-----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, Z5Ld02uekbWLL2Qu3Q8vMAUxE1ZC/wqfZ5meVBISqQUc2DWFQ9GrC+wVJ62iTibG bVvKDZMMqrfyXjmEV1cfOw== 0000950148-95-000497.txt : 19950814 0000950148-95-000497.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950148-95-000497 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 95561442 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 6/30/95 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 Quarter Ended June 30, 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 June 30, 1995 This Form 10-Q contains 20 pages. 2 Index Part I -- Financial Information Item 1 -- Consolidated Financial Statements Consolidated Balance Sheets Page 3 Consolidated Statement of Operations Page 4 Consolidated Statement of Cash Flows Page 5 Note to Consolidated Financial Statements Page 7 Item 2 -- Management's Discussion and Analysis Results of Operations Page 9 Capital Resources Page 14 Liquidity and Interest Rate Management Page 15 Regulatory Matters Page 17 Other Events Page 18 Part II -- Other Information Page 19 Signature Page Page 20
Page 2 3 PART I, ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS BKLA BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
June 30, December 31, 1995 1994 ------- ------- (dollars in thousands) Unaudited ASSETS - ------ Cash and due from banks $ 4,044 $ 5,177 Federal funds sold 4,725 3,000 ------- ------- Total cash and cash equivalents 8,769 8,177 Securities held to maturity -- 14,821 Securities held available for sale 22,671 15,781 Loans receivable 38,601 38,114 Less allowance for credit losses 1,498 1,633 ------- ------- Loans, net 37,103 36,481 Accrued interest receivable 547 685 Premises and equipment, net 2,635 2,608 Real estate owned 516 -- Other assets 1,957 1,954 ------- ------- Total assets $74,198 $80,507 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities Deposits Demand, non-interest bearing $22,737 $25,128 Interest bearing Time certificates of deposit of $100,000 or more 5,726 7,422 Other 35,970 41,921 ------- ------- Total deposits 64,433 74,471 Obligation under capital lease 1,832 1,830 Accrued interest payable and other liabilities 360 389 ------- ------- Total liabilities 66,625 76,690 ------- ------- Shareholders' equity Preferred stock; 5,000,000 shares; no shares issued and outstanding -- -- Common stock, no par value; authorized, 10,000,000 shares issued and 14,517 11,078 5,983,325 shares outstanding Accumulated deficit (6,784) (6,788) Unrealized loss on securities held available for sale (160) (473) ------- ------- Total shareholders' equity 7,573 3,817 ------- ------- Total liabilities and shareholders' equity $74,198 $80,507 ======= =======
The accompanying notes are an integral part of these statements Page 3 4 BKLA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- (dollars in thousands) 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Interest income Loans receivable $ 1,093 $ 1,029 $ 2,120 $ 2,054 Investment securities -- 252 -- 563 Securities held to maturity 290 -- 503 -- Securities available for sale 100 -- 333 -- Federal funds sold 41 95 87 169 Deposits with financial institutions 0 -- 1 -- ---------- ---------- ---------- ---------- Total interest income 1,524 1,376 3,044 2,786 Interest expense Deposit accounts 298 342 614 696 Short-term borrowed funds 7 -- 51 -- Capital lease obligation 64 64 128 128 ---------- ---------- ---------- ---------- Total interest expense 369 406 793 824 ---------- ---------- ---------- ---------- Net interest income 1,155 970 2,251 1,962 Provision for credit losses (182) -- (182) -- ---------- ---------- ---------- ---------- Net interest income after provision for credit losses 1,337 970 2,433 1,962 Non-interest income Service charges and fees 179 241 353 528 Gain (loss) on sale of securities, net (1) -- (1) -- ---------- ---------- ---------- ---------- Total non-interest income 178 241 352 528 Non-interest expense Employee compensation and benefits 835 674 1,478 1,361 Occupancy expense 193 295 435 590 Other expense 390 565 811 1,030 Goodwill amortization 26 26 52 52 Real estate owned 3 6 3 10 ---------- ---------- ---------- ---------- Total non-interest expense 1,447 1,566 2,779 3,043 ---------- ---------- ---------- ---------- Income (loss) before taxes 68 (355) 6 (553) Income tax expense 2 1 2 1 ---------- ---------- ---------- ---------- Net income (loss) $ 66 $ (356) $ 4 $ (554) ========== ========== ========== ========== Net income (loss) per share of common stock $ 0.01 $ (0.28) $ 0.00 $ (0.44) ========== ========== ========== ========== Average shares outstanding 7,158,240 1,251,565 4,867,369 1,251,565 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements Page 4 5 BKLA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, December 31, 1995 1994 --------- ------------ (dollars in thousands) Unaudited CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 3,265 $ 6,123 Fees received 353 923 Interest paid (905) (1,634) Cash paid to suppliers and employees (2,526) (5,363) Income taxes paid (2) (2) -------- -------- Net cash provided (used) by operating activities 185 47 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities -- -- Proceeds from sales of securities -- -- Securities purchased -- -- Proceeds from maturities and pay downs of held to maturity securities 5,000 -- Purchases of held to maturity securities -- -- Proceeds from maturities and pay downs of available for sale securities 1,131 2,764 Proceeds from sale of available for sale securities 2,033 (16,740) Purchases of available for sale securities -- 11,000 Net decrease (increase) in loans receivable (461) 11,802 Net increase in real estate owned (516) -- Acquisition of premises and equipment (182) (310) Proceeds for the sale of premises and equipment and other real estate owned 1 -- -------- -------- Net cash provided (used) by investing activities 7,006 8,516 CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock 3,439 -- Net (decrease) increase in deposits (10,038) (16,917) -------- -------- Net cash provided (used) by financing activities (6,599) (16,917) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 592 (8,354) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,177 16,531 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,769 $ 8,177 ======== ========
The accompanying notes are an integral part of these statements Page 5 6 BKLA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, December 31, 1995 1994 -------- ------------ (dollars in thousands) Unaudited RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income (loss) $ 4 $(1,212) Adjustments for non-cash items: Depreciation and amortization of fixed assets, investments and goodwill 305 942 Provisions for loan losses (credit to provision expense) (182) -- (Decrease) increase in deferred loan origination fees, net -- (34) Net realized (gains)/loss on available for sale securities 1 -- Loss (gain) on disposal of premises and equipment -- 22 (Gain) loss or other real estate owned -- -- Decrease (increase) in accrued interest receivable 138 22 Decrease (increase) in other assets (54) 176 Increase (decrease) in interest payable and other liabilities (27) 131 ------ ------- Net cash provided (used) by operating activities $ 185 $ 47 ====== ======= Supplemental disclosure of noncash transactions: Transfer of loans to real estate owned through foreclosure and in-substance foreclosure, net $ 516 $ -- ------ ------- Transfer of securities from held to maturity to available for sale $9,885 $ -- ====== =======
The accompanying notes are an integral part of these statements Page 6 7 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 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). 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. 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 30, 1995, consisted of an infusion of $3,438,000, through the purchase of 4,731,760 shares of the Company's common stock. These shares are 79% of total shares outstanding. As a result in the change of ownership of the Company and the Company's senior management, the new management determined that the held to maturity portfolio would not meet the Company's future objectives and reclassified the portfolio to available for sale. The transfer from held to maturity to available for sale occurred on June 1, 1995 and the unamortized cost of the portfolio was $9,885,000. 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 7 8 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 June 30, 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. 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. 