-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mwCBHIfcrs2W6yOqac12fvKC4Bj3sFA//uJbyvBqF9XtUh+yRwt3RTSurQXvf4VC DslvDs3oXsM4rZJL8nx/qA== 0000950148-95-000233.txt : 19950516 0000950148-95-000233.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950148-95-000233 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BKLA BANCORP CENTRAL INDEX KEY: 0000716615 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953840703 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12851 FILM NUMBER: 95538489 BUSINESS ADDRESS: STREET 1: 8901 SANTA MONICA BLVD CITY: WEST HOLLYWOOD STATE: CA ZIP: 90069 BUSINESS PHONE: 3105508900 MAIL ADDRESS: STREET 2: 8901 SANTA MONICA BLVD P O BOX 69740 CITY: WEST HOLLYWOOD STATE: CA ZIP: 90069 10-Q 1 FORM 10-Q FOR PERIOD ENDING 03/31/95 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 /X/ Quarterly Report under Section 13 or 15 (D) Of the Securities Exchange Act of 1934 / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transaction period from _____ to _____ For Quarter Ended March 31, 1995 Commission File #0-12851 BKLA BANCORP (Exact name of registrant as specified in its charter) CALIFORNIA 95-3840703 (State or other jurisdiction) (IRS Employer Identification) 8901 SANTA MONICA BLVD., WEST HOLLYWOOD, CALIFORNIA 90069 (Address of principal executive offices) (Zip Code) (310) 550-8900 (Registrant's telephone number, including area code) 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, NO PAR VALUE 5,983,325 Class Outstanding on March 31, 1995 This Form 10-Q contains 23 pages. Page 1 2
Index ----- Part I -- Financial Information Item 1 -- Consolidated Financial Statements Consolidated Balance Sheets Page 3 Consolidated Statement of Operations Page 5 Consolidated Statement of Cash Flows Page 6 Note to Consolidated Financial Statements Page 8 Item 2 -- Management's Discussion and Analysis Results of Operations Page 11 Capital Resources Page 16 Liquidity and Interest Rate Management Page 17 Regulatory Matters Page 19 Subsequent Events Page 20 Part II -- Other Information Page 22 Signature Page Page 23
Page 2 3 Part I, Item 1 -- Consolidated Financial Statements BKLA BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
(Unaudited) (in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- ASSETS - ------ Cash and due from banks $ 5,059 $ 5,177 Federal funds sold 3,700 3,000 -------- -------- Total cash and cash equivalents 8,759 8,177 Securities held to maturity (approximate market value of $12,848 and $14,687 in 1995 and 1994 respectively) 12,861 14,821 Securities held available for sale 15,466 15,781 Loans receivable, net of allowance for credit losses of $1,712 and $1,633 in 1995 and 1994 respectively 33,993 36,481 Accrued interest receivable 702 685 Premises and equipment, net 2,663 2,608 Real estate owned 512 -- Other assets 1,984 1,954 -------- -------- Total assets $ 76,940 $ 80,507 ======== ========
Page 3 4 BKLA BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
(UNAUDITED) (in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Demand, non-interest bearing $ 24,321 $ 25,128 Interest bearing: Time certificates of deposit of $100,000 or more 6,083 7,422 Other 36,945 41,921 -------- -------- Total deposits 67,349 74,471 Obligation under capital lease 1,831 1,830 Accrued interest payable and other liabilities 406 389 -------- -------- Total liabilities 69,586 76,690 -------- -------- Shareholders' equity Common stock, no par value; authorized, 10,000,000 shares: issued and outstanding, 5,983,325 shares 14,517 11,078 Accumulated deficit (6,850) (6,788) Unrealized loss on securities held available for sale (313) (473) -------- -------- Total shareholders' equity 7,354 3,817 -------- -------- Total liabilities and shareholders' equity $ 76,940 $ 80,507 ======== ========
Page 4 5 BKLA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Year Ended, (dollars in thousands) March 31, 1995 March 31, 1994 --------------- -------------- Interest income: Loans receivable $ 1,027 $ 1,025 Investment securities -- 311 Securities held to maturity 213 -- Securities available for sale 233 -- Federal funds sold 46 74 Deposits with financial institutions 1 -- ----------- ----------- Total interest income 1,520 1,410 Interest expense: Deposit accounts 316 354 Short-term borrowed funds 44 -- Capital lease obligation 64 64 ----------- ----------- Total interest expense 424 418 ----------- ----------- Net interest income 1,096 992 Provision for credit losses -- -- ----------- ----------- Net interest income after provision for credit losses 1,096 992 Non-interest income: Service charges and fees 174 287 Gain (loss) on sale of securities, net -- -- ----------- ----------- Total non-interest income 174 287 Non-interest expense: Employee compensation and benefits 643 687 Occupancy expense 242 295 Other expense 421 465 Goodwill amortization 26 26 Real estate owned -- 4 ----------- ----------- Total non-interest expense 1,332 1,477 ----------- ----------- Loss before taxes (62) (198) Income tax expense -- -- ----------- ----------- Net income $ (62) $ (198) =========== =========== Net loss per share of common stock $ (0.05) $ (0.16) =========== =========== Average shares outstanding 1,349,007 1,251,565 =========== ===========
