the
total risk-based capital ratio, and 5 percent for the Tier 1 leverage ratio.
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10.00%, and a leverage ratio of at least
6.00%, levels higher than the regulatory minimum, under the terms of the
Bank's Formal Agreement with the Office of the Comptroller of the Currency.
The Formal Agreement was terminated in September 1994.
Bancorp's and the Bank's capital ratios continued to exceed the minimum levels
required and were above the regulatory well-capitalized levels throughout
1995. Bancorp's and the Bank's capital ratios for 1995, 1994, and 1993 were:
December 31,
Capital Ratios 1995 1994 1993
Trans Pacific Bancorp:
Tier 1 Capital Ratio 15.81% 15.99% 12.05%
Risk-Based Capital Ratio 16.81% 17.06% 13.32%
Leverage Ratio 9.85% 9.80% 8.26%
Trans Pacific National Bank:
Tier 1 Capital Ratio 16.06% 16.08% 11.97%
Risk-Based Capital Ratio 17.05% 17.14% 13.23%
Leverage Ratio 10.03% 9.90% 8.23%
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>
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Trans Pacific Bancorp:
We have audited the accompanying consolidated balance sheets of Trans Pacific
Bancorp and Subsidiary (the Company) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trans
Pacific Bancorp and Subsidiary as of December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
San Francisco, California
January 26, 1996<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
Assets 1995 1994
Cash and due from banks (note 2) $ 5,190,611 3,127,239
Federal funds sold 4,725,000 4,250,000
Interest-bearing deposits with banks 489,713 687,017
Securities held to maturity,
at amortized cost, (fair
value of $9,518,140 as of December 31, 1994
(note 3) - 9,742,510
Securities available for sale,
at fair value (note 3) 13,870,220 4,077,976
Loans, net (notes 4, 10 and 11):
Commercial 18,555,335 14,965,760
Real estate 17,982,782 15,905,639
Installment 167,443 279,054
Preference lines 1,997,955 1,594,057
Other 40,573 14,322
Total loans 38,744,088 32,758,832
Allowance for loan losses 403,651 390,465
Loans, net 38,340,437 32,368,367
Premises and equipment, net (note 5) 932,553 1,036,590
Customer acceptances outstanding 50,393 119,150
Deferred tax asset, net (note 6) - 46,000
Intangible assets 437,141 536,121
Other assets 790,452 779,802
Total assets $ 64,826,520 56,770,772
Continued
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
Liabilities and Stockholders' Equity 1995 1994
Liabilities:
Non-interest-bearing demand deposits $ 10,453,322 11,355,927
Interest-bearing demand deposits 26,913,507 20,352,897
Savings 1,023,815 1,222,948
Time deposits (note 7) 19,173,344 16,868,465
Total deposits 57,563,988 49,800,237
Accrued interest payable 178,430 107,163
Other short-term borrowings 186,432 513,917
Borrowings for
Employee Stock Ownership Plan (note 9) - 26,250
Acceptances outstanding 50,393 119,150
Deferred tax liability, net (note 6) 30,700 -
Other liabilities 284,606 253,216
Total liabilities 58,294,549 50,819,933
Commitments and contingencies (notes 12 and 16)
Stockholders' equity:
Common stock, no par value;
10,000,000 shares authorized, 1,118,195
shares issued and outstanding (note 8) 5,784,323 5,784,323
Retained earnings 768,648 323,266
Deferred compensation - Employee Stock
Ownership Plan (note 9) - (26,250)
Net unrealized losses on securities
available for sale (note 3) (21,000) (130,500)
Total stockholders' equity 6,531,971 5,950,839
Total liabilities
and stockholders' equity $ 64,826,520 56,770,772
<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Interest income:
Loans $3,843,432 3,298,910 3,706,545
Investment securities,
including dividends 739,133 655,848 486,651
Deposits with banks 23,240 36,481 52,871
Federal funds sold 249,237 268,166 187,400
Total interest income 4,855,042 4,259,405 4,433,467
Interest expense:
Deposits (note 7) 1,783,252 1,323,044 1,573,470
Other borrowed funds (note 9) 15,958 46,149 43,696
Total interest expense 1,799,210 1,369,193 1,617,166
Net interest income 3,055,832 2,890,212 2,816,301
Provision for
possible loan losses (note 4) 40,000 173,000 889,000
Net interest income after provision
for possible loan losses 3,015,832 2,717,212 1,927,301
Non-interest income:
Gain on sale of securities - - 30,324
Service charges on
deposit accounts 282,349 267,998 275,430
Other real estate owned - 83,982 145,452
Other charges and fees 315,416 312,013 403,490
Total non-interest income 597,765 663,993 854,696
Non-interest expense:
Salaries and employee
benefits (note 9) 1,719,503 1,626,665 1,586,516
Occupancy 295,734 325,051 429,981
Furniture and equipment 96,514 94,793 120,221
Other real estate owned 214 106,885 458,509
Other operating 849,250 935,120 971,539
Total non-interest expense 2,961,215 3,088,514 3,566,766
Income (loss) before income taxes 652,382 292,691 (784,769)
Income tax expense
(benefit) (note 6) 207,000 112,500 (170,800)
Net income (loss) $ 445,382 180,191 (613,969)
Net income (loss) per share $ 0.40 0.16 (0.54)
Average common
shares outstanding (note 8) 1,118,195 1,127,305 1,143,195<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
