<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . . . . . .
Commission file number: 000-23257
BYL BANCORP
CALIFORNIA NO. 33-0755794
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
1875 North Tustin Avenue, Orange, California 92865
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 685-1317
Not Applicable
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(c) of the Securities Exchange Act of 1934 during
the preceding 12 months (of 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
On November 12, 1999, there were 2,534,835 shares of BYL Bancorp Common Stock
outstanding.
1
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BYL BANCORP AND SUBSIDIARY
SEPTEMBER 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Item 1 - Financial Statements
Consolidated Condensed Balance Sheet at September 30, 1999 and
December 31, 1998.................................................................. 3
Consolidated Condensed Statement of Income for the three
months and nine months ended September 30, 1999 and 1998........................... 4
Consolidated Condensed Statement of Changes in Shareholders' Equity from
January 1, 1997 through September 30, 1999......................................... 5
Consolidated Condensed Statement of Cash Flows for the nine months ended
September 30, 1999 and 1998........................................................ 6
Notes to Consolidated Financial Statements.................................................. 7 -8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 9-13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.................................. 13-15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings........................................................................... 15
Item 2 - Changes in Securities....................................................................... 15
Item 3 - Defaults upon Senior Securities............................................................. 15
Item 4 - Submission of Matters to a Vote of Security Holders......................................... 15
Item 5 - Other Information........................................................................... 16
Item 6 - Exhibits and Reports on Form 8-K............................................................ 16
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Cash and Due From Bank $ 23,001 $ 14,214
Federal Funds Sold 21,600 18,700
----------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS 44,601 32,914
Investment Securities 25,729 17,244
Loans Held For Sale 105,080 74,598
Loans 164,185 166,454
Allowance for Loan Losses ( 2,543) ( 2,300)
----------------- ----------------
NET LOANS 161,642 164,154
Premises and Equipment 6,780 6,082
Other Real Estate Owned 744 971
Goodwill 1,355 1,445
Interest-Only Strips Receivable and Servicing Assets 14,412 9,025
Accrued Interest and Other Assets 7,370 11,580
----------------- ----------------
$ 367,713 $ 318,013
================= ================
Noninterest-Bearing Deposits $ 67,680 $ 69,863
Interest-Bearing Deposits 269,315 217,343
----------------- ----------------
TOTAL DEPOSITS 336,995 287,206
Accrued Interest and Other Liabilities 2,213 3,925
----------------- ----------------
TOTAL LIABILITIES 339,208 291,131
Common Shares 12,777 12,760
Retained Earnings 15,216 13,602
Accumulated Other Comprehensive Income 512 520
----------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 28,505 26,882
----------------- ----------------
$ 367,713 $ 318,013
================= ================
</TABLE>
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income $7,192 $ 6,165 $20,130 $17,429
Interest Expense 3,053 2,082 8,419 5,918
------------- ------------- ------------- -------------
Net Interest Income 4,139 4,083 11,711 11,511
Provision for Loan Losses 130 240 361 780
------------- ------------- ------------- -------------
Net Interest Income after
Provision for Loan Losses 4,009 3,843 11,350 10,731
Noninterest Income 6,867 6,056 18,048 16,384
Noninterest Expense 9,058 7,433 25,529 21,954
------------- ------------- ------------- -------------
Income Before Taxes 1,818 2,466 3,869 5,161
Income Taxes 775 1,083 1,685 2,354
------------- ------------- ------------- -------------
Net Income $1,043 $ 1,383 $ 2,184 $ 2,807
============= ============= ============= =============
Per Share Data:
Net Income - Basic $ .41 $ 0.55 $ 0.86 $ 1.12
============= ============= ============= =============
Net Income - Diluted $ .41 $ 0.52 $ 0.85 $ 1.05
============= ============= ============= =============
</TABLE>
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Other
Common Shares Comprehensive Retained Comprehensive
------------------------
Number Amount Income Earnings Income Total
---------- ------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 2,399,919 $ 11,945 $ 7,602 $( 113) $19,434
Comprehensive Income:
Net Income $ 2,855 2,855 2,855
Other Comprehensive Income-
Unrealized Gain on
Available-for-Sale
Securities, Net 86 86 86
-----------
Total Comprehensive Income $ 2,941
===========
Dividends on Common ( 502) ( 502)
Options Exercised 104,075 683 683
Common Stock Retired ( 823) ( 6) ( 6)
---------- ------------ ---------- ----------- ----------
Balance at December 31, 1997 2,503,171 12,622 9,955 ( 27) 22,550
Comprehensive Income:
Net Income $ 4,116 4,116 4,116
Other Comprehensive Income-
Unrealized Gain on
Available-for-Sale
Securities, Net 183 183 183
Unrealized Gain on Interest-Only
Strips, Net 364 364 364
-----------
Total Comprehensive Income $ 4,663
===========
Exercise of Stock Option 28,131 138 138
Dividends on Common ( 467) ( 467)
Fractional Shares from Merger
with DANB ( 2) ( 2)
---------- ------------ ---------- ----------- ----------
Balance at December 31, 1998 2,531,302 12,760 13,602 520 26,882
Comprehensve Income:
Net Income $ 2,184 2,184 2,184
Other Comprehensive Income-
Unrealized Gain on
Interest-Only
Strips, Net ( 8) ( 8) ( 8)
-----------
Total Comprehensive Income $ 2,176
===========
Exercise of Stock Option 3,533 17 17
Dividends on Common ( 570) ( 570)
---------- ------------ ---------- ----------- ----------
Balance at September 30, 1999 2,534,835 $ 12,777 $15,216 $ 512 $28,505
========== ============ ========== =========== ==========
</TABLE>
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
--------------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,184 $ 2,807
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,356 960
Provision for Loan Losses 361 780
Net Change in Loans Held for Sale ( 30,482) ( 8,234)
Other Items - Net ( 2,893) ( 1,986)
-------------- ---------------
NET CASH USED BY
OPERATING ACTIVITIES ( 29,474) ( 5,673)
INVESTING ACTIVITIES
Change in Interest-Bearing Deposits - 2,447
Purchases of Investment Securities ( 10,101) ( 7,571)
Maturities of Investment Securities 6,398 18,295
Net Change in Loans ( 3,044) ( 25,078)
Purchase of Premises and Equipment ( 1,964) ( 1,271)
Other Items - Net 636 1,005
-------------- ---------------
NET CASH USED BY
BY INVESTING ACTIVITIES ( 8,075) ( 12,173)
FINANCING ACTIVITIES
Net Change in Borrowed Funds - ( 4,465)
Net Change in Deposits 49,789 46,699
Proceeds from Exercise of Options 17 112
Dividends ( 570) ( 342)
-------------- ---------------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 49,236 42,004
-------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS 11,687 24,158
Cash and Cash Equivalents at Beginning of Period 32,914 11,894
-------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 44,601 $ 36,052
============== ===============
</TABLE>
6
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
BYL BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial information has been prepared in accordance with the
Securities and Exchange Commission rules and regulations for quarterly reporting
and therefore does not necessarily include all information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. This information should be read
in conjunction with the Company's Form 10K filed on March 30, 1999 (file number
- - 000-23257).
The consolidated financial statements include BYL Bancorp and its wholly owned
subsidiary, BYL Bank Group (the "Bank").
Operating results for interim periods are not necessarily indicative of
operating results for an entire fiscal year. In the opinion of management, the
unaudited financial information for the three month and nine month periods ended
September 30, 1999 and 1998, reflect all adjustments, consisting only of normal
recurring accruals and provisions, necessary for a fair presentation thereof.
NOTE 2 - EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Accordingly, basic earnings per share are computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during each period. The computation of diluted earnings per share
also considers the number of shares issuable upon the assumed exercise of
outstanding common stock options. All earnings per common share amounts
presented have been restated in accordance with the provisions of this
statement.