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. Page 8 9 Notes to Consolidated Financial Statements continued 9. Earnings per Share Gain per share is computed on the basis of the total average number of shares outstanding, and warrants and options outstanding adjusted by the "treasury stock" method. Under this method earnings per share data are computed as if the options and warrants were exercised at the beginning of the period and as if the funds obtained were used to purchase common stock at the average market price during the period. The method is limited to the lessor of shares to be purchased or 20% of outstanding average shares. 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. Due to the antidilutive effect, stock options and warrants are not considered common stock equivalents in computing loss per share at December 31, 1994. The weighted average number of shares outstanding was 7,158,440 and 1,251,565 and 4,867,369 and 1,251,565 for the six months and three months ended June 30, 1995 and 1994, respectively. 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. COMPARISONS 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. The Company reported a net income for the six months ended June 30, 1995, of $4,000 as compared to a net loss of $554,000 for the six months ended June 30, 1994. Income per share for 1995 was less than $.01 as compared to a loss per share of $.44 in 1994. Management's evaluation of the allowance for credit losses concluded that the allowance was in excess of what is adequate to provide for losses inherent in the loan portfolio. A reduction to the allowance for credit losses was made resulting in a credit to the credit loss provision expense during the six months ended June 30, 1995 for $182,000. No provision or credit to the provision for credit losses expense was made during the six months ended June 30, 1994. Net interest income before provision for credit losses for the six months ended June 30, 1995, was $2,251,000, an increase of $289,000 compared to net interest income for the period ended June 30, 1994, of $1,962,000. Net interest income increased due to rates by $496,000 and was partially offset by $207,000 decline in net interest income due to volume. Non-interest income for the six month period ended June 30, 1995, was $353,000 a decrease of $175,000 compared to $528,000 for the six month period ended June 30, 1994. In the fourth quarter of 1994, the Bank discontinued its escrow operations. There was no escrow fee income for the six month period ended June 30, 1995, compared to $75,000 for the period ended June 30, 1994. During the six month period ended June 30, 1994 a recovery of $51,000 was recognized from the settlement the lease obligation due to the closing of the Hollywood branch in 1993. The additional decline of $49,000 in period to period non-interest income was due to lower fee income from a declining deposit base. Page 9 10 Management's Discussion and Analysis continued Non-interest expense for the six month period ended June 30, 1995, was $2,779,000, a decrease of $264,000 compared to $3,043,000 for the six month period ended June 30, 1994. Salary expense for the six month period ended June 30, 1995 was $1,478,000, an increase of $117,000 compared to $1,361,000 for the six month period ended June 30, 1994. During the six month period ended June 30, 1995 additional salary expense of $174,000 was incurred for severance pay for former senior management. Occupancy expense for the six month period ended June 30, 1995 was $435,000, a decrease of $155,000 compared to $590,000 for the six month period ended June 30, 1994. In the fourth quarter of 1994 the Bank relocated administrative and customer service personnel to the two branch buildings. As a result, the administrative building leased at 825 San Vicente, West Hollywood, was allowed to expire, which resulted in $107,000 decrease in occupancy expense for the six month period ended June 30, 1995. Other non-interest expense was $811,000 for the six month period ended June 30, 1995, a decrease of $219,000 compared to $1,030,000 for the period ended June 30, 1994. The decrease in other non-interest expense is due primarily to a $154,000 decrease in expenses incurred for legal, audit and consulting services. 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 June 30, 1995, were $74,198,000 a decline of $6,309,000 from total assets of $80,507,000 at December 31, 1994. Total deposits were $64,433,000, a decline of 10,038,000 compared to total deposits of $74,471,000 at December 31, 1994. The following table presents certain important ratios for the Company for the periods indicated.
