-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KXSUBmeDuyCiMAZpfBn+kXkxqy6MOPBTHFBElVFLeDFoqfUbhfTbaZlz3NRLOB63 mst4pHV6xLBGNEBcKnYc6Q== 0000729661-96-000001.txt : 19960329 0000729661-96-000001.hdr.sgml : 19960329 ACCESSION NUMBER: 0000729661-96-000001 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS PACIFIC BANCORP CENTRAL INDEX KEY: 0000729661 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942917713 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-86902 FILM NUMBER: 96540334 BUSINESS ADDRESS: STREET 1: 46 SECOND ST CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4155433377 10-K405 1 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. 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. 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. 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. 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. 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. 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. 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. 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. 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) EX-13 2 1995 Annual Report 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. 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 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% 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 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 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 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% 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. 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. 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. 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 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 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 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 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 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 . . . 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 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. 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 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. 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) 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 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. 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. 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) 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: 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. 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 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 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 EX-23 3 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 EX-27 4
9 YEAR DEC-31-1995 DEC-31-1995 5190611 489713 4725000 0 13870220 0 0 38744088 403651 64826520 57563988 186432 544129 0 0 0 5784323 747648 64826520 3843432 739133 272477 4855042 1783252 1799210 3055832 40000 0 2961215 652382 445382 0 0 445382 0.40 0 5.74 45000 0 0 0 390465 284860 258046 403651 316348 0 87303
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