<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
,
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PBOC HOLDINGS, INC.
(Exact name of registrant as specified in its articles of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 6711 33-0220233
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
5900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(213) 938-6300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
J. MICHAEL HOLMES
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
PBOC HOLDINGS, INC.
5900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(213) 938-6300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C> <C>
NORMAN B. ANTIN, ESQ. STANLEY F. FARRAR, ESQ.
JEFFREY D. HAAS, ESQ. SULLIVAN & CROMWELL
ELIAS, MATZ, TIERNAN & HERRICK L.L.P. AND 444 SOUTH FLOWER STREET
734 15TH STREET, N.W., 12TH FLOOR LOS ANGELES, CALIFORNIA 90071
WASHINGTON, D.C. 20005
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING AMOUNT(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share......................... $218,500,005 $64,457.50
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 20, 1998
PROSPECTUS
SHARES
PBOC HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
Of the shares of common stock, par value $0.01 per share (the "Common
Stock"), offered hereby, shares are being issued and sold by PBOC
Holdings, Inc. (the "Company") and shares are being sold by the current
stockholders of the Company (the "Selling Stockholders") (collectively, the
"Offering"). The Company will not receive any part of the proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
[THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET, SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "PBOC."]
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER DEBT
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND, ANY
GOVERNMENTAL AGENCY OR OTHERWISE.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS PROCEEDS TO
TO AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total(3)................................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling
Stockholders estimated at $ . The Company has agreed to pay the
Offering expenses of the Selling Stockholders, other than the Underwriting
Discounts and Commissions.
(3) The Company and the Selling Stockholders have granted the Underwriters an
option for 30 days to purchase up to an additional shares of Common
Stock, on the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively.
------------------------
The shares of Common Stock are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the shares of Common Stock will be made on or about , 1998 against payment
therefor in immediately available funds.
--------------------------
SANDLER O'NEILL & PARTNERS, L.P.
---------------
The date of this Prospectus is , 1998
<PAGE>
[ Map ]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE ACCOMPANYING
NOTES, APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED, (II) REFLECTS A
32 FOR 1 SPLIT OF THE COMPANY'S COMMON STOCK, WHICH WILL BE EFFECTED IN THE FORM
OF A COMMON STOCK DIVIDEND ISSUED TO ALL OF THE COMPANY'S STOCKHOLDERS
IMMEDIATELY PRIOR TO THE OFFERING, AND (III) REFLECTS THE CONVERSION OF THE
COMPANY'S OUTSTANDING SHARES OF PREFERRED STOCK INTO SHARES OF COMMON STOCK,
WHICH WILL BE EFFECTED IMMEDIATELY PRIOR TO THE OFFERING. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES HEREIN TO THE COMPANY INCLUDE PEOPLE'S BANK OF
CALIFORNIA (THE "BANK") AND ITS OTHER SUBSIDIARIES.
THE COMPANY
GENERAL. The Company is a Delaware corporation which was organized in 1987
to acquire the Bank from the Federal Savings and Loan Insurance Corporation
("FSLIC") in connection with its conversion from mutual to stock form. The
Company owns 100% of the Common Stock of the Bank, which is its primary
investment. The Bank is a federally chartered savings bank which was originally
organized in 1887 under California law and conducts business from its executive
offices located in Los Angeles, California and 19 full-service branch offices
located primarily in Los Angeles County as well as Orange and Ventura Counties
in Southern California. In addition, the Company currently operates 40 automated
teller machines ("ATMs"), 18 of which are in stand-alone facilities, and nine
automated loan machines within Southern California. As of June 30, 1997, after
giving effect to the consolidation activity in California, the Bank ranked
seventh in terms of thrift deposit market share in Los Angeles, Orange and
Ventura Counties. At December 31, 1997, the Company had total assets of $2.2
billion, net loans receivable of $1.5 billion, total deposits of $1.3 billion
and total stockholders' equity of $79.6 million.
OWNERSHIP STRUCTURE. All of the capital stock of the Company is currently
owned by (i) the Trustees of the Estate of Bernice Pauahi Bishop, also known as
Kamehameha Schools Bernice Pauahi Bishop Estate (the "Bishop Estate"), a
charitable educational trust established under Hawaii law, (ii) BIL Securities
(Offshore) Limited ("BIL Securities"), a wholly owned subsidiary of Brierley
Investments Limited, a New Zealand corporation, and (iii) Arbur, Inc. ("Arbur"),
a Delaware corporation (collectively, the "Selling Stockholders"). In connection
with the Offering, all of the outstanding shares of preferred stock of the
Company which are owned by the Selling Stockholders will be converted into
shares of Common Stock, which takes into consideration the Company's 32:1
stock split. In addition, the Selling Stockholders are selling an aggregate of
shares of Common Stock in the Offering. Consequently, upon consummation of
the Offering and giving effect to the foregoing actions, the Bishop Estate, BIL
Securities and Arbur will own %, % and %, respectively, of the Common
Stock outstanding. See "The Stockholders' Agreement" and "Principal and Selling
Stockholders."
The Bishop Estate is one of the largest private landowners in the state of
Hawaii. Brierley Investments Limited is a publicly held investment corporation
which is traded on the New Zealand and Australian stock exchanges. At December
31, 1997, Brierley Investments Limited had approximately $5.2 billion in total
assets, $2.6 billion in total liabilities and $2.6 billion in total equity (all
of which amounts have been converted into U.S. dollars). Arbur is a Delaware
corporation which is wholly owned by William E. Simon, the former U.S. Secretary
of the Treasury, and his children.
THE GOODWILL LITIGATION. In connection with the Company's acquisition of
the Bank in April 1987, the Bank was permitted to include in its regulatory
capital and recognize as supervisory goodwill $217.5 million of cash assistance
provided to the Bank by the FSLIC (the "Capital Credit"), as well as $79.7
million of goodwill which was recorded by the Bank under generally accepted
accounting principles ("GAAP"). In August 1989, Congress enacted the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") which
provided, among other things, that savings institutions such as the Bank were no
1
<PAGE>
longer permitted to include goodwill in their regulatory capital (subject to a
gradual phaseout which expired on December 31, 1994). Consequently, the Bank was
required to write-off its goodwill (subject to the phaseout), which resulted in
the Bank failing to comply with its minimum regulatory capital requirements
during 1990 and 1991. The balance of the Bank's GAAP goodwill was written off as
unrealizable in 1992. The Company, the Bank and certain current and former
stockholders of the Company have sued the U.S. Government with respect to the
required write-off of its Capital Credit and supervisory goodwill in a lawsuit
entitled SOUTHERN CALIFORNIA FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL. V.
UNITED STATES, No. 93-52-C, which seeks damages for breach of contract and for
deprivation of property without just compensation and without due process of the
law. In connection with the Offering, the Company, the Bank and each of the
Selling Stockholders individually will enter into Shareholder Rights Agreements
whereby each Selling Stockholder will be entitled to receive one Contingent
Goodwill Participation Right ("Right") for each share of Common Stock held by
the Selling Stockholder. Each Right entitles such Selling Stockholder to receive
% of the Litigation Recovery (as defined herein), or % of the Litigation
Recovery by all Selling Stockholders on an aggregate basis. As defined herein,
the Litigation Recovery is the amount, if any, recovered by the Company and/or
the Bank as a result of a settlement or judgment with respect to such
litigation, net of certain expenses, income taxes and other payments. The
remaining % of such Litigation Recovery, if any, will be retained by the
Company and/or the Bank. For additional information, see "Agreements With
Respect to Potential Goodwill Lawsuit Recovery."
1992 AND 1995 RECAPITALIZATIONS. In July and August 1992, the Company
issued $48.0 million of senior notes and, after payment of the transaction fees
and expenses, contributed $43.5 million of the net proceeds from such sale to
the Bank (the "1992 recapitalization"). As a result of the 1992
recapitalization, the Bank was able to satisfy its minimum regulatory capital
requirements. Notwithstanding the 1992 recapitalization due to the required
write-off of the Bank's Capital Credit and supervisory goodwill, the Bank's
capital was not sufficient to absorb the significant credit losses which the
Bank continued to recognize due, in large part, to the continued deterioration
in the Southern California economy which had begun with the national recession
at the start of the decade and the decline in market values of real estate
resulting in part from the Northridge earthquake of 1994. As a result, the Bank
experienced dramatically increased levels of non-performing assets and troubled
debt restructurings and, therefore, a loss of interest income, increased
operating expenses and substantially higher provisions for losses. As a result
of the foregoing, during 1994, the Bank again fell out of compliance with its
regulatory capital requirements. In June 1995, the senior notes issued in the
1992 recapitalization were contributed to the capital of the Bank and the
Selling Stockholders invested $10.0 million in new senior notes and $48.5
million in preferred stock of the Company, substantially all of the proceeds of
which were also contributed to the Bank in order to satisfy the Bank's minimum
regulatory capital requirements (the "1995 recapitalization"). In connection
with the consummation of the Offering, the senior notes of the Company will be
prepaid, and the various outstanding series of preferred stock of the Company
will be exchanged for Common Stock. See "Use of Proceeds," "Capitalization" and
"The Stockholders' Agreement."
NEW MANAGEMENT AND BUSINESS STRATEGY. In connection with the 1995
recapitalization, the Bank replaced its former senior managers with a new
management team with considerable experience in commercial banking and problem
asset resolution. Such individuals include Rudolf P. Guenzel, President and
Chief Executive Officer, J. Michael Holmes, Executive Vice President and Chief
Financial Officer and William W. Flader, Executive Vice President, all of whom
worked together at BancFlorida Financial Corp. ("BancFlorida"), and each of whom
has more than 20 years experience in the banking industry. For a more complete
description of the experience and background of the new management team, see
"Management."
The Company under its new management has changed the name of the Company
from SoCal Holdings, Inc. to PBOC Holdings, Inc. and the name of the Bank from
Southern California Federal Savings and Loan Association to People's Bank of
California, in each case to reflect the new emphasis placed on providing
customers with full banking services. In its efforts to rehabilitate the Bank,
the new management team adopted a business strategy designed to reduce problem
assets, increase net interest
2
<PAGE>
income, reduce operating expenses and cost of funds and maximize profitability
while limiting interest rate and credit risk. Since the 1995 recapitalization,
management's attention has been focused on the foregoing initiatives and, as a
result, the Company's loan origination and purchase activity has declined
significantly. With the improvement in the Company's problem assets and the
Company's return to profitability in 1996 and 1997, the Bank is redirecting its
attention to its core lending functions. New management's business strategy is
based on the following key elements:
- REDUCE NON-PERFORMING ASSETS. The Bank has organized its loan review
function through the implementation of an internal asset review system.
The Bank created an internal asset review committee and established loan
review and special assets departments in order to focus on the early
identification of potential problem assets and the administration,
rehabilitation or liquidation of the Bank's non-performing assets. As a
result of the foregoing and improved economic conditions in California,
non-performing assets and troubled debt restructurings have declined from
$78.7 million or 4.6% of total assets at December 31, 1994 to $33.1
million or 1.5% of total assets at December 31, 1997. Decreases in the
Bank's non-performing assets have resulted in reductions in provisions for
losses, which have contributed to the Company's improved operating
results. See "Business--Asset Quality--Non-Performing Assets" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
- IMPROVE OPERATING EFFICIENCY. Since the change in the Company's
management, the Bank has emphasized improving the Bank's operating
efficiency. New management centralized the Bank's underwriting functions
which, in the opinion of management, has allowed the Bank to underwrite
and approve loans faster and more efficiently. The Bank has also
significantly reduced its operating expenses through the consolidation of
certain of its operations and, to a lesser extent, staff reductions. From
December 31, 1994 through December 31, 1997, after giving effect to the
addition of new commercial lending personnel, the Bank experienced a net
reduction of 47 employees (which included a net increase of 10 employees
during 1997). The ratio of the Company's operating expenses to average
total assets has steadily decreased, from 2.14% during the year ended
December 31, 1994 to 1.60% and 1.55% during the years ended December 31,
1996 and 1997, respectively. Despite the Bank's recent cost-cutting
efforts, management believes that it has significant operating leverage
and, therefore, continued incremental growth will not cause the Company's
operating expenses to increase by a corresponding amount. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations."
- REDUCE FUNDING COSTS. The Bank has reduced its overall cost of funds by
promoting retail deposit growth (particularly transaction accounts),
allowing its out-of-market, institutional jumbo certificates of deposit to
run off as they mature and replacing higher cost, short-term FHLB advances
with lower cost, intermediate-term reverse repurchase agreements and FHLB
advances. Prior to 1995, the Bank relied to a large extent on wholesale
sources of funds, such as out-of-market, institutional jumbo certificates
of deposits and FHLB advances, which resulted in a high cost of funds and
reduced margins. As a result of the foregoing changes, the Bank's
transactional accounts (passbook, NOW and money market accounts) have
increased from $183.2 million or 13.2% of total deposits at December 31,
1994 to $333.8 million or 26.4% of total deposits at December 31, 1997.
Over such period, out-of-market, institutional jumbo certificates of
deposit declined from $122.2 million to $2.5 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations" and "Business--Sources of Funds."
- REVISE INVESTMENT POLICY. Since June 1995, the Bank has been replacing
relatively illiquid securities with more liquid U.S. Government agency
obligations and U.S. Government agency mortgage-backed securities. The
securities disposed of included collateralized mortgage obligations and
other mortgage derivative products, which did not qualify as collateral
with respect to borrowings or other obligations of the Bank, while the
U.S. Government agency obligations and U.S. Government agency
mortgage-backed securities increase the credit quality of the Bank's
assets, require less
3
<PAGE>
capital under risk-based regulatory capital requirements and may be used
to collateralize borrowings or other obligations of the Bank. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Changes in Financial Condition--Securities." At December
31, 1997, the Bank held $428.1 million of mortgage-backed securities,
$182.2 million of which were secured by loans with adjustable rates, and
$139.7 million of U.S. Government agency obligations. The adjustable-rate
nature of the loans underlying the Bank's mortgage-backed securities has
assisted the Bank in managing its interest rate risk exposure. See
"Business--Investment Activities."
- REVISE INTEREST RATE RISK POLICY. Management's strategy is to match asset
and liability balances within maturity categories to limit the Bank's
exposure to earnings variations as well as variations in the value of
assets and liabilities as interest rates change over time. The Bank under
prior management hedged its interest rate exposure externally through the
use of various interest rate contracts, such as interest rate swaps,
corridors, caps and floors. The Bank's current strategy is to hedge
internally through the use of core transaction deposit accounts, FHLB
advances and reverse repurchase agreements, together with an emphasis on
investing in shorter-term or adjustable-rate assets. At December 31, 1997,
the Company had $1.6 billion in assets maturing or repricing within one
year and $1.6 billion in liabilities maturing or repricing within one
year. As of such date, the Company's one-year interest rate sensitivity
gap as a percent of total assets amounted to (0.10)%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Asset and Liability Management."
- EXPAND COMMERCIAL BUSINESS AND CONSUMER LENDING. Since June 1995, the Bank
has hired approximately 20 individuals with significant expertise in
commercial and consumer lending. The increase in staffing has enabled the
Bank to increase its commercial business and consumer loan originations.
During the years ended December 31, 1997 and 1996, the Bank originated in
the aggregate $32.6 million and $9.8 million of commercial business and
consumer loans (including loans secured by deposits), which amounted to
20.3% and 15.8% of total loan originations, respectively. Management
intends to continue to place increased emphasis on building these
portfolios. Commercial business and consumer loans generally have shorter
terms and higher interest rates than single-family residential loans but
are generally considered to have a higher level of credit risk. See "Risk
Factors--Multi-Family Residential, Commercial Real Estate, Commercial
Business and Consumer Lending" and "Business--Lending Activities."
- INCREASE INTEREST-EARNING ASSETS. The Bank has and will continue to pursue
a policy of utilizing its existing infrastructure to grow its loan and
securities portfolios as well as its retail franchise. During 1997, the
Bank established People's Preferred Capital Corporation ("PPCCP"), an
operating subsidiary of the Bank and a real estate investment trust
("REIT") for federal income tax purposes under the Internal Revenue Code
of 1986, as amended (the "Code"), to acquire, hold and manage primarily
mortgage assets. In connection therewith, the Bank leveraged the $35.7
million of net proceeds generated from such transaction through wholesale
purchases of $408.7 million of adjustable-rate (based upon a weekly
average yield on U.S. Treasury securities adjusted to a constant
comparable maturity of one year) single-family residential loans, which
were funded by short- to intermediate-term FHLB advances. The weighted
average yield of the loans purchased was 7.51% and the weighted average
rate paid on such FHLB advances was 5.85%. Such loan purchases
significantly increased the size of the Bank's residential mortgage
portfolio. Similarly, the Company expects initially to leverage the
proceeds raised from the Offering through additional wholesale purchases
of primarily single-family residential loans and investment and U.S.
Government agency obligations and U.S. Government agency mortgage-backed
securities which are expected to be funded by increases in deposits,
short- to intermediate-term reverse repurchase agreements and FHLB
advances, consistent with management's asset and liability management
strategies. Management believes the leveraging of such proceeds will
provide the Bank with the
4
<PAGE>
opportunity to expand its business and thereby increase its earnings,
which will permit the accelerated utilization of existing net operating
loss carryforwards ("NOLs"). See "Risk Factors-- Availability of Net
Operating Loss Carryforwards." As the Bank is able to grow its deposit
accounts and increase its loan originations, management's strategy is to
replace, over time, such wholesale borrowings with core deposits and
replace its wholesale loan purchases with internally originated loans.
- EXPAND THE BANK'S FRANCHISE. Management of the Company is attempting to
enhance the Bank's branch franchise by opening new offices in strategic
markets and pursuing branch acquisitions within its market area when
appropriate. In connection therewith, the Bank opened a branch office in
Buena Park, California in November 1995 and a branch office in Los
Angeles, California in April 1996. As of December 31, 1997, the Bank
operated out of 19 full-service branch offices located primarily in Los
Angeles County as well as Orange and Ventura counties in Southern
California. In addition, the Company currently operates 40 ATMs, 18 of
which are in stand-alone facilities and nine automated loan machines in
various locations throughout Southern California. The Company will also
consider whole bank acquisition opportunities.
REGULATION. The Bank, as a federally chartered savings bank, is subject to
comprehensive regulation and examination by the Office of Thrift Supervision
("OTS"), as its chartering authority and primary regulator, and by the Federal
Deposit Insurance Corporation ("FDIC"), which administers the Savings
Association Insurance Fund ("SAIF"), which insures the Bank's deposits to the
maximum extent permitted by law. The Bank is a member of the Federal Home Loan
Bank ("FHLB") of San Francisco, which is one of the 12 regional banks which
comprise the FHLB System. The Bank is further subject to regulations of the
Board of Governors of the Federal Reserve System ("Federal Reserve Board")
governing reserves required to be maintained against deposits and certain other
matters. See "Regulation."
The Company's executive offices are located at 5900 Wilshire Boulevard, Los
Angeles, California 90036 and its main telephone number is (213) 938-6300.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company.................... shares
Common Stock offered by the
Selling Stockholders....... shares
Total Common Stock offered... shares
Common Stock to be outstand-
ing after the Offering..... shares(1)
</TABLE>
- ------------------------
(1) Gives effect to the conversion of the Company's Series C Preferred Stock,
par value $0.01 per share (the "Series C Preferred Stock"), the Company's
Series D Preferred Stock, par value $0.01 per share (the "Series D Preferred
Stock"), and the Company's Series E Preferred Stock, par value $0.01 per
share (the "Series E Preferred Stock") (collectively, the "Outstanding
Preferred Stock"), all of which is held by the Selling Stockholders, into an
aggregate of 8,527,488 shares of Common Stock, which takes into
consideration the Company's 32:1 stock split. See "Capitalization" and "The
Stockholders' Agreement."
5
<PAGE>
<TABLE>
<S> <C>
Use of Proceeds.............. The net proceeds to the Company from the sale of the shares
of Common Stock offered by the Company hereby will be
$ million ($ million, if the Underwriters'
over-allotment option is exercised in full) after deducting
the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will
not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders.
The Company intends to use (i) approximately $20.2 million
of the net proceeds to pay accumulated and unpaid dividends
to the Selling Stockholders on the shares of the Company's
Outstanding Preferred Stock (see "Capitalization" and "The
Stockholders' Agreement"); (ii) approximately $
million of the net proceeds (before applicable tax benefits)
to make a one-time payment in satisfaction of benefits due
to certain senior executive officers of the Company and the
Bank under employment agreements (the "Original Employment
Agreements") (see "Management--Employment Agreements--Orig-
inal Employment Agreements and Establishment of Grantor
Trusts"); (iii) approximately $11.3 million of the net
proceeds to prepay the $10.0 million of senior notes (plus
accrued interest) which were issued to the Bishop Estate in
the 1995 recapitalization (see "Capitalization" and "The
Stockholders' Agreement"); and (iv) approximately $4.5
million of the net proceeds (before applicable tax benefits)
to pay the FDIC special assessment which the Bank had
previously received permission from the FDIC to defer (see
"Regulation--Regulation of Federal Savings Banks--FDIC
Assessments" and "The Stockholders' Agreement").
The balance of the estimated net proceeds, approximately
$ , is expected to be contributed to the Bank and
initially invested in U.S. Government agency obligations and
U.S. Government agency mortgage-backed securities.
Subsequently, the Bank expects to leverage such proceeds by
purchasing primarily single-family residential loans and
investment and U.S. Government agency obligations and U.S.
Government agency mortgage-backed securities and funding
such purchases through increases in deposits, short- to
intermediate-term reverse repurchase agreements and FHLB
advances. Management believes that the leveraging of such
proceeds will provide the Bank with the opportunity to
expand its business and thereby increase its earnings, which
will permit accelerated utilization of existing NOLs. See
"Taxation."
Common Stock Nasdaq National
Market symbol.............. PBOC
</TABLE>
6
<PAGE>
The following chart sets forth in simplified form the ownership of the
Common Stock of the Company assuming the conversion of the Company's Outstanding
Preferred Stock by the Selling Stockholders into shares of Common Stock. See
"Capitalization," "The Stockholders' Agreement" and "Principal and Selling
Stockholders."
[LOGO]
The following chart sets forth in simplified form the ownership of the
Common Stock of the Company following consummation of the Offering.
[LOGO]
RISK FACTORS
Prospective investors are urged to carefully review the matters discussed
under "Risk Factors."
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
(Dollars in thousands, except per share data)
The following selected historical consolidated financial data for the five
years ended December 31, 1997 is derived in part from the audited consolidated
financial statements of the Company. The selected historical consolidated
financial data set forth below should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
of the Bank, including the related notes, included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
SELECTED FINANCIAL CONDITION DATA:
Total assets................................................ $2,213,054 $1,747,918 $1,579,760 $1,722,256 $1,830,805
Cash and cash equivalents................................... 14,113 14,720 7,258 10,507 18,494
Federal funds sold.......................................... 7,004 7,200 11,800 -- --
Securities purchased under agreements to resell............. -- -- 35,000 -- --
Securities available-for-sale............................... 571,160 502,301 241,645 7,677 55,477
Loans held for sale......................................... -- -- -- 28,946 5,500
Mortgage-backed securities held-to-maturity................. 9,671 10,971 -- 304,620 306,530
Loans receivable, net....................................... 1,533,212 1,141,707 1,228,152 1,306,057 1,346,498
Real estate held for investment and sale, net............... 15,191 22,561 16,288 17,514 36,398
Deposits.................................................... 1,266,615 1,371,243 1,473,318 1,384,218 1,388,818
Securities sold under agreements to repurchase.............. 340,788 192,433 -- -- 46,985
FHLB advances............................................... 472,000 80,000 31,746 310,000 314,000
Senior debt(1).............................................. 11,113(1) 11,398 10,000 38,199 33,899
Minority interest(2)........................................ 33,250(2) -- -- 23,324 23,324
Stockholders' equity(3)..................................... 79,602 64,822 56,613 (52,463) 6,835
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
SELECTED OPERATING DATA:
Interest, fees and dividend income........................ $ 130,979 $ 122,896 $ 122,926 $ 116,262 $ 134,931
Interest expense.......................................... 97,205 90,791 97,977 97,100 108,769
--------- --------- --------- --------- ---------
Net interest income....................................... 33,774 32,105 24,949 19,162 26,162
Provision for loan losses................................. 2,046 2,884 8,823 24,443 13,059
--------- --------- --------- --------- ---------
Net interest income after provision for loan losses....... 31,728 29,221 16,126 (5,281) 13,103
Gain on mortgage-backed securities sales, net............. 1,275 3,638 641 485 901
Gain (loss) on loan and servicing sales, net.............. 3,413 (53) (166) 2,712 2,537
Income (loss) from other real estate operations, net...... (1,805) 1,946 (2,067) (5,398) (180)
Other noninterest income.................................. 2,234 2,593 2,095 2,328 6,272
Operating expenses........................................ 29,543 27,816 30,751 40,923 41,070
Earnings (loss) before income tax provision (benefit)..... 7,302 9,529 (14,122) (46,077) (18,437)
Income tax provision (benefit)............................ (4,499) (3,015) (2,644) 11,356 (1,200)
Minority interest......................................... (859) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss)....................................... 10,942 12,544 (11,478) (57,433) (17,237)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net earnings (loss) available to common stockholders...... 3,602 5,989 (14,863) (57,433) (17,237)
Earnings per share, basic and diluted..................... $ 1.74 $ 1.90 $ (3.41) $ (9.45) $ (2.84)
KEY OPERATING RATIOS:
PERFORMANCE RATIOS:(4)
Return on average assets.................................. 0.57% 0.72% (0.65)% (3.00)% (0.87)%
Return on average equity.................................. 15.37 22.00 (38.21) (251.75) (118.57)
Interest-earning assets to interest-bearing liabilities... 101 100 100 98 98
Interest rate spread(5)................................... 1.80 1.91 1.46 1.16 1.49
Net interest margin(5).................................... 1.84 1.92 1.45 1.04 1.38
Operating expenses to average assets...................... 1.55 1.60 1.74 2.14 2.07
Efficiency ratio(6)....................................... 72.17 64.52 89.72 93.58 84.24
ASSET QUALITY DATA:
Total non-performing assets and troubled debt
restructurings(7)....................................... $ 33,123 $ 46,218 $ 52,640 $ 78,737 $ 76,951
Non-performing loans as a percent of loans, net........... 0.65% 1.60% 2.90% 2.10% 2.86%
Non-performing assets as a percent of total assets(7)..... 1.05 2.21 2.94 2.20 3.83
Non-performing assets and troubled debt restructurings as
a percent of total assets(7)............................ 1.50 2.64 3.33 4.57 4.20
Allowance for loan losses as a percent of loans, net...... 1.16 2.04 2.57 2.28 1.52
Allowance for loan losses as a percent of non-performing
loans(7)................................................ 179.97 127.65 88.71 108.53 53.06
Allowance for loan losses as a percent of non-performing
loans and troubled debt restructurings(7)............... 89.84 90.30 75.67 43.66 44.99
Net charge-offs to average loans, net..................... 0.63 0.95 0.55 0.95 0.45
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BANK'S REGULATORY CAPITAL RATIOS(8):
Tier 1 leverage capital ratio............................. 5.43 4.57 4.18 1.08 4.21
Tier 1 risk-based capital ratio........................... 10.74 9.15 7.56 2.01 7.41
Total risk-based capital ratio............................ 11.99 10.38 8.43 2.76 8.58
</TABLE>
- ------------------------
(1) The senior debt is expected to be prepaid in connection with the Offering.
See "Use of Proceeds," "Capitalization" and "The Stockholders' Agreement."
(2) Minority interest consists of the interest in PPCCP held by persons other
than the Bank. See "Business--Subsidiaries."
(3) At December 31, 1997, 1996 and 1995, stockholders' equity is net of $2.0
million, $6.1 million and $1.6 million of unrealized losses on securities
available-for-sale, respectively.
(4) With the exception of end of period ratios, all ratios are based on average
daily balances during the respective periods, except for 1993 which use
average monthly balances.
(5) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.
(6) Efficiency ratio represents operating expenses as a percent of the aggregate
of net interest income and non-interest income.
(7) Non-performing assets consist of nonaccrual loans and real estate owned.
Nonaccrual loans are loans that the Company has removed from accrual status
because the loans are 90 or more days delinquent as to principal and/or
interest or, in management's opinion, full collectibility of the loans are
in doubt. Real estate owned consists of real estate acquired in settlement
of loans. A loan is considered a troubled debt restructuring if, as a result
of the borrower's financial condition, the Company has agreed to modify the
loan by accepting below market terms either by granting an interest rate
concession or by deferring principal or interest payments. As used in this
table, the term "troubled debt restructurings" means a restructured loan on
accrual status. Troubled debt restructurings on nonaccrual status are
reported in the nonaccrual loan category. See "Business--Asset Quality."
(8) For information on the Bank's regulatory capital requirements, see
"Regulation--Regulation of Federal Savings Banks-- Regulatory Capital
Requirements."
9
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION IN
CONJUNCTION WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
PURCHASING THE COMMON STOCK IN THE OFFERING. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO THE COMPANY THAT ARE
BASED ON THE BELIEFS OF MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. IN ADDITION, IN THOSE AND OTHER
PORTIONS OF THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE,"
"EXPECT," "INTEND," "SHOULD" AND SIMILAR EXPRESSIONS, OR THE NEGATIVE THEREOF,
AS THEY RELATE TO THE COMPANY OR THE COMPANY'S MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEWS
OF THE COMPANY WITH RESPECT TO FUTURE LOOKING EVENTS AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THE RISK FACTORS DESCRIBED IN
THIS PROSPECTUS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE,
OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED,
EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.
THE COMPANY'S LIMITED HISTORY OF STABILIZED OPERATIONS AND PROFITABILITY
The Company has not originated a significant amount of loans since the 1995
recapitalization because new management's attention was focused on, among other
things, reducing problem assets, increasing net interest income, reducing
operating expenses and cost of funds and maximizing profitability while limiting
interest rate and credit risk. However, the reduction in the Company's
non-performing assets and the Company's return to profitability in 1996 and 1997
has allowed the Bank to redirect its attention to increasing its lending
activities through both loan originations and purchases. See "Business--Lending
Activities--Origination, Purchase and Sale of Loans." Notwithstanding the
foregoing, no assurance can be made that the Bank will be successful in
continuing to increase its loan portfolio in future periods or that the Company
will be able to achieve or maintain profitability in subsequent years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The recent success of the Company and the Bank has been dependent on Rudolf
P. Guenzel, the President and Chief Executive Officer of the Company and the
Bank, J. Michael Holmes, the Executive Vice President and Chief Financial
Officer of the Company and the Bank, and William W. Flader, the Executive Vice
President of the Company and the Bank. The Company's future success will also
depend, to a significant extent, upon the services of Messrs. Guenzel, Holmes
and Flader. The Company believes that the prolonged unavailability or the
unexpected loss of the services of Messrs. Guenzel, Holmes and Flader could have
a material adverse effect upon the Company. In connection with the Offering, the
Company and the Bank will enter into three-year employment agreements with
Messrs. Guenzel, Holmes and Flader. The Company does not currently maintain key
man life insurance policies with respect to Messrs. Guenzel, Holmes and Flader.
See "Management."
AVAILABILITY OF NET OPERATING LOSS CARRYFORWARDS
The Company has $151.5 million of federal NOLs carried over to 1998 which
are scheduled to expire between 2001 and 2011. The use of these NOLs to offset
future taxable income will be subject to one or more limitations under Section
382 of the Code.
Under Section 382 of the Code, if an ownership change of a corporation with
NOLs occurs, the amount of the taxable income for a post-change year that may be
offset by the NOLs arising before the ownership change is limited by an amount
known as the Section 382 limitation. The annual Section 382 limitation for any
post-change year is an amount equal to the value of the corporation multiplied
by the long-term tax-exempt rate that applies with respect to the ownership
change. The annual Section 382 limitation is adjusted as required by the Code,
and, in particular, is increased in a succeeding year by the
10
<PAGE>
amount of the limitation for the previous year that was not used. The annual
Section 382 limitation may be increased under certain circumstances for
recognized built-in gains and built-in income. A corporation can have two (or
more) ownership changes. In such a case, any losses attributable to the period
preceding the earlier ownership change are treated as pre-change losses with
respect to both ownership changes. The later ownership change may result in a
lesser (but never in a greater) Section 382 limitation with respect to such
losses. Following the later ownership change, the amount of taxable income for
any post-change year that can be offset by pre-change losses may not exceed the
Section 382 limitation for such ownership change, reduced by the amount of
taxable income offset by pre-change losses subject to any earlier ownership
change(s).
The 1992 recapitalization resulted in an ownership change (the "1992
Ownership Change"). The annual Section 382 limitation from the 1992 Ownership
Change is approximately $7.7 million. That annual limitation has increased due
to unused limitations from previous years, and amounts to approximately $38.7
million as of the beginning of 1998. There are $43.3 million of pre-change
losses carried over to 1998 that are subject to this limitation (the "1992
limited NOLs").
It is anticipated that the Offering will result in a second ownership change
(the "1998 Ownership Change"). The actual annual Section 382 limitation from the
1998 Ownership Change will equal the sum of (i) the fair market value of the
stock of the Company immediately before the Offering and (ii) the fair market
value of the Company's and the Bank's goodwill claim with respect to the
Goodwill Litigation (as defined and described under "Agreements With Respect to
Potential Goodwill Lawsuit Recovery"), multiplied by the applicable long-term
tax-exempt rate. For illustration purposes only, the annual Section 382
limitation from the 1998 Ownership Change is estimated to be approximately
$ million based on a value equal to the sum of the (i) fair market value
of the stock of the Company immediately before the Offering (valued at an
assumed Price to Public of $ per share) and (ii) the unamortized balance
of the Company's and the Bank's goodwill claim with respect to the Goodwill
Litigation as of December 31, 1989 (which amounted to $261.3 million as of such
date and which in no way reflects all of the claims which may be asserted by the
Plaintiffs in the Goodwill Litigation or any of the theories as to damages which
may be asserted in connection with the Goodwill Litigation), multiplied by 5.1%,
the applicable federal long-term tax-exempt rate for ownership changes occurring
in March 1998 (used for illustration purposes only). The actual annual Section
382 limitation from the 1998 Ownership Change may be higher or lower than the
$ million estimated, due to a change in the Price to Public or an
increase or decrease in the value of the Company's and the Bank's goodwill claim
with respect to the Goodwill Litigation. All $151.5 million of the NOLs carried
over to 1998 (including the $43.3 million that are 1992 limited NOLs), plus any
NOLs for 1998 that is attributable to the period before the 1998 Ownership
Change, are subject to this limitation (the "1998 limited NOLs").
If the Section 382 limitation for the 1998 Ownership Change is greater than
the Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will first be offset by
1992 limited NOLs up to the amount of the Section 382 limitation for the 1992
Ownership Change. Any remaining taxable income will be offset by 1998 limited
NOLs that are not also 1992 limited NOLs by an amount equal to the Section 382
limitation for the 1998 Ownership Change for that year minus the amount of 1992
limited NOLs already used to offset taxable income in that year.
If the Section 382 limitation for the 1998 Ownership Change is less than the
Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will be offset by 1998
limited NOLs up to the amount of the Section 382 limitation for the 1998
Ownership Change.
KPMG Peat Marwick LLP has issued an opinion to the Company and the Bank to
the effect that, for federal income tax purposes, the Rights evidenced by the
terms of the Shareholder Rights Agreements should be treated as stock of the
Company for purposes of Sections 311(a) and 305(a) of the Code. Thus, the
Company should recognize no gain or loss on the distribution of the Rights to
the Selling Stockholders
11
<PAGE>
with respect to their ownership of Company Common Stock. In addition, the Bank
should not recognize gain or loss on the Company's distribution of the Rights to
the Selling Stockholders. Furthermore, the Selling Stockholders should not be
required to include the amount of the Rights in income. Finally, if the Offering
results in an ownership change of the Company within the meaning of Section
382(g) of the Code, the amount of value taken into account for purposes of
determining the annual Section 382 limitation should include the value of the
Rights. Despite the Company's receipt of the foregoing opinion from KPMG Peat
Marwick LLP, such opinion is not binding on the Internal Revenue Service ("IRS")
and no assurance can be made that the IRS will treat the Shareholder Rights
Agreements as stock of the Company for federal income tax purposes. If the
Shareholder Rights Agreements were treated other than as stock in the Company
(i.e., as debt of the Company), the value of the Shareholder Rights Agreements
would reduce the value of the Company's stock, and, correspondingly, the amount
of the Section 382 Limitation with respect to the 1998 Ownership Change. Such a
reduction in the amount of the Section 382 Limitation would significantly impair
the ability of the Bank to use its NOLs existing at the time of the 1998
Ownership Change. Whether the Shareholder Rights Agreements will be treated as
stock for federal income tax purposes depends on the totality of the facts and
circumstances, including the intent of the parties to the Shareholder Rights
Agreements, the extent to which the Shareholder Rights Agreements will obligate
the Company to pay the Selling Stockholders a portion of the Litigation Recovery
(as defined and described under "Agreements With Respect to Potential Goodwill
Lawsuit Recovery") and the position that the Shareholder Rights Agreements will
give the Selling Stockholders in relation to the Company's creditors and
stockholders existing on and after the execution of the Shareholder Rights
Agreements. See "Taxation."
ASSET QUALITY
The Bank experienced serious financial and operational problems in the early
1990s primarily as a result of the economic recession and a decline in real
estate values. These conditions had a material adverse effect on the quality of
the Bank's loan portfolio and contributed to substantial increases in the Bank's
problem assets, including non-accrual loans, real estate acquired by the Bank
through foreclosure proceedings and troubled debt restructurings. Such problem
assets reached $78.7 million or 4.6% of total assets at December 31, 1994. Since
the change in senior management during 1995, the Bank has focused on improving
the credit quality of its assets through the early identification of potential
problem loans and the administration, rehabilitation or liquidation of the
Bank's non-performing assets. New management has initiated a policy to take
title to non-performing assets as promptly as practicable and improve the
properties' physical condition where appropriate so that marketing efforts may
be commenced. In the case of commercial properties, management takes steps to
enhance net operating income with respect to its properties in order to command
the best sales price possible. Management's actions, and improved economic
conditions in California, resulted in a substantial decline in non-performing
assets and troubled debt restructurings during 1997, as such problem assets
amounted to $33.1 million or 1.5% of total assets at December 31, 1997. See
"Business -Asset Quality--Non-Performing Assets."
The future success of the Bank is dependent upon the quality of its assets.
Although management of the Bank has devoted substantial time and resources to
the identification, collection and work-out of non-performing assets, the real
estate markets and the overall economy in its market area are likely to be
significant determinants of the quality of the Bank's assets in future periods
and, thus, its financial condition and results of operations. In particular,
although the Bank, through its new management, has been able to reduce the
amount of its non-performing assets and troubled debt restructurings in recent
years, the Bank's future results of operations may be materially adversely
affected if the Bank is unable to work-out or dispose of its remaining
non-performing assets on a timely basis or if the values of such properties
decline further or if the values of properties underlying the Bank's loan
portfolio decline further. Although management utilizes its best judgment in
providing for losses with respect to its non-performing assets, there can be no
assurance that the Bank will be able to dispose of such non-performing assets
without establishing additional provisions for losses on loans or further
reductions in the carrying
12
<PAGE>
value of its real estate owned. Significant additional loan and real estate loss
provisions would negatively impact the Bank's future results of operations and
levels of regulatory capital.
INTEREST RATE CONCERNS
It is expected that the Bank will continue to realize income primarily from
the differential or "spread" between the interest earned on loans, securities
and other interest-earnings assets, and interest paid on deposits, borrowings
and other interest-bearing liabilities. Net interest rate spreads are affected
by the difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities. In addition, loan
volume and yields are affected by market interest rates on loans, and rising
interest rates generally are associated with a lower volume of loan
originations. It is expected that a substantial portion of the Bank's assets
will continue to be indexed to changes in market interest rates and a
substantial portion of its liabilities will continue to be short term, which
will mitigate the negative effect of a decline in yield on its assets. At
December 31, 1997, the Bank had $1.6 billion in assets maturing or repricing
within one year and $1.6 billion in liabilities maturing or repricing within one
year. In addition, the lag in implementation of repricing terms on the Bank's
adjustable-rate assets may result in a decline in net interest income in a
rising interest rate environment. As such, there can be no assurance that the
Bank's interest rate risk will be minimized or eliminated. Furthermore, an
increase in the general level of interest rates may adversely affect the ability
of certain borrowers to pay the interest on and principal of their obligations.
Accordingly, changes in levels of market interest rates could materially
adversely affect the Bank's net interest rate spread, asset quality, loan
origination volume and overall financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset and Liability Management."
MULTI-FAMILY RESIDENTIAL, COMMERCIAL REAL ESTATE, COMMERCIAL BUSINESS AND
CONSUMER LENDING
At December 31, 1997, the Bank's multi-family residential and commercial
real estate loans amounted to $561.7 million in the aggregate or approximately
36.1% of the Bank's total loans receivable. In addition, while commercial
business and consumer loans (including loans secured by deposits) amounted to
only $31.0 million in the aggregate at December 31, 1997 (which represented 2.0%
of the Bank's total loans receivable), such loans represented 20.3% and 15.8% of
the Bank's total loan originations for the years ended December 31, 1997 and
1996, respectively. Although multi-family residential, commercial real estate,
commercial business and consumer loans generally provide for higher interest
rates and shorter terms than single-family residential real estate loans, such
loans generally have a higher degree of credit risk. At December 31, 1997, an
aggregate of $1.5 million and $12.4 million of the Bank's multi-family
residential and commercial real estate loans were classified non-accrual or
included in real estate owned, respectively. In an effort to increase its
commercial business and consumer lending business, the Bank has been placing
increased emphasis on providing customers with additional banking services, has
increased expenditures with respect to its infrastructure and has hired and
trained new commercial and consumer lending personnel. The Bank intends to
increase this emphasis on commercial business and consumer lending during the
next several years. No assurance can be made that the Bank will be successful in
building up these portfolios to levels consistent with the Bank's business plan.
See "Business--Lending Activities."
NO PRIOR MARKET
Prior to the Offering, there has been no public market for the Company's
Common Stock. THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "PBOC." However, there can be no assurance that
an established and liquid trading market for the Common Stock will develop, that
it will continue if it does develop, or that after the completion of the
Offering, the Common Stock will trade at or above the Price to Public set forth
on the cover of this Prospectus. Sandler O'Neill & Partners, L.P., as
representative (the "Representative") of the underwriters
13
<PAGE>
named herein (the "Underwriters"), has advised the Company that it intends to
make a market in the Common Stock. However, the Representative is not obligated
to make a market in such shares, and any such market making may be discontinued
at any time at the sole discretion of the Representative. In addition, the
substantial amount of Common Stock which is expected to be retained by the
Selling Stockholders may adversely affect the development of an active and
liquid trading market. See "--Control by Certain Stockholders," "Market for
Common Stock" and "Underwriting."
DIVIDENDS
The Company has never paid a cash dividend on the Common Stock and does not
expect to pay a cash dividend on its Common Stock following the Offering.
Rather, the Company intends to retain earnings and increase capital in
furtherance of its overall business objectives. The Company will periodically
review its dividend policy in view of the operating performance of the Company,
and may declare dividends in the future if such payments are deemed appropriate
and in compliance with applicable law and regulations. Cash and stock dividends
are subject to determination and declaration by the Board of Directors, which
will take into account the Company's consolidated earnings, financial condition,
liquidity and capital requirements, applicable governmental regulations and
policies, and other factors deemed relevant by the Board of Directors. See
"Dividends," "Regulation--Regulation of Federal Savings Banks--Capital
Distribution Regulation" and "Taxation."
HOLDING COMPANY STRUCTURE
Substantially all of the Company's assets and operations are held by or
conducted through the Bank and, to that extent, the Company is effectively a
holding company. The Company relies on dividends from the Bank to meet its debt
service obligations and other liabilities. Although the Company has no current
intention to pay dividends on the Common Stock, the Company's ability to pay
such dividends will depend on cash dividends from the Bank. As discussed below,
there are significant limitations on the ability of the Bank to pay dividends or
otherwise pay cash to the Company. See "Dividends." In addition, claims of
creditors of the Bank, including tax authorities and trade creditors, will
generally have a priority claim to the assets of the Bank over the claims of the
Company.
DILUTION
Upon completion of the Offering, there will be an immediate dilution of the
net tangible book value per share of Common Stock from the Price to Public. This
dilution primarily results from the sale by the Company of Common Stock in the
Offering at a price above the current book value per share. Without taking into
account any changes in net tangible book value after December 31, 1997, other
than those resulting from the sale by the Company of the Common Stock offered
hereby (after deduction of underwriting discounts and commissions and estimated
Offering expenses), the pro forma net tangible book value at December 31, 1997
would have been $ per share (excluding any value of tax benefits),
representing an immediate dilution of $ per share to persons purchasing
the Common Stock offered hereby at the Price to Public. See "Dilution."
LEVERAGING STRATEGY
As a result of the substantial amount of proceeds expected to be raised in
the Company's Offering of Common Stock and contributed to the Bank, the Bank
intends to leverage such proceeds through the purchase of single-family
residential loans and U.S. Government agency obligations and U.S. Government
agency mortgage-backed securities, which purchases are expected to be funded
primarily through increases in deposits, short- to intermediate-term reverse
repurchase agreements and FHLB advances. See "Use of Proceeds." Management's
leverage strategy is premised on the assumption that it will earn a positive
spread on the yield generated from its purchased loans and securities over the
rate paid on its incremental borrowings and that the spread generated from such
strategy will assist the Company in accelerating the
14
<PAGE>
utilization of its existing NOLs. If market rates of interest fluctuate in such
a manner that the Company is unable to earn a positive spread as a result of its
leverage strategy, the Company's net interest margin and net earnings will be
adversely affected in future periods. For information concerning the Company's
leveraging of its balance sheet during the year ended December 31, 1997, See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "--Availability of Net Operating Loss Carryforwards" and
"Taxation."
YEAR 2000 COMPLIANCE ISSUES
The Company has adopted a plan to address Year 2000 data processing issues.
The plan includes the assessment of all internal systems, programs and data
processing applications as well as those provided to the Bank by third-party
vendors. A significant portion of the Company's data processing and loan
servicing is performed by third-party vendors from which the Company has
received confirmation that they expect to be compliant with Year 2000 issues on
a timely basis. The Company has not incurred significant expense to date, but
expects to incur total expenses of $200,000 through 1999 to address Year 2000
issues. Management is currently evaluating the Bank's third party vendors'
efforts with respect to compliance with Year 2000 issues. No assurance can be
made that such third party vendors' efforts will be successful or that the
Company's costs associated therewith will be as estimated. However, the Company
does not believe any Year 2000 issues will materially affect the Company's
products, services or competitive conditions. In addition, the Company does not
believe that the cost of addressing the Year 2000 issues is a material event or
uncertainty that would cause reported financial information not to be
necessarily indicative of future operating results or financial condition, and
the costs or the consequences of incomplete or untimely resolution of its Year
2000 issues does not represent a known material event or uncertainty that is
reasonably likely to affect its future financial results, or cause its reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
RISKS RELATING TO GOODWILL LITIGATION
Legal, accounting, consulting and other fees and expenses related to the
Goodwill Litigation (as defined and described under "Agreement with Respect to
Potential Goodwill Lawsuit Recovery") may become substantial. During the period
from the commencement of the Goodwill Litigation to December 31, 1997, the Bank
has incurred legal, accounting, consulting and other fees and expenses in the
amount of approximately $ . To the extent the Company and the Bank must
continue to engage in protracted litigation, the Company and the Bank may
continue to incur significant legal, accounting, consulting and other fees and
expenses in the future. Although the Selling Stockholders have agreed to
reimburse the Company and the Bank with respect to [95%] of such fees and
expenses, no assurance can be made that the Company and/or the Bank will prevail
in the Goodwill Litigation or that the Company and/or the Bank achieve a
recovery sufficient to offset the fees and expenses for which the Company and
the Bank remain responsible. See "Agreements With Respect to Potential Goodwill
Lawsuit Recovery."
CONTROL BY CERTAIN STOCKHOLDERS
All of the Company's Common Stock prior to the Offering is 100% owned by the
Bishop Estate, BIL Securities and Arbur. Following the Offering, it is
anticipated that such Selling Stockholders will own %, % and % of the
Common Stock, respectively. In addition, in connection with the consummation of
the Offering, the Company and the Selling Stockholders will enter into the 1998
Stockholders' Agreement (as defined herein) pursuant to which the Company will
agree to use all authority under applicable law to cause the Selling
Stockholders' nominees to be included in the slate of nominees to the Board of
Directors and will agree to use all practical efforts to cause the election of
such slate. Under the 1998 Stockholders' Agreement, Bishop will be entitled to
designate two, one or no nominees, and BIL Securities and Arbur collectively one
or no nominees, in each case based on such Selling Stockholders' percentage
ownership of Common Stock. As a result, the Selling Stockholders will continue
to be able to
15
<PAGE>
influence significantly the policies of the Company and its subsidiaries,
including mergers, sales of assets and similar transactions. See "The
Stockholders' Agreement" and "Principal and Selling Stockholders."
SHARES AVAILABLE FOR FUTURE SALE
The Company, the Selling Stockholders and any executive officer or director
of the Company who buys in the Offering have agreed that for a period of 180
days after the date of this Prospectus, they will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock without the prior
written consent of the Underwriters. See "Underwriting." Notwithstanding the
foregoing, the future sale of a substantial number of shares of Common Stock by
the Selling Stockholders or stockholders who purchased shares of Common Stock in
the Offering, or the perception that such sales could occur, could have an
adverse effect on the market price of the Company's Common Stock. See "Shares
Eligible For Future Sale" and "Principal and Selling Stockholders."
ECONOMIC CONDITIONS
The Bank's loan portfolio is concentrated in California. As a result, the
financial condition of the Bank will be subject to general economic conditions
and, in particular, to conditions in the California residential real estate
market. During the early 1990s, the Southern California economy deteriorated
due, in part, to the national recession at the start of the decade, together
with a general decline in market values of Southern California real estate. Any
downturn in the economy generally, and in California in particular, could affect
the ability of the Bank to originate a sufficient volume of high-quality
residential mortgage loans or maintain its asset quality, and could reduce real
estate values. Real estate values in California could also be affected by
earthquakes or other natural disasters.
COMPETITION
The Bank experiences significant competition in both attracting and
retaining deposits and in originating real estate and consumer loans.
The Bank competes with other thrift institutions, commercial banks,
insurance companies, credit unions, thrift and loan associations, money market
mutual funds and brokerage firms in attracting and retaining deposits.
Competition for deposits from large commercial banks is particularly strong.
Many of the nation's thrift institutions and many large commercial banks have a
significant number of branch offices in the areas in which the Bank operates.
In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic factors such as interest rates, interest rate
caps, rate adjustment provisions, loan maturities, loan-to-value ("LTV") ratios,
loan fees, and the amount of time it takes to process a loan from receipt of the
loan application to date of funding. The Bank's future performance is dependent
on its ability to originate a sufficient volume of loans in its local market
areas. There can be no assurance that the Bank will be able to effect such
actions on satisfactory terms.
REGULATION
The financial institutions industry is subject to extensive regulation,
which materially affects the business of the Bank. Statutes and regulations to
which the Bank and its parent companies are subject may be changed at any time,
and the interpretation of these statutes and regulations is also subject to
change. There can be no assurance that future changes in such statutes and
regulations or in their interpretation will not adversely affect the business of
the Bank. On September 30, 1996, the Deposit Insurance Funds ("DIF") Act of 1996
was enacted into law. The DIF Act contemplates the development of a common
16
<PAGE>
charter for all federally chartered depository institutions and the abolition of
separate charters for national banks and federal savings associations. It is not
known what form the common charter may take and what effect, if any, the
adoption of a new charter would have on the financial condition or results of
operations of the Bank. See "Regulation."
