SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: March 31, 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 (I.R.S. Employer Identification No.)
incorporation or organization)
46 Second Street, San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 543-3377
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
Number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class: Outstanding at: April 30, 1996
Common Stock, no par value 1,118,195
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION 1
Item 1. 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
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets March 31, December 31,
1996 1995
Cash and due from banks $ 3,987,195 5,190,611
Federal funds sold 2,875,000 4,725,000
Interest-bearing deposits with banks 584,713 489,713
Securities available for sale, at fair value 14,270,489 13,870,220
Loans:
Commercial 19,654,050 18,555,335
Real estate 18,469,402 17,982,782
Preference lines 1,915,630 1,997,955
Installment and other loans 244,478 208,016
Total Loans 40,283,560 38,744,088
Allowance for possible loan losses 408,997 403,651
Loans, net 39,874,563 38,340,437
Premises and equipment, net 909,042 932,553
Customer acceptance liabilities 129,592 50,393
Core deposit intangibles 412,398 437,141
Accrued interest receivable and other assets 1,104,586 790,452
$ 64,147,578 64,826,520
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Liabilities and Stockholders' Equity March 31, December 31,
1996 1995
Liabilities:
Non-interest-bearing demand deposits $ 8,996,338 10,453,322
Interest-bearing demand deposits 28,233,113 26,913,507
Savings 1,069,981 1,023,815
Time deposits 18,311,958 19,173,344
Total deposits 56,611,390 57,563,988
Accrued interest payable 151,185 178,430
Other borrowed funds 306,223 186,432
Acceptances outstanding 129,592 50,393
Other liabilities 445,889 315,306
Total liabilities 57,644,279 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 801,476 768,648
Net unrealized losses on securities
available for sale (82,500) (21,000)
Total Stockholders' Equity 6,503,299 6,531,971
$ 64,147,578 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 March 31,
1996 1995
Interest income:
Loans $ 1,018,323 899,948
Investment securities 189,544 189,472
Deposits with banks 10,788 2,930
Federal funds sold 59,295 8,480
Total interest income 1,277,950 1,100,830
Interest expense:
Deposits 494,095 345,091
Other borrowed funds 2,594 10,251
Total interest expense 496,689 355,342
Net interest income 781,261 745,488
Provision for possible loan losses - 10,000
Net interest income after provision
for possible loan losses 781,261 735,488
Non-interest income:
Service charges on deposit accounts 78,539 65,037
Gain on loan sale 23,625 -
Other charges and fees 77,196 65,041
Total non-interest income 179,360 130,078
Non-interest expense:
Salaries and employee benefits 411,967 420,346
Occupancy expense 69,686 70,941
Furniture and equipment expense 19,122 26,570
Other operating expenses 263,562 214,605
Total non-interest expense 764,337 732,462
Income before income taxes 196,284 133,104
Income tax expense 74,000 42,000
Net income $ 122,284 91,104
Average shares outstanding 1,118,195 1,118,195
Net income per share (note 2) $ 0.11 0.08
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)
3 months ended March 31,
1996 1995
Cash flows from operating activities:
Net income $ 122,284 91,104
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 50,482 57,414
Provision for loan losses - 10,000
(Decrease) increase in accrued interest payable (27,245) 3,968
Increase in other liabilities 161,285 228,169
Increase in accrued interest receivable
and other assets (324,338) (1,539,175)
Total adjustments (139,816) (1,239,624)
Net cash used in operating activities (17,532) (1,148,520)
Cash flows from investing activities:
Increase in loans funded, net of
principal collected (1,534,126) (3,166,190)
Net (increase) decrease in deposits with banks (95,000) 395,304
Proceeds from principal repayments and
maturity of/called securities 4,264,511 1,158,123
Purchase of securities available for sale (4,746,780) (359,819)
Purchase of premises and equipment assets (2,226) (4,933)
Net cash used in investing activities (2,113,621) (1,977,515)
Cash flows from financing activities:
Net decrease in demand deposits
and savings accounts (91,212) (687,419)
Net (decrease) increase in time deposits (861,386) 1,536,419
Proceeds from other borrowed funds 194,378 70,911
Repayment of other borrowed funds (74,587) (305,921)
Dividends paid (89,456) -
Net cash (used in) provided by financing activities (922,263) 613,990
Net decrease in cash and cash equivalents (3,053,416) (2,512,045)
Cash and cash equivalents at beginning of period 9,915,611 7,377,239
Cash and cash equivalents at end of period $ 6,862,195 4,865,194
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(unaudited)
3 months ended March 31,
1996 1995
Supplemental disclosures of cash flow information
Non-cash investing and financing activities:
Reduction of guaranteed ESOP obligation $ - 11,250
Change in unrealized losses on securities
available for sale, net of taxes 61,500 52,500
Cash paid during the period for:
Interest 523,934 351,374
Income taxes - -
Disclosure of accounting policy:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are sold for one-day periods.