Deferred
Compensation-Unrealized
EmployeeGains (losses) Total
Stock on Securities Stock-
Common Stock Retained OwnershipAvailableholder
Shares Amount Earnings Plan For Sale Equity
Balance at
Dec. 31, 1992 1,143,195 $ 5,834,827 $ 757,044 $ (116,250) $ - $ 6,475,621
Net loss - - (613,969) - - (613,969)
Debt reduction of ESO - - - 45,000 - 45,000
Unrealized gains on
securities available
for sale, net of tax- - - - 20,250 20,250
Balance at
Dec. 31, 1993 1,143,195 5,834,827 143,075 (71,250) 20,250 5,926,902
Net income - - 180,191 - - 180,191
Repurchase of
common stock (25,000) (50,504) - - - (50,504)
Debt reduction of ESOP - - - 45,000 - 45,000
Change in unrealized losses
on securities available
for sale, net of tax - - - - (150,750) (150,750)
Balance at
Dec. 31, 1994 1,118,195 5,784,323 323,266 (26,250)(130,500) 5,950,839
Net income - - 445,382 - - 445,382
Debt reduction of ESOP - - - 26,250 - 26,250
Change in unrealized gains
on securities available
for sale, net of tax - - - - 109,500 109,500
Balance at
Dec. 31, 1995 1,118,195 $ 5,784,323 $ 768,648 $ - $ (21,000) $ 6,531,971
<PAGE>
Trans Pacific Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 445,382 180,191 (613,969)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 225,133 250,431 373,121
Provision for loan losses 40,000 173,000 889,000
Provision for real estate owned - 75,000 346,451
Loss (gain) on sale of other real estate owned - (48,135) 28,083
Gain on sale of securities held for sale - - (30,324)
Deferred tax expense 37,700 - 141,600
Increase (decrease) in accrued
interest payable 71,267 11,183 (7,053)
Increase (decrease) in other liabilities 31,390 (45,734) (66,274)
(Increase) decrease in other assets (8,150) 300,556 (117,767)
Total adjustments 397,340 716,301 1,556,837
Net cash provided by operating activities 842,722 896,492 942,868
Cash flows from investing activities:
(Increase) decrease in loans funded,
net of principal collected (6,012,070) 6,843,566 9,356,173
Proceeds from principal repayments and
matured investment securities 4,265,543 7,725,811 5,491,052
Proceeds from sale of securities held for sale - - 1,533,935
Purchase of securities held to maturity - (8,031,885)(8,461,151)
Purchase of securities available for sale(4,169,277)(1,556,485) -
Net decrease (increase) in
interest-bearing deposits with banks 197,304 (33,848) (5,000)
Purchase of premises and equipment (22,116) (173,409) (21,220)
Proceeds from sale of other real estate owned - 3,482,593 336,666
Purchase of other real estate owned - (221,328) (437,994)
Net cash (used in) provided by
investing activities (5,740,616) 8,035,015 7,792,461
continued . . .<PAGE>
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from financing activities:
Net increase (decrease) in demand
deposits and savings $ 5,458,872 (1,650,467) (2,379,313)
Net increase (decrease) in time deposits 2,304,879 (6,372,769) (3,713,158)
Proceeds from other short-term borrowings 186,432 3,169,448 2,322,122
Repayment of other short-term borrowings (513,917)(3,187,665) (2,739,955)
Repurchase of common stock - (50,504) -
Net cash provided by
(used in) financing activities 7,436,266(8,091,957) (6,510,304)
Net increase in cash and cash equivalents 2,538,372 839,550 2,225,025
Cash and cash equivalents
at beginning of year 7,377,239 6,537,689 4,312,664
Cash and cash equivalents at end of year $9,915,611 7,377,239 6,537,689
Supplemental Disclosures of Cash Flow Information
Non-cash investing and financing activities:
Real estate acquired
in settlement of loans $ - 181,431 221,705
Reduction of guaranteed ESOP obligation 26,250 45,000 45,000
Change in unrealized gains (losses) on
securities available
for sale, net of taxes 109,500 150,750 -
Transfer of held-to-maturity securities
to available-for-sale 6,594,663 - -
Cash paid for:
Interest $ 1,799,210 1,358,010 1,624,219
Income taxes 147,400 800 25,800
<PAGE>
Trans Pacific Bancorp and Subsidiary
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Significant Accounting Policies
Trans Pacific Bancorp, a registered banking holding company (Bancorp),
provides a full range of banking services to individual and corporate
customers in Northern California through its wholly-owned subsidiary bank,
Trans Pacific National Bank (the Bank). The Bank is subject to competition
from other financial institutions and to regulations of certain agencies and
undergoes periodic examinations by those regulatory agencies.
Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of Bancorp and the
Bank (the Company), and are prepared in conformity with generally accepted
accounting principles and general practices within the banking industry.
The following is a summary of significant policies used in the preparation
of the accompanying financial statements. In preparing the financial
statements, Management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of income and
expenses for the periods presented, in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Certain reclassifications have been made to balances in
preceding years to conform to the current year presentation.