Six Months Ended Year Ended June 30, 1995 December 31, 1994 ------------- ----------------- Gain/loss on average assets 0.0% -1.4% Gain/loss on average shareholders' equity 0.1% -26.0% Average equity to average assets 7.4% 5.2%
2. SECURITIES The maturity distribution of investment securities at June 30, 1995, is as follows:
Available for Sale Held to Maturity ---------------------------------- -------------------------------- Amortized Estimated Carrying Estimated (dollars in thousands) Cost Fair Value Yield Value Fair Value Yield --------- ---------- ----- ----- ---------- ----- In one year or less $ 6,993 $ 6,988 5.5% $ -- $ -- -- After one year through five years 5,936 6,000 7.0% -- -- -- After five years through ten years -- -- -- -- -- -- After ten years -- -- -- -- -- -- Mortgage-backed securities 3,850 3,766 6.5% -- -- -- SBA securities 6,052 5,917 6.5% -- -- -- ------- ------- ----- ----- $22,831 $22,671 6.3% $ 0 $ 0 -- ======= ======= ===== =====
Page 10 11 Management's Discussion and Analysis on Securities continued The amortized cost, carrying value and estimated fair value of investment securities as of June 30, 1995, are as follows:
Gross Unrealized Amortized Estimated ------------------- (dollars in thousands) Cost Fair Value Losses Gains --------- ---------- ------ ----- Securities held to maturity: None $ -- $ -- $ -- $ -- Securities available for sale: Securities of U.S. government agencies and corporations 12,929 12,987 21 78 Mortgage backed securities 3,850 3,766 82 -- SBA securities 6,052 5,917 135 -- ------- ------- ---- ---- $22,831 $22,670 $238 $ 78 ======= ======= ==== ====
3. LOANS RECEIVABLE The components of loans in the consolidated balance sheets were as follows:
June 30, 1995 December 31, 1994 --------------------- --------------------- (dollars in thousands) Amount Percentage Amount Percentage ------- ---------- ------- ---------- Commercial loans $ 9,391 24.2% $10,165 26.6% Real estate loans: Single family 2,502 6.5% 2,510 6.6% Multi-family 1,442 3.7% 270 0.7% Commercial 20,783 53.6% 20,457 53.5% ------- ------- Total real estate loans 24,727 63.8% 23,237 60.8% Consumer loans 4,621 11.9% 4,849 12.7% ------- ------- Total loans $38,739 100.0% $38,251 100.0% Less deferred loan origination fees (138) (137) Less allowance for loan losses (1,498) (1,633) ------- ------- Net loans $37,103 $36,481 ======= =======
4. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT Commitments to extend credit -- At June 30, 1995, the Bank had commitments to extend credit of $7,815,000. 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 June 30, 1995, the Bank had $521,000 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 11 12 Management's Discussion and Analysis continued 5. ALLOWANCE FOR CREDIT LOSSES An analysis of the change in the allowance for credit losses follows:
June 30, 1995 December 31, 1994 ------------- ----------------- Loans outstanding at end of period $38,601 $38,250 Average loans outstanding $37,428 $42,939 Allowance for credit losses at beginning of period $ 1,633 $ 2,478 Charge-offs: Commercial (87) (907) Real estate (32) (257) Consumer (16) (137) ------- ------- Total (135) (1,301) Recoveries Commercial 75 380 Real estate 94 44 Consumer 13 32 ------- ------- Total 182 456 Net loans charged-off 47 (845) ------- ------- Provision charged to operations (182) 0 Allowance for credit losses as of end of period $ 1,498 $ 1,633 ======= ======= Ratio of net charge-offs to average loans outstanding 0.1% -2.0% ======= ======= Ratio of allowance for credit losses to loans outstanding at end of period 3.9% 4.3% ======= =======
6. NON-PERFORMING ASSETS
(in thousands) June 30, 1995 December 31, 1994 ------------- ----------------- Past due 30 through 89 days $ 2 $ 6 Loans on non-accrual 171 838 ---- ---- Total $173 $844 ==== ====
Page 12 13 Management's Discussion and Analysis continued 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 June 30, 1995 and December 31, 1994 in the amounts of approximately $1,649,000 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 June 30, 1995 and December 31, 1994, other assets also include approximately $57,000 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:
(dollars in thousands) June 30, 1995 December 31, 1994 ------------- ----------------- Non-interest bearing demand $22,737 $25,128 Interest bearing demand 9,194 9,926 Money market 10,201 14,541 Savings 8,845 11,382 Time deposits under $100,000 7,730 6,072 Time deposits over $100,000 5,726 7,422 ------- ------- Total deposits $64,433 $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 $2,309 $2,870 $ 5,179 Over three months through six months 3,114 1,923 5,037 Over six months through twelve months 2,072 933 3,005 Over twelve months 235 -- 235 ------ ------ ------- Total $7,730 $5,726 $13,456 ====== ====== =======