Page 5 6 BKLA BANCORP AND SUBSIDIARY Consolidated Statements of Cash Flows
(UNAUDITED) (in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 1,533 $ 6,123 Fees received 174 923 Interest paid (509) (1,634) Cash paid to suppliers and employees (1,151) (5,363) Income taxes paid -- (2) -------- --------- Net cash provided (used) by operating activities 47 47 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and pay-downs of held to maturity securities 2,000 11,000 Proceeds from sale of held to maturity securities -- -- Purchases of held to maturity securities -- (16,740) Proceeds from maturities and pay-downs of available for sale securities 393 2,764 Proceeds from sale of available for sale securities -- -- Purchases of available for sale securities -- -- Net decrease in loans receivable 1,976 11,802 Acquisition of premises and equipment (151) (310) Proceeds for the sale of premises and equipment -- -- -------- --------- Net cash provided (used) by investing activities 4,218 8,516 CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 3,439 -- Net (decrease) increase in deposits (7,122) (16,917) -------- --------- Net cash provided (used) by financing activities (3,683) (16,917) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 582 (8,354) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,177 16,531 -------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,759 $ 8,177 ======== =========
Page 6 7 BKLA BANCORP AND SUBSIDIARY Consolidated Statements of Cash Flows
(UNAUDITED) (in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net loss: $ (62) $ (1,212) Adjustments for non-cash items: Depreciation and amortization of fixed assets, investments and goodwill 165 942 Provisions for loan losses -- -- (Decrease) increase in deferred loan origination fees, net (14) (34) Net realized gains on available for sale securities -- -- Loss (gain) on disposal of premises and equipment -- 22 (Gain) loss or other real estate owned -- -- Decrease (increase) in accrued interest receivable (17) 22 Decrease in other assets (41) 176 Decrease (increase) in interest payable and other liabilities 16 131 ------ -------- Net cash provided (used) by operating activities $ 47 $ 47 ====== ========
Page 7 8 BKLA Bancorp and Subsidiary Notes to Consolidated Financial Statements (Unaudited) 1. Principles of Consolidation The consolidated financial statements of BKLA Bancorp (the "Company") include the accounts of BKLA Bancorp and its wholly-owned subsidiary, Bank of Los Angeles (the "Bank"). All intercompany accounts and transactions have been eliminated. 2. Cash and Cash Equivalents Cash and cash equivalents consist of cash and investments with terms to maturity at acquisition of three months or less, including federal funds sold. 3. Investment Securities The Bank classifies its investment securities in two categories: securities available for sale and securities held to maturity. Securities available for sale are stated at fair value, with net unrealized gains and losses reported as a separate component of shareholders' equity. Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using a method which approximates the interest method over the period to maturity. The amortized cost or carrying value of the specific security sold is used to compute the gain or loss on the sale. Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and all investments in debt securities. Under this statement, investments will be classified into three categories, as follows: Securities held to maturity - Debt securities that the Bank has the positive intent and ability to hold to maturity. These securities are to be reported at amortized cost. Trading Securities - Debt and equity securities that are bought and held for the purpose of selling them in the near term. These securities are to be reported at fair values, with unrealized gains and losses included in earnings. Securities Available for Sale - Debt and equity securities not classified as either held-to-maturity or trading securities. These securities are to be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity (net of tax effects). 