Cash and Cash Equivalents
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 purchased and sold for a one day period.
Marketable Investment Securities
Marketable investment securities consist of US Treasury, mortgage-backed,
corporate debt securities, and Federal Reserve stock. The Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (Statement
115) at December 31, 1993. Under Statement 115, the Company classifies its
debt and marketable equity securities in one of two categories: available-
for-sale or held-to-maturity. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in held-to-
maturity are classified as available-for-sale. The Company engages in
no securities trading activities.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Available-for-sale
securities are recorded at fair value. Unrealized holding gains and losses,
net of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders'
equity until realized. Unrealized gains and losses associated with transfers of
securities from held-to-maturity to available-for-sale are recorded as a
separate component of stockholders' equity.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity
are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge
to earnings and the establishment of a new cost basis for the security.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, net of deferred fees, and
reduced by an allowance for loan losses. Accrual of interest is discontinued
on loans which are more than 90 days delinquent when Management believes,
after considering economic and business conditions and collection efforts,
that the borrower's financial condition is such that collection
of interest is doubtful unless the loans are well-secured and in the process of
collection. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is charged against current period
income. Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is probable.
Non-refundable fees and direct loan origination costs are deferred and
amortized to income or expense over the expected loan period using a method
that approximates the interest method.
The allowance for loan losses is established through periodic provisions for
possible loan losses. Loans are charged against the allowance for loan
losses when Management believes that the collectibility of the principal is
unlikely. The allowance is a reserve to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of the
collectibility of loans and prior loan loss experience. The evaluations
include consideration of changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrowers' ability
to pay.
Management believes that the allowance for loans losses is adequate. While
Management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, which
is computed using the straight-line method over the estimated useful lives
of the assets (3 to 20 years). Leasehold improvements are amortized over
their estimated useful lives or the terms of the respective leases,
whichever is shorter. Fully depreciated assets are removed from the
Company's Balance Sheet.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standard Board issued the Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (SFAS 121). Under the
provisions of SFAS 121, long-lived assets and certain identifiable
intangibles to be held and used by an entity are required to be reviewed for
impairment whenever events or changes indicate that the carrying amount of an
asset may not be recoverable. The Company will implement SFAS 121 in
January 1996. Management believes that the adoption of this statement will
not have a material impact on the Company's financial condition.
Other Real Estate Owned
Other real estate owned, consisting of real estate acquired in the settlement
of loans is carried at the lower of cost or the fair value less estimated
selling costs. Fair value represents the amount that could be reasonably
expected in a current sale (other than a forced or liquidation sale) between
a willing buyer and a willing seller and is generally based upon an independent
property appraisal. When the property is acquired, any excess of the loan
balance over fair value of the property is charged to the related allowance
for loan losses. Subsequent write-downs due to the declines in independent
property appraisals, and routine holding costs are included in other real
estate owned expense.
Core Deposit Intangibles
Core deposit intangibles are amortized over the estimated average life
(10 years) of the acquired deposit base using the straight line method.
Net Income (Loss) per Share
Net income (loss) per share is computed by dividing net income (loss) by the
average number of shares outstanding during the period. The impact of
common stock equivalents, primarily stock options, is not material.
<PAGE>
Income Taxes
The Company and its subsidiaries file consolidated tax returns. For financial
reporting purposes, the income tax effects of transactions are recognized in
the year in which they enter into the determination of recorded income,
regardless of when they are recognized for income tax purposes. Accordingly,
the provisions for income taxes in the consolidated statements of income
include charges or credits for deferred income taxes relating to temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
Note 2. Restricted Cash Balances
Federal Reserve Board regulations require reserve balances on deposits to be
maintained by the Bank with the Federal Reserve Bank. The required reserve
balances were $279,000 and $306,000 at December 31, 1995 and 1994, respectively.
As compensation for check clearing and other services, compensating balances of
approximately $4,900,000 and $2,800,000 were maintained with correspondent
banks at December 31, 1995 and 1994, respectively.
Note 3. Investment Securities
The amortized cost, unrealized gains and losses and estimated fair value of
major components of available for sale securities and held to maturity
securities at December 31, 1995 and 1994
were as follows:
Amortized Unrealized Unrealized
1995 Cost Gains Losses Fair Value
Available for sale:
US Treasury securities $ 6,785,849 22,822 (9,687) 6,798,984
Government Agency securities 2,500,000 2,650 - 2,502,650
Mortgage-backed securities 2,690,646 24,340 (15,788) 2,699,198
Corporate debt securities 1,366,002 - (52,337) 1,313,665
Federal Reserve stock
and other securities 555,723 - - 555,723
$ 13,898,220 49,812 (77,812) 13,870,220
<PAGE>
Amortized Unrealized Unrealized
1994 Cost Gains Losses Fair Value
Held to maturity:
US Treasury securities $ 8,285,393 949 (187,896) 8,098,446
Mortgage-backed securities 1,457,117 8,472 (45,895) 1,419,694
$ 9,742,510 9,421 (233,791) 9,518,140
Available for sale:
US Treasury securities 1,505,500 - (32,398) 1,473,102
Mortgage-backed securities $ 992,725 4,853 (56,056) 941,522
Corporate debt securities 1,410,357 - (90,399) 1,319,958
Federal Reserve stock
and other securities 343,394 - - 343,394
$ 4,251,976 4,853 (178,853) 4,077,976
The amortized cost and estimated fair value of investment 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.
