SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: June 30, 1996 Commission file number: 2-86902
TRANS PACIFIC BANCORP
(Exact name of registrant as specified in its charter)
California 94-2917713
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date:
Class: Outstanding at: July 31, 1996
Common Stock, no par value 1,120,195
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION 1
Item 1 Unaudited Interim Consolidated Financial Statements 1
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION 13
Item 4 Submission of Matters to a Vote of Security Holders 13
SIGNATURES 14
Part I - Financial Information
Item 1: Unaudited Interim Consolidated Financial Statements
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets June 30, December 31,
1996 1995
Cash and due from banks $ 4,131,892 5,190,611
Federal funds sold 4,550,000 4,725,000
Interest-bearing deposits with banks 388,000 489,713
Securities available for sale, at fair value 13,122,131 13,870,220
Loans:
Commercial 19,312,258 18,555,335
Real estate 22,560,390 17,982,782
Preference lines 1,927,568 1,997,955
Installment and other loans 179,899 208,016
Total Loans 43,980,115 38,744,088
Allowance for possible loan losses 417,410 403,651
Loans, net 43,562,705 38,340,437
Premises and equipment, net 895,867 932,553
Customer acceptance liabilities 87,308 50,393
Core deposit intangibles 387,655 437,141
Accrued interest receivable and other assets 831,016 790,452
$ 67,956,574 64,826,520
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS - continued
(unaudited)
Liabilities and Stockholders' Equity June 30, December 31,
1996 1995
Liabilities:
Non-interest-bearing demand deposits $ 10,105,725 10,453,322
Interest-bearing demand deposits 29,162,863 26,913,507
Savings 994,697 1,023,815
Time deposits 19,683,293 19,173,344
Total deposits 59,946,578 57,563,988
Accrued interest payable 148,550 178,430
Other borrowed funds 728,170 186,432
Acceptances outstanding 87,308 50,393
Other liabilities 413,314 315,306
Total liabilities 61,323,920 58,294,549
Commitments and contingencies
Stockholders' Equity:
Common stock, no par value;
10,000,000 shares authorized,
1,118,195 shares outstanding 5,784,323 5,784,323
Retained Earnings 968,331 768,648
Net unrealized losses on securities available for sale (120,000) (21,000)
Total Stockholders' Equity 6,632,654 6,531,971
$ 67,956,574 64,826,520
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
3 months ended June 30, 6 months ended June 30,
1996 1995 1996 1995
Interest income:
Loans $ 1,053,803 929,475 2,072,127 1,829,423
Investment securities 191,808 173,071 381,352 362,543
Deposits with banks 8,572 6,149 19,360 9,079
Federal funds sold 57,088 60,560 116,382 69,040
Total interest income 1,311,271 1,169,255 2,589,221 2,270,085
Interest expense:
Deposits 490,115 431,594 984,210 776,685
Other borrowed funds 6,306 3,180 8,900 13,431
Total interest expense 496,421 434,774 993,110 790,116
Net interest income 814,850 734,481 1,596,111 1,479,969
Provision for possible loan
losses - 30,000 - 40,000
Net interest income after provision
for possible loan losses 814,850 704,481 1,596,111 1,439,969
Non-interest income:
Service charges on deposit
accounts 68,969 64,782 147,508 129,819
Gain on loan sale - - 23,625 -
Other charges and fees 95,689 73,025 172,885 138,066
Total non-interest income 164,658 137,807 344,018 267,885
Non-interest expense:
Salaries and employee benefits 363,904 405,767 775,871 826,113
Occupancy expense 71,243 75,587 140,929 146,528
Furniture and equipment expense 17,490 23,776 36,612 50,346
Other operating expenses 237,016 239,199 500,578 453,804
Total non-interest expense 689,653 744,329 1,453,990 1,476,791
Income before income taxes 289,855 97,959 486,139 231,063
Income tax expense 123,000 29,000 197,000 71,000
Net income $ 166,855 68,959 289,139 160,063
Average shares outstanding 1,118,195 1,118,195 1,118,195 1,118,195
Net income per share (note 2) $ 0.15 0.06 0.26 0.14
Dividend declared per share $ - - 0.08 -
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
6 months ended June 30,
1996 1995
Cash flows from operating activities:
Net income $ 289,139 160,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 100,843 114,228
Provision for loan losses - 40,000
(Decrease) increase in accrued interest payable (29,880) 17,674