NOTE 3 - SEGMENTS
The Company has two primary reportable segments: its wholesale lending
operations and its retail banking operations. The wholesale lending segment
originates loans for resale to institutional investors. The Company's SBA loan
Division and its Mortgage Loan Division's are included in this segment. The
retail banking segment accepts deposits, originates loans and provides other
banking services to the communities in which its eight branch offices are
located.
The company evaluates performance based on profit or loss from operations before
allocation of the provision for loan losses, administrative costs, amortization
of goodwill and income taxes. The retail segment charges the wholesale segments
for use of excess funds based on the estimated cost of outside financing.
7
<PAGE>
ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - SEGMENTS - CONTINUED
The following tables summarize segment operations for the nine months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
----------------------------------------------------------------
Wholesale Segments Retail Total
-------------------------------
Mortgage SBA Segment Company
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net Interest Income $ 2,155 $ 2,403 $ 7,153 $ 11,711
Noninterest Income 12,306 4,449 1,293 18,048
Operating Expense ( 12,054) ( 3,252) ( 5,905) ( 21,211)
-------------- --------------- -------------- --------------
OPERATIONAL PROFIT 2,407 3,600 2,541 8,548
Provision for Loan Losses ( 361)
Administrative Costs ( 4,228)
Goodwill Amortization ( 90)
Income Taxes ( 1,685)
--------------
NET INCOME $ 2,184
==============
Loans Originated for Sale During 1999 $ 428,000 $ 130,000
Loans Sold during 1999 $ 427,000 $ 85,000
<CAPTION>
Nine Months Ended September 30, 1998
----------------------------------------------------------------
Wholesale Segments Retail Total
-------------------------------
Mortgage SBA Segment Company
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net Interest Income $ 2,077 $ 2,342 $ 7,092 $ 11,511
Noninterest Income 10,909 3,104 2,371 16,384
Operating Expense ( 8,648) ( 2,788) ( 7,287) ( 18,723)
-------------- --------------- -------------- --------------
OPERATIONAL PROFIT 4,338 2,658 2,176 9,172
Provision for Loan Losses ( 780)
Administrative Costs ( 3,141)
Goodwill Amortization ( 90)
Income Taxes ( 2,354)
--------------
NET INCOME $ 2,807
==============
Loans Originated for Sale During 1998 $ 198,000 $ 54,000
Loans Sold during 1998 $ 197,000 $ 49,000
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BYL Bancorp (the "Company") has one wholly owned subsidiary, BYL Bank Group,
formerly the Bank of Yorba Linda (the "Bank"). The Bank's SBA loan division and
a Mortgage Loan Division operate under the name of Bank of Yorba Linda. The
Bank's operations are the only significant operations of the Company. The
accompanying financial information should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Statements contained in this Report on Form 10Q that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Company's expectations, intentions, beliefs
or strategies regarding the future. All forward-looking statements included in
this document are based on information available to the Company on the date
thereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
Factors that could cause actual results to differ materially from those in such
forward-looking statements are included in the discussions below.
ACQUISITIONS
On May 29, 1998, the Company completed the acquisition with DNB Financial
("DNBF"), parent company of De Anza National Bank on a pooling-of-interests
basis, and, accordingly, the Company's historical consolidated results have been
restated. Under the terms of the Agreement and Plan of Reorganization, each
share of DNBF Common Stock was exchanged for 4.12 shares of the Company's Common
Stock. A total of 956,641 shares of the Company's Common Stock were issued to
DNBF shareholders. Also, on May 29, 1998, De Anza National Bank, DNBF's only
subsidiary, merged with and into BYL Bank Group.
On June 13, 1996, the Bank acquired 100% of the outstanding common stock of Bank
of Westminster (BOW) for $6,174,000 in cash. BOW had total assets of
approximately $54,923,000. The acquisition was accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. "Business Combinations". Under this method of accounting, the purchase price
was allocated to the assets acquired and deposits and liabilities assumed based
on their fair values as of the acquisition date. The financial statements
include the operations of BOW from the date of the acquisition. Goodwill arising
from the transaction totaled approximately $1,717,000 and is being amortized
over fifteen years on a straight-line basis.
OVERVIEW
For the three months ended September 30, 1999, the Company reported net income
of $1,043,000, or $0.41 per share compared to a net income of $1,383,000, or
$0.52 per share for the same three month period in 1998.
For the first nine months of 1999, the Company reported net income of $2.2
million compared to $2.8 million in 1998. The annualized return on average
assets was .85% for 1999 compared to 1.41% in 1998. Annualized return on
shareholders equity was 10.57% in 1999 compared to 15.80% in 1998.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
FINANCIAL CONDITION
Total assets as of September 30, 1999, increased 15.63% to $367.7 million in
comparison to total assets of $318.0 million as of December 31, 1998. The
majority of this asset growth was centered in loans held for sale, which
increased, by $30 million. This growth was funded by a $49.8 million increase in
deposits.
ASSET QUALITY
The following table sets forth the components of non-performing assets and
related ratios: (dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------------------
1999 1998 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Loans 90 day past due and still accruing $ 49 $ 144 $ 223
Loans on nonaccrual 2,598 1,697 1,807
---------------- ---------------- ----------------
Nonperforming Loans 2,647 1,841 2,030
Other real estate owned (OREO) 744 1,286 971
---------------- ---------------- ----------------
Nonperforming Assets $ 3,391 $ 3,127 $ 3,001
================ ================ ================
Nonperforming Loans as a Percent
of Total Loans 0.98% 0.84% 1.23%
Allowance for Loan Losses as a Percent
of Nonperforming Loans 96.07% 134.11% 113.30%
Nonperforming Assets as a Percent
of Total Assets 0.92% 1.11% 0.94%
</TABLE>
The Company's asset quality has remained the same in 1999 as evidenced by a
decrease in the ratio of nonperforming loans to total loans which decreased to
.98% at September 30, 1999 from 1.23% at December 31, 1998. Conversely, the
allowance for loan losses as a percent of nonperforming loans decreased to
96.07% at September 30, 1999, down from 113.30% at December 31, 1998. A portion
of this decrease is due to the increase in nonaccrual loans. The ALLL at
September 30, 1999 was 1.55% of total loans compared to 1.38% at December 31,
1998. At September 30, 1999, the Company had nine properties of OREO with a
total book value of $744,000. The Company believes all properties will be
liquidated without any significant losses.
LIQUIDITY
The origination and sale of its wholesale loan products impact the Bank's
liquidity significantly. The loan to deposit ratio at September 30, 1999 was
79.9%. Had the Bank actually sold all of the loans it held for sale, this ratio
would have declined to 48.7%.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
CAPITAL RESOURCES
Total shareholders equity at September 30, 1999 totaled $28.5 million,
which represents a 6.0% increase from $26.8 million at December 31, 1998.
The Company and its bank subsidiary are subject to risk-based capital
regulations adopted by the federal banking regulators. These guidelines are used
to evaluate capital adequacy and are based upon an institution's risk profile
and off-balance sheet exposures, such as unused loan commitments and letters of
credit. BYL Bancorp maintains capital ratios above the Federal regulatory
guidelines for a "well-capitalized" bank. The ratios are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
Ratio 1999 1998
--------------- ---------------- ---------------
<S> <C> <C> <C>
Tier 1 Capital (to Average Assets) 4.00% 7.34% 7.90%
Tier 1 Capital (to Risk Weighted Assets) 4.00% 9.61% 10.00%
Total Capital (to Risk Weighted Assets) 8.00% 10.55% 10.94%
</TABLE>
Management is not aware of any trends, events, uncertainties or recommendations
by regulatory authorities that will have or that are likely to have material
effects on the liquidity, capital resources or operations of the Company.