9. SHORT TERM BORROWINGS During the six month period ended June 30, 1995 the Bank sold securities under an agreement to repurchase those securities at a later date. No repurchase agreements were entered into for the six month period ended June 30, 1994. On a quarterly average repurchase agreements were $433,000 and $2,753,000 for the six month period ended June 30, 1995 and the three month period ended March 31, 1995 respectively. 10. INCOME TAXES In 1995 and 1994 the Bank had no income tax expense or credits. Page 13 14 Management's Discussion and Analysis continued 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 $2,400,000 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 FDIC on June 15, 1995 issued an order terminating its order cease and desist which was issued March 10, 1994 which placed certain restrictions on the Bank. The order was terminated June 15, 1995 due to the completion of the first phase of the Transaction. The Federal Reserve Bank of San Francisco on June 22,1995 notified the Company that it was terminating its Memorandum of understanding entered into on April 11, 1995, which placed certain restrictions on the Company. On December 22, 1994, the Superintendent delivered to the Bank an impairment order pursuant to California Financial Code Section 662. The Bank was impaired because its accumulated deficit was greater than 40% of "Contributed Capital". As of June 30, 1995, the impairment was cured as the accumulated deficit was less that 40%. In September 1992, the federal banking agencies issued uniform final regulations implementing the Prompt Corrective Action Provisions. An insured depository institution generally will be classified in the following categories based on capital measures indicated below: "Well capitalized" "Adequately capitalized" ---------------- ---------------------- Total risk-based capital of 10%; Total risk-based capital of 8%; Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and Leverage ratio of 5%. Leverage ratio of 4%. "Undercapitalized" "Significantly undercapitalized" ---------------- ------------------------------ Total risk-based capital less than 8%; Total risk-based capital less than 6%; Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or Leverage ratio less than 4%. Leverage ratio less than 3%. "Critically undercapitalized" --------------------------- Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat an institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment. Page 14 15 Management's Discussion and Analysis on Capital Resources continued The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets. The regulators measure risk-adjusted assets, which includes off-balance-sheet items, against both total qualifying capital (the sum of Tier 1 Capital and limited amounts of Tier 2 Capital) and Tier 1 Capital. Tier 1 Capital consists primarily of common stock, retained earnings, noncumulative perpetual preferred stock (cumulative perpetual preferred stock for bank holding companies) and minority interests in certain subsidiaries, less most intangible assets. Tier 2 Capital may consist of a limited amount of the allowance for possible loan and lease losses, cumulative preferred stock, long term preferred stock, eligible term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 Capital is subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 Capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 Capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 Capital to total assets is 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. The following table presents the Bank's capital ratios for the periods indicated.
FDIC Minimum December 31, Regulatory June 30, ----------------- Capital 1995 1994 1993 Requirements -------- ------ ------ ------------ Tier 1 risk-based capital 14.0% 6.0% 6.5% 4.0% Total risk-based capital 15.3% 7.3% 7.8% 8.0% Leverage capital 8.0% 3.0% 3.6% 4.0%
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%. Page 15 16 Management's Discussion and Analysis continued 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 June 30, 1995:
0 - 1 2 - 30 31 - 180 181 - 365 1 YEAR TO OVER NON-INTEREST (IN THOUSANDS) DAYS DAYS DAYS DAYS 5 YEARS 5 YEARS BEARING TOTAL ------ ------ -------- --------- --------- ------- ------------ ------ ASSETS Federal funds sold 4,725 4,725 Time certificates 0 Fixed rate securities 996 4,010 2,067 8,001 1,008 16,082 Variable rate securities 2,774 3,144 671 6,589 ------ ------ ------ ------ ------ ------ ------ ------ Investments 4,725 3,770 7,154 2,738 8,001 1,008 0 27,396 Loans, variable 34,128 34,128 Loans fixed 141 82 483 889 1,892 815 4,302 Nonaccruals 171 171 ------ ------ ------ ------ ------ ------ ------ ------ Loans 34,269 82 483 889 1,892 815 171 38,601 ------ ------ ------ ------ ------ ------ ------ ------ Total earning assets 38,994 3,852 7,637 3,627 9,893 1,823 171 65,997 ====== ====== ====== ====== ====== ====== ====== ====== Other assets 8,201 8,201 ------ ------ ------ ------ ------ ------ ------ ------ Total 38,994 3,852 7,637 3,627 9,893 1,823 8,372 74,198 ====== ====== ====== ====== ====== ====== ====== ====== Liabilities and Equity CDS $100,000 or more 1,736 3,057 933 5,726 CDS less than $100,000 1,205 4,122 2,168 235 7,730 Money Market 10,042 10,042 NOW 8,548 8,548 Public 803 803 Savings 8,845 8,845 ------ ------ ------ ------ ------ ------ ------ ------ Total deposits 0 31,179 7,179 3,101 235 0 0 41,694 Repurchase agreements 0 Capital Lease 1,832 1,832 Non-interest deposits 22,737 22,737 Other liabilities and equity 7,935 7,935 ------ ------ ------ ------ ------ ------ ------ ------ Total 0 31,179 7,179 3,101 235 1,832 30,672 74,198 ====== ====== ====== ====== ====== ====== ====== ====== GAP (Assets less liabilities) (38,994) 27,327 (458) (526) (9,658) 9 22,300 0 Cumulative Gap (38,994) (11,667) (12,125) (12,651) (22,309) (22,300) 0 Percent of Assets -52.6% -15.7% -16.3% -17.1% -30.1% -30.1% Impact of .5% increase 1 5 25 32 558 Cumulative Impact 1 5 30 62 620
Page 16 17 Management's Discussion and Analysis continued D. REGULATORY MATTERS Bank of Los Angeles (the "Bank") is wholly-owned by BKLA Bancorp (the "Company"). The Company does not have any additional investments in banks or nonbank corporations. The Company, as a registered bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company is required to file with the Federal Reserve Board quarterly and annual reports and such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may conduct examinations of BKLA and its subsidiary. The Company is required by the Federal Reserve Board to maintain certain levels of capital. The Company is required to obtain the prior approval of the Federal Reserve Board for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve Board is also required for the merger or consolidation of the Company and another bank holding company. The Company is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, the Company and its subsidiaries are subject to examination by, and may be required to file reports with, the California State Banking Department. Finally, the Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, including but not limited to, filing annual, quarterly and other current reports with the Securities and Exchange Commission. The Bank has made an application to the Federal Deposit Insurance Corporation to merge with the Company with the surviving entity being the Bank. Shareholders of the Company would exchange Company shares for shares of the Bank. The Company and the Bank are essentially one entity that have duplicated regulatory reporting requirements to the FDIC and the Federal Reserve Board. The proposed merger would reduce the costs of duplicated reporting. The Bank, as a California state chartered bank, is subject to primary supervision, periodic examination and regulation by the Superintendent and the FDIC. If, as a result of an examination of a bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate a bank's deposit insurance, which for a California state-chartered bank would result in a revocation of the bank's charter. The Superintendent has many of the same remedial powers. The deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Bank pays a semiannual statutory assessment. Although the Bank is not a member of the Federal Reserve System, it is nevertheless subject to certain regulations of the Federal Reserve Board. The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. See Part I, Item 2 -- B. Capital Resources. Page 17 18 Management's Discussion and Analysis continued E. OTHER 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. A definitive agreement to merge was signed June 30, 1995. 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 Page 18 19 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 19 20 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: July 19, 1995 /s/ M.J. Burford --------------------------------- M.J. Burford Chairman of the Board and Chief Executive Officer Date: July 19, 1995 /s/ Mark W. Bidwell --------------------------------- Mark W. Bidwell Vice President Controller Page 20 EX-27 2 EX-27 -- FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1995 JUN-30-1995 4,044 0 4,725 0 22,671 0 0 38,601 1,498 78,923 64,433 0 531 0 7,708 0 0 3,512 4,725 1,093 390 41 1,524 0 369 1,155 (182) (1) 1,447 68 68 0 0 66 0.01 0.01 9.03 171 2 0 0 1,633 135 182 1,498 1,498 0 0
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