Increase (decrease) in other liabilities 120,509 (31,429)
(Increase) decrease in other assets (30,069) 5,039
Total adjustments 161,403 145,512
Net cash provided by operating activities 450,542 305,575
Cash flows from investing activities:
Increase in loans funded, net of principal
collected (5,222,267) (3,616,013)
Net decrease in deposits with banks 101,713 296,304
Purchase of securities available for sale (5,471,328) (133,891)
Proceeds from principal repayments and maturity
of securities 6,087,417 2,798,782
Purchase of fixed assets (14,668) (10,893)
Net cash used in investing activities (4,519,133) (665,711)
Cash flows from financing activities:
Net increase in demand deposits and savings 1,872,641 3,271,575
Net increase in time deposits 509,949 1,608,946
Proceeds from other borrowed funds 724,675 103,728
Repayment of other borrowed funds (182,937) (584,827)
Dividends paid (89,456) -
Net cash provided by financing activities 2,834,872 4,399,422
Net (decrease) increase in cash and cash
equivalents (1,233,719) 4,039,286
Cash and cash equivalents at beginning
of period 9,915,611 7,377,239
Cash and cash equivalents at end of period $ 8,681,892 11,416,525
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - continued
(unaudited)
6 months ended June 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,022,990 772,442
Income taxes 72,400 37,400
Non-cash investing and financing activities:
Reduction of guaranteed ESOP obligation - 22,500
Change in unrealized losses on securities available
for sale, net of income taxes (99,000) 99,000
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal
funds are sold for one-day periods.
See accompanying notes to the unaudited interim consolidated financial
statements.
Note 1. Basis of Presentation
The financial information of Trans Pacific Bancorp (Bancorp) and its
wholly-owned subsidiary, Trans Pacific National Bank (the Bank), included
herein is unaudited; however, such information reflects all adjustments, which
are, in the opinion of management, necessary for a fair statement of results
for the interim periods. These adjustments are all normal and recurring in
nature.
The results of operations for the six month and three month periods
ended June 30, 1996 are not necessarily indicative of the results to be
expected for the full year. This report should be read in conjunction with
Bancorp's annual report on Form 10-K for the year ended December 31, 1995.
Certain amounts in prior periods have been reclassified to conform to
the current period presentation.
Note 2. Net Income per Share
Net income per share is computed by dividing the net income by the
average number of shares outstanding during the periods. The dilutive effect
of stock options is not material and has been excluded from the per share
presentation.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
I. Overview
Trans Pacific Bancorp reported earnings of $166,855, or $0.15 per share,
in the second quarter of 1996, compared to earnings of $68,959, or $0.06 per
share, in the second quarter of 1995. Net income for the first six months of
1996 was $289,139 or $0.26 per share, compared to a net income of $160,063, or
$0.14 per share, in the first six months of 1995.
Return on average assets, or ROA, was 1.01 percent for the second
quarter of 1996, versus 0.46 percent in the same period for 1995. For the
first six months of 1996, ROA was 0.87 percent, compared to 0.54 percent for
the first six months of 1995. Return on average equity, or ROE, was 10.16
percent for the second quarter of 1996, versus 4.47 percent in the same period
for 1995. For the first six months of 1996, ROE was 8.79 percent, compared to
5.27 percent for the first six months of 1995.
The second quarter 1996 results reflect the Bank's increased business
development efforts and the improved San Francisco Bay Area economy.
Accordingly, 1996 earnings were higher compared to the 1995 results.
At June 30, 1996, total assets were $68.0 million, up 6 percent from
March 31, 1996, and up 5 percent from December 31, 1995. Total deposits were
$59.9 million at June 30, 1996 up 6 and 4 percent from March 31, 1996 and
December 31, 1995, respectively, while total loans were $44.0 million, up 9
and 14 percent from March 31, 1996 and December 31, 1995, respectively.