ANALYSIS OF NET INTEREST INCOME AND MARGIN
Net interest income is the amount by which the interest and amortization of fees
generated from loans and other earning assets exceeds the cost of funding those
assets, usually deposit account interest expense. Net interest income depends on
the difference (the "interest rate spread") between gross interest and fees
earned on the loans and investment portfolios and the interest rates paid on
deposits and borrowings. Net interest income was $4.14 million for the quarter
ended September 30, 1999, compared to $4.08 for the quarter ended September 30,
1998 and $11.71 million for the nine months ended September 30, 1999 compared to
$11.51 million for the nine months ended September 30, 1998.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
ANALYSIS OF NET INTEREST INCOME AND MARGIN -CONTINUED
The following table sets forth the components of net interest income,
average earning assets and net interest margin: (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Year Ended
September 30, September 30, December 31,
----------------------------- ----------------------------
1999 1998 1999 1998 1998
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 7,192 $ 6,165 $ 20,130 $ 17,429 $ 24,016
Interest Expense 3,053 2,082 8,419 5,918 8,406
------------- ------------- ------------- ------------- -----------------
Net Interest Income $ 4,139 $ 4,083 $ 11,711 $ 11,511 $ 15,610
============= ============= ============= ============= =================
Average Earning Assets $ 290,808 $ 245,889 $ 290,114 $ 234,035 $ 243,901
Net Interest Margin 5.69% 6.64% 5.38% 6.56% 6.40%
</TABLE>
The net interest margin declined in 1999 compared to the same periods in 1998
due to the increase in lower yielding earning assets and the 75 basis point
decline in the prime rate during the fourth quarter of 1998. The prime rate was
8.50% for the first nine months of 1998, and then experienced 25 basis points
declines in September, October and November to end the year at 7.75%. The prime
rate increased 25 basis points in July and August 1999 to 8.25%.
PROVISION FOR LOAN LOSSES
BYL Bancorp made a $130,000 and $361,000 contribution to the allowance for loan
losses for the three and nine months ended September 30, 1999 compared to
$240,000 and $780,000 for the three and nine months ended September 30, 1998.
Management believes that the allowance, which equals 1.55% of total loans at
September 30, 1999, is adequate to cover future losses.
Changes in the allowance for loan losses for the quarter and nine months
ended September 30, 1999 and 1998 are as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Allowance, Beginning of Period $ 2,458 $ 2,324 $ 2,300 $ 1,923
Provision for Loan Losses 130 240 361 780
Loans Charged Off - net of Recoveries ( 45) ( 95) ( 118) ( 234)
------------ ------------ ------------ ------------
Allowance, End of Period $ 2,543 $ 2,469 $ 2,543 $ 2,469
============ ============ ============ ============
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NONINTEREST INCOME
Noninterest income was $6.9 million for the quarter ended September 30, 1999
compared to $6.1 million for the same period in 1998. Similarly for the first
nine months of 1999, noninterest income was $18.0 million compared to $16.4
million for the same period in 1998. Approximately $1 million of this
increase is attributable to the securitizaton of approximately $47.1 million
of commercial loans. The remainder is attributable to the expansion of the
Bank's wholesale loan divisions. These departments have expanded by adding
new products as well as entering new geographic markets.
NONINTEREST EXPENSE
Noninterest expense was $9.1 million for the quarter ended September 30, 1999
and $25.5 million for the first nine months of 1999 compared to $7.4 million and
$22.0 million for the same periods in 1998. The majority of the increases were
attributable to the expansion of the Bank's wholesale loan divisions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
In Management's opinion there has not been a material change in BYL Bancorp's
market risk profile during the three months ended September 30, 1999. Market
risk is the risk of loss in a financial instrument arising from adverse changes
in market prices and rates, foreign currency exchange rates, commodity prices
and equity prices. BYL Bancorp's market risk arises primarily from interest rate
risk inherent in its lending and deposit taking activities and market risk in
loans originated for sale as a result of changes in interest rates. To that end,
management actively monitors and manages its inherent rate risk exposure. BYL
Bancorp manages its interest rate sensitivity by matching the repricing
opportunities on its earning assets to those on its funding liabilities.
Management uses various asset/liability strategies to manage the repricing
characteristics of its assets and liabilities to ensure that exposure to
interest rate fluctuations is limited within BYL Bancorp's guidelines of
acceptable levels of risk-taking.
At September 30, 1999, BYL Bancorp had $269 million of assets and $263 million
of liabilities repricing within one year. Therefore, $6 million more in interest
rate sensitive assets than interest rate sensitive liabilities will change to
the then current rate (changes occur due to the instruments being at a variable
rate or because the maturity of the instrument requires its replacement at the
then current rate). Generally, if rates were to fall during this period,
interest income would decline by a greater amount than interest expense and net
income would decrease. Conversely, if rates were to rise, the reverse would
apply, and BYL Bancorp's net income would increase.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
CONTINUED
YEAR 2000 RISK
OVERVIEW
The Year 2000 issue is the result of computer programs being written using two
digits rather that four to define the applicable year. As a result,
date-sensitive software and/or hardware may recognize a date using "00" as the
year 1900 rather than the year 2000.
This could result in a system failure or other disruption of operations and
impede normal business activities. In June 1996, the Federal Financial
Institutions Examination Council ("FFIEC") alerted the banking industry of the
serious challenges that would be encountered with Year 2000 issues. The FDIC has
also implemented a plan to require compliance with Year 2000 issues and
regularly examines out progress.
STATE OF READINESS
In accordance with FDIC guidelines, the Company developed a comprehensive plan
which management believes will result in timely and adequate modifications of
the Company's systems and technology to address Year 2000 issues. The plan calls
for all system conversions and testing to be substantially completed by December
31, 1999. Management has completed a top-down assessment of all mission-critical
and other systems for Year 2000 compliance and are currently in the fifth and
final phase for compliance, "final preparation and follow-up", as defined by the
FFIEC. Management has also tested non-information technology systems, such as
microprocessors controlling environmental and alarm systems, and found them to
be Year 2000 compliant.
To determine the readiness of the Company's clients, management sent a
questionnaire to, and received responses from, significant borrowers and
depositors to determine the extent of risk created by any failure by them to
remediate their own Year 2000 issues. Each borrower and depositor is categorized
according to their state of readiness based on their response to the
questionnaire and a review of the client. The Company has also taken steps to
ensure liquidity for depositors with high Year 2000 risks. Re-assessment of each
client's risk will be made on a regular basis.
To determine the readiness of the Company's vendors, letters were sent to each
vendor inquiring about their compliance with Year 2000. For those vendors that
have responded that they are Year 2000 compliant and that were determined to not
have a material impact on the Bank's operations, no further work is performed.
For those vendors that have responded they are working towards Year 2000
compliance and that are determined to be significant, including mission critical
vendors, the Company will follow up on a regular basis through 1999. These
vendors have advised the Company that they expect to be Year 2000 compliant
prior to December 31, 1999. If those vendors do not demonstrate compliance by a
certain date, the Company will seek other alternatives in accordance with its
contingency plan, which may include seeking replacement vendors.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
CONTINUED
YEAR 2000 RISK - CONTINUED
COSTS AND RISKS
A few computer hardware and software applications were modified or replaced in
order to maintain their functionality as the year 2000 approaches. The Company
has spent approximately $41,000 as of September 30, 1999 to address Year 2000
issues and estimate total costs over the two year period 1999-2000 to be
approximately $101,000, which will come from general funds. None of these costs,
however, are expected to materially impact the Company's result of operations in
any one reporting period.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures the Company undertakes, but also on the way in which the
Year 2000 issue is addressed by governmental agencies, businesses, and other
entities who provide data, receive data, or whose financial condition or
operational capability is important to the Company, such as suppliers or
clients. At worst, clients and vendors will face severe Year 2000 issues, which
may cause borrowers to become unable to service their loans. The Company may
also be required to replace non-compliant vendors with more expensive Year
2000-compliant vendors. At this time management cannot determine the financial
effect if significant client and/or vendor remediation efforts are not resolved
in a timely manner.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Subsidiary Bank is
at times party to various legal actions; all such actions are of
a routine nature and arise in the normal course of business of
the Subsidiary Bank.