ANTI-TAKEOVER PROVISIONS
In addition to the amount of Common Stock controlled by the Selling
Stockholders and the governance provisions of the Stockholders' Agreement (as
discussed and defined under "The Stockholders' Agreement"), certain provisions
of the Company's Amended and Restated Certificate of Incorporation and Bylaws
and certain provisions of the Delaware General Corporation Law could have the
effect of discouraging non-negotiated takeover attempts which certain
stockholders might deem to be in their interest and make it more difficult for
stockholders of the Company to remove members of its Board of Directors and
management. In addition, various federal laws and regulations could affect the
ability of a person, firm or entity to acquire the Company or shares of its
Common Stock. See "--Control by Certain Stockholders," "The Stockholders'
Agreement" and "Description of Capital Stock--Restrictions on Acquisition of the
Company."
17
<PAGE>
DIVIDENDS
The Company has never paid a cash dividend on the Common Stock and does not
expect to pay a cash dividend on its Common Stock following the Offering.
Rather, the Company intends to retain earnings and increase capital in
furtherance of its overall business objectives. The Company will periodically
review its dividend policy in view of the operating performance of the Company,
and may declare dividends in the future if such payments are deemed appropriate
and in compliance with applicable law and regulations. Cash and stock dividends
are subject to determination and declaration by the Board of Directors, which
will take into account the Company's consolidated earnings, financial condition,
liquidity and capital requirements, applicable governmental regulations and
policies, and other factors deemed relevant by the Board of Directors. See
"Regulation--Regulation of Federal Savings Banks--Capital Distribution
Regulation" and "Taxation."
MARKET FOR COMMON STOCK
All of the Common Stock of the Company prior to the Offering is held by the
Selling Stockholders. As such, there is no established market for the Common
Stock at this time. The Company expects that following the Offering, the Common
Stock will be traded in the over-the-counter market. [THE COMMON STOCK HAS BEEN
APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "PBOC."]
The Representative has advised the Company that, upon completion of the
Offering, it intends to act as a market maker in the Common Stock. However, the
Representative is not obligated to make a market in such shares, and any such
market making may be discontinued at any time at the sole discretion of the
Representative. Accordingly, there can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue, nor is there any assurance that persons purchasing shares of Common
Stock will be able to sell them at or above the Price to Public set forth on the
cover page hereof. In addition, the substantial amount of Common Stock which is
expected to be retained by the Selling Stockholders may adversely affect the
development of an active and liquid trading market. See "Risk Factors--Control
by Certain Stockholders."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby will be $ million ($ million, if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and estimated Offering expenses payable
by the Company. The Company will not receive any of the proceeds from the sale
of Common Stock by the Selling Stockholders.
The Company intends to use approximately $20.2 million of the net proceeds
from the sale of the Common Stock offered by the Company to pay accumulated and
unpaid dividends to the Selling Stockholders on the shares of the Company's
Outstanding Preferred Stock, which is being exchanged for Common Stock of the
Company in connection with the Offering. See "Capitalization" and "The
Stockholders' Agreement." In addition, the Company intends to utilize
approximately $ million of such net proceeds to make a one-time payment
in satisfaction of benefits due to certain senior executive officers of the
Company and the Bank under the Original Employment Agreements. A portion of such
funds will be contributed to certain trusts the Company is establishing in
connection with the Offering and will be used to purchase Common Stock of the
Company in the Offering on behalf of such executive officers. See
"Management--Employment Agreements--Original Employment Agreements and
Establishment of Grantor Trusts." Furthermore, the Company intends to use
approximately $11.3 million of such net proceeds to prepay the $10.0 million of
senior notes (plus accrued interest) which were issued to the Bishop Estate in
the 1995 recapitalization. The Company also intends to use approximately $4.5
million of such net proceeds to pay the FDIC special assessment which the Bank
had previously received permission from the OTS to defer. See
"Regulation--Regulation of Federal Savings Institutions--FDIC
18
<PAGE>
Assessments." The balance of the estimated net proceeds, approximately
$ , is expected to be contributed to the Bank and initially invested in
U.S. Government agency obligations and U.S. Government agency mortgage-backed
securities. Subsequently, the Bank expects to leverage such proceeds by
purchasing primarily single-family residential loans and investment and U.S.
Government agency obligations and U.S. Government agency mortgage-backed
securities and funding such purchases through increases in deposits, short- to
intermediate-term reverse repurchase agreements and FHLB advances. Management
believes the leveraging of such proceeds will provide the Bank with the
opportunity to expand its business and thereby increase its earnings, which will
permit accelerated utilization of existing NOLs. See "Risk Factors--Availability
of Net Operating Loss Carryforwards" and "Taxation."
The following table sets forth the anticipated use of the net proceeds from
the sale of the Common Stock.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gross proceeds from the Offering.................................................................. $
Estimated Offering expenses and discounts.........................................................
-------
Net proceeds from the Offering................................................................
Payment of accumulated and unpaid dividends on the Outstanding Preferred Stock(1)................. 20,200
Funding of certain employment agreement benefits(2)(3)............................................
Prepayment of outstanding senior notes(1)(2)(4)................................................... 11,336
Payment of FDIC special assessment(2)............................................................. 4,500
-------
Remaining proceeds available for general corporate purposes....................................... $
-------
-------
</TABLE>
- ------------------------
(1) Amount is estimated as of June 30, 1998.
(2) Before applicable tax benefits. After giving effect to such tax benefits,
the net after tax effect is expected to be $ in the case of funding
the employment agreement benefits, $ in the case of the senior notes
and $ in the case of the FDIC special assessment.
(3) See "Management--Employment Agreements--Original Employment Agreements and
Establishment of Grantor Trusts."
(4) Consists of the $10.0 million principal amount of senior notes, plus an
estimated $1.3 million of accrued but unpaid interest thereon.
19
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
December 31, 1997 and as adjusted to give effect to (i) the sale of shares
of Common Stock offered by the Company hereby at the Public Offering Price
(after deducting the underwriting discounts and commissions and estimated
Offering expenses payable by the Company); (ii) the exchange of the Company's
Outstanding Preferred Stock into an aggregate of 8,527,488 shares of Common
Stock in connection with the Offering; (iii) the payment of approximately $20.2
million of accumulated and unpaid dividends owed to the Selling Stockholders on
the shares of the Company's Outstanding Preferred Stock; (iv) the payment of
approximately $ million to make a one-time payment in satisfaction of
benefits due to certain senior executive officers of the Company and the Bank
under the Original Employment Agreements; (v) the payment of approximately $11.3
million to prepay the $10.0 million of senior notes (plus accrued interest)
which were issued to the Bishop Estate in the 1995 recapitalization; and (vi)
the payment of approximately $4.5 million to pay the FDIC special assessment
which the Bank had previously received permission from the OTS to defer. See
"Use of Proceeds."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Senior notes......................................................................... $ 11,113 $
Stockholders' equity:
Series preferred stock; $0.01 par value. Authorized 1,000,000 shares and 25,000,000
shares:
Preferred stock, Series C, voting, issued and outstanding 85,000 shares and 0
shares......................................................................... 1
Preferred stock, Series D, voting, issued and outstanding 68,000 shares and 0
shares......................................................................... 1
Preferred stock, Series E, nonvoting, issued and outstanding 332,000 shares and 0
shares......................................................................... 3
Common stock, par value $0.01 per share. Authorized 500,000 and 75,000,000 shares;
issued and outstanding 98,502 shares and shares............................ 1
Additional paid-in capital, preferred and common stock............................. 129,814
Unrealized losses on securities available-for-sale................................. (1,974)
Minimum pension liability, net of tax.............................................. (293)
Accumulated deficit................................................................ (47,951)
---------- -----------
Total stockholders' equity..................................................... $ 79,602 $
---------- -----------
---------- -----------
</TABLE>
20
<PAGE>
REGULATORY CAPITAL
Under regulations adopted by the OTS, each savings institution is currently
required to maintain tangible and core (or Tier 1 leverage) capital equal to at
least 1.5% and 3.0%, respectively, of its adjusted total assets, and total
capital equal to at least 8.0% of its risk-weighted assets.
The following tables set forth the pro forma regulatory capital and pro
forma regulatory capital ratios of the Bank at December 31, 1997, as adjusted to
give effect to the receipt of the estimated net proceeds from the sale of the
Common Stock in the Offering, based on the Company's contribution of
approximately $ million of the net proceeds to the Bank. See "Use of
Proceeds" and "Regulation-- Regulation of Federal Savings Banks--Regulatory
Capital Requirements."
<TABLE>
<CAPTION>
TIER 1
TANGIBLE LEVERAGE RISK-BASED
CAPITAL CAPITAL CAPITAL
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Stockholders' equity of the Bank................................................ $ $ $
Minority interest--Series A Preferred Shares....................................
Unrealized losses on securities available for sale..............................
Non-allowable capital:
Direct real estate investments................................................
Intangible assets.............................................................
Supplemental capital:
Allowance for loan losses.....................................................
--------- --------- -----------
Regulatory capital of the Bank.................................................. $ $ $
--------- --------- -----------
--------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
RISK-BASED
TIER 1 ------------------------
TANGIBLE LEVERAGE TOTAL
CAPITAL CAPITAL TIER 1 CAPITAL
RATIO RATIO RATIO RATIO
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Regulatory capital of the Bank.............................................. % % % %
Well-capitalized ratio...................................................... 1.50 5.00 6.00 10.00
--- --- --- -----
Excess above well-capitalized ratio......................................... % % % %
--- --- --- -----
--- --- --- -----
</TABLE>
The amount of adjusted total assets used for the tangible and core (or Tier
1 leverage) capital ratios was approximately $2.2 billion. Risk-weighted assets
used for the risk-based capital ratios amounted to approximately $
billion.
21
<PAGE>
DILUTION
Upon completion of the Offering, there will be an immediate dilution of the
net tangible book value per share of Common Stock from the Price to Public. This
dilution primarily results from the sale by the Company of Common Stock in the
Offering at a price above the current book value per share. As of December 31,
1997, the Company had a net tangible book value of $79.1 million or $25.09 per
share. "Net tangible book value per share" represents the tangible net worth of
the Company (total assets less intangible assets (i.e, goodwill) and total
liabilities), divided by the number of shares of Common Stock deemed to be
outstanding.
Without taking into account any changes in net tangible book value after
December 31, 1997, other than to give effect to the sale by the Company of the
shares of Common Stock in the Offering (after deduction of underwriting
discounts and commissions and estimated Offering expenses), the pro forma net
tangible book value at December 31, 1997 would have been $ per share,
representing an immediate dilution of $ per share to new investors
purchasing the shares of Common Stock offered hereby at the Price to Public. See
"Underwriting."
<TABLE>
<S> <C>
Price to Public..................................................... $
Net tangible book value per share before Offering...................
Increase per share attributable to new investors....................
---------
Pro forma net tangible book value per share after Offering(1).......
---------
Dilution per share to new investors after Offering(1)............... $
</TABLE>
- ------------------------
(1) Reflects the issuance by the Company of approximately shares of Common
Stock in exchange for shares of Outstanding Preferred Stock. See "The
Stockholders' Agreement." Also reflects the other assumptions set forth
under "Capitalization."
The following table compares on a pro forma basis at December 31, 1997 the
total number of shares of Common Stock purchased from the Company, the total
cash consideration paid and the average price per share paid by the Selling
Stockholders and the new investors purchasing the shares of Common Stock offered
hereby (assuming the sale of shares of Common Stock at the Price to Public
and before deduction of underwriting discounts and commissions and estimated
Offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ------------ ----------- ------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................................ $ % $
New investors...........................................
</TABLE>
- ------------------------
(1) Reflects the issuance by the Company of 8,527,488 shares of Common Stock in
exchange for shares of Outstanding Preferred Stock. See "The Stockholders'
Agreement."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
GENERAL
The Company conducts its business primarily through the Bank, which is a
community oriented savings bank which emphasizes customer service and
convenience. The Company today is a profitable institution which is well
capitalized under applicable regulatory requirements. As a result of the Bank's
capital position, together with the deterioration in the Southern California
economy which had begun with the national recession at the start of the decade,
the Company recognized significant credit losses on its real estate assets,
which resulted in the Company reporting losses in 1993, 1994 and 1995. Aggregate
losses reached a high of $57.4 million during the year ended December 31, 1994.
In 1995, the Company, in conjunction with its 1995 recapitalization, replaced
its former senior managers with a new management team with considerable
experience in commercial banking and problem asset rehabilitation. Management
has adopted a business strategy designed to reduce problem assets, increase its
net interest income, reduce operating expenses and costs of funds and maximize
profitability while limiting interest rate and credit risk. Management's actions
contributed to the Company's return to profitability in 1996.
As part of its overall business strategy, the Bank has sought to develop a
wide variety of products and services which meet the needs of its retail and
commercial customers. On the asset side of the Bank's balance sheet, management
has increased its emphasis on commercial business and consumer lending which
complements the Bank's existing residential and commercial real estate lending
operations. In addition, the Bank has increased its investment in U.S.
Government agency obligations and U.S. Government agency mortgage-backed
securities with the intention of enhancing net interest income while limiting
credit and interest rate risk. On the liability side of the Bank's balance
sheet, the Bank is focused on accessing cost-efficient funding sources,
including retail deposits, securities sold under agreements to repurchase and
FHLB advances.
The Bank's business strategy focuses on achieving attractive returns
consistent with the Company's risk management objectives. The Bank has sought to
implement this strategy by (i) reducing non-performing assets; (ii) improving
operating efficiency by maintaining a low level of operating expenses relative
to interest-earning assets; (iii) reducing funding costs through the utilization
of retail deposits and other borrowings; (iv) revising the Bank's investment
policy and, in connection therewith, replacing illiquid mortgage-related
securities with U.S. Government agency obligations and U.S. Government agency
mortgage-backed securities; (v) managing the Bank's interest rate risk through
on-balance sheet hedging; (vi) developing new business relationships through an
increased emphasis on commercial lending and diversifying the Bank's retail
products and services, including an increase in consumer loan originations;
(vii) increasing the Bank's securities portfolio as a means of enhancing net
interest income while minimizing the Bank's credit and interest rate risk
exposure; and (viii) expanding the Bank's franchise through new branch openings
and pursuing acquisition opportunities when appropriate. In addition, the
Company intends to leverage the net proceeds of the Offering as a means of
expanding its lending and investment portfolios and thereby increasing its
earnings, which will permit the Company to accelerate utilization of existing
NOLs. See "Risk Factors--Availability of Net Operating Loss Carryforwards," "Use
of Proceeds" and "Taxation."
CHANGES IN FINANCIAL CONDITION
GENERAL. Total assets increased by $465.1 million or 26.6% to $2.2 billion
during the year ended December 31, 1997 and increased by $168.2 million or 10.6%
during the year ended December 31, 1996. The increase in total assets during
1997 primarily reflected an increase in the Bank's loans receivable, net
23
<PAGE>
as well as investments in U.S. Government agency mortgage-backed securities.
During 1997, the Bank took advantage of the leverage opportunities presented as
a result of the capital raised from the PPCCP REIT offering, and purchased
$408.7 million of adjustable-rate single-family residential mortgage loans,
which were funded by short to-intermediate-term FHLB advances. Total investments
increased by $67.5 million during 1997 and were the primary reason for the
increase in total assets in 1996. These assets were funded primarily through the
use of short- and intermediate-term borrowings, consisting of reverse repurchase
agreements and FHLB advances. The shift in the composition of the Bank's asset
and liability mix since 1996 reflects the new management's operational
philosophy, discussed above.
CASH, CASH EQUIVALENTS AND OTHER SHORT-TERM INVESTMENTS. Cash, cash
equivalents and other short-term investments (consisting of cash,
interest-bearing deposits in other banks, federal funds sold and securities
purchased under agreements to resell) amounted to $21.1 million, $21.9 million
and $54.0 million at December 31, 1997, 1996 and 1995, respectively. The Bank
manages its cash, cash equivalents and other short-term investments based upon
the Bank's operating, investing and financing activities. The Bank generally
attempts to invest its excess liquidity into higher yielding assets such as
loans or securities. At December 31, 1997, the Bank's regulatory liquidity
exceeded the minimum OTS requirements. See "--Liquidity and Capital Resources."
SECURITIES. Since June 1995, the Bank has increased its investment in
adjustable-rate mortgage-backed securities which are insured or guaranteed by
U.S. Government agencies or government sponsored enterprises. At December 31,
1997, the Bank's securities portfolio (both held-to-maturity and available-
for-sale) amounted to $580.8 million or 26.2% of the Company's total assets, as
compared to $513.3 million or 29.4% and $241.6 million or 15.3% at December 31,
1996 and 1995, respectively. At December 31, 1997, 1996 and 1995, $428.1
million, $474.6 million and $231.7 million or 74%, 92% and 96% of the Bank's
securities portfolio consisted of mortgage-backed securities and $139.7 million,
$38.7 million and $10.0 million or 24%, 8% and 4% of such portfolio consisted of
U.S. Government agency securities, respectively. Although mortgage-backed
securities often carry lower yields than traditional mortgage loans, such
securities generally increase the credit quality of the Bank's assets because
they have underlying insurance or guarantees, require less capital under
risk-based regulatory capital requirements than non-insured or non-guaranteed
mortgage loans, are more liquid than individual mortgage loans and may be used
to collateralize borrowings or other obligations of the Bank. At December 31,
1997, $9.7 million of the Bank's securities portfolio was classified as
held-to-maturity and reported at historical cost and $571.2 million of such
portfolio was classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and instead reported as a
separate component of stockholders' equity. Historically, the Bank has
classified substantially all of its securities purchases as available-for-sale
except for certain mortgage-backed securities which are qualifying for purposes
of the Community Reinvestment Act of 1978, as amended ("CRA"). At December 31,
1997, the Bank's securities classified as available for sale had in the
aggregate $2.0 million of unrealized losses. See "Business--Investment
Activities."
LOANS RECEIVABLE. Net loans receivable increased by $391.5 million or 34.3%
during the year ended December 31, 1997 and decreased by $86.4 million or 7.0%
during the year ended December 31, 1996. The significant increase during 1997
was directly attributable to management's strategy of leveraging the capital
generated from the PPCCP REIT offering. The Bank purchased $408.7 million of
adjustable-rate, single-family residential mortgage loans in the last quarter of
1997 on a servicing retained basis. At December 31, 1997, $231.2 million in
principal balance of such purchases were secured by properties located outside
of the state of California. Beginning in the last quarter of 1996, the Bank
again began to increase its loan origination activities, which is reflected in
its 1997 origination levels. See "Business--Lending Activities-- Origination,
Purchase and Sale of Loans."
Certain factors in the Bank's 1995 recapitalization plan contributed to the
decrease in loans receivable in 1996, including management's focus on reducing
non-performing assets and the reorientation of the Bank's adjustable-rate
residential and commercial loan portfolios to indexes that adjust more rapidly
to
24
<PAGE>
changes in market rates of interest (as compared to the FHLB 11th District Cost
of Funds Index ("COFI") which had been traditionally utilized by the Bank). As a
result, loan originations declined during the year. During the year ended
December 31, 1997, the Bank sold $85.2 million of such COFI-based residential
mortgage loans and used the sale proceeds to purchase $59.0 million of one-year
adjustable-rate loans tied to the U.S. Treasury index of comparable maturity.
NON-PERFORMING LOANS AND TROUBLED DEBT RESTRUCTURINGS. The Bank's new
management has successfully taken steps to reduce the level of the Bank's
non-performing assets, which has resulted in a substantial decline in
non-performing loans and troubled debt restructurings (troubled debt
restructurings consist of loans with respect to which the Bank has agreed to
grant an interest rate concession or defer principal or interest payments), from
an aggregate of $68.3 million at December 31, 1994 to an aggregate of $19.8
million at December 31, 1997. See "Business--Asset Quality."
REAL ESTATE HELD FOR INVESTMENT AND SALE. Net real estate held for
investment and sale consists of real estate acquired through foreclosure (i.e.,
real estate owned) and real estate held for investment. Real estate owned is
included in total non-performing assets. Management aggressively sold real
estate owned in 1997, taking advantage of favorable conditions in the California
real estate market. The Bank's real estate owned had increased dramatically in
the early 1990's as a result of the deterioration in the Southern California
economy, and amounted to a high of $31.6 million at December 31, 1993. As a
result of the sales conducted during 1997, real estate owned declined to $13.3
million at December 31, 1997. See "Business-- Asset Quality."
Real estate held for investment has historically consisted of the Bank's
indirect investment (through subsidiaries of the Bank) in limited partnerships
which were engaged in the acquisition, development, construction and sale of
single-family residential developments. Real estate held for investment amounted
to $1.9 million at December 31, 1997, which was comprised of one 62 acre parcel
of vacant land in Corona, California. The Bank has entered into a contract to
sell the property. See "Business--Subsidiaries."
DEPOSITS. Total deposits decreased by $104.6 million or 7.6% during the
year ended December 31, 1997 and by $102.1 million or 6.9% during the year ended
December 31, 1996. The Bank's aggregate certificates of deposit declined from
$1.0 billion or 73.0% of total deposits at December 31, 1996 to $932.8 million
or 73.6% of total deposits at December 31, 1997. Of the total decline in
certificates of deposit, out-of-market, institutional jumbo certificates of
deposit declined from $103.4 million or 7.02% of total deposits to $2.5 million
or 0.20% of total deposits from December 31, 1995 to December 31, 1997. New
management, after evaluating all potential sources of funds (including retail
and non-retail deposits and short- and long-term borrowings), has focused on a
strategy which results in an all-in cost to the Bank that meets its funding
benchmark and is consistent with the Bank's asset and liability policies. The
Bank has offered a wide array of deposit products through its branch system in
order to foster retail deposit growth. Transaction accounts (consisting of
passbook, NOW and money market accounts) increased from $275.5 million or 18.7%
of total deposits at December 31, 1995 to $333.8 million or 26.3% of total
deposits at December 31, 1997. See "Business--Sources of Funds--Deposits."
BORROWINGS. The Company recapitalized the Bank in both 1992 and 1995 using
a combination of debt and equity. Total senior debt has decreased from $38.2
million at December 31, 1994 to $11.1 million at December 31, 1997. Senior debt
was reduced to $10.0 million at December 31, 1995 due to the contribution of the
previously outstanding senior notes to the Bank as part of the 1995
recapitalization. The $10.0 million of aggregate senior notes presently
outstanding, which are owned by the Bishop Estate, will be prepaid in connection
with the Offering. See "Use of Proceeds," "Capitalization" and "The
Stockholders' Agreement."
Other than deposits, the Bank's primary sources of funds consist of reverse
repurchase agreements and advances from the FHLB of San Francisco. At December
31, 1997, reverse repurchase agreements amounted to $340.8 million, as compared
to $192.4 million and $0 at December 31, 1996 and 1995,
25
<PAGE>
respectively. The Bank has been utilizing reverse repurchase agreements as part
of its overall asset growth and leveraging strategy and, in connection
therewith, during 1997, the Bank increased the weighted average remaining term
to maturity of such instruments. As of December 31, 1997, the weighted average
remaining term to maturity of the Bank's reverse repurchase agreements increased
to 2.71 years, as compared to 0.63 years at December 31, 1996, and such reverse
repurchase agreements had a weighted average interest rate of 5.76% compared to
5.49% at December 31, 1996. The Bank had no reverse repurchase agreements
outstanding at December 31, 1995. See "Business--Sources of Funds-- Borrowings."
Advances from the FHLB of San Francisco amounted to $472.0 million, $80.0
million and $31.7 million at December 31, 1997, 1996 and 1995, respectively. The
significant increase in FHLB advances during 1997 is directly attributable to
management's strategy of leveraging the capital raised in the PPCCP REIT
offering. Fixed-rate FHLB advances of short to-intermediate-term maturities were
used to fund the wholesale purchase of $408.7 million of one-year
adjustable-rate single-family mortgage loans. The decrease in FHLB advances from
$310.0 million at December 31, 1994 to $80.0 million at December 31, 1996
reflects the actions taken by new management in paying off the Bank's short-term
FHLB advances and utilizing, as needed, reverse repurchase agreements at more
attractive rates. Of the Bank's FHLB advances outstanding as of December 31,
1997, $357.0 million were scheduled to mature during 1998 and the remaining
$115.0 million matures during 2002. As of December 31, 1997, the weighted
average remaining term to maturity of the Bank's FHLB advances amounted to 1.61
years, compared to 0.95 and 0.74 years at December 31, 1996 and 1995,
respectively, and had a weighted average interest rate of 5.87% at December 31,
1997, as compared to 5.91% and 5.84% at December 31, 1996 and 1995,
respectively. At December 31, 1997, the Bank had a collateralized available line
of credit of approximately $31.0 million with the FHLB of San Francisco. See
"--Liquidity and Capital Resources" and "Business--Sources of
Funds--Borrowings."
STOCKHOLDERS' EQUITY. Stockholders' equity increased from $56.6 million at
December 31, 1995 to $64.8 million at December 31, 1996 and further increased to
$79.6 million at December 31, 1997. The $14.8 million or 22.8% increase in
stockholders' equity during the year ended December 31, 1997 reflected a $4.1
million decrease in unrealized losses on securities classified as available for
sale and the $10.9 million of net earnings recognized during the period, which
was offset by a $293,000 increase in minimum pension liability, net of taxes.
The $8.2 million or 14.5% increase in stockholders' equity during the year ended
December 31, 1996 reflected the $12.5 million of net earnings recognized during
the year, which was partially offset by a $4.4 million increase in unrealized
losses on securities classified as available for sale.
RESULTS OF OPERATIONS
GENERAL. The Company's results of operations depend substantially on its
net interest income, which is the difference between interest income on
interest-earning assets, which consist primarily of loans receivable,
mortgage-backed and investment securities and various other short-term
investments, and interest expense on interest-bearing liabilities, which consist
primarily of deposits and borrowings. The Company's results of operations are
also significantly affected by the Bank's net costs of hedging its interest rate
exposure; its provisions for losses on loans resulting from the Bank's
assessment of the adequacy of its allowance for losses on loans; the level of
its other income, including loan service and related fees, net gains on sales of
securities, loans and loan servicing, and net earnings and losses from real
estate operations; the level of its operating expenses, such as personnel and
benefits expense, occupancy and other office related expense and FDIC insurance
premiums; and income taxes and benefits.
The Company reported net earnings (loss) of $10.9 million, $12.5 million and
$(11.5) million during the years ended December 31, 1997, 1996 and 1995,
respectively. Net earnings decreased by $1.6 million or 12.8% during the year
ended December 31, 1997, as compared to the same period in the prior year, due
to a $3.0 million decrease in total other income and a $1.7 million increase in
total operating expenses, which
26
<PAGE>
was partially offset by a $2.5 million or 8.6% increase in net interest income
after provision for loan losses and a $1.5 million increase in income tax
benefit recognized during the year.
Net earnings increased by $24.0 million during the year ended December 31,
1996 as the Company returned to profitability due to a $7.6 million increase in
total other income, a $5.9 million decrease in the provision for losses on
loans, a $7.2 million increase in net interest income, a $2.9 million decrease
in total operating expenses and a $371,000 increase in the income tax benefit
recognized during the year.
NET INTEREST INCOME. Net interest income is determined by the Company's
interest rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities.
Net interest income totaled $33.8 million, $32.1 million and $24.9 million
during the years ended December 31, 1997, 1996 and 1995, respectively. Net
interest income increased by $1.7 million or 5.2% during the year ended December
31, 1997, as compared to the prior year, due to a $167.2 million or 10.0%
increase in the average balance of interest-earning assets (consisting primarily
of a $113.7 million increase in the average balance of mortgage-backed
securities and a $23.2 million increase in the average balance of loans
receivable), which was partially offset by a decrease in the interest rate
spread of 11 basis points. Net interest income increased by $7.2 million or
28.7% during the year ended December 31, 1996 due to a 45 basis point increase
in the interest rate spread (reflecting a 22 basis point increase in the average
yield earned on the interest-earning assets and a 23 basis point reduction in
the average rate paid on the interest-bearing liabilities).
27
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995
----------------------------------- --------------------------------- --------------------
<CAPTION>
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST
--------- ----------- ----------- --------- --------- ----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)..... $1,200,137 $ 89,938 7.49% $1,176,944 $ 89,020 7.56% $1,284,090 $ 94,473
Mortgage-backed
securities(2)......... 501,261 32,672 6.52 387,603 26,136 6.74 328,446 21,836
Other earning
assets(3)............. 135,949 8,369 6.16 105,583 7,740 7.33 108,114 6,617
--------- ----------- --------- --------- --------- ---------
Total interest-earning
assets.............. 1,837,347 130,979 7.13% 1,670,130 122,896 7.36% 1,720,650 122,926
----------- --------- ---------
Noninterest-earning
assets.................. 74,487 65,179 48,945
--------- --------- ---------
Total assets.......... $1,911,834 $1,735,309 $1,769,595
--------- --------- ---------
--------- --------- ---------
Interest-bearing
liabilities:
Deposits:
Transaction
accounts(4)......... $ 340,348 12,476 3.67% $ 352,853 12,737 3.61% $ 197,441 5,287
Term certificates of
deposit............. 966,863 54,771 5.66 1,069,484 62,399 5.83 1,212,989 69,579
--------- ----------- --------- --------- --------- ---------
Total deposits...... 1,307,211 67,247 -- 1,422,337 75,136 1,410,430 74,866
Senior debt............. 11,404 1,271 11.15 10,294 1,160 11.27 21,666 2,983
Other borrowings........ 506,077 28,420 5.62 232,668 14,108 6.06 293,606 18,443
Hedging costs........... -- 267 -- 387 -- 1,685
--------- ----------- --------- --------- --------- ---------
Total
interest-bearing
liabilities....... 1,824,692 97,205 5.33% 1,665,299 90,791 5.45% 1,725,702 97,977
----------- --------- ---------
Noninterest bearing
liabilities............. 15,957 12,998 13,854
--------- --------- ---------
Total liabilities..... 1,840,649 1,678,297 1,739,556
Stockholders' equity...... 71,185 57,012 30,039
--------- --------- ---------
Total liabilities and
stockholder's
equity.............. $1,911,834 $1,735,309 $1,769,595
--------- --------- ---------
--------- --------- ---------
Net interest-earning
assets (liabilities).... $ 12,655 $ 4,831 $ (5,052)
--------- --------- ---------
--------- --------- ---------
Net interest
income/interest rate
spread.................. $ 33,774 1.80% $ 32,105 1.91% $ 24,949
----------- --- --------- ----- ---------
----------- --- --------- ----- ---------
Net interest margin....... 1.84% 1.92%
--- -----
--- -----
Ratio of average interest-
earning assets to
average interest-bearing
liabilities............. 1.01% 1.00%
--- -----
--- -----
<CAPTION>
<S> <C>
AVERAGE
YIELD/
COST
-----------
<S> <C>
Interest-earning assets:
Loans receivable(1)..... 7.36%
Mortgage-backed
securities(2)......... 6.65
Other earning
assets(3)............. 6.12
Total interest-earning
assets.............. 7.14%
Noninterest-earning
assets..................
Total assets..........
Interest-bearing
liabilities:
Deposits:
Transaction
accounts(4)......... 2.68%
Term certificates of
deposit............. 5.74
Total deposits......
Senior debt............. 13.77
Other borrowings........ 6.28
Hedging costs...........
Total
interest-bearing
liabilities....... 5.68%
Noninterest bearing
liabilities.............
Total liabilities.....
Stockholders' equity......
Total liabilities and
stockholder's
equity..............
Net interest-earning
assets (liabilities)....
Net interest
income/interest rate
spread.................. 1.46%
-----
-----
Net interest margin....... 1.45%
-----
-----
Ratio of average interest-
earning assets to
average interest-bearing
liabilities............. 1.00%
-----
-----
</TABLE>
- ------------------------
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes mortgage-backed securities classified as held to maturity and
available for sale.
(3) Includes short-term investments, securities purchased under agreements to
resell, investment securities and FHLB stock.
(4) Includes passbook, NOW and money market accounts.
28
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in rate (changes in rate
multiplied by prior volume); (ii) effects on interest income attributable to
changes in volume (changes in volume multiplied by prior rate); and (iii)
changes in rate/volume (change in rate multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
YEAR ENDED DECEMBER 31, 1997 COMPARED
COMPARED TO YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED TO DECEMBER 31, 1995
------------------------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------------- -----------------------------------
<CAPTION>
TOTAL NET
RATE/ INCREASE RATE/
RATE VOLUME VOLUME (DECREASE) RATE VOLUME VOLUME
--------- ----------- ----------- ----------------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............... $ (820) $ 1,754 $ (16) $ 918 $ 2,651 $ (7,883) $ (221)
Mortgage-backed securities..... (872) 7,664 (256) 6,536 311 3,933 56
Other earning assets........... (1,240) 2,226 (357) 629 1,310 (155) (32)
--------- ----------- ----------- ------- --------- ----------- -----------
Total net change in income on
interest-earning assets........ (2,932) 11,644 (629) 8,083 4,272 (4,105) (197)
--------- ----------- ----------- ------- --------- ----------- -----------
Interest-bearing liabilities:
Deposits:
Transaction accounts......... 197 (451) (7) (261) 1,840 4,162 1,448
Term certificates of
deposit.................... (1,815) (5,987) 174 (7,628) 1,193 (8,232) (141)
--------- ----------- ----------- ------- --------- ----------- -----------
Total deposits............. (1,618) (6,438) 167 (7,889) 3,033 (4,070) 1,307
Senior debt.................... (13) 125 (1) 111 (542) (1,566) 285
Other borrowings............... (1,042) 16,578 (1,224) 14,312 (630) (3,826) 121
Hedging costs.................. -- -- (120) (120) -- -- (1,298)
--------- ----------- ----------- ------- --------- ----------- -----------
Total net change in expense on
interest-bearing liabilities... (2,673) 10,265 (1,178) 6,414 1,861 (9,462) 415
--------- ----------- ----------- ------- --------- ----------- -----------
Change in net interest income.... $ (259) $ 1,379 $ 549 $ 1,669 $ 2,411 $ 5,357 $ (612)
--------- ----------- ----------- ------- --------- ----------- -----------
--------- ----------- ----------- ------- --------- ----------- -----------
<CAPTION>
<S> <C>
TOTAL NET
INCREASE
(DECREASE)
-----------------
<S> <C>
Interest-earning assets:
Loans receivable............... $ (5,453)
Mortgage-backed securities..... 4,300
Other earning assets........... 1,123
-------
Total net change in income on
interest-earning assets........ (30)
-------
Interest-bearing liabilities:
Deposits:
Transaction accounts......... 7,450
Term certificates of
deposit.................... (7,180)
-------
Total deposits............. 270
Senior debt.................... (1,823)
Other borrowings............... (4,335)
Hedging costs.................. (1,298)
-------
Total net change in expense on
interest-bearing liabilities... (7,186)
-------
Change in net interest income.... $ 7,156
-------
-------
</TABLE>
INTEREST INCOME. Total interest income increased by $8.1 million or 6.6%
during the year ended December 31, 1997 and decreased slightly by $30,000 during
the year ended December 31, 1996. Interest income on loans receivable, the
largest component of interest-earning assets, increased by $918,000 million or
1.0% during the year ended December 31, 1997 and decreased by $5.5 million or
5.8% during the year ended December 31, 1996. The small increase in interest
income on loans receivable during 1997 is attributable to the purchase during
the fourth quarter of 1997 of $408.7 million of adjustable-rate single-family
residential mortgage loans. The purchase reflected management's strategy of
leveraging the capital raised in the PPCCP REIT offering. The decline during the
prior period was attributable to management's focus on non-performing assets, as
well as a change in the Bank's orientation with respect to lending. See
"Business--Lending Activities--Origination, Purchase and Sale of Loans."
Interest income on mortgage-backed securities increased by $6.5 million or
25.0% during the year ended December 31, 1997 and increased by $4.3 million or
19.7% during the year ended December 31, 1996. Since June 1995, the Bank has
increased its investment in adjustable-rate U.S. Government agency
mortgage-backed securities in order, among other things, to reduce the Bank's
exposure to interest rate and prepayment risk, limit the Bank's credit risk and
earn a positive interest rate spread. See "Business-- Investment Activities."
Interest income on investment securities and other interest-earning assets
(which consist of U.S. Government agency securities, FHLB stock, securities
purchased under agreements to resell and other short-term investments) increased
by $629,000 or 8.1% during the year ended December 31, 1997 and increased by
$1.1 million or 17.0% during the year ended December 31, 1996. The increase in
such interest
29
<PAGE>
income during the year ended December 31, 1997 was primarily due to a $30.4
million increase in the average balance of such investments, which was partially
offset by a decrease in the average yield earned thereon of 117 basis points.
The increase in such interest income during 1996 was due primarily to an
increase in the weighted average yield earned on such investments of 121 basis
points. See "Business-- Investment Activities."
INTEREST EXPENSE. Total interest expense increased by $6.4 million or 7.1%
during the year ended December 31, 1997 and decreased by $7.2 million or 7.3%
during the year ended December 31, 1996. The increase during 1997 is the result
of a $159.4 million or 9.6% increase in the average balance of interest-bearing
liabilities, reflecting the growth in the balance sheet. One of the primary
elements of the Bank's business strategy since the change in management in March
1995 has been to reduce the Bank's overall funding costs, subject to the Bank's
asset and liability management policies. Interest expense on deposits, the
largest component of the Bank's interest-bearing liabilities, decreased by $7.9
million or 10.5% during the year ended December 31, 1997 and marginally
increased by $270,000 or 0.4% during the year ended December 31, 1996. The
Bank's new management has emphasized transactional accounts and has allowed the
Bank's out-of-market, institutional jumbo certificates of deposit to run off as
they mature, which during 1997 reduced the average rate paid on the Bank's
deposit accounts. See "Business--Sources of Funds-- Deposits."
Interest expense on borrowings consists of senior notes and other
borrowings, which is comprised of reverse repurchase agreements and FHLB
advances. Interest expense on senior notes amounted to $1.3 million, $1.2
million and $3.0 million during the years ended December 31, 1997, 1996 and
1995, respectively. The senior notes outstanding during the periods were
purchased by the Selling Stockholders during the 1992 and 1995 recapitalizations
of the Bank. The reduction of interest expense during 1996 reflects the
contribution by certain of the Selling Stockholders, as part of the 1995
recapitalization, of the then outstanding senior notes to the capital of the
Bank. The Bishop Estate purchased $10.0 million of aggregate principal amount of
senior notes in connection with the 1995 recapitalization, which the Company
will prepay in connection with the Offering. See "Use of Proceeds,"
"Capitalization" and "The Stockholders' Agreement."
Interest expense on other borrowings increased by $14.3 million or 101.4%
during the year ended December 31, 1997 and decreased by $4.3 million or 23.5%
during the year ended December 31, 1996. Interest expense on reverse repurchase
agreements increased by $8.7 million or 80.1% during 1997 and $3.8 million or
54.3% during 1996. The Bank's new management has utilized reverse repurchase
agreements when the rates and other terms on such borrowings are favorable as
compared to its other funding sources. See "Business--Sources of
Funds--Borrowings."
Interest expense on advances from the FHLB of San Francisco increased by
$5.6 million or 174% during the year ended December 31, 1997 and decreased by
$8.2 million or 71.8% during the year ended December 31, 1996. The Bank's new
management initially allowed the Bank's short-term, high cost FHLB advances to
mature and utilized reverse repurchase agreements as an alternative source of
funds. During 1997, however, the Bank utilized short-to intermediate-term FHLB
advances to fund the wholesale purchase of $407.8 million of adjustable-rate
single-family residential mortgage loans. See "Business-- Sources of
Funds--Borrowings."
The Bank's interest expense during the years ended December 31, 1997, 1996
and 1995 included the costs of hedging the Bank's interest rate exposure. Such
hedging costs amounted to $267,000, $387,000 and $1.7 million during such
respective periods. The Bank in the past has utilized interest rate swaps,
corridors, caps and floors in order to manage its interest rate risk. However,
since the change in management, the Bank has not entered into any such interest
rate contracts and has allowed its remaining contracts to expire as they mature.
The Bank has instead focused on internal hedging through balance sheet
restructuring. As a result, the Bank's hedging costs have declined significantly
since 1994. At December 31, 1997, the Bank
30
<PAGE>
had one remaining interest rate swap contract with a notional amount of $4.7
million and nine remaining interest rate corridors with an aggregate contract
amount of $57.0 million.
PROVISION FOR LOSSES ON LOANS. The Bank established provisions for losses
on loans of $2.0 million, $2.9 million and $8.8 million during the years ended
December 31, 1997, 1996 and 1995, respectively. Management believes that its
allowance for losses on loans at December 31, 1997 was adequate. Nevertheless,
there can be no assurances that additions to such allowance will not be
necessary in future periods, particularly if the growth in the Bank's commercial
and consumer lending continues. See "Business--Asset Quality--Allowance for Loan
Losses."
OTHER INCOME. Total other income decreased by $3.0 million or 37.0% during
the year ended December 31, 1997 and increased by $7.6 million during the year
ended December 31, 1996. Loan service and loan related fees amounted to
$481,000, $1.4 million and $1.6 million during the years ended December 31,
1997, 1996 and 1995, respectively. The decline in such fees during these periods
primarily reflected the sale of residential loan servicing during 1997, see
"Business--Lending Activities--Single Family Residential Real Estate Loans" and
the reduction in loan balances outstanding in the loan servicing portfolio due
to normal repayments and prepayments.
The Bank recognized net gains on sales of mortgage-backed and other
securities of $1.3 million, $3.6 million and $641,000 during the years ended
December 31, 1997, 1996 and 1995, respectively. During such respective periods,
the Bank sold $234.3 million, $158.4 million and $184.3 million of
mortgage-backed securities.
Net gains (losses) on the sale of loans and loan servicing amounted to $3.4
million, $(53,000) and $(166,000) during the years ended December 31, 1997, 1996
and 1995, respectively. The Bank sold $85.2 million, $0 and $27.1 million of
loans during the years ended December 31, 1997, 1996 and 1995, respectively, and
loan servicing with respect to $868.4 million of real estate loans during the
year ended December 31, 1997. In connection with the sale of loan servicing
during 1997, the Bank recognized a gain of $3.2 million during the year and an
additional $5.3 million was deferred and is being recognized over a period of
the lives of the loans. See "Business--Lending Activities--Single-Family
Residential Real Estate Loans."
Net income (loss) from real estate operations amounted to $(1.8) million,
$1.9 million and $(2.1) million during the years ended December 31, 1997, 1996
and 1995, respectively. Net income (loss) from real estate operations consists
of (i) losses from real estate operations (rental income less operating
expenses), (ii) gains on sales of real estate owned and real estate held for
investment and (iii) provisions for losses on real estate owned and real estate
held for investment. During the years ended December 31, 1997, 1996 and 1995,
losses from real estate operations amounted to $(1.3) million, $(634,000) and
$(448,000), respectively, gains on sales of real estate owned and real estate
held for investment amounted to $2.2 million, $3.3 million and $392,000,
respectively, and provisions for losses on real estate owned and real estate
held for investment amounted to $2.8 million, $766,000 and $2.0 million,
respectively. The improving economy in southern California since 1996 has
assisted in new management's efforts to dispose of the Bank's real estate
holdings and has facilitated sales in 1996 and 1997.
Miscellaneous other income (consisting primarily of fees on deposit
accounts) amounted to $1.8 million, $1.2 million and $513,000 during the years
ended December 31, 1997, 1996 and 1995, respectively.
OPERATING EXPENSES. Total operating expenses increased by $1.7 million or
6.2% during the year ended December 31, 1997 and decreased by $2.9 million or
9.5% during the year ended December 31, 1996. The increase in operating expenses
during 1997 is attributable to new personnel hired by new management to further
the Bank's commercial lending emphasis as well as to leasing expenses associated
with the Bank's new data processing equipment. From the time of the change in
the Bank's management in March 1995 through 1996, the Bank reduced its operating
expenses through staff reductions, consolidation of certain operations, the
closing of the Bank's loan production offices and operations center, the
31
<PAGE>
relocation of the Bank's corporate headquarters and the sale of a substantial
portion of the Bank's residential loan servicing portfolio. During the years
ended December 31, 1997, 1996 and 1995, total operating expenses as a percentage
of average total assets amounted to 1.55%, 1.60% and 1.74%, respectively, and
the Company's efficiency ratio amounted to 72.17%, 64.52% and 89.72%,
respectively.
The principal category of the Company's operating expenses is personnel and
benefits expense of the Bank, which amounted to $11.8 million, $10.8 million and
$12.1 million during the years ended December 31, 1997, 1996 and 1995,
respectively. The decline in such expense is attributable to new management's
streamlining of the Bank's operations, which resulted in a 17.2% reduction in
the number of full-time equivalent employees from 273 at December 31, 1994 to
226 at December 31, 1997. Personnel and benefits expense increased during the
year ended December 31, 1997, primarily as a result of the hiring and training
of new commercial and consumer lending personnel. Management intends to increase
its emphasis in these lending areas in future years. See "Business--Lending
Activities." In connection with the Offering, the Company, the Bank and certain
of their senior executive officers have agreed to a one-time payment of funds
pursuant to the Original Employment Agreements, which will increase compensation
expense during 1998. See "Management--Employment Agreements--Original Employment
Agreements and Establishment of Grantor Trusts."
Occupancy expense amounted to $7.1 million, $6.4 million and $7.0 million
during the years ended December 31, 1997, 1996 and 1995, respectively. The
increase in such expense during the year ended December 31, 1997 was primarily
due to the data processing equipment lease and expenses associated with security
personnel. The general decline in occupancy expense during the prior period
occurred notwithstanding the Bank opening a branch office in Buena Park,
California in November 1995 and a branch office facility in Los Angeles,
California in April 1996. Management expects occupancy expense to continue to
increase over the next year as the Bank has begun to operate 20 new ATMs within
a chain of health clubs located in Southern California. The Bank also has an
option to install and operate up to an additional three ATMs within such chain
of health clubs. In 1997, the Company also obtained regulatory approval to
install remote automated loan machines, which can take an application for a loan
of up to $10,000, underwrite the loans and extend funds to applicants which have
been approved. The Company believes it is the first institution to receive
approval to operate such units at remote locations, nine of which were placed in
operation in late 1997. Such automated loan machines are also expected to
contribute to increased occupancy expense.
FDIC insurance premiums totaled $4.9 million, $4.4 million and $4.3 million
during the years ended December 31, 1997, 1996 and 1995, respectively. FDIC
insurance premiums are a function of the size of the Bank's deposit base.
Pursuant to legislation effective September 30, 1996, SAIF member institutions
were required to pay a one-time special assessment equal to 65.7 basis points
for all SAIF-assessable deposits as of December 31, 1995. As a result of the
Bank's financial condition, the Bank applied for and obtained an exemption from
paying such special assessment, which would have amounted to approximately $9.0
million. During the fourth quarter of 1996, the FDIC lowered the assessment
rates for SAIF members so that the highest rated institutions are currently
paying 6.28 basis points in deposit insurance premiums. However, as a result of
the Bank's exemption from paying the one-time special assessment, the Bank has
continued to pay assessments at the assessment rate schedule in effect as of
December 31, 1995 (i.e. 35.28 basis points including the debt service paid to
the Financing Corporation). The Company expects to pay the special assessment
owing to the FDIC, which will amount to $4.5 million (on a pre-tax basis) as of
June 30, 1998, the next available payment date, from the proceeds of the
Offering. Consequently, the Bank anticipates material reductions in its deposit
insurance premiums subsequent thereto. See "Use of Proceeds," "Capitalization"
and "Regulation--Regulation of Federal Savings Banks--FDIC Assessments."
Professional services expense amounted to $528,000, $771,000 and $2.1
million during the years ended December 31, 1997, 1996 and 1995, respectively.
The significant expense recognized during 1995 and in prior periods reflected
legal expenses associated with problem asset resolution. For information with
32
<PAGE>
respect to possible increases in legal fees and expenses in future periods due
to the Goodwill Litigation (as defined and discussed under "Agreement with
Respect to Goodwill Litigation Recovery"). See "Risk Factors--Risks Relating to
Goodwill Litigation."
Office related expenses have remained relatively stable over the periods
presented and amounted to $3.9 million, $4.0 million and $4.0 million during the
years ended December 31, 1997, 1996 and 1995, respectively.
Miscellaneous other expense (consisting primarily of regulatory assessments)
amounted to $1.3 million, $1.5 million and $1.3 million during the years ended
December 31, 1997, 1996 and 1995, respectively.
INCOME TAXES. During the years ended December 31, 1997, 1996 and 1995, the
Company recognized $4.5 million, $3.0 million and $2.6 million in income tax
benefits. At December 31, 1997, the Company had $151.5 million of federal NOLs
which expire between 2001 and 2011 and no state NOLs.
The 1992 recapitalization resulted in the 1992 Ownership Change. The annual
Section 382 limitation from the 1992 Ownership Change is approximately $7.7
million. That annual limitation has increased due to unused limitations from
previous years, and amounts to approximately $38.7 million as of the beginning
of 1998. There are $43.3 million of pre-change losses carried over to 1998 that
are subject to this limitation (the "1992 limited NOLs").
It is anticipated that the Offering will result in the 1998 Ownership
Change. The actual annual Section 382 limitation from the 1998 Ownership Change
will equal the sum of (i) the fair market value of the stock of the Company
immediately before the Offering and (ii) the fair market value of the Company's
and the Bank's goodwill claim with respect to the Goodwill Litigation (as
defined and described under "Agreements With Respect to the Potential Goodwill
Lawsuit Recovery"), multiplied by the applicable long-term tax-exempt rate. For
illustration purposes only, the annual Section 382 limitation from the 1998
Ownership Change is estimated to be approximately $ million based on a
value equal to the sum of the (i) fair market value of the stock of the Company
immediately before the Offering (valued at an assumed Price to Public of
$ per share) and (ii) the unamortized balance of the Company's and the
Bank's goodwill claim with respect to the Goodwill Litigation as of December 31,
1989 (which amounted to $261.3 million as of such date and which in no way
reflects all of the claims which may be asserted by the Plaintiffs in the
Goodwill Litigation or any of the theories as to damages which may be asserted
in connection with the Goodwill Litigation), multiplied by 5.1%, the applicable
federal long-term tax-exempt rate for ownership changes occurring in March 1998
(used for illustration purposes only). The actual annual Section 382 limitation
from the 1998 Ownership Change may be higher or lower than the $ million
estimated, due to a change in the Price to Public or an increase or decrease in
the value of the Company's and the Bank's goodwill claim with respect to the
Goodwill Litigation. All $151.5 million of the NOLs carried over to 1998
(including the $43.3 million that are 1992 limited NOLs), plus any NOLs for 1998
that is attributable to the period before the 1998 Ownership Change, are subject
to this limitation (the "1998 limited NOLs").
If the Section 382 limitation for the 1998 Ownership Change is greater than
the Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will first be offset by
1992 limited NOLs up to the amount of the Section 382 limitation for the 1992
Ownership Change. Any remaining taxable income will be offset by 1998 limited
NOLs that are not also 1992 limited NOLs by an amount equal to the Section 382
limitation for the 1998 Ownership Change for that year minus the amount of 1992
limited NOLs already used to offset taxable income in that year.
If the Section 382 limitation for the 1998 Ownership Change is less than the
Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will be offset by 1998
limited NOLs up to the amount of the Section 382 limitation for the 1998
Ownership Change. See "Risk Factors--Availability of Net Operating Loss
Carryforwards," "Taxation" and Note 14 of the Notes to Consolidated Financial
Statements.