See accompanying notes to the unaudited interim consolidated financial
statements.
Note 1. Basis of Presentation
The financial information of Trans Pacific Bancorp (Bancorp) and
its wholly-owned subsidiary, Trans Pacific National Bank (the Bank),
included herein is unaudited; however, such information reflects all
adjustments, which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. These adjustments
are all normal and recurring in nature.
The results of operations for the three month period ended March
31, 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 period. Average
common share equivalents were anti-dilutive and have been excluded
from the per share computations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
I. Overview
Trans Pacific Bancorp reported earnings of $122,284, or $0.11 per
share, in the first quarter of 1996, up from earnings of $91,104, or
$0.08 per share in the first quarter of 1995. Return on average
assets, or ROA, was 0.76 percent for the first quarter of 1996, versus
0.64 percent in the same period for 1995. Return on average equity,
or ROE, was 7.50 percent for the first quarter of 1996, versus 6.04
percent in the same period for 1995.
These 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 March 31, 1996, total loans were $40.3 million, up 4 percent
from $38.7 million at 1995 year end, while total deposits were $56.6
million, down 2 percent from $57.6 million at 1995 year end. Total
assets were $64.1 million, down 1 percent from $64.8 million at 1995
year end.
II. Results of Operations
The following details the components of net income for the three
months ended March 31, 1996 and 1995:
(as a percentage of average earning assets) 1996 1995
Net interest income 5.38 % 6.10 %
Provision for loan losses - (0.08)
Non-interest income 1.23 1.06
Non-interest expense (5.26) (5.99)
Income tax expense (0.51) (0.34)
Net income 0.84 % 0.75 %
Net interest income for the first three months in 1996 increased
by $35 thousand, or 5 percent from the same period in 1995 to $781
thousand. Separately, interest income increased $177 thousand, or 16
percent, and interest expense increased $142 thousand, or 39 percent,
in the first three months of 1996. The increase in interest expense
was caused by an increase in cost of funds of 57 basis points due to
competitive pressures in market rate and time deposits. The increase
in interest income was due to increased loan demand and an increased
level of interest-earning assets. The net interest margin, which
represents the average net yield on earning assets was 5.38 percent
for the first quarter of 1996 versus 6.10 percent for the same period
in 1995.
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 March 31,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets
Loans $ 39,913 1,018 10.20% 34,621 900 10.25%
Investment
securities 13,271 190 5.71% 13,280 189 5.71%
Federal funds sold 4,373 59 5.42% 601 9 5.64%
Interest-bearing
deposits with banks 573 11 7.52% 372 3 3.15%
Total interest-earning
assets $ 58,130 1,278 8.79% 48,874 1,101 8.92%
Interest-Bearing Liabilities:
Deposits:
Demand,
interest-bearing $ 26,884 230 3.42% 19,939 144 2.89%
Savings 1,021 6 2.25% 1,267 7 2.22%
Time 18,977 258 5.45% 17,082 194 4.55%
Other short-term
borrowings 195 3 5.32% 649 10 6.32%
Total interest-bearing
liabilities $ 47,077 497 4.22% 38,937 355 3.65%
Net interest income $ 781 $ 746
Net interest-earning assets yield 5.38% 6.10%
Non-interest income increased to $179 thousand in the first
quarter of 1996, up $49 thousand, or 38 percent, from $130 thousand in
the first quarter of 1995. Included in this difference in non-
interest income was the $24 thousand gain on sale of a loan in the
first quarter of 1996.