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
15
<PAGE>
PART II - OTHER INFORMATION -CONTINUED
Item 6 - Exhibits and Reports on Form 8-K
A) Exhibits
EXHIBIT NO. EXHIBIT
2.1 Plan of Reorganization and Merger Agreement - Annex 1 of Written
Consent Statement/Prospectus (A)
3.1 Articles of Incorporation of Registrant (A)
3.2 Amendment to Articles of Incorporation of Registrant (A)
3.3 Bylaws of the Registrant (A)
4.1 Specimen Certificate evidencing shares of Registrant's Common
Stock (A)
4.2 Stockholder Agreement Covering Issuance and Compulsory Repurchase
of Organizing Share of Registrant- Annex II of Proxy
Statement/Prospectus incorporated by reference (A)
10.1 Form of Indemnification Agreement (A)
10.2 BYL Bancorp 1997 Stock Option Plan ( C )
10.3 Form of Proxy, Proxy Statement and Notice of Annual Meeting (E)
10.4 Employment Agreement - Mr. Robert Ucciferri (A)
10.5 Employment Agreement - Mr. Barry J. Moore (A)
10.6 Employment Agreement - Mr. Michael Mullarky (A)
10.7 Employment Agreement - Ms. Gloria Van Kampen (D)
10.8 Salary Continuation Agreement - Mr. Robert Ucciferri (A)
10.9 Salary Continuation Agreement - Mr. Barry J. Moore (A)
10.10 Salary Continuation Agreement - Mr. Michael H. Mullarky
10.11 Salary Continuation Agreement - Ms. Gloria Van Kampen
10.12 Agreement and Plan of Reorganization with DNB Financial (B)
(A) Filed as an Exhibit to the Registrant's Registration Statement (File No.
333-34995) filed on September 5, 1997, which exhibit is incorporated
herein by this reference.
(B) Filed as an Exhibit to Form 8-K filed on January 29, 1998, which exhibit
is incorporated herein by this reference.
(C) Filed as an Exhibit to the Registration Statement on Form S-8 filed on
May 15, 1998.
(D) Filed as an Exhibit to the Annual Report on Form 10-K as of December 31,
1998.
(E) Filed as an exhibit to the Annual Report on Form 10-K as of December 31,
1998, incorporating Schedule 14 A information pursuant to Section 14(a)
of the Securities Exchange Act of 1934, filed on May 18, 1999.
B) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BYL BANCORP
Date: November 12, 1999 /s/ Robert Ucciferri
---------------------------
Robert Ucciferri
President and
Chief Executive Officer
Date: November 12, 1999 /s/Barry J. Moore
---------------------------
Barry J. Moore
Chief Operating Officer and
Senior Executive Vice President
17
<PAGE>
EXHIBIT 10.10
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 22nd day of May 1998, by
and between Bank of Yorba Linda ("Bank"), a California banking corporation, and
Michael H. Mullarky (hereinafter called the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Bank, serving as its
Executive Vice President;
WHEREAS, the experience of the Executive, his knowledge of the affairs
of the Bank, and his reputation and contacts in the industry are so valuable
that assurance of his continued service is essential for the future growth and
profits of the Bank, and it is in the best interests of the Bank to arrange
terms of continued employment for the Executive so as to reasonably assure his
remaining in the Bank's employment during his lifetime or until the age of
retirement; and
WHEREAS, it is the desire of the Bank that his services be retained as
herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the
Bank provided the Bank agrees to pay to him or his beneficiaries certain
benefits in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in
the future as well as the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1
1.1 BENEFICIARY - The term Beneficiary shall mean the person or
persons whom the Executive shall designate in writing to receive the benefits
provided hereunder.
1.2 DISABILITY - The term Disability shall mean an inability to
substantially perform the substantial and regular duties performed by the
Executive as an employee of the Bank. Such disability may either be caused by
illness or injury and includes mental disabilities. For purposes of this
Agreement, the determination of the Executive's disability shall be made in the
opinion of a competent physician or medical authority as described in Section
4.2 of this agreement. Such determination by the physician or medical
authority shall be final and conclusive on all parties hereto.
1
<PAGE>
1.3 NAMED FIDUCIARY AND PLAN ADMINISTRATOR - The Named Fiduciary and
Plan Administrator of this plan shall be the Bank.
1.4 EFFECTIVE DATE - This Agreement is effective as of May 22, 1998
(the "Effective Date") and no benefits under this Agreement shall be payable to
or shall accrue for the benefit of, Executive prior to May 22, 1998.
ARTICLE 2
2.1 EMPLOYMENT - The Executive is employed by the Bank as Executive
Vice President. The Executive will continue in the employ of the Bank in such
capacity or as otherwise agreed upon by the parties.
2.2 FULL EFFORTS - The Executive agrees to devote his full time and
attention exclusively to the business and affairs of the Bank, except during
vacation periods, and to use his best efforts to furnish faithful and
satisfactory services to the Bank.
2.3 FRINGE BENEFIT - The salary continuation benefits provided by
this Agreement are granted by the Bank as a fringe benefit to the Executive and
are not part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payment
or bonus in lieu of these salary continuation benefits.
ARTICLE 3
3.1 RETIREMENT - If the Executive shall continue in the employment of
the Bank until he attains the age of sixty-seven (67), he may retire from active
daily employment as of the first day of the month next following attainment of
age sixty-seven (67) or upon such later date as may be mutually agreed upon by
the Executive and the Bank.
3.1.1 PAYMENT - The Bank agrees that upon such retirement it
will pay to the Executive the annual sum of Fifty Two Thousand Dollars
($52,000), payable monthly on the first day of each month following such
retirement for a period of one hundred twenty months (120) months, subject to
the conditions and limitations herein set forth.
3.2 DEATH AFTER RETIREMENT - If the Executive shall so retire, but
shall die before receiving the full amount of monthly payments to which he is
entitled hereunder, the Bank will continue to make such monthly payments to the
duly qualified beneficiary, representative, executor or administrator of his
estate. Provided, however, that the duly qualified beneficiary, representative,
executor or administrator of the Executive's estate shall have the absolute
right upon the Executive's death to elect to receive a lump sum payment from the
Bank for the sum of the balance of payments due Executive. Such election shall
be in the discretion
2
<PAGE>
of the duly qualified beneficiary, representative, executor or administrator
and shall be within sixty (60) days of the Executive's death. If the election
is made, the Bank shall make payment to such duly qualified beneficiary,
representative, executor or administrator within sixty (60) days of such
election.
ARTICLE 4
4.1 DEATH PRIOR TO RETIREMENT - In the event that the Executive
should die while actively employed by the Bank at any time after the date of
this Agreement, but prior to his attaining the age of sixty-seven (67) years,
the Bank will pay the annual sum of Fifty Two Thousand Dollars ($52,000) per
year to the duly qualified beneficiary, representative, executor or
administrator of the Executive's estate. Such payments shall be made in equal
monthly installments for a period of one hundred and twenty (120) months. Such
monthly payments shall begin on the first day of the month following the month
of the demise of the Executive. Provided, however, that the duly qualified
beneficiary, representative, executor or administrator of the Executive's estate
shall have the absolute right upon the Executive's death to elect to receive a
lump sum payment from the Bank for the balance of payments and payable on the
terms described in this Section 4.1. Such election shall be in the discretion
of the duly qualified beneficiary, representative, executor or administrator and
shall be within sixty (60) days of the Executive's death. If the election is
made, the Bank shall make payment of the lump sum to such duly qualified
beneficiary, representative, executor or administrator within sixty (60) days of
such election.
