SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended: September 30, 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: October 31, 1996
Common Stock, no par value 1,120,195
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Unaudited Interim Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements Of Operations
Consolidated Statements Of Changes In Stockholders' Equity
Consolidated Statement Of Cash Flows
Notes to Unaudited Interim Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I - Financial Information
Item 1: Unaudited Interim Consolidated Financial Statements
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED BALANCE SHEETS
(unaudited)
Assets September 30, September 30, December 31,
1996 1995 1995
Cash and due from banks $ 4,121,885 4,689,706 5,190,611
Federal funds sold 8,200,000 6,530,000 4,725,000
Interest-bearing deposits with banks 488,000 390,713 489,713
Securities held to maturity (fair value
of $6,622,000) - 6,628,458 -
Securities available for sale,
at fair value 15,202,337 6,188,824 13,870,220
Loans:
Commercial 17,977,104 18,593,603 18,555,335
Real estate 22,835,213 17,415,260 17,982,782
Preference lines 2,217,916 1,807,599 1,997,955
Installment and other loans 319,267 173,034 208,016
Total Loans 43,349,500 37,989,496 38,744,088
Allowance for possible loan losses 426,530 422,629 403,651
Loans, net 42,922,970 37,566,867 38,340,437
Premises and equipment, net 883,907 977,538 932,553
Customer acceptance liabilities 361,944 277,604 50,393
Core deposit intangibles 362,910 461,887 437,141
Accrued interest receivable
and other assets 937,984 778,876 790,452
$ 73,481,937 64,490,475 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
September 30, September 30, December 31,
1996 1995 1995
Liabilities:
Non-interest-bearing demand deposits $ 10,965,190 11,360,340 10,453,322
Interest-bearing demand deposits 32,315,018 25,677,836 26,913,507
Savings 852,070 1,106,954 1,023,815
Time deposits 20,569,147 19,200,755 19,173,344
Total deposits 64,701,425 57,345,884 57,563,988
Accrued interest payable 184,475 168,379 178,430
Other borrowed funds 667,789 87,887 186,432
Acceptances outstanding 361,944 277,604 50,393
Other liabilities 658,471 216,928 315,306
Total liabilities 66,574,104 58,096,681 58,294,549
Commitments and contingencies
Stockholders' Equity:
Common stock, no par value;
10,000,000 shares authorized,
1,120,195, 1,118,195 and
1,118,195 shares outstanding 5,794,323 5,784,323 5,784,323
Retained Earnings 1,181,760 637,971 768,648
Net unrealized losses on securities
available for sale (68,250) (28,500) (21,000)
Total Stockholders' Equity 6,907,833 6,393,794 6,531,971
$ 73,481,937 64,490,475 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 September 30, 9 months ended September 30,
1996 1995 1996 1995
Interest income:
Loans $ 1,106,910 963,758 3,179,037 2,793,181
Investment securities 207,222 176,989 588,574 539,532
Deposits with banks 7,272 6,784 26,632 15,863
Federal funds sold 108,967 82,029 225,349 151,069
Total interest income 1,430,371 1,229,560 4,019,592 3,499,645
Interest expense:
Deposits 545,528 492,822 1,529,738 1,269,507
Other borrowed funds 10,088 696 18,988 14,127
Total interest expense 555,616 493,518 1,548,726 1,283,634
Net interest income
before provision 874,755 736,042 2,470,866 2,216,011
(recovery) for loan losses
Provision (recovery) for (40,000) - (40,000) 40,000
loan losses
Net interest income after provision
(recovery) for loan losses 914,755 736,042 2,510,866 2,176,011
Non-interest income:
Service charges on
deposit accounts 47,330 78,505 194,838 208,324
Gain on loan sale - - 23,625 -
Other charges and fees 107,358 82,773 280,243 220,839
Total non-interest income 154,688 161,278 498,706 429,163
Non-interest expense:
Salaries and
employee benefits 416,682 377,486 1,192,552 1,203,599
Occupancy expense 62,819 72,337 203,747 218,865
Furniture and
equipment expense 19,362 25,348 55,975 75,694
Other operating expenses 215,151 199,507 715,730 653,311