33
<PAGE>
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and magnitude of
the repricing of assets and liabilities. It is the objective of the Company to
attempt to control risks associated with interest rate movements. In general,
management's strategy is to match asset and liability balances within maturity
categories to limit the Bank's exposure to earnings variations and variations in
the value of assets and liabilities as interest rates change over time. The
Company's asset and liability management strategy is formulated and monitored by
the Bank's Asset/Liability Management Committee, which is comprised of senior
officers of the Bank, in accordance with policies approved by the Board of
Directors of the Bank. The Asset/Liability Management Committee meets weekly to
review, among other things, the sensitivity of the Bank's assets and liabilities
to interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, including those attributable to hedging
transactions, purchase and sale activity, and maturities of investments and
borrowings. The Asset/Liability Management Committee also approves and
establishes pricing and funding decisions with respect to overall asset and
liability composition and reports regularly to the full Board of Directors.
One of the primary goals of the Bank's Asset/Liability Management Committee
is to effectively increase the duration of the Bank's liabilities and/or
effectively contract the duration of the Bank's assets so that the respective
durations are matched as closely as possible. This duration adjustment can be
accomplished either internally by restructuring the Bank's balance sheet, or
externally by adjusting the duration of the Bank's assets and/or liabilities
through the use of interest rate contracts, such as interest rate swaps,
corridors, caps and floors. Although the Bank has in the past hedged its
interest rate exposure externally through the use of various interest rate
contracts, the Bank's current strategy is to hedge internally through the use of
core transaction deposit accounts, which are not as rate sensitive as other
deposit instruments, FHLB advances and reverse repurchase agreements, together
with an emphasis on investing in shorter-term or adjustable rate assets which
are more responsive to changes in interest rates, such as adjustable rate U.S.
Government agency mortgage-backed securities, short-term U.S. Government agency
securities and commercial business and consumer loans. The foregoing strategies
are more fully described below.
Internal hedging through balance sheet restructuring generally involves
either the attraction of longer-term or less rate sensitive funds (i.e., core
transaction deposit accounts which are not as rate sensitive as other deposit
instruments or FHLB advances) or the investment in certain types of shorter-term
or adjustable rate assets such as adjustable-rate mortgage-backed securities,
shorter-term U.S. Government agency securities and commercial business and
consumer loans. On the asset side of the balance sheet, since the change in the
Bank's management, the Bank has not originated any additional adjustable-rate
mortgage products tied to COFI, which tends to react more slowly to changes in
interest rates, and has emphasized loan products tied to a U.S. Treasury based
index (which reacts much more quickly to changes in interest rates). During the
year ended December 31, 1997, the Bank sold $85.2 million of such COFI-based
residential mortgage loans and used the sale proceeds to purchase $59.0 million
of one-year adjustable-rate loans tied to the U.S. Treasury index of comparable
maturity. See "Business--Lending Activities--Origination, Purchase and Sale of
Loans."
The Bank has also significantly increased aggregate purchases of short-term
or adjustable-rate mortgage-backed securities in recent periods. Purchases of
such securities were $186.0 million, $216.8 million and $49.7 million during the
years ended December 31, 1997, 1996 and 1995, respectively. At December 31,
1997, $139.7 million or 32.6% of the Bank's mortgage-backed securities were
adjustable-rate instruments. See "Business--Investment Activities."
During the years ended December 31, 1997, 1996 and 1995, the Bank originated
in the aggregate $32.6 million, $9.8 million and $4.5 million of commercial
business and consumer loans, respectively, which amounted to 20.3%, 15.8% and
16.7% of total loan originations, respectively. The Bank intends to increase its
origination of commercial business and consumer loans which have adjustable
rates of interest and shorter terms. See "Business--Lending
Activities--Commercial Business and Consumer Loans."
34
<PAGE>
On the liability side of the balance sheet, new management has decreased the
Bank's reliance on shorter-term brokered deposits, which carry high interest
rates and are a volatile funding source, in favor of short- and
intermediate-term FHLB advances and reverse repurchase agreements and retail
certificates of deposit. As a result, out-of-market, institutional jumbo
certificates of deposit have declined from $103.4 million at December 31, 1995
to $2.5 million at December 31, 1997 and FHLB advances and reverse repurchase
agreements have increased from $31.7 million in the aggregate at December 31,
1995 to $812.8 million in the aggregate at December 31, 1997.
External hedging involves the use of interest rate swaps, collars,
corridors, caps and floors. The notional amount of interest rate contracts
represents the underlying amount on which periodic cash flows are calculated and
exchanged between counterparties. However, this notional amount does not
represent the principal amount of loans or securities which would effectively be
hedged by that interest rate contract. In selecting the type and amount of
interest rate contract to utilize, the Bank compares the duration of a
particular contract, or its change in value for a 100 basis point movement in
interest rates, to that of the loans or securities to be hedged. An interest
rate contract with the appropriate offsetting duration may have a notional
amount much greater than the face amount of the securities being hedged.
At December 31, 1997, the Bank was a party to one interest rate swap
agreement. The interest rate swap consists of an agreement whereby the Bank has
agreed to pay a floating-rate of interest on a notional principal amount to a
second party (i.e., a broker) in exchange for receiving from the second party a
fixed-rate of interest on the same notional amount for a predetermined period of
time. No actual assets were exchanged and interest payments are netted. This
swap contract was entered into in 1994 in order to limit the interest rate risk
related to the relative repricing characteristics of the Bank's interest-bearing
deposits. The swap agreement has an aggregate notional amount of approximately
$4.7 million and expires in 1999. The Bank pays a floating-rate (based on the
one-month London Interbank Offer Rate ("LIBOR") and receives a fixed rate
amounting to 5.69% at December 31, 1997. At December 31, 1997, one-month LIBOR
was 5.72%. The net expense (income) relating to the Bank's interest rate swap
agreements was $2,000, $35,000 and $1.2 million during the years ended December
31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the Bank was also a party to nine interest rate
corridor agreements, which agreements expire from 1998 through 2001 and cover an
aggregate contract amount of approximately $57.0 million. An interest rate
corridor consists of an agreement whereby the issuer agrees to pay the
purchaser, in exchange for the payment of a premium, the prevailing rate of
interest in the event interest rates rise above a specified rate on a specified
interest rate index and do not exceed a specified upper rate on the same index.
The Bank entered into interest rate corridors as a means to artificially raise
the interest rate cap on certain loans. As of December 31, 1997, the interest
rate corridors have an average strike price of 6.56% and an average limit rate
of 8.20% (the Bank's interest rate corridors are based on either three month
LIBOR or COFI). The aggregate net expense relating to the Bank's interest rate
corridors and floors was $265,000, $352,000 and $468,000 during the years ended
December 31, 1997, 1996, and 1995, respectively. See Note 16 to the Notes to
Consolidated Financial Statements.
The Asset/Liability Management Committee's methods for evaluating interest
rate risk include an analysis of the Bank's interest rate sensitivity "gap,"
which is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities. A gap is considered
negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely. Because
different types of assets and liabilities with the same or similar maturities
may react differently to changes in overall market rates or conditions, changes
in interest rates may affect net interest income positively or negatively even
if an institution were perfectly matched in each maturity category.
35
<PAGE>
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1997, based on the information and assumptions set forth in the
notes below.
<TABLE>
<CAPTION>
MORE THAN
THREE TO MORE THAN THREE YEARS
WITHIN THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
------------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets (1):
Loans receivable (2):
Single-family residential loans:
Fixed.................................. $ 23,064 $ 40,836 $ 40,315 $ 28,550 $ 78,446 $ 211,211
Adjustable............................. 290,543 443,512 -- -- -- 734,055
Multi-family residential:
Fixed.................................. 8,852 3,263 6,960 6,384 8,778 34,237
Adjustable............................. 382,175 9,437 -- -- -- 391,612
Commercial, industrial and land:
Fixed.................................. 5,844 9,313 4,957 5,243 10,243 35,600
Adjustable............................. 92,325 12,313 -- -- -- 104,638
Other loans (3).......................... 22,474 2,540 3,878 1,216 3,148 33,256
Mortgage-backed and other securities (4)... 59,715 161,433 46,156 91,269 224,283 582,856
Other interest-earning assets (5).......... 7,004 219 -- -- 23,634 30,857
------------- --------- ----------- ----------- ----------- ---------
Total.................................. $ 891,996 $ 682,866 $ 102,266 $ 132,662 $ 348,532 $2,158,322
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
Interest-bearing liabilities:
Deposits:
NOW accounts............................. $ 98,550 $ -- $ -- $ -- $ -- $ 98,550
Passbook accounts........................ 182,690 -- -- -- -- 182,690
Money market accounts.................... 52,550 -- -- -- -- 52,550
Certificates of deposit.................. 178,131 631,450 114,764 8,449 31 932,825
Senior debt................................ -- -- -- 4,341 6,772 11,113
Other borrowings........................... 180,788 253,000 129,000 250,000 -- 812,788
------------- --------- ----------- ----------- ----------- ---------
Total.................................. $ 692,709 $ 884,450 $ 243,764 $ 262,790 $ 6,803 $2,090,516
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities.............................. $ 199,287 $(201,584) $(141,498) $(130,128) $ 341,729 $ 67,806
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities
as a percent of total assets............. 9.01% (9.11)% (6.39)% (5.88)% 15.44% 3.06%
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
Cumulative excess (deficiency) of interest-
earning assets over interest-bearing
liabilities.............................. $ 199,287 $ (2,297) $(143,795) $(273,923) $ 67,806
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
Cumulative excess (deficiency) of interest-
earning assets over interest-bearing
liabilities as a percent of total
assets................................... 9.01% (0.10)% (6.50)% (12.38)% 3.06%
------------- --------- ----------- ----------- ----------- ---------
------------- --------- ----------- ----------- ----------- ---------
</TABLE>
- ------------------------
(1) Adjustable-rate loans are included in the period in which interest rates are
next scheduled to adjust rather than in the period in which they are due,
and fixed-rate loans are included in the periods in which they are scheduled
to be repaid, based on scheduled amortization, in each case as adjusted to
take into account estimated prepayments based on assumptions used by the OTS
in assessing the interest rate sensitivity of savings associations in the
Company's region.
(2) Balances have been reduced for non-performing loans, which amounted to $9.9
million at December 31, 1997.
(3) Comprised of commercial and consumer loans and loans secured by deposits.
(4) Does not include an unrealized loss on securities available for sale of $2.0
million.
(5) Comprised of short-term investments, securities purchased under agreements
to resell, investment securities and FHLB stock.
Although interest rate sensitivity gap is a useful measurement and
contributes toward effective asset and liability management, it is difficult to
predict the effect of changing interest rates based solely on that measure. As a
result, the Asset/Liability Management Committee also regularly reviews interest
rate risk by forecasting the impact of alternative interest rate environments on
net interest income and net portfolio value ("NPV"), which is defined as the net
present value of an institution's existing assets, liabilities and off-balance
sheet instruments, and evaluating such impacts against the maximum potential
changes in net interest income and NPV that is authorized by the Board of
Directors of the Bank.
36
<PAGE>
The following table sets forth as of December 31, 1997 the Bank's estimated
net interest income over a eight-quarter period and NPV based on the indicated
changes in interest rates.
<TABLE>
<CAPTION>
NET INTEREST INCOME
CHANGE (IN BASIS POINTS) (NEXT EIGHT
IN INTEREST RATES(1) QUARTERS) NPV
- ------------------------- ------------------- ---------
<S> <C> <C>
(IN THOUSANDS)
+400 $ 68,724 $ 83,720
+300 77,922 101,079
+200 85,597 115,317
+100 89,788 125,563
0 93,036 129,767
-100 89,113 122,805
-200 84,465 111,998
-300 79,088 103,754
-400 72,324 98,885
</TABLE>
- ------------------------
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
Management of the Bank believes that the assumptions used by it to evaluate
the vulnerability of the Bank's operations to changes in interest rates
approximate actual experience and considers them reasonable; however, the
interest rate sensitivity of the Bank's assets and liabilities and the estimated
effects of changes in interest rates on the Bank's net interest income and NPV
could vary substantially if different assumptions were used or actual experience
differs from the historical experience on which they are based. See
"Regulation--Regulation of Federal Savings Banks--Regulatory Capital
Requirements" for a discussion of a proposed OTS regulation which would subject
an institution with a greater than "normal" level of interest rate exposure to a
deduction of an interest rate risk ("IRR") component in calculating its total
capital for risk-based capital purposes. Based on the OTS model, at December 31,
1997, the Bank would not have been required to deduct an IRR component in
calculating total risk-based capital had the IRR component of the capital
regulations been in effect.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. As the Bank is the primary operating vehicle for the Company,
liquidity management is generally handled by the Bank's management. Liquidity
refers to a company's ability to generate sufficient cash to meet the funding
needs of current loan demand, savings deposit withdrawals, principal and
interest payments with respect to outstanding borrowings and pay operating
expenses. It is management's policy to maintain greater liquidity than required
by the OTS in order to be in a position to fund loan originations, to meet
withdrawals from deposit accounts, to make principal and interest payments with
respect to outstanding borrowings and to make investments that take advantage of
interest rate spreads. The Bank monitors its liquidity in accordance with
guidelines established by the Bank and applicable regulatory requirements. The
Bank's need for liquidity is affected by loan demand, net changes in deposit
levels and the scheduled maturities of its borrowings. The Bank can minimize the
cash required during the times of heavy loan demand by modifying its credit
policies or reducing its marketing effort. Liquidity demand caused by net
reductions in deposits are usually caused by factors over which the Bank has
limited control. The Bank derives its liquidity from both its assets and
liabilities. Liquidity is derived from assets by receipt of interest and
principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings. Liquidity
is derived from liabilities by maintaining a variety of funding sources,
including deposits, advances from the FHLB of San Francisco and other short and
long-term borrowings.
The Bank's liquidity management is both a daily and long-term function of
funds management. Liquid assets are generally invested in short-term investments
such as securities purchased under agreements to resell, federal funds sold and
certificates of deposit in other financial institutions. If the Bank requires
funds beyond its ability to generate them internally, various forms of both
short and long-term borrowings
37
<PAGE>
provide an additional source of funds. At December 31, 1997, the Bank had $31.0
million in borrowing capacity under a collateralized line of credit with the
FHLB of San Francisco. Although the Bank has in the past utilized brokered
deposits as a source of liquidity, the Bank does not currently rely upon
brokered deposits as a source of liquidity, and does not anticipate a change in
this practice in the foreseeable future. During 1997, the Bank began extending
the maturities of both its FHLB advances and reverse repurchase agreements. See
"Business--Sources of Funds--Borrowings."
At December 31, 1997, the Bank had outstanding commitments (including unused
lines of credit) to originate and/or purchase mortgage and non-mortgage loans of
$42.9 million. Certificates of deposit which are scheduled to mature within one
year totaled $809.6 million at December 31, 1997, and borrowings that are
scheduled to mature within the same period amounted to $433.8 million. The Bank
anticipates that it will have sufficient funds available to meet its current
loan commitments.
Beginning September 30, 1997, the Company began making quarterly interest
payments on its senior debt, which were funded through dividends from the Bank.
The Company made an initial payment of $1.8 million (reflecting accruals since
the senior debt was issued in 1995) at September 30, 1997 and quarterly interest
payments in the amount of $192,000 beginning with the December 31, 1997 quarter.
The Company expects to prepay the senior notes in connection with the Offering.
See "Use of Proceeds," "Capitalization" and "The Stockholders' Agreement."
CAPITAL RESOURCES. Federally insured savings institutions such as the Bank
are required to maintain minimum levels of regulatory capital. See
"Regulation--Regulatory Capital Requirements." The following table reflects the
Bank's actual levels of regulatory capital and applicable regulatory capital
requirements at December 31, 1997.
<TABLE>
<CAPTION>
REQUIRED(4) ACTUAL EXCESS
---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
----------- --------- ----------- ---------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital......................................... 1.50% $ 33,188 5.43% $ 120,141 3.93% $ 86,953
Tier 1 leverage capital(1)............................... 3.00 66,376 5.43 120,141 2.43 53,765
Tier 1 risk-based capital(2)(3).......................... 4.00 44,738 10.74 120,141 6.74 75,403
Risk-based capital(2)(3)................................. 8.00 89,475 11.99 134,129 3.99 44,654
</TABLE>
- ------------------------
(1) Does not reflect amendments which were proposed by the OTS in April 1991,
which would increase this requirement to between 4% and 5%.
(2) Does not reflect the interest-rate risk component to the risk-based capital
requirement, the effective date of which has been postponed.
(3) Tangible and Tier 1 leverage (or core) capital are computed as a percentage
of adjusted total assets of $2.2 billion. Risk-based capital is computed as
a percentage of adjusted risk-weighted assets of $1.1 billion.
(4) Does not reflect the requirements to be met in order for an institution to
be deemed "adequately capitalized" under applicable laws and regulations.
See "Regulation--Regulation of Federal Savings Banks--Prompt Corrective
Action."
INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars (except with respect to available for sale securities which
are carried at market value), without considering changes in the relative
purchasing power of money over time due to inflation. Unlike most industrial
companies, substantially all of the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a more significant impact
on the Company's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
38
<PAGE>
BUSINESS
LENDING ACTIVITIES
GENERAL. The Company has not engaged in significant lending activities
since the 1995 recapitalization due to new management's focus on the
implementation of its business strategy, which includes, among other things, the
reduction of problem assets and the improvement of operating efficiency, and
managing the Bank's interest rate risk through on-balance sheet hedging. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General." With the reduction in the Company's non-performing assets
and the Company's return to profitability in 1996 and 1997, the Bank is again
redirecting its attention to increasing its lending activities. During 1997, the
Company increased originations in all loan categories, and began to purchase
loans for the first time in several years. Total loan originations and purchases
have increased from $26.8 million during the year ended December 31, 1995 to
$61.7 million during the year ended December 31, 1996 and to $666.4 million
during the year ended December 31, 1997.
At December 31, 1997, the Bank's total loans receivable amounted to $1.5
billion, which represented 69.3% of the Company's $2.2 billion in total assets
at that date. The Bank has traditionally concentrated its lending activities on
conventional first mortgage loans secured by single-family residential
properties and, to a lesser extent, multi-family residential properties. At
December 31, 1997, such loans constituted $953.7 million and $426.3 million, or
61% and 27%, respectively, of the total loan portfolio. Substantially all of the
Bank's loan portfolio consists of conventional loans, which are loans that are
neither insured by the Federal Housing Administration nor partially guaranteed
by the Department of Veterans Affairs. The Bank has also historically originated
to a much lesser extent commercial real estate loans, which amounted to $135.4
million or 9% of the total loan portfolio at December 31, 1997. At December 31,
1997, commercial business and consumer loans (including loans secured by
deposits) amounted to $22.5 million and $10.8 million, respectively. The Bank's
total loan portfolio also included a small amount of land and other
miscellaneous loans, which amounted to $5.9 million at December 31, 1997.
The Bank has general authority to originate and purchase loans secured by
real estate located throughout the United States. Notwithstanding this
nationwide lending authority, the Bank's primary market area for originations is
Los Angeles County and, to a lesser extent, Orange and Ventura Counties in
Southern California, and the Bank believes that the majority of the loans in the
Bank's portfolio are secured by properties located in California. Nevertheless,
the Bank purchased $408.7 million of adjustable-rate, single-family residential
mortgage loans in the last quarter of 1997, $231.2 million of which were located
outside of the State of California. The Bank intends from time to time to
purchase additional loans to supplement its loan origination activity, which may
include loans secured by properties outside of the Bank's primary market area in
California as well as in other states.
39
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Bank's loans at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994
------------------------ ------------------------ ------------------------ ------------------------
<CAPTION>
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
--------- ------------- --------- ------------- --------- ------------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family
residential........... $ 953,701 62% $ 595,915 51% $ 658,412 52% $ 721,801 54%
Multi-family
residential........... 426,254 27 453,064 39 479,100 38 480,547 36
Commercial.............. 135,407 9 110,931 10 120,109 10 129,768 10
Land and other.......... 5,896 -- 1,639 -- 3,176 -- 7,546 --
--------- --- --------- --- --------- --- --------- ---
Total mortgage
loans............... 1,521,258 98 1,161,549 100 1,260,797 100 1,339,662 100
--------- --- --------- --- --------- --- --------- ---
Other loans:
Commercial business..... 22,484 1 3,523 -- -- -- -- --
Consumer................ 8,485 1 988 -- -- -- -- --
Secured by deposits..... 2,287 -- 2,132 -- 1,976 -- 908 --
--------- --- --------- --- --------- --- --------- ---
Total loans
receivable............ 1,554,514 100% 1,168,192 100% 1,262,773 100% 1,340,570 100%
--------- --- --------- --- --------- --- --------- ---
--- --- --- ---
Less:
Undistributed loan
proceeds.............. 6,206 473 28 1,376
Unamortized net loan
discounts and deferred
origination fees...... (6,859) 2,732 3,021 3,336
Deferred gain on
servicing sold........ 4,131 -- -- --
Allowance for loan
losses................ 17,824 23,280 31,572 29,801
--------- --------- --------- ---------
Loans receivable, net... $1,533,212 $1,141,707 $1,228,152 $1,306,057
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
<S> <C> <C>
1993
------------------------
PERCENT OF
AMOUNT TOTAL
--------- -------------
<S> <C> <C>
Mortgage loans:
Single-family
residential........... $ 759,157 55%
Multi-family
residential........... 457,740 33
Commercial.............. 142,468 11
Land and other.......... 11,127 1
--------- ---
Total mortgage
loans............... 1,370,492 100
--------- ---
Other loans:
Commercial business..... -- --
Consumer................ -- --
Secured by deposits..... 724 --
--------- ---
Total loans
receivable............ 1,371,216 100%
--------- ---
---
Less:
Undistributed loan
proceeds.............. 1,087
Unamortized net loan
discounts and deferred
origination fees...... 3,205
Deferred gain on
servicing sold........ --
Allowance for loan
losses................ 20,426
---------
Loans receivable, net... $1,346,498
---------
---------
</TABLE>
CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth scheduled contractual amortization of the Bank's total loan portfolio
at December 31, 1997, as well as the dollar amount of such loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENTS CONTRACTUALLY DUE OR REPRICING
IN YEAR(S) ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL AT
DECEMBER 31, 2001- 2003- 2009-
1997 1998 1999 2000 2002 2008 2014
------------ --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential........................ $ 953,701 $ 161,759 $ 116,800 $ 99,807 $ 158,465 $ 263,672 $ 101,930
Multi-family residential......................... 426,254 54,845 41,357 36,495 63,784 138,423 59,745
Commercial....................................... 135,407 53,792 41,029 6,293 13,621 17,065 2,732
Land............................................. 5,896 5,000 141 27 728 -- --
Other loans:
Commercial....................................... 22,484 8,139 1,984 881 1,252 7,287 160
Consumer......................................... 8,485 4,767 1,019 800 1,012 623 97
Secured by deposits.............................. 2,287 1,737 34 28 -- 324 164
------------ --------- --------- --------- --------- --------- ---------
Total(1)....................................... $1,554,514 $ 290,039 $ 202,364 $ 144,331 $ 238,862 $ 427,394 $ 164,828
------------ --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
THEREAFTER
-----------
<S> <C>
Mortgage loans:
Single-family residential........................ $ 51,268
Multi-family residential......................... 31,605
Commercial....................................... 875
Land............................................. --
Other loans:
Commercial....................................... 2,781
Consumer......................................... 167
Secured by deposits.............................. --
-----------
Total(1)....................................... $ 86,696
-----------
-----------
</TABLE>
- ------------------------
(1) Of the $1.26 billion of loan principal repayments contractually due after
December 31, 1998, $220.8 million have fixed rates of interest and $1.04
billion have adjustable rates of interest.
Scheduled contractual principal repayments do not reflect the actual
maturities of loans. The average maturity of loans is substantially less than
their average contractual terms because of prepayments and, in the case of
conventional mortgage loans, due-on-sale clauses, which generally give the Bank
the right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the mortgage
and the loan is not repaid. The average life of mortgage loans tends to increase
when the current mortgage loan rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgages are substantially lower than current mortgage loan rates (due to
refinancings of adjustable rate and fixed rate loans at lower rates).
40
<PAGE>
ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the Bank
are subject to the written, non-discriminatory underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations are obtained by a variety of sources, including
referrals from real estate brokers, existing customers, walk-in customers and
advertising. In its present marketing efforts, the Bank emphasizes its community
ties, customized personal service, competitive rates, and an efficient
underwriting and approval process. With an orientation under new management to
make the branch office network more responsive to customers needs, loan
applications now are taken at all of the Bank's branch offices. The Bank's
centralized underwriting department supervises the obtaining of credit reports,
appraisals and other documentation involved with a loan. Property valuations are
performed by the Bank's staff as well as by independent outside appraisers
approved by the Bank's Board of Directors. The Bank requires title, hazard and,
to the extent applicable, flood insurance on all security property.
Mortgage loan applications are initially processed by loan officers who have
approval authority up to designated limits. Senior officers of the Bank who
serve on the Credit Committee acting together have additional approval
authority. All loans in excess of such designated limits are referred to the
Bank's Credit Committee, comprised of the Bank's Senior Credit Officer, the
Chief Executive Officer, the Chief Financial Officer and the Executive Vice
President of Retail Banking, which has approval authority for all loans in
excess of $1.0 million and up to $5.0 million. Any loans exceeding $5.0 million
must be approved by the Board of Directors of the Bank.
The Bank's commercial loan officers have approval authority up to designated
limits. The commercial loan officers do all of the underwriting associated with
an application and prepare the credit authorization for submission to the Senior
Commercial Lending Officer for verification. Loans in excess of $100,000 are
referred directly to the Senior Commercial Lending Officer or the Vice
President, Branch Administration, each of whom has authority to approve loans up
to $500,000. The Bank's Chief Executive Officer or Senior Credit Officer can
approve loans up to $1.0 million. Loans in excess of such amounts fall under the
jurisdiction of the Credit Committee or the Board of Directors, based on the
loan amounts set forth above.
Applications for consumer loans, as well as the Bank's smaller "business
express" loans, which range between $5,000 and $50,000, are taken in the Bank's
branches and submitted to the Vice President, Manager of the Bank's Business
Center, who has authority to approve consumer loans up to $300,000. Other
consumer loan officers have approval authority up to lesser designated amounts.
Prior to new management, the Bank's loan origination program operated
similar to that of a mortgage banking business. The Bank maintained loan
production offices and loans were originated by officers who were partially
compensated on a commission basis. A substantial amount of such loans, primarily
fixed rate, were then sold in the secondary market as a means of generating fee
income as well as providing additional funds for lending, investing and other
purposes. While the Bank under prior management was an active purchaser of loans
secured by single-family, multi-family and commercial real estate located in
both Southern and Northern California, shortly after commencing employment in
mid-1995, new management discontinued the origination for resale approach and
closed the Bank's loan production facilities. Under the Bank's new management,
the origination of mortgage loans by commissioned loan officers operating from
loan production facilities has been discontinued. The Bank's current emphasis is
on providing a full range of services to customers at all of its branch offices,
including the taking of loan applications. This necessarily involved hiring and
training sufficient personnel, which was a contributing factor to the decline in
loan originations from historical levels during the early 1990s.
With the reduction in the Company's non-performing assets and the Company's
return to profitability in 1996 and 1997, the Bank in 1997 began redirecting its
attention to increasing loan originations and purchases. In order to improve the
Bank's balance sheet as well as due to asset and liability management
considerations, during the year ended December 31, 1997, the Bank sold $85.2
million of single-family residential mortgage loans tied to COFI and reinvested
$59.0 million of such proceeds in one year
41
<PAGE>
adjustable-rate single-family residential mortgage loans. See "Management's
Discussion and Analysis of Financial and Results of Operations--Asset and
Liability Management." Management used the balance of the sale proceeds to
purchase $4.8 million and $5.0 million of multi-family residential loans and a
land loan, respectively. In addition, during the last quarter of 1997,
management leveraged the capital raised in the PPCCP REIT offering by purchasing
$408.7 million of adjustable-rate single-family residential mortgage loans. The
Bank intends to continue to selectively purchase residential mortgage loans that
meet its underwriting criteria from time to time in order to supplement its loan
originations.
A savings institution generally may not make loans to any one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. At December 31, 1997, the Bank's regulatory limit
on loans-to-one borrower was $15.5 million and its five largest loans or groups
of loans-to-one borrower, including related entities, aggregated $12.6 million,
$8.2 million, $7.4 million, $6.3 million and $5.0 million. All of these five
largest loans or loan concentrations were secured by commercial real estate and
multi-family residential properties. All of these loans or loan concentrations
were originated between the late 1980's and early 1990's and were performing in
accordance with their terms at December 31, 1997.
The following table shows the activity in the Bank's loan portfolio during
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gross loans held at beginning of period.................................. $ 1,168,192 $ 1,262,773 $ 1,369,516
Originations of loans:
Mortgage loans:
Single-family residential............................................ 88,077 37,129 19,593
Multi-family residential............................................. 15,806 7,823 1,120
Commercial........................................................... 24,232 6,945 878
Land................................................................. -- -- 746
Other loans:
Commercial........................................................... 20,869 4,303 --
Consumer............................................................. 8,050 1,069 --
Secured by deposits.................................................. 3,664 4,389 4,482
----------- ----------- -----------
Total originations................................................. 160,698 61,658 26,819
----------- ----------- -----------
Purchases of loans:
Single-family residential.............................................. 482,943 -- --
Multi-family residential............................................... 4,834 -- --
Commercial............................................................. 12,899 -- --
Land................................................................... 5,000 -- --
Consumer............................................................... 5 -- --
----------- ----------- -----------
Total purchases...................................................... 505,681 -- --
----------- ----------- -----------
Total originations and purchases................................... 666,379 61,658 26,819
----------- ----------- -----------
Loans sold:
Single-family residential.............................................. (85,241) -- (27,174)
----------- ----------- -----------
Total sold........................................................... (85,241) -- (27,174)
Repayments............................................................... (163,467) (113,721) (85,957)
Transfers to real estate owned........................................... (31,349) (42,518) (20,431)
Net activity in loans.................................................... 386,322 (94,581) (106,743)
----------- ----------- -----------
Gross loans held at end of period........................................ $ 1,554,514 $ 1,168,192 $ 1,262,773
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
42
<PAGE>
SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank has historically
concentrated its lending activities on the origination of loans secured by first
mortgage liens on existing single-family residences. At December 31, 1997,
$953.7 million or 61% of the Bank's total loan portfolio consisted of such
loans. The single-family residential loans originated by the Bank are generally
made on terms, conditions and documentation which permit the sale of loans to
the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National
Mortgage Association ("FNMA") and other institutional investors in the secondary
market.
Although the Bank has historically originated its single-family residential
loans internally, in an effort to enhance its ability to originate greater
volumes of loans without increasing its staff, during 1997, the Bank entered
into agreements with various mortgage brokers with respect to the origination of
single-family residential loans. Under the terms of such agreements, the
mortgage brokers originate loans on behalf of the Bank using the Bank's loan
documents. Such loans (which generally conform except for the size of the loans
with FHLMC and FNMA resale requirements) are originated and underwritten in
accordance with the Bank's underwriting policies. Currently, the Bank originates
approximately 80% of its single-family residential loans pursuant to such
mortgage broker relationships. The Bank currently utilizes approximately 35
mortgage brokers and management believes that its single-family loan
originations are of high quality based on its scoring results (average FICO
score as of December 31, 1997 of 738). Substantially all of the single-family
residential loans originated by the Bank (either internally or through mortgage
brokers) are secured by properties located within the Bank's market area.
Although the Bank had not been an active purchaser of single-family
residential loans, during 1997, the Bank established PPCCP as a REIT and, in
connection with a public offering of preferred stock of such REIT, leveraged the
capital generated from such transaction through wholesale purchases of $408.7
million of adjustable-rate (based upon a weekly average yield on U.S. Treasury
securities adjusted to a constant comparable maturity of one year) single-family
residential loans, which were funded by short- to intermediate-term FHLB
advances. Such purchases significantly increased the size of the Bank's
residential mortgage portfolio. Similarly, the Bank expects to leverage the
proceeds raised from the Offering through additional wholesale purchases of
single-family residential loans. As the Bank is able to increase its loan
originations, management hopes to, over time, replace its wholesale loan
purchases with loans which have been originated internally.
The Bank currently offers fixed-rate single-family residential loans with
terms of 15 or 30 years. Such loans are amortized on a monthly basis with
principal and interest due each month. In addition to these traditional
products, the Bank offers a fixed bi-weekly pay option, which results in 26
payments per year, thereby permitting a customer to pay off the loan faster than
would otherwise be the case. At December 31, 1997, the Bank had $212.6 million
or 13.7% of fixed rate single-family residential loans in its portfolio. The
Bank previously offered loan products, the interest rates on which were fixed at
an initial rate for a specified period of years and adjusted thereafter to a
specified fixed-rate. As of December 31, 1997, the Bank had $26.2 million of
such loans in its loan portfolio.
Since the 1980's, the Bank has also offered a variety of adjustable rate
single-family residential mortgage loans. Such loans generally have up to 30
year terms. Presently, the Bank offers a "5/1 Product," in which the loan is
fixed at origination for a five year period, after which the interest rate
adjusts every year in accordance with a designated index (the weekly average
yield on U.S. Treasury securities adjusted to a constant comparable maturity of
one year, as made available by the Federal Reserve Board). Such loans currently
have a 2% cap on the amount of any increase or decrease in the interest rate per
year, and a 6% limit on the amount by which the interest rate can increase or
decrease over the life of the loan. In addition, the Bank's adjustable rate
loans are currently not convertible into fixed rate loans and do not contain
prepayment penalties. Approximately 77.7% of the single-family residential loans
in the Bank's loan portfolio at December 31, 1997 had adjustable interest rates.
43
<PAGE>
Under prior management, the Bank's adjustable rate loans were tied to COFI,
which does not adjust as rapidly to changes in interest rates as the U.S.
Treasury constant comparable maturity index now utilized by the Bank. The Bank
has discontinued the use of COFI-based loans. As discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
and Liability Management," during the year ended December 31, 1997, the Bank
sold $85.2 million of such loans. At December 31, 1997, 31.9% of the Bank's
adjustable rate single-family loans were tied to COFI.
Adjustable rate mortgage loans decrease but do not eliminate the risks
associated with changes in interest rates. Because periodic and lifetime caps
limit the interest rate adjustments, the value of adjustable rate mortgage loans
also fluctuates inversely with changes in interest rates. In addition, as
interest rates increase, the required payments by the borrower increase, thus
increasing the potential for default.
The Bank previously offered a variety of adjustable rate programs, which
provided for interest rates which adjusted periodically based on COFI. However,
to protect borrowers from unlimited interest rate and payment increases, the
majority of these adjustable rate loans have a maximum interest rate change
("interest rate cap") from the initial reduced interest rate period and/or over
the life of the loan. In certain loan programs, these protections for borrowers
can result in monthly payments which are greater or less than the amount
required to amortize the loan by its maturity at the interest rate in effect in
any particular month. In the event that the monthly payment is not sufficient to
pay the interest accruing during the month, the deficiency is added to the
loan's principal balance ("negative amortization"). In the event that a loan
incurs significant negative amortization, there is an increased risk that the
market value of the underlying collateral on the loan may be insufficient to
fully satisfy the outstanding principal and interest. While the outstanding
balance of the loan may increase because of negative amortization, the risk of
default may be decreased as borrowers have a lower debt service burden or a debt
service requirement that increases more slowly than fully amortizing loans. In
the event that the monthly payment exceeds the amount necessary to pay the
interest accruing during the month, the excess is applied to reduce the loan's
principal balance, which would result in an earlier payoff of the loan. At
December 31, 1997, the Bank had approximately $177.6 million of single-family
residential loans with negative amortization features.
The Bank is permitted under applicable law to lend up to 100% of the
appraised value of the real property securing a residential loan (referred to as
the loan-to-value ratio). However, if the amount of a residential loan
originated or refinanced exceeds 90% of the appraised value, the Bank is
required by federal regulations to obtain private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
security property. Pursuant to underwriting guidelines adopted by the Board of
Directors, the Bank will generally lend up to 90% of the appraised value of the
property securing a single-family residential loan. However, the Bank generally
obtains private mortgage insurance on the principal amount that exceeds 80% of
the appraised value of the security property. For properties with an appraised
value in excess of $400,000, the Bank will generally not lend in excess of 80%.
At December 31, 1997, $21.3 million or 2.2% of the Bank's single-family
residential loans had loan-to-value ratios in excess of 80% and did not have
private mortgage insurance. In addition, as of such date, the Bank's
single-family residential loans had a weighted average loan-to-value ratio of
69.5%.
In March 1997, the Bank sold the servicing rights both with respect to
substantially all of its residential mortgage loans as well as the residential
mortgage loans which the Bank was servicing for others to Temple Inland Mortgage
Corporation (the "Residential Servicing Agent"), a wholly owned subsidiary of
Guaranty Federal Bank, F.S.B., which is wholly owned by Temple-Inland Inc., an
unrelated third party. The sale of loan servicing was predicated upon new
management's determination that it was costly and inefficient for the Bank to
service a varied collection of loan products which it no longer offered. The
Bank recognized a gain on sale of $3.2 million during the year with respect to
the Bank's loans serviced for others and an additional $5.3 million, related to
the Bank's mortgage loans, which was deferred and is being recognized over a
period of the lives of the loans.
44
<PAGE>
In connection with the Bank's sale of servicing, the Bank in March 1997
entered into a servicing agreement with the Residential Servicing Agent (the
"Residential Servicing Agreement"), pursuant to which the Residential Servicing
Agent will service substantially all of the Bank's residential mortgage loans.
In July 1997, the Bank entered into a Forward Production Servicing Purchase and
Sale Agreement pursuant to which the Bank would sell to the Residential
Servicing Agent the servicing rights associated with, among other things,
residential mortgage loans owned by the Bank and closed and funded subsequent to
the closing of the Residential Servicing Agreement. Notwithstanding the
foregoing, management in late 1997 made the determination that since it is now
offering standardized residential loan products, it can service its new loan
originations in a cost efficient manner. Accordingly, the Bank in early 1998
terminated the Forward Production Servicing Purchase and Sale Agreement and
began to service residential loans originated after February 20, 1998.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At December 31, 1997, the
Bank had an aggregate of $426.3 million and $135.4 million invested in
multi-family and commercial real estate loans, respectively, or 27% and 9% of
the total loan portfolio, respectively. The Bank has generally targeted higher
quality, smaller commercial real estate loans with principal balances of up to
$1.0 million. In originating such loans, the Bank relies on relationships it has
developed with brokers, correspondents and mortgage brokers.
The Bank's multi-family loans are secured by multi-family properties of five
units or more, while the Bank's commercial real estate loans are secured by
industrial, warehouse and self-storage properties, office buildings, office and
industrial condominiums, retail space and strip shopping centers, mixed-use
commercial properties, mobile home parks, nursing homes, hotels and motels.
Substantially all of these properties are located in California. The Bank will
presently originate these loans for terms of up to 10 years based upon a 20 to
25 year loan amortization period and up to 15 years for loans amortized over a
period of 15 years or less. The Bank will originate these loans on both a
fixed-rate or adjustable-rate basis, with the later based on the one year U.S.
Treasury index of constant comparable maturities. Adjustable rate loans may have
an established ceiling and floor, and the maximum loan-to-value for these loan
products is 75%. As part of the criteria for underwriting commercial real estate
loans, the Bank generally requires a debt coverage ratio (the ratio of net cash
from operations before payment of debt service to debt service) of 1.20:1 or
more. It is also the Bank's general policy to seek additional protection to
mitigate any weaknesses identified in the underwriting process. Additional
coverage may be provided through secondary collateral and personal guarantees
from the principals of the borrowers.
Commercial real estate lending entails different and significant risks when
compared to single-family residential lending because such loans typically
involve large loan balances to single borrowers and because the payment
experience on such loans is typically dependent on the successful operation of
the project or the borrower's business. These risks can also be significantly
affected by supply and demand conditions in the local market for apartments,
offices, warehouses or other commercial space. The Bank attempts to minimize its
risk exposure by limiting the extent of its commercial real estate lending
generally. In addition, the Bank imposes stringent loan-to-value ratios,
requires conservative debt coverage ratios, and continually monitors the
operation and physical condition of the collateral.
With the resolution of a significant portion of the Bank's non-performing
assets and the hiring of experienced commercial bankers, the Bank is increasing
its emphasis on multi-family and commercial real estate loan originations and
purchases. Originations of multi-family and commercial real estate loans
increased from an aggregate of $2.0 million during the year ended December 31,
1995 to $14.8 million during the year ended December 31, 1996 and to $40.0
million during the year ended December 31, 1997. The Bank also began making
purchases of multi-family and commercial real estate loans during the year ended
December 31, 1997, which aggregated $17.7 million. No such purchases were made
during 1996 or 1995.
COMMERCIAL BUSINESS AND CONSUMER LOANS. The Bank is placing increased
emphasis on the development of a commercial business and consumer lending
program within the areas serviced by its branches.
45
<PAGE>
Toward that end, the Bank has hired eight individuals with significant expertise
in commercial and consumer credit administration and lending. Except for loans
secured by deposits, the Bank during the 1990s did not engage in this type of
lending activity. Both lending programs were initiated in August 1996. During
the year ended December 31, 1997 and 1996, the Bank originated $32.6 million and
$9.8 million, respectively, of commercial business and consumer loans, which
amounted to 20.3% and 15.8% of total originations during such respective
periods.
The Bank is making and intends to make commercial business loans including
working capital lines of credit, inventory and accounts receivable loans,
equipment financing (including equipment leases), term loans and loans
guaranteed by the Small Business Administration ("SBA"). Depending on the
collateral pledged to secure the extension of credit, maximum loan-to-value
ratios are 75% or less. Loan terms may vary from one to 7 years. The interest
rates on such loans are generally variable and are indexed to the WALL STREET
JOURNAL Prime Rate, plus a margin.
The Bank intends to grow its SBA lending business, on which loans are
guaranteed up to certain levels by the SBA. The SBA-guaranteed loans bear
adjustable rates tied to the lowest published New York prime rate, adjusted
monthly, plus a margin, which depends on the term of the loan. The loans
generally have amortization schedules of seven to 25 years, depending on the
purpose of the loan. Each loan is reviewed by the SBA and, depending on the size
of the loan and the proposed use of proceeds, the SBA establishes what
percentage of the loan it will guarantee. The guarantee cannot exceed 80% of the
loan or $750,000, whichever is less. The guarantee applies not only to the
principal, but also covers accrued interest, foreclosure costs, legal fees and
other expenses. The Bank has established two Small Business Development Centers
within its branches and plans to obtain preferred lender status, which will
permit it to underwrite and close such loans much more promptly. At December 31,
1997, approximately $4.4 million of the Bank's $22.5 million in commercial
business loans were comprised of SBA loans.
The Bank is authorized to make loans for a wide variety of personal or
consumer purposes but has not engaged in any lending other than loans secured by
deposits for most of the 1990s. The Bank began originating home equity loans and
lines of credit and automobile loans in August 1996 in order to provide a wide
range of products and services to its customers. The Bank also offers overdraft
protection and unsecured lines of credit. At December 31, 1997, home equity
loans and lines amounted to $4.9 million. On owner-occupied homes, these loans
and lines are originated by the Bank for up to 80% of the first $350,000 of
appraised value plus up to 50% of the remainder, less the amount of any prior
liens on the property. For non-owner occupied properties, the Bank will lend up
to 75% of the first $250,000 of appraised value plus 50% of the remainder, less
the amount of existing liens on the property. Home equity loans and lines of
credit have a maximum term of 25 years and carry variable interest rates. The
Bank will secure each of these types of loans with a mortgage on the property
(generally a second mortgage).
The Bank also originates loans secured by new and used automobiles. The
maximum term for the Bank's automobile loans is 84 months for a new luxury car
loan and 72 months with respect to a used luxury car loan. For all other models,
the maximum term is 72 months for new vehicles and 60 months for used vehicles.
The Bank will lend up to 100% of the purchase price on new car loans with a
purchase price of $25,000 or more, and up to 80% for new and used vehicles (up
to five years). On used vehicles, the Bank will finance up to 80% of the lower
of the total purchase price or 100% of the National Automobile Dealers'
Association Wholesale Blue Book Value. The Bank requires all borrowers to
maintain automobile insurance with the Bank named as loss payee. At December 31,
1997, the Bank had $2.0 million of automobile loans in portfolio.
Commercial business and consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more credit risk
than mortgage loans because of the type and nature of the collateral. In
addition, consumer lending collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness and personal bankruptcy. The Bank
believes that the generally higher yields earned on commercial business and
46
<PAGE>
consumer loans compensate for the increased credit risk associated with such
loans and the Bank intends to continue to offer such loans in order to provide a
full range of services to its customers.
ASSET QUALITY
GENERAL. During 1995 and 1996, the Bank's new management reorganized the
Bank's loan review function through the implementation of an internal asset
review system. The Bank created an internal asset review committee and
established loan review and special assets departments and revised its loan
underwriting, credit, collection and monitoring procedures. New management
initiated a policy to take title to non-performing assets as promptly as
practicable and improve the properties' physical condition where appropriate so
that marketing efforts may be commenced. In the case of commercial properties,
management takes steps to enhance net operating income with respect to its
properties in order to command the best sales price possible. The Bank's future
results of operations will be significantly affected by its ability to continue
to reduce its level of non-performing assets without incurring additional
material losses.
LOAN DELINQUENCIES. When a borrower fails to make a required payment on a
loan, the Bank attempts to cure the deficiency by contacting the borrower and
seeking payment. Contacts are generally made following the grace period after a
payment is due, which is generally ten days on commercial loans and 15 days on
residential loans. At such time, a late payment fee is assessed. In most cases,
deficiencies are cured promptly. If a delinquency extends past the applicable
grace period, the loan file and payment history are reviewed and continued
efforts are made to collect the loan. In the event that no contact with the
borrower is made, or no payment is received by the end of the grace period, a
Notice of Intent to Foreclose ("Notice") is sent. Depending upon the scheduled
payment date, this Notice is sent no later than 30 days after the due date for
residential loans and no later than 15 days after the due date for commercial
loans.
Under the Bank's new management team, the accounts are monitored on a weekly
basis by the servicing department. With respect to commercial loans, a trial
balance is updated weekly, and those accounts that are identified as being past
the due date are assigned to staff to begin the collection process. With respect
to commercial loans, delinquent reports and a listing of those accounts for
which a Notice has been issued are sent to senior management and the Special
Assets Department to provide advance information as to potential problems which
may fall under their Department in the coming quarter. Generally when an account
becomes 90 days delinquent, the Bank institutes foreclosure or other
proceedings, as necessary, to minimize any potential loss.
NON-PERFORMING ASSETS. With respect to residential mortgage loans, as
described under "--Single Family Residential Real Estate Loans," the Residential
Servicing Agent services a substantial amount of the Bank's loan portfolio. The
Bank terminated the Forward Production Servicing Purchase and Sale Agreement
with the Residential Servicing Agent in early 1998, and the Bank began servicing
all of the residential mortgage loans it originates after February 20, 1998. The
Residential Servicing Agreement requires the Residential Servicing Agent to
foreclose upon or otherwise comparably convert the ownership of properties
securing such residential mortgage loans as come into and continue in default
and as to which no satisfactory agreements can be made for collection of
delinquent payments. When residential mortgage loans handled by the Residential
Servicing Agent go into non-accrual status, the Bank may request that they be
transferred back to the Bank. All loans serviced by the Residential Servicing
Agent which become real estate owned are automatically transferred to the Bank.
All commercial loans held in the Bank's portfolio are reviewed on a regular
basis to determine any potential problems. Monthly committee meetings are held
to identify problem assets and to set forth a strategy for the mitigation of
loss and the resolution of the problem. Loans are placed on a non-accrual status
if management has substantive doubts about payment in full of both principal and
interest, or if principal and interest is contractually in default for a period
of 90 days or more. The Bank provides an
47
<PAGE>
allowance for the loss of previously accrued but uncollected interest on all
non-accrual loans. Typically, after a collection problem has necessitated the
issuance of a Notice, the Special Assets Department will review and recommend
the selection and an appointment of a receiver. The Bank's current policy is to
have a receiver appointed at the expiration of the Notice, which is 10 days
after issuance, unless some type of formal, written agreement with the borrower
has been arranged.
The receiver has specific criteria to fulfill with respect to the management
of the property on behalf of the Bank. The first responsibility is to gain
control of the cash generated from the property. The receiver is responsible for
all collection activity. In addition, the receiver is required to prepare
forward forecasting with respect to occupancy and potential rent collections.
Approximately 30 to 60 days after a receiver is appointed, the Bank will order a
third party appraisal report. The information pertaining to the property
operations will be supplied to the appraiser by the receiver. The in-house
appraisal department reviews the third party appraisal report for accuracy and
reasonableness of assumptions.
The receiver and the Bank work together in preparing a budget for potential
repairs and maintenance, as well as capital expenditure items needed at the
property. It is the policy of the Bank to instruct the receiver to utilize all
net operating income available to restore the property or units of current
vacancy to "lease ready" condition.
A review of the collateral value is performed to determine if sufficient
equity exists to repay the indebtedness in the event of a foreclosure and
subsequent sale of the property. The valuation is prepared by the account
officer assigned to review the credit facility. The valuation is performed under
two scenarios. First, a review of the current market conditions of similar
properties within the collateral property's market is completed to ascertain
comparable rent and sale data. Second, a discounted cash flow analysis is
prepared, utilizing current investor return requirements and capitalization
rates. Once a value for the property has been estimated based upon its ability
to generate cash flow, expenses associated with the sale of the property, such
as broker commissions and closing costs are deducted from the estimated value. A
comparison of this amount is made to the loan balance to determine whether a
specific allowance or a write-off is appropriate.
During this on-going process, the Bank and the receiver will identify and
catalogue any potential purchasers who call and express an interest in the
property prior to the Bank taking title. Once title is transferred, the Bank
will then begin the process of contacting those entities that previously
expressed an interest to confirm that interest and proceed with the
qualification stage.
REAL ESTATE OWNED. Real estate acquired through foreclosure is carried at
the estimated fair value less estimated selling expenses at the date of
transfer. A loan charge-off is recorded for any writedown in the loan's carrying
value to fair value at the date of transfer. Real estate loss provisions are
recorded if the properties' estimated fair value subsequently declines below the
value determined at the recording date. In determining the fair value at
acquisition, costs relating to development and improvement of property are
considered. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.
In preparing a real estate owned property to be marketed for sale, certain
repairs are undertaken and other repair items are left as negotiating points
pertaining to the sale contract. The Bank may offer to adjust the sale price for
such minor repair items, or may offer to deliver the property in a repaired
state. As part of the disposition strategy, the Bank may offer financing at
current market terms to qualified buyers of the real estate owned. Generally,
the Bank requires that the purchaser/borrowing entity provide a minimum of 20%
cash toward the purchase of the property. Terms offered are similar to terms
being offered on other new originations and at comparable rates. The Special
Assets Department makes great efforts to ensure that the underwriting for a loan
to facilitate is comparable to other new loan production, and that the
transactions are viewed as arms-length and fair market.
48
<PAGE>
TROUBLED DEBT RESTRUCTURING. A loan constitutes a troubled debt
restructuring ("TDR") if the Bank, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that it
would not otherwise consider. Among other things, a TDR involves the
modification of terms of the Bank's loan, including a reduction of the interest
rate, an extension of the maturity date at a stated interest rate lower than the
current market for new loans with similar risk, a reduction of the face amount
of the loan or a reduction of accrued interest. The Bank provides an allowance
for the loss of previously accrued but uncollected interest on these, as well as
non-accrual loans. Currently, the Bank's TDR's consist of loans collateralized
by single- and multi-family residential properties. The majority of these
restructures were entered into during the early 1990's when economic conditions
in California were severely depressed or in conjunction with the Northridge
earthquake damage to the collateral properties. Management's decision to provide
such restructures was based upon both an internal assessment of the situation
and a consensus of other lenders in California who believed that this resolution
would be the most effective mitigating measure. Management considers all loans
formerly treated as TDRs to be impaired loans in the year of restructuring.