4. Loans Receivable Interest on loans is credited to income as earned and is accrued only if deemed collectible. Non-refundable fees, net of incremental costs, associated with the origination or acquisition of loans are deferred and recognized as an adjustment of the loan yield over the life of the loan in a manner that approximates the level yield method. Other loan fees and charges, representing service costs for the prepayment of loans, for delinquent payments or for miscellaneous loan services are recorded as income when collected. Page 8 9 Notes to Consolidated Financial Statements continued 5. Allowance for Credit Losses In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This statement amends SFAS No. 5, "Accounting for Contingencies," and SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." This statement prescribes that a loan is impaired when 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. Measurement of the impairment can be based on either the discounted future cash flows of the impaired loan or the fair market value of the collateral for a collateral- dependent loan. Creditors may select the measurement method on a loan-by-loan basis, except that collateral-dependent loans for which foreclosure is probable must be measured at the fair value of the collateral. The Bank has applied SFAS No. 114 as of January 1, 1995. The allowance for credit losses is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. The allowance is increased by provisions for credit losses charged against operations and recoveries of previously charged off loans. Management believes that, as of March 31, 1995, the allowance for credit losses is adequate to provide for losses inherent in the loan portfolio. However, the allowance is an estimate which is inherently uncertain and depends on the outcome of future events. Management's estimates are based on previous loan loss experience; volume, growth and composition of the loan portfolio; the value of collateral; and current economic conditions. The Bank's lending is concentrated in real estate secured and unsecured loans in Southern California, which has recently experienced adverse economic conditions and declining real estate values. These conditions have adversely affected many borrowers' ability to repay loans. Additional declines in the economy could result in increasing loan losses that cannot be reasonably predicted. Such losses would also result in unanticipated erosion of the Bank's capital. 6. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation on furniture, fixtures and equipment is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to ten years. Capitalized leases are amortized over the term of the lease on the straight-line method. Leasehold improvements are amortized over the term of the lease or the estimated useful lives of the improvements, whichever is shorter, and computed on the straight-line method. 7. Other Real Estate Owned The Bank records other real estate owned at the fair value of the real estate less management's estimates of selling costs as of the date of foreclosure or in-substance foreclosure. Loan balances in excess of fair value of real estate acquired at the date of foreclosure or in-substance foreclosure are charged to the allowance for credit losses. An allowance is recorded against the foreclosed assets for any subsequent declines in fair value. Any subsequent operating expenses or income, reduction in fair value, and gains or losses on disposition of such properties are charged to current operations. Page 9 10 Notes to Consolidated Financial Statements continued 8. Income Taxes Deferred income taxes are provided for temporary differences in the recognition of items of income and expense reported in different accounting periods for tax and financial reporting purposes. SFAS No. 109 "Accounting for Income Taxes" requires an asset and liability approach for determining the amount of income taxes for financial reporting. A current or deferred tax liability or asset is measured based on the amount of taxes calculated at the then-effective tax rates payable or refundable currently or in future years. This statement also requires that a valuation allowance be recorded if it is more likely than not that some or any of the deferred tax asset will not be realized. 9. Loss per Share Loss per share is computed on the basis of the weighted average number of shares outstanding during the year plus shares issuable upon the assumed exercise of stock options. The weighted average number of shares outstanding was 1,349,007 at March 31, 1995 and 1,251,565 at December 31, 1994. Due to the antidilutive effect, stock options and warrants are not considered common stock equivalents at March 31, 1995 and December 31, 1994. Page 10 11 Part I, Item 2 -- Management's Discussion and Analysis The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes in trends to the consolidated financial condition and results of operations of the Company. The discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes to the consolidated financial statements that follow. A. RESULTS OF OPERATIONS 1. Summary Net income changes -- The Company reported a net loss for the three months ended March 31, 1995, of $62,000 as compared to a net loss of $198,000 for the three months ended March 31, 1994. The loss per share for 1995 was $.05 as compared to a loss per share of $.16 in 1994. No provision for credit losses was made for the three months ended March 31, 1995 and for the three months ended March 31, 1994. Net interest income for the period ended March 31, 1995, was $1,096,000, an increase of $104,000 