Total non-interest expense 714,014 674,678 2,168,004 2,151,469
Income before income taxes 355,429 222,642 841,568 453,705
Income tax expense 142,000 68,000 339,000 139,000
Net income $ 213,429 154,642 502,568 314,705
Average shares outstanding 1,119,777 1,118,195 1,118,722 1,118,195
Net income per share (note 2) $ 0.19 0.14 0.45 0.28
Dividend declared per share $ - - 0.08 -
See accompanying notes to the unaudited interim consolidated
financial statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
Deferred
Compensation Unrealized
Employee Gain (loss) Total
Stock on Securities Stock-
Common Stock Retained Ownership Available holders'
Shares Amount Earnings Plan For Sale Equity
Balance at
Dec. 31, 1994
1,118,195 $ 5,784,323 $ 323,266 $ (26,250) $ (130,500) $5,950,839
Net income - - 314,705 - - 314,705
Debt reduction of ESOP
- - - 26,250 - 26,250
Change in unrealized loss
on securities available
for sale, net of tax
- - - - 102,000 102,000
Balance at
Sept. 30, 1995
1,118,195 5,784,323 637,971 - (28,500) 6,393,794
Net income - - 130,677 - - 130,677
Change in unrealized loss
on securities available
for sale, net of tax - - - - 7,500 7,500
Balance at
Dec. 31, 1995
1,118,195 5,784,323 768,648 - (21,000) 6,531,971
Net income - - 502,568 - - 502,568
Dividends paid - - (89,456) - - (89,456)
Stock options exercised
2,000 10,000 - - - 10,000
Change in unrealized loss
on securities available
for sale, net of tax
- - - - (47,250) (47,250)
Balance at
Sept. 30, 1996
1,120,195 $ 5,794,323 $ 1,181,760 $ - $ (68,250)$6,907,833
See accompanying notes to the unaudited interim consolidated financial
statements.
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
9 months ended September 30,
1996 1995
Cash flows from operating activities:
Net income $ 502,568 314,705
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 152,664 171,725
Provision (recovery) for loan losses (40,000) 40,000
Increase in accrued interest payable 6,045 61,216
Increase (decrease) in other liabilities 358,917 (33,788)
(Increase) decrease in accrued interest
receivable and other assets (147,532) 10,422
Total adjustments 330,094 249,575
Net cash provided by operating activities 832,662 564,280
Cash flows from investing activities:
Increase in loans funded, net of
principal collected (4,542,533) (5,238,500)
Net decrease in deposits with banks 1,713 296,304
Purchase of securities available for sale (9,621,239) (2,386,236)
Proceeds from principal repayments and maturity
of securities 8,226,122 3,525,440
Purchase of fixed assets (29,789) (38,439)
Net cash used in investing activities (5,965,726) (3,841,431)
Cash flows from financing activities:
Net increase in demand deposits and savings 5,741,634 5,213,358
Net increase in time deposits 1,395,803 2,332,290
Proceeds from other borrowed funds 860,326 223,400
Repayment of other borrowed funds (378,969) (649,430)
Dividends paid (89,456) -
Stock options exercised 10,000 -
Net cash provided by financing activities 7,539,338 7,119,618
Net increase in cash and cash equivalents 2,406,274 3,842,467
Cash and cash equivalents at beginning of period 9,915,611 7,377,239
Cash and cash equivalents at end of period $ 12,321,885 11,219,706
See accompanying notes to the unaudited interim consolidated financial
statements.
continued . . .
Trans Pacific Bancorp and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS - continued
(unaudited)
9 months ended September 30,
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,542,681 1,222,418
Income taxes 107,400 137,400
Non-cash investing and financing activities:
Reduction of guaranteed ESOP obligation - 26,250
Change in unrealized loss on securities available
for sale, net of income taxes (47,250) 102,000
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.
Notes to 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 presentation
of financial condition, results of operations and cash flows in conformity
with generally accepted accounting principlesGAAP for the interim periods.