II. Results of Operations
The following details the components of net income for the six months
ended June 30, 1996 and 1995:
(as a percentage of average earning assets) 1996 1995
Net interest income 5.42 % 5.92 %
Provision for loan losses - (0.16)
Non-interest income 1.17 1.07
Non-interest expense (4.94) (5.90)
Income tax expense (0.67) (0.28)
Net income 0.98 % 0.65 %
Net interest income was $1.6 million for the first six months of 1996,
up 8 percent from $1.5 million for the same period ending June 1995. The net
yield on interest-earning assets was 5.42 percent for the first six months of
1996 versus 5.92 percent in the first six months of 1995. The decrease in the
net interest margin was due to a lower prime rate in 1996. For the second
quarter, net interest-earning assets yield was 5.47 percent in 1996, lower
than the 5.74 percent in the second quarter of 1995, but higher than the 5.38
percent in the first quarter of 1996.
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 Three months ended June 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets
Loans $ 41,984 1,054 10.04% 35,024 929 10.62%
Investment securities 12,904 192 5.95% 11,879 173 5.83%
Federal funds sold 4,198 57 5.44% 3,956 61 6.12%
Interest-bearing
deposits with banks 537 8 6.39% 318 6 7.73%
Total interest-earning
assets $ 59,623 1,311 8.80% 51,177 1,169 9.14%
Interest-Bearing Liabilities:
Deposits:
Demand,
interest-bearing $ 27,046 233 3.45% 21,714 181 3.34%
Savings 1,084 6 2.24% 1,264 7 2.24%
Time 18,926 251 5.30% 18,715 244 5.20%
Other short-term
borrowings 556 6 4.54% 165 3 7.72%
Total interest-bearing
liabilities $ 47,612 496 4.17% 41,858 435 4.15%
Net interest income $ 815 $ 734
Net interest-earning assets yield 5.47% 5.74%
Average Balances and Rates Six months ended June 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets
Loans $ 40,949 2,072 10.12% 34,822 1,829 10.51%
Investment securities 13,088 382 5.83% 12,580 363 5.76%
Federal funds sold 4,285 116 5.43% 2,278 69 6.06%
Interest-bearing
deposits with banks 555 19 6.97% 345 9 5.26%
Total interest-earning
assets $ 58,877 2,589 8.80% 50,025 2,270 9.08%
Interest-Bearing Liabilities:
Deposits:
Demand,
interest-bearing $ 26,964 463 3.44% 20,827 325 3.12%
Savings 1,053 12 2.25% 1,266 14 2.23%
Time 18,952 509 5.37% 17,898 438 4.89%
Other short-term
borrowings 375 9 4.74% 407 13 6.60%
Total interest-bearing
liabilities $ 47,344 993 4.20% 40,398 790 3.91%
Net interest income $ 1,596 $ 1,480
Net interest-earning assets yield 5.42% 5.92%
Non-interest income for the first 6 months of 1996 was $344 thousand,
compared to $268 thousand for the same period in 1995, an increase of 28
percent. Non-interest income was $165 thousand in the second quarter of 1996,
from $138 thousand in the second quarter of 1995, an increase of 20%. The
increase reflects higher deposit account service charges, collections fees and
letter of credit commissions in 1996. Also included in the increase of non-
interest income was the $24 thousand gain on sale of a loan in the first
quarter of 1996.
Non-interest expense for the first six months of 1996 was $1.45 million,
compared to $1.48 million for the same period of 1995. Personnel expense in
1996 was down 6 percent from 1995, as full time equivalent was down by 3
people. Also, no ESOP contribution was made in 1996. This was offset by
expenses accrued for potential payments under a management incentive plan.
Occupancy and furniture and equipment expense decreased by 10 percent in 1996
as some equipment was fully amortized in 1995. For the first six months of
1996, other operating expenses were $501 thousand, up 10 percent compared to
the first six months of 1995, primarily due to approximately $81 thousand
operations losses, as well as $10 thousand increase in legal fees. However,
FDIC insurance premium decreased to $1 thousand in the first six months of
1996, compared to $56 thousand in the same period of 1995.