compared to net interest income for the period ended March 31, 1994, of $992,000. Net interest income increased due to rates by $309,000 and was substantially offset by $205,000 decline in net interest income due to volume. Non-interest income for the period ended March 31, 1995, was $174,000 a decrease of $113,000 compared to $287,000 for the period ended March 31, 1994. In the fourth quarter of 1994, the Bank discontinued its escrow operations. There were no escrow fee income for the period ended March 31, 1995, compared to $26,000 for the period ended March 31, 1994. The additional decline of $87,000 in period to period non-interest income was due to lower fee income from a declining deposit base. Non-interest expense for the period ended March 31, 1995, was $1,332,000, a decrease of $145,000 compared to $1,477,000 for the period ended March 31, 1994. The Bank is continuing efforts to reduce expense by the consolidation of the administrative and customer service functions into the two branch buildings. The administrative building lease at 8901 San Vicente, West Hollywood, was allowed to expire in the fourth quarter of 1994. which resulted in $53,000 decrease in occupancy expense for the period ended March 31, 1995. Employee compensation and benefits was $643,000 for the period ended, March 31, 1995, a decrease of $44,000 compared to $687,000 for the period ended March 31, 1994. Other non-interest expense was $421,000 for the period ended March 31, 1995, a decrease of $44,000 compared to $465,000 for the period ended March 31, 1994. Balance sheet changes. -- Common stock increased $3,439,000 to $14,517,000 at March 31, 1995 due Investors Banking Corporation investment in BKLA Bancorp. Total assets at March 31, 1995, were $76,940,000 a decline of $3,567,000 from total assets of $80,507,000 at December 31, 1994. Total deposits were $67,349,000, a decline of $7,122,000 compared to total deposits of $74,471,000 at December 31, 1994. Page 11 12 Management's Discussion and Analysis continued The following table presents certain important ratios for the Company for the periods indicated:
Period Ending ------------- March 31, 1995 March 31, 1994 -------------- -------------- Average Net Average Average Net Average Balance Income Rate Balance Income Rate ------- ------ ------- ------- ------ ------- Loss on average assets 78,705 (62) -0.3% 94,267 (198) -0.8% Loss on average shareholders' equity 4,332 (62) -5.7% 5,142 (198) -15.4% Average equity to average assets 5.5% 5.5%
2. Securities The maturity distribution of investment securities at March 31, 1995, is as follows:
Available for Sale Held to Maturity ------------------ ---------------- Amortized Estimated Carrying Estimated (in thousands) Cost Fair Value Value Fair Value ---------- ---------- --------- ---------- Less than one year -- -- $ 7,939 $ 7,913 One to five years -- -- 4,922 4,935 Mortgage-backed securities 9,099 8,907 -- -- SBA securities 6,680 6,559 -- -- ---------- ---------- --------- ---------- $ 15,779 $ 15,466 $ 12,861 $ 12,848 ========== ========== ========= ==========
The amortized cost, carrying value and estimated fair value of investment securities as of March 31, 1995, are as follows:
Amortized Estimated Gross Unrealized ---------------- Cost Fair Value Losses Gains --------- ---------- ------ ------ Securities held to maturity: U.S. Treasury securities $ 12,861 $ 12,848 $ 43 $ 30 Securities available for sale: Securities of U.S. government agencies and corporations 5,085 4,999 86 -- Mortgage backed securities 4,013 3,908 105 -- SBA securities 6,681 6,559 122 -- --------- ---------- ------ ------ $ 28,640 $ 28,314 $ 356 $ 30 ========= ========== ====== ======
Page 12 13 Management's Discussion and Analysis continued 3. Loans Receivable The components of loans in the consolidated balance sheets were as follows:
March 31, 1995 December 31, 1994 (dollars in thousands) Amount Percentage Amount Percentage -------- ---------- -------- ---------- Commercial loans $ 8,867 24.7% $ 10,165 26.6% Real estate loans: Single family 1,943 5.4% 2,510 6.6% Multi-family 408 1.1% 270 0.7% Commercial 20,109 56.2% 20,457 53.5% -------- -------- Total real estate loans 22,460 62.6% 23,237 60.8% Consumer loans 4,500 12.6% 4,848 12.7% -------- -------- Total loans $ 35,827 100.0% $ 38,250 100.0% Less deferred loan origination fees (122) (137) Less allowance for loan losses (1,712) (1,633) -------- -------- Net loans $ 33,993 $ 36,480 ======== ========
4. Commitments to extend credit and standby letters of credit. Commitments to extend credit -- At March 31, 1995, the Bank had commitments to extend credit of $6,001,000. 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. Standby letters of credit -- At March 31, 1995, the Bank had $520,000 in financial standby letters of credit. Standby letters of credit are a conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Page 13 14 Management's Discussion and Analysis continued 5. Allowance for credit losses An analysis of the change in the allowance for credit losses follows:
March 31, 1995 December 31, 1994 -------------- ----------------- Loans outstanding at end of period $ 35,827 $ 38,250 Average loans outstanding $ 37,280 $ 42,939 Allowance for credit losses at beginning of period $ 1,633 $ 2,478 Charge-offs: Commercial 0 (907) Real estate (32) (257) Consumer (6) (137) -------- -------- Total (38) (1,301) Recoveries Commercial 28 380 Real estate 85 44 Consumer 4 32 -------- -------- Total 117 456 -------- -------- Net loans charged-off 79 (845) Provision charged to operations 0 0 Allowance for credit losses as of end of period $ 1,712 $ 1,633 ======== ======== Ratio of net charge-offs to average loans outstanding 0.2% -2.0% ======== ======== Ratio of allowance for credit losses to loans outstanding at end of period 4.7% 4.3% ======== ========
Page 14 15 Management's Discussion and Analysis continued 6. Non-performing assets
(in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- Past due 30 through 89 days $ 171 $ 6 Loans on non-accrual 202 838 Total $ 373 $ 844
7. Other assets The net carrying value of the bargain lease element relative to a lease, acquired in a 1983 acquisition is reflected in other assets at March 31, 1995 and December 31, 1994 in the amounts of approximately $1,662,000 and $1,675,000, respectively. The bargain lease element is being amortized on a straight-line basis over a period of thirty-nine years. At March 31, 1995 and December 31, 1994, other assets also include approximately $71,000 and $84,000, respectively, relative to the acquisition of deposits of a failed savings and loan association from the Resolution Trust Corporation. The acquisition cost is being amortized on a straight-line basis over a five-year period. 8. Deposit accounts The components of deposits in the consolidated balance sheets were as follows:
(in thousands) March 31, 1995 December 31, 1994 -------------- ----------------- Non-interest bearing demand $ 24,321 $ 25,128 Interest bearing demand 9,659 9,926 Money market 11,270 14,541 Savings 10,629 11,382 Time deposits under $100,000 5,387 6,072 Time deposits over $100,000 6,083 7,422 -------- -------- Total deposits $ 67,349 $ 74,471
The maturity of time deposits are as follows:
Time Deposits Time Deposits Total Time (dollars in thousands) Under $100,000 Over $100,000 Deposits -------------- ------------- ---------- Three months or less $ 2,484 $ 4,369 $ 6,853 Over three months through six months 1,353 1,009 2,362 Over six months through twelve months 1,345 705 2,050 Over twelve months 205 205 ------- ------- -------- Total $ 5,387 $ 6,083 $ 11,470
Page 15 16 Management's Discussion and Analysis continued 9. Short term borrowings In the first quarter of 1995 the Bank sold securities under an agreement to repurchase those securities at a later date. On a quarterly average for the period ended March 31, 1995, repurchase agreements were $2,753,000. 10. Income taxes In 1995 and 1994 the Bank had no income tax expense or credits. B. CAPITAL RESOURCES On July 28, 1994, the Company, the Bank and Investors Banking Corporation ("Investors"), a bank holding company located in Salem, Oregon, entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which Investors agreed to invest up to approximately $5,000,000 in the Company (the "Transaction") over a period of approximately six months. The first phase of the Transaction, which was completed on March 29, 1995, consisted of an infusion of approximately $2,900,000, net of costs of approximately $90,000, through the purchase of 2,019,006 units of securities ("Units"), with each Unit comprised of two shares of the Company's common stock, no par value ("Common Stock"), and one warrant, exercisable for three years after issuance, to purchase Common Stock at $.75 per share. On March 30, 1995, Investors made an additional infusion of approximately $500,000, net of costs of approximately $20,000, through the purchase of an additional 346,874 Units. The second phase of the Transaction will involve an offering of rights to existing shareholders, other than Investors, of the Company to purchase Common Stock. Investors may purchase any securities not purchased by the other shareholders. The Company expects to raise an additional $2,300,000 in the rights offering, which is designed to enable shareholders of the Company, other than Investors, to increase their collective ownership of the Company to approximately 45%. The Federal Deposit Insurance Corporation (the "FDIC") issued an Order to Cease and Desist (the "Order") which became effective on March 20, 1994. The Order requires, among other items (refer to "Management's Discussion and Analysis", Section "Regulatory Matters"), that the Bank to adhere to capital standards which include maintenance by the Bank of a ratio of total Tier 1 capital to risk-weighted assets of 6.5%, and a leverage ratio of at least 6.5%. At March 31, 1995, the Bank had a Tier 1 capital to risk-weighted assets ratio (unaudited) of 14.25%, and