These adjustments are all normal and recurring in nature.
The results of operations for the nine month and three month periods ended
September 30, 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
When used in the following discussion, the words "believes", "anticipates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected, including,
but not limited to, those set forth in the sections entitled "Asset Quality",
"Asset/Liability Management", "Capital Resources", and "Legal Proceedings"
below. Readers are cautioned not to place undue reliance on these forward-
looking statements which speak only as of the date hereof. Bancorp undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
I. Overview
Trans Pacific Bancorp reported earnings of $213,429, or $0.19 per share,
in the third quarter of 1996, compared to earnings of $154,642, or $0.14
per share, in the third quarter of 1995. Net income for the first nine
months of 1996 was $502,568 or $0.45 per share, compared to a net income
of $314,705, or $0.28 per share, in the first nine months of 1995.
Return on average assets, or ROA, was 1.21 percent for the third quarter of
1996, versus 0.98 percent in the same period for 1995. For the first nine
months of 1996, ROA was 0.97 percent, compared to 0.69 percent for the
first nine months of 1995. Return on average equity, or ROE, was 12.61
percent for the third quarter of 1996, versus 9.80 percent in the same
period for 1995. For the first nine months of 1996, ROE was 9.97 percent,
compared to 6.80 percent for the first nine months of 1995.
The third 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 September 30, 1996, total assets were $73.5 million, up 13 percent from
December 31, 1995, and up 14 percent from September 30, 1995. Total deposits
were $64.7 million at September 30, 1996 up 12 and 13 percent from December
31, 1995 and September 30, 1995, respectively, while total loans were $43.3
million, up 12 and 14 percent from December 31, 1995 and September 30, 1995,
respectively.
II. Results of Operations
The following details the components of net income for the nine months ended
September 30, 1996 and 1995:
(as a percentage of average earning assets) 1996 1995
Net interest income 5.41% 5.73 %
Provision (recovery)for loan losses 0.09 (0.10)
Non-interest income 1.09 1.11
Non-interest expense (4.75) (5.57)
Income tax expense (0.74) (0.36)
Net income 1.10% 0.81 %
Net interest income was $2.5 million for the first nine months of 1996, up
12 percent from $2.2 million for the same period ending September 1995.
Separately, for the first nine months of 1996, interest income increased
$520 thousand, or 15 percent, and interest expense increased $265,000, or
21 percent compared to the first nine months of 1995. The increase in
interest income was due to the increase in the volume of earning assets,
primarily loans, but was offset slightly by a lower prime rate in 1996. The
increase in interest expense was due to both the 17 percent increase in
average interest-paying liabilities, and the 14 basis point increase
in cost of funds due to higher time deposit rates.
As shown below, the average net yield on interest-earning assets, or net
interest margin, was 5.41 percent for the first nine months of 1996, lower
than the 5.73 percent in the first nine months of 1995. For the third
quarter, net interest-earning assets yield was 5.38 percent in 1996,
versus 5.40 percent in the same period of 1995, and 5.47 percent in the
second 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 September 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets:
Loans $ 43,218 1,107 10.24% 36,236 964 10.64%
Investment securities 13,546 207 6.12% 12,230 177 5.79%
Federal funds sold 7,814 109 5.58% 5,662 82 5.79%
Interest-bearing
deposits with banks 440 7 6.60% 391 7 6.95%
Total interest-
earning assets $ 65,018 1,430 8.80% 54,519 1,230 9.02%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-
bearing $ 30,682 271 3.53% 25,467 226 3.55%
Savings 939 5 2.26% 1,142 6 2.19%
Time 20,159 269 5.35% 18,715 261 5.56%
Other short-term
borrowings 845 10 4.77% 54 1 5.12%
Total interest-
bearing liabilities $ 52,625 555 4.22% 45,378 494 4.35%
Net interest income $ 875 $ 736
Net interest-earning assets yield 5.38% 5.40%
Average Balances and Rates Nine months ended September 30,
1996 1995
Interest Average Interest Average
Average Income/ Yield Average Income/ Yield/
Balance Expense Rates Balance Expense Rate
Earning Assets:
Loans $ 41,705 3,179 10.16% 35,294 2,793 10.55%