Non-interest expense increased to $764 thousand in the first
quarter of 1996 from $732 thousand in the same period of 1995, an
increase of 4 percent in total. Separately, for the first three
months of 1996, personnel expense, which includes an accrual for
incentive payments made under a management incentive plan implemented
in late 1995, was down 2 percent from the same period ending March
1995, due primarily to reduction in headcount to 34 FTEs in 1996
compared to 38 FTEs in the previous year. Also, no ESOP contribution
was made in 1996. Occupancy and equipment expense were lower by 2
percent and 28 percent, respectively for the first three months of
1996 as depreciation was lower due to some equipment being fully
amortized in 1995. For the first three months of 1996, other
operating expenses were $264 thousand, up 23 percent from $215
thousand for the first three months of 1995, due to a $50,000
operational loss.
The provision for income taxes was $74 thousand in the first
quarter of 1996 versus $42 thousand in the first quarter of 1995.
The effective tax rate for 1996 was 38 percent, which was higher
than 32 percent in 1995 because the Company expects to reduce the
remaining deferred tax asset valuation in 1996 which will cause a
higher effective tax rate.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels
during the first quarter of 1996. Classified assets totaled $2.1
million at March 31, 1996 compared to $1.4 million at December 31,
1995. The increase in classified assets was due to one loan and one
security downgrade during the first quarter of 1996. Non-performing
assets, comprised of non-accrual loans, totaled $37 thousand at March
31, 1996, compared to $45 thousand at December 31, 1995.
There was no provision for loan losses in the first quarter of
1996 versus $10 thousand in the first quarter of 1995. The
determination of the provision for loan losses and, correspondingly,
the level of the allowance for loan losses is based on evaluations of
changes in the nature and volume of the loans portfolio, overall
portfolio quality, review of specific problem loans, prior loan loss
experiences and current economic conditions that may affect the
borrower's ability to pay.
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 ended March 31,
1996 1995
Balance, beginning of period 404 390
Provision for loan losses - 10
Credit losses (4) -
Credit loss recoveries 9 108
Net credit recoveries 5 108
Balance, end of period $ 409 508
Ratio of net credit recoveries to
average loans outstanding 0.01% 0.31%
The allowance for possible loan losses increased to $409
thousand, or 1.02 percent of total loans at March 31, 1996 compared to
$404 thousand at December 31, 1995, which was 1.04 percent of total
loans at 1995 year end.
The table below provides a breakdown of the allowance for loan
losses by loan category as of March 31, 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) March 31, 1996 December 31, 1995
% of % of
Allowance Loans Allowance Loans
Commercial $ 269 1.37% $ 226 1.22%
Real Estate - Construction - - - -
Real Estate - Mortgage 74 0.40% 82 0.45%
Consumer 12 0.57% 9 0.40%
Unallocated 54 - 87 -
$ 409 1.02% $ 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 Company's ability to meet the
present and future needs of its customers for funds, primarily the
funding of loans and deposit withdrawals. Liquidity is measured and
managed at both the parent and banking subsidiary levels. Bancorp is
funded by dividend income from the Bank, as well as through the
issuance of equity. Bancorp uses its proceeds primarily to pay the
Bank for administrative expenses.
In general, the growth of core deposits and the orderly repayment
of the Bank's loan portfolio are the primary source of liquidity.