1995 Amortized Cost Fair Value
Available for sale:
Due in one year or less $ 5,237,875 5,242,447
Due after one year through five years 5,605,299 5,564,175
Mortgage-backed securities 2,690,646 2,699,198
Federal Reserve Stock and other securities 364,400 364,400
$ 13,898,220 13,870,220
1994 Amortized Cost Fair Value
Held to maturity:
Due in one year or less $ 4,447,696 4,422,490
Due after one year through five years 3,837,697 3,675,956
Mortgage-backed securities 1,457,117 1,419,694
$ 9,742,510 9,518,140
Available for sale:
Due in one year or less $ 132,894 132,894
Due after one year through five years 2,915,857 2,793,060
Mortgage-backed securities 992,725 941,522
Federal Reserve Stock and other securities 210,500 210,500
$4,251,976 4,077,976
There were no sales of securities during 1995 or 1994. In November 1995, the
Financial Accounting Standards Board issued a special report, A Guide to
Implementation of Statement No. 115, on Accounting for Certain Investments
in Debt and Equity Securities -- Questions and Answers (the Special Report).
The Special Report allowed companies to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassification at fair value. Reclassifications from this one-time
reassessment will not call into question the intent of an enterprise to hold
other debt securities to maturity in the future, provided that it was
performed by December 31, 1995. The Company adopted the reclassification
provision stated in the Special Report prior to December 31, 1995 and
transferred approximately $6.6 million of held-to-maturity securities into
available-for-sale. The unrealized pretax gain upon transfer was
approximately $15,000 as of December 31, 1995.
Investment securities with an amortized cost of approximately $2,835,000 and
$1,896,000 at December 31, 1995 and 1994, respectively, were pledged to
secure public deposits and for other purposes required or permitted by law.
Note 4. Loan Concentrations and Allowance for Loan Losses
The majority of the Bank's business is done with customers located in
Northern California, specifically in the San Francisco Bay Area. The Bank
has a significant amount of credit arrangements that are secured by real
estate collateral. Generally, the Bank attempts to maintain loan to value
ratios no greater than 65 percent on commercial and multi-family real
estate loans and no greater than 80 percent on single-family residential real
estate loans. At December 31, 1995 and 1994, the Bank had loans outstanding
of approximately $17,983,000 and $15,906,000 respectively, that were
collateralized by local real estate.
Changes in the allowance for loan losses were as follows:
1995 1994 1993
Balance, beginning of year $ 390,465 670,116 795,251
Provision for
possible loan losses 40,000 173,000 889,000
Loan charge-offs (284,860) (641,849) (1,026,106)
Recoveries of loan charge-offs 258,046 189,198 11,971
Balance, end of year $ 403,651 390,465 670,116
Net loan chargeoffs, as a percentage
of average total loans 0.08% 1.24% 2.23%
Non-accrual loans were $45,199, $352,330, and $1,281,321, at December 31,
1995, 1994, and 1993, respectively. At December 31, 1995, there were no
additional loan commitments to borrowers whose loans were identified as
non-accrual.
Loans that were restructured were $0, $0, and $635,000, at December 31, 1995,
1994, and 1993, respectively. At December 31, 1995, there were no
additional loan commitments to borrowers whose loans were identified as
restructured.
The following is a summary of interest foregone on non-accrual and restructured
loans for the years ended December 31:
(in thousands) 1995 1994 1993
Interest income that would have been
recognized had the loans performed
in accordance with their original
terms $ 4,474 18,837 176,978
Less: Interest income recognized on
non-accrual and restructured loans - - (73,121)
Interest foregone on non-accrual and
restructured loans $ 4,474 18,837 103,857
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of Loan, as amended
by SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures, effective January 1, 1995. SFAS 114 required
entities to measure certain impaired loans based on the present value of
future cash flows discounted at the loan's effective interest rate, or at the
loan's market value or the fair value of collateral if the loan is secured.
A loan is considered impaired when, based on current information and events,
it is probable that the Company will be unable to collect all amounts due
according to the contractual terms of the loan agreement, including scheduled
interest payments. If the measurement of the impaired loans is less than the
recorded investment in the loan, impairment is recognized by creating or
adjusting an existing allocation of the allowance for loan losses. The
adoption of SFAS 114 did not have a material effect on the Company's
financial statements, as the Company's policy of measuring loan
impairment was consistent with methods prescribed in these standards. At
December 31, 1995, the recorded investment in loans for which impairment was
recognized in accordance with SFAS 114 totaled $45,199, of which there was
a related reserve for loan losses of $4,520.
The average balances of the Company's impaired loans for the year ended
December 31, 1995, was $838,282. In general, the Company does not recognize
any interest income on loans that are classified as impaired.