Investment securities 13,240 589 5.93% 12,463 540 5.77%
Federal funds sold 5,462 225 5.50% 3,406 151 5.91%
Interest-bearing
deposits with banks 517 27 6.87% 360 16 5.87%
Total interest-
earning assets $ 60,924 4,020 8.80% 51,523 3,500 9.06%
Interest-Bearing Liabilities:
Deposits:
Demand, interest-
bearing $ 28,203 734 3.47% 22,373 551 3.29%
Savings 1,015 17 2.25% 1,225 21 2.22%
Time 19,354 779 5.36% 18,171 698 5.12%
Other short-term
borrowings 532 19 4.76% 289 14 6.51%
Total interest-bearing
liabilities $ 49,104 1,549 4.21% 42,058 1,284 4.07%
Net interest income $ 2,471 $ 2,216
Net interest-earning assets yield 5.41% 5.73%
Non-interest income for the first nine months of 1996 was $499 thousand,
compared to $429 thousand for the same period in 1995, an increase of 16
percent. Non-interest income was $155 thousand in the third quarter of 1996,
compared to $161 thousand in the third quarter of 1995, a decrease of 4
percent. The decrease was caused by lower deposit account service charges,
collections fees and letter of credit commissions in 1996. Also included in
the 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 nine months of 1996 was $2.17 million,
compared to $2.15 million for the same period of 1995. Personnel expense in
1996 remained at relatively the same level as in 1995. Although full-time
equivalent employees were reduced by two and no ESOP contribution was made
in 1996, these savings were offset by expenses accrued for payments under a
management incentive plan. Occupancy and furniture and equipment expense
decreased by 12 percent in 1996 as some equipment became fully depreciated
in 1995. For the first nine months of 1996, other operating expenses were
$716 thousand, up 10 percent compared to the first nine months of 1995.
The increase was primarily due to increased branch operations losses
totaling $71 thousand, and increased legal expenses. However, the FDIC
insurance premium decreased to $2 thousand in the first nine months of
1996, from $53 thousand in the same period of 1995, which lowered non-
operating expense.
Tax expense was $339 thousand for the first nine months of 1996 versus tax
expense of $139 thousand for the same nine months of 1995. The effective tax
rate for 1996 was 40 percent, versus 31 percent in 1995. The lower effective
tax rate in 1995 was primarily due to the reduction of the valuation
allowance which increased the net deferred tax asset to an amount that was
more likely than not to be realized. The increase in the deferred tax asset
in 1995 had the corresponding effect of reducing tax expense in that year.
The anticipated reduction of the remaining valuation allowance in 1996
will not have a siginificant effect on the effective tax rate accrual
through September 30, 1996.
III. Asset Quality
Asset quality continued to be maintained at satisfactory levels during the
third quarter of 1996. Classified assets totaled $1.7 million at September
30, 1996, compared to $1.4 million at December 31, 1995 and $2.7 million
at September 30, 1995. Non-performing assets, comprised of non-accrual
loans, totaled $21 thousand at September 30, 1996, compared to $45
thousand at December 31, 1995 and $1.0 million at September 30, 1995. There
was no real estate owned as of September 30, 1996.
Due to the continued satisfactory levels of asset quality, there was no
addition to the provision for loan losses in the first nine months of 1996.
However, there was a reduction of $40,000 in provision for loan losses in
the third quarter of 1996 due to recovery of a previously charged-off loan.
In 1995, the provision for loan losses were $0 and $40,000 in the third
quarter of 1995 and the first nine 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 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 nine months
ended September 30, ended September 30,
1996 1995 1996 1995
Balance, beginning of period $ 417 536 404 390
Provision (recovery) for loan losses (40) - (40) 40
Credit losses - (130) (4) (236)
Credit loss recoveries 50 17 67 229
Net credit recoveries (losses) 50 (113) 63 (7)
Balance, end of period $ 427 423 427 423
Ratio of net credit recoveries (losses)
to average loans outstanding 0.46% (1.21)% 0.21% (0.03)%
The allowance for possible loan losses increased to $427 thousand, or 0.98
percent of total loans at September 30, 1996 compared to $404 thousand at
December 31, 1995, which was 1.04 percent of total loans at 1995 year end,
and $423 thousand, which 1.11 percent of total loans at September 30, 1995.