4.2 DISABILITY PRIOR TO RETIREMENT - In the opinion of a competent
physician or medical authority selected or approved by the Board of Directors,
the Executive had or does have or will continue to have a Disability (as defined
in Section 1.2) for some period and the aggregate of one or more of the
foregoing periods of Disability are or will be one hundred and eighty (180) days
or more in any three hundred sixty (360) day period while actively employed by
the Bank at any time after the date of this Agreement, but prior to his
attaining the age of sixty-seven (67) years, the Executive will be considered to
be one hundred percent (100%) vested in the amount set forth for the year in
which such Disability first occurs in the Accrued Salary Continuation Liability
column in Schedule A attached hereto and made a part hereof. Said amount shall
be paid to the Executive in equal monthly installments on the first day of each
month for a period of one hundred twenty (120) months beginning on the first day
of the month from the date of the opinion of Disability; provided, however, that
the Executive shall have the absolute right, upon such opinion of Disability to
elect to receive a lump sum payment from the Bank for the sum accrued in
accordance with the Accrued Salary Continuation Liability column of Schedule A
attached hereto and made a part hereof in the year of the opinion of Disability.
Such elections shall be in the Executive's discretion and shall be made within
sixty (60) days of such opinion of Disability. Should the Executive elect to
receive the lump sum payment, payment shall be made in full within sixty (60)
days of such election.
3
<PAGE>
If the Executive dies within twenty-four (24) months after being
disabled, the Bank shall pay to the duly qualified beneficiary, representative,
executor or administrator of the Executive's estate in equal monthly
installments on the first day of each month for the period of one hundred twenty
(120) months from the date of death of Executive the amount in the Accrued
Salary Liability column of Schedule A attached hereto and made a part hereof
(less the amount paid by reason of the Executive's Disability). Provided,
however, that the duly qualified beneficiary, representative, executor or
administrator of the Executive's estate shall have the absolute right upon the
Executive's death to elect to receive a lump sum payment (less the amount of any
payments paid by reason of the Executive's Disability) from the Bank for the sum
which will pay the duly qualified beneficiary, representative, executor or
administrator of the Executive's estate the sum accrued in the Accrued Salary
Continuation Liability column of Schedule A attached hereto and made a part
hereof for the year of Executive's death. Such election shall be in the
beneficiary's, representative's, executor's or administrator's discretion and
shall be within sixty (60) days of the Executive's death. Should the qualified
beneficiary, representative, executor or administrator of the Executive's estate
elect to receive the lump sum payment, payment shall be made in full within
sixty (60) days of such election. If the Executive dies more than twenty-four
(24) months after receipt of the lump sum paid by reason of the Executive's
Disability, no further payments shall be payable under this Agreement.
ARTICLE 5
5.1 VOLUNTARY TERMINATION BY EXECUTIVE - In the event that the
Executive voluntarily terminates his employment prior to his attaining the age
of sixty-seven (67) years and if no cause exists under Section 5.2, and subject
to the following paragraph, the Executive will be considered to be 100% vested
in the amount set forth for the year of termination in the Accrued Salary
Continuation Liability column of Schedule A attached hereto and made a part
hereof. Said amount shall be paid to the Executive within two (2) years of the
voluntary termination of Executive's employment.
Executive hereby covenants and agrees that for a twenty-four (24)
month period following any voluntary termination of Executive from the Bank,
Executive shall not solicit any customers or employees of the Bank to move their
banking or employment relationships from the Bank, and Executive shall not
directly or indirectly enter into or in any manner take part in any business,
profession or other endeavor which shall be competitive with the business of the
Bank, as an employee, agent, independent contractor, owner, director or other
representative. In the event of a merger, where the Bank is not the surviving
corporation, or in the event of a consolidation, in the event of a transfer of
all or substantially all of the assets of the Bank, or in the event that the
majority of the Bank's Board of Directors, as it exists as of the date of this
Agreement, does not have control, the Executive shall be unconditionally
released from all of his noncompetition duties and obligations under this
paragraph.
4
<PAGE>
5.2 TERMINATION BY BANK FOR CAUSE - No benefits or payments of any
kind shall be made by reason of this Agreement in the event that the employment
of the Executive is terminated by the Bank for any of the following reasons:
Executive has (i) willfully failed to perform or habitually neglected the
appropriate duties which he is required to perform hereunder; or (ii) willfully
failed to follow any policy of the Bank which materially adversely affects the
condition of the Bank; or (iii) engaged in any activity in contravention of any
Bank policy, statute, regulation or governmental policy which materially
adversely affects the Bank's condition, or its reputation in the community, or
which evidences the lack of Executive's fitness or ability to perform
Executive's duties; or (iv) willfully refused to follow any appropriate
instruction from the Board of Directors unless Executive asserts that compliance
with such instruction would cause the Bank or Executive to violate any statute,
regulation or governmental or Bank policy; or (v) subject to Section 4.2 above,
become physically or mentally disabled or otherwise evidenced his inability to
discharge his duties as chief executive officer of the Bank, or (vi) been
convicted of or pleaded guilty or nolo contendere to any felony, or (vii)
committed any act which would cause termination of coverage under the Bank's
Bankers Blanket Bond as to Executive, as distinguished from termination of
coverage as to the Bank as a whole.
5.3 OTHER TERMINATION OF SERVICE - The Bank reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment (as provided in paragraph 2.1) of the Executive
shall terminate prior to his attaining age sixty-seven (67) years, other than
for the reasons stated in Section 5.1 or Section 5.2 above, and other than by
reason of his Disability or death, then the Executive will be considered to be
one hundred percent (100%) vested in the amount set forth for the year for
which such termination occurs in the Accrued Salary Continuation Liability
column in Schedule A attached hereto and made a part hereof. Said amount shall
be paid to Executive in equal monthly installments on the first day of each
month for the period of one hundred twenty (120) months beginning on the first
day of the month when Executive reaches age sixty-seven (67) years. Provided,
however, that the Executive shall have the absolute right, upon such
termination, to elect to receive a lump sum payment from the Bank for the
accrued amount in the year of termination in the Salary Continuation Liability
column in Schedule A attached hereto and made a part hereof. Such election
shall be in the Executive's discretion and shall be made within sixty (60) days
of termination. Should the Executive elect to receive the lump sum payment,
payment shall be made in full within sixty (60) days of such election.
ARTICLE 6
6.1 ALIENABILITY - Neither the Executive nor other beneficiary under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, or commute hereunder, nor shall any of said benefits be
subject to seizure for the payment of any debts, judgments, alimony or separate
maintenance owed by the Executive or his beneficiary or any of them, or be
transferable by operation of law
5
<PAGE>
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment, commutation, hypothecation, transfer, or disposal of the benefit
hereunder shall be void.
ARTICLE 7
7.1 PARTICIPATION IN OTHER PLANS - Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus or similar employee plans which
the Bank may now or hereafter have.
ARTICLE 8
8.1 FUNDING - The Bank reserves the right to determine how it will
fund its obligations undertaken by this Agreement. Should the Bank elect to
fund this Agreement, in whole or in part, through the medium of life insurance
or annuities, or both, the Bank shall be the owner and beneficiary of the
policy. The Bank reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities as well as any other funding program,
at any time, in whole or in part. Such termination shall in no way affect the
Bank's obligation to pay the Executive as provided in this Agreement. At no
time shall the Executive be deemed to have any right, title, or interest in or
to any specified asset or assets of the Bank, including, but not by way of
restriction, any insurance or annuity contract or contracts or the proceeds
therefrom.
8.2 UNSECURED - Any such policy shall not in any way be considered to
be security for the performance of the obligations of this Agreement. It shall
be, and remain, a general, unpledged, unrestricted asset of the Bank.
8.3 COOPERATION - If the Bank purchases a life insurance or annuity
policy on the life of the Executive, he agrees to sign any papers that may be
required for that purpose and to undergo any medical or other examination or
tests which may be necessary.
8.4 RIGHT AS CREDITOR - This Agreement shall not be construed as
giving the Executive or his beneficiaries any greater rights than those of any
other unsecured creditor of the Bank. This Agreement shall not be construed to
create a trust relationship between the parties.
ARTICLE 9
9.1 BENEFITS AND BURDENS - This Agreement shall be binding upon and
inure to the benefit of the Executive and his personal representatives and the
Bank and its successors, administrators or assignees.