Also, because of its emphasis on relationship banking, the Bank has a
relatively stable, local deposit base, and customer deposits and
withdrawals have been and are expected to continue to be orderly and
manageable. To fund short-term liquidity needs, the Bank maintains
Fed Funds sold, time deposits with other financial institutions,
short-term money market instruments and securities available for sale
that totaled approximately $17.7 million, or 28 percent of assets at
March 31, 1996. Additionally, the Bank has established unsecured
lines of credit with correspondent banks and reverse repurchase
facilities with securities dealers. These credit facilities are
subject to periodic review.
As shown in the unaudited interim Consolidated Statement of Cash
Flows, cash and cash equivalents decreased to $6.9 million at March
31, 1996, compared to $9.9 million as of December 31, 1995. Cash was
used primarily to fund loans to customers. The increase in other
assets as of March 31, 1995 was due to in-transit items which cleared
the following day.
Interest Rate Risk: Bancorp evaluates its interest rate risk
exposure by analyzing the interest rate sensitivity of its balance
sheet accounts. Interest rate sensitivity measures the interval of
time before interest earning assets and interest bearing liabilities
respond to changes in market rates of interest. The difference
between the amount of assets and amount of liabilities which may be
re-priced in the same time period is referred to as the "gap". If
more assets than liabilities are re-priced at a given time, net
interest income tends to improve in a rising rate environment and to
decline with lower interest rates. If more liabilities than assets
are re-priced under the same conditions, the opposite tends to
prevail.
In general, the Bank re-prices more assets than liabilities and,
therefore earns greater interest spread as interest rates increase and
earns a lesser interest spread as rates decrease. The Bank evaluates
its interest rate risk by analyzing the repricing characteristics of
its balance sheet instruments. At March 31, 1996, approximately 72
percent of the Bank's total interest rate sensitive assets and 96
percent of the Bank's total rate sensitive liabilities mature or
reprice within one year.
V. Capital Resources
The capital position of the Bancorp represents the level of
capital needed to support the operation and expansion of Bancorp and
the Bank and to protect depositors and the deposit insurance fund from
potential losses.
On February 23, 1996, a special dividend was declared to
shareholders of record as of March 8, 1996. The dividend was paid on
March 29, 1996.
The risk-based capital adequacy requirements established by the
Federal Reserve Board calls for a minimum 8 percent total risk-based
capital ratio, including core (Tier 1) capital of 4 percent. The ratio
is determined by weighing assets and off-balance sheet exposures
according to their relative credit risks.
A leverage ratio has also been established by the OCC for its
minimum capital requirement ratio for banks. This ratio, Tier 1
capital to adjusted average total assets, operates in conjunction with
the risk-based capital guidelines and limits the amount of leverage a
bank can undertake. Currently all banks must maintain at least a 3
percent leverage ratio. In general, however, only the top-ranked
banking organizations may operate at the minimum leverage levels.
Other institutions will be expected to maintain leverage ratios that
are at least 100 to 200 basis points above the minimum levels.
Bancorp's and the Bank's capital ratios at March 31, 1996 and
December 31, 1995 are as follows:
March 31, December 31, Regulatory
1996 1995 Minimum
Bancorp:
Tier 1 capital ratio 15.47% 15.81% 4.00%
Total capital ratio 16.43% 16.81% 8.00%
Leverage ratio 10.32% 9.85% 3.00%
Bank:
Tier 1 capital ratio 15.31% 16.06% 4.00%
Total capital ratio 16.27% 17.05% 8.00%
Leverage ratio 10.22% 10.03% 3.00%
VI. New Accounting Pronouncements
In January, 1996, the Company adopted the provisions of Statement
of 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 those assets
may not be recoverable. The adoption of SFAS 121 did not have any
effect on the Company's financial statements.
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) to adopt a new fair
value based method that is established by the provisions of SFAS 123.
Companies may continue to apply the accounting provisions of APB
Opinion No. 25 in determining net income. However, they must apply the
disclosure requirements of SFAS 123. The Company will retain its
current method of accounting for stock compensation and thus adoption
of SFAS 123 will not have an impact on the Company's financial
results.
Part II. OTHER INFORMATION
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: May 14, 1996
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