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 September 30, 1996 and 1995, 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) Sept. 30, 1996 Sept. 30, 1995 Dec. 31, 1995
% of % of % of
Allowance Loans Allowance Loans Allowance Loans
Commercial $ 264 1.47% $ 236 1.27% $ 226 1.22%
Real Estate - Construction - - - - - -
Real Estate - Mortgage 99 0.43% 100 0.58% 82 0.45%
Consumer 9 0.36% - - 9 0.40%
Unallocated 55 - 87 - 87 -
$ 427 0.98% $ 423 1.11% $ 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 $23.9 million, or 33 percent
of assets at September 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 increased to $12.3 million at September 30, 1996,
compared to $9.9 million as of December 31, 1995 and $11.2 million as of
September 30, 1995. Cash was provided primarily from customers deposits and
used primarily to fund loans during the first nine months of 1996.
Interest Rate Risk: Bancorp evaluates its interest rate risk exposure by
analyzing the interest rate sensitivity of the Bank's 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 "gap" is defined by the Bank as the difference between the amount of
assets and amount of liabilities which may be re-priced in the same time
period. 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. To minimize exposures to
declines in net interest margin and economic value due to "gap" mismatches,
the Bank's policy is that within certain defined repricing periods, levels
of assets and liabilities repricing should be relatively similar.
At September 30, 1996, due to the increase in interest-bearing demand
deposits, the Bank will re-price more liabilities than assets within the
next twelve months, which differs from the Bank's typical repricing patterns,
but still acceptable under the Bank's policy. Approximately $45.9 million,
or 68 percent of the Bank's total interest rate sensitive assets and $53.0
million, or 98 percent of the Bank's total rate sensitive liabilities mature
or reprice within twelve months.
V. Capital Resources
The capital position of Bancorp represents the level of capital needed to
support the operation and expansion of Bancorp and the Bank and to protect
depositors and the deposit insurance fund from potential losses.
The risk-based capital adequacy requirements established by the Federal
Reserve Board calls for a minimum 8 percent total risk-based capital ratio,
including core (Tier 1) capital of 4 percent. The ratio is determined by
weighing assets and off-balance sheet exposures according to their relative
credit risks.
A leverage ratio has also been established by the Office of the Comptroller
of the Currency (OCC) for its minimum capital requirement ratio for banks.
This ratio, Tier 1 capital to adjusted average total assets, operates in
conjunction with the risk-based capital guidelines and limits the amount of
leverage a bank can undertake. Currently all banks must maintain at least a
3 percent leverage ratio. In general, however, only the top-ranked banking
organizations may operate at the minimum leverage levels. Other institutions
will be expected to maintain leverage ratios that are at least 100 to 200
basis points above the minimum levels.
Bancorp's and the Bank's capital ratios at September 30, 1996 and 1995, and
December 31, 1995 are as follows:
Sept. 30, Sept. 30, Dec. 31, Regulatory
1996 1995 1995 Minimum
Bancorp:
Tier 1 capital ratio 13.71% 15.43% 15.81% 4.00%
Total capital ratio 14.56% 16.45% 16.81% 8.00%
Leverage ratio 9.67% 10.46% 9.85% 3.00%
Bank:
Tier 1 capital ratio 14.04% 15.22% 16.06% 4.00%
Total capital ratio 14.90% 16.24% 17.05% 8.00%
Leverage ratio 9.91% 10.28% 10.03% 3.00%
Bancorp's and the Bank's capital and leverage ratios were in compliance
with the regulatory minimums as of September 30, 1996. Capital ratios were
slightly lower at September 30, 1996 as risk-weighted assets, principally
loans, grew at a faster rate than capital during the first nine months of
1996.