6
<PAGE>
ARTICLE 10
10.1 NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed
to constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Bank to discharge the Executive, or
restrict the right of the Executive to terminate his employment.
ARTICLE 11
11.1 ARBITRATION - In the event that any dispute shall arise between
the parties concerning the provisions of this Agreement or the performance of
any part of the obligations hereunder, or in the event of an alleged breach of
this Agreement by any of the parties hereto, and the parties are unable to
mutually adjust and settle same, such dispute or disputes shall be submitted to
binding arbitration pursuant to the applicable rules of the American Arbitration
Association, and the decision and determination of the arbitrators shall be
final and conclusive.
ARTICLE 12
12.1 ENTIRE AGREEMENT - This Agreement contains the entire agreement
of the parties. It supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter of this
Agreement. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding. This Agreement may not be modified or
amended by oral agreement, but only by an agreement in writing signed by the
Bank and Executive.
ARTICLE 13
13.1 ATTORNEYS' FEES - If any party to this Agreement resorts to a
legal action or arbitration to enforce any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' and court
fees, costs and expenses in addition to any other relief to which he or it may
be entitled. This provision applies to the entire Agreement. Each party to
this Agreement had the right to be represented by an attorney in the negotiation
and execution of this Agreement.
13.2 NOTICES - Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally serviced in writing, when deposited in the United States mail,
postage prepaid, or when communicated to a public telegraph company for
transmittal, addressed to the Bank at its Administrative Office or to Executive
at the address appearing below his signature. Either party may change its
address by written notice in accordance with this section.
7
<PAGE>
13.3 APPLICABLE LAW - Except to the extent governed by the Laws of the
United States, this Agreement is to be governed by and construed under the laws
of the State of California.
13.4 CAPTIONS AND PARAGRAPH HEADINGS - Captions and paragraph headings
used herein are for convenience only and are not a part of this Agreement and
shall not be used in construing it.
13.5 INVALID PROVISIONS - Should any provisions of this Agreement for
any reason be declared invalid, void, or unenforceable by a court of competent
jurisdiction, the validity and binding effect of any remaining portion shall not
be affected, and the remaining portions of this Agreement shall remain in full
force and effect as if this Agreement had been executed with said provision
eliminated.
13.6 PROVISIONS EXCLUSIVE - Each of the rights and benefits of
Executive herein is exclusive and not cumulative unless otherwise provided
herein. Executive shall receive only the specific and limited benefit in the
section to which he or his successors or representatives or administrators first
become entitled under this Agreement, and shall have no other or further
benefits or rights under or pursuant to any other section or provisions of this
Agreement.
IN WITNESS WHEREOF, the Bank has caused this Agreement dated May 22,
l998 to be duly executed, pursuant to a resolution date November 28, l995
approved by its Board of Directors, by its Chairman of the Board and its
corporate seal affixed, duly attested by its Secretary and the Executive has
hereunto set his hand and seal, in Yorba Linda, California.
BYL BANK GROUP EXECUTIVE:
By: /s/ H. Rhoads Martin /s/ Michael H. Mullarky
H. Rhoads Martin, Michael H. Mullarky
Chairman of the Board
Dated: May 22, 1998
By: /s/ John F. Myers ____________________________________
John F. Myers, Secretary
____________________________________
(Address)
8
<PAGE>
SCHEDULE A
OF THE EXECUTIVE SALARY CONTINUATION AGREEMENT
DATED MAY 22, 1998
MR. MIKE MULLARKY
Age 51, retire at age 67, $52,000/Annual Benefit, for 10 years
<TABLE>
<CAPTION>
Accrued Salary
Plan Year Annual Benefit Accrual Continuation Liability
--------- ---------------------- ----------------------
<S> <C> <C>
1 $10,736 $10,736
2 11,685 22,421
3 12,718 35,138
4 13,842 48,980
5 15,065 64,045
6 16,397 80,442
7 17,846 98,288
8 19,424 117,711
9 21,140 138,852
10 23,009 161,861
11 25,043 186,903
12 27,256 214,160
13 29,666 243,825
14 32,288 276,113
15 35,142 311,255
16 38,248 349,503
POST RETIREMENT
17 28,818 326,321
18 26,769 301,091
19 24,539 273,630
20 22,112 243,742
21 19,470 211,212
22 16,595 175,807
23 13,465 137,272
24 10,059 95,331
25 6,352 49,683
26 2,317 0
</TABLE>
9
<PAGE>
EXHIBIT 10.11
EXECUTIVE SALARY CONTINUATION AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of August, 1999,
by and between BYL Bank Group ("Bank"), a California banking corporation, and
Gloria Van Kampen (hereinafter called the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is in the employ of the Bank, serving as its
Executive Vice President;
WHEREAS, the experience of the Executive, her knowledge of the affairs
of the Bank, and her reputation and contacts in the industry are so valuable
that assurance of her continued service is essential for the future growth and
profits of the Bank, and it is in the best interests of the Bank to arrange
terms of continued employment for the Executive so as to reasonably assure her
remaining in the Bank's employment during her lifetime or until the age of
retirement; and
WHEREAS, it is the desire of the Bank that her services be retained as
herein provided; and
WHEREAS, the Executive is willing to continue in the employ of the
Bank provided the Bank agrees to pay to him or her beneficiaries certain
benefits in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the services to be performed in
the future as well as the mutual promises and covenants herein contained, it is
agreed as follows:
ARTICLE 1
1.1 BENEFICIARY - The term Beneficiary shall mean the person or
persons whom the Executive shall designate in writing to receive the benefits
provided hereunder.
1.2 DISABILITY - The term Disability shall mean an inability to
substantially perform the substantial and regular duties performed by the
Executive as an employee of the Bank. Such disability may either be caused by
illness or injury and includes mental disabilities. For purposes of this
Agreement, the determination of the Executive's disability shall be made in the
opinion of a competent physician or medical authority as described in Section
4.2 of this agreement. Such determination by the physician or medical
authority shall be final and conclusive on all parties hereto.
1
<PAGE>
1.3 NAMED FIDUCIARY AND PLAN ADMINISTRATOR - The Named Fiduciary and
Plan Administrator of this plan shall be the Bank.
1.4 EFFECTIVE DATE - This Agreement is effective as of August 27,
1999 (the "Effective Date") and no benefits under this Agreement shall be
payable to or shall accrue for the benefit of, Executive prior to August 27,
1999.
ARTICLE 2
2.1 EMPLOYMENT - The Executive is employed by the Bank as Executive
Vice President. The Executive will continue in the employ of the Bank in such
capacity or as otherwise agreed upon by the parties.
2.2 FULL EFFORTS - The Executive agrees to devote her full time and
attention exclusively to the business and affairs of the Bank, except during
vacation periods, and to use her best efforts to furnish faithful and
satisfactory services to the Bank.
2.3 FRINGE BENEFIT - The salary continuation benefits provided by
this Agreement are granted by the Bank as a fringe benefit to the Executive and
are not part of any salary reduction plan or any arrangement deferring a bonus
or a salary increase. The Executive has no option to take any current payment
or bonus in lieu of these salary continuation benefits.
ARTICLE 3
3.1 RETIREMENT - If the Executive shall continue in the employment of
the Bank until she attains the age of sixty-five (65), she may retire from
active daily employment as of the first day of the month next following
attainment of age sixty-five (65) or upon such later date as may be mutually
agreed upon by the Executive and the Bank.
3.1.1 PAYMENT - The Bank agrees that upon such retirement it
will pay to the Executive the annual sum of Sixty Thousand Dollars ($60,000),
payable monthly on the first day of each month following such retirement for a
period of one hundred twenty months (120) months, subject to the conditions and
limitations herein set forth.