Generally, such loans, as well as those previously placed on non-accrual status,
are returned to accrual status when the borrower has had a period of sustained
repayment performance for twelve consecutive months.
Under the Bank's new management, the Bank has aggressively focused on
problem asset rehabilitation, and has undertaken a number of initiatives in this
area. The Bank has established an Internal Asset Review Committee, which is
comprised of the Chief Executive Officer, the Chief Financial Officer, the
Senior Vice President in charge of Real Estate, the Senior Credit Officer, the
Assistant Vice President of Internal Assets and the Commercial Loan Officer. The
Committee meets approximately every three weeks and monitors the Bank's assets
to ensure proper classification. All multi-family and commercial assets in
excess of $500,000, regardless of performance, are reviewed at least once each
year. Assets that are classified as special mention are reviewed every six
months and those assets classified as substandard are reviewed every three
months and, if collateral dependent, a market value analysis is performed on the
property to determine whether valuation allowances are required. Loans that are
non-performing, subject to workout or forbearance or classified substandard are
monitored and managed through the Special Assets Department. Assets that are
foreclosed and become real estate owned continue to be managed by the Special
Assets department through its respective resolution.
49
<PAGE>
The following table sets forth information with respect to non-performing
assets identified by the Bank, including non-accrual loans, real estate owned
and TDRs at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing loans, net:
Mortgage loans:
Single-family residential................................ $ 8,435 $ 7,947 $ 10,467 $ 14,780 $ 27,310
Multi-family residential................................. 405 9,198 16,840(1) -- 4,138
Commercial............................................... 1,064 1,093 8,173 8,446 2,001
Land..................................................... -- -- 112 4,232 5,050
Total non-performing loans, net........................ 9,904 18,238 35,592 27,458 38,499
Real estate owned, net:
Single-family residential................................ 678 3,268 6,387 5,322 16,568
Multi-family residential................................. 6,482 8,310 901 3,999 10,213
Commercial............................................... 5,921 8,614 3,506 1,095 4,769
Land..................................................... 202 244 121 69 --
--------- --------- --------- --------- ---------
Total real estate owned, net............................... 13,283 20,436 10,915 10,485 31,550
--------- --------- --------- --------- ---------
Total non-performing assets................................ $ 23,187 $ 38,674 $ 46,507 $ 37,943 $ 70,049
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Troubled debt restructurings............................... $ 9,936 $ 7,544 $ 6,133 $ 40,794(1) $ 6,902
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total non-performing assets and troubled debt
restructurings........................................... $ 33,123 $ 46,218 $ 52,640 $ 78,737 $ 76,951
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Non-performing loans to total loans, net................... 0.65% 1.60% 2.90% 2.10% 2.86%
Non-performing loans to total assets....................... 0.45 1.04 2.25 1.59 2.10
Non-performing assets to total assets...................... 1.05 2.21 2.94 2.20 3.83
Total non-performing assets and troubled debt
restructurings to total assets........................... 1.50 2.64 3.33 4.57 4.20
</TABLE>
- ------------------------
(1) Reflects to a large extent problems associated with 1994 Northridge,
California earthquake.
The interest income that would have been recorded during the years ended
December 31, 1997, 1996 and 1995 if the Bank's non-accrual loans at the end of
such periods had been current in accordance with their terms during such periods
was $644,000, $1.4 million and $3.2 million, respectively.
The Bank recognized significant credit losses in the early 1990's due, in
large part, to the continued deterioration in the Southern California economy
which had begun with the national recession at the start of the decade, together
with a decline in market values of real estate resulting from the Northridge
earthquake of 1994. As the real estate that secured the Bank's mortgage loans
decreased in value and as borrowers, particularly developers of, and investors
in, residential and commercial real estate, became less able to meet their debt
service obligations, non-performing assets and troubled debt restructurings
increased dramatically, amounting to $78.7 million or 4.6% of total assets as of
December 31, 1994. As a result of the focus given by new management to
rehabilitate or liquidate the Bank's problem assets, nonperforming assets and
TDRs have declined from $46.2 million or 2.6% of total assets at December 31,
1996 to $33.1 million or 1.5% of total assets at December 31, 1997.
Management's actions to acquire non-performing assets, make necessary
improvements and list such properties for resale, coupled with improved real
estate market conditions in California, contributed to significant declines in
each of the major real estate owned property categories in 1997. In particular,
during 1997, management foreclosed on several multi-family residential
properties and sold them before year-end, including one larger concentration of
four loans which had an aggregate carrying value on disposition
50
<PAGE>
of $4.5 million. As a consequence of such actions, at December 31, 1997, an
aggregate of $405,000 of multi-family residential loans were on a non-accrual
status (compared to $9.2 million at December 31, 1996) and $6.5 million was in
real estate owned (compared to $8.3 million at December 31, 1996), which
constituted 29.7% of total non-performing assets at such date.
Of the Bank's $9.9 million of non-performing loans at December 31, 1997, the
largest loan was secured by a strip shopping center, with a current carrying
value of $1.1 million. This loan has been classified as collateral dependent,
and as of December 31, 1997 was carried at fair value. The Bank's $13.3 million
of real estate owned at December 31, 1997 was comprised of eight multi-family
and commercial properties aggregating $12.6 million and various residential
properties aggregating $678,000. The Bank's largest property was a shopping
center with a net book value as of December 31, 1997 of $5.5 million. The second
largest property was an apartment building with a net book value as of December
31, 1997 of $2.1 million.
The decline in real estate owned in 1994 was due to a significant extent to
the Bank financing purchases of such real estate owned through loans to
facilitate (which loans generally carry more favorable terms to the borrower
than what is otherwise obtainable in the market). To the extent that new
management has financed the disposition of real estate owned, such loans have
been made consistent with market terms and conditions and cash downpayments to
qualify the transaction as a sale under applicable accounting guidelines. During
1996 and 1997, the Bank extended an aggregate of $12.6 million and $16.1 million
to finance the disposition of real estate owned, respectively, which constituted
23.9% and 40.8% of total sales of real estate owned during such years,
respectively.
With the downturn in the California economy experienced during the early
1990s and the problems associated with the Northridge earthquake in 1994, prior
management entered into a significant number of TDRs. Since the change in the
Bank's management, the Bank enters into TDRs only on a limited basis.
ALLOWANCE FOR LOSSES ON LOANS. It is management's policy to maintain an
allowance for estimated losses on loans based on a number of factors, including
economic trends, industry experience, estimated collateral values, past loss
experience, the Bank's underwriting practices, and management's ongoing
assessment of the credit risk inherent in its portfolio. Provisions for losses
on loans are provided on both a specific and general basis. Specific and general
valuation allowances are increased by provisions charged to expense and
decreased by charge-offs of loans, net of recoveries. Specific allowances are
provided for impaired loans for which the expected loss is measurable. General
valuation allowances are provided based on a formula which incorporates a number
of factors, including economic trends, industry experience, estimated collateral
values, past loss experience, the Bank's underwriting practices, and
management's ongoing assessment of the credit risk inherent in its portfolio.
The Bank periodically reviews the assumptions and formula by which additions are
made to the specific and general valuation allowances for losses in an effort to
refine such allowances in light of the current status of the factors described
above.
Although management believes that it uses the best information available to
make such determinations, future adjustments to the allowance may be necessary,
and net earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial determinations.
The Bank's Internal Asset Review Committee undertakes a quarterly evaluation of
the adequacy of the allowance for loan losses as well as the allowance with
respect to real estate owned. The Committee will provide allowances to absorb
losses that are both probable and reasonably quantifiable as well as for those
that are not specifically identified but can be reasonably estimated.
The OTS, in conjunction with the Office of the Comptroller of the Currency,
the FDIC and the Federal Reserve Board, has issued an Interagency Policy
Statement on the Allowance for Loan and Lease Losses ("Policy Statement"), which
includes guidance (i) on the responsibilities of management for the assessment
and establishment of an adequate allowance and (ii) for the agencies' examiners
to use in evaluating the adequacy of such allowance and the policies utilized to
determine such allowance. The Policy Statement also sets forth quantitative
measures for the allowance with respect to assets classified
51
<PAGE>
substandard and doubtful and with respect to the remaining portion of an
institution's loan portfolio. Specifically, the Policy Statement sets forth the
following quantitative measures which examiners may use to determine the
reasonableness of an allowance: (i) 50% of the portfolio that is classified
doubtful, (ii) 15% of the portfolio that is classified substandard and (iii) for
the portions of the portfolio that have not been classified (including loans
designated special mention), estimated credit losses over the upcoming twelve
months based on facts and circumstances available on the evaluation date. While
the Policy Statement sets forth this quantitative measure, such guidance is not
intended as a "floor" or "ceiling."
The following table sets forth the activity in the Bank's allowance for loan
losses during the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
--------- ---------- --------- ---------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period......................... $ 23,280 $ 31,572 $ 29,801 $ 20,426 $ 18,509
--------- ---------- --------- ---------- ---------
Provision for loan losses................................ 2,046 2,884 8,823 22,330 8,393
--------- ---------- --------- ---------- ---------
Charge-offs:
Mortgage loans:
Single-family residential.............................. (1,967) (2,213) (3,416) (5,428) (3,507)
Multi-family residential............................... (5,599) (5,039) (1,854) (1,787) (817)
Commercial............................................. (42) (3,371) (860) (5,813) (2,392)
Land................................................... (370) (1,478) (956) -- --
--------- ---------- --------- ---------- ---------
Total charge-offs.................................... (7,608) (12,101) (7,086) (13,028) (6,716)
--------- ---------- --------- ---------- ---------
Recoveries:
Mortgage loans:
Single-family residential.............................. 106 16 34 73 235
Multi-family residential............................... -- 22 -- -- --
Commercial............................................. -- 2 -- -- 5
Land................................................... -- 885 -- -- --
--------- ---------- --------- ---------- ---------
Total recoveries..................................... 106 925 34 73 240
Net chargeoffs........................................... (7,502) (11,176) (7,052) (12,955) (6,476)
--------- ---------- --------- ---------- ---------
Allowance at end of period............................... $ 17,824 $ 23,280 $ 31,572 $ 29,801 $ 20,426
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
Allowance for loan losses to total nonperforming loans at
end of period.......................................... 179.97% 127.65% 88.71% 108.53% 53.06%
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
Allowance for loan losses to total nonperforming loans
and troubled debt restructurings at end of period...... 89.84% 90.30% 75.67% 43.66% 44.99%
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
Allowance for loan losses to total loans, net at end of
period................................................. 1.16% 2.04% 2.57% 2.28% 1.52%
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
</TABLE>
As shown in the table above, loan charge-offs (net of recoveries) amounted
to $7.5 million, $11.2 million and $7.1 million, during the years ended December
31, 1997, 1996 and 1995, respectively. The net charge-offs recognized by the
Bank during the years ended December 31, 1997, 1996 and 1995 primarily reflected
the transfer of loans (particularly multi-family residential loans) to real
estate owned, as shown in the preceding non-performing assets table. Such
multi-family loans had specific valuation allowances which had been established
through increased provisions for loans in prior periods. At the time of transfer
of the loans to real estate owned, such specific valuation allowances were
charged off. As a result of the transfer of such loans to real estate owned, the
Bank's non-performing loans have declined significantly since 1995,
52
<PAGE>
which has contributed to the decrease in the Bank's provision for losses on
loans. Management believes that its allowance for losses on loans at December
31, 1997 was adequate. Nevertheless, there can be no assurances that additions
to such allowance will not be necessary in future periods, particularly if the
growth in the Bank's commercial and consumer lending continues.
The following table sets forth information concerning the allocation of the
Bank's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994
---------------------- ---------------------- ---------------------- ----------------------
<CAPTION>
PERCENT TO PERCENT TO PERCENT TO PERCENT TO
TOTAL TOTAL TOTAL TOTAL
AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE AMOUNT ALLOWANCE
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate......... $ 5,014 28.1% $ 4,051 17.4% $ 5,109 16.2% $ 7,809 26.2%
Multi-family residential........ 8,964 50.3 15,753 67.7 18,509 58.6 11,396 38.2
Commercial...................... 3,062 17.2 3,267 14.0 7,850 24.9 6,964 23.4
Land............................ 305 1.7 94 0.4 104 0.3 3,120 10.5
Other loans..................... 479 2.7 115 0.5 -- -- 512 1.7
--------- ----- --------- ----- --------- ----- --------- -----
Total........................... $ 17,824 100.0% $ 23,280 100.0% $ 31,572 100.0% $ 29,801 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
<CAPTION>
<S> <C> <C>
1993
----------------------
PERCENT TO
TOTAL
AMOUNT ALLOWANCE
--------- -----------
<S> <C> <C>
Residential real estate......... $ 5,787 28.3%
Multi-family residential........ 4,582 22.4
Commercial...................... 8,815 43.2
Land............................ 757 3.7
Other loans..................... 485 2.4
--------- -----
Total........................... $ 20,426 100.0%
--------- -----
--------- -----
</TABLE>
INVESTMENT ACTIVITIES
The Bank's securities portfolio is managed by the Executive Vice President
and Chief Financial Officer in accordance with a comprehensive written
Investment Policy which addresses strategies, types and levels of allowable
investments and which is reviewed and approved annually by the Board of
Directors of the Bank. The management of the securities portfolio is set in
accordance with strategies developed by the Bank's Asset/Liability Management
Committee.
The Bank's Investment Policy authorizes the Bank to invest in U.S. Treasury
obligations (with a maturity of up to five years), U.S. agency obligations (with
a maturity of up to five years), U.S. Government agency mortgage-backed
securities (limited to no more than 50% of the Bank's total assets), bankers'
acceptances (with a maturity of 180 days or less), FHLB overnight deposits,
investment grade commercial paper (with a maturity of up to nine months),
federal funds (with a maturity of one month or less), certificates of deposit in
other financial institutions (with a maturity of one year or less), repurchase
agreements (with a maturity of six months or less), reverse repurchase
agreements (with a maturity of two years or less) and certain collateralized
mortgage obligations (with a weighted average life of less than ten years).
At December 31, 1997, the Bank's securities portfolio consisted of $428.1
million of mortgage-backed securities, $418.4 million of which were classified
as available for sale and $9.7 million of which were classified as held to
maturity, $139.7 million of U.S. Government agency obligations and $13.0 million
of SBA certificates. Of the Bank's total investment in mortgage-backed
securities at December 31, 1997, $60.1 million consisted of Government National
Mortgage Association ("GNMA") certificates, $202.5 million consisted of FNMA
certificates, $32.5 million consisted of non-agency certificates and $133.0
million consisted of FHLMC certificates. Of the $428.1 million of
mortgage-backed securities at December 31, 1997, $245.9 million consisted of
fixed-rate securities and $182.2 million consisted of adjustable-rate
securities. Of the Bank's $139.7 million of U.S. Government and federal agency
obligations at December 31, 1997, zero were scheduled to mature within one year
thereof, $55.3 million were scheduled to mature after one through five years
thereof, $74.3 million were scheduled to mature after five through ten years
thereof and $10.1 million was scheduled to mature after ten years. Of the Bank's
$580.8 million of mortgage backed and other securities available for sale as
well as held to maturity at December 31, 1997, none were scheduled to mature
within one year thereof, $55.3 million were scheduled to mature after one
through five years thereof, $127.6 million were scheduled to mature after five
through ten years thereof and $397.9 million were scheduled to mature after ten
years.
53
<PAGE>
Under new management, the Bank has significantly increased its purchases of
primarily adjustable-
rate mortgage-backed securities with interest rate adjustments tied to the U.S.
Treasury index of constant comparable maturity. The Bank's aggregate securities
portfolio, net of repayments and prepayments and sales, increased by $271.6
million or 112.4% between 1995 and 1996 and increased by $67.6 million or 13.2%
during 1997. At December 31, 1997, such portfolio amounted to $580.8 million.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) represent a participation interest in
a pool of single-family or multi-family mortgages, the principal and interest
payments on which are passed from the mortgage originators, through
intermediaries (generally U.S. Government agencies and government sponsored
enterprises) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such U.S. Government agencies and
government sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the GNMA.
The FHLMC is a public corporation chartered by the U.S. Government and owned
by the 12 Federal Home Loan Banks and federally insured savings institutions.
The FHLMC issues participation certificates backed principally by conventional
mortgage loans. The FHLMC guarantees the timely payment of interest and the
ultimate return of principal within one year. The FNMA is a private corporation
chartered by the U.S. Congress with a mandate to establish a secondary market
for conventional mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks. The GNMA is a government agency which is intended to help finance
government-assisted housing programs. GNMA securities are backed by FHA-insured
and VA-guaranteed loans, and the timely payment of principal and interest on
GNMA securities are guaranteed by the GNMA and backed by the full faith and
credit of the U.S. Government. Because the FHLMC, the FNMA and the GNMA were
established to provide support for low- and middle-income housing, there are
limits to the maximum size of loans that qualify for these programs. For
example, the FNMA and the FHLMC currently limit their loans secured by a
single-family, owner-occupied residence to $227,150. To accommodate larger-sized
loans, and loans that, for other reasons, do not conform to the agency programs,
a number of private institutions have established their own home-loan
origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
characteristics of the underlying pool of mortgage, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security thus approximates
the life of the underlying mortgages.
54
<PAGE>
The following table sets forth information regarding the carrying and market
value of the Bank's securities at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
---------------------- ---------------------- ----------------------
<CAPTION>
CARRYING MARKET CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale (at market):
U.S. Government and federal agency
obligations.................................. $ 139,719 $ 139,719 $ 38,714 $ 38,714 $ 9,994 $ 9,994
Mortgage-backed securities..................... 418,450 418,450 463,587 463,587 231,651 231,651
SBA certificates............................... 12,991 12,991 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
$ 571,160 $ 571,160 $ 502,301 $ 502,301 $ 241,645 $ 241,645
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Held to maturity:
Mortgage-backed securities..................... $ 9,671 $ 9,743 $ 10,971 $ 10,899 -- --
---------- ---------- ---------- ---------- ---------- ----------
$ 9,671 $ 9,743 $ 10,971 $ 10,899 -- --
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The following table sets forth the activity in the Bank's aggregate
securities portfolio (both securities classified available-for-sale and
held-to-maturity) during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Securities at beginning of period............................................ $ 513,272 $ 241,645 $ 312,297
Purchases.................................................................... 408,729 487,719 212,155
Sales........................................................................ (234,339) (158,448) (222,947)
Repayments and prepayments................................................... (110,941) (53,207) (58,245)
Decrease (increase) in unrealized losses on available-for-sale
securities(1).............................................................. 4,110 (4,437) (1,615)
---------- ---------- ----------
Securities at end of period(2)(3)............................................ $ 580,831 $ 513,272 $ 241,645
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) At December 31, 1997, the cumulative unrealized losses on securities
classified as available-for-sale amounted to $2.0 million, which reduces
stockholders' equity.
(2) At December 31, 1997, the book value and market value of the Bank's
securities (including held-to-maturity and available for sale securities)
amounted to $580.8 million and $580.9 million, respectively.
(3) At December 31, 1997, $207.3 million or 35.7% of the Bank's securities
portfolio consisted of adjustable-rate securities, as compared to $222.4
million or 43.3% and $115.8 million or 47.9% at December 31, 1996 and 1995,
respectively.
SOURCES OF FUNDS
SENIOR DEBT OF THE COMPANY. In June 1995, the Company issued $10.0 million
aggregate principal amount of unsecured senior notes in conjunction with the
1995 recapitalization. The senior notes contain an initial pay rate and accrual
rate of 7% and 10.75%, respectively, and the accrual rate increased to 11.15% on
June 30, 1996. The difference between the pay rate and accrual rate is deferred
and compounded annually at the accrual rate commencing on June 30, 1996.
Interest of approximately $1.8 million, calculated at the pay rate of 7%, was
paid on September 30, 1997 for the period from issuance of the senior notes to
that date. Beginning with the quarter ending December 31, 1997, interest at the
pay rate is payable quarterly. The Company may repay all or part of the
outstanding balance of the senior
55
<PAGE>
notes at any time without penalty, and intends to repay the outstanding balance,
plus accrued interest, in connection with the Offering. See "Use of Proceeds,"
"Capitalization," "The Stockholders' Agreement" and Note 13 of the Notes to
Consolidated Financial Statements.
THE BANK'S SOURCES OF FUNDS GENERALLY. The Bank will consider various
sources of funds to fund its investing and lending activities and evaluates the
available sources of funds in order to reduce the Bank's overall funding costs,
subject to the Bank's asset and liability management policies. Deposits, reverse
repurchase agreements, advances from the FHLB of San Francisco, and sales,
maturities and principal repayments on loans and securities have been the major
sources of funds for use in the Bank's lending and investing activities, and for
other general business purposes. Management of the Bank closely monitors rates
and terms of competing sources of funds on a daily basis and utilizes the source
which it believes to be the most cost effective, consistent with the Bank's
asset and liability management policies. Products are priced each week through
the Bank's Asset Liability Management Committee.
DEPOSITS. The Bank attempts to price its deposits in order to promote
deposit growth and offers a wide array of deposit products in order to satisfy
its customers' needs. The Bank's current deposit products include passbook
accounts, negotiable order of withdrawal ("NOW") accounts, money market deposit
accounts, fixed rate, fixed-maturity retail certificates of deposit ranging in
terms from 90 days to five years, individual retirement accounts, and non-retail
certificates of deposit consisting of jumbo (generally greater than $100,000)
certificates and public deposits.
The Bank's retail deposits are generally obtained from residents in its
primary market area. The principal methods currently used by the Bank to attract
deposit accounts include offering a wide variety of products and services and
competitive interest rates. The Bank utilizes traditional marketing methods to
attract new customers and savings deposits, including various forms of
advertising. Although the Bank has in the past utilized the services of deposit
brokers to attract out-of-market, institutional certificates of deposit, the
Bank has allowed such brokered deposits to run off as they mature and is not
accepting any new brokered deposits.
The Bank currently operates a total of 40 ATMs, of which 18 are in
stand-alone facilities. The Bank recently began to operate 20 of such ATMs
within a chain of health clubs located in Southern California. The Bank also has
an option to install and operate up to an additional three ATMs within such
chain of health clubs. As of June 30, 1997, after giving effect to the
consolidation activity in California, the Bank ranked seventh in terms of thrift
deposit market share in Los Angeles, Orange and Ventura Counties.
The following table presents the average balance of each deposit type and
the average rate paid on each deposit type of the Bank for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995
--------------------------- --------------------------- ------------
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE PAID BALANCE RATE PAID BALANCE
------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
NOW accounts.................................. $ 83,248 1.96% $ 58,511 0.77% 54,837
Money market accounts......................... 21,938 2.94 29,665 2.52 47,269
Passbook accounts............................. 235,162 4.34 264,677 4.64 95,335
------------ ------------ ------------
Total transaction accounts................ 340,348 352,853 197,441
Term certificates............................. 966,863 5.66 1,069,484 5.76 1,212,989
------------ ------------ ------------
Total deposits............................ $ 1,307,211 5.14% $ 1,422,337 5.28% $ 1,410,430
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
<S> <C>
WEIGHTED
AVERAGE
RATE PAID
-------------
<S> <C>
NOW accounts.................................. 0.84
Money market accounts......................... 3.01
Passbook accounts............................. 3.67
Total transaction accounts................
Term certificates............................. 5.73
Total deposits............................ 5.31%
</TABLE>
56
<PAGE>
The following table sets forth the activity in the Bank's deposits during
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance....................................................... $ 1,371,243 $ 1,473,318 $ 1,384,218
Net increase (decrease) before interest................................. (157,599) (160,804) 35,836
Interest credited....................................................... 52,971 58,729 53,264
------------ ------------ ------------
Net increase (decrease) in deposits..................................... (104,628) (102,075) 89,100
------------ ------------ ------------
Ending balance.......................................................... $ 1,266,615 $ 1,371,243 $ 1,473,318
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following table sets forth by various interest rate categories the term
certificates with the Bank at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
0.00% to 2.99%..................................................... $ 4,071 $ 4,299 $ 3,964
3.00 to 3.99....................................................... 2,993 3,833 4,900
4.00 to 4.99....................................................... 5,700 46,771 49,037
5.00 to 6.99....................................................... 918,842 909,895 1,092,316
7.00 to 8.99....................................................... 1,219 36,244 47,613
---------- ------------ ------------
$ 932,825(1) $ 1,001,042(1) $ 1,197,830(1)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
- ------------------------
(1) At December 31, 1997, 1996 and 1995, certificates of deposit in amounts
greater than or equal to $100,000 amounted to $138.2 million, $158.7 million
and $219.4 million, respectively.
The following table sets forth the amount and remaining maturities of the
Bank's term certificates at December 31, 1997.
<TABLE>
<CAPTION>
OVER SIX
MONTHS OVER ONE OVER TWO
SIX MONTHS THROUGH ONE YEAR THROUGH YEARS THROUGH OVER THREE
AND LESS YEAR TWO YEARS THREE YEARS YEARS
----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
0.00% to 1.99%............................. $ 1,091 $ -- $ 77 $ -- $ --
2.00% to 2.99%............................. 2,172 647 84 -- --
3.00% to 3.99%............................. 2,976 -- 17 -- --
4.00% to 4.99%............................. 4,742 307 651 -- --
5.00% to 6.99%............................. 423,481 373,414 106,762 6,705 8,480
7.00% to 8.99%............................. 733 18 180 288 --
----------- ------------ ------------ ------ -----------
Total.................................. $ 435,195 $ 374,386 $ 107,771 $ 6,993 $ 8,480
----------- ------------ ------------ ------ -----------
----------- ------------ ------------ ------ -----------
</TABLE>
The following table presents the maturity of time certificates of deposit in
amounts greater than $100,000 at December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
<S> <C>
(IN THOUSANDS)
3 months or less.................................................................................. $ 20,776
Over 3 months through 6 months.................................................................... 41,934
Over 6 months through 12 months................................................................... 58,729
Over 12 months.................................................................................... 16,734
--------------
$ 138,173
--------------
--------------
</TABLE>
57
<PAGE>
BORROWINGS. The following table sets forth certain information regarding
the short-term borrowings of the Bank at or for the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER
31,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB OF SAN FRANCISCO ADVANCES:
Average balance outstanding................................................ $ 148,681 $ 53,666 $ 193,535
Maximum amount outstanding at any month-end during the period.............. 472,000 80,000 310,000
Balance outstanding at end of period....................................... 472,000 80,000 31,746
Weighted average interest rate during the period........................... 5.91% 5.49% 6.37%
Weighted average interest rate at end of period............................ 5.87% 5.91% 5.84%
Weighted average remaining term to maturity at end of period (in years).... 1.61 0.95 0.74
SECURITIES SOLD UNDER AGREEMENTS TO PURCHASE:
Average balance outstanding................................................ $ 357,396 $ 179,002 $ 103,699
Maximum amount outstanding at any month-end during the period.............. 415,676 219,229 151,626
Balance outstanding at end of period....................................... 340,788 192,433 --
Weighted average interest rate during the period........................... 5.49% 6.09% 6.25%
Weighted average interest rate at end of period............................ 5.76% 5.49% --
Weighted average remaining term to maturity at end of period (in years).... 2.71 0.63 --
</TABLE>
The Bank obtains both fixed and variable rate long- and short-term advances
from the FHLB of San Francisco upon the security of certain of its residential
first mortgage loans and other assets, provided certain standards related to
creditworthiness of the Bank have been met. FHLB of San Francisco advances are
available for general business purposes to expand lending and investing
activities. Borrowings have generally been used to fund the purchase of
mortgage-backed and investment securities or lending activities and have been
collateralized with a pledge of loans, securities in the Bank's portfolio or any
mortgage-backed or investment securities purchased.
Advances from the FHLB of San Francisco are made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. At December 31, 1997, the Bank had total FHLB of San Francisco
advances of $472.0 million at a weighted average interest rate of 5.87%, $357.0
million of which matures in 1998 and the remaining $115.0 million of which
matures in 2002. FHLB advances increased by $392.0 million during 1997, as the
Bank leveraged the capital raised in the PPCCP public offering. The Bank used
such short- and intermediate-term FHLB advances to fund the wholesale purchase
of $408.7 million of adjustable-rate single-family residential mortgage loans.
Since 1996, the Bank has increasingly relied on obtaining funds from the
sales of securities to investment dealers under reverse repurchase agreements.
At December 31, 1997, reverse repurchase agreements amounted to $340.8 million,
as compared to $192.4 million and $0 at December 31, 1996 and 1995,
respectively. As of December 31, 1997, the weighted average remaining term to
maturity of the Bank's reverse repurchase agreements was 2.71 years, compared to
0.63 years at December 31, 1996, respectively, and such reverse repurchase
agreements had a weighted average interest rate of 5.76% compared to 5.49% at
December 31, 1996. The Bank had no reverse repurchase agreements outstanding at
December 31, 1995. In a reverse repurchase agreement transaction, the Bank will
generally sell a mortgage-backed security agreeing to repurchase either the same
or a substantially identical security on a specified later date (which range in
maturity from overnight to five years) at a price greater than the original
sales price. The difference in the sale price and purchase price is the cost of
the use of the proceeds. The mortgage-backed securities underlying the
agreements are delivered to the dealers who arrange the transactions. For
agreements in which the Bank has agreed to repurchase substantially
58
<PAGE>
identical securities, the dealers may sell, loan or otherwise dispose of the
Bank's securities in the normal course of their operations. However, such
dealers or third party custodians safe-keep the securities which are to be
specifically repurchased by the Bank. Reverse repurchase agreements represent a
competitive cost short-term funding source for the Bank. Nevertheless, the Bank
is subject to the risk that the lender may default at maturity and not return
the collateral. The amount at risk is the value of the collateral which exceeds
the balance of the borrowing. In order to minimize this potential risk, the Bank
only deals with large, established U.S. investment brokerage firms when entering
into these transactions. Reverse repurchase transactions are accounted for as
financing arrangements rather than sales of securities, and the obligation to
repurchase such securities is reflected as a liability in the Company's
Consolidated Financial Statements.
SUBSIDIARIES
The Bank is permitted to invest up to 2% of its assets in the capital stock
of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
primarily for community development purposes. In addition, the Bank is permitted
to make an unlimited investment in one or more operating subsidiaries, which are
permitted to engage only in activities that the Bank may undertake directly.
PPCCP is such an operating subsidiary of the Bank. As of December 31, 1997, the
Bank maintained one operating subsidiary, four direct service corporations and
one indirect service corporation subsidiary consisting of SoCal Mortgage
Corporation ("SMC"), Direct Investment Company of Southern California ("DIC"),
SCP Investments, Inc. ("SCP"), Continental Development of California, Inc.
("CDC") and SCS Insurance Services, Inc. ("SCS"). At December 31, 1997, the
Bank's investment in its five service corporation subsidiaries amounted to $41.9
million in the aggregate.
PPCCP was established as an operating subsidiary of the Bank in 1997 to
acquire, hold and manage primarily mortgage assets and to operate in a manner so
as to quality as a REIT for federal income tax purposes under the Code,
commencing with its taxable year ending December 31, 1997. In October 1997,
PPCCP commenced its operations upon consummation of a public offering of
1,426,000 shares of its 9.75% Noncumulative Exchangeable Preferred Stock, Series
A (the "Series A Preferred Shares"), at a liquidation preference of $25.00 per
share. The Series A Preferred Shares are traded on the Nasdaq National Market
under the symbol "PPCCP." PPCCP used the gross proceeds raised of $35.7 million
from the initial public offering of the Series A Preferred Shares and the
concurrent contribution of $38.8 million of additional capital by the Bank to
purchase from the Bank PPCCP's initial portfolio of residential and commercial
mortgage loans at an aggregate purchase price of $72.1 million. In December
1997, PPCCP purchased additional mortgage loans from the Bank at an aggregate
purchase price of $2.6 million.
SMC is an inactive corporation which was formed in 1987 to originate
mortgage loans. However, SMC has never conducted any business since it was
organized. DIC was formed in 1987 to acquire, develop, construct and sell real
estate developments and is currently inactive. DIC owns 100% of the capital
stock of SCP which was formed in 1989 to invest in various real estate
development projects. SCP currently holds the Bank's last remaining real estate
development project consisting of 62 acres of vacant land located in Corona,
California. At December 31, 1997, the land had a net carrying value of $1.9
million and the Bank is currently under contract for sale.
CDC was formed in 1969 for the purpose of acquiring, developing,
constructing and selling real estate developments. CDC does not currently hold
any real estate and CDC's sole operation consists of acting as trustee under the
Bank's deeds of trust with respect to its mortgage lending.
SCS was formed in 1984 in order to sell, through the Bank's branch offices,
annuities and various other investments as well as other insurance products to
the Bank's account holders and members of the general public. During the years
ended December 31, 1997, 1996 and 1995, SCS recognized net earnings of $362,000,
$336,000 and $40,000, respectively.
59
<PAGE>
LEGAL PROCEEDINGS
Except with respect to the Goodwill Litigation (which is defined and
discussed under "Agreements With Respect to Potential Goodwill Lawsuit
Recovery") and an additional lawsuit brought by a third party with respect to
such Goodwill Litigation (also discussed therein), neither the Company nor the
Bank is involved in any legal proceedings which are material to the Company. The
Bank is involved in routine legal proceedings from time to time which arise in
the normal course of its business.
OFFICE LOCATIONS
The following table set forth certain information with respect to the
Company's offices at December 31, 1997.
<TABLE>
<CAPTION>
TOTAL DEPOSITS
NET BOOK VALUE OF AT
LEASE/OWNED PROPERTY AT DECEMBER 31,
OFFICE LOCATION LEASE EXPIRATION DATE DECEMBER 31, 1997 1997
- -------------------------------------------------- ------------------------- ----------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
EXECUTIVE OFFICE (AND BRANCH):
Los Angeles Leased $ 2,338 $ 6,731
5900 Wilshire Boulevard 04/2006
15th Floor Option: 1-5 years
Los Angeles, CA 90036
BRANCH OFFICES:
Beverly Hills Leased 109 116,318
9100 Wilshire Boulevard 03/2000
Beverly Hills, CA 90212 Option: 2-10 years
Orange Leased 129 52,254
216 E. Chapman Avenue 01/2001
Orange, CA 92866-1506 Option: 2-5 years
Pacific Palisades Leased 104 54,686
15305 Sunset Boulevard 12/2006
Pacific Palisades, CA 90272 Option: 1-10 years
Montebello Leased 129 87,949
1300 W. Beverly Boulevard 08/2003
Montebello, CA 90640 Option: 1-10 years
Garden Grove Owned 96 79,138
12112 Valley View
Garden Grove, CA 92845-1796
Simi Valley Leased 53 92,851
1445 Los Angeles Avenue 07/1999
Simi Valley, CA 93065 Option: 2-30 months
followed by 3-5 years
Sylmar Leased 98 45,194
13831 Foothill Boulevard 09/2002
Sylmar, CA 91342 Option: 2-10 years
Buena Park Leased 86 12,985
5470 Beach Boulevard 12/2004
Buena Park, CA 90621 Option: 3-5 years
North Hollywood Leased 66 77,612
12848 Victory Boulevard 05/2000
North Hollywood, CA 91606
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
TOTAL DEPOSITS
NET BOOK VALUE OF AT
LEASE/OWNED PROPERTY AT DECEMBER 31,
OFFICE LOCATION LEASE EXPIRATION DATE DECEMBER 31, 1997 1997
- -------------------------------------------------- ------------------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Beverly/Serrano Leased $ 153 $ 36,691
4500 W. Beverly Boulevard 01/2006
Los Angeles, CA 90004 Option: 2-5 years
Woodland Hills Leased 181 56,439
20259 Ventura Boulevard 11/2009
Woodland Hills 91364 Option: 1-10 years
Burbank Leased 371 156,297
240 North San Fernando Road 09/2000
Burbank, CA 91502 Option: 2-5 years
Santa Clarita Owned 168 64,219
26425 Sierra Highway
Santa Clarita, CA 91321
Ventura Leased 42 62,559
996 South Seaward Avenue 10/1998
Ventura, CA 93001 Option: 2-3 years
Calabasas Leased 83 59,213
23642 Calabasas Road, Bldg. 2 03/2007
Calabasas, CA 91302
Irvine Leased 170 55,835
15475 Jeffrey Road 10/2005
Irvine, CA 92620-4102
Fairfax Leased 80 66,654
145 South Fairfax Avenue 01/2003
Los Angeles, CA 90036 Option: 1-5 years
San Pedro Owned 713 82,990
28110 South Western Avenue
San Pedro, CA 80732
------ ---------------
$ 5,169 $ 1,266,615
------ ---------------
------ ---------------
</TABLE>
In addition to the foregoing branch office locations, the Bank currently
operates 40 ATMs, of which 18 are in stand-alone facilities, including 20 within
a chain of health clubs located in Southern California. The Bank also has an
option to install and operate an additional three ATMs within such chain of
health clubs.
The Company in 1997 also obtained regulatory approval to install remote
automated loan machines, which can take an application for a loan of up to
$10,000, underwrite the loan and extend funds to applicants which have been
approved. The Company believes it is the first institution to receive approval
to operate these units at remote locations, nine of which were placed in
operation late in 1997.
EMPLOYEES
As of December 31, 1997, the Company had 226 full-time equivalent employees.
The Company's employees are not subject to any collective bargaining agreements
and the Company believes its relationship with its employees is satisfactory.
61
<PAGE>
REGULATION
GENERAL
The Bank is a federally chartered and insured stock savings bank subject to
extensive regulation and supervision by the OTS, as the primary federal
regulator of savings associations, and the FDIC, as the administrator of the
SAIF.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings associations and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description of
these provisions or their effects on the Company or the Bank, is qualified in
its entirety by reference to the particular statutory or regulatory provisions
or proposals.
REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
HOLDING COMPANY ACQUISITIONS. The Company is a registered savings and loan
holding company. The Home Owners' Loan Act, as amended ("HOLA"), and OTS
regulations generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring, directly or indirectly, the ownership or control
of any other savings association or savings and loan holding company, or all, or
substantially all, of the assets or more than 5% of the voting shares thereof.
These provisions also prohibit, among other things, any director or officer of a
savings and loan holding company, or any individual who owns or controls more
than 25% of the voting shares of such holding company, from acquiring control of
any savings association not a subsidiary of such savings and loan holding
company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. The Company currently operates as a unitary
savings and loan holding company. Generally, there are limited restrictions on
the activities of a unitary savings and loan holding company and its non-savings
association subsidiaries. If the Company ceases to be a unitary savings and loan
holding company, the activities of the Company and its non-savings association
subsidiaries would thereafter be subject to substantial restrictions.
The HOLA requires every savings association subsidiary of a savings and loan
holding company to give the OTS at least 30 days' advance notice of any proposed
dividends to be made on its guarantee, permanent or other non-withdrawable
stock, or else such dividend will be invalid. See "--Regulation of Federal
Savings Banks--Capital Distribution Regulation."
AFFILIATE RESTRICTIONS. Transactions between a savings association and its
"affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.
In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount equal
to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
62
<PAGE>
In addition, under the OTS regulations, a savings association may not make a
loan or extension of credit to an affiliate unless the affiliate is engaged only
in activities permissible for bank holding companies; a savings association may
not purchase or invest in securities of an affiliate other than shares of a
subsidiary; a savings association and its subsidiaries may not purchase a
low-quality asset from an affiliate; and covered transactions and certain other
transactions between a savings association or its subsidiaries and an affiliate
must be on terms and conditions that are consistent with safe and sound banking
practices. With certain exceptions, each loan or extension of credit by a
savings association to an affiliate must be secured by collateral with a market
value ranging from 100% to 130% (depending on the type of collateral) of the
amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to treat
such subsidiaries as affiliates. The regulation also requires savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provides that certain classes of savings associations may
be required to give the OTS prior notice of affiliate transactions.
REGULATION OF FEDERAL SAVINGS BANKS
REGULATORY SYSTEM. As a federally insured savings bank, lending activities
and other investments of the Bank must comply with various statutory and
regulatory requirements. The Bank is regularly examined by the OTS and must file
periodic reports concerning its activities and financial condition.
Although the OTS is the Bank's primary regulator, the FDIC has "backup
enforcement authority" over the Bank. The Bank's eligible deposit accounts are
insured by the FDIC under the SAIF, up to applicable limits.
FEDERAL HOME LOAN BANKS. The Bank is a member of the FHLB System. Among
other benefits, FHLB membership provides the Bank with a central credit
facility. The Bank is required to own capital stock in an FHLB in an amount
equal to the greater of: (i) 1% of its aggregate outstanding principal amount of
its residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5% of
its FHLB advances (borrowings).
LIQUID ASSETS. Under OTS regulations, for each calendar month, a savings
bank is required to maintain an average daily balance of liquid assets
(including cash, certain time deposits and savings accounts, bankers'
acceptances, certain government obligations and certain other investments) not
less than a specified percentage of the average daily balance of its net
withdrawable accounts plus short-term borrowings (its liquidity base) during the
preceding calendar month. This liquidity requirement, which is currently at
4.0%, may be changed from time to time by the OTS to any amount between 4.0% to
10.0%, depending upon certain factors. The Bank maintains liquid assets in
compliance with these regulations.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require savings
banks to satisfy minimum capital standards: risk-based capital requirements, a
leverage requirement and a tangible capital requirement. Savings banks must meet
each of these standards in order to be deemed in compliance with OTS capital
requirements. In addition, the OTS may require a savings association to maintain
capital above the minimum capital levels.
All savings banks are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal to
8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items). In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings bank is required to maintain
core capital equal to a minimum of 3% of adjusted total assets. (In addition,
under the prompt corrective action provisions of the OTS regulations, all but
the most highly-rated institutions must maintain a minimum leverage ratio of 4%
in order to be adequately capitalized. See "--Prompt Corrective Action.") A
savings bank is also required to maintain tangible capital in an amount at least
equal to 1.5% of its adjusted total assets.
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Under OTS regulations, a savings bank with a greater than "normal" level of
interest rate exposure must deduct an interest rate risk ("IRR") component in
calculating its total capital for purposes of determining whether it meets its
risk-based capital requirement. Interest rate exposure is measured, generally,
as the decline in an institution's net portfolio value that would result from a
200 basis point increase or decrease in market interest rates (whichever would
result in lower net portfolio value), divided by the estimated economic value of
the savings association's assets. The interest rate risk component to be
deducted from total capital is equal to one-half of the difference between an
institution's measured exposure and "normal" IRR exposure (which is defined as
2%), multiplied by the estimated economic value of the institution's assets. In
August 1995, the OTS indefinitely delayed implementation of its IRR regulation.
These capital requirements are viewed as minimum standards by the OTS, and
most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS for
individual savings associations, upon a determination that the savings
association's capital is or may become inadequate in view of its circumstances.
The OTS regulations provide that higher individual minimum regulatory capital
requirements may be appropriate in circumstances where, among others: (1) a
savings association has a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk, certain risks
arising from nontraditional activities, or similar risks or a high proportion of
off-balance sheet risk; (2) a savings association is growing, either internally
or through acquisitions, at such a rate that supervisory problems are presented
that are not dealt with adequately by OTS regulations; and (3) a savings
association may be adversely affected by activities or condition of its holding
company, affiliates, subsidiaries or other persons or savings associations with
which it has significant business relationships. The Bank is not subject to any
such individual minimum regulatory capital requirement.
The Bank's tier-1 risk-based capital ratio was 10.74%, its leverage capital
ratio was 5.43% and its total risk-based capital ratio was 11.99% at December
31, 1997. See "Regulatory Capital" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Capital Resources."
CERTAIN CONSEQUENCES OF FAILURE TO COMPLY WITH REGULATORY CAPITAL
REQUIREMENTS. A savings bank's failure to maintain capital at or above the
minimum capital requirements may be deemed an unsafe and unsound practice and
may subject the savings bank to enforcement actions and other proceedings. Any
savings bank not in compliance with all of its capital requirements is required
to submit a capital plan that addresses the bank's need for additional capital
and meets certain additional requirements. While the capital plan is being
reviewed by the OTS, the savings bank must certify, among other things, that it
will not, without the approval of its appropriate OTS Regional Director, grow
beyond net interest credited or make capital distributions. If a savings bank's
capital plan is not approved, the bank will become subject to additional growth
and other restrictions. In addition, the OTS, through a capital directive or
otherwise, may restrict the ability of a savings bank not in compliance with the
capital requirements to pay dividends and compensation, and may require such a
bank to take one or more of certain corrective actions, including, without
limitation: (i) increasing its capital to specified levels, (ii) reducing the
rate of interest that may be paid on savings accounts, (iii) limiting receipt of
deposits to those made to existing accounts, (iv) ceasing issuance of new
accounts of any or all classes or categories except in exchange for existing
accounts, (v) ceasing or limiting the purchase of loans or the making of other
specified investments, and (vi) limiting operational expenditures to specified
levels.
The HOLA permits savings banks not in compliance with the OTS capital
standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings bank still may be subject to
enforcement actions for other violations of law or unsafe or unsound practices
or conditions.
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PROMPT CORRECTIVE ACTION. The prompt corrective action regulation of the
OTS, promulgated under the Federal Deposit Insurance Corporation Improvement Act
of 1991, requires certain mandatory actions and authorizes certain other
discretionary actions to be taken by the OTS against a savings bank that falls
within certain undercapitalized capital categories specified in the regulation.
The regulation establishes five categories of capital classification: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Under the regulation, the
ratio of total capital to risk-weighted assets, core capital to risk-weighted
assets and the leverage ratio are used to determine an institution's capital
classification. At December 31, 1997, the Bank met the capital requirements of a
"well capitalized" institution under applicable OTS regulations.
In general, the prompt corrective action regulation prohibits an insured
depository institution from declaring any dividends, making any other capital
distribution, or paying a management fee to a controlling person if, following
the distribution or payment, the institution would be within any of the three
undercapitalized categories. In addition, adequately capitalized institutions
may accept brokered deposits only with a waiver from the FDIC and are subject to
restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll-over brokered
deposits.
Institutions that are classified as undercapitalized are subject to certain
mandatory supervisory actions, including: (i) increased monitoring by the
appropriate federal banking agency for the institution and periodic review of
the institution's efforts to restore its capital, (ii) a requirement that the
institution submit a capital restoration plan acceptable to the appropriate
federal banking agency and implement that plan, and that each company having
control of the institution guarantee compliance with the capital restoration
plan in an amount not exceeding the lesser of 5% of the institution's total
assets at the time it received notice of being undercapitalized, or the amount
necessary to bring the institution into compliance with applicable capital
standards at the time it fails to comply with the plan, and (iii) a limitation
on the institution's ability to make any acquisition, open any new branch
offices, or engage in any new line of business without the prior approval of the
appropriate federal banking agency for the institution or the FDIC.
The regulation also provides that the OTS may take any of certain additional
supervisory actions against an undercapitalized institution if the agency
determines that such actions are necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance fund.
These supervisory actions include: (i) requiring the institution to raise
additional capital or be acquired by another institution or holding company if
certain grounds exist, (ii) restricting transactions between the institution and
its affiliates, (iii) restricting interest rates paid by the institution on
deposits, (iv) restricting the institution's asset growth or requiring the
institution to reduce its assets, (v) requiring replacement of senior executive
officers and directors, (vi) requiring the institution to alter or terminate any
activity deemed to pose excessive risk to the institution, (vii) prohibiting
capital distributions by bank holding companies without prior approval by the
Federal Reserve Board, (viii) requiring the institution to divest certain
subsidiaries, or requiring the institution's holding company to divest the
institution or certain affiliates of the institution, and (ix) taking any other
supervisory action that the agency believes would better carry out the purposes
of the prompt corrective action provisions of FDICIA.
Institutions classified as undercapitalized that fail to submit a timely,
acceptable capital restoration plan or fail to implement such a plan are subject
to the same supervisory actions as significantly undercapitalized institutions.
Significantly undercapitalized institutions are subject to the mandatory
provisions applicable to undercapitalized institutions. The regulation also
makes mandatory for significantly undercapitalized institutions certain of the
supervisory actions that are discretionary for institutions classified as
undercapitalized, creates a presumption in favor of certain discretionary
supervisory actions, and subjects significantly undercapitalized institutions to
additional restrictions, including a prohibition on paying bonuses or raises to
senior executive officers without the prior written approval of the appropriate
federal bank regulatory agency. In addition, significantly undercapitalized
institutions may be subjected to certain of the restrictions applicable to
critically undercapitalized institutions.
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The regulation requires that an institution be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with concurrence of the FDIC, determines that other action would
better achieve the purposes of the prompt corrective action provisions of
FDICIA. Any such determination must be renewed every 90 days. A depository
institution also must be placed into receivership if the institution continues
to be critically undercapitalized on average during the fourth quarter after the
institution initially became critically undercapitalized, unless the
institution's federal bank regulatory agency, with concurrence of the FDIC,
makes certain positive determinations with respect to the institution.
Critically undercapitalized institutions are also subject to the
restrictions generally applicable to significantly undercapitalized institutions
and to a number of other severe restrictions. For example, beginning 60 days
after becoming critically undercapitalized, such institutions may not pay
principal or interest on subordinated debt without the prior approval of the
FDIC. (However, the regulation does not prevent unpaid interest from accruing on
subordinated debt under the terms of the debt instrument, to the extent
otherwise permitted by law.) In addition, critically undercapitalized
institutions may be prohibited from engaging in a number of activities,
including entering into certain transactions or paying interest above a certain
rate on new or renewed liabilities.
If the OTS determines that an institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well capitalized,
reclassify it as adequately capitalized if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.
CONSERVATORSHIP/RECEIVERSHIP. In addition to the grounds discussed under
"--Prompt Corrective Action," the OTS (and, under certain circumstances, the
FDIC) may appoint a conservator or receiver for a savings association if any one
or more of a number of circumstances exist, including, without limitation, the
following: (i) the institution's assets are less than its obligations to
creditors and others, (ii) a substantial dissipation of assets or earnings due
to any violation of law or any unsafe or unsound practice, (iii) an unsafe or
unsound condition to transact business, (iv) a willful violation of a final
cease-and-desist order, (v) the concealment of the institution's books, papers,
records or assets or refusal to submit such items for inspection to any examiner
or lawful agent of the appropriate federal banking agency or state bank or
savings association supervisor, (vi) the institution is likely to be unable to
pay its obligations or meet its depositors' demands in the normal course of
business, (vii) the institution has incurred, or is likely to incur, losses that
will deplete all or substantially all of its capital, and there is no reasonable
prospect for the institution to become adequately capitalized without federal
assistance, (viii) any violation of law or unsafe or unsound practice that is
likely to cause insolvency or substantial dissipation of assets or earnings,
weaken the institution's condition, or otherwise seriously prejudice the
interests of the institution's depositors or the federal deposit insurance fund,
(ix) the institution is undercapitalized and the institution has no reasonable
prospect of becoming adequately capitalized, fails to become adequately
capitalized when required to do so, fails to submit a timely and acceptable
capital restoration plan, or materially fails to implement an accepted capital
restoration plan, (x) the institution is critically undercapitalized or
otherwise has substantially insufficient capital, or (xi) the institution is
found guilty of certain criminal offenses related to money laundering.
ENFORCEMENT POWERS. The OTS and, under certain circumstances, the FDIC,
have substantial enforcement authority with respect to savings associations,
including authority to bring various enforcement actions against a savings
association and any of its "institution-affiliated parties" (a term defined to
include, among other persons, directors, officers, employees, controlling
stockholders, agents and stockholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes, without
limitation: (i) the ability to terminate a savings association's deposit
insurance,
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(ii) institute cease-and-desist proceedings, (iii) bring suspension, removal,
prohibition and criminal proceedings against institution-affiliated parties, and
(iv) assess substantial civil money penalties. As part of a cease-and-desist
order, the agencies may require a savings association or an
institution-affiliated party to take affirmative action to correct conditions
resulting from that party's actions, including to make restitution or provide
reimbursement, indemnification or guarantee against loss restrict the growth of
the institution and rescind agreements and contracts.