VI. Recent Accounting Pronouncements
During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
Accounting for Stock-Based Compensation. This established a new fair value
based accounting method for stock-based compensation plans and encourages
(but does not require) employers to adopt the new accounting method in place
of the provisions of Accounting Principles Board Opinion ("APB 25"),
Accounting for Stock Issued to Employees. In accordance with SFAS No. 123,
Bancorp has decided to continue to apply the accounting provisions of APB 25
in determining net income; however it will apply the disclosure requirements
of SFAS No. 123 in the 1996 Annual Report. Management does not expect the
application of the disclosure requirements of SFAS No. 123 to be material to
Bancorp's financial statements.
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125 ("SFAS No. 125"), Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This statement establishes
standards under which, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS No. 125
shall be effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and
shall be applied prospectively. Management does not expect the adoption of
SFAS No. 125 to be material to Bancorp's financial statements.
Part II
Item 1. Legal Proceedings
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 Bancorp or the Bank.
Additionally, the Bank has been notified of a potential unasserted claim
relating to a specific corporate deposit account. Independent legal counsel
has requested additional information from the underlying corporate entity
and the basis for any potential claim. Based on the information available
at this time, management is unable to determine what liability, if any, will
result from the resolution of this matter or whether any claim will be made.
As discussed in Item 5 below, Bancorp has considered this matter in the
pricing and escrow structure in the Agreement and Plan of Merger.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Definitive Agreement Signed: On October 18, 1996, Bancorp entered into a
definitive agreement pursuant to which a private investor group led by
Chicago banker Denis Daly, Sr. will acquire all of the issued and outstanding
shares of Bancorp.
Subject to certain terms and conditions, each outstanding share of Bancorp
will be converted into the right to receive a cash payment of $8.00 per
share at closing and a possible subsequent payment from escrowed
funds of up to $0.61 per share following the resolution of certain pending
contingencies. The acquisition of Bancorp is subject to approval by
regulatory authorities as well as shareholders of Bancorp. The transaction
is expected to be completed by March 31, 1997.
Stock Option Plan: In 1984, Bancorp adopted the Trans Pacific Bancorp Stock
Option Plan (the "Plan"), which provided for the issuance of options to
employees of Bancorp and the Bank. The Plan was a qualified plan under the
provisions of Section 422 of the Internal Revenue Code. The Plan allowed the
grant of options to qualified employees for up to ten years after the date of
the adoption of the Plan. The Plan was submitted to and approved by the
shareholders of Bancorp in accordance with applicable law. The Plan remains
in effect until all options granted under the Plan have either been exercised
or have expired under the terms of the Plan.
In 1989, the Board of Directors approved proposed amendments to the Plan to,
among other things, shorten the period within which options could be granted
to qualified employees, from ten to seven years. Under the terms of the Plan,
any material amendment to the Plan required submission to the shareholders of
Bancorp prior to its effectiveness. No determination was made whether the
proposed amendment was a material amendment of the Plan and the proposed
Plan amendment was not submitted to the shareholders for approval. In 1993,
options were granted to certain eligible employees, for an aggregate of
27,500 shares of Common Stock of Bancorp.
In September, 1996, it was determined that the proposed Plan amendment to
shorten the period within which options could be granted under the Plan was
a material amendment, and as such, required prior submission to the
shareholders and thus was ineffective. Accordingly, the Board has rescinded
the proposed Plan amendment retroactive to the date of its approval by the
Board. Prior filings of the Company will be amended as appropriate.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 2.2 Agreement and Plan of Merger, incorporated by reference from
Bancorp's 8-K filing dated October 25, 1996
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
After the third quarter of 1996, Bancorp filed a report on Form 8-K on
October 25, 1996. The report filed, pursuant to items 5 and 7 of the report,
a copy of the Agreement and Plan of Merger and a copy of the press release
titled "Private Investor Group Led by Chicago Banker Denis Daly, Sr.
Announces Agreement to Acquire Trans Pacific Bancorp".
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: November 12, 1996
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