a leverage ratio (unaudited) of 7.42% At December 31, 1994, the Bank had a Tier 1 capital to risk-weighted assets ratio (unaudited) of 6.02%, and a leverage ratio (unaudited) of 2.97%. In the event that the Bank's ratio of tangible equity to total assets (as defined by federal regulations) declines to 2% or less, except under limited circumstances, the FDIC is required not later than 90 days thereafter to appoint a conservator or receiver for the Bank. The FDIC issued a letter on May 8, 1995 stating that the Order had achieved the desired effect of recapitalization. No further reporting under the Order is required. Page 16 17 Management's Discussion and Analysis continued The FDIC issued a letter on May 5, 1995 stating that the Bank's capitalization has improved sufficiently so that the bank is no longer subject to the Prompt Corrective Action restrictions contained in Section 38 of the Federal Deposit Insurance Act. C LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT 1. Liquidity Management monitors its liquidity position continuously in relation to trends of loans and deposits, and relates the data to short and long term requirements. The Bank no longer has lines of credit with other financial institutions. As a result the Bank must rely on it's own assets for liquidity. Liquid assets are defined to include federal funds sold, interest bearing deposits in other financial institutions, unpledged marketable investment securities and cash and due from banks. The Company's liquidity ratio (the sum of liquid assets divided by the difference of total deposits and public deposits) was 50.1% at March 31, 1995 and 47.1% as of year end 1994. The loan-to-deposit ratio at March 31, 1995 was 53.0% and at year end 1994 was 51.4% 2. Interest Rate Sensitivity Management The Company has adopted policies designed to minimize the exposure to interest rate fluctuations, and regularly measures the differences in the amounts of rate sensitive assets and rate sensitive liabilities over a variety of time periods. A gap for a specified period is positive (negative) when the amount of rate sensitive assets (liabilities) maturing or repricing within that period exceeds the amount of rate sensitive liabilities (assets) maturing or repricing within the same period. A positive gap will generally produce a higher net interest margin in a rising rate environment and a lower net interest margin in a declining rate environment. Conversely, a negative gap will generally produce a lower net interest margin in a rising rate environment and a higher net interest margin in a declining rate environment. However, because interest rates for different asset and liability products offered by depository institutions respond in a different manner, both in terms of the responsiveness as well as the extent of responsiveness, to changes in the interest rate environment, the gap is only a general indicator of interest rate sensitivity. The following table is a gap analysis for the Company as of March 31, 1995 Page 17 18 Management's Discussion and Analysis continued
0 - 1 2 - 30 31 - 181 - 1 YEAR OVER % 180 365 TO NON-INTEREST (IN THOUSANDS) DAYS DAYS DAYS DAYS 5 YEARS 5 YEARS BEARING TOTAL ASSETS ---- ---- ---- ---- ------- ------- ------- ----- ------ ASSETS Federal funds sold 3,700 3,700 4.8% Time certificates 112 112 0.1% Fixed rate securities 1,998 2,968 4,999 9,970 1,088 21,023 27.3% Variable rate securities 3,019 3,541 744 7,304 9.5% ------- ------ ------ ------- ------- ------- ------ ------ ----- Investments 3,700 5,129 6,509 5,743 9,970 1,088 0 32,139 41.8% Loans, variable 31,154 31,154 40.5% Loans fixed 150 259 444 800 1,851 845 4,349 5.7% ------- ------ ------ ------- ------- ------- ------ ------ ----- Loans 31,304 259 444 800 1,851 845 0 35,503 46.1% ------- ------ ------ ------- ------- ------- ------ ------ ----- Total earning assets 35,004 5,388 6,953 6,543 11,821 1,933 0 67,642 87.9% Other assets 9,298 9,298 12.1% ------- ------ ------ ------- ------- ------- ------ ------ ----- Total 35,004 5,388 6,953 6,543 11,821 1,933 9,298 76,940 100.0% ======= ====== ====== ======= ======= ======= ====== ====== ===== Liabilities and Equity CDs $100,000 or more 0 2,401 2,978 704 6,083 7.9% CDs less than $100,000 4 1,371 2,425 1,382 205 5,387 7.0% Money Market 11,270 11,270 14.6% NOW 9,147 9,147 11.9% Super NOW 512 512 0.7% Savings 10,629 10,629 13.8% ------- ------ ------ ------- ------- ------- ------ ------ ----- Total deposits 4 35,330 5,403 2,086 205 0 0 43,028 55.9% ======= ====== ====== ======= ======= ======= ====== ====== ===== Repurchase agreements 0 0.0% Capital Lease 1,831 1,831 2.4% Non-interest deposits 24,321 24,321 31.6% Other liabilities and equity 7,760 7,760 10.1% ------- ------ ------ ------- ------- ------- ------ ------ ----- Total 4 35,330 5,403 2,086 205 1,831 32,081 76,940 100.0% ======= ====== ====== ======= ======= ======= ====== ====== ===== GAP (Assets less liabilities) (35,000) 29,942 (1,550) (4,457) (11,616) (102) 22,783 0 Cumulative Gap (35,000) (5,058) (6,608) (11,065) (22,681) (22,783) 0 Percent of Assets -45.5% -6.6% -8.6% -14.4% -29.5% -29.6% Impact of .5% increase (a) 0 2 14 28 567 Cumulative Impact 0 2 16 44 611