<PAGE>
Note 5. Premises and Equipment
The following presents the cost of premises and equipment including leasehold
improvements and the related accumulated depreciation and amortization at
December 31:
1995 1994
Premises and leasehold improvements $ 2,142,446 2,142,446
Furniture, fixtures and equipment 822,368 1,126,971
2,964,814 3,269,417
Less accumulated depreciation
and amortization (2,032,261) (2,232,827)
Premises and equipment, net $ 932,553 1,036,590
Depreciation and amortization expense related to premises and equipment
amounted to $126,153, $151,443, and $287,766, in 1995, 1994 and 1993,
respectively.
Note 6. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1995, 1994, and
1993 consists of:
1995 1994 1993
Current:
Federal $ 166,900 94,500 (314,000)
State 2,400 18,000 1,600
169,300 112,500 (312,400)
Deferred:
Federal (33,700) - 119,290
State 71,400 - 22,310
37,700 - 141,600
$ 207,000 112,500 (170,800)
<PAGE>
A reconciliation of the tax computed at the Federal statutory tax rate to the
actual income tax rate on income is as follows:
1995 1994 1993
Income tax expense (benefit)
at the statutory tax rate 34.0% 34.0% (34.0)%
State income taxes, net 7.5 4.0 3.0
Current year benefit derived from previously
capitalized expenses - - (6.6)
Other, net 3.9 0.4 0.3
Change in deferred tax
asset valuation allowance (13.7) - 15.6
31.7% 38.4% (21.7)%
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1995 and 1994 are
presented below:
1995 1994
Deferred tax assets:
Book provision for loan losses
in excess of tax $ 2,800 39,900
State taxes 800 800
Net operating loss - 87,750
Premises and equipment, principally due to
differences between depreciation and
amortization charged to income and
amount deducted for tax purposes 42,200 26,600
Adjustment for available-for-sale securities
market valuation 7,000 46,000
Other, net 8,000 2,800
60,800 203,850
Less: valuation allowance (33,700) (122,950)
Total deferred tax assets 27,100 80,900
Deferred tax liabilities:
Difference between accrual
and cash taxable income 57,800 34,900
Total deferred tax liabilities 57,800 34,900
Net deferred tax (liability) asset $ (30,700) 46,000
<PAGE>
Note 7. Deposits
Time deposits of $100,000 or more and their remaining maturities at
December 31 are approximately as follows:
1995 1994
Three months or less $ 6,992,000 5,866,000
Four through six months 1,971,000 2,161,000
Seven through twelve months 759,000 1,763,000
Over twelve months 967,000 400,000
$ 10,689,000 10,190,000
Interest expense on time deposits of $100,000 or more was approximately
$578,000, $437,000, and $557,000 for the years ended December 31, 1995,
1994 and 1993 respectively.
Note 8. Common Stock and Stock Options
Bancorp has adopted a qualified stock option plan for officers and key
employees (the Plan) under which a maximum of 100,000 shares of the Bancorp's
common stock may be issued. The Plan calls for the exercise prices of the
options to be equal to or greater than the fair market value of the stock at
date of the grant. Since 1984, options for a total of 92,500 shares of
common stock have been granted with an option price of $5.00 per share, with
full vesting generally occurring within five to seven years of the grant
date. The expiration period of vested options ranges from the years 1997
through 2000, or within six months of termination. The number of shares of
common stock subject to options and exercisable at December 31, 1995 was
45,400.
In 1990, Bancorp adopted a non-qualified stock option plan for certain of its
directors. Persons eligible to receive grants of options under this plan are
directors of Bancorp and the Bank. The amount of shares of stock that may be
subject to options granted under the plan is limited to 10% of the total
number of issued and outstanding shares of Bancorp stock. In October 1990,
stock options to acquire 35,000 shares of common stock were granted to the
directors with an option price of $5.25 per share. In December 1995, stock
options to acquire 28,750 shares of common stock were granted to the
directors with an option price of $4.50 per share. These options are
immediately exercisable and expire in ten years from the date of grant, or
within six months of resignation. No options had been exercised as of December
31, 1995. The number of shares of common stock subject to these options and
exercisable at December 31, 1995 was 56,250.<PAGE>
The following is a summary of transactions which occurred during 1993, 1994
and 1995:
Options Outstanding
Officers & Employees Directors
December 31, 1992 35,000 35,000
Options granted 22,500 -
Options expired/forfeited - (7,500)
December 31, 1993 57,500 27,500
Options granted 35,000
Options expired/forfeited (30,000)
December 31, 1994 62,500 27,500
Options granted - 28,750
Options expired/forfeited - -
December 31,1995 62,500 56,250
Options exercisable at December 31, 1995 45,400 56,250
On October 23, 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation, (SFAS 123). The
recognition provisions and disclosure requirements of SFAS 123 are effective
January 1, 1996. SFAS 123 allows an entity to either (i) retain the current
method of accounting for stock compensation (principally APB Opinion No. 25)
for purposes of preparing its basic financial statements, or (ii) adopt a new
fair value based method that is established by the provisions of SFAS 123. The
Company plans to retain its current method of accounting for stock
compensation when it adopts this statement in 1996, and thus, it will not
have an impact on the Company's results of operations.