Tax expense was $197 thousand for the first six months of 1996 versus
tax expense of $71 thousand for the same six months of 1995. The effective
tax rate for 1996 was 38 percent, which was higher than 31 percent in 1995, as
Bancorp expects to reduce the remaining deferred tax asset valuation (included
in other assets) in 1996, causing a higher effective tax rate.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels during
the second quarter of 1996. Classified assets totaled $1.9 million at June 30,
1996, compared to $2.1 million at March 31, 1996, and $1.4 million at December
31, 1995. Non-performing assets, comprised of non-accrual loans, totaled $33
thousand at June 30, 1996, compared to $37 thousand at March 31, 1996, and $45
thousand at December 31, 1995. There was no real estate owned as of June 30,
1996.
Due to the continued satisfactory levels of asset quality, there was no
provision for loan losses in the second quarter of 1996 or in the first six
months of 1996, compared to $30,000 and $40,000 provided for the second
quarter and in the first six months of 1995, respectively. The determination
of the provision for loan losses and, correspondingly, the level of the
allowance for loan losses is based on evaluations of changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, prior loan loss experiences and current economic conditions
that may affect the borrower's ability to pay.
The following table summarizes the provision for loan losses, net credit
recoveries and allowance for loan loss activity for the periods indicated:
(in thousands) For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
Balance, beginning of period $ 409 508 404 390
Provision for loan losses - 30 - 40
Credit losses - (106) (4) (106)
Credit loss recoveries 8 104 17 212
Net credit recoveries (losses) 8 (2) 13 106
Balance, end of period $ 417 536 417 536
Ratio of net credit recoveries (losses)
to average loans outstanding 0.08% 0.02% 0.06% 0.61%
The allowance for possible loan losses increased to $417 thousand, or
0.95 percent of total loans at June 30, 1996 compared to $404 thousand at
December 31, 1995, which was 1.04 percent of total loans at 1995 year end. The
increase in the allowance was the result of recoveries during 1996 of loans
previously charged off.
The table below provides a breakdown of the allowance for loan losses by
loan category as of June 30, 1996 and December 31, 1995. 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 judgment of
information available to them at the time of their examination.
(in thousands) June 30, 1996 December 31, 1995
% of % of
Allowance Loans Allowance Loans
Commercial $ 272 1.41% $ 226 1.22%
Real Estate - Construction - - - -
Real Estate - Mortgage 85 0.38% 82 0.45%
Consumer 9 0.44% 9 0.40%
Unallocated 51 - 87 -
$ 417 0.95% $ 404 1.04%
IV. Asset/Liability Management
The fundamental objectives of the asset/liability management policy of
Bancorp and the Bank are to: (1) maintain liquidity and (2) minimize interest
rate risk.
Liquidity: Liquidity is the Bank's and Bancorp's ability to meet the
present and future needs of its customers for funds, primarily the funding of
loans and deposit withdrawals. Liquidity is measured and managed at both the
parent and banking subsidiary levels. Bancorp is funded by dividend income
from the Bank and uses its proceeds primarily to pay the Bank for
administrative expenses.
In general, the growth of core deposits and the orderly repayment of the
Bank's loan portfolio are the primary sources of liquidity. Also, because of
its emphasis on relationship banking, the Bank has a relatively stable, local
deposit base, and customer deposits and withdrawals have been and are expected
to continue to be orderly and manageable. To support short-term liquidity
needs, the Bank maintains Fed Funds sold, time deposits with other financial
institutions, short-term money market instruments and securities available for
sale that totaled approximately $18.1 million, or 27 percent of assets at June
30, 1996. Additionally, the Bank has established unsecured lines of credit
with its correspondent banks and reverse repurchase facilities with securities
dealers. These credit facilities are subject to periodic review.
As shown in the unaudited interim Consolidated Statement of Cash Flows,
cash and cash equivalents decreased to $8.7 million at June 30, 1996, compared
to $9.9 million as of December 31, 1995. Cash was used primarily to fund
loans to customers.
Interest Rate Risk: Bancorp evaluates its interest rate risk exposure
by analyzing the interest rate sensitivity of its balance sheet accounts.