a) This figures shown are based on the assumption that every asset and every liability within the category change rate Page 18 19 at the same time and that the new rate remains in effect throughout the time period shown. Management's Discussion and Analysis continued D. REGULATORY MATTERS The Federal Deposit Insurance Corporation (the "FDIC") examined the Bank and, through the FDIC's Report of Examination (the "Report") dated October 15, 1993, noted certain deficiencies in the Bank's compliance with a memorandum of understanding ("MOU") which was issued on January 14, 1993. As a result, the FDIC issued an Order to Cease and Desist (the "Order") on February 23, 1994 which became effective on March 20, 1994. The FDIC Order supersedes the MOU entered into by the Bank with the FDIC and the Superintendent of Banks, State of California (the "Superintendent"). The Order requires the Bank to: (a) have and retain qualified management with qualifications and experience commensurate with his or her duties at the Bank which should include (i) a chief executive officer with proven ability in managing a bank of comparable size and experience in upgrading a low quality loan portfolio, and (ii) a senior lending officer with an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans; (b) increase its Tier 1 capital by no less than $3,000,000 on or before July 18, 1994 and achieve, on or before such date, and thereafter maintain, a leverage ratio of at least 6.5%; (c) eliminate from its books certain criticized assets to specified levels at various dates until March 20, 1995; (d) not extend any additional credit to any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "loss" or "substandard" and is uncollected without the prior written approval of a majority of the board of directors or the loan committee; (e) revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Bank's lending functions by May 19, 1994; (f) develop a written plan to systematically reduce the amount of each loan concentration specified in the Report to an amount less than 25% of the Bank's Tier 1 capital for each individual loan concentration; (g) maintain an adequate reserve for loan losses; (h) develop and adopt by May 19, 1994 a plan to control overhead and other expenses and restore the Bank's profitability; (i) eliminate and/or correct all violations of law set forth in the Report by June 18, 1994; (j) develop, adopt and implement a written policy by May 19, 1994 governing the relationship between the Bank and its parent company and eliminating the payment of any management, consulting, or other fees to its parent company, except for those services performed on behalf of the Bank; (k) restrict its asset growth to an amount not to exceed 10%; (l) refrain from paying cash dividends without the prior written consent of the FDIC and the Superintendent; and (m) furnish written progress reports to the FDIC and the Superintendent on a quarterly basis detailing the manner of any actions taken to comply with the Order and the results thereof. The FDIC issued a letter on May 8, 1995 stating that the Order had achieved the desired effect of recapitalization. No further reporting under the Order is required and the Order will be formally terminated in the near future. Management believes that the FDIC will take formal action within the next thirty days. On January 7, 1994, the FDIC delivered to the Bank a letter notifying the Bank it was undercapitalized under the Prompt Corrective Action Provisions of Section 38 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act"). In accordance with the Prompt Corrective Action Provisions, on February 16, 1994, the Bank submitted to the FDIC a capital restoration plan and BKLA submitted to the FDIC a guarantee of the capital restoration plan. Page 19 20 Management's Discussion and Analysis continued The FDIC issued a letter on May 8, 1995 stating that the Bank's capitalization has improved sufficiently so that the bank is no longer subject to the Prompt Corrective Action restrictions contained in Section 38 of the Federal Deposit Insurance Act. On December 22, 1994, the Superintendent delivered to the Bank an impairment order pursuant to California Financial Code Section 662 (the "Impairment Order") to correct its capital impairment as of September 30, 1994 within sixty (60) days of the Impairment Order. Since the capital impairment had not been corrected within the sixty days, the Bank had, pursuant to a resolution by the Board of Directors of the Bank (the "Board"), submitted a request to the California State Banking Department for a permit to levy an assessment on the Bank's outstanding shares of common stock. As a result of the consummation of the capital infusion transaction described in "Section II -- Management's