3.2 DEATH AFTER RETIREMENT - If the Executive shall so retire, but
shall die before receiving the full amount of monthly payments to which she is
entitled hereunder, the Bank will continue to make such monthly payments to the
duly qualified beneficiary, representative, executor or administrator of her
estate. Provided, however, that the duly qualified beneficiary, representative,
executor or administrator of the Executive's estate shall have the absolute
right upon the
2
<PAGE>
Executive's death to elect to receive a lump sum payment from the Bank for
the sum of the balance of payments due Executive. Such election shall be in
the discretion of the duly qualified beneficiary, representative, executor or
administrator and shall be within sixty (60) days of the Executive's death.
If the election is made, the Bank shall make payment to such duly qualified
beneficiary, representative, executor or administrator within sixty (60) days
of such election.
ARTICLE 4
4.1 DEATH PRIOR TO RETIREMENT - In the event that the Executive
should die while actively employed by the Bank at any time after the date of
this Agreement, but prior to her attaining the age of sixty-five (65) years, the
Bank will pay the annual sum of Sixty Thousand Dollars ($60,000) per year to the
duly qualified beneficiary, representative, executor or administrator of the
Executive's estate. Such payments shall be made in equal monthly installments
for a period of one hundred and twenty (120) months. Such monthly payments
shall begin on the first day of the month following the month of the demise of
the Executive. Provided, however, that the duly qualified beneficiary,
representative, executor or administrator of the Executive's estate shall have
the absolute right upon the Executive's death to elect to receive a lump sum
payment from the Bank for the balance of payments and payable on the terms
described in this Section 4.1. Such election shall be in the discretion of the
duly qualified beneficiary, representative, executor or administrator and shall
be within sixty (60) days of the Executive's death. If the election is made,
the Bank shall make payment of the lump sum to such duly qualified beneficiary,
representative, executor or administrator within sixty (60) days of such
election.
4.2 DISABILITY PRIOR TO RETIREMENT - In the opinion of a competent
physician or medical authority selected or approved by the Board of Directors,
the Executive had or does have or will continue to have a Disability (as defined
in Section 1.2) for some period and the aggregate of one or more of the
foregoing periods of Disability are or will be one hundred and eighty (180) days
or more in any three hundred sixty (360) day period while actively employed by
the Bank at any time after the date of this Agreement, but prior to her
attaining the age of sixty-five (65) years, the Executive will be considered to
be one hundred percent (100%) vested in the amount set forth for the year in
which such Disability first occurs in the Accrued Salary Continuation Liability
column in Schedule A attached hereto and made a part hereof. Said amount shall
be paid to the Executive in equal monthly installments on the first day of each
month for a period of one hundred twenty (120) months beginning on the first day
of the month from the date of the opinion of Disability; provided, however, that
the Executive shall have the absolute right, upon such opinion of Disability to
elect to receive a lump sum payment from the Bank for the sum accrued in
accordance with the Accrued Salary Continuation Liability column of Schedule A
attached hereto and made a part hereof in the year of the opinion of Disability.
Such elections shall be in the Executive's discretion and shall be made within
sixty (60) days of such opinion of Disability. Should the Executive elect to
receive the lump sum payment, payment shall be made in full within sixty (60)
days
3
<PAGE>
of such election.
If the Executive dies within twenty-four (24) months after being
disabled, the Bank shall pay to the duly qualified beneficiary, representative,
executor or administrator of the Executive's estate in equal monthly
installments on the first day of each month for the period of one hundred twenty
(120) months from the date of death of Executive the amount in the Accrued
Salary Liability column of Schedule A attached hereto and made a part hereof
(less the amount paid by reason of the Executive's Disability). Provided,
however, that the duly qualified beneficiary, representative, executor or
administrator of the Executive's estate shall have the absolute right upon the
Executive's death to elect to receive a lump sum payment (less the amount of any
payments paid by reason of the Executive's Disability) from the Bank for the sum
which will pay the duly qualified beneficiary, representative, executor or
administrator of the Executive's estate the sum accrued in the Accrued Salary
Continuation Liability column of Schedule A attached hereto and made a part
hereof for the year of Executive's death. Such election shall be in the
beneficiary's, representative's, executor's or administrator's discretion and
shall be within sixty (60) days of the Executive's death. Should the qualified
beneficiary, representative, executor or administrator of the Executive's estate
elect to receive the lump sum payment, payment shall be made in full within
sixty (60) days of such election. If the Executive dies more than twenty-four
(24) months after receipt of the lump sum paid by reason of the Executive's
Disability, no further payments shall be payable under this Agreement.
ARTICLE 5
5.1 VOLUNTARY TERMINATION BY EXECUTIVE - In the event that the
Executive voluntarily terminates her employment prior to her attaining the age
of sixty-five (65) years and if no cause exists under Section 5.2, and subject
to the following paragraph, the Executive will be considered to be 100% vested
in the amount set forth for the year of termination in the Accrued Salary
Continuation Liability column of Schedule A attached hereto and made a part
hereof. Said amount shall be paid to the Executive within two (2) years of the
voluntary termination of Executive's employment.
Executive hereby covenants and agrees that for a twenty-four (24)
month period following any voluntary termination of Executive from the Bank,
Executive shall not solicit any customers or employees of the Bank to move their
banking or employment relationships from the Bank, and Executive shall not
directly or indirectly enter into or in any manner take part in any business,
profession or other endeavor which shall be competitive with the business of the
Bank, as an employee, agent, independent contractor, owner, director or other
representative. In the event of a merger, where the Bank is not the surviving
corporation, or in the event of a consolidation, in the event of a transfer of
all or substantially all of the assets of the Bank, or in the event that the
majority of the Bank's Board of Directors, as it exists
4
<PAGE>
as of the date of this Agreement, does not have control, the Executive shall
be unconditionally released from all of her noncompetition duties and
obligations under this paragraph.
5.2 TERMINATION BY BANK FOR CAUSE - No benefits or payments of any
kind shall be made by reason of this Agreement in the event that the employment
of the Executive is terminated by the Bank for any of the following reasons:
Executive has (i) willfully failed to perform or habitually neglected the
appropriate duties which he is required to perform hereunder; or (ii) willfully
failed to follow any policy of the Bank which materially adversely affects the
condition of the Bank; or (iii) engaged in any activity in contravention of any
Bank policy, statute, regulation or governmental policy which materially
adversely affects the Bank's condition, or its reputation in the community, or
which evidences the lack of Executive's fitness or ability to perform
Executive's duties; or (iv) willfully refused to follow any appropriate
instruction from the Board of Directors unless Executive asserts that compliance
with such instruction would cause the Bank or Executive to violate any statute,
regulation or governmental or Bank policy; or (v) subject to Section 4.2 above,
become physically or mentally disabled or otherwise evidenced her inability to
discharge her duties as Executive officer of the Bank, or (vi) been convicted of
or pleaded guilty or nolo contendere to any felony, or (vii) committed any act
which would cause termination of coverage under the Bank's Bankers Blanket Bond
as to Executive, as distinguished from termination of coverage as to the Bank as
a whole.
5.3 OTHER TERMINATION OF SERVICE - The Bank reserves the right to
terminate the employment of the Executive at any time prior to retirement. In
the event that the employment (as provided in paragraph 2.1) of the Executive
shall terminate prior to her attaining age sixty-five (65) years, other than for
the reasons stated in Section 5.1 or Section 5.2 above, and other than by reason
of her Disability or death, then the Executive will be considered to be one
hundred percent (100%) vested in the amount set forth for the year for which
such termination occurs in the Accrued Salary Continuation Liability column in
Schedule A attached hereto and made a part hereof. Said amount shall be paid to
Executive in equal monthly installments on the first day of each month for the
period of one hundred twenty (120) months beginning on the first day of the
month when Executive reaches age sixty-five (65) years. Provided, however, that
the Executive shall have the absolute right, upon such termination, to elect to
receive a lump sum payment from the Bank for the accrued amount in the year of
termination in the Salary Continuation Liability column in Schedule A attached
hereto and made a part hereof. Such election shall be in the Executive's
discretion and shall be made within sixty (60) days of termination. Should the
Executive elect to receive the lump sum payment, payment shall be made in full
within sixty (60) days of such election.
5
<PAGE>
ARTICLE 6
6.1 ALIENABILITY - Neither the Executive nor other beneficiary under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, or commute hereunder, nor shall any of said benefits be
subject to seizure for the payment of any debts, judgments, alimony or separate
maintenance owed by the Executive or her beneficiary or any of them, or be
transferable by operation of law in the event of bankruptcy, insolvency or
otherwise. Any such attempted assignment, commutation, hypothecation, transfer,
or disposal of the benefit hereunder shall be void.
ARTICLE 7
7.1 PARTICIPATION IN OTHER PLANS - Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus or similar employee plans which
the Bank may now or hereafter have.
ARTICLE 8
8.1 FUNDING - The Bank reserves the right to determine how it will
fund its obligations undertaken by this Agreement. Should the Bank elect to
fund this Agreement, in whole or in part, through the medium of life insurance
or annuities, or both, the Bank shall be the owner and beneficiary of the
policy. The Bank reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities as well as any other funding program,
at any time, in whole or in part. Such termination shall in no way affect the
Bank's obligation to pay the Executive as provided in this Agreement. At no
time shall the Executive be deemed to have any right, title, or interest in or
to any specified asset or assets of the Bank, including, but not by way of
restriction, any insurance or annuity contract or contracts or the proceeds
therefrom.
8.2 UNSECURED - Any such policy shall not in any way be considered to
be security for the performance of the obligations of this Agreement. It shall
be, and remain, a general, unpledged, unrestricted asset of the Bank.
8.3 COOPERATION - If the Bank purchases a life insurance or annuity
policy on the life of the Executive, she agrees to sign any papers that may be
required for that purpose and to undergo any medical or other examination or
tests which may be necessary.
8.4 RIGHT AS CREDITOR - This Agreement shall not be construed as
giving the Executive or her beneficiaries any greater rights than those of any
other
6
<PAGE>
unsecured creditor of the Bank. This Agreement shall not be construed to
create a trust relationship between the parties.
ARTICLE 9
9.1 BENEFITS AND BURDENS - This Agreement shall be binding upon and
inure to the benefit of the Executive and her personal representatives and the
Bank and its successors, administrators or assignees.
ARTICLE 10
10.1 NOT A CONTRACT OF EMPLOYMENT - This Agreement shall not be deemed
to constitute a contract of employment between the parties hereto, nor shall any
provision hereof restrict the right of the Bank to discharge the Executive, or
restrict the right of the Executive to terminate her employment.
ARTICLE 11
11.1 ARBITRATION - In the event that any dispute shall arise between
the parties concerning the provisions of this Agreement or the performance of
any part of the obligations hereunder, or in the event of an alleged breach of
this Agreement by any of the parties hereto, and the parties are unable to
mutually adjust and settle same, such dispute or disputes shall be submitted to
binding arbitration pursuant to the applicable rules of the American Arbitration
Association, and the decision and determination of the arbitrators shall be
final and conclusive.
ARTICLE 12
12.1 ENTIRE AGREEMENT - This Agreement contains the entire agreement
of the parties. It supersedes any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter of this
Agreement. Each party to this Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding. This Agreement may not be modified or
amended by oral agreement, but only by an agreement in writing signed by the
Bank and Executive.
ARTICLE 13
13.1 ATTORNEYS' FEES - If any party to this Agreement resorts to a
legal action or arbitration to enforce any provision of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' and court
fees, costs and expenses in addition to any other relief to which she or it may
be entitled. This provision applies to the entire Agreement. Each party to
this Agreement had the right to be
<PAGE>
represented by an attorney in the negotiation and execution of this Agreement.
13.2 NOTICES - Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally serviced in writing, when deposited in the United States mail,
postage prepaid, or when communicated to a public telegraph company for
transmittal, addressed to the Bank at its Administrative Office or to Executive
at the address appearing below her signature. Either party may change its
address by written notice in accordance with this section.
13.3 APPLICABLE LAW - Except to the extent governed by the Laws of the
United States, this Agreement is to be governed by and construed under the laws
of the State of California.
13.4 CAPTIONS AND PARAGRAPH HEADINGS - Captions and paragraph headings
used herein are for convenience only and are not a part of this Agreement and
shall not be used in construing it.
13.5 INVALID PROVISIONS - Should any provisions of this Agreement for
any reason be declared invalid, void, or unenforceable by a court of competent
jurisdiction, the validity and binding effect of any remaining portion shall not
be affected, and the remaining portions of this Agreement shall remain in full
force and effect as if this Agreement had been executed with said provision
eliminated.
13.6 PROVISIONS EXCLUSIVE - Each of the rights and benefits of
Executive herein is exclusive and not cumulative unless otherwise provided
herein. Executive shall receive only the specific and limited benefit in the
section to which she or her successors or representatives or administrators
first become entitled under this Agreement, and shall have no other or further
benefits or rights under or pursuant to any other section or provisions of this
Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Agreement dated August
27, l999 to be duly executed, pursuant to a resolution date June 29, 1999
approved by its Board of Directors, by its Chairman of the Board and its
corporate seal affixed, duly attested by its Secretary and the Executive has
hereunto set his/her hand and seal, in Orange, California.
BYL BANK GROUP EXECUTIVE:
By: /s/ H. Rhoads Martin /s/ Gloria Van Kampen
--------------------- ---------------------
H. Rhoads Martin, Gloria Van Kampen
Chairman of the Board
Dated: August 27, 1999
----------------
By: /s/ John F. Myers
------------------------ ----------------------
John F. Myers, Secretary
----------------------
(Address)
9
<PAGE>
SCHEDULE A
OF THE EXECUTIVE SALARY CONTINUATION AGREEMENT
DATED AUGUST 27, 1999
MRS. GLORIA VAN KAMPEN
Age 52, retire age 65, $60,000/Annual Benefit, for 10 years
<TABLE>
<CAPTION>
Accrued Salary
Plan Year Annual Benefit Accrual Continuation Liability
--------- ---------------------- ----------------------
<S> <C> <C>
1 $17,756 $ 17,756
2 19,326 37,082
3 21,034 58,116
4 22,893 81,010
5 24,917 105,926
6 27,119 133,046
7 29,516 162,562
8 32,125 194,687
9 34,965 229,652
10 38,055 267,708
11 41,419 309,127
12 45,080 354,207
13 49,065 403,272
POST RETIREMENT
14 33,252 376,524
15 30,888 347,412
16 28,314 315,727
17 25,514 281,240
18 22,466 243,706
19 19,148 202,854
20 15,537 158,391
21 11,607 109,997
22 7,329 57,326
23 2,674 0
</TABLE>
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,001
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,993
<INVESTMENTS-CARRYING> 14,736
<INVESTMENTS-MARKET> 14,563
<LOANS> 269,265
<ALLOWANCE> 2,543
<TOTAL-ASSETS> 367,713
<DEPOSITS> 336,995
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,213
<LONG-TERM> 0
0
0
<COMMON> 12,777
<OTHER-SE> 15,728
<TOTAL-LIABILITIES-AND-EQUITY> 367,713
<INTEREST-LOAN> 18,304
<INTEREST-INVEST> 1,019
<INTEREST-OTHER> 807
<INTEREST-TOTAL> 20,130
<INTEREST-DEPOSIT> 8,346
<INTEREST-EXPENSE> 8,419
<INTEREST-INCOME-NET> 11,711
<LOAN-LOSSES> 361
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 25,529
<INCOME-PRETAX> 3,869
<INCOME-PRE-EXTRAORDINARY> 3,869
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,184
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 5.38
<LOANS-NON> 2,598
<LOANS-PAST> 49
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,249
<ALLOWANCE-OPEN> 2,300
<CHARGE-OFFS> 212
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 2,543
<ALLOWANCE-DOMESTIC> 2,196
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 347
</TABLE>