Note 9. Employee Stock Ownership Plan
In July, 1990, the Bancorp created an Employee Stock Ownership Plan (ESOP) for
the benefit of all employees who have worked for the Bank for one or more
years. The ESOP borrowed $180,000 at a variable interest rate from a third
party financial institution, to be repaid over a 5 year period. The loan was
paid off in 1995. The proceeds from the borrowing were used to purchase
48,400 shares of Bancorp common stock for the ESOP which was pledged as
collateral for the borrowing. For the years ended December 31, 1995, 1994,
and 1993, the Bank provided cash contributions of $26,250, $45,000 and
$45,000, respectively, which were included in salaries and employee
benefits. Interest expense on ESOP debt was $2,600, $6,300, and $8,200 for
1995, 1994 and 1993, respectively.
Note 10. Related Party Transactions
In the ordinary course of business, the Bank makes loans to directors,
officers, shareholders and their associates on substantially the same terms,
including interest rates, origination and commitment fees, and collateral,
as comparable transactions with unaffiliated persons, and such loans do not
involve more than the normal risk of collectibility. At December 31, 1995,
no related party loans were on non-accrual or classified for regulatory
reporting purposes.
Total loans made to or guaranteed by the Bank's directors and officers and
their related companies totaled $2,546,172 and $2,641,733 at December 31,
1995 and 1994, respectively. Activity related to loans to directors,
officers and principal shareholders and their associates for the year
ended December 31, 1995 and 1994 is as follows:
1995 1994
Balance at December 31, 1994 $ 2,641,733 2,751,070
New loans or disbursements 276,500 424,189
Principal repayments (372,061) (533,526)
Balance at December 31, 1995 $ 2,546,172 2,641,733
Note 11. Commitments and Contingencies
Bancorp leases certain banking premises under an operating lease that expires
April 1, 2001, with a renewal option under similar terms until April 1,
2004. Minimum rental commitments for future years under these noncancelable
leases are as follows at December 31, 1995:
1996 $ 120,000
1997 120,000
1998 120,000
1999 120,000
2000 120,000
thereafter 30,000
$ 630,000
The total rental expense was $120,000 for each of the years ended December 31,
1995, 1994, and 1993.
Additionally, the Bank is involved in various claims and lawsuits in the
normal course of its business. In the opinion of management, after review
with independent legal counsel, the ultimate liability resulting from such
claims and lawsuits will not have a material adverse effect on the financial
position, results of operations, or liquidity of the Bank.
Note 12. Financial Instruments with Off-Balance-Sheet Risk
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, standby
letters of credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized in the consolidated balance sheets. The contract amounts
of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by
the contractual amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer 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. The Bank
evaluates each customer's credit worthiness 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. Collateral held
varies but may include cash, securities, accounts receivable, inventory,
property, plant and equipment, residential real estate and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Financial instruments whose contract amounts represent credit risk
at December 31:
1995 1994
Commitments to extend credit $ 12,949,000 12,124,000
Standby letters of credit $ 775,000 1,968,000
Note 13. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1995. The fair value of
financial instruments does not represent actual amounts that may be realized
upon any sale or liquidation of the related assets or liabilities. In
addition, these values do not give effect to discounts to fair value
which may occur when financial instruments are sold in larger quantities. The
fair values presented represent the Company's best estimate of fair value
using the methodologies discussed below.
The respective carrying values of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash and due from banks, interest-bearing deposits in banks, federal
funds sold, customers' acceptance liability, accrued interest receivable,
other short-term borrowings, acceptances outstanding and accrued interest
payable. Carrying values were assumed to approximate fair values for these
financial instruments as they are short term in nature and their recorded
amounts approximate fair values or are receivable or payable on demand. The
Company does not use derivative financial instruments.
1995
Carrying Fair
Amount Value
Financial Assets
Securities available for sale 13,870,220 13,870,220
Loans 38,744,088 38,561,377
Financial Liabilities
Deposits 57,563,988 57,607,208
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Securities: The fair values of securities classified as available-for-sale are
based on quoted market prices at the reporting date for those or similar
investments.
Loans: The fair value of fixed rate loans is determined as the present value
of expected future cash flows discounted at the interest rate currently
offered by the Company, which approximates rates currently offered by local
lending institutions for loans of similar terms to companies with comparable
credit risk. Variable rate loans which reprice frequently with changes in
market rates, were valued using the outstanding principal balance.
Deposits: The fair values of demand deposits, savings deposits, and money
market deposits without defined maturities were the amounts payable on
demand. For substantially all deposits with defined maturities, the fair
values were calculated using discounted cash flow models based on market
interest rates for different product types and maturity dates. For
variable rate deposits where the Company has the contractual right to change
rates, carrying value was assumed to approximate fair value. The discount
rates used were based on rates for comparative deposits.
<PAGE>
Note 14. Condensed Financial Information of Trans Pacific Bancorp
(Parent Company Only)
Condensed Balance Sheets
December 31,
1995 1994
Assets:
Cash and due from banks $ 27,884 87,371
Investment in subsidiary 6,511,607 5,892,791
Other assets - 5,000
Total assets $ 6,539,491 5,985,162
Liabilities:
Borrowings for Employee Stock Ownership Plan - 26,250
Other liabilities 7,520 8,073
Stockholders' Equity:
Common stock 5,784,323 5,784,323
Retained Earnings 768,648 323,266
Deferred Compensation - Employee Stock
Ownership Plan - (26,250)
Net unrealized losses on
available for sale securities (21,000) (130,500)
Total liabilities and
stockholders' equity $ 6,539,491 5,985,162
Condensed Statements of Operations
Years Ended December 31,
1995 1994 1993
Income:
Gain on sale of premises $ - - 314,382
Other income 1,363 2,932 56,126
1,363 2,932 370,508
Expenses 65,297 55,045 118,410
Income (loss) before taxes and equity in
undistributed income
(loss) of subsidiary (63,934) (52,113) 252,098
Income tax expense (benefit) - - -
Net income (loss) before equity in undistributed
income (loss) of subsidiary (63,934) (52,113) 252,098
Equity in undistributed income (loss)
of subsidiary 509,316 232,304 (866,067)
Net income (loss) $ 445,382 180,191 (613,969)
<PAGE>
Condensed Statements of Cash Flows
Years ended December 31,
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 445,382 180,191 (613,969)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization - - 18,932
Gain on sale of premises and leasehold- - (314,382)
Decrease in other assets 5,000 - -
(Decrease) increase in
other liabilities (553) (2,533) 10,184
Increase (decrease) in
due to subsidiary - - (103,917)
Equity in undistributed income (loss)
of subsidiary (509,316) (232,304) 866,067
Total adjustments (504,869) (234,837) 476,884
Net cash used in
operating activities: (59,487) (54,646) (137,085)
Cash flows from investing activities:
Investment in subsidiary - - (350,000)
Proceeds from sale of
premises and leasehold - - 1,146,204
Net cash provided by
investing activities - - 796,204
Cash flows from financing activities:
Repurchase of common stock - (50,504) -
Repayment of note payable - - (489,832)
Net cash used in financing activities - (50,504) (489,832)
Net (decrease) increase in cash and
cash equivalents (59,487) (105,150) 169,287
Cash and cash equivalents at beginning
of year 87,371 192,521 23,234
Cash and cash equivalents at end
of year $ 27,884 87,371 192,521
Note 15. Capital Adequacy
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of the Company and to protect Bank
depositors and the Federal deposit insurance fund from potential losses.
Bancorp and the Bank are subject to minimum regulatory ratios for risk-based
capital and were in compliance with such requirements throughout 1995.
Both Bancorp's and the Bank's capital ratios are as follows, at December 31:<PAGE>
Regulatory
Minimum at
1995 1994 1995 & 1994
Bancorp:
Tier 1 capital ratio 15.81% 15.99% 4.00%
Total capital ratio 16.81% 17.06% 8.00%
Leverage ratio 9.85% 9.80% 3.00%
Bank:
Tier 1 capital ratio 16.06% 16.08% 4.00%
Total capital ratio 17.05% 17.14% 8.00%
Leverage ratio 10.03% 9.90% 3.00%
Between December 1992 and September 1994, the Bank was required to maintain a
Tier 1 capital ratio of at least 10.00%, and a leverage ratio of at least
6.00%, levels higher than the regulatory minimums shown above, under the
terms of the Bank's Formal Agreement (see Note 16).
Note 16. Regulatory Matters
On December 17, 1992, the Bank entered into a Formal Agreement (the Agreement)
with the Office of the Comptroller of the Currency (OCC). The Formal
Agreement required the Bank to maintain Tier 1 capital of at least 10.00% of
risk-weighted assets and Tier 1 capital of at least 6.00% of adjusted total
assets.
The Agreement also required the following of the Bank: (1) develop a program
to improve the effectiveness of Board supervision; (2) develop a program to
improve the Bank's loan administration and underwriting; (3) develop and
implement an asset review program to ensure the timely identification of
problem loans, other real estate owned and other assets; (4) develop and
implement a written program to collect or strengthen criticized and classified
loan assets; (5) submit a 3 year capital plan for OCC approval; and (6)
develop a plan to improve liquidity management. The Agreement also
restricted the Bank's ability to pay dividends to Bancorp.
On September 8, 1994, the Bank's Formal Agreement with the OCC was terminated,
as the Bank had achieved full compliance with the Agreement.
On July 22, 1993, Bancorp and the Federal Reserve Bank, Bancorp's primary
regulator, signed a Memorandum of Understanding (MOU). This MOU required
Bancorp to: (1) report on measures taken to improve the financial condition
of Trans Pacific National Bank, (2) report on measures taken to improve the
Directors' supervision of Trans Pacific National Bank, and (3) furnish
quarterly progress reports that shall include financial statements and
information detailing the form and manner of all actions to attain
compliance with the MOU.
Additionally, Bancorp was required to obtain Federal Reserve approval before:
(1) paying cash dividends to shareholders, (2) incurring additional debt,
(3) repurchasing outstanding stock, and (4) adding or replacing a Director
or senior executive officer.
On February 27, 1995, Bancorp's MOU with the Federal Reserve Bank was
terminated.
Under the National Bank Act, the Bank is subject to prohibitions on the payment
of dividends in certain circumstances and to restrictions on the amount that
can be paid to Bancorp without the prior approval of the Office of the
Comptroller of the Currency (OCC). Without the Comptroller's approval,
dividends for a given year cannot exceed the Bank's net profits, as
defined by national bank laws, for that year and retained from the preceding
two years. Under this formula, the Bank could have declared dividends to
Bancorp of $203,000. No dividends were paid by the Bank to Bancorp in 1993,
1994 and 1995, respectively.
<PAGE>
TRANS PACIFIC BANCORP
BOARD OF DIRECTORS
JAMES A. BABCOCK
President
Sandy & Babcock, Inc.
EDDY S.F. CHAN
Banker, Chairman
Trans Pacific National Bank
FRANKIE G. LEE
Partner, SOH & Associates
Structural Engineers
JOHN K. LEE
President, John K. Lee, C.P.A.
A Professional Corporation
BRUCE NAKAHIRA
President
New Century Investments, Inc.
JOHN T. STEWART
Attorney, Partner
Hovis, Larson, Stewart, Lipscomb, Cross
SIMON S. TENG
Partner
John R. McKean Accountants
FRANK K.W. WONG
Adv & Visual Merchandising Director
National Dollar Store, Ltd.
JOHN K. WONG
Banker, Executive Vice President
Trans Pacific National Bank
DIRECTORS EMERITI
MERLE S. KONIGSBERG
President (Retired)
Shaff Furniture Company
WARREN K. MILLER
Transportation Consultant
(Retired)
TRANS PACIFIC NATIONAL BANK
PRINCIPAL OFFICERS
EDDY S.F. CHAN
Chairman, President
Chief Executive Officer
Director
ROBERT A. HINKLE
Executive Vice President
Chief Lending Officer
INTERNATIONAL TRADE DIVISION
JOHN K. WONG
Executive Vice President
Senior Lending Officer
Director
BONNIE L. HAO
Senior Vice President
SAN FRANCISCO BRANCH
GRANT BARNEY SCHLEY
Senior Vice President
Regional Branch Manager
EAST BAY BUSINESS BANKING CENTER
LORRAINE S. BRAUD
Vice President
Branch Manager<PAGE>
<PAGE>
ANNUAL MEETING
The annual meeting of shareholders
will be held Thursday, May 23, 1996
at 4:30 p.m., local time
46 Second Street
San Francisco, California
CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
San Francisco, California
COMMON STOCK
Stock transactions are facilitated by
Van Kasper & Company
San Francisco, California
Hoefer & Arnett
San Francisco, California
PRINCIPAL TRANSFER AGENT
AND REGISTRAR
First Interstate Bank of California
San Francisco, California
GENERAL COUNSEL
Nossaman, Guthner, Knox & Elliott
San Francisco, California<PAGE>
<PAGE>
TRANS PACIFIC NATIONAL BANK
SAN FRANCISCO BRANCH
COMMERCIAL AND
INTERNATIONAL TRADE DIVISIONS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
Telex: RCA 210903 TPNB
EAST BAY BUSINESS BANKING CENTER
1442 Webster Street
Alameda, CA 94501-3339
Tel: (510) 769-1000
Fax: (510) 769-1180
ADMINISTRATION HEADQUARTERS
46 Second Street
San Francisco, CA 94105-3440
Tel: (415) 543-3377
Fax: (415) 495-5154
Telex: RCA 210903 TPNB
Consent of Independent Auditors
The Board of Directors
Trans Pacific Bancorp
We consent to incorporation by reference in the registration statement (No.
33-39191) on Form S-8 of Trans Pacific Bancorp and Subsidiary of our report
dated January 26, 1996, relating to the consolidated balance sheets of Trans
Pacific Bancorp and Subsidiary as of December 31, 1995 and 1994 and the
related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995, which report is incorporated by reference in the December
31, 1995 annual report on Form 10-K of Trans Pacific Bancorp and Subsidiary.
/s/ KPMG Peat Marwick LLP
San Francisco, California
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5190611
<INT-BEARING-DEPOSITS> 489713
<FED-FUNDS-SOLD> 4725000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13870220
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 38744088
<ALLOWANCE> 403651
<TOTAL-ASSETS> 64826520
<DEPOSITS> 57563988
<SHORT-TERM> 186432
<LIABILITIES-OTHER> 544129
<LONG-TERM> 0
0
0
<COMMON> 5784323
<OTHER-SE> 747648
<TOTAL-LIABILITIES-AND-EQUITY> 64826520
<INTEREST-LOAN> 3843432
<INTEREST-INVEST> 739133
<INTEREST-OTHER> 272477
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<INTEREST-DEPOSIT> 1783252
<INTEREST-EXPENSE> 1799210
<INTEREST-INCOME-NET> 3055832
<LOAN-LOSSES> 40000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2961215
<INCOME-PRETAX> 652382
<INCOME-PRE-EXTRAORDINARY> 445382
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445382
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.74
<LOANS-NON> 45000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 390465
<CHARGE-OFFS> 284860
<RECOVERIES> 258046
<ALLOWANCE-CLOSE> 403651
<ALLOWANCE-DOMESTIC> 316348
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 87303
</TABLE>