CAPITAL DISTRIBUTION REGULATION. In addition to the prompt corrective
action restriction on paying dividends, OTS regulations limit certain "capital
distributions" by OTS-regulated savings associations. Capital distributions
currently are defined to include, in part, dividends and payments for stock
repurchases and cash-out mergers.
Under the current regulation, an association that meets its fully phased-in
capital requirements both before and after a proposed distribution and has not
been notified by the OTS that it is in need of more than normal supervision (a
"Tier 1 association") may, after prior notice to but without the approval of the
OTS, make capital distributions during a calendar year up to the higher of: (i)
100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. A Tier 1 association may make capital distributions in excess of the
above amount if it gives notice to the OTS and the OTS does not object to the
distribution. A savings association that meets its regulatory capital
requirements both before and after a proposed distribution but does not meet its
fully phased-in capital requirement (a "Tier 2 association") is authorized,
after prior notice to the OTS but without OTS approval, to make capital
distributions in an amount up to 75% of its net income over the most recent
four-quarter period, taking into account all prior distributions during the same
period. Any distribution in excess of this amount must be approved in advance by
the OTS. A savings association that does not meet its current regulatory capital
requirements (a "Tier 3 association") cannot make any capital distribution
without prior approval from the OTS, unless the capital distribution is
consistent with the terms of a capital plan approved by the OTS.
At December 31, 1997, the Bank qualified as a Tier 1 association for
purposes of the capital distribution rule. The OTS may prohibit a proposed
capital distribution that would otherwise be permitted if the OTS determines
that the distribution would constitute an unsafe or unsound practice. The
requirements of the capital distribution regulation supersede less stringent
capital distribution restrictions in earlier agreements or conditions.
The OTS has proposed to amend its capital distribution regulation to bring
such regulations into greater conformity with the other bank regulatory
agencies. Under the proposed regulation, certain savings associations would not
be required to file with the OTS. Specifically, savings associations that remain
at least adequately capitalized following a capital distribution, under the
proposed regulation, would not be subject to any requirement for notice or
application unless the total amount of all capital distributions, including any
proposed capital distribution, for the applicable calendar year would exceed an
amount equal to the savings association's net income for that year to date plus
the savings association's retained net income for the preceding two years.
QUALIFIED THRIFT LENDER TEST. In general, savings associations are required
to maintain at least 65% of their portfolio assets in certain qualified thrift
investments (which consist primarily of loans and other investments related to
residential real estate and certain other assets). A savings association that
fails the qualified thrift lender test is subject to substantial restrictions on
activities and to other significant penalties.
Recent legislation permits a savings association to qualify as a qualified
thrift lender not only by maintaining 65% of portfolio assets in qualified
thrift investments (the "QTL test") but also, in the alternative, by qualifying
under the Internal Revenue Code as a "domestic building and loan association."
The Bank is a domestic building and loan association as defined in the Internal
Revenue Code.
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Recent legislation also expands the QTL test to provide savings associations
with greater authority to lend and diversify their portfolios. In particular,
credit card and educational loans may now be made by savings associations
without regard to any percentage-of-assets limit, and commercial loans may be
made in an amount up to 10 percent of total assets, plus an additional 10
percent for small business loans. Loans for personal, family and household
purposes (other than credit card, small business and educational loans) are now
included without limit with other assets that, in the aggregate, may account for
up to 20% of total assets. At December 31, 1997, under the expanded QTL test,
approximately 82.3% of the Bank's portfolio assets were qualified thrift
investments.
FDIC ASSESSMENTS. The deposits of the Bank are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the OTS an opportunity to take such
action.
Under FDIC regulations, institutions are assigned to one of three capital
groups for insurance premium purposes--"well capitalized," "adequately
capitalized" and undercapitalized"--which are defined in the same manner as the
regulations establishing the prompt corrective action system, as discussed
above. These three groups are then divided into subgroups which are based on
supervisory evaluations by the institution's primary federal regulator,
resulting in nine assessment classifications. Effective January 1, 1997,
assessment rates for both SAIF-insured institutions and BIF-insured institutions
ranged from 0% of insured deposits for well-capitalized institutions with minor
supervisory concerns to .27% of insured deposits for undercapitalized
institutions with substantial supervisory concerns. In addition, an addition
assessment of 6.4 basis points and 1.3 basis points is added to the regular
SAIF-assessment and the regular BIF-assessment, respectively, until December 31,
1999 in order to cover Financing Corporation debt service payments.
Both the SAIF and the BIF are required by law to attain and thereafter
maintain a reserve ratio of 1.25% of insured deposits. The BIF has achieved the
required reserve ratio, and as a result, the FDIC reduced the average deposit
insurance premium paid by BIF-insured banks to a level substantially below the
average premium previously paid by savings institutions. Banking legislation was
enacted on September 30, 1996 to eliminate the premium differential between
SAIF-insured institutions and BIF-insured institutions. The legislation provided
that all insured depository institutions with SAIF-assessable deposits as of
March 31, 1995 pay a special one-time assessment to recapitalize the SAIF.
Pursuant to this legislation, the FDIC promulgated a rule that established the
special assessment necessary to recapitalize the SAIF at 65.7 basis points of
SAIF-assessable deposits held by affected institutions as of March 31, 1995.
However, as a result of the Bank's financial condition, the Bank made
application to the FDIC for an exemption from this one-time special assessment,
which exemption was approved on October 5, 1996. As a result, the Bank was
exempt from paying the special one-time assessment (which would have amounted to
$9.0 million). Instead, the Bank has paid subsequent assessments at the
assessment rate schedule in effect as of June 30, 1995. In connection with the
Offering, the Company intends to pay the FDIC the amount due under the special
assessment, which will amount to $4.5 million (on a pre-tax basis) as of June
30, 1998, the next available payment date. Such payment will reduce its
assessment rate from 35.28 basis points to 9.28 basis points of insured deposits
(which includes in each case the Financing Corporation debt service payments of
6.28 basis points). Based on deposits of $1.3 billion at December 31, 1997,
management estimates that the reduction in assessment rates will amount to
approximately $3.3 million on an annualized basis.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law,
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regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the institution
at the time of the termination, less subsequent withdrawals, shall continue to
be insured for a period of six months to two years, as determined by the FDIC.
There are no pending proceedings to terminate the deposit insurance of the Bank.
THRIFT CHARTER. Congress has been considering legislation in various forms
that would require federal thrifts, such as the Bank, to convert their charters
to national or state bank charters. Recent legislation required the Treasury
Department to prepare for Congress a comprehensive study on development of a
common charter for federal savings associations and commercial banks and, in the
event that the thrift charter was eliminated by January 1, 1999, would require
the merger of the BIF and the SAIF into a single Deposit Insurance Fund on that
date. The Company cannot determine whether, or in what form, such legislation
may eventually be enacted and there can be no assurance that any legislation
that is enacted would contain adequate grandfather rights for the Company and
the Bank.
COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings institutions
have a responsibility under the CRA, and related regulations of the OTS to help
meet the credit needs of their communities, including low-and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of CRA could, at a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice.
NEW SAFETY AND SOUNDNESS GUIDELINES. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial, as well as compensation matters for insured
financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions.
CHANGE OF CONTROL. Subject to certain limited exceptions, no company can
acquire control of a savings association without the prior approval of the OTS,
and no individual may acquire control of a savings association if the OTS
objects. Any company that acquires control of a savings association becomes a
savings and loan holding company subject to extensive registration, examination
and regulation by the OTS. Conclusive control exists, among other ways, when an
acquiring party acquires more than 25% of any class of voting stock of a savings
association or savings and loan holding company, or controls in any manner the
election of a majority of the directors of the company. In addition, a
rebuttable presumption of control exists if, among other things, a person
acquires more than 10% of any class of a savings association or savings and loan
holding company's voting stock (or 25% of any class of stock) and, in either
case, any of certain additional control factors exist.
Under recent legislation, companies subject to the Bank Holding Company Act
of 1956, as amended, that acquire or own savings associations are no longer
defined as savings and loan holding companies under the HOLA and, therefore, are
not generally subject to supervision and regulation by the OTS. OTS approval is
no longer required for a bank holding company to acquire control of a savings
association, although the OTS has a consultative role with the FRB in
examination, enforcement and acquisition matters.
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TAXATION
FEDERAL TAXATION. The Company is subject to those rules of federal income
taxation generally applicable to corporations under the Code. The following
discussion of federal taxation is intended only to summarize certain pertinent
federal income tax matters and is not a comprehensive description of the tax
rules applicable to the Company and the Bank.
The Company reports its earnings on a consolidated basis with the Bank and
is subject to federal income taxation in the same general manner as other
corporations with some exceptions discussed below. The Bank has entered into an
agreement with the Company whereby the Bank computes and pays taxes based upon
the Bank's tax position assuming that a separate tax return was filed. However,
while the senior notes issued by the Company in connection with the 1995
recapitalization remains outstanding, Company's payment to the Bank is limited
to the amount of consolidated taxes. The Company expects to prepay the $10.0
million of senior notes (plus accrued interest) in connection with the Offering.
See "Use of Proceeds," "Capitalization" and "The Stockholders' Agreement."
METHOD OF ACCOUNTING. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns.
BAD DEBT RESERVES. The Small Business Job Protection Act of 1996 (the "1996
Act") eliminated the use of the reserve method of accounting for bad debt
reserves by savings institutions, effective for taxable years beginning after
1995 and provided for recapture of a portion of the reserves existing at the
close of the last taxable year beginning before January 1, 1996 for institutions
such as the Bank. Prior to the 1996 Act, the Bank was permitted to establish a
reserve for bad debts and to make annual additions to the reserve. These
additions could, within specified formula limits, be deducted in arriving at the
Bank's taxable income. For the tax year 1995, the Bank had a bad debt deduction
of $73 million.
As a further result of the 1996 Act, the Bank must use the specific
chargeoff method in computing its bad debt deduction beginning with its 1996
Federal tax return. Under this method, deductions may be claimed only and to the
extent that loans become wholly or partially worthless.
MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. As of
December 31, 1997, the Bank had an alternative minimum tax credit carryforward
of approximately $1.4 million.
NET OPERATING LOSS CARRYFORWARDS. The Code allows net operating losses
("NOLs") for tax years beginning before August 5, 1997 to be carried back and
deducted from taxable income for the two preceding taxable years and carried
forward and deducted from taxable income for the 20 succeeding taxable years.
The Company has federal tax NOLs of approximately $151.5 million at December 31,
1997.
AVAILABILITY OF NET OPERATING LOSS CARRYFORWARDS. Section 382 of the Code
imposes a limitation on the use of NOLs if there has been an "ownership change."
In general, an ownership change occurs if immediately after any "owner shift
involving a 5% stockholder" or any "equity structure shift" the percentage of
the stock of the corporation owned by one or more 5% stockholders has increased
by more than 50 percentage points over the lowest percentage of stock of the
corporation owned by such stockholders at any time during the testing period. An
"owner shift involving a 5% stockholder" is defined as any change in the stock
ownership of the corporation that affects the percentage of stock in the
corporation owned by any person who is a 5% stockholder before or after the
change. An equity structure shift is defined as a reorganization other than an
"F", divisive "D", or a divisive "G" reorganization. A 5%
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stockholder is any stockholder holding 5% or more of the corporation's stock at
any time during the test period. It does not matter whether that stockholder is
a 5% stockholder before the change or after. A 5% stockholder is defined as any
person (or group) holding 5% or more of the corporation's stock at any time
during the testing period. Determinations of ownership percentages are based
upon fair market value. As a general rule, owners of less than 5% are treated as
a single 5% stockholder. All of their individual stock ownership is aggregated
and treated as the ownership percentage of a single 5% stockholder. The testing
period for an ownership change is the three-year period ending on the day of the
owner shift or equity shift.
Under Section 382 of the Code, if an ownership change of a corporation with
NOLs occurs, the amount of the taxable income for a post-change year that may be
offset by the NOLs arising before the ownership change is limited by an amount
known as the Section 382 limitation. The annual Section 382 limitation for any
post-change year is an amount equal to the value of the corporation multiplied
by the long-term tax-exempt rate that applies with respect to the ownership
change. The annual Section 382 limitation is adjusted as required by the Code,
and, in particular, is increased in a succeeding year by the amount of the
limitation for the previous year that was not used. The annual Section 382
limitation may be increased under certain circumstances for recognized built-in
gains and built-in income. A corporation can have two (or more) ownership
changes. In such a case, any losses attributable to the period preceding the
earlier ownership change are treated as pre-change losses with respect to both
ownership changes. The later ownership change may result in a lesser (but never
in a greater Section 382 limitation with respect to such losses. Following the
later ownership change, the amount of taxable income for any post-change year
that can be offset by pre-change losses may not exceed the Section 382
limitation for such ownership change, reduced by the amount of taxable income
offset by pre-change losses subject to any earlier ownership change(s).
The 1992 recapitalization resulted in the 1992 Ownership Change. The annual
Section 382 limitation from the 1992 Ownership Change is approximately $7.7
million. That annual limitation has increased due to unused limitations from
previous years, and amounts to approximately $38.7 million as of the beginning
of 1998. There are $43.3 million of pre-change losses carried over to 1998 that
are subject to this limitation (the "1992 limited NOLs").
It is anticipated that the Offering will result in the 1998 Ownership
Change. The actual annual Section 382 limitation from the 1998 ownership change
will equal the sum of (i) the fair market value of the stock of the Company
immediately before the Offering and (ii) the fair market value of the Company's
and the Bank's goodwill claim with respect to the Goodwill Litigation (as
defined and described under "Agreements With Respect to the Potential Goodwill
Lawsuit Recovery"), multiplied by the applicable long-term tax-exempt rate. For
illustration purposes only, the annual Section 382 limitation from the 1998
Ownership Change is estimated to be approximately $ million (based on a
value equal to the sum of the (i) fair market value of the stock of the Company
immediately before the Offering (valued at an assumed Price to Public of
$ per share) and (ii) the unamortized balance of the Company's and the
Bank's goodwill claim with respect to the Goodwill Litigation as of December 31,
1989 (which amounted to $261.3 million as of such date and which in no way
reflects all of the claims which may be asserted by the Plaintiffs in the
Goodwill Litigation or any of the theories as to damages which may be asserted
in connection with the Goodwill Litigation), multiplied by 5.1%, the applicable
federal long-term tax-exempt rate for ownership changes occurring in March 1998
(used for illustration purposes only). The actual annual Section 382 limitation
from the 1998 Ownership Change may be higher or lower than the $ million
estimated, due to a change in the Price to Public or an increase or decrease in
the value of the Company's and the Bank's goodwill claim with respect to the
Goodwill Litigation. All $151.5 million of the NOLs carried over to 1998
(including the $43.3 million that are 1992 limited NOLs), plus any NOLs for 1998
that is attributable to the period before the 1998 Ownership Change, are subject
to this limitation (the "1998 limited NOLs").
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<PAGE>
If the Section 382 limitation for the 1998 Ownership Change is greater than
the Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will first be offset by
1992 limited NOLs up to the amount of the Section 382 limitation for the 1992
Ownership Change. Any remaining taxable income will be offset by 1998 limited
NOLs that are not also 1992 limited NOLs by an amount equal to the Section 382
limitation for the 1998 Ownership Change for that year minus the amount of 1992
limited NOLs already used to offset taxable income in that year.
If the Section 382 limitation for the 1998 Ownership Change is less than the
Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will be offset by 1998
limited NOLs up to the amount of the Section 382 limitation for the 1998
Ownership Change.
KPMG Peat Marwick LLP has issued an opinion to the Company and the Bank to
the effect that, for federal income tax purposes, the Rights evidenced by the
terms of the Shareholder Rights Agreements should be treated as stock of the
Company for purposes of Sections 311(a) and 305(a) of the Code. Thus, the
Company should recognize no gain or loss on the distribution of the Rights to
the Selling Stockholders with respect to their ownership of Company Common
Stock. In addition, the Bank should not recognize gain or loss on the Company's
distribution of the Rights to the Selling Stockholders. Furthermore, the Selling
Stockholders should not be required to include the amount of the Rights in
income. Finally, if the Offering results in an ownership change of the Company
within the meaning of Section 382(g) of the Code, the amount of value taken into
account for purposes of determining the annual Section 382 limitation should
include the value of the Rights. Despite the Company's receipt of the foregoing
opinion from KPMG Peat Marwich LLP, such opinion is not binding on the IRS and
no assurance can be made that the IRS will treat the Shareholder Rights
Agreements as stock of the Company for federal income tax purposes. If the
Shareholder Rights Agreements were treated other than as stock in the Company
(i.e., debt of the Company), the value of the Shareholder Rights Agreements
would reduce the value of the Company's stock, and, correspondingly, the amount
of the Section 382 Limitation with respect to the 1998 Ownership Change. Such a
reduction in the amount of the Section 382 Limitation would significantly impair
the ability of the Bank to use its NOLs existing at the time of the 1998
Ownership Change. Whether the Shareholder Rights Agreements will be treated as
equity for federal income tax purposes depends on the totality of the facts and
circumstances, including the intent of the parties to the Shareholder Rights
Agreements, the extent to which the Shareholder Rights Agreements will obligate
the Company to pay the Selling Stockholders a portion of the Litigation Recovery
(as defined and described under "Agreements With Respect to Potential Goodwill
Lawsuit Recovery"), and the position that the Shareholder Rights Agreements will
give the Selling Stockholders in relation to the Company's creditors and
stockholders existing on and after the execution of the Shareholder Rights
Agreements.
If the Goodwill Litigation is determined to be an item of built-in income
attributable to the pre-change period and the Goodwill Litigation results in a
Litigation Recovery in favor of the Company or the Bank within the five-year
period following the date of the 1998 Ownership Change, the Section 382
Limitation with respect to the 1998 Ownership Change would be increased because
of the Litigation Recovery.
STATE TAXATION. The California franchise tax rate applicable to the Bank
equals the franchise tax rate applicable to corporations generally plus an "in
lieu" rate approximately equal to personal property taxes and business license
taxes paid by such corporation (but generally not paid by banks or financial
corporations such as the Bank); however, the total rate cannot exceed 10.84%.
Under California regulations, bad debt deductions are available in computing
California franchise taxes using a three or six year weighted average loss
experience method. The Bank had no state tax NOLs at December 31, 1997.
72
<PAGE>
MANAGEMENT
MANAGEMENT OF THE COMPANY
The Company's Board of Directors is comprised of three individuals, each of
whom is elected annually. Upon consummation of the Offering, the Board of
Directors of the Company will be expanded to seven persons and the Board will be
divided into three classes, each of which will contain approximately one-third
of the Board. Six of the directors have been elected by the Selling Stockholders
of the Company for staggered three year terms, or until their successors are
elected and qualified, subject to consummation of the Offering, and are expected
to be seated at such time. The Board of Directors expect to fill the one vacancy
created by the increase in the size of the Board of Directors to seven members
following the Offering. Except with respect to certain agreements set forth in
the Stockholders' Agreement between the Company and the Selling Stockholders (as
defined and discussed under "The Stockholders' Agreement"), whose
representatives sit on the Board of Directors of the Company and the Bank, there
are no arrangements or understandings between the Company and the members of the
Board of Directors with respect to their election as directors. See "The
Stockholders' Agreement." The names and biographical information of each of the
Company's directors are set forth under "--Management of the Bank."
The following table sets forth certain information regarding the Board of
Directors of the Company upon consummation of the Offering.
<TABLE>
<CAPTION>
NAME AGE(1) DIRECTOR SINCE(2) TERM EXPIRES
- ------------------------------------------------------------------------- ----------- ------------------- ---------------
<S> <C> <C> <C>
Rudolf P. Guenzel........................................................ 57 1998 2001
Henry Peters............................................................. 56 1995 2001
Gerard Jervis............................................................ 49 1995 2000
Robert W. MacDonald...................................................... 50 1998 2000
John F. Davis............................................................ 50 1998 1999
J. Michael Holmes........................................................ 51 1998 2001
</TABLE>
- ------------------------
(1) As of December 31, 1997.
(2) See "--Management of the Bank" for the dates of service of certain directors
on the Bank's Board of Directors.
The following individuals are executive officers of the Company and hold the
offices set forth below opposite their names.
<TABLE>
<CAPTION>
EXECUTIVE POSITION HELD WITH COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Rudolf J. Guenzel....................................... President and Chief Executive Officer
J. Michael Holmes....................................... Executive Vice President, Chief Financial Officer and
Secretary
William W. Flader....................................... Executive Vice President
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors.
Information concerning the principal occupations, employment and
compensation of the current directors, those persons who will be seated as
directors upon consummation of the Offering and officers of the Company during
the past five years is set forth under "--Management of the Bank" and
"--Executive Officers Who Are Not Directors." Upon consummation of the Offering,
directors of the Company who are not executive officers will receive $1,000 and
$500 for attendance at each meeting of the Board of Directors and each Committee
meeting, respectively. The Board of Directors has an Audit Committee
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<PAGE>
which, upon consummation of the Offering, will be comprised of Messrs. Peters,
Jervis, MacDonald and Davis. The Audit Committee monitors the Company's internal
operations and audit functions. The Board of Directors also has established a
Compensation Committee which, upon consummation of the Offering, will be
comprised of Messrs. Jervis, MacDonald and Davis. The Compensation Committee
addresses the compensation of the Company's and the Bank's senior executive
officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was at any time during the
fiscal year ended December 31, 1997, or at any other time, an officer or
employee of the Company.
MANAGEMENT OF THE BANK
The following table sets forth certain information regarding the Board of
Directors of the Bank. The Bank's Board of Directors is currently comprised of
four individuals. Upon consummation of the Offering, the Board of Directors of
the Bank will be expanded to seven persons. Six of the directors have been
elected by the Company for staggered three year terms, or until their successors
are elected and qualified, subject to consummation of the Offering, and are
expected to be seated at such time. The Board of Directors expect to fill the
one vacancy created by the increase in the size of the Board of Directors to
seven members following the Offering.
<TABLE>
<CAPTION>
POSITIONS HELD WITH DIRECTOR TERM
NAME AGE(1) THE BANK SINCE EXPIRES
- ------------------------------------------ ----------- ------------------------------------------ ----------- -----------
<S> <C> <C> <C> <C>
Rudolf P. Guenzel......................... 57 President, Chief Executive Officer and 1995 2001
Director
Henry Peters.............................. 56 Chairman of the Board, Director 1995 2001
Gerard Jervis............................. 49 Director 1995 2000
Robert W. MacDonald....................... 50 Director 1992 2000
J. Michael Holmes......................... 51 Executive Vice President, Chief Financial 1998 2001
Officer, and Director
John F. Davis............................. 50 Director 1998 1999
</TABLE>
- ------------------------
(1) As of December 31, 1997.
Set forth below is information with respect to the principal occupations
during at least the last five years for the directors of the Company and the
Bank.
RUDOLF P. GUENZEL. Mr. Guenzel has served as President of the Company since
March 1995, as its Chief Executive Officer and a Director since 1998 and
President, Chief Executive Officer and Director of the Bank since March 1995.
Mr. Guenzel has over 35 years of banking experience in which he has worked in
various disciplines. Mr. Guenzel began his banking career in 1963 in the
management training program of Chemical Bank, where he worked in various
capacities including Assistant Controller, prior to his departure in 1971. From
1971 through 1989, Mr. Guenzel was employed by European American Bank, starting
as head of the Credit Division and working in problem loan resolutions and
eventually as the head of the Bank's Operations and Systems Division. In 1991,
Mr. Guenzel was hired as President and Chief Executive Officer of BancFlorida
and its wholly-owned subsidiary, Banc Florida, FSB. Mr. Guenzel was hired when
the company was experiencing serious financial difficulties associated with high
non-performing assets attributable to the national recession and local economic
conditions. Mr. Guenzel directed the Company's attention to problem asset
resolution and returned BancFlorida Financial to profitability by
74
<PAGE>
increasing the volume of commercial and consumer loans and the amount of
transaction accounts and substantially reducing operating expenses. Mr. Guenzel
served as Chief Executive Officer through BancFlorida's merger with First Union
Corp. Following the BancFlorida acquisition, Mr. Guenzel worked as a consultant
in the area of bank profitability analysis until being approached by the
Company.
HENRY PETERS. Mr. Peters has been a Director of the Company and the Bank
since 1995. Mr. Peters has served as a trustee of the Bishop Estate, a Selling
Stockholder, since 1984. In addition, he is chairman of the board of the Bishop
Estate's property and investment management subsidiary, Royal Hawaiian Shopping
Center, Inc. From 1978 through 1984, Mr. Peters served as Industrial Division
Manager of Dura Constructors, a construction firm located in Honolulu, Hawaii.
From 1974 through 1994, Mr. Peters served as a Representative to the House of
Representatives of the State of Hawaii and from 1981 through 1986, Mr. Peters
served as Speaker of the House.
GERARD JERVIS. Mr. Jervis has been a Director of the Company and the Bank
since 1995. Mr. Jervis has served as a trustee of the Bishop Estate a Selling
Stockholder since 1994. From 1986 through 1994, Mr. Jervis was partner in the
law firm of Jervis, Winer & Meheula located in Kailua, Hawaii.
ROBERT W. MACDONALD. Mr. MacDonald has been elected as a Director of the
Company to be seated upon consummation of the Offering and has been a Director
of the Bank since 1992. Mr. MacDonald is Managing Director of William E. Simon &
Sons, a merchant banking firm, where he has been employed since 1991. William E.
Simon & Sons has an indirect ownership in the Company through Arbur, Inc. Mr.
MacDonald was with Salomon Brothers between 1971 and 1979 where he eventually
headed the tax-exempt mortgage-backed financing group. In 1980 he left Salomon
Brothers to start a financial advisory firm and Catalyst Energy Corporation, a
leading developer of independent power facilities. The company went public in
1984 and was sold to an investor group in 1988. Between 1988 and 1991, Mr.
MacDonald co-founded a merchant banking corporation, East Rock Partners, which
invested in alternative energy projects.
J. MICHAEL HOLMES. Mr. Holmes has served as Executive Vice President and
Chief Financial Officer of the Bank since March 1995 and as a Director of the
Bank since 1998. Mr. Holmes also serves as Executive Vice President, Chief
Financial Officer and Secretary of the Company and has been elected as a
Director of the Company to be seated upon consummation of the Offering. Mr.
Holmes has experience in various phases of a financial institution's operations,
including asset and liability management, investments, human resources and
operations. Mr. Holmes joined BancFlorida, FSB in 1974 as Controller and served
in various capacities, culminating as Executive Vice President and Chief
Financial Officer in 1985, a position he held through the company's merger with
First Union in August 1994. Mr. Holmes also served as Secretary, Treasurer and
Chief Financial Officer of BancFlorida between 1985 and August 1994.
JOHN F. DAVIS. Mr. Davis, a director of PPCCP, has been elected as a
Director of the Company to be seated upon consummation of the Offering, and has
been a Director of the Bank since 1998. Mr. Davis is an attorney who specializes
in federal and state depository institution law and regulation. Mr. Davis is
also currently a director of First Charter Bank, N.A., Beverly Hills,
California. Mr. Davis has served as a legal consultant for two local financial
institutions since 1993 and 1995, respectively, during which he was actively
involved in troubled real estate work-outs, foreclosed real estate disposition
and related litigation and, with one of such institutions, a reorganization and
recapitalization. During 1991 and 1992, Mr. Davis served as Of Counsel to
Griffinger, Freed, Heinemann, Cook & Foreman, San Francisco, California.
SENIOR EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is information with respect to the principal occupations
during the last five years for the three executive officers who are not
directors of the Company or the Bank.
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<PAGE>
WILLIAM W. FLADER. Mr. Flader has served as Executive Vice President of
Retail Banking for the Bank since March 1995. Before joining the Bank, Mr.
Flader was employed by Banc Florida, FSB from October 1980 to August 1994 in
various capacities. Mr. Flader served as Senior Vice President of Retail Banking
for BancFlorida from December 1989 to August 1994. Mr. Flader has worked in
banking for over 20 years and at BancFlorida managed 46 branches. In addition,
Mr. Flader, who is a registered securities and insurance representative, was
responsible for the sale of various types of securities and insurance products.
Mr. Flader also has experience with alternative delivery banking services such
as ATMs.
DOREEN J. BLAUSCHILD. Ms. Blauschild came to the Bank as Associate Counsel
in 1988 and was promoted to Vice President, General Counsel in 1989. In 1991,
Ms. Blauschild was promoted to Senior Vice President, General Counsel. Ms.
Blauschild also has served as the Bank's Secretary since 1989.
RICHARD I. NIEDLING. Mr. Niedling has served as the Bank's Senior Vice
President and Senior Credit Officer since January 1998. Mr. Niedling's
responsibilities include loan underwriting and approval, and SBA and accounts
receivable lending. He joined the Bank in December 1995 as Vice President and
Senior Credit Officer. Before joining the Bank, Mr. Niedling was employed by
First Interstate Bank from 1983 through 1995. Mr. Niedling worked in various
capacities for First Interstate Bank including credit and branch administration
and worked with several of First Interstate's affiliated banks located in
Arizona, Wyoming and New Mexico. From 1980 through 1983, Mr. Niedling served as
Vice President and Manager of Commercial Loans and Leasing with The Boatmen's
National Bank of St. Louis. From 1978 through 1980, Mr. Niedling was employed as
a Senior Account Officer handling accounts receivable and inventory financing at
Citicorp in St. Louis, Missouri.
WILLIAM G. CARROLL. Mr. Carroll has served as Senior Vice President in
charge of Corporate Financial Services (including branch operations and
commercial lending) since January 1998. He joined the Bank in March 1997 as Vice
President with the same responsibilities. Prior to joining the Bank, Mr. Carroll
served as Vice President of Preferred Bank in Los Angeles, California, from
September, 1996 through February 1997. From 1991 through 1996, Mr. Carroll
served as Regional Vice President of Metrobank/Comerica and from 1982 through
1991, Mr. Carroll was employed as Senior Vice President in the commercial
banking division at California Federal Bank.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table includes individual compensation information with
respect to the Chief Executive Officer of the Company and the other five most
highly compensated officers of the Company and the Bank whose total compensation
exceeded $100,000 for services rendered in all capacities during the fiscal year
ended December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPLE POSITION SALARY(1) BONUS AWARDS (2)
- -------------------------------------------------------- ---------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Rudolf P. Guenzel....................................... $ 325,000 $ 243,750(3) N/A $ 3,200
Director, President and Chief
Executive Officer of the Company
and the Bank
J. Michael Holmes....................................... 200,000 150,000(3) N/A 4,750
Director, Executive Vice President
and Chief Financial Officer of the
Company and the Bank
William W. Flader....................................... 170,000 127,500(3) N/A 4,750
Executive Vice President
of the Company and the Bank
Doreen J. Blauschild.................................... 150,000 5,000 N/A 3,076
Senior Vice President and General
Counsel of the Bank
Richard I. Niedling..................................... 106,104 12,000 N/A 3,579
Senior Vice President and Senior Credit Officer of the
Bank
William G. Carroll...................................... 77,376 12,000 N/A --
Senior Vice President--Corporate
Financial Services of the Bank
</TABLE>
- ------------------------
(1) Does not include amounts attributable to miscellaneous benefits received by
the named officers. The costs to the Company of providing such benefits to
the named officers during the year ended December 31, 1997 did not exceed
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported.
(2) Represents the employers' contribution on behalf of the employee to the
401(k) Plan. See "Benefit Plans."
(3) Amounts were accrued in 1997 and paid in 1998.
EMPLOYMENT AGREEMENTS
ORIGINAL EMPLOYMENT AGREEMENTS AND ESTABLISHMENT OF GRANTOR TRUSTS. In
connection with the 1995 recapitalization of the Bank and in order to induce
Messrs. Guenzel, Holmes and Flader (individually, the "Executive" and
collectively, the "Executives") to work for the Bank and develop and implement
the Bank's new business plan, the Bank and the Executives orally agreed to
employment and compensation terms in March 1995, which terms were subsequently
embodied in the Original Employment Agreements. The term of each of the Original
Employment Agreements were for three years for each of the Executives. In
addition to a base salary, the Executives are entitled to receive an annual
bonus based upon the net
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<PAGE>
earnings of the Bank. In the event that the Company or the Bank is a party to a
"Capital Transaction," which is defined to include, among other things, the sale
of more than 50% of the outstanding voting securities of the Company or the
Bank, the Executives are also eligible to receive a long-term bonus based on the
gross sales proceeds received pursuant to such a transaction. The Original
Employment Agreements further provide that if the Company becomes publicly
traded, the Board of Directors will provide the Executives with a replacement
plan or arrangement to provide the Executives with a compensation arrangement
similar to the long-term bonus arrangements set forth in such Original
Employment Agreements. The long-term bonus provisions in such Original
Employment Agreements range from 3.5% (4.5% in the case of Mr. Guenzel) of the
amount by which gross sales proceeds (as defined) exceeds between $73.0 million
and $138.0 million and 5% (6% in the case of Mr. Guenzel) of the amount by which
gross sales proceeds exceed $138.0 million.
Based upon the formula set forth above and an assumed Price to Public of
$ , the Executives would be entitled to receive payments under the
Original Employment Agreements in connection with the Offering amounting to
$ million, $ million and $ million for each of Messrs.
Guenzel, Holmes and Flader, respectively. Each of the Executives has elected to
receive 50% of the amounts which would be due to them upon the consummation of
the Offering in cash. The balance of the amount which would be due to the
Executives upon consummation of the Offering will be contributed to a Deferred
Compensation Plan ("Plan") for key executives. The Company has established the
Plan in connection with the Offering and designated the Executives as
participants thereunder. Pursuant to such Plan, the Executives have each elected
to contribute the balance which would be due to them to grantor trusts which
have been established by the Company pursuant to the Plan. The Company intends
to fund the grantor trusts with the balance of the amounts which would be due to
the Executives in connection with the Offering, and it is anticipated that the
trusts would purchase Common Stock in the Offering for the benefit of each of
the Executives. Under the grantor trusts, the shares would not to be distributed
to the Executives for a period of three years from the formation of the grantor
trusts, unless the Executives die or retire. After the expiration of such
three-year period, the Executives would be entitled to receive one-third of the
shares in each of the grantor trusts, and an additional one-third of the shares
held in such grantor trusts at the expiration of the fourth and fifth years. As
a result of the foregoing, based on an assumed Public Offering Price of
$ , it is anticipated that such grantor trusts would purchase
shares, shares and shares of Common Stock in the Offering on
behalf of Messrs. Guenzel, Holmes and Flader, respectively.
Both the cash payments to be made to the Executives and the amounts to be
contributed to the grantor trusts on behalf of the Executives will be reflected
as a one-time expense which will be recognized by the Company upon consummation
of the Offering. Such expense will amount to $ on an after-tax basis.
See "Use of Proceeds." For tax purposes, the cash payments to be made to the
Executives will be taxable as ordinary income by the Executives and tax
deductible by the Company as compensation expense. The amount to be contributed
to the grantor trusts on behalf of the Executives will not be taxable to the
Executives or deductible by the Company until the shares of Common Stock
purchased by the grantor trusts are distributed to the Executives.
The Original Employment Agreements with each of the Executives will
terminate upon consummation of the Offering, and each of the Executives will
enter into new employment agreements with the Company and the Bank. See "--New
Employment Agreements."
In April 1995, the Bank entered into an employment agreement with Doreen J.
Blauschild. In the event the Bank terminates Ms. Blauschild's employment without
cause or following her resignation due to an unauthorized reduction in
compensation, the employment agreement provides that Ms. Blauschild shall be
entitled to certain benefits including (i) four months base salary and payment
of accrued and unpaid vacation, (ii) a $25,000 lump sum payment, (iii) continued
coverage under the Bank's group health, dental, life and disability plans for a
period of six months from termination or until Ms. Blauschild becomes eligible
for comparable group benefit coverages, whichever is earlier, and (iv) continued
benefit of the
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<PAGE>
Company's indemnification obligations and director and officer insurance policy.
In addition, Ms. Blauschild is also entitled to a payment equal to 0.25% of the
amount by which any net recovery (i.e., gross amount less attorneys' fees
incurred by the Bank) by and payable to the Bank relating to the Goodwill
Litigation (which is defined and discussed under "Agreement with Respect to
Potential Goodwill Lawsuit Recovery), whether by judgment or settlement, exceeds
$150.0 million. The employment agreement generally defines "cause" as
termination because of personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order or
material breach of any provision of the employment agreement.
NEW EMPLOYMENT AGREEMENTS. The Company and the Bank (the "Employers")
intend to enter into new employment agreements with the Executives in connection
with the Offering. The Employers have agreed to employ the executives for a term
of three years, in each case in their current respective positions. The
agreements with the Executives will be initially at their current salary levels,
which amount to $325,000, $200,000 and $170,000 for Messrs. Guenzel, Holmes and
Flader, respectively. The Executives' compensation and expenses shall be paid by
the Company and the Bank in the same proportion as the time and services
actually expended by the Executives on behalf of each respective Employer. The
employment agreements will be reviewed annually. At such times, the term of the
executives' employment agreements shall be extended each year for a successive
additional one-year period upon the approval of the Employers' Boards of
Directors, unless either party elects, not less than 30 days prior to the annual
anniversary date, not to extend the employment term.
Each of the employment agreements shall be terminable with or without cause
by the Employers. The executives shall have no right to compensation or other
benefits pursuant to the employment agreements for any period after voluntary
termination or termination by the Employers for cause, disability or retirement.
The agreements provide for certain benefits in the event of the executive's
death. In the event that (i) the executive terminates his or her employment
because of failure to comply with any material provision of the employment
agreement or the Employers change the executive's title or duties or (ii) the
employment agreement is terminated by the Employers other than for cause,
disability, retirement or death or by the executive as a result of certain
adverse actions which are taken with respect to the executive's employment
following a change in control of the Company, as defined, the Executives will be
entitled to a cash severance amount equal to three times their average annual
compensation, as defined, over the prior five years, which amount excludes
long-term bonus payments received under the Original Employment Agreements.
The employment agreements with the Executives shall provide that, in the
event that any of the payments to be made thereunder or otherwise upon
termination of employment are deemed to constitute "excess parachute payments"
within the meaning of Section 280G of the Code, then such payments and benefits
received thereunder shall be reduced by the amount which is the minimum
necessary to result in the payments not exceeding three times the recipient's
average annual compensation from the employer which was includable in the
recipient's gross income during the most recent five taxable years. Recipients
of excess parachute payments are subject to a 20% excise tax on the amount by
which such payments exceed the base amount, in addition to regular income taxes,
and payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.
A change in control is generally defined in the employment agreements to
include any change in control of the Company required to be reported under the
federal securities laws, as well as (i) the acquisition by any person of 20% or
more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any three-year period without
the approval of at least two-thirds of the persons who were directors of the
Company at the beginning of such period.
Although the above-described employment agreements could increase the cost
of any acquisition of control of the Company, management of the Company does not
believe that the terms thereof would have
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<PAGE>
a significant anti-takeover effect. The Company and/or the Bank may determine to
enter into similar employment agreements with other officers in the future.
BENEFIT PLANS
SAVINGS PLUS PLAN. The Bank maintains a 401(k) profit sharing plan (the
"Savings Plus Plan"). The Savings Plus Plan is designed to promote the future
economic welfare of the employees of the Bank and to encourage employee savings.
Employee deferrals of salary and employer contributions made under the Savings
Plus Plan, together with the income thereon, are accumulated in individual
accounts maintained in trust on behalf of the employee participants, and is made
available to the employee participants upon retirement and under certain other
circumstances as provided in the Savings Plus Plan. Since employee deferrals of
salary and employer contributions made under the Saving Plus Plan are made on a
tax deferred basis, employee participants are able to enjoy significant income
tax savings by participating in the Savings Plus Plan. Employees are also
permitted to direct the investment of their accounts among six separate funds,
including various fixed income and equity investment funds.
An employee of the Bank becomes eligible to participate in the Savings Plus
Plan on the entry date (January 1, April 1, July 1 or October 1) nearest the
date he or she completes a year of service. A year of service is a 12
consecutive month period in which the employee works at least 1,000 hours for
the Bank. Participants may elect to defer amounts up to 15% of their annual
compensation under the Saving Plus Plan, subject to certain limits imposed by
law. The Bank matches 50% of compensation deferred up to 6% and may make
additional discretionary matching contributions. During the years ended December
31, 1997, 1996 and 1995, the Bank contributed $144,000, $155,000 and $159,000,
respectively, to the Savings Plus Plan on behalf of its employees.
PENSION PLAN. The Bank maintains a defined benefit pension plan ("Pension
Plan") covering all employees who were Pension Plan participants as of December
31, 1990. All Pension Plan benefits were frozen as of December 31, 1990. In
general, the Pension Plan provides for annual benefits payable monthly upon
retirement at age 65 in an amount equal to 4.1% of an employee's average annual
salary for the five consecutive years as of December 31, 1990 ("Five Year
Average Compensation") plus 0.65% of Five Year Average Compensation multiplied
by his number of years of service, not in excess of 10 years. Under the Pension
Plan, an employee's benefits are 20% vested after three years of service and
fully vested after seven years of service. A year of service is any year in
which an employee works a minimum of 1,000 hours. Benefits under the Pension
Plan are payable for ten years certain and life thereafter commencing at age 65
and are not subject to Social Security offsets. The Bank incurred a net periodic
pension (benefit) cost of $(1,000) and $9,000 in 1997 and 1996, respectively.
There was no net periodic pension cost for 1995 (as the Bank was entitled to a
credit of $36,000).
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<PAGE>
The following table illustrates annual pension benefits for retirement at
age 65 under various levels of compensation and years of service. The figures in
the table assume that the Pension Plan continues in its present form and that
the participant elect a straight life annuity form of benefit.
<TABLE>
<CAPTION>
FIVE YEAR
AVERAGE 5 YEARS OF 10 YEARS OF OVER 10 YEARS
COMPENSATION SERVICE SERVICE OF SERVICE
- ------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
$ 80,000............................................... $ 18,610 $ 37,220 $ 37,220
100,000............................................... 23,360 46,720 46,720
120,000............................................... 28,110 56,220 56,220
140,000............................................... 32,860 65,720 65,720
160,000............................................... 37,610 75,220 75,220
180,000............................................... 42,360 84,720 84,720
200,000............................................... 47,110 94,220 94,220
Over 200,000........................................... 47,110 94,220 94,220
</TABLE>
The maximum annual compensation which may be taken into account under the
Code (as adjusted from time to time by the Internal Revenue Service) for
calculating contributions under qualified defined benefit plans currently is
$160,000 and the maximum annual benefit permitted under such plans currently is
$130,000.
Ms. Blauschild has three years of credited service and her final
compensation earned under such plan as of December 31, 1990 was $95,000. Messrs.
Guenzel, Holmes, Flader, Niedling and Carroll are not participants in the
Pension Plan and have no credited service or plan benefits.
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<PAGE>
THE STOCKHOLDERS' AGREEMENT
In connection with the consummation of the Offering, the Company intends to
file an Amended and Restated Certificate of Incorporation and to adopt new
Bylaws which are intended to provide the Company with governing corporate
documents which are customary for public companies. For a discussion of the
provisions which are included in the Amended and Restated Certificate of
Incorporation and Bylaws upon consummation of the Offering, see "Description of
Capital Stock." In order to effectuate these changes, simplify the Company's
equity structure, terminate various agreements which have governed the
relationship among the Selling Stockholders since the 1995 recapitalization and
to effect certain other changes, the Company intends to enter into a
Stockholders' Agreement with the Selling Stockholders (the "1998 Stockholders'
Agreement"), which shall be effective at the time of consummation of the
Offering.
In anticipation of the Offering, the Company in March 1998 amended its
Amended and Restated Certificate of Incorporation to increase its authorized
Common Stock from 500,000 shares to 75.0 million shares and its preferred stock
from 1.0 million shares to 25.0 million shares. Among the further changes to its
Amended and Restated Certificate of Incorporation which the Company intends to
make in connection with the consummation of the Offering is to change the vote
per share which each holder of a share of Common Stock possesses from the
present 0.5939 to one vote per share. In addition, in order to simplify its
capital structure, the Company intends to retire its outstanding senior notes
and to exchange its Outstanding Preferred Stock for Common Stock, each as
described below. The 1998 Stockholders' Agreement authorizes the Company to file
an Amended and Restated Certificate of Incorporation and to adopt new Bylaws in
connection with the consummation of the Offering to effectuate, among other
things, the corporate changes described herein.
The exchange of the Outstanding Preferred Stock for shares of Common Stock
shall be accomplished immediately prior to the consummation of the Offering. In
accordance with the terms of the Certificate of Designation and Preferences with
respect to each series of Outstanding Preferred Stock, the Company has the right
to redeem the Outstanding Preferred Stock at its option at any time, upon
providing specified notice to each holder of the date and place of redemption.
Pursuant to the terms of the 1998 Stockholders' Agreement, the Selling
Stockholders have agreed in lieu of redemption to exchange each share of
Outstanding Preferred Stock for [0.5495] shares of Common Stock or shares
in the aggregate. Of this amount, which reflects the aggregate stated value only
of the Outstanding Preferred Stock and which shall be adjusted for the stock
split described below, the Bishop Estate shall receive shares of Common
Stock, BIL Securities shall receive shares of Common Stock and Arbur shall
receive shares of Common Stock. The Selling Stockholders shall also be
paid approximately $20.2 million in accumulated and unpaid dividends on the
Outstanding Preferred Stock at the consummation of the Offering from the
proceeds therefrom. The Outstanding Preferred Stock shall be cancelled effective
with such exchange and consummation of the Offering. For additional information
on the Outstanding Preferred Stock, see Notes 15 and 22 of the Notes to
Consolidated Financial Statements. See also "Use of Proceeds" and
"Capitalization."
Due to the few shares of Common Stock currently outstanding and the
relatively high price per share associated therewith, the Board of Directors has
authorized a 32:1 stock split, to be effected in the form of a stock dividend of
additional shares of Common Stock, which shall be paid immediately prior to the
consummation of the Offering. The stock split will apply with respect to all
outstanding Common Stock, including the Common Stock referenced above to be
received in the exchange of Outstanding Preferred Stock. Thus, Bishop Estate,
BIL Securities and Arbur shall receive , and shares of Common
Stock, or an aggregate of shares of Common Stock in exchange as adjusted
for the stock split.
The 1998 Stockholders' Agreement provides for continuing Board of Directors
representation by the Selling Stockholders, if requested by such Selling
Stockholders subject to maintenance by the Selling Stockholders of specified
minimum levels of beneficial ownership of Common Stock following the
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<PAGE>
consummation of the Offering and lack of any applicable regulatory prohibition
or objection. The Company has agreed that for so long as a Selling Stockholder
is a "Material Stockholder," as defined below, it shall (i) exercise all
authority under applicable law to cause the number of nominees permitted to be
designated by such Stockholder and consented to by the Board of Directors of the
Company (such consent not to be unreasonably withheld) (a "Company Designated
Director") to be included in the slate of nominees recommended by the Board of
Directors to stockholders for election as directors at each annual meeting of
stockholders of the Company after the date of the 1998 Stockholders' Agreement
at which the term of the Company Designated Director is scheduled to expire
(subject to the satisfaction of any applicable regulatory requirements), and
(ii) use all practical efforts to cause the election of such slate, including
such Company Designated Director.
Bishop shall be considered a "Material Stockholder" entitled to nominate:
(i) two directors to the Company's Board of Directors for so long as Bishop
beneficially owns 9.9% or more of the Company's Common Stock following
consummation of the Offering, and (ii) one director to the Company's Board of
Directors for so long as Bishop beneficially owns less than 9.9% but 4.9% or
more of the Company's Common Stock following consummation of the Offering. BIL
Securities and Arbur collectively shall be considered a "Material Stockholder"
and entitled to nominate one director to the Company's Board of Directors for so
long as BIL Securities and Arbur collectively beneficially own 4.9% or more of
the Company's Common Stock following consummation of the Offering. To the extent
that either Bishop, or BIL Securities and Arbur collectively, beneficially own
less than 4.9% of the Company's Common Stock following the consummation of the
Offering, such party or parties, as the case may be, shall no longer be
considered a "Material Stockholder."
The 1998 Stockholders' Agreement further provides that to the extent a
Company Designated Director elected to the Board of Directors ceases to serve as
a director for any reason while the Selling Stockholder remains a Material
Stockholder, such vacancy will be promptly filed by the Board of Directors of
the Company with a substitute Company Designated Director designated by such
Selling Stockholder. Finally, the 1998 Stockholders' Agreement provides that
unless otherwise approved by the requisite vote of stockholders required to
amend the Company's Bylaws, see "Description of Capital Stock--Restrictions on
Acquisition of the Company--Amendment of Certificate of Incorporation and
Bylaws," for so long as a Selling Stockholder is a Material Stockholder, the
Bylaws of the Company shall provide for the Board of Directors to be comprised
of seven directors.
The Agreement and Plan of Reorganization (the "Reorganization Agreement")
which was executed in June 1995 in connection with the 1995 recapitalization
provided the Selling Stockholders with a right of first refusal with respect to
the sale by the Company or the Bank of any shares of capital stock of either
entity, subject to certain exceptions. In the Reorganization Agreement, the
Company also made various ongoing covenants with respect to, among other things,
its issuance of the senior notes, discussed below. Pursuant to the terms of the
1998 Stockholders' Agreement, all provisions which survived the closing under
the Reorganization Agreement, including those discussed above, will be
terminated effective upon the consummation of the Offering. The Company and the
Selling Stockholders also executed a stockholders' agreement in connection with
the 1995 recapitalization (the "1995 Stockholders' Agreement"), which provides,
among other things, for restrictions on the ability of a Selling Stockholder to
transfer shares of Common Stock and registration rights under various
circumstances with respect to the Company's capital stock owned by such Selling
Stockholders. Pursuant to the terms of the 1998 Stockholders' Agreement, the
1995 Stockholders' Agreement will be terminated effective with the consummation
of the Offering.
Finally, the 1998 Stockholders' Agreement provides that the Company shall
prepay the $10.0 million aggregate principal amount of senior notes which were
issued to the Bishop Estate in connection with the 1995 recapitalization, plus
accrued interest thereon to the date of prepayment (but not including the date
of prepayment) effective with the consummation of the Offering. For additional
information on the senior notes, see "Business--Sources of Funds--Senior Notes
of the Company" and Note 13 of the Notes to Consolidated Financial Statements.
See also "Use of Proceeds" and "Capitalization."
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<PAGE>
AGREEMENTS WITH RESPECT TO POTENTIAL GOODWILL LAWSUIT RECOVERY
THE GOODWILL LITIGATION
GENERAL. On January 28, 1993, the Company, the Bank and certain current and
former stockholders of the Company (collectively, the "Plaintiffs") filed a
complaint against the United States in the United States Court of Federal Claims
("Court of Claims") seeking damages for breach of contract and for deprivation
of property without just compensation and without due process of law. The
allegations in the complaint arose out of the abrogation of certain contractual
promises made to the Company, to certain of its current and former common
stockholders and to the Bank, by the Federal Home Loan Bank Board (the
predecessor to the OTS) and the FSLIC (the federal fund which previously insured
the deposits of savings institutions) in exchange for the Company's agreement to
acquire and to operate the Bank which was then a failed thrift institution. One
of the current stockholders of the Company (Arbur) is also a plaintiff in the
case, which is entitled SOUTHERN CALIFORNIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, ET AL. V. UNITED STATES, No. 93-52C (the "Goodwill Litigation").
The Plaintiffs' claims arose from changes, mandated by FIRREA, with respect to
the rules for computing the Bank's regulatory capital. As discussed below, the
Goodwill Litigation was stayed pending the resolution on appeal of several cases
which present issues similar to those presented by the Goodwill Litigation.