Interest rate sensitivity measures the interval of time before interest
earning assets and interest bearing liabilities respond to changes in market
rates of interest. The difference between the amount of assets and amount of
liabilities which may be re-priced in the same time period is referred to as
the "gap". If more assets than liabilities are re-priced at a given time, net
interest income tends to improve in a rising rate environment and to decline
with lower rates. If more liabilities than assets are re-priced under the
same conditions, the opposite tends to prevail.
In general, the Bank re-prices more assets than liabilities and,
therefore earns greater interest spread as interest rates, particularly the
Bank's prime rate, increase and earns a lesser interest spread as rates
decrease. The Bank evaluates its interest rate risk by analyzing the
repricing characteristics of its balance sheet instruments. At June 30, 1996,
the Bank will re-price more liabilities than assets within the next year, and
approximately 69 percent of the Bank's total interest rate sensitive assets
and 97 percent of the Bank's total rate sensitive liabilities mature or
reprice within one year.
V. Capital Resources
The capital position of Bancorp represents the level of capital needed
to support the operation and expansion of Bancorp and the Bank and to protect
depositors and the deposit insurance fund from potential losses.
The risk-based capital adequacy requirements established by the Federal
Reserve Board calls for a minimum 8 percent total risk-based capital ratio,
including core (Tier 1) capital of 4 percent. The ratio is determined by
weighing assets and off-balance sheet exposures according to their relative
credit risks.
A leverage ratio has also been established by the Office of the
Comptroller of the Currency (OCC) for its minimum capital requirement ratio
for banks. This ratio, Tier 1 capital to adjusted average total assets,
operates in conjunction with the risk-based capital guidelines and limits the
amount of leverage a bank can undertake. Currently all banks must maintain at
least a 3 percent leverage ratio. In general, however, only the top-ranked
banking organizations may operate at the minimum leverage levels. Other
institutions will be expected to maintain leverage ratios that are at least
100 to 200 basis points above the minimum levels.
Bancorp's and the Bank's capital ratios at June 30, 1996 and December
31, 1995 are as follows:
June 30, December 31, Regulatory
1996 1995 Minimum
Bancorp:
Tier 1 capital ratio 13.99% 15.81% 4.00%
Total capital ratio 14.88% 16.81% 8.00%
Leverage ratio 10.11% 9.85% 3.00%
Bank:
Tier 1 capital ratio 14.31% 16.06% 4.00%
Total capital ratio 15.19% 17.05% 8.00%
Leverage ratio 10.34% 10.03% 3.00%
Bancorp's and the Bank's capital and leverage ratios were in compliance
with the regulatory minimums as of June 30, 1996. Capital ratios were slightly
lower at June 30, 1996 as risk-weighted assets, principally loans, grew at a
faster rate than capital during the first six months of 1996. The leverage
ratios were slightly higher at June 30, 1996 as capital was higher, while the
adjusted average total assets remained relatively the same.
Part II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held May 23, 1996, the following
matters were submitted to a vote of holders of common stock:
1. The Election of Directors: Each of the following persons nominated was
elected:
Votes
Nominee Votes for Votes Withheld Abstained
James A. Babcock 795,435 1,800 none
Eddy S. F. Chan 795,435 1,800 none
Frankie G. Lee 795,435 1,800 none
John K. Lee 795,435 1,800 none
Masayuki Nakahira 795,435 1,800 none
John T. Stewart 795,435 1,800 none
Simon S. Teng 795,435 1,800 none
Frank K. W. Wong 795,435 1,800 none
John K. Wong 795,435 1,800 none
2. A proposal to ratify the selection of KPMG Peat Marwick LLP as
independent auditors for 1996 was approved.
Votes for Votes Withheld Votes Abstained
794,535 none 2,700
3. A proposal to amend the Company's Bylaws to set the range of authorized
directors to be no fewer than 7 nor more than 13 was approved.
Votes for Votes Withheld Votes Abstained
796,035 none 1,200
Signatures
Pursuant to the requirements of Section 15(c) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRANS PACIFIC BANCORP
/s/ Eddy S.F. Chan
Eddy S.F. Chan, President
/s/ Dennis B. Jang
Dennis B. Jang, Chief Financial Officer
Date: August 8, 1996
7
Trans Pacific Bancorp and Subsidiary
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
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