Discussion and Analysis; Item C, Capital Resources", the Company increased its contributed capital and cured the Bank's capital impairment. Accordingly, on March 30, 1995, the Board rescinded its previous request to levy an assessment on the Bank's outstanding shares of common stock. The Federal Reserve Bank of San Francisco (the "FRB SF") concluded its most recent examination (the "Examination") of the Company as of February 10, 1994. Based on its inspection, the FRB SF reported that the financial condition of the Company was marginal as a result of the Bank's asset quality problems, operating losses and insufficient capital. Pursuant to a letter dated March 2, 1994 delivered to the Company, the FRB SF informed the Company that it must continue to abide by a supervisory letter previously delivered to the Company on April 16, 1993 (the "Supervisory Letter"). The Supervisory Letter provides that the Company may not pay any cash dividends, incur any debt or repurchase any of its outstanding stock without the prior approval of the FRB SF. On April 11, 1994, the FRB SF and the Company entered into a Memorandum of Understanding (the "MOU"), intending to address certain concerns of the FRB SF disclosed during its inspection of the Company. The MOU provides, among other things, that without the prior approval of the FRB SF, the Company will not declare dividends, incur additional debt, repurchase any of its outstanding stock or enter into any agreements to acquire any entities or portfolios. E. SUBSEQUENT EVENTS On April 24, 1995, the Bancorp signed a letter of intent to merge World Trade Bank N.A. ("WTB") into the Bank. WTB's total assets are approximately $50,000,000. The precise form of the transaction will be determined mutually in conjunction with the preparation of a definitive acquisition agreement and plan of reorganization and will be subject to the terms and conditions. The proposed acquisition is conditioned upon the receipt of all necessary governmental approvals, including without limitation, all required approvals of the California Superintendent of Banks, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and Board of Governors of the Federal Reserve System. Upon consummation of the proposed acquisition, each share of common stock of WTB will be converted into a right to receive a certain number of shares of common stock of the Bancorp. The number of shares of Bancorp common stock issuable to each WTB shareholder will be determined in accordance with an exchange ratio based upon the relationship between the adjusted book value per share of common stock of Both the Bancorp and WTB at the time of closing. Book value shall be equal to book value as determined in accordance with generally accepted accounting principles, applied on a basis consistent with Page 20 21 Management's Discussion and Analysis continued prior periods, on a fully diluted basis (including all outstanding warrants but excluding all outstanding stock options), as of the date of the closing or the immediately preceding month-end, as agreed upon by the parties. Book value shall be adjusted by (i) a reduction of 50% of the total unrealized loss on its investment securities portfolio as of the determination date, (ii) an increase of 100% of the unrealized loss in the available for sale portion of the securities portfolio, and (iii) an increase of the estimated aggregate amount of recoveries subsequent to the closing on previously charged off loans. Additional shares of common stock of Bancorp may be issuable to the WTB stockholders at the end of a 24-month period commencing on the date of the closing based upon (i) changes in the relative value of the investment securities portfolio of the Bancorp and WTB based upon differences between market value and book value thereof and (ii) actual recoveries on loans previously charged off prior to the closing. Page 21 22 Part II -- Other Information Item 2: Changes in securities None Item 3: Defaults upon senior securities None Item 4: Submission of matters to a vote of security holders None Item 5: Other information not previously reported on form 8-K None Item 6: Exhibits and reports on form 8-K a. Exhibits None b. Reports on Form 8-K. April 13, 1995 -- Changes in Control of Registrant April 27, 1995 -- Resignation of a Registrant's Director
Page 22 23 SIGNATURES Pursuant to the requirements 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. BKLA BANCORP Date: May 9, 1995 _________________________________ M.J. Burford Chairman of the Board and Chief Executive Officer Date: May 9, 1995 _________________________________ Allen Partridge Chief Financial Officer
Page 23 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 MAR-31-1995 1 5,059 0 3,700 0 15,466 12,861 12,987 33,993 1,712 76,940 67,349 0 406 1,831 14,517 0 0 (7,163) 76,940 1,027 493 0 1,520 316 424 1,096 0 0 1,334 (62) (62) 0 0 (62) (0.05) (0.05) 8.60 838 202 0 0 1,633 38 117 1,712 1,633 0 0
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