In connection with the Company's acquisition of the Bank in April 1987, the
Bank was permitted to include in its regulatory capital and recognize as
supervisory goodwill $217.5 million of cash assistance provided to the Bank by
the FSLIC (the "Capital Credit"), as well as $79.7 million of goodwill which was
recorded by the Bank under GAAP. In August 1989, Congress enacted FIRREA which
provided, among other things, that savings institutions such as the Bank were no
longer permitted to include goodwill in their regulatory capital (subject to a
gradual phaseout which expired on December 31, 1994). Consequently, the Bank was
required to write-off its goodwill subject to a regulatory phase-out, which
resulted in the Bank failing to comply with its minimum regulatory capital
requirements during 1990 and 1991. The balance of the Bank's GAAP goodwill was
written off as unrealizable in 1992.
The Plaintiffs allege that the enactment of FIRREA constituted a breach by
the United States of its contractual commitment regarding the treatment of the
Capital Credit and supervisory goodwill and an unlawful taking of the Bank's
property rights in the Capital Credit and supervisory goodwill. The Plaintiffs
seek damages and restitution of all benefits conferred on the United States by
the alleged contract.
RELATED CASES. On July 1, 1996, the United States Supreme Court issued its
opinion for UNITED STATES V. WINSTAR CORPORATION, No. 95-865, which affirmed the
decisions of the United States Court of Appeals for the Fourth Circuit and the
United States Court of Federal Claims in various consolidated cases (the
"Winstar Cases") granting summary judgment to the plaintiff thrift institutions
on the liability portion of their breach of contract claims against the United
States. The Supreme Court held that the U.S. Government breached certain express
contracts when Congress enacted FIRREA, and the Supreme Court remanded the
proceedings for a determination of the appropriate measure and amount of
damages, which as of the date of this Prospectus have not been finally
litigated.
The United States Court of Federal Claims issued a Case Management Order
("CMO") in all of the Winstar Cases, including the Goodwill Litigation. The CMO
sets forth procedures for all of the plaintiffs and the defendant, the United
States, to follow relating to the exchange of documents, filing of partial
summary judgment motions with respect to liability only, discovery on damages
issues and the timing of all of the Winstar Cases being set for trial. Pursuant
to the CMO, the Plaintiffs filed a motion for partial summary judgment as to the
Government's liability to the Plaintiffs for breach of contract. The
Government's response thereto appears to concede that there was a contract
allowing the Bank to apply the Capital Credit to regulatory capital and that, by
enacting FIRREA, the Government acted inconsistently with that contract. The
Government still maintains that it does not have liability with respect to the
Bank's $79.7 million of GAAP goodwill. Furthermore, the Government contends that
only the Bank and not the Company nor the other Plaintiffs have standing to
pursue breach of contract claims.
84
<PAGE>
In February 1998, the Government sent the Bank a letter inviting the Bank to
commence negotiations to settle the Capital Credit claim portion of the Goodwill
Litigation. On March 3, 1998, the Chief Judge issued an order in all of the
Winstar Cases ordering the Government and the committee representing all of the
plaintiffs, each through a designated representative, to negotiate to develop a
settlement framework or structure to settle these cases. Assuming a settlement
is not reached and based upon the status of the proceedings in the Winstar Cases
and the CMO, the Goodwill Litigation is not expected to be set for trial for at
least two years. The amount of damages the Plaintiffs have suffered as a result
of the Government's breach of contract has not yet been determined. In addition,
although the decision of the Supreme Court in the Winstar Cases has been
rendered, there can be no assurance that the court will not reach a different
conclusion in the Goodwill Litigation.
THIRD PARTY LAWSUIT RELATED TO THE GOODWILL LITIGATION. In August 1997,
Ariadne Financial Services Pty. Ltd. and Memvale Pty Ltd. (collectively,
"Ariadne") filed a request with the Court of Claims in the Goodwill Litigation
for leave to file a motion to intervene as a plaintiff in the Goodwill
Litigation. The motion to intervene is based on Ariadne's claim as a former
stockholder of the Company that intervention is necessary to protect their
interests and alleged right to participate in any recovery against the
Government in the Goodwill Litigation. The Court of Claims has not yet ruled on
Ariadne's motion as of the date of this Prospectus. Ariadne had previously filed
its own action in the Court of Claims in April 1996 against the Government which
has been dismissed (and which dismissal has been upheld on appeal) based on the
statute of limitations. In February 1998, Ariadne petitioned the Circuit Court
of Appeals for a rehearing.
In May 1997, Ariadne filed a lawsuit against the Company, the Bank, the
Company's former stockholders and Arbur seeking damages and a constructive trust
based upon causes of action for breach of contract; anticipatory breach of
contract; breach of fiduciary duty; fraud; negligent misrepresentation, and
mistake of fact. Ariadne was a preferred stockholder in the Company and the Bank
which subordinated its interest as part of the 1992 recapitalization of the
Company to the new investors, the Selling Stockholders, and then consented to
the redemption of all of its stock for approximately $50,000 as part of the 1995
recapitalization. Ariadne alleges that there was an oral and/or implied in fact
contract between Ariadne and the defendants that Ariadne would have a right to a
portion of any monetary damages awarded to the Company and the other individual
defendants (but not the Bank) in the Goodwill Litigation, notwithstanding that
Ariadne was not a named plaintiff in the action. Ariadne further alleges that
when it agreed to have its stock redeemed, it was misled as to its right
relating to participation in any recovery from the Goodwill Litigation and the
value of its stock and investment in the Company and the Bank as a result of
such Goodwill Litigation. The Company and the Bank intend to defend this action
vigorously.
DAMAGES. Although the Bank has conducted preliminary reviews of the damages
allegedly suffered by the Bank, no conclusive determinations have been made
regarding the amount or type of such damages. Moreover, the Bank believes that
there are no generally recognized precedents on how to assess damages in cases
such as the Goodwill Litigation. In addition, the Government may argue that some
or all of the damages proffered by the Plaintiffs are too speculative to permit
a recovery. Therefore, even if the Plaintiffs prevail in establishing the
liability of the United States, there can be no assurances as to the amount, if
any, and type of damages that they may recover. Without limiting the generality
of the foregoing, there can be no assurance that the Plaintiffs will obtain any
cash recovery in the Goodwill Litigation. Furthermore, assuming that there is a
cash recovery, it is impossible to predict the amount of the Litigation Recovery
(as defined below) because the fees, costs and taxes associated with the
Litigation Recovery cannot be estimated. To the extent that the Plaintiffs must
engage in protracted litigation, such fees and costs may increase significantly.
85
<PAGE>
THE SHAREHOLDER RIGHTS AGREEMENTS
GENERAL. The Company, the Bank and each of the Selling Stockholders (i.e.,
the Bishop Estate, BIL Securities and Arbur) intend to individually enter into
agreements (the "Shareholders Rights Agreements") immediately prior to
consummation of the Offering, whereby each Selling Stockholder will receive one
Contingent Goodwill Participation Right (each a "Right" and collectively, the
"Rights") for each share of Common Stock held by the Selling Stockholder as of
the date of the Shareholder Rights Agreements.
Each Right will entitle the Selling Stockholders to receive % of the
Litigation Recovery, if any (as defined below) and all of the Rights to be owned
by the Selling Stockholders will entitle the Selling Stockholders to receive in
the aggregate % of the Litigation Recovery (such portion of the Litigation
Recovery, the "Recovery Payment"). As a result of the foregoing, Bishop Estate,
BIL Securities and Arbur (which as of the date of the Shareholder Rights
Agreements owned 60%, 30% and 10%, respectively, of the Common Stock) will each
be entitled to receive [57.0]%, [28.5]% and [9.5]% of the Litigation Recovery,
respectively. The remaining [5.0]% of the Litigation Recovery will be retained
by the Company and/or the Bank in consideration for the time and effort incurred
previously and hereafter by the Company, the Bank and management of the Company
and the Bank with respect to prosecuting the Goodwill Litigation.
None of the Selling Stockholders will pay any cash or other consideration to
the Company and/or the Bank in connection with their entering into the
Shareholder Rights Agreements. Any successor to the Company and/or the Bank
shall assume the rights and obligations of the Company and/or the Bank with
respect to the Shareholder Rights Agreements. It is anticipated that immediately
prior to consummation of the Offering, the Shareholders Rights Agreements will
be approved by the disinterested directors of the Company and the Bank.
LITIGATION RECOVERY. The Litigation Recovery will equal the cash payment
(or any cash resulting from the monetization of any marketable assets received)
(the "Cash Payment"), if any, actually received by the Company and/or the Bank
in the aggregate pursuant to a final, nonappealable judgment in or final
settlement of the Goodwill Litigation (including any post-judgment interest
actually received by the Company and/or the Bank with respect to any Cash
Payment) after deduction of (i) the aggregate fees and expenses incurred
previously and hereafter by the Company and the Bank in prosecuting the Goodwill
Litigation and obtaining the Cash Payment (to the extent such fees and expenses
have not been reimbursed to the Company and/or the Bank) (including fees and
expenses incurred by the Company and the Bank through the date of distribution
of any Recovery Payment in connection with any third party lawsuits with respect
to the Goodwill Litigation and any costs and expenses incurred with respect to
the monetization of any marketable assets received); (ii) any income tax
liability of the Company and/or the Bank, computed on a PRO FORMA basis, as a
result of the Company's and/or the Bank's receipt of the Cash Payment (net of
any income tax benefit to the Company and/or the Bank from making the Recovery
Payment to the Selling Stockholders, and disregarding for purposes of this
clause (ii) the effect of any NOLs or other tax attributes held by the Company
and the Bank or any of their respective subsidiaries or affiliated entities);
(iii) any portion of the Litigation Recovery which is determined to be owing to
one or more of the Plaintiffs (other than the Company and the Bank) or to any
other third parties; and (iv) any portion of the Litigation Recovery which
Doreen J. Blauschild is entitled to receive as a result of her employment
agreement with the Bank, dated as of April 11, 1995 (which entitles Ms.
Blauschild to 0.25% of the amount by which any net recovery (i.e., gross amount
less attorneys' fees incurred by the Bank) by and payable to the Bank relating
to the Goodwill Litigation, whether by judgment or settlement, exceeds $150.0
million). See "Management--Employment Agreements--Original Employment Agreements
and Establishment of Grantor Trusts."
THE RECOVERY PAYMENT. Once the Company and/or the Bank receives and
calculates the Litigation Recovery, if any, and once the Company and the Bank
liquidate any non-cash proceeds received, the
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Company shall within days cause notice of the amount of the Litigation
Recovery to be mailed to each Selling Stockholder (the "Payment Notice"). The
Payment Notice shall also state, among other things, the date and method by
which the Rights will be redeemed by the Company and the Selling Stockholders
will receive the Recovery Payment from the Company, which date shall not exceed
days following the date of the Payment Notice (provided that to the extent
the Litigation Recovery is paid to the Company and/or the Bank in installments,
the redemption of the Rights and related Recovery Payment shall be paid in
similar installments), provided, however, that the Recovery Payment shall not be
made less than one year from the date of an "ownership change" of the Company
within the meaning of Section 382(g) of the Code unless the Company obtains an
opinion from an independent accounting firm which states that the Recovery
Payment would not adversely affect the Company's Section 382 limitation with
respect to such ownership change. See "Risk Factors--Availability of Net
Operating Loss Carryovers" and "Taxation."
In the event that applicable laws, rules, regulations, directives or the
terms of any judgment or settlement limit or prevent the redemption of the
Rights and related distribution of all or any portion of the Recovery Payment,
the Company and the Bank will have no obligation to make any payment in excess
of the allowable amount, if any, at such time. The Company and the Bank will
have a continuing obligation under the Shareholder Rights Agreements to provide
the balance of any Recovery Payment which it has been precluded from paying as
soon as permissible under applicable laws, rules, regulations or directives or
the terms of any judgment or settlement.
The Shareholder Rights Agreements will provide that in connection with any
Recovery Payment made to the Selling Stockholders, the Selling Stockholders will
agree to pay for the defense of any ongoing or future third party litigation
including, without limitation, the Ariadne litigation (including any judgment or
settlement of any such litigation) which arises out of or is related to the
Goodwill Litigation and which is incurred after the date of such distribution.
The Selling Stockholders will also agree under the Shareholder Rights Agreements
to indemnify and hold harmless the Company and the Bank with respect to any
liability for damages or related costs or expenses arising with respect thereto.
The Selling Stockholders will further agree to reimburse the Company and the
Bank with respect to all fees and expenses incurred by the Company and the Bank
in connection with the Goodwill Litigation.
The Selling Stockholders will not be entitled to any interest for the period
of time between the date on which the Company and/or the Bank receives any Cash
Payment in connection with the Goodwill Litigation and the date on which the
Recovery Payment is made to such Selling Stockholders. Accordingly, the Selling
Stockholders will not be entitled to any interest on the Recovery Payment except
that which may be specified as a portion of the Litigation Recovery.
RIGHTS OF THE SELLING STOCKHOLDERS. The Plaintiffs will retain sole and
exclusive control of their respective claims in the Goodwill Litigation. Without
limiting the foregoing, the Plaintiffs will have the right, in their sole
discretion and for any reason whatsoever, to dismiss, settle or cease
prosecuting their respective claims in the Goodwill Litigation at any time
without obtaining any cash or other recovery. The Selling Stockholders will not
have any rights to receive any payment pursuant to the Goodwill Agreement except
to the extent of any Litigation Recovery. The Rights (i) will be junior to all
debt obligations of the Company and the Bank existing at the time of the
redemption except as to an obligation that is expressly made junior to the
Rights, (ii) will not have a right to vote, and (iii) will be a preferred claim
in relation to the right of the holders of the Company Common Stock on
liquidation with respect to a Recovery Payment attributable to any Litigation
Recovery received before or after liquidation (although the Selling Stockholders
will continue to have such other rights on liquidation attributable to their
status as holders of Common Stock).
TAX CONSEQUENCES. KPMG Peat Marwick LLP has issued an opinion to the
Company and the Bank to the effect that, for federal income tax purposes, the
Rights evidenced by the terms of the Shareholder Rights Agreements should be
treated as stock of the Company for purposes of Sections 311(a) and
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305(a) of the Code. Thus, the Company should recognize no gain or loss on the
distribution of the Rights to the Selling Stockholders with respect to their
ownership of Company Common Stock. In addition, the Bank should not recognize
gain or loss on the Company's distribution of the Rights to the Selling
Stockholders. Furthermore, the Selling Stockholders should not be required to
include the amount of the Rights in income. Finally, if the Offering results in
an ownership change of the Company within the meaning of Section 382(g) of the
Code, the amount of value taken into account for purposes of determining the
annual Section 382 limitation should include the value of the Rights.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and as adjusted to reflect the sale of the shares
of Common Stock offered hereby with respect to (i) each Selling Stockholder;
(ii) each of the Company's directors; (iii) executive officers of the Company
and the Bank; and (iv) all executive officers and directors as a group. [EACH OF
THE STOCKHOLDERS HAS SOLE VOTING AND INVESTMENT POWER WITH RESPECT TO THE SHARES
BENEFICIALLY OWNED.]
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING
------------------------------ ---------------
<S> <C> <C> <C> <C>
SHARES TO BE SOLD
NAME AND ADDRESS OF STOCKHOLDERS NUMBER PERCENT IN THE OFFERING NUMBER
- ------------------------------------------------- ------------- ------- ----------------------- ---------------
Stockholders:
Trustees of the Estate of Bernice
Pauahi Bishop
567 South King Street, Suite 200
Honolulu, Hawaii 96813...........................
Brierley Investments
P.O. Box 5018
Level 9, CML Building
22-24 Victoria Street
Wellington, New Zealand..........................
Arbur, Inc.
c/o William E. Simon & Sons, Inc.
310 South Street
Morristown, New Jersey 07960-1913................
Directors and Executive Officers:
Rudolf P. Guenzel................................
Henry Peters.....................................
Gerard Jervis....................................
Robert W. MacDonald..............................
John F. Davis....................................
J. Michael Holmes................................
William W. Flader................................
Doreen J. Blauschild.............................
Robert I. Niedling...............................
William G. Carroll...............................
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS OF STOCKHOLDERS PERCENT
- ------------------------------------------------- -------
Stockholders:
Trustees of the Estate of Bernice
Pauahi Bishop
567 South King Street, Suite 200
Honolulu, Hawaii 96813...........................
Brierley Investments
P.O. Box 5018
Level 9, CML Building
22-24 Victoria Street
Wellington, New Zealand..........................
Arbur, Inc.
c/o William E. Simon & Sons, Inc.
310 South Street
Morristown, New Jersey 07960-1913................
Directors and Executive Officers:
Rudolf P. Guenzel................................
Henry Peters.....................................
Gerard Jervis....................................
Robert W. MacDonald..............................
John F. Davis....................................
J. Michael Holmes................................
William W. Flader................................
Doreen J. Blauschild.............................
Robert I. Niedling...............................
William G. Carroll...............................
</TABLE>
- ------------------------
(1) Gives effect to the conversion of the Outstanding Preferred Stock and the
32:1 stock split.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 100,000,000 shares of capital stock, of
which 75,000,000 are shares of Common Stock, par value $.01 per share, and
25,000,000 are shares of preferred stock, par value $.01 per share. Upon
consummation of the Offering, no shares of preferred stock will be outstanding.
Prior to consummation of the Offering, there is outstanding 85,000 shares of
Series C Preferred Stock, 68,000 shares of Series D Preferred Stock and 332,000
shares of Series E Preferred Stock, all of which are owned by the Selling
Stockholders. Effective with the consummation of the Offering, the Outstanding
Preferred Stock is to be exchanged for shares of Common Stock. An aggregate of
shares of Common Stock will be outstanding immediately prior to the
Offering, which gives effect to the conversion of the Outstanding Preferred
Stock into Common Stock and the 32:1 stock split. See "Capitalization" and "The
Stockholders' Agreement." Each share of Common Stock has the same relative
rights as, and is identical in all respects with, each other share of Common
Stock. The Common Stock is not subject to call for redemption.
THE CAPITAL STOCK OF THE COMPANY DOES NOT REPRESENT NONWITHDRAWABLE CAPITAL,
IS NOT AN ACCOUNT OF AN INSURABLE TYPE, AND IS NOT INSURED BY THE FDIC.
COMMON STOCK
DIVIDENDS. The Company can pay dividends if, as and when declared by its
Board of Directors, subject to compliance with limitations which are imposed by
law. See "Dividends and Market for Common Stock" and "Regulation--Regulation of
Federal Savings Banks--Capital Distribution Regulation." The holders of Common
Stock of the Company are entitled to receive and share equally in such dividends
as may be declared by the Board of Directors of the Company out of funds legally
available therefor. If the Company issues preferred stock in the future, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
VOTING RIGHTS. The holders of Common Stock of the Company possess exclusive
voting rights in the Company. They elect the Company's Board of Directors and
act on such other matters as are required to be presented to them under Delaware
law or the Company's Certificate of Incorporation or as are otherwise presented
to them by the Board of Directors. As of the consummation of the Offering, each
holder of Common Stock will be entitled to one vote per share and each holder of
Common Stock does not have any right to cumulate votes in the election of
directors. Although there are no present plans to do so, if the Company issues
preferred stock in the future, holders of the preferred stock may also possess
voting rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as the sole holder of the Bank's capital stock, would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon), all assets of the Bank available for distribution. In the event of any
liquidation, dissolution or winding up of the Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of the Company available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of liquidation or
dissolution. See "Agreement With Respect to Potential Goodwill Lawsuit
Recovery."
PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company generally are
not entitled to preemptive rights with respect to any shares which may be issued
in the future.
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PREFERRED STOCK
Prior to consummation of the Offering, there is outstanding 85,000 shares of
Series C Preferred Stock, 68,000 shares of Series D Preferred Stock and 332,000
shares of Series E Preferred Stock, all of which are owned by the Selling
Stockholders. Effective with the consummation of the Offering, the Outstanding
Preferred Stock is to be exchanged for shares of Common Stock. See
"Capitalization" and "The Stockholders' Agreement." Consequently, following
consummation of the Offering, the Company will have no shares of preferred stock
issued or outstanding.
The Board of Directors of the Company is authorized to issue preferred stock
and to fix and state voting powers, designations, preferences or other special
rights of such shares and the qualifications, limitations and restrictions
thereof. The preferred stock may be issued in distinctly designated series, may
be convertible into Common Stock and may rank prior to the Common Stock as to
dividend rights, liquidation preferences, or both.
The authorized but unissued shares of preferred stock (as well as the
authorized but unissued and unreserved shares of Common Stock) are available for
issuance in future mergers or acquisitions, in a future public offering or
private placement or for other general corporate purposes. Except as otherwise
required to approve the transaction in which the additional authorized shares of
preferred stock would be issued, stockholder approval generally would not be
required for the issuance of these shares. Depending on the circumstances,
however, stockholder approval may be required pursuant to the requirements for
listing the Common Stock on the Nasdaq Stock Market or any exchange on which the
Common Stock may then be listed, if any.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS. A
number of provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation"), and Bylaws ("Bylaws"), which
shall be effective upon consummation of the Offering, deal with matters of
corporate governance and certain rights of stockholders. The following
discussion is a general summary of certain provisions of the Company's
Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. Reference should be made in each case to such
Certificate of Incorporation and Bylaws. See "Additional Information."
Notwithstanding the foregoing, under certain circumstances, the Company may be
subject to Section 2115 of the California Corporation Code (as a foreign
corporation) which may have the effect of superseding certain provisions of the
Company's Certificate of Incorporation and Bylaws as interpreted by Delaware
law, particularly those provisions providing for a staggered board of directors
and eliminating cumulative voting. However, management believes that such
provisions of the California Corporation Code will not apply to the Company
because its securities will be listed on the Nasdaq National Market and it is
anticipated that there will be at least 800 shareholders and, as such, the
Company will be exempt from the provisions of Section 2115.
BOARD OF DIRECTORS. Article VI of the Certificate of Incorporation and
Article IV of the Bylaws of the Company contain provisions relating to the Board
of Directors and provides, among other things, that the Board of Directors shall
be divided into three classes as nearly equal in number as possible with the
term of office of one class expiring each year. See "Management." Cumulative
voting in the election of directors is prohibited by Article IV of the
Certificate of Incorporation. Directors may be removed only with cause at a duly
constituted meeting of stockholders called expressly for that purpose. Any
vacancy occurring in the Board of Directors for any reason (including an
increase in the number of authorized directors) may be filled by the concurring
vote of a majority of the Directors then in office, though less than a quorum of
the Board, and a director appointed to fill a vacancy shall serve for the
remainder of the term to which the director has been elected, and until his
successor has been elected and qualified.
The Bylaws govern nominations for election to the Board, and provide that
nominations for election to the Board of Directors may be made at a meeting of
stockholders by or at the direction of the Board of
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Directors or by any stockholder eligible to vote at an annual meeting of
stockholders who has complied with specified notice requirements. Written notice
of a stockholder nomination must be delivered to, or mailed to and received at,
the Company's principal executive offices not less than ninety days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting, provided, however, that, with
respect to the 1999 annual meeting, which is expected to be held on the fourth
Monday of April 1999, nominations by the stockholder must be so delivered or
received no later than the close of business on the fourth Monday of January
1999, notwithstanding a determination by the Company to schedule such annual
meeting at a date later than the fourth Monday of April 1999. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholders; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission (the
"Commission"); and (e) the consent of each nominee to serve as a director of the
Company if so elected.
LIMITATION OF LIABILITY. Article VIII of the Company's Certificate of
Incorporation provides that the personal liability of the directors and officers
of the Company for monetary damages shall be eliminated to the fullest extent
permitted by the Delaware General Corporation Law ("DGCL") as it exists on the
effective date of the Certificate of Incorporation or as such law may be
thereafter in effect. Section 102(b)(7) of the DGCL currently provides that
directors (but not officers) of corporations that have adopted such a provision
will not be so liable, except (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for the payment of certain unlawful dividends and the making of
certain stock purchases or redemptions, or (iv) for any transaction from which
the director derived an improper personal benefit.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Article IX of
the Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer, employee or agent of the Company or
any predecessor of the Company, or is or was serving at the request of the
Company or any predecessor of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the fullest extent authorized
by Section 145 of the DGCL, provided that the Company shall not be liable for
any amounts which may be due in connection with a settlement of any action, suit
or proceeding effected without its prior written consent or any action, suit or
proceeding initiated by any person seeking indemnification thereunder without
its prior written consent.
The Company's Certificate of Incorporation also provides that reasonable
expenses (including attorneys' fees) incurred by a director, officer, employee
or agent of the Company in defending any civil, criminal, administrative or
investigative action, suit or proceeding described above shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
as authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.
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<PAGE>
SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. The Company's
Bylaws provide that special meetings of the Company's stockholders, for any
purpose or purposes, may only be called by the affirmative vote of a majority of
the Board of Directors then in office.
The Company's Bylaws provide that only such business as shall have been
properly brought before an annual meeting of stockholders shall be conducted at
the annual meeting. In order to be properly brought before an annual meeting,
business must be (a) brought before the meeting by or at the direction of the
Board of Directors or (b) otherwise properly brought before the meeting by a
stockholder who has given timely notice thereof in writing to the Company. For
stockholder proposals to be included in the Company's proxy materials, the
stockholder must comply with all the timing and informational requirements of
Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). With respect to stockholder proposals to be considered at the annual
meeting of stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 90 days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting; provided, however, that with
respect to the 1999 annual meeting, which is expected to be held on the fourth
Monday of April 1999, such written notice must be received by the Company not
later than the close of business on the fourth Monday of January 1999,
notwithstanding a determination by the Company to schedule such annual meeting
at a date later than the fourth Monday of April 1999. A stockholder's notice
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting, (b) the name and address, as they appear on the
Company's books, of the stockholder proposing such business, (c) the class and
number of shares of the Company which are beneficially owned by the stockholder,
and (d) any financial interest of the stockholder in such business. The
presiding officer of an annual meeting shall determine and declare to the
meeting whether the business was properly brought before the meeting in
accordance with the provisions of the Bylaws and any such business not properly
brought before the meeting shall not be transacted.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article X of the
Company's Certificate of Incorporation generally provides that any amendment of
the Certificate of Incorporation must be first approved by a majority of the
Board of Directors and, to the extent required by law, then by the holders of a
majority of the shares of the Company entitled to vote in an election of
directors, except that the approval of 75% of the shares of the Company entitled
to vote in an election of directors is required for any amendment to Articles VI
(directors), VII (meetings of stockholders and bylaws), VIII (limitation on
liability of directors and officers), IX (indemnification) and X (amendment),
unless any such proposed amendment is approved by a vote of 80% of the Board of
Directors then in office.
The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the total shares entitled
to vote in an election of directors, except that the affirmative vote of at
least 75% of the total shares entitled to vote in an election of directors shall
be required to amend, adopt, alter, change or repeal any provision inconsistent
with certain specified provisions of the Bylaws, unless any such proposed
amendment is approved by a vote of 80% of the Board of Directors then in office.
OTHER RESTRICTIONS ON ACQUISITION OF THE COMPANY. Several provisions of the
DGCL could affect the acquisition of Common Stock or control of the Company.
Section 203 of the DGCL generally provides that a Delaware corporation shall not
engage in any "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder unless (1) prior to such date the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; or (2)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for this purpose, shares owned by persons
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who are directors and also officers and shares owned by employee stock ownership
plans in which employee participants do not have the right to determine
confidentially whether the shares held subject to the plan will be tendered in a
tender offer or exchange offer; or (3) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The three-year prohibition on business combinations with an
interested stockholder does not apply under certain circumstances, including
business combinations with a corporation which does not have a class of voting
stock that is (i) listed on a national securities exchange, (ii) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or (iii) held of record by more than 2,000 stockholders,
unless in each case this result was directly or indirectly caused by the
interested stockholder.
An "interested stockholder" generally means any person that (i) is the owner
of 15% of more of the outstanding voting stock of the corporation or (ii) is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder; and the affiliates
and associates of such a person. The term "business combination" is broadly
defined to include a wide variety of transactions, including mergers,
consolidations, sales of 10% or more of a corporation's assets and various other
transactions which may benefit an interested stockholder.
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control" of a
savings association without the prior approval of the OTS. Any company that
acquires such control becomes a savings and loan holding company subject to
registration, examination and regulation by the OTS. See "Regulation--Regulation
of Savings and Loan Holding Companies--Holding Company Acquisitions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Registrar
and Transfer Company.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
dated , 1998 (the "Underwriting Agreement") among the Company, the Bank
and Sandler O'Neill & Partners, L.P., as representative (the "Representative")
of the underwriters named herein (the "Underwriters"), the Company has agreed to
sell to the Underwriters, and the Underwriters have severally agreed to purchase
from the Company, the number of shares of Common Stock set forth opposite their
names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ -----------------
<S> <C>
Sandler O'Neill & Partners, L.P.......................................................................
-
-
-
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Common Stock offered
hereby, if any are taken.
The Underwriters propose initially to offer the Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to certain securities dealers at such price less a concession of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain brokers and dealers.
After the Common Stock is released for sale to the public, the offering price
and other selling terms may from time to time be varied by the Underwriters.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock solely to cover over-allotments, if any.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was determined by negotiations between the
Company and the Representative. Among the factors considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, were the estimate of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses and other factors deemed to be relevant.
The Company has received approval to list the Common Stock, subject to
official notice of issuance, on the Nasdaq National Market. The Representative
has advised the Company that it intends to make a market in the Common Stock
prior to commencement of trading on the Nasdaq National Market, but is not
obligated to do so and may discontinue any such market making at any time
without notice. See "Market for Common Stock."
The Company, the Bank and the Selling Stockholders have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act.
In connection with the Offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the shares of Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company in the Offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the securities sold in the Offering for their account may be
reclaimed by the syndicate if such shares of Common Stock are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock, which may be higher than the price that might otherwise prevail in the
open
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market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected in the over-the-counter market or otherwise.
Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriters makes any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
Underwriters and dealers may engage in passive market making transactions in
the Common Stock in accordance with Rule 103 of Regulation M promulgated by the
Commission. In general, a passive market maker may not bid for, or purchase, the
Common Stock at a price that exceeds the highest independent bid. In addition,
the net daily purchases made by any passive market maker generally may not
exceed 30% of its average daily trading volume in the Common Stock during a
specified two month prior period, or 200 shares, whichever is greater. A passive
market maker must identify passive market making bids as such on the Nasdaq
electronic inter-dealer reporting system. Passive market making may stabilize or
maintain the market price of the Common Stock above independent market levels.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
The Underwriters may reserve, for sale at the Price to Public, up to
shares of Common Stock which may be sold to directors, officers and
employees having business relationships with the Company. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares of Common
Stock not to be purchased will be offered by the Underwriters on the same basis
as the other shares of Common Stock offered in the Offerings.
The Representative has provided from time to time, and expects to provide in
the future, investment banking services to affiliates of the Company, for which
the Representative has received or will receive customary fees and commissions.
The Company and its directors and executive officers and the Selling
Stockholders have agreed not to offer, sell or otherwise dispose of any shares
of the Common Stock, with certain limited exceptions, for a period of days
after the date of this Prospectus without the prior written consent of the
Underwriters.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). All shares of Common Stock sold in the Offering
will be freely tradable without restriction or further registration under the
Securities Act, except that any shares purchased by affiliates of the Company,
as that term is defined in Rule 144 under the Securities Act, may generally only
be resold in compliance with applicable provisions of Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including affiliates of the Company, who has
beneficially owned restricted shares for at least one year is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date of the notice filed pursuant to Rule 144. Sales under Rule
144 are also subject to certain manner of sale restrictions and notice
requirements and to the availability of current public information about the
Company. In addition, a person who is deemed an "affiliate" of the Company must
comply with Rule 144 in any sale of shares of Common Stock not covered by a
registration statement (except, in the case of registered shares acquired by the
affiliate on the open market, for the holding period requirement). A person (or
person whose shares are aggregated) who is not
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deemed an "affiliate" of the Company and who has beneficially owned restricted
shares for at least two years is entitled to sell such shares under Rule 144(k)
without regard to the volume, notice and other limitations of Rule 144. In
meeting the one and two year holding periods described above, a holder of
restricted shares can include the holding periods of a prior owner who was not
an affiliate. Substantially all of the shares of Common Stock outstanding prior
to the Offering (including those issued upon conversion of the Outstanding
Preferred Stock) are eligible for sale under Rule 144 subject to lock-up
arrangements with the Underwriters described above. See "Underwriting."
EXPERTS
The Consolidated Financial Statements of PBOC Holdings, Inc. (formerly SoCal
Holdings, Inc.) as of December 31, 1997 and 1996, and for each of the years in
the three year period ended December 31, 1997, have been included herein and in
the registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C. The validity
of the Common Stock offered hereby will be passed upon for the Underwriters by
Sullivan & Cromwell, Los Angeles, California.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-1 (the "Registration Statement") under the
Securities Act, with respect to the Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information regarding
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits thereto.
As a result of the Offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith, will
file reports and other information with the Commission. The Registration
Statement and the exhibits forming a part thereof filed by the Company with the
Commission, and reports and other information filed by the Company with the
Commission, can be inspected without charge at, and copies can be obtained from
the Commission, at prescribed rates, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, 14th Floor, Suite 1400,
Chicago, Illinois 60661. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Financial Condition at December 31,
1997 and 1996.............................................................................................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995........................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995........................................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995........................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-10
</TABLE>
F-1
<PAGE>
When the transaction referred to in Note 23 to the consolidated financial
statements has been consummated, we will be in a position to render the
following report.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PBOC Holdings, Inc.:
We have audited the accompanying consolidated statements of financial
condition of PBOC Holdings, Inc. (formerly SoCal Holdings, Inc.) (a Delaware
Corporation) and subsidiaries (the Company) as of December 31, 1997 and 1996 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PBOC
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Los Angeles, California
February 20, 1998, except as to
note 23 to the consolidated financial
statements, which is as of .
F-2
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PROFORMA 1997
(NOTE 22) 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents............................................. $ 14,113 $ 14,113 $ 14,720
Federal funds sold.................................................... 7,004 7,004 7,200
Securities available-for-sale, at estimated market values (notes 3, 12
and 16)............................................................. 571,160 571,160 502,301
Mortgage-backed securities held-to-maturity, estimated market values
$9,743 and $10,899 at December 31, 1997 and 1996 (notes 5 and 12)... 9,671 9,671 10,971
Loans receivable, net (notes 6, 7 and 12)............................. 1,533,212 1,533,212 1,141,707
Real estate held for investment and sale, net (note 8)................ 15,191 15,191 22,561
Premises and equipment, net (note 9).................................. 6,676 6,676 6,262
Federal Home Loan Bank stock, at cost (note 12)....................... 23,634 23,634 15,380
Accrued interest receivable........................................... 13,216 13,216 11,611
Other assets.......................................................... 19,177 19,177 15,205
-------------- ------------ ------------
Total assets...................................................... $ 2,213,054 $ 2,213,054 $ 1,747,918
-------------- ------------ ------------
-------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 10).................................................... $ 1,266,615 $ 1,266,615 $ 1,371,243
Securities sold under agreements to repurchase (note 11).............. 340,788 340,788 192,433
Advances from the Federal Home Loan Bank (note 12).................... 472,000 472,000 80,000
Senior debt (note 13)................................................. 11,113 11,113 11,398
Accrued expenses and other liabilities................................ 9,686 9,686 28,022
-------------- ------------ ------------
Total liabilities................................................. 2,100,202 2,100,202 1,683,096
-------------- ------------ ------------
Commitments and contingencies (notes 6, 9 and 18)
Minority interest (note 1)............................................ 33,250 33,250 --
Stockholders' equity (notes 1, 15 and 20):
Preferred stock, $.01 par value. Authorized 1,000,000 shares; none
issued or outstanding
Preferred stock Series C, voting issued and outstanding 85,000
shares; liquidation value $8,500................................ $ -- $ 1 $ 1
Preferred stock Series D, voting, issued and outstanding 68,000
shares; liquidation value $6,800................................ -- 1 1
Preferred stock Series E, nonvoting, issued and outstanding
332,000 shares; liquidation value $33,200....................... -- 3 3
Common stock, par value $.01 per share. Authorized 75,000,000
shares; issued and outstanding 3,152,064 shares................... 4 1 1
Additional paid-in capital.......................................... 129,816 129,814 129,793
Unrealized losses on securities available-for-sale.................. (1,974) (1,974) (6,084)
Minimum pension liability, net of tax............................... (293) (293) --
Accumulated deficit................................................. (47,951) (47,951) (58,893)
-------------- ------------ ------------
Total stockholders' equity........................................ 79,602 79,602 64,822
-------------- ------------ ------------
Total liabilities and stockholders' equity........................ $ 2,213,054 $ 2,213,054 $ 1,747,918
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest, fees and dividend income:
Short term investments........................................................ $ 1,038 $ 1,195 $ 2,498
Securities purchased under agreements to resell............................... 2,328 3,257 3,157
Investment securities......................................................... 3,980 2,374 180
Mortgage-backed securities.................................................... 32,672 26,136 21,836
Loans receivable.............................................................. 89,938 89,020 94,473
Federal Home Loan Bank stock.................................................. 1,023 914 782
--------- --------- ---------
Total interest, fees and dividend income.................................... 130,979 122,896 122,926
--------- --------- ---------
Interest expense:
Deposits (note 10)............................................................ 67,247 75,136 74,866
Advances from the Federal Home Loan Bank...................................... 8,785 3,207 11,376
Securities sold under agreements to repurchase................................ 19,635 10,901 7,067
Senior debt................................................................... 1,271 1,160 2,983
Hedging costs, net (note 16).................................................. 267 387 1,685
--------- --------- ---------
Total interest expense...................................................... 97,205 90,791 97,977
--------- --------- ---------
Net interest income............................................................. 33,774 32,105 24,949
Provision for loan losses (note 7).............................................. 2,046 2,884 8,823
--------- --------- ---------
Net interest income after provision for loan losses......................... 31,728 29,221 16,126
--------- --------- ---------
Other income:
Loan service and loan related fees............................................ 481 1,378 1,582
Gain on mortgage-backed securities sales, net................................. 1,275 3,638 641
Gain (loss) on loan and loan servicing sales, net (note 4).................... 3,413 (53) (166)
(Loss) income from real estate operations, net (note 8)....................... (1,805) 1,946 (2,067)
Other income.................................................................. 1,753 1,215 513
--------- --------- ---------
Total other income.......................................................... 5,117 8,124 503
--------- --------- ---------
Operating expenses:
Personnel and benefits........................................................ 11,787 10,763 12,108
Occupancy..................................................................... 7,109 6,389 7,022
FDIC insurance................................................................ 4,899 4,415 4,290
Professional services......................................................... 528 771 2,050
Office related expenses....................................................... 3,913 3,992 3,958
Other......................................................................... 1,307 1,486 1,323
--------- --------- ---------
Total operating expenses.................................................... 29,543 27,816 30,751
--------- --------- ---------
Earnings (loss) before income tax benefit and minority interest................. 7,302 9,529 (14,122)
Income tax benefit (note 14).................................................... (4,499) (3,015) (2,644)
--------- --------- ---------
Earnings (loss) before minority interest........................................ 11,801 12,544 (11,478)
Minority interest............................................................... 859 -- --
--------- --------- ---------
Net earnings (loss)......................................................... 10,942 12,544 (11,478)
Preferred dividends undeclared, but accumulated................................. (7,340) (6,555) (3,385)
--------- --------- ---------
Net earnings (loss) available to common stockholders............................ $ 3,602 $ 5,989 $ (14,863)
--------- --------- ---------
--------- --------- ---------
Earnings per share, basic and diluted........................................... $ 1.14 $ 1.90 $ (3.41)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding............................................. 3,152,064 3,152,064 4,361,280
--------- --------- ---------
--------- --------- ---------
Proforma earnings per share (unaudited)......................................... $ 0.94
---------
---------
Proforma weighted average shares outstanding (unaudited)........................ 11,679,537
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Preferred stock:
Balance at beginning of year............................................... $ 5 $ 5 $ 2
Retirement of preferred stock Series A and Series B........................ -- -- (2)
Issuance of preferred stock series C....................................... -- -- 1
Issuance of preferred stock series D....................................... -- -- 1
Issuance of preferred stock series E....................................... -- -- 3
---------- ---------- ----------
Balance at end of year..................................................... 5 5 5
---------- ---------- ----------
Common stock:
Balance at beginning of year............................................... 1 1 2
Retirement of common stock class A and class B............................. -- -- (2)
Issuance of common stock................................................... -- -- 1
---------- ---------- ----------
Balance at end of year..................................................... 1 1 1
---------- ---------- ----------
Additional paid-in capital:
Balance at beginning of year............................................... 129,793 129,691 30,828
Capital contribution, net.................................................. 21 102 98,863
---------- ---------- ----------
Balance at end of year..................................................... 129,814 129,793 129,691
---------- ---------- ----------
Unrealized gains (losses) on securities for-sale:
Balance at beginning of year............................................... (6,084) (1,647) (32)
Change in unrealized gains (losses) on securities available-for-sale....... 4,110 (4,437) (1,615)
---------- ---------- ----------
Balance at end of year..................................................... (1,974) (6,084) (1,647)
---------- ---------- ----------
Minimum pension liability net of tax:
Balance at beginning of year............................................... -- -- --
Change during year......................................................... (293) -- --
---------- ---------- ----------
Balance at end of year..................................................... (293) -- --
---------- ---------- ----------
Accumulated deficit:
Balance at beginning of year............................................... (58,893) (71,437) (83,263)
Net earnings (loss)........................................................ 10,942 12,544 (11,478)
Capital contribution, net.................................................. -- -- 23,304
---------- ---------- ----------
Balance at end of year..................................................... (47,951) (58,893) (71,437)
---------- ---------- ----------
Total stockholders' equity............................................. $ 79,602 $ 64,822 $ 56,613
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................................ $ 10,942 $ 12,544 $ (11,478)
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization............................................ 1,234 1,837 1,770
Provisions for loan and real estate losses............................... 4,800 3,650 10,834
Decrease (increase) in valuation allowance on net deferred tax asset..... 8,159 8,106 (5,230)
(Amortization) write-down for discontinued lease operations.............. (265) (150) (309)
(Decrease) increase in net deferred tax asset............................ (3,434) (5,069) 7,880
Amortization and accretion of premiums, discounts and deferred fees...... 2,270 515 423
Amortization of purchase accounting intangible assets, premiums and
discounts, net......................................................... (90) (185) (234)
Gain on sale of investment and mortgage-backed securities................ (1,275) (3,638) (641)
Loss (gain) on sale of loans and loan servicing.......................... (3,413) 53 166
Gain on real estate sales................................................ (2,214) (2,710) (391)
Federal Home Loan Bank stock dividend.................................... (952) (853) (803)
Increase in accrued interest receivable.................................. (1,605) (2,173) (176)
Increase (decrease) in accrued interest payable.......................... (1,000) 5,539 (771)
Decrease in other assets................................................. (8,697) (10,317) (1,795)
Interest deferred on Senior Debt......................................... -- 1,165 --
Increase (decrease) in accrued expenses.................................. (17,364) 14,783 1,882
--------- --------- -----------
Net cash provided by (used in) operating activities.................... (12,904) 23,097 1,127
--------- --------- -----------
Cash flows from investing activities:
Increase (decrease) in securities purchased under agreements to resell..... -- 35,000 (35,000)
Proceeds from sales of investment and mortgage-backed securities
available-for-sale....................................................... 235,612 162,087 184,877
Proceeds from sales of investment and mortgage-backed securities
held-to-maturity......................................................... -- -- 38,713
Proceeds from sale of loans and servicing rights........................... 93,081 -- 27,541
Investment and mortgage-backed security principal repayments and
maturities............................................................... 108,022 52,380 58,020
Loan originations, net of repayments....................................... 17,607 41,610 50,391
Purchases of investments and mortgage-backed securities
available-for-sale....................................................... (408,780) (476,748) (212,155)
Purchase of mortgage-backed securities held-to-maturity.................... -- (10,971) --
Purchases of loans......................................................... (515,053) -- --
Costs capitalized on real estate........................................... (1,424) (2,228) (262)
Proceeds from sale of real estate.......................................... 23,458 40,217 20,299
Additions to premises and equipment........................................ (1,833) (1,081) (886)
Sales of premises and equipment............................................ -- 785 1,058
Purchase of FHLB stock..................................................... (8,475) -- --
Redemption of FHLB stock................................................... 1,173 -- 2,914
--------- --------- -----------
Net cash (used in) provided by investing activities.................... (456,612) (158,949) 135,510
--------- --------- -----------
Cash flows from financing activities:
Proceeds from subsidiary preferred stock offering.......................... 33,250 -- --
Proceeds from capital infusion, net........................................ 21 -- 48,500
Proceeds from issuance of senior debt...................................... -- -- 10,000
Payment of principal holdback.............................................. -- -- 1,920
Cash contributions to additional paid-in capital........................... -- 102 442
Expenses related to the issuance of stock.................................. -- -- (201)
Repayment on senior debt................................................... (285) -- --
Redemption of preferred stock.............................................. -- -- (57)
Net increase (decrease) in deposits........................................ (104,628) (102,075) 89,100
Net increase in securities sold under agreements to repurchase............. 148,355 192,433 --
Issuance of FHLB advances.................................................. 1,137,684 113,900 12,188,746
Repayment of FHLB advances................................................. (745,684) (65,646) (12,467,000)
--------- --------- -----------
Net cash provided by (used in) financing activities.................... 468,713 138,714 (128,550)
--------- --------- -----------
Net increase (decrease) in cash and cash equivalents......................... (803) 2,862 8,087
Cash and cash equivalents at beginning of year............................... 21,920 19,058 10,971
--------- --------- -----------
Cash and cash equivalents at end of year..................................... $ 21,117 $ 21,920 $ 19,058
--------- --------- -----------
--------- --------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................................. $ 96,667 $ 83,691 $ 95,698
Income taxes............................................................. 200 247 6
--------- --------- -----------
--------- --------- -----------
Supplemental schedule of non cash investing and financing activities:
Foreclosed real estate..................................................... $ 31,349 $ 42,518 $ 20,431
Loans originated in connection with sale of foreclosed real estate......... 16,145 12,608 6,412
Contribution of debt to equity............................................. $ -- $ -- $ 50,160
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
On May 22, 1995, a plan of reorganization of PBOC Holdings, Inc. (formerly
SoCal Holdings, Inc.) (the Company), was adopted by the stockholders of the
Company, under which existing stockholders of the Company agreed to invest an
aggregate of $58.5 million in new debt and equity securities of the Company.
Under an existing commitment, one of the stockholders agreed to purchase from
the Company for $1.9 million a Senior Note due 2002 which was also contributed
to the capital of the Company. The stockholders also contributed the Company
Senior Notes due 2002 (including all accrued and unpaid interest thereon)
acquired by them in 1992 to the capital of the Company.
The gross proceeds from the sale of such debt and equity securities less
$36,572 used by the Company to redeem all of the Series A and Series B Preferred
Stock of the Company, or $60.4 million, was contributed by the Company to the
capital of People's Bank Of California (formerly Southern California Federal
Savings and Loan Association) (the Bank) on June 1, 1995. Pursuant to a related
Plan of Reorganization of the Bank adopted on May 16, 1995 by the stockholders
of the Bank, the Bank redeemed all outstanding shares of the Bank Series A and
Series B Preferred Stock for an aggregate of $19,688. The remaining net proceeds
totaling $60.4 million were utilized to increase the Bank's capital level. Upon
consummation of the recapitalization of the Company and the Bank, the Bank was
"adequately capitalized".
On May 31, 1995, the Office of Thrift Supervision (OTS) and the Federal
Deposit Insurance Corporation (FDIC) had approved the recapitalization of the
Company and the Bank in accordance with the plans of reorganizations of the
Company and the Bank. Upon written submission to the OTS that the Bank became
adequately capitalized upon consummation of the recapitalization, effective June
1, 1995, certain regulatory sanctions against the Bank were removed and the Bank
was deemed not subject to 12 C.F.R. Section 565.5 relating to the filing of and
compliance with capital restoration plans.
The following is a description of significant accounting and reporting
policies which the Company follows in preparing and presenting its consolidated
financial statements.
BASIS OF ACCOUNTING
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles which conform to general practice
within the savings and loan industry. The preparation of these consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported periods.
Actual results could differ from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned, except for People's
Preferred Capital Corporation (PPCC) in which the Company owns all of the common
stock. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On June 19, 1997, the Bank created People's Preferred Capital Corporation, a
real estate investment trust (REIT), for the purpose of acquiring, holding, and
managing real estate mortgage assets. All of PPCC's common stock is owned by the
Bank. The Bank services a portion of the mortgage assets pursuant to a servicing
agreement with the Bank. On October 3, 1997, PPCC consummated a public offering
of $35.6 million of its 9.75% Noncumulative Exchangeable Preferred Stock, which,
net of issue costs, is reflected in the Bank's 1997 consolidated statement of
financial condition as a minority interest. PPCC used the proceeds from such
offering to acquire mortgage assets from the Bank.
FEES ON LOANS AND MORTGAGE-BACKED AND INVESTMENT SECURITIES
The Company defers origination and related fees on loans and certain direct
loan origination costs. These deferred fees, net of any deferred costs, are
amortized as an adjustment to the yield on the loans over their lives using the
interest method.
The Company may purchase whole loans at a premium or discount which is
amortized over the life of the loans as an adjustment to yield using the
interest method. The premium or discount amortization percentage is determined
by adjusting the yield for estimated prepayments when prepayments are probable
and the timing and amount of prepayments can be reasonably estimated based on
market consensus prepayment rates. Calculation of the yield is done on the
aggregate method where there are a large number of similar loans, otherwise, a
loan by loan approach is used. The yield on adjustable rate loans is calculated
based upon the fully adjusted rate in effect when the loan or security is
originated or purchased. Initial estimates of prepayment rates are evaluated
periodically against actual prepayment experience and current market consensus
prepayment forecasts and if significantly different from the original estimate,
the yield is recalculated.
The Company purchases mortgage-backed and investment securities at a premium
or discount which is amortized over the life of the security as an adjustment to
the yield using the interest method. The premium or discount percentage is
determined by adjusting the securities' yield for estimated prepayments when
prepayments are probable and the timing and amount of prepayments can be
reasonably estimated based on market consensus prepayment rates.
COMMITMENT FEES
Commitment fees received in connection with the origination or purchase of
loans are deferred and recognized over the life of the resulting loans using the
interest method as an adjustment of yield. If the commitment, or a portion
thereof, expires unexercised, deferred commitment fees are recognized in income
upon expiration of the commitment. There were no expired commitment fees
recognized during the years ended December 31, 1997, 1996 and 1995. Direct
costs, if any, to originate a commitment are expensed as incurred.
Commitment fees paid to an investor in connection with the sale of loans are
expensed and reduce the net sales proceeds at the time of sale.
INVESTMENT SECURITIES AND LOANS
Management determines the appropriate classification of its securities
(mortgage-backed and investment securities) and loans at the time of purchase or
origination.
F-8
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES AVAILABLE-FOR-SALE--Securities to be held for indefinite periods
of time and not intended to be held-to-maturity are classified as
available-for-sale. Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available-for-sale are recorded at fair value. Both
unrealized gains and losses on securities available-for-sale, net of taxes, are
included as a separate component of stockholders' equity in the consolidated
statements of financial condition until these gains or losses are realized.
Gains or losses on sales of securities are based on the specific-valuation
method. If a security has a decline in fair value that is other than temporary,
then the security will be written down to its fair value by recording a loss in
the consolidated statements of operations. Premiums and discounts are accreted
or amortized using the interest method over the estimated life of the
securities.
SECURITIES HELD-TO-MATURITY--Securities that management has the intent and
the Bank has the ability at the time of purchase or origination to hold until
maturity are classified as securities held-to-maturity. Securities in this
category are carried at amortized cost adjusted for accretion of discounts and
amortization of premiums using the interest method over the estimated life of
the securities. If a security has a decline in fair value below its amortized
cost that is other than temporary, then the security will be written down to its
new cost basis by recording a loss in the consolidated statements of operations.
LOANS HELD-FOR-SALE--Loans held-for-sale in connection with the Bank's
secondary marketing activities are recorded at the lower of amortized cost or
fair value. Unrealized losses are included in the consolidated statements of
operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK--This asset is owned due to regulatory
requirements and is carried at cost. This stock is pledged as collateral to
secure FHLB advances.
IMPAIRED LOANS
A loan is impaired when it is "probable" that a creditor will be unable to
collect all amounts due (i.e., both principal and interest) according to the
contractual terms of the loan agreement. The measurement of impairment may be
based on (1) the present value of the expected future cash flows of the impaired
loan discounted at the loan's original effective interest rate, (2) the
observable market price of the impaired loan or (3) the fair value of the
collateral of a collateral-dependent loan. The amount by which the recorded
investment of the loan exceeds the measure of the impaired loan is recognized by
recording a valuation allowance.
Interest income on impaired loans is recognized on a cash basis if it is
determined that collection of principal is probable. Loans that are 90 days or
more past due, or when full collection of principal and interest is not
probable, are placed on nonaccrual status and interest income that has been
earned but not collected is reversed. Loans are returned to accrual status when
the borrower has had a period of sustained repayment performance. Management
considers all loans formally treated as troubled debt restructurings to be
impaired loans in the year of restructuring.
ALLOWANCE FOR LOAN LOSSES
Valuation allowances for losses on loans and real estate are provided on
both a specific and general basis. Specific and general valuation allowances are
increased by provisions charged to expense and decreased by charge-offs of loans
net of recoveries. Specific allowances are provided for impaired loans for which
the expected loss is measurable. General valuation allowances are provided based
on a formula
F-9
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which incorporates a number of factors, including economic trends, industry
experience, estimated collateral values, past loss experience, the Bank's
underwriting practices, and management's ongoing assessment of the credit risk
inherent in the asset portfolio. The Bank periodically reviews the assumptions
and formula by which additions are made to the specific and general valuation
allowances for losses in an effort to refine such allowance in light of the
current status of the factors described above.
While management uses the best information available to make the periodic
evaluations of specific and general valuation allowances, adjustments to both
allowances may be necessary if actual future economic conditions differ
substantially from the assumptions used in making such periodic evaluations.
Regulatory examiners may require the Bank to recognize additions to the
allowance based upon their judgments about information available to them at the
time of their examination.
REAL ESTATE HELD FOR INVESTMENT AND FOR SALE
Real estate held for investment consists of investments in limited
partnerships which were acquired for development and sale. Real estate
held-for-sale consists of property acquired in settlement of loans. Real estate
held for investment and for sale is carried at lower of cost or market value,
net of anticipated selling costs. Market value is determined based on recent
appraisals or discounted cash flow calculations. Gains or losses on sales of
real estate, net of selling and other costs, are recognized at the time of sale.
Real estate acquired in settlement of loans is recorded at the date of
acquisition at fair value, less estimated disposition costs. The excess of the
loan balance over fair value of the asset acquired, if any, is charged to the
allowance for loan losses upon foreclosure. Subsequent to foreclosure,
additional decreases in the carrying value of foreclosed properties are
recognized through a provision charged to operations. An allowance for losses
equal to the excess of the book value over the fair value of the property, less
estimated selling costs is maintained. The allowance for losses is increased or
decreased for subsequent changes in estimated fair market value. Costs of
developing and improving such property to facilitate sale are capitalized.
Expenses related to holding such real estate, net of rental and other income,
are charged against operations as incurred.
GAINS ON THE SALE OF LOANS AND LOAN SERVICING
Gains or losses on sales of loans are recognized at the time of sale and are
determined by the difference between the net sales proceeds and the allocated
basis of the loans sold. The Company adopted effective January 1, 1997,
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," (SFAS
125). In accordance with SFAS 125, the Company capitalizes mortgage servicing
rights (MSRs) acquired through either the purchase or origination of mortgage
loans for sale or securitization with servicing rights retained. The total costs
of the mortgage loans designated for sale is allocated to the MSRs and the
mortgage loans without the MSRs based on their relative fair values. The MSRs
are included in other assets and as a component of gain on sale of loans. The
MSRs are amortized in proportion to and over the estimated period of net
servicing income. Such amortization is reflected as a component of loan
servicing fees.
The MSRs are periodically reviewed for impairment based on their fair value.
The fair value of the MSRs for the purpose of impairment, is measured using a
discounted cash flow analysis based on the Company's estimated net servicing
income, market prepayments rates and market-adjusted discount rates. Impairment
is measured on a disaggregated basis based on predominant risk characteristics
of the underlying mortgage loans. The risk characteristics used by the Company
for the purpose of capitalization
F-10
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and impairment evaluation include loan type, interest rate tranches, loan term
and collateral type. Impairment losses are recognized through a valuation
allowance, with any associated provision recorded as a component of loan
servicing fees.
Gains or losses on sales of servicing assets for which the Company owns the
underlying loans are deferred and amortized over the estimated loan lives using
the interest method.
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which ranges from 3 to 25 years. Leasehold
improvements are amortized using the straight-line method over the lives of the
assets or term of the lease, whichever is shorter. Maintenance and repairs are
expensed as incurred.
TAXES ON INCOME
The Company uses the asset and liability method for measurement and
recognition of income taxes. The balance sheet amounts of net deferred tax
assets or liabilities are recognized on the temporary differences between the
basis of assets and liabilities as measured by tax laws and their financial
statement basis, plus available tax operating loss carryforwards and tax credit
carryforwards, reduced by a valuation allowance for that portion of tax assets
not considered more likely than not to be realized. Deferred income tax benefit
is recognized for the change in net deferred tax assets or liabilities, plus the
valuation allowance change. Current income tax is the amount of total taxes
currently payable.
DERIVATIVE AND HEDGING ACTIVITIES
The Company uses interest rate swap (swaps), interest rate cap (caps),
interest rate floor (floors), and interest rate corridor (corridors) contracts
in the management of its interest rate risk. The objective of these financial
instruments is to more closely match the estimated repricing duration and/or
repricing characteristics of specifically identified interest-sensitive assets
and liabilities to reduce interest rate exposure. Such contracts are used to
reduce interest rate risk and are not used for speculative purposes, and
therefore are not marked-to-market. The net interest income or expense, net of
amortization of premiums, discounts and fees, from these contracts is recognized
currently on an accrual basis over their term in interest expense in "hedging
costs, net" in the consolidated statements of operations.
Premiums paid for and discounts associated with, and costs and fees of
interest rate swap, cap, floor and corridor contracts are amortized or
accredited into interest expense on a straight-line basis over the life of the
contracts.
CASH AND CASH EQUIVALENTS
For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments (investments) purchased with an
original maturity of three months or less to be cash equivalents. This currently
includes cash and amounts due from banks, Federal funds sold, and time
certificates of deposit.
EARNINGS PER SHARE
At December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
(SFAS 128). Under SFAS 128 basic earnings per share excludes dilution and is
computed by dividing income available
F-11
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted from issuance of
common stock that then shared in earnings.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires that selected information
about those operating segments be reported in interim financial statements. This
Statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segment of a Business Enterprise." SFAS 131 requires
that all public enterprises report financial and descriptive information about
its reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This Statement is effective for
fiscal years beginning after December 15, 1997. In the initial year of
application comparative information for earlier years should be restated. This
Statement need not be applied to interim financial statements in the year of
application, but comparative information for interim periods in the initial year
of application shall be reported in financial statements for interim periods in
the second year of application. Early application is encouraged. Management
believes that the adoption of SFAS 131 will not have a material impact on the
company's operation.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pension and Other
Postretirement Benefits." SFAS 132 amends the disclosure requirements of SFAS
No. 87, "Employers' Accounting for Pensions, SFAS No. 88, "Employer's Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
termination Benefits," and SFAS 106, "Employer's Accounting for Retirement
Benefits Other than Pensions." SFAS 132 standardizes the disclosure requirements
of SFAS Nos. 87 and 106 to the extent practicable and recommends a parallel
format for presenting information about pensions and other retirement benefits.
SFAS 132 is effective for fiscal years beginning after December 15, 1997. SFAS
132 will result in disclosure changes only.
YEAR 2000
The Company has adopted a plan to address Year 2000 data processing issues.
The plan includes the assessment of all internal systems, programs and data
processing applications as well as those provide to the Company by third-party
vendors. A significant portion of the Company's data processing and loan
servicing is performed by third-party vendors from which the Company has
requested (and received) confirmation that they expect to be compliant with Year
2000 issues.
The Company has not incurred significant expenses to-date, but expects to
incur total expenses of $200,000 through 1999 to address Year 2000 issues.
RECLASSIFICATION
Certain amounts in prior years' financial statements have been reclassified
to conform to the current financial statement presentation.
F-12
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank purchases securities under agreements to resell at a later date at
set price, generally collateralized by AA or higher rated mortgage-backed
securities. The average outstanding balance was approximately $41,225,000 and
$58,919,000 during each of the years ended December 31, 1997 and 1996
respectively. The maximum outstanding balance at any month-end was $25,000,000
during 1996. There was no balance outstanding at any month-end during 1997. The
weighted average interest rate on such agreements was approximately 5.65%, 5.53%
and 6.17% during the years ended December 31, 1997, 1996 and 1995, respectively.
The securities pledged are held by a third-part institution.
F-13
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SECURITIES AVAILABLE-FOR-SALE
The Bank holds certain securities available-for-sale. The amortized cost,
unrealized gains and losses, and estimated fair value of securities
available-for-sale at December 31, 1997 and 1996 were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Debt securities issued by government agencies:
Due after one year through five years.......................... $ 55,250 $ 156 $ (73) $ 55,333
Due after five years to ten years.............................. 74,254 244 (205) 74,293
Due after ten years............................................ 10,000 93 -- 10,093
Mortgage-backed securities..................................... 420,621 377 (2,548) 418,450
SBA certificates............................................... 13,009 -- (18) 12,991
---------- ----- ----------- ----------
Total securities available-for-sale.......................... $ 573,134 $ 870 $ (2,844) $ 571,160
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Debt securities issued by government agencies:
Due after five year through ten years.......................... $ 40,023 $ -- $ (1,309) $ 38,714
Mortgage-backed securities..................................... 468,362 170 (4,945) 463,587
---------- ----- ----------- ----------
Total securities available-for-sale.......................... $ 508,385 $ 170 $ (6,254) $ 502,301
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
Proceeds from sales of investments and mortgage-backed securities
available-for-sale, were approximately $235,612,000, $162,087,000 and
$184,877,000 in each of the years ended December 31, 1997, 1996 and 1995,
respectively, and resulted in gross realized gains of approximately $1,714,000,
$3,860,000, and $551,000, respectively, and gross realized losses of
approximately $439,000, $222,000 and $18,000 in the years ended December 31,
1997, 1996, and 1995, respectively.
At December 31, 1997 and 1996, the amortized cost and estimated fair value
of mortgage-backed securities available-for-sale pledged to secure borrowings
and swap agreements are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
<S> <C> <C> <C> <C>
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
---------- ----------- ----------- ----------
Pledged against:
Securities sold under agreements to repurchase................. $ 366,827 $ 365,822 $ 209,328 $ 206,264
Advances from Federal Home Loan Bank........................... 47,542 46,779 94,824 93,795
Swap and corridor agreements................................... 1,970 1,943 8,442 8,259
Treasury tax and loan Account.................................. 4,577 4,546 5,056 4,874
Loan servicing custodial deposit accounts...................... -- -- 4,614 4,554
---------- ----------- ----------- ----------
$ 420,916 $ 419,090 $ 322,264 $ 317,746
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
F-14
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LOANS HELD-FOR-SALE
Proceeds from sales of loans held-for-sale and servicing rights were
approximately $93,081,000 and $27,541,000 in each of the years ended December
31, 1997 and 1995, respectively, and resulted in gross realized gains of
approximately $165,000 and $170,000 and gross realized losses of approximately
$0 and $296,000 in each of the years ended December 31, 1997 and 1995,
respectively. There were no loans sold in 1996. Gains from sales of servicing
rights, including flow through and bulk sales of servicing, were approximately
$3,248,000 for the years ended December 31, 1997. For 1997, gains of $5,291,000
on sales of servicing rights to loans owned by the Bank were deferred. The
remaining unamortized balance for this deferred gain was $4,131,000 at December
31, 1997. There were no sales of servicing during the years ended December 31,
1996 and 1995.
In the years ended December 31, 1997, 1996 and 1995 write-offs of servicing
assets totaled approximately $0, $18,000 and $40,000, respectively, and are
included in gain (loss) on loan and loan servicing sales in the accompanying
consolidated statements of operations.
(5) MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY
The amortized cost, unrealized gains and losses, and estimated fair value of
mortgage-backed securities at December 31, 1997 and 1996 are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
1997.............................................................. $ 9,671 $ 72 $ -- $ 9,743
----------- --- --- -----------
----------- --- --- -----------
1996.............................................................. $ 10,971 $ -- $ (72) $ 10,899
----------- --- --- -----------
----------- --- --- -----------
</TABLE>
Substantially all mortgage-backed securities are collateralized by
single-family residence secured loans.
There was no sales of mortgage-backed securities in 1997 and 1996. Proceeds
from sales of mortgage-backed securities totaled approximately $38,713,000 in
the year ended December 31, 1995. Such sales resulted in gross realized gains of
approximately $405,000 and gross realized losses of $297,000 in the year ended
December 31, 1995.
F-15
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LOANS RECEIVABLE
A summary of loans receivable at December 31, 1997 and 1996 is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Real estate loans
Single-family residential:
Fixed rate........................................................................ $ 212,552 $ 134,971
Variable rate..................................................................... 741,149 460,944
Multifamily, primarily variable rate................................................ 426,254 453,064
Commercial and industrial, primary variable rate.................................... 135,407 110,931
Land, primarily fixed rate.......................................................... 5,896 1,639
------------ ------------
Real estate loans............................................................... 1,521,258 1,161,549
Commercial loans...................................................................... 22,484 3,523
Consumer loans........................................................................ 8,485 988
Secured by deposits................................................................... 2,287 2,132
------------ ------------
All loans....................................................................... 1,554,514 1,168,192
Less:
Undistributed loan proceeds......................................................... 6,206 473
Unamortized net loan (premiums)/discounts and deferred origination fees............. (6,859) 2,732
Deferred gain on servicing sold..................................................... 4,131 --
Allowance for loan losses (note 7).................................................. 17,824 23,280
------------ ------------
$ 1,533,212 $ 1,141,707
------------ ------------
------------ ------------
</TABLE>
Nonaccrual loans were $9,904,000, $18,238,000 and $35,592,000 at December
31, 1997, 1996 and 1995, respectively. If loans which were on nonaccrual at
December 31, 1997, 1996 and 1995 had performed in accordance with their terms
for the year or since origination, if shorter, interest income from these loans
would have been $644,000, $1,405,000 and $3,154,000, respectively. Interest
collected on these loans for these years was $67,000, $846,000 and $1,046,000,
respectively.
The Bank's variable rate loans are indexed primarily to the Federal Home
Loan Bank Eleventh District Cost of Funds Index (COFI) and U.S. Treasury one
year CMT.
Substantially all real estate collateralized loans are secured by first
trust deeds. The Bank's loan portfolio is concentrated primarily in the state of
California. The commercial real estate secured portfolio is diversified with no
significant industry concentrations of credit risk. Single-family residence,
multifamily, and commercial real estate secured loans are diversified
geographically across the state and by size.
At December 31, 1997, the Bank had loan applications pending to originate
loans of approximately $42,859,000. Other than pending loan applications at
year-end, the Bank had no outstanding commitments to originate or purchase
loans.
F-16
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) ALLOWANCE FOR LOAN LOSSES AND PROVISION FOR LOAN LOSSES
An analysis of the activity in the allowance for loan losses for each of the
years ended December 31, 1997, 1996 and 1995 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Balance at beginning of year.................................................... $ 23,280 $ 31,572 $ 29,801
Provision for loan losses....................................................... 2,046 2,884 8,823
Recoveries credited to the allowance............................................ 106 925 34
--------- ---------- ---------
25,432 35,381 38,658
Losses charged to the allowance................................................. (7,608) (12,101) (7,086)
--------- ---------- ---------
Balance at end of year.......................................................... $ 17,824 $ 23,280 $ 31,572
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The Bank's gross impaired loans were $11,361,000 and $31,149,000 as of
December 31, 1997 and 1996, respectively. The average impaired loans for the
years then ended were $20,600,000 and $36,897,000. Gross impaired loans with a
valuation allowance totaled $6,280,000 and gross impaired loans without a
valuation allowance totaled $5,081,000 at December 31, 1997. Interest income
recognized related to these loans was $67,000 and $1,752,000 for 1997 and 1996,
respectively.
The valuation allowance related to impaired loans was $1,772,000 and
$6,652,000 at December 31, 1997 and 1996, respectively, and is included in the
schedule of the allowance for loan losses described above.
Troubled debt restructurings totaled $11,000,000 and $11,430,000 as of
December 31, 1997 and 1996, respectively. The Bank has no commitments to lend
additional funds to borrowers whose loans were classified as troubled debt
restructurings at December 31, 1997.
F-17
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) REAL ESTATE HELD FOR INVESTMENT AND FOR SALE
Real estate at December 31, 1997 and 1996, consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Acquired for sale or development........................................ $ 8,054 $ 8,641
Less allowance for losses............................................. (6,146) (6,516)
--------- ---------
Acquired for sale or development.................................... 1,908 2,125
--------- ---------
Acquired in settlement of loans:
Single-family residential............................................. 750 3,309
Multifamily........................................................... 6,481 8,341
Commercial and industrial............................................. 7,268 8,614
Land.................................................................. 202 244
--------- ---------
14,701 20,508
Less allowance for losses............................................. (1,418) (72)
--------- ---------
Acquired in settlement of loans..................................... 13,283 20,436
--------- ---------
$ 15,191 $ 22,561
--------- ---------
--------- ---------
</TABLE>
A summary of the components of the income from real estate operations in
each of the years ended December 31, 1997, 1996 and 1995 is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross income from real estate operations....................... $ 3,372 $ 4,761 $ 2,536
Operating expenses............................................. 4,637 5,395 2,984
--------- --------- ---------
Loss from operations....................................... (1,265) (634) (448)
Gain on real estate sales...................................... 2,214 3,346 392
--------- --------- ---------
Gain (loss) from real estate operations.................... 949 2,712 (56)
Provisions for losses.......................................... (2,754) (766) (2,011)
--------- --------- ---------
Total income (loss) from real estate operations............ $ (1,805) $ 1,946 $ (2,067)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) REAL ESTATE HELD FOR INVESTMENT AND FOR SALE (CONTINUED)
An analysis of the activity in the allowance for losses for real estate
acquired and direct real estate investments for each of the years ended December
31, 1997, 1996 and 1995, respectively, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
DIRECT
REAL ESTATE REAL ESTATE
ACQUIRED INVESTMENTS TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Balance, December 31, 1994............................... $ 4,226 $ 13,260 $ 17,486
Provision for losses..................................... 1,387 624 2,011
Charge-offs.............................................. (4,153) (7,358) (11,511)
----------- ----------- ----------
Balance, December 31, 1995............................... 1,460 6,526 7,986
Provision for losses..................................... 396 370 766
Charge-offs.............................................. (1,784) (380) (2,164)
----------- ----------- ----------
Balance, December 31, 1996............................... 72 6,516 6,588
Provision for losses..................................... 2,754 -- 2,754
Charge-offs.............................................. (1,408) (370) (1,778)
----------- ----------- ----------
Balance, December 31, 1997............................... $ 1,418 $ 6,146 $ 7,564
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
(9) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land.................................................................. $ 521 $ 521
Buildings............................................................. 837 837
Furniture, fixtures and equipment..................................... 12,434 11,405
Leasehold improvements................................................ 5,525 4,906
---------- ----------
19,317 17,669
Less accumulated depreciation and amortization........................ (12,641) (11,407)
---------- ----------
$ 6,676 $ 6,262
---------- ----------
---------- ----------
</TABLE>
The Bank is committed to operating leases on certain premises. Certain of
these leases require the Bank to pay property taxes and insurance. Some are
subject to annual inflation adjustments, and have renewal options of various
periods at various rates. Lease expense on all property totaled approximately
$2,197,000, $2,144,000 and $3,515,000, net of sublease income of approximately
$353,000, $452,000 and $331,000, in each of the years ended December 31, 1997,
1996 and 1995, respectively. Included in 1995 lease expense was a charge of
$730,000 for early termination of the lease for the Van Nuys facilities.
F-19
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) PREMISES AND EQUIPMENT (CONTINUED)
Approximate minimum lease commitments before consideration of the charge for
unused lease property referred to above under noncancelable operating leases at
December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR GROSS SUBLEASE NET
- -------------------------------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
1998.......................................................... $ 2,363 $ 152 $ 2,211
1999.......................................................... 2,351 152 2,199
2000.......................................................... 2,168 152 2,016
2001.......................................................... 1,386 89 1,297
2002.......................................................... 894 -- 894
Thereafter.................................................... 3,030 -- 3,030
--------- ----- ---------
$ 12,192 $ 545 $ 11,647
--------- ----- ---------
--------- ----- ---------
</TABLE>
(10) DEPOSITS
Deposits at December 31, 1997 and 1996 consisted of the following (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Transaction accounts:
NOW accounts......................... $ 98,550 2.38% $ 63,776 0.80%
Passbook accounts.................... 182,690 4.16 281,907 4.52
Money market accounts................ 52,550 5.07 24,518 2.62
------------ ------------
Transaction accounts............... 333,790 3.78 370,201 3.75
------------ ------------
Term certificates:
3-month.............................. 5,135 4.20 5,428 4.05
6-month.............................. 58,055 5.18 75,479 5.02
12-month............................. 476,251 5.73 384,211 5.51
18-month............................. 146,605 5.75 205,659 5.62
24-month............................. 73,226 5.71 108,359 5.99
36-month............................. 12,126 6.04 11,409 5.93
48-month............................. 1,099 5.95 1,924 5.54
60-month............................. 20,149 5.77 44,183 6.23
Public funds......................... 2,006 5.79 5,704 6.07
$100,000 and over.................... 138,173 5.90 158,686 5.70
------------ ------------
Term certificates.................. 932,825 5.72 1,001,042 5.61
------------ ------------
$ 1,266,615 5.21% $ 1,371,243 5.11%
------------ --- ------------ ---
------------ --- ------------ ---
</TABLE>
F-20
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) DEPOSITS (CONTINUED)
Term certificates of deposit outstanding by scheduled maturity date at
December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AMOUNT AVERAGE RATE
---------- ---------------
<S> <C> <C>
Due within 3 months................................................. $ 178,131 5.50%
Due within 3 to 6 months............................................ 257,064 5.74
Due within 6 to 9 months............................................ 138,372 5.75
Due within 9 to 12 months........................................... 236,014 5.81
Due within 12 to 24 months.......................................... 107,771 5.76
Due within 24 to 36 months.......................................... 6,993 6.09
Due after 36 months................................................. 8,480 5.96
---------- ---
Total........................................................... $ 932,825 5.72%
---------- ---
---------- ---
</TABLE>
The components of deposit interest expense in each of the years ended
December 31, 1997, 1996 and 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NOW accounts................................................. $ 1,635 $ 449 $ 461
Passbook and money market accounts........................... 10,841 12,288 4,826
Term certificates -- under $100,000.......................... 44,852 52,556 57,657
Term certificates -- $100,000 and over....................... 10,124 10,030 12,156
--------- --------- ---------
67,452 75,323 75,100
Interest forfeitures on early withdrawals.................... (205) (187) (234)
--------- --------- ---------
$ 67,247 $ 75,136 $ 74,866
--------- --------- ---------
--------- --------- ---------
</TABLE>
(11) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank enters into sales of agency and AA rated mortgage-backed securities
under agreements to repurchase (reverse repurchase agreements) which obligate
the Bank to repurchase the identical securities as those which were sold. Such
transactions are treated as a financing, with the obligations to repurchase
securities sold reflected as a liability and the carrying amount of securities
collateralizing the liability included in mortgage-backed securities in the
consolidated statements of financial condition. There were $340,788,000 and
$192,433,000 outstanding reverse repurchase lease agreements at December 31,
1997 and 1996, respectively
The maximum repurchase liability balances outstanding at any month-end
during the years ended December 31, 1997 and 1996 were approximately
$415,676,000 and $219,229,000 respectively. The average balances outstanding
during each of the years ended December 31, 1997 and 1996 were approximately
$357,396,000 and $179,002,000, respectively.
The securities sold under agreements to repurchase identical securities are
held in safekeeping by broker/dealers. It is management's policy to enter into
repurchase agreements only with broker/dealers who are regarded as primary
dealers in these securities and meet satisfactory standards of capitalization
and creditworthiness.
F-21
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (CONTINUED)
The scheduled maturities and weighted average interest rates of securities
sold under agreements to repurchase at December 31, 1997 and 1996, are as
follows (dollars in thousdands):
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
---------- --------------- ---------- ---------------
Year of maturity:
1997.......................................................... $ -- --% $ 115,645 5.74%
1998.......................................................... 76,788 5.79 76,788 5.22
2000.......................................................... 129,000 5.71 -- --
2002.......................................................... 135,000 5.79 -- --
---------- ----------
$ 340,788 5.76% $ 192,433 5.53%
---------- --- ---------- ---
---------- --- ---------- ---
</TABLE>
(12) ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of San Francisco at December 31,
1997 and 1996 are collateralized by mortgage-backed agency securities and
mortgage loans with a current principal balance of approximately $913,897,000
and $93,795,000, respectively, and by the investment in the stock of the Federal
Home Loan Bank of San Francisco with a carrying value at December 31, 1997 and
1996 of approximately $23,634,000 and $15,380,000, respectively.
At December 31, 1997, the Bank had a collateralized available line of credit
of approximately $31,000,000 with the Federal Home Loan Bank of San Francisco.
The scheduled maturities and weighted average interest rates of advances at
December 31, 1997 and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
WEIGHTED WEIGHTED
YEAR OF MATURITY AMOUNT AVERAGE RATE AMOUNT AVERAGE RATE
- ---------------------------------------------------------------- ---------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
1997............................................................ $ -- --% $ 31,000 5.76%
1998............................................................ 357,000 5.97 49,000 6.01
2002............................................................ 115,000 5.58 -- --
---------- ---------
$ 472,000 5.87% $ 80,000 5.91%
---------- --- --------- ---
---------- --- --------- ---
</TABLE>
F-22
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) SENIOR DEBT
On June 1, 1995, the Company issued $10,000,000 par of unsecured Senior
Notes (the Notes) in conjunction with the Plan of Reorganization of the Company.
See further discussion in Note 1. The Notes contain an initial pay rate and
accrual rate of 7% and 10.75%, respectively, and the accrual rate increased to
11.15% on June 30, 1996. The difference between the pay rate and accrual rate is
deferred and compounded annually at the accrual rate commencing on June 30,
1996. Included in the balance of the senior note is $1,113,000 of accrued
interest, as of December 31, 1997. Interest of approximately $1.8 million,
calculated at the pay rate of 7%, was paid September 30, 1997 for the period
from issuance of the Notes to that date. Quarterly interest of approximately
$192,000, at the pay rate, was paid on December 31, 1997.
Assuming the continued deferral and compounding of interest, the principal
and deferred interest payments on the Notes will be due as follows (in
thousands):
<TABLE>
<CAPTION>
DEFERRED
DUE PRINCIPAL INTEREST TOTAL
- -------------------------------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
June 30, 2001................................................. $ 2,000 $ 561 $ 2,561
June 30, 2002................................................. 2,000 668 2,668
June 30, 2003................................................. 2,000 751 2,751
June 30, 2004................................................. 2,000 908 2,908
June 30, 2005................................................. 2,000 1,029 3,029
--------- ----------- ---------
$ 10,000 $ 3,917 $ 13,917
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
The Company may repay all or part of the outstanding balance of the Notes at
any time without penalty. Payments are applied proportionately to principal and
deferred interest.
The ability of the Company to make interest and principal payments on the
Notes is primarily dependent upon dividends from the Bank. As further discussed
in Note 20, the Bank may make dividend payments only if it is adequately
capitalized and generating earnings from operations.
In 1992 the Company issued $48,000,000 par of unsecured Senior Notes which
was recorded at a discount from par of $19,249,000. These Notes, which totaled
$38,199,000 at December 31, 1994, were contributed to capital in connection with
the Plan of Reorganization of the Company on June 1, 1995.
(14) INCOME TAXES
The Company, including the Bank and its subsidiaries (except for People's
Preferred Capital Corporation (PPCC)), file a Federal consolidated tax return.
The Company entered into a tax sharing agreement with the Bank, whereby the Bank
computes and pays taxes based upon Bank's tax position assuming that a separate
tax return was filed. However, while the senior debt is outstanding at the
Company, the payment by the Bank is limited to the amount of consolidated taxes.
PPCC has elected to be treated as a Real Estate Investment Trust (REIT) for
Federal income tax purposes and intends to comply with the provisions of the
Internal Revenue Code of 1986 (the IRC), as amended. Accordingly, PPCC will not
be subject to Federal income tax to the extent it distributes its income to
stockholders and as long as certain asset, income and stock ownership tests are
met in accordance with the IRC. As PPCC expects to qualify as a REIT for Federal
income tax purposes, no
F-23
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) INCOME TAXES (CONTINUED)
provision for income taxes is included for the earnings of PPCC that will be
distributed to outside stockholders.
The income tax benefit for the years ended December 31, 1997, 1996 and 1995
consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 154 $ 16 $ --
State....................................................... 62 6 6
--------- --------- ---------
Total current............................................. 216 22 6
Deferred--Federal............................................. (4,715) (3,037) (2,650)
--------- --------- ---------
Total tax benefit......................................... $ (4,499) $ (3,015) $ (2,644)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax assets are initially recognized for net operating loss and tax
credit carryforwards and differences between the financial statement carrying
amount and the tax bases of assets and liabilities which will result in future
deductible amounts. A valuation allowance is then established to reduce that
deferred tax asset to the level at which "it is more likely than not" that the
tax benefits will be realized. A taxpayer's ability to realize the tax benefits
of deductible temporary differences and net operating loss or credit
carryforwards depends on having sufficient taxable income of an appropriate
character within the carryback and carryforward periods. Sources of taxable
income that may allow for the realization of tax benefits include (i) taxable
income in the current year or prior years that is available through carryback,
(ii) future taxable income that will result from the reversal of existing
taxable temporary differences, and (iii) future taxable income generated by
future operations. Based on the Company's projected taxable earnings, management
believes it is more likely than not that the Company will realize the benefit of
the existing net deferred tax asset at December 31, 1997.
Below is a reconciliation of the expected Federal income taxes (benefit) to
the consolidated effective income tax expense (benefit) for the noted periods:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Statutory Federal income tax rate............................. 35% 35% 35%
--------- --------- ---------
--------- --------- ---------
Expected Federal income taxes expense (benefit)............... $ 2,556 $ 3,335 $ (4,943)
Increases (reductions) in income taxes resulting from:
State franchise tax, net of Federal benefit................. 40 4 4
Adjustments to deferred taxes fully offset by valuation
allowance................................................. 475 696 (1,041)
Change in the valuation allowance........................... (7,481) (6,949) 2,466
Interest expense on Senior Debt............................. -- -- 996
PPCC nontaxable earnings.................................... (301) -- --
Other....................................................... 212 (101) (126)
--------- --------- ---------
$ (4,499) $ (3,015) $ (2,644)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) INCOME TAXES (CONTINUED)
The Company had the following total Federal and state deferred tax assets
and liabilities computed at the Federal statutory income tax rate and the
California statutory franchise tax rate for the noted periods:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Provision for losses on loans and real estate....................... $ 14,927 $ 19,057
Tax gains on sales of loans, net of deferred gains.................. 2,206 1,924
Recognition of interest on nonperforming loans for tax.............. 5,747 3,192
Accrued interest on deposits recognized for book but deferred for
tax............................................................... 1,424 1,661
REMIC Income........................................................ 5,451 4,168
Miscellaneous temporary deductible differences...................... 2,500 1,446
Available NOL carryforwards......................................... 53,027 56,480
AMT tax credit carryforwards........................................ 1,417 1,201
---------- ----------
Total deferred tax assets......................................... 86,699 89,129
Deferred tax liabilities:
Stock dividends from FHLB........................................... (3,082) (2,614)
Real estate partnership tax losses.................................. (259) (259)
Miscellaneous temporary taxable differences......................... (1,029) (1,029)
Federal tax effect of state temporary differences................... (3,806) (3,743)
---------- ----------
Total deferred tax liabilities.................................... (8,176) (7,645)
---------- ----------
Deferred tax assets, net of deferred tax liabilities.................. 78,523 81,484
Less deferred tax asset valuation allowances.......................... (68,316) (75,797)
---------- ----------
Net deferred tax assets........................................... $ 10,207 $ 5,687
---------- ----------
---------- ----------
</TABLE>
The Federal tax net operating loss carryforwards expire as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR TOTAL
- ---------------------------------------------------------------------------------- ----------
<S> <C>
2001.............................................................................. $ 18,792
2002.............................................................................. 2
2003.............................................................................. 24,444
2004.............................................................................. 26
----------
Pre-1992 originated net operating losses.................................. 43,264....
2008.............................................................................. 5,917
2009.............................................................................. 14,706
2010.............................................................................. 78,436
2011.............................................................................. 9,182
----------
Post-1991 originated net operating losses................................. 108,241
----------
Total..................................................................... $ 151,505
----------
----------
</TABLE>
F-25
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) INCOME TAXES (CONTINUED)
The Company had Federal and California alternative minimum tax credit
carryforwards of approximately $1,355,000 and $62,000, respectively. These
carryforwards are available to reduce future regular Federal and California
income taxes, if any, over an indefinite period.
In 1992, issuance of preferred stock resulted in a change of control as
defined under Internal Revenue Code Section 382. As a result, any usage of net
operating loss carryforwards created in 1992 and prior years is limited to
approximately $7.7 million per year. Any unused limitation is available in
subsequent years until expiration. The amount of the unused limitation that is
available in 1998 and thereafter is approximately $38.7 million. The net
operating loss carryforwards that are limited by the section 382 limitation that
is available for 1998 and thereafter is approximately $43.3 million. The net
operating loss carryforwards that are not limited by the section 382 limitation
that is available for 1998 and thereafter is approximately $108.2 million.
The Bank is subject to examination by Federal and state taxing authorities
for tax returns filed in previous periods. The results and effects of these
examinations on individual assets and liabilities may require adjustment to the
tax assets and liabilities based on the results of their examinations.
Management does not anticipate that the examinations will result in any material
adverse effect on its financial condition or results of operations.
(15) STOCKHOLDER'S EQUITY
In connection with its Plan of Reorganization effective June 1, 1995 the
Company issued additional stock as follows (dollars in thousands, except per
share data):
<TABLE>
<CAPTION>
LIQUIDATION
VALUE PER NUMBER OF AMOUNT OF
CLASS PAR VALUE SHARE SHARES PROCEEDS
- ----------------------------------------------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Common stock..................................................... $ 0.01 $ -- 6,158 $ --
Preferred stock, Series C, voting, cumulative and non-
convertible.................................................... 0.01 100 85,000 8,500
Preferred stock, Series D, voting, cumulative and non-
convertible.................................................... 0.01 100 68,000 6,800
Preferred stock, Series E, non-voting, cumulative and non-
convertible.................................................... 0.01 100 332,000 33,200
</TABLE>
Dividends are payable if and when the Board of Directors of the Company
declare such dividends out of the assets of the Company, which by law are
available. Cash dividends are payable on the last day of each quarter commencing
on June 30, 1995 at the following per share quarterly rates for each class:
Series C--$2.95, Series D--$3.00, and Series E--$3.00. To the extent a quarterly
dividend is not paid in full, it shall accrue and compound additional dividends
on an annual basis commencing on June 30, 1996 at the rate for that class of
stock. As long as any Series C stock remains outstanding, no dividends may be
declares or paid on the Company common stock, or the Series D or Series E
preferred stock. The Series D and Series E preferred stock rank on parity with
each other in terms of rights to dividends. No dividends have been declared or
paid.
At December 31, 1997, cumulative unpaid dividends on the Company's preferred
stock totaled $17.3 million.
F-26
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) STOCKHOLDER'S EQUITY (CONTINUED)
In connection with their contribution of the Company's Senior Notes due 2002
to the capital of the Company, 6,158 additional shares of common stock were
issued to the Company's stockholders for no compensation. The previously
outstanding Series A and Series B preferred stock were redeemed for a cost of
$36,000.
There are certain restrictions on the ability of the common stockholders to
transfer their ownership in the common stock of the Company, under the terms of
both a stockholders' agreement entered into in connection with the issuance of
the Senior Notes in 1995 and common stockholders' agreement. Additionally the
stockholders have a right of first refusal with respect to any capital stock
issued by the Bank.
(16) DERIVATIVES AND HEDGING ACTIVITIES
Hedging costs, net, for each of the years ended December 31, 1997, 1996 and
1995 consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid on swaps, net of interest received..................... $ 2 $ 35 $ 1,217
Amortization of cost of caps, floors and corridors, net of interest
received........................................................... 265 352 468
--------- --------- ---------
$ 267 $ 387 $ 1,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
Interest rate swaps are contracts where the parties agree to exchange fixed
rate for floating rate interest payments, or to exchange floating rate interest
payments upon two different rate indices (basis swap), for a specified period of
time on a specified (notional) amount. The notional amount is used only to
calculate the amount of interest payments to be exchanged and does not represent
credit risk. The notional amount and weighted average pay and receive rates are
shown below in accordance with their contractual dates. The variable repricing
indexes associated with the contracts are three-month London Inter-Bank Offered
Rate (LIBOR), one-month LIBOR and COFI which was 5.81%, 5.72% and 4.95%,
respectively, at December 31, 1997.
A summary of the swap contract, scheduled maturity date and weighted average
rate received and paid at December 31, 1997 is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR OF NOTIONAL AVERAGE AVERAGE
MATURITY AMOUNT RATE PAID RATE RECEIVED
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Pay floating and receive fixed...................................... 1999 $ 4,709 5.63% 5.69%
----- ----------- --- ---
----- ----------- --- ---
</TABLE>
Swap contracts were entered into to limit the interest rate risk related to
the relative repricing characteristics of the Bank's interest-bearing deposits.
The floating rate on swap contracts re-prices at intervals of one to three
months based on the current index in effect at that time. If all contracts were
repriced at the current index in effect at each year-end, the weighted average
rate paid and received would be 5.61% and 5.69% at December 31, 1997.
The notional amount of the swap amortizes monthly based upon the performance
of a specific index. The swap is used to reduce interest rate risk associated
with fixed rate term liabilities. The performance of the swap is based upon
interest rates in general. The above table does not include anticipated
amortization
F-27
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) DERIVATIVES AND HEDGING ACTIVITIES (CONTINUED)
relating to the swap. Excluding this transaction, the Bank does not have any
other positions in complex derivative transactions.
Mortgage-backed securities with book values of approximately $1,970,000 and
$8,442,000 and market values of approximately $1,943,000 and $8,259,000 at
December 31, 1997 and 1996, respectively, are pledged as collateral for certain
swap agreements.
The Bank has only limited involvement in derivative financial instruments
and does not use them for trading purposes. The instruments are used to manage
interest rate risk. The Bank has entered into corridor contracts to artificially
raise the interest rate cap on certain loans. The corridor contracts provide for
the payment of interest on the outstanding principal contract amount. Under such
contracts, the Bank receives interest if an interest rate that varies according
to a specified index exceeds a pre-set level (the strike rate) up to an upper
limit (the limit) beyond which additional interest is not received if the rate
increases. The index on the Bank's corridors is COFI or three-month LIBOR. A
summary of corridor contracts and average interest rate ranges at December 31,
1997 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
CONTRACT AVERAGE AVERAGE
YEAR OF MATURITY AMOUNT STRIKE PRICE LIMIT RATE
- ------------------------------------------------------ --------- ------------- -----------
<S> <C> <C> <C>
1998.................................................. $ 5,000 6.38% 8.13%
1999.................................................. 20,000 6.64 8.24
2000.................................................. 12,000 6.38 8.13
2001.................................................. 20,000 6.64 8.24
--------- --- ---
$ 57,000 6.56% 8.20%
--------- --- ---
--------- --- ---
</TABLE>
F-28
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) BENEFIT PLANS
The Bank has had a noncontributory defined benefit pension plan covering
substantially all of its employees (the Plan) hired before 1990. The benefits
are based on years of service and the employee's highest compensation during the
last five consecutive years of employment prior to 1991. The Plan was frozen
effective December 31, 1990, and consequently, employees will no longer earn
additional defined benefits for future services; however, future service may be
counted toward vesting of benefits accumulated based on past service. The Bank's
funding policy has been to contribute annually the minimum amount that can be
deducted for Federal income tax purposes.
The following table sets forth the funded status of the Plan and amounts
recognized in the Bank's consolidated statements of financial condition at
December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits........................................................ $ (5,639) $ (4,804)
Nonvested benefits..................................................... (88) (255)
--------- ---------
Accumulated benefit obligations...................................... $ (5,727) $ (5,059)
--------- ---------
--------- ---------
Projected benefit obligation for services rendered to date............... $ (5,727) $ (5,059)
Plan assets at fair value, primarily cash and cash equivalents, listed
stocks and U.S. bonds.................................................. 5,082 4,492
--------- ---------
Projected benefit obligation (in excess of) or less than plan
assets............................................................. (645) (567)
Prior service cost not yet recognized in net periodic cost............... -- --
Additional minimum liability............................................. (1,221) (1,117)
Unrecognized net loss.................................................... 1,221 1,117
--------- ---------
Pension liability recognized in the consolidated statement of
financial condition................................................ $ (645) $ (567)
--------- ---------
--------- ---------
</TABLE>
Net periodic cost included the following components (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest cost on projected benefit obligation................ $ 372 $ 367 $ 332
Actual return on plan assets................................. (663) (203) (293)
Net amortization and deferral................................ 290 (155) (75)
--------- --------- ---------
Net periodic pension cost (income)........................... $ (1) $ 9 $ (36)
--------- --------- ---------
--------- --------- ---------
Assumptions used:
Discount rate.............................................. 7.00% 7.50% 7.25%
Expected long-term rate of return.......................... 9.00% 9.00% 9.00%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company adopted a 401(k) plan, effective January 1, 1991. The 401(k)
plan covers employees with one year or more of service, and allows participants
to contribute a portion of their covered compensation, which amount is 100%
vested at the time of contribution. The Bank shall contribute an amount equal to
50% of the participant's contribution up to 6% of the participant's covered
compensation, which amount vests over a period of five years. The Bank may elect
to make additional contributions on a
F-29
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) BENEFIT PLANS (CONTINUED)
discretionary basis. The contributions as directed by the participants are
invested by the 401(k) plan's trustee in one or more of five investment
alternatives in trust for the benefit of the participants. The Bank incurred
approximately $144,000, $155,000 and $159,000 of expense related to the 401(k)
plan, with no discretionary contributions in each of the years ended December
31, 1997, 1996 and 1995, respectively.
(18) COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation arising in the normal course of
business. Based on information from internal and external legal counsel, and
review of the facts and circumstances of such litigation, management is of the
opinion that the ultimate resolution of all pending litigation proceedings will
not have an adverse material effect on the Company.
(19) FAIR VALUE OF ASSETS AND LIABILITIES
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statements of financial condition, for which it
is practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent market and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The carrying amounts and fair values of the Bank's financial instruments
consisted of the following at December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
Financial assets:
Cash and cash equivalents.............................. $ 21,117 $ 21,117 $ 21,920 $ 21,920
Securities available-for-sale.......................... 571,160 571,160 502,301 502,301
Mortgage-backed securities held-to-maturity............ 9,671 9,743 10,971 10,899
Loans receivable....................................... 1,533,212 1,516,827 1,141,707 1,130,593
Federal Home Loan Bank stock........................... 23,634 23,634 15,380 15,380
Financial liabilities:
Deposits............................................... 1,266,615 1,264,143 1,371,243 1,387,867
Securities sold under agreements to repurchase......... 340,788 340,788 192,433 192,433
Advances from the Federal Home Loan Bank............... 472,000 473,523 80,000 80,000
Senior debt............................................ 11,113 11,113 11,398 11,398
Financial instruments:
Interest rate swaps.................................... -- (7) -- (5)
Interest rate floors................................... -- -- 26 (2)
Interest rate corridors................................ 481 138 719 458
</TABLE>
F-30
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) FAIR VALUE OF ASSETS AND LIABILITIES (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each type of financial instrument:
- Cash and Cash Equivalents--The carrying amount approximates the fair value
for cash and short-term investments.
- Securities Available-for-Sale--Fair value is based on quoted market prices
or dealer quotes.
- Mortgage-Backed Securities--Fair value is based on quoted market prices or
dealer quotes.
- Loans Receivable--For residential real estate loans, fair value is
estimated by discounting projected future cash flows at the current market
interest rates for mortgage-backed securities collateralized by loans of
similar coupon, duration and credit risk, adjusted for differences in
market interest rates between loans and securities. The fair value of
multifamily and commercial real estate loans is estimated by discounting
the future cash flows using the current interest rates at which loans with
similar terms would be made on property and to borrowers with similar
credit and other characteristics and with similar remaining terms to
maturity. Impaired loans are valued based upon the fair value of
underlying collateral, if collateral dependent or alternatively, the
present value of expected cash flows using the loan's original implicit
loan interest rate.
- Federal Home Loan Bank Stock--The carrying amount of Federal Home Loan
Bank Stock approximates its fair value.
- Deposit--The fair values of NOW accounts, passbook accounts and money
market accounts withdrawable on demand without penalty are, by definition,
equal to the amount withdrawable on demand at the reporting date, which is
their carrying amount. The fair value of term certificates of deposit, all
of which are fixed maturity bearing a fixed rate of interest, is estimated
by discounting future projected cash flows at interest rates approximating
interest rates currently offered by the Bank for similar types of
certificates of deposit for similar remaining terms to maturity.
- Securities Sold under Agreements to Repurchase--The carrying amount of
securities sold under agreements to repurchase approximates their fair
value.
- Advances From the Federal Home Loan Bank--The fair value is estimated by
discounting projected future cash flows at the current advance interest
rates available to the Bank for Federal Home Loan Bank advances with
similar terms for similar remaining terms to maturity.
- Interest Rate Swaps, Caps, Floors and Corridors--The fair value of
interest rate swaps is based upon dealer quotes or are estimated by
discounting projected future cash flows at the current market interest
rates for interest rate swaps of similar terms and counter party credit
risk for the same remaining terms to maturity. The fair values of interest
rate caps, floors and corridors are also based upon dealer quotes or
estimated using option pricing models utilizing current market consensus
assumptions for interest rate caps, floors and corridors of similar terms
and strike or floor prices for the same remaining term to maturity.
F-31
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(20) REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and tangible capital (as defined in the regulations) to adjusted
tangible assets (as defined) and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I leverage capital (as
defined) to adjusted tangible assets (as defined). Management believes, as of
December 31, 1997, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision (OTS) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain a minimum total risk-based ratio of 10%,
Tier I risk-based ratio of 6% and Tier I leverage ratio of 5%. There are no
conditions or events since that notification that management believes have
changed the institution's category.
While all insured institutions are required by OTS regulations to meet these
minimum regulatory capital requirements, the Bank has regulatory Assistance
Agreements which were entered into with the Federal Savings and Loan Insurance
Corporation (FSLIC) as part of the Company's purchase of the Bank in 1987, and
which provides for an additional $124,300,000 of regulatory capital at December
31, 1997. Until the passage of the Financial Institution Reform Recovery and
Enforcement Act (FIRREA), the Bank met all capital requirements by including the
additional Assistance Agreement capital amount in regulatory capital.
The position of the OTS was and continues to be that under FIRREA,
Assistance Agreements which provide additional regulatory capital, and/or
capital forbearances are no longer in effect as of December 7, 1989. The OTS
notified the Bank in 1990 that the additional Assistance Agreement capital
amounts cannot be included in meeting the FIRREA capital requirements, and as a
result thereof the OTS believed the Bank did not meet minimum FIRREA capital
requirements. Management disagreed, and still disagrees, with the OTS, and
attempted to preserve all of its rights and remedies under the Assistance
Agreements. At December 31, 1997, the Bank met all minimum FIRREA regulatory
capital requirements without inclusion of the additional Assistance Agreement
capital amounts.
To preserve its rights under the Assistance Agreement, in 1994 the Company
and the Bank commenced a lawsuit against the United States Government for breach
of contract and deprivation of property without just compensation or due process
of law. The lawsuit seeks unspecified monetary compensation for damages
sustained in meeting FIRREA mandated capital requirements and for the fair value
of property taken, but does not seek reinstatement of the Assistance Agreement
capital forbearance. While the outcome of the lawsuit cannot be determined at
this time, it is management's opinion, based on the advice of external legal
counsel, that the Bank's position has substantial legal merit.
F-32
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(20) REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
The ability of the Company to pay dividends will depend primarily upon the
receipt of dividends from the Bank. The Bank's ability to pay these dividends is
dependent upon its earnings from operations and the adequacy of its regulatory
capital. As a well capitalized institution, the maximum dividend allowable under
statute is the higher of (i) 100% of the Bank's net income to date during the
calendar year plus the amount that would reduce by one-half its capital surplus
ratio at the beginning of the year or (ii) 75% of the previous four quarters of
net earnings less dividends paid in such quarters. The OTS director must be
notified of the proposed distribution.
At December 31, 1997, and 1996, the Bank's regulatory capital calculations,
computed by management both with and without inclusion of the additional capital
provided for in the Bank's Assistance Agreements were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
REGULATORY CAPITAL/STANDARD AS OF DECEMBER 31,
1997
-------------------------------------------------
TOTAL RISK-
WITHOUT ADDITIONAL ASSISTANCE TANGIBLE TIER I TIER I BASED
AGREEMENT CAPITAL CAPITAL LEVERAGE RISK- BASED CAPITAL
- -------------------------------------------------------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Stockholders' equity/GAAP capital............................. $ 90,571 $ 90,571 $ 90,571 $ 90,571
Adjustment for unrealized losses on securities
available-for-sale.......................................... 1,974 1,974 1,974 1,974
Deduction for direct real estate investments.................. (1,908) (1,908) (1,908) (1,908)
Deduction for other intangible assets......................... (529) (529) (529) (529)
Minority interest in subsidiary............................... 30,033 30,033 30,033 30,033
---------- ---------- ----------- ------------
Total Tier I capital...................................... 120,141 120,141 120,141 120,141
Includable allowance for loan losses.......................... -- -- -- 13,988
---------- ---------- ----------- ------------
Total capital............................................. 120,141 120,141 120,141 134,129
Minimum capital requirement................................... 33,188 88,501 44,738 89,475
---------- ---------- ----------- ------------
Regulatory capital excess................................. $ 86,953 $ 31,640 $ 75,403 $ 44,654
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
Capital ratios:
Regulatory as reported...................................... 5.43% 5.43% 10.74% 11.99%
Minimum capital ratio....................................... 1.50 4.00 4.00 8.00
---------- ---------- ----------- ------------
Regulatory capital excess................................. 3.93% 1.43% 6.74% 3.99%
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
Regulatory capital as adjusted................................ $ 244,841 $ 244,841 $ 244,841 $ 258,829
Minimum capital requirement (per above)....................... 33,188 88,501 44,738 89,475
---------- ---------- ----------- ------------
Regulatory capital excess..................................... $ 211,653 $ 156,340 $ 200,103 $ 169,354
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
</TABLE>
F-33
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(20) REGULATORY CAPITAL REQUIREMENTS (CONTINUED)
<TABLE>
<CAPTION>
REGULATORY CAPITAL/STANDARD AS OF DECEMBER 31,
1996
-------------------------------------------------
TOTAL RISK-
WITHOUT ADDITIONAL ASSISTANCE TANGIBLE TIER I TIER I BASED
AGREEMENT CAPITAL CAPITAL LEVERAGE RISK- BASED CAPITAL
- -------------------------------------------------------------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Stockholders' equity/GAAP capital............................. $ 76,610 $ 76,610 $ 76,610 $ 76,610
Adjustment for unrealized losses on securities
available-for-sale.......................................... 6,084 6,084 6,084 6,084
Deduction for direct real estate investments.................. (1,908) (1,908) (1,908) (1,908)
Deduction for other intangible assets......................... (714) (714) (714) (714)
---------- ---------- ----------- ------------
Total Tier I capital...................................... 80,072 80,072 80,072 80,072
Includable allowance for loan losses.......................... -- -- -- 10,986
Deduction for real estate held for investment................. -- -- -- (217)
---------- ---------- ----------- ------------
Total capital............................................. 80,072 80,072 80,072 90,841
Minimum capital requirement................................... 26,270 70,053 35,017 70,034
---------- ---------- ----------- ------------
Regulatory capital excess................................. $ 53,802 $ 10,019 $ 45,055 $ 20,807
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
Capital ratios:
Regulatory as reported...................................... 4.57% 4.57% 9.15% 10.38%
Minimum capital ratio....................................... 1.50 4.00 4.00 8.00
---------- ---------- ----------- ------------
Regulatory capital excess................................. 3.07% 0.57% 5.15% 2.38%
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Regulatory capital as adjusted.................... $ 213,472 $ 213,472 $ 213,472 $ 224,241
Minimum capital requirement (per above)........... 26,270 70,053 35,017 70,034
--------- --------- ----------- -----------
Regulatory capital excess..................... $ 187,202 $ 143,419 $ 178,455 $ 154,207
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
Refer to Note 1 for a discussion of the recapitalization of the Company.
F-34
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(21) CONDENSED FINANCIAL INFORMATION OF PBOC HOLDINGS, INC.:
The condensed unconsolidated balance sheets of the Company at December 31,
1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
ASSETS
Cash.................................................................... $ 155 $ 47
Investment in subsidiary................................................ 90,571 76,610
--------- ---------
Total assets........................................................ $ 90,726 $ 76,657
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Accrued expenses and other liabilities................................ $ 11 $ 44
Interest payable senior debt.......................................... 393
Senior debt, net...................................................... 11,113 11,398
--------- ---------
Total liabilities................................................... 11,124 11,835
Total stockholders' equity.............................................. 79,602 64,822
--------- ---------
Total liabilities and stockholders' equity.......................... $ 90,726 $ 76,657
--------- ---------
--------- ---------
</TABLE>
The condensed unconsolidated statements of operations of the Company for the
years ended December 31, 1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Income:
Cash dividends from subsidiary................................................ $ 2,100 $ -- $ --
Service fee income............................................................ -- 1,118 1,521
--------- --------- ----------
2,100 1,118 1,521
Expense:
Interest on senior debt....................................................... 1,272 1,160 2,983
General and administrative expenses........................................... 30 1,012 1,368
--------- --------- ----------
1,302 2,172 4,351
Earnings (loss) before undistributed (loss) of subsidiary....................... 798 (1,054) (2,830)
Earnings in undistributed earnings (loss) of subsidiary......................... 10,144 13,598 (8,648)
--------- --------- ----------
Net earnings (loss)......................................................... $ 10,942 $ 12,544 $ (11,478)
--------- --------- ----------
--------- --------- ----------
</TABLE>
The Company relies upon the Bank for dividends to support its operations.
Absent these dividends, the Company must rely upon its shareholders to support
its activities. The ability of the Bank to pay dividends is dependent upon its
ability to maintain minimum capital requirements and profitability.
F-35
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(21) CONDENSED FINANCIAL INFORMATION OF PBOC HOLDINGS, INC.: (CONTINUED)
The condensed unconsolidated statements of cash flows of the Company for the
years ended December 31, 1997, 1996 and 1995 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operations activities:
Net earnings (loss)......................................................... $ 10,942 $ 12,544 $ (11,478)
Adjustment to reconcile net loss to net cash used in operating activities:
Decrease in other assets.................................................. -- -- 1
Increase in accrued expenses.............................................. (33) (175) 2,290
Decrease in accrued interest payable...................................... (393) -- --
Amortization of discount on notes......................................... -- -- 265
Interest deferred and added to senior debt................................ -- 1,165 --
Equity in undistributed (income) loss of subsidiary....................... (10,144) (13,598) 8,648
---------- ---------- ----------
Net cash provided by (used) in operating activities................... 372 (64) (274)
---------- ---------- ----------
Cash flows from investing activities:
Investment in stock of subsidiary........................................... -- -- (60,383)
Deletions of equipment...................................................... -- -- 31
---------- ---------- ----------
Net cash (used) in investing activities............................... -- -- (60,352)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from capital infusion.............................................. -- -- 48,500
Proceeds from senior debt................................................... -- -- 10,000
Payment of principal holdback............................................... -- -- 1,920
Retirement of preferred stock............................................... -- -- (37)
Expenses related to issuance of stock....................................... -- -- (201)
Cash contributions to paid in capital....................................... 21 102 442
Payment on senior debt...................................................... (285) -- --
---------- ---------- ----------
Net cash provided by financing activities............................. (264) 102 60,624
---------- ---------- ----------
Net decrease (increase) in cash and cash equivalents.......................... 108 38 (2)
Cash and cash equivalents at beginning of period.............................. 47 9 11
---------- ---------- ----------
Cash and cash equivalents at end of period.................................... $ 155 $ 47 $ 9
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosures of cash flow information--Cash paid during the period
for interest................................................................ $ 1,665 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Supplemental schedule of non-cash investing and financing activities:
Contribution of debt to equity.............................................. $ -- $ -- $ 50,160
Contribution of minority interest........................................... -- -- 5,341
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(22) UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Pro Forma Statement of Financial Condition Information. The proforma
information presented in the accompanying consolidated statement of
financial condition as of December 31, 1997, reflects the exchange of
the preferred stock into common stock by taking the initial amount of
F-36
<PAGE>
PBOC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(22) UNAUDITED PRO FORMA FINANCIAL INFORMATION (CONTINUED)
proceeds contributed by the preferred stockholders divided by an exchange
value of $182. The calculated shares are as follows:
<TABLE>
<CAPTION>
INITIAL
PREFERRED AMOUNT OF EXCHANGE COMMON
STOCK SERIES PROCEEDS VALUE SHARES
- --------------------------------------------------------- ------------- ----------- ---------
<S> <C> <C> <C>
Series C................................................. $ 8,500,000 $ 182 46,703
Series D................................................. $ 6,800,000 $ 182 37,363
Series E................................................. $ 33,200,000 $ 182 182,418
</TABLE>
(b) Pro Forma Earnings Per Share Data
The proforma earnings per share data is calculated by taking the net
earnings available to the common stockholders and dividing by the
weighted average number of common stock outstanding of 11,679,537. The
weighted average number of common stock reflects the exchange of the
preferred stock to common stock and the 32 to 1 stock split on all
outstanding and exchanged common stock.
(23) SUBSEQUENT EVENT
On 1998, the Board of Directors of the Company approved an
amendment to the Company's Certificate of Incorporation to (i) increase the
number of authorized shares of common stock from 500,000 to 75,000,000 and (ii)
effect a 32 for 1 stock split of the issued common stock of the Company. The
accompanying consolidated financial statements have been restated for all
periods presented to reflect the impact of the change in the authorized number
of shares of common stock and the stock split.
F-37
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.......................................... 1
Selected Consolidated Financial and Other Data of
the Company.................................... 8
Risk Factors..................................... 10
Dividends........................................ 18
Market for Common Stock.......................... 18
Use of Proceeds.................................. 18
Capitalization................................... 20
Regulatory Capital............................... 21
Dilution......................................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
Business......................................... 39
Regulation....................................... 62
Taxation......................................... 70
Management....................................... 73
The Stockholders' Agreement...................... 82
Agreements With Respect to Potential Goodwill
Lawsuit Recovery............................... 84
Principal and Selling Stockholders............... 89
Description of Capital Stock..................... 90
Underwriting..................................... 95
Shares Eligible for Future Sale.................. 96
Experts.......................................... 97
Validity of Common Stock......................... 97
Additional Information........................... 97
Index to Consolidated Financial Statements....... F-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
PBOC HOLDINGS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
SANDLER O'NEILL & PARTNERS, L.P.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following statement sets forth the estimated amount of expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the securities being registered. Except as
specifically indicated, all of such expenses are being borne by the Registrant.
<TABLE>
<S> <C>
SEC filing fees............................................... $ 64,457.50
NASDAQ filing fees............................................ 50,000.00
NASD filing fees.............................................. 22,350.00
Printing and distribution..................................... 250,000.00
Legal fees and expenses....................................... 700,000.00
Accounting fees and expenses.................................. 160,000.00
Miscellaneous fees and expenses............................... 53,195.50
------------
TOTAL......................................................... $1,300,000.00
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Registrant's Amended and Restated Certificate of
Incorporation provides as follows:
A. INDEMNIFICATION. The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent authorized by Section 145
of the General Corporation Law of the State of Delaware, provided that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
B. ADVANCEMENT OF EXPENSES. Reasonable expenses (including attorneys' fees)
incurred by a director, officer or employee of the Corporation in defending any
civil, criminal, administrative or investigative action, suit or proceeding
described hereunder shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board of
Directors only upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation.
C. OTHER RIGHTS AND REMEDIES. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article IX shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to actions in
their official capacity and as to actions in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
II-1
<PAGE>
D. INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of its Certificate of Incorporation or this Article IX.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(A) LIST OF EXHIBITS
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of SoCal Holdings, Inc.
("Registrant")
3.1.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation of
the Registrant
3.1.2 Proposed Amended and Restated Certificate of Incorporation of Registrant (to be
effective upon consummation of the Offering)
3.2 Bylaws of the Registrant
3.2.1 Proposed Bylaws of the Registrant (to be effective upon consummation of the
Offering)
4.1* Form of Common Stock certificate of Registrant
5.0 Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
8.0* Opinion of KPMG Peat Marwick as to certain tax consequences
10.1* Employment Agreement between Registrant, People's Bank of California (the "Bank")
and Rudolf P. Guenzel, dated , 1998
10.2* Employment Agreement between Registrant, the Bank and J. Michael Holmes, dated
, 1998
10.3* Employment Agreement between Registrant, the Bank and William W. Flader, dated
, 1998
10.4 Employment Agreement between the Bank and Doreen J. Blauschild, dated April 11,
1995
10.5* Deferred Compensation Plan
10.6* Grantor Trust
10.7* Shareholder Rights Agreements, dated , 1998
10.8* Stockholders' Agreement, dated , 1998
11.1* Computation of Per Share Earnings
21.0 Subsidiaries of the Registrant (see "Business--Subsidiaries" in the Prospectus)
</TABLE>
- ------------------------
* To be filed by amendment
II-2
<PAGE>
<TABLE>
<S> <C>
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in Exhibit 5)
23.2* Consent of KPMG Peat Marwick LLP
24.0 Power of Attorney (included in Signature Page of this Registration Statement)
27.0 Financial Data Schedule
99.1 Consent of Robert M. MacDonald to be named as prospective director
99.2 Consent of John F. Davis to be named as prospective director
99.3 Consent of J. Michael Holmes to be named as prospective director
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Form S-1 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Los Angeles, California March
20, 1998.
PBOC HOLDINGS, INC.
By: /s/ RUDOLF P. GUENZEL
-----------------------------------------
Rudolf P. Guenzel
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby constitutes and appoints Rudolf P. Guenzel and J. Michael Holmes, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting upon said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ RUDOLF P. GUENZEL Executive Officer and
- ------------------------------ Director (principal March 20, 1998
Rudolf P. Guenzel executive officer)
/s/ HENRY PETERS Chairman of the Board
- ------------------------------ March 20, 1998
Henry Peters
Executive Vice President
/s/ J. MICHAEL HOLMES and Chief Financial
- ------------------------------ Officer (Principal March 20, 1998
J. Michael Holmes accounting officer)
/s/ GERARD JERVIS Director
- ------------------------------ March 20, 1998
Gerard Jervis
II-4
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SOCAL HOLDINGS, INC.
SoCal Holdings, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is "SoCal Holdings, Inc." The original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on March 2, 1987 and was amended on October 29, 1987 and on July 29,
1992.
2. This Amended and Restated Certificate of Incorporation of the
Corporation (the "Amended and Restated Certificate of Incorporation") has been
duly adopted by resolutions proposed and has been declared advisable by the
Board of Directors of the Corporation in accordance with Sections 242 and 245 of
the Delaware General Corporation Law and duly adopted by the stockholders of the
Corporation at a meeting duly called and held in accordance with the Delaware
General Corporation Law.
3. On the date of effectiveness of this Amended and Restated Certificate
of Incorporation, (i) each outstanding share of the Corporation's Class A Common
Stock, par value $.01 per share ("Class A Common"), shall be reclassified as a
share of the Corporation's Common Stock, par value $.01 per share ("Common
Stock"), (ii) all outstanding rights to acquire shares of Class A Common shall
be deemed to be rights to acquire shares of Common Stock on the same terms and
(iii) each outstanding share of Class B Common Stock, par value $.01 per share,
shall be cancelled.
4. The text of the Certificate of Incorporation as amended heretofore is
hereby amended and restated to read as herein set forth in full:
ARTICLE 1. NAME. The name of the corporation is SoCal Holdings, Inc.
(hereinafter referred to as the "Corporation").
ARTICLE 2. REGISTERED OFFICE AND REGISTERED AGENT. The address of
the registered office of the Corporation in the State of Delaware is 1209 Orange
Street, in the city of Wilmington, county of New Castle. The name of the
registered agent at such address is The Corporation Trust Company.
ARTICLE 3. NATURE OF BUSINESS. The purpose of the Corporation is to
engage in any lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware.
1
<PAGE>
ARTICLE 4. CAPITAL STOCK. The total number of shares of capital
stock which the Corporation has authority to issue is 1,500,000, of which
500,000 shares shall be common stock, par value $.01 per share (hereinafter the
"Common Stock"), and 1,000,000 shares shall be serial preferred stock, par value
$.01 per share (hereinafter the "Preferred Stock"), which shall include the
following series of Preferred Stock: 100,000 shares of Series A Preferred Stock,
par value $.01 per share (hereinafter the "Series A Preferred Stock"), and
30,009 shares of Series B Preferred Stock, par value $.01 per share (hereinafter
the "Series B Preferred Stock").
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in any resolution or resolutions
establishing a class or series of Preferred Stock pursuant to this Article 4,
the holders of the Common Stock shall exclusively possess all voting power.
Each holder of shares of Common Stock shall be entitled to .5939 of a vote for
each share held by such holder, and holders of shares may not cumulate votes for
the election of directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class or series of stock having
preference over the Common Stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
Common Stock, then dividends may be paid on the Common Stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock (and the holders of any class or
series of stock entitled to participate with the Common Stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Corporation available for distribution remaining after: (i)
payment or provision for payment of the Corporation's debts and liabilities; and
(ii) distributions or provisions for distributions to holders of any class or
series of stock having preference over the Common Stock in the liquidation,
dissolution or winding up of the Corporation. Each share of Common Stock shall
have the same relative rights as and be identical in all respects with all the
other shares of Common Stock.
B. SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK. The relative
rights and preferences of the Series A Preferred Stock and the Series B
Preferred Stock are set forth below:
(a) DIVIDENDS. The holders of the Series A Preferred Stock and the
Series B Preferred Stock shall not be entitled to any dividends or
distributions.
2
<PAGE>
(b) PREFERENCE ON LIQUIDATION.
(i) Subject to any rights to receive distributions upon the
liquidation, dissolution or winding up of the Corporation to which the
holders of preferred stock of the Corporation (other than the Series A
Preferred Stock and the Series B Preferred Stock) may be entitled, in
the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
Series A Preferred Stock and the Series B Preferred Stock shall be
entitled to be paid, pro rata according to the number of shares of
Series A Preferred Stock and the Series B Preferred Stock held by
each, out of the assets of the Corporation available for distribution
to stockholders, an amount equal to $.2813 per share before any
payment may be made or any assets distributed to the holders of the
Common Stock, and the holders of Series A Preferred Stock and Series B
Preferred Stock shall not be entitled to any further payments.
(ii) Neither consolidation nor merger of the Corporation with
or into any other corporation or corporations, nor the consolidation
or merger of any corporation with or into the Corporation, nor the
sale, lease, exchange or transfer of all or substantially all of the
property and assets of the Corporation shall, without further
corporate action, be deemed to be a liquidation, dissolution or
winding up of the Corporation as those terms are used herein.
(c) REDEMPTION.
(i) At any time and from time to time, the Corporation may, at
the option of the Board of Directors of the Corporation, redeem all of
the then outstanding Series A Preferred Stock and Series B Preferred
Stock at a redemption price equal to $.2813 per share, from any source
of funds legally available therefor.
(ii) Written notice (the "Redemption Notice") shall be mailed,
postage prepaid, to each holder of record of Series A Preferred Stock
and Series B Preferred Stock at such holder's post office address last
shown on the records of the Corporation. The Redemption Notice shall
state:
(1) that the Corporation has redeemed or intends to
redeem the Series A Preferred Stock and the Series B Preferred
Stock; and
(2) the date set for redemption of the Series A
Preferred Stock (the "Redemption Date"), which may be the date of
the mailing of the Redemption Notice or any date not more than 60
days thereafter; and
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(3) that the holder is to surrender to the
Corporation, in a manner and at the place designated, the
holder's certificate or certificates representing the shares of
Series A Preferred Stock and Series B Preferred Stock to be
redeemed.
(iii) On or before the Redemption Date, or as soon as
practicable thereafter, each holder of Series A Preferred Stock and
Series B Preferred Stock shall surrender the certificate or
certificates representing such shares of Series A Preferred Stock and
Series B Preferred Stock to the Corporation, in the manner and at the
designated place in the Redemption Notice, and thereupon the
redemption price for such shares shall be payable in cash to the
person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be cancelled and
retired.
(iv) Notwithstanding that any certificate for shares of Series
A Preferred Stock and Series B Preferred Stock called for redemption
shall not have been surrendered by the holder or holders thereof, if
the Redemption Notice shall have been properly mailed, and if on or
before the Redemption Date specified in such notice all funds
necessary for such redemption shall have been irrevocably set aside by
the Corporation separate and apart from its other funds, in trust for
the account of the holders of the shares redeemed, so as to be and
continue to be available therefor, then, on and after said Redemption
Date the shares represented thereby so called for redemption shall be
deemed to be no longer outstanding and all rights with respect to such
shares of Series A Preferred Stock and Series B Preferred Stock so
called for redemption shall forthwith cease and terminate, except only
the right of the holders thereof to receive out of the funds so set
aside in trust the amount payable on redemption thereof, but without
interest. If funds legally available for such purpose are not
sufficient for redemption of the shares of Series A Preferred Stock
and Series B Preferred Stock which were to be redeemed, then the
certificates evidencing such shares shall be deemed to be outstanding
and the right of holders of shares of Series A Preferred Stock and
Series B Preferred Stock thereafter shall continue to be only those of
a holder of shares of Series A Preferred Stock and Series B Preferred
Stock, respectively.
(v) Shares of Series A Preferred Stock and Series B Preferred
Stock which shall have been redeemed by the Corporation shall become
authorized but unissued shares which may be reissued by the
Corporation in accordance with this Amended and Restated Certificate
of Incorporation.
(d) VOTING RIGHTS. Except as otherwise expressly provided by law,
the holders of the Series A Preferred Stock and the Series B Preferred
Stock shall not be entitled to vote for the election of directors or for
any other purpose, and such holders shall not be entitled to any notice of
any meeting of the stockholders of the Corporation.
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(e) SINKING FUND. No sinking fund or funds shall be established for
the retirement or redemption of the Series A Preferred Stock or the Series
B Preferred Stock.
(f) CONVERTIBILITY. The Series A Preferred Stock and the Series B
Preferred Stock shall not be convertible into Common Stock or any other
class of capital stock of the Corporation.
C. PREFERRED STOCK. The Board of Directors is hereby expressly
authorized, by resolution or resolutions to provide, out of the authorized and
unissued shares of Preferred Stock, for series of Preferred Stock. Before any
shares of any such series are issued, the Board of Directors shall fix, and
hereby is expressly empowered to fix, by resolution or resolutions, the
following provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different from the
par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of this class;
(d) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of
such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
this class or any other securities, and, if so, the price or prices or the
rate or rates of conversion or exchange
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and the method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this
class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
Whenever the Board of Directors of the Corporation shall by resolution or
resolutions provide for a series of Preferred Stock pursuant to this Article 4,
a certificate of designations setting forth a copy of such resolution or
resolutions and the number of shares of stock of such class or series as to
which the resolution or resolutions apply shall be executed, acknowledged,
filed, recorded and shall become effective in the manner required by the General
Corporation Law of the State of Delaware.
ARTICLE 5. PREEMPTIVE RIGHTS. No holder of the capital stock of the
Corporation shall be entitled as such, as a matter of right, to subscribe for or
purchase any part of any new or additional issue of stock of any class
whatsoever of the Corporation, or of securities convertible into stock of any
class whatsoever, whether now or hereafter authorized, or whether issued for
cash or other consideration or by way of a dividend.
ARTICLE 6. DIRECTORS. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors. Except as
otherwise fixed pursuant to the provisions of Article 4 hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors, the number of directors shall be not less than three nor more than
15, as from time to time set by the stockholders of the Corporation.
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A. ELECTION AND TERM. Members of the Board of Directors shall be
elected annually by the stockholders at the annual meeting of the
stockholders of the Corporation and shall hold office until his or her
successor is elected and qualified.
B. VACANCIES. Except as otherwise fixed pursuant to the provisions
of Article 4 hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends
or upon liquidation to elect directors, any vacancy occurring in the Board
of Directors, including any vacancy created by reason of an increase in the
number of directors, may only be filled by an affirmative vote of not less
than a majority of the votes eligible to be cast by stockholders at a duly
constituted meeting of stockholders. When the number of directors is
changed, the stockholders shall determine the class or classes to which the
increased or decreased number of directors shall be apportioned, provided
that no decrease in the number of directors shall shorten the term of any
incumbent director.
C. REMOVAL. Subject to the rights of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation
to elect directors, any director may be removed from office with or without
cause by an affirmative vote of not less than a majority of the votes
eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose.
ARTICLE 7. SPECIAL MEETINGS OF STOCKHOLDERS. Except as otherwise
required by law and subject to the rights of the holders of any class or series
of Preferred Stock, special meetings of the stockholders may be called by the
Board of Directors pursuant to a resolution approved by the affirmative vote of
a majority of the directors then in office, and special meetings of the
stockholders shall be called by the Board of Directors on the request of the
holders of not less than a majority of the shares entitled to vote at the
meeting.
ARTICLE 8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Notwithstanding anything contained herein to the contrary, any action required
under the General Corporation Law of the State of Delaware or hereunder to be
taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
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ARTICLE 9. BYLAWS. The stockholders of the Corporation shall have
the exclusive authority to adopt, alter, amend or repeal the Bylaws of the
Corporation. Such action by the stockholders shall require the affirmative vote
of at least a majority of the total votes eligible to be cast by stockholders at
a duly constituted meeting of stockholders called expressly for such purpose.
ARTICLE 10. LIABILITY OF DIRECTORS. The personal liability of the
directors of the Corporation for monetary damages shall be eliminated to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as it exists on the effective date of this Amended and Restated Certificate of
Incorporation or as such law may be thereafter in effect. No amendment,
modification or repeal of this Article 10 shall adversely affect the rights
provided hereby with respect to any claim, issue or matter in any proceeding
that is based in any respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
ARTICLE 11. INDEMNIFICATION, ETC.
A. INDEMNIFICATION. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is
or was a director, officer or employee of the Corporation or any
predecessor of the Corporation, or is or was serving at the request of the
Corporation or any predecessor of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
excise taxes and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding
to the fullest extent authorized by Section 145(a)-(d) of the General
Corporation Law of the State of Delaware, provided that the Corporation
shall not be liable for any amounts which may be due to any person in
connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding
initiated by any person seeking indemnification hereunder (other than to
enforce the requirements of this Article 11) without its prior written
consent.
B. ADVANCEMENT OF EXPENSES. Reasonable expenses (including
attorneys' fees) incurred by a director, officer or employee of the
Corporation in defending any civil, criminal, administrative or
investigative action, suit or proceeding described in this Article 11 shall
be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors only
upon receipt of an undertaking by or on behalf of such person to repay such
amount if it shall ultimately be determined that the person is not entitled
to be indemnified by the Corporation.
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C. OTHER RIGHTS AND REMEDIES. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article 11 shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise,
both as to actions in their official capacity and as to actions in another
capacity while holding such office, and shall continue as to a person who
has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such person.
D. INSURANCE. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer or employee of the Corporation, or is or was
serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against him or incurred by him
in any such capacity or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such
liability under the provisions of this Article 11.
E. COMPLIANCE WITH APPLICABLE LAW. Any payments made pursuant to
paragraphs A and B of this Article 11 shall be subject to compliance with
12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
ARTICLE 12. AMENDMENT. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by law,
and all rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, SoCal Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary and has caused its corporate seal to be hereto affixed on
this 24th day of May 1995.
SOCAL HOLDINGS, INC.
Attest:
/s/ Joan E. Manning By: /s/ Robert MacDonald
- ----------------------------------- ------------------------------
Name: Joan E. Manning Name: Robert MacDonald
Title: Secretary Title: President
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CERTIFICATE OF DESIGNATIONS AND PREFERENCES
CUMULATIVE VOTING PREFERRED STOCK, SERIES C
of
SOCAL HOLDINGS, INC.
------------------------------
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
------------------------------
The undersigned duly authorized officer of SoCal Holdings, Inc. (the
"Corporation"), a Delaware corporation, in accordance with the provisions of
Section 103 of the General Corporation Law of the State of Delaware, and
pursuant to Section 151 thereof, does hereby certify that the following
resolution was adopted by the Board of Directors of the Corporation at a meeting
duly convened and held on May 12, 1995, at which a quorum was present and acting
throughout:
"RESOLVED that pursuant to the authority expressly granted to and vested in
this Board of Directors by the Amended and Restated Certificate of Incorporation
of the Corporation, the Board of Directors hereby authorizes the creation of a
series of Cumulative Voting Preferred Stock, Series C, stated value $100.00 per
share, of the Corporation upon the terms and conditions set forth herein and
hereby fixes the designation and number of shares thereof and fixes the other
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions thereof as follows:
1. DESIGNATION AND AMOUNT; FRACTIONAL SHARES. There shall be a series of
preferred stock of the Corporation designated as "Cumulative Voting Preferred
Stock, Series C" and the number of shares constituting such series shall be
85,000. Such series is referred to herein as the "Series C Preferred Stock."
The Series C Preferred Stock is issuable solely in whole shares.
2. STATED VALUE AND ISSUE PRICE. The stated value of each share of
Series C Preferred Stock is $100.00 and the issue price of each such share is
$100.00.
3. DIVIDENDS. The holders of the Series C Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors and out
of the assets of the Corporation which are by law available for the payment of
dividends, cumulative preferential cash dividends payable quarterly on June 30,
September 30, December 31, and March 31 of each year unless such day is a
non-business day, in which event on the next business day, commencing June 30,
1995, at the fixed annual rate of $11.80 per share ($2.95 per quarter). Such
dividends shall be paid to the holders of record of the Series C Preferred Stock
at the date specified by the Board of Directors of the Corporation, which shall
not be more than ten (10) days prior to the respective dividend payment date.
Each quarterly
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dividend shall be fully cumulative and dividends shall accrue, whether or not
earned, declared or the Corporation shall have funds or assets available for the
payment of dividends, from the first day of the quarter in which such dividends
may be payable as herein provided, except that with respect to the first
quarterly dividend, such dividend shall accrue from the date of issue of the
Series C Preferred Stock. Accrued but unpaid dividends shall compound
additional dividends on an annual basis, commencing June 30, 1996, at the rate
applicable to the Series C Preferred Stock. Additional dividends shall continue
to be compounded on the due but unpaid dividends until all cumulative dividends
accumulated on the Series C Preferred Stock shall have been paid in full and
provision has been made in full for the payment of dividends for the current
quarterly period.
So long as any Series C Preferred Stock remains outstanding:
(a) no dividend whatsoever shall be declared or paid upon or set
apart for payment, and no distribution shall be ordered or made in respect
of: (i) the Corporation's common stock, par value $.01 per share, or any
other outstanding common stock of the Corporation (the "Common Stock"); or
(ii) any other class of stock or series thereof ranking junior to the
Series C Preferred Stock in the payment of dividends; and
(b) no shares of Common Stock and no shares of any other class of
stock or series thereof ranking junior to the Series C Preferred Stock in
the payment of dividends shall be redeemed or purchased by the Corporation
or any subsidiary thereof; and
(c) no moneys, funds or other assets shall be paid to or made
available for a sinking fund for the redemption or purchase of any shares
of: (i) Common Stock; or (ii) any other class of stock or series thereof
ranking junior to the Series C Preferred Stock in the payment of dividends;
provided that, notwithstanding anything to the contrary contained herein, the
Corporation shall redeem all shares of Series A Preferred Stock of the
Corporation and all shares of Series B Preferred Stock of the Corporation
outstanding on the date of issuance of the Series C Preferred Stock in
accordance with the Amended and Restated Certificate of Incorporation of the
Corporation.
In addition, so long as any Series C Preferred Stock remains outstanding,
no dividend whatsoever shall be declared or paid upon or set apart for payment,
and no distribution shall be ordered or made in respect of, any share or shares
of any class of stock or series thereof ranking on a parity with the Series C
Preferred Stock in the payment of dividends, unless, for the applicable calendar
quarter:
(a) full dividends shall be paid or declared and set apart for
payment on all shares of: (i) the Series C Preferred Stock; and (ii) any
class of stock or series
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thereof ranking on a parity with the Series C Preferred Stock in the
payment of dividends; or
(b) in the event all such dividends for the applicable calendar
quarter are not or cannot be paid or declared and set apart for payment in
full, a pro rata portion of the full dividends shall be paid or declared
and set apart for payment on all shares of: (i) the Series C Preferred
Stock; and (ii) any class of stock or series thereof ranking on a parity
with the Series C Preferred Stock in the payment of dividends. Such pro
rata portion shall be calculated upon the ratio that the total amount
available for the payment of all required dividends on the Series C
Preferred Stock and such parity stock for the applicable calendar quarter
bears to the total required dividends on the Series C Preferred Stock and
such parity stock for such calendar quarter.
4. PREFERENCE ON LIQUIDATION. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series C Preferred Stock shall be entitled to receive, out of the
net assets of the Corporation available for distribution to its stockholders and
before any distribution shall be made to the holders of Common Stock or to the
holders of any other class of stock or series thereof ranking junior to the
Series C Preferred Stock in the distribution of assets, an amount equal to
$100.00 per share, plus an amount equal to all dividends accrued and unpaid on
each share of Series C Preferred Stock to but excluding the date fixed for
distribution, and no more. If upon such voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation the net assets of
the Corporation shall be insufficient to permit payment in full of the amounts
required to be paid to the holders of the Series C Preferred Stock and to the
holders of any class of stock or series thereof ranking on a parity with the
Series C Preferred Stock in respect of the distribution of assets, then a pro
rata portion of the full amount required to be paid upon such dissolution,
liquidation or winding up shall be paid to: (a) the holders of Series C
Preferred Stock; and (b) the holders of any class of stock or series thereof
ranking on a parity with the Series C Preferred Stock in respect of the
distribution of assets. Such pro rata portion shall be calculated upon the
ratio that the total amount available for distribution to such holders bears to
the total distribution required to be made on the Series C Preferred Stock and
such parity stock.
Nothing herein contained shall be deemed to prevent redemption of Series C
Preferred Stock by the Corporation in the manner provided in Paragraph 5 of
these resolutions. Neither the merger nor consolidation of the Corporation into
or with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding up of the Corporation within the meaning of
this Paragraph 4.
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Written notice of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Corporation, stating a payment date and the
place where the distribution amounts shall be payable, shall be given by first
class mail, postage prepaid, at least thirty (30) days but not more than sixty
(60) days prior to the payment date stated therein, to the holders of record of
the Series C Preferred Stock at their respective addresses as the same shall
appear on the books of the Corporation.
5. REDEMPTION. The Corporation shall have the right, at its option and
by resolution of its Board of Directors, to redeem at any time and from time to
time the Series C Preferred Stock, in whole or in part, upon payment in cash in
respect of each share redeemed at $100.00 per share, plus an amount equal to all
dividends accrued and unpaid thereon to but excluding the date fixed for
redemption.
If less than all of the outstanding shares of the Series C Preferred Stock
shall be redeemed, the particular shares to be redeemed shall be allocated by
the Corporation among the respective holders of Series C Preferred Stock pro
rata, by lot or by a substantially equivalent method selected by the Board of
Directors of the Corporation. Under such circumstances, new certificates shall
be issued evidencing unredeemed shares to the extent applicable.
Notice of any redemption specifying the date fixed for said redemption and
the place where the amount to be paid upon redemption is payable shall be given
by first class mail, postage prepaid, at least ten (10) days but not more than
sixty (60) days prior to said redemption date to the holders of record of the
Series C Preferred Stock to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation. Any notice that is mailed as
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder of shares of Series C Preferred Stock receives such notice;
and failure to give such notice by mail, or any defect in such notice to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series C Preferred
Stock. If proper notice of redemption shall have been so mailed, and if on or
before the redemption date specified in such notice all funds necessary for such
redemption shall have been irrevocably set aside by the Corporation separate and
apart from its other funds, in trust for the account of the holders of the
shares so to be redeemed, so as to be and continue to be available therefor,
then, on and after said redemption date, notwithstanding that any certificate
for shares of the Series C Preferred Stock so called for redemption shall not
have been surrendered for cancellation, the shares represented thereby so called
for redemption shall be deemed to be no longer outstanding, the right to receive
dividends thereon shall cease to accrue, and all rights with respect to such
shares of the Series C Preferred Stock so called for redemption shall forthwith
cease and terminate, except only the right of the holders thereof to receive out
of the funds so set aside in trust the amount payable on redemption thereof, but
without interest. If funds legally available for such purpose are not
sufficient for redemption of the shares of Series C Preferred Stock which were
to be redeemed, then the certificates evidencing such shares shall be deemed to
be outstanding and the right of holders of shares
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of Series C Preferred Stock thereafter shall continue to be only those of a
holder of shares of the Series C Preferred Stock.
Any provision of this Paragraph 5 to the contrary notwithstanding, if any
quarterly dividend due on the Series C Preferred Stock shall be in default, and
until all such defaults shall have been cured, the Corporation shall not redeem
any shares of Series C Preferred Stock unless all outstanding shares of Series C
Preferred Stock are simultaneously redeemed and the Corporation shall not
purchase or otherwise acquire any shares of Series C Preferred Stock except in
accordance with a purchase offer made by the Corporation on the same terms to
all holders of record of Series C Preferred Stock.
6. VOTING RIGHTS.
(A) In addition to the class voting rights set forth below in this
Paragraph 6 and as may be required from time to time by law, the holders of the
Series C Preferred Stock shall be entitled to one vote for each share of Series
C Preferred Stock held by such holder on all matters submitted to the holders of
Common Stock, whether by vote at a meeting or for action by written consent, and
the holders of the Series C Preferred Stock shall vote together with the holders
of Common Stock and any other class of capital stock of the Corporation entitled
to vote thereon as a single class. Holders of Series C Preferred Stock shall
not be entitled to cumulative voting in any election of directors. Any shares
of Series C Preferred Stock held by the Corporation or any entity controlled by
the Corporation shall not have voting rights hereunder and shall not be counted
in determining the presence of a quorum.
(B) So long as any shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without the consent of the holders of at least 662/3% of
the number of shares of Series C Preferred Stock at the time outstanding:
(a) amend, alter or repeal any of the provisions of the Amended and
Restated Certificate of Incorporation of the Corporation so as to affect
adversely the rights, powers or preferences of the Series C Preferred
Stock; or
(b) create, authorize or issue, or increase the authorized or issued
amount, of any class or series of stock of the Corporation that is senior
to, or on a parity with, the Series C Preferred Stock in respect of the
payment of dividends or distributions upon redemption, liquidation,
dissolution or winding up of the Corporation, or any securities convertible
into such a senior or parity security.
A class vote on the part of the Series C Preferred Stock shall, without
limitation, specifically not be deemed to be required (except as otherwise
required by law or resolution of the Board of Directors) in connection with:
(a) the authorization, issuance or increase in the authorized or issued amount
of any shares of any other class or series of stock which ranks junior to the
Series C Preferred Stock in respect of the payment of dividends and
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distributions upon liquidation, dissolution or winding up of the Corporation; or
(b) the authorization, issuance or increase in the amount of any notes,
commercial paper, bonds, mortgages, debentures or other obligations of the
Corporation.
No vote of the Series C Preferred Stock shall be required if the Series C
Preferred Stock is to be redeemed in whole on a date occurring on or prior to
the date of occurrence of any event otherwise requiring a class vote by the
Series C Preferred Stock.
(C) At any meeting of the holders of the Series C Preferred Stock, the
presence in person or by proxy of the holders of a majority of the total number
of shares of the Series C Preferred Stock shall be required to constitute a
quorum; and, in the absence of a quorum, a majority of the holders present in
person or by proxy shall have the power to adjourn the meeting from time to time
without notice other than an announcement at the meeting, until a quorum shall
be present.
7. SINKING FUND. No sinking fund or funds shall be established for the
retirement or redemption of the Series C Preferred Stock.
8. CONVERTIBILITY. Shares of the Series C Preferred Stock shall not be
convertible into Common Stock or any other class of capital stock of the
Corporation.
9. RANKING. For purposes hereof, any class or classes of stock of the
Corporation shall be deemed to rank:
(a) senior or prior to the Series C Preferred Stock, as to dividends
or as to distribution of assets upon redemption, liquidation, dissolution
or winding up, if the holders of such class shall be entitled to the
receipt of dividends or of amounts distributable upon redemption,
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series C Preferred Stock;
(b) on a parity with the Series C Preferred Stock, as to dividends or
as to distribution of assets upon redemption, liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from those
of the Series C Preferred Stock, if the holders of such class of stock and
the Series C Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon redemption, liquidation, dissolution or
winding up, as the case may be, in proportion to their respective amounts
of accrued and unpaid dividends per share, redemption prices or liquidation
prices, without preferences or priority one over the other; and
(c) junior to the Series C Preferred Stock, as to dividends or as to
the distribution of assets upon redemption, liquidation, dissolution or
winding up, if such stock shall be Common Stock or if the holders of Series
C Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon redemption,
6
<PAGE>
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of shares of such stock.
The Series C Preferred Stock shall be deemed to rank senior to the
Cumulative Voting Preferred Stock, Series D of the Corporation and the
Cumulative Nonvoting Preferred Stock, Series E of the Corporation."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Robert MacDonald, its President, and attested by Joan Manning, its
Secretary, this 24th day of May 1995.
SOCAL HOLDINGS, INC.
By: /s/ Robert MacDonald
------------------------------
Name: Robert MacDonald
Title: President
Attest:
/s/ Joan E. Manning
- -----------------------------------
Name: Joan E. Manning
Title: Secretary
7
<PAGE>
CERTIFICATE OF DESIGNATIONS AND PREFERENCES
CUMULATIVE VOTING PREFERRED STOCK, SERIES D
of
SOCAL HOLDINGS, INC.
------------------------------
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
------------------------------
The undersigned duly authorized officer of SoCal Holdings, Inc. (the
"Corporation"), a Delaware corporation, in accordance with the provisions of
Section 103 of the General Corporation Law of the State of Delaware, and
pursuant to Section 151 thereof, does hereby certify that the following
resolution was adopted by the Board of Directors of the Corporation at a meeting
duly convened and held on May 12, 1995, at which a quorum was present and acting
throughout:
"RESOLVED that pursuant to the authority expressly granted to and vested in
this Board of Directors by the Amended and Restated Certificate of Incorporation
of the Corporation, the Board of Directors hereby authorizes the creation of a
series of Cumulative Voting Preferred Stock, Series D, stated value $100.00 per
share, of the Corporation upon the terms and conditions set forth herein and
hereby fixes the designation and number of shares thereof and fixes the other
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions thereof as follows:
1. DESIGNATION AND AMOUNT; FRACTIONAL SHARES. There shall be a series of
preferred stock of the Corporation designated as "Cumulative Voting Preferred
Stock, Series D" and the number of shares constituting such series shall be
68,000. Such series is referred to herein as the "Series D Preferred Stock."
The Series D Preferred Stock is issuable solely in whole shares.
2. STATED VALUE AND ISSUE PRICE. The stated value of each share of
Series D Preferred Stock is $100.00 and the issue price of each such share is
$100.00.
3. DIVIDENDS. The holders of the Series D Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors and out
of the assets of the Corporation which are by law available for the payment of
dividends, cumulative preferential cash dividends payable quarterly on June 30,
September 30, December 31, and March 31 of each year unless such day is a
non-business day, in which event on the next business day, commencing June 30,
1995, at the fixed annual rate of $12.00 per share ($3.00 per quarter). Such
dividends shall be paid to the holders of record of the Series D Preferred Stock
at the date specified by the Board of Directors of the Corporation, which shall
not be more than ten (10) days prior to the respective dividend payment date.
Each
1
<PAGE>
quarterly dividend shall be fully cumulative and dividends shall accrue, whether
or not earned, declared or the Corporation shall have funds or assets available
for the payment of dividends, from the first day of the quarter in which such
dividends may be payable as herein provided, except that with respect to the
first quarterly dividend, such dividend shall accrue from the date of issue of
the Series D Preferred Stock. Accrued but unpaid dividends shall compound
additional dividends on an annual basis, commencing June 30, 1996, at the rate
applicable to the Series D Preferred Stock. Additional dividends shall continue
to be compounded on the due but unpaid dividends until all cumulative dividends
accumulated on the Series D Preferred Stock shall have been paid in full and
provision has been made in full for the payment of dividends for the current
quarterly period.
So long as any Series D Preferred Stock remains outstanding:
(a) no dividend whatsoever shall be declared or paid upon or set
apart for payment, and no distribution shall be ordered or made in respect
of: (i) the Corporation's common stock, par value $.01 per share, or any
other outstanding common stock of the Corporation (the "Common Stock"); or
(ii) any other class of stock or series thereof ranking junior to the
Series D Preferred Stock in the payment of dividends; and
(b) no shares of Common Stock and no shares of any other class of
stock or series thereof ranking junior to the Series D Preferred Stock in
the payment of dividends shall be redeemed or purchased by the Corporation
or any subsidiary thereof; and
(c) no moneys, funds or other assets shall be paid to or made
available for a sinking fund for the redemption or purchase of any shares
of: (i) Common Stock; or (ii) any other class of stock or series thereof
ranking junior to the Series D Preferred Stock in the payment of dividends;
unless, in each instance, full dividends on all outstanding shares of Series D
Preferred: (i) for all past dividend periods shall have been paid; and (ii) for
the then current calendar quarter shall have been paid or declared and set aside
for payment; provided that, notwithstanding anything to the contrary contained
herein, the Corporation shall redeem all shares of Series A Preferred Stock of
the Corporation and all shares of Series B Preferred Stock of the Corporation
outstanding on the date of issuance of the Series D Preferred Stock in
accordance with the Amended and Restated Certificate of Incorporation of the
Corporation.
In addition, so long as any Series D Preferred Stock remains outstanding,
no dividend whatsoever shall be declared or paid upon or set apart for payment,
and no distribution shall be ordered or made in respect of, any share or shares
of any class of stock or series thereof ranking on a parity with the Series D
Preferred Stock in the payment of dividends, unless, for the applicable calendar
quarter:
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<PAGE>
(a) full dividends shall be paid or declared and set apart for
payment on all shares of: (i) the Series D Preferred Stock; and (ii) any
class of stock or series thereof ranking on a parity with the Series D
Preferred Stock in the payment of dividends; or
(b) in the event all such dividends for the applicable calendar
quarter are not or cannot be paid or declared and set apart for payment in
full, a pro rata portion of the full dividends shall be paid or declared
and set apart for payment on all shares of: (i) the Series D Preferred
Stock; and (ii) any class of stock or series thereof ranking on a parity
with the Series D Preferred Stock in the payment of dividends. Such pro
rata portion shall be calculated upon the ratio that the total amount
available for the payment of all required dividends on the Series D
Preferred Stock and such parity stock for the applicable calendar quarter
bears to the total required dividends on the Series D Preferred Stock and
such parity stock for such calendar quarter.
4. PREFERENCE ON LIQUIDATION. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series D Preferred Stock shall be entitled to receive, out of the
net assets of the Corporation available for distribution to its stockholders and
before any distribution shall be made to the holders of Common Stock or to the
holders of any other class of stock or series thereof ranking junior to the
Series D Preferred Stock in the distribution of assets, an amount equal to
$100.00 per share, plus an amount equal to all dividends accrued and unpaid on
each share of Series D Preferred Stock to but excluding the date fixed for
distribution, and no more. If upon such voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation the net assets of
the Corporation shall be insufficient to permit payment in full of the amounts
required to be paid to the holders of the Series D Preferred Stock and to the
holders of any class of stock or series thereof ranking on a parity with the
Series D Preferred Stock in respect of the distribution of assets, then a pro
rata portion of the full amount required to be paid upon such dissolution,
liquidation or winding up shall be paid to: (a) the holders of Series D
Preferred Stock; and (b) the holders of any class of stock or series thereof
ranking on a parity with the Series D Preferred Stock in respect of the
distribution of assets. Such pro rata portion shall be calculated upon the
ratio that the total amount available for distribution to such holders bears to
the total distribution required to be made on the Series D Preferred Stock and
such parity stock.
Nothing herein contained shall be deemed to prevent redemption of Series D
Preferred Stock by the Corporation in the manner provided in Paragraph 5 of
these resolutions. Neither the merger nor consolidation of the Corporation into
or with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding up of the Corporation within the meaning of
this Paragraph 4.
3
<PAGE>
Written notice of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Corporation, stating a payment date and the
place where the distribution amounts shall be payable, shall be given by first
class mail, postage prepaid, at least thirty (30) days but not more than sixty
(60) days prior to the payment date stated therein, to the holders of record of
the Series D Preferred Stock at their respective addresses as the same shall
appear on the books of the Corporation.
5. REDEMPTION. The Corporation shall have the right, at its option and
by resolution of its Board of Directors, to redeem at any time and from time to
time the Series D Preferred Stock, in whole or in part, upon payment in cash in
respect of each share of Series D Preferred Stock redeemed at $100.00 per share,
plus an amount equal to all dividends accrued and unpaid thereon to but
excluding the date fixed for redemption, provided that the Corporation may not
redeem the Series D Preferred Stock in whole or in part unless it also redeems
in whole or in part any class of stock or series thereof ranking on a parity
with the Series D Preferred Stock in respect of redemption.
If less than all of the outstanding shares of the Series D Preferred Stock
and any class of stock or series thereof ranking on a parity with the Series D
Preferred Stock in respect of redemption shall be redeemed, the particular
shares to be redeemed shall be allocated by the Corporation among the respective
holders of Series D Preferred Stock and any class of stock or series thereof
ranking on a parity with the Series D Preferred Stock in respect of redemption,
pro rata, by lot or by a substantially equivalent method selected by the Board
of Directors of the Corporation. Under such circumstances, new certificates
shall be issued evidencing unredeemed shares to the extent applicable.
Notice of any redemption specifying the date fixed for said redemption and
the place where the amount to be paid upon redemption is payable shall be given
by first class mail, postage prepaid, at least ten (10) days but not more than
sixty (60) days prior to said redemption date to the holders of record of the
Series D Preferred Stock to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation. Any notice that is mailed as
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder of shares of Series D Preferred Stock receives such notice;
and failure to give such notice by mail, or any defect in such notice to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series D Preferred
Stock. If proper notice of redemption shall have been so mailed, and if on or
before the redemption date specified in such notice all funds necessary for such
redemption shall have been irrevocably set aside by the Corporation separate and
apart from its other funds, in trust for the account of the holders of the
shares so to be redeemed, so as to be and continue to be available therefor,
then, on and after said redemption date, notwithstanding that any certificate
for shares of the Series D Preferred Stock so called for redemption shall not
have been surrendered for cancellation, the shares represented thereby so called
for redemption shall be deemed to be no longer outstanding, the right to receive
dividends thereon shall cease to accrue, and all rights with respect to such
shares of the Series D Preferred Stock so called for
4
<PAGE>
redemption shall forthwith cease and terminate, except only the right of the
holders thereof to receive out of the funds so set aside in trust the amount
payable on redemption thereof, but without interest. If funds legally available
for such purpose are not sufficient for redemption of the shares of Series D
Preferred Stock which were to be redeemed, then the certificates evidencing such
shares shall be deemed to be outstanding and the right of holders of shares of
Series D Preferred Stock thereafter shall continue to be only those of a holder
of shares of the Series D Preferred Stock.
Any provision of this Paragraph 5 to the contrary notwithstanding, if any
quarterly dividend due on the Series D Preferred Stock shall be in default, and
until all such defaults shall have been cured, the Corporation shall not redeem
any shares of Series D Preferred Stock unless all outstanding shares of Series D
Preferred Stock and any class of stock or series thereof ranking on a parity
with the Series D Preferred Stock in respect of redemption are simultaneously
redeemed and the Corporation shall not purchase or otherwise acquire any shares
of Series D Preferred Stock except in accordance with a purchase offer made by
the Corporation on the same terms to all holders of record of Series D Preferred
Stock and any class of stock or series thereof ranking on a parity with the
Series D Preferred Stock in respect of redemption.
6. VOTING RIGHTS. In addition to any voting rights as may be required
from time to time by law, the holders of the Series D Preferred Stock shall be
entitled to one vote for each share of Series D Preferred Stock held by such
holder on all matters submitted to the holders of Common Stock, whether by vote
at a meeting or for action by written consent, and the holders of the Series D
Preferred Stock shall vote together with the holders of Common Stock and any
other class of capital stock of the Corporation entitled to vote thereon as a
single class. Holders of Series D Preferred Stock shall not be entitled to
cumulative voting in any election of directors. Any shares of Series D
Preferred Stock held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
7. SINKING FUND. No sinking fund or funds shall be established for the
retirement or redemption of the Series D Preferred Stock.
8. CONVERTIBILITY. Shares of the Series D Preferred Stock shall not be
convertible into Common Stock or any other class of capital stock of the
Corporation.
9. RANKING. For purposes hereof, any class or classes of stock of the
Corporation shall be deemed to rank:
(a) senior or prior to the Series D Preferred Stock, as to dividends
or as to distribution of assets upon redemption, liquidation, dissolution
or winding up, if the holders of such class shall be entitled to the
receipt of dividends or of amounts distributable upon redemption,
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series D Preferred Stock;
5
<PAGE>
(b) on a parity with the Series D Preferred Stock, as to dividends or
as to distribution of assets upon redemption, liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from those
of the Series D Preferred Stock, if the holders of such class of stock and
the Series D Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon redemption, liquidation, dissolution or
winding up, as the case may be, in proportion to their respective amounts
of accrued and unpaid dividends per share, redemption prices or liquidation
prices, without preferences or priority one over the other; and
(c) junior to the Series D Preferred Stock, as to dividends or as to
the distribution of assets upon redemption, liquidation, dissolution or
winding up, if such stock shall be Common Stock or if the holders of Series
D Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon redemption, liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of such
stock.
The Series D Preferred Stock and the Cumulative Nonvoting Preferred Stock,
Series E of the Corporation shall be deemed to rank on a parity with each other
and junior to the Cumulative Voting Preferred Stock, Series C of the
Corporation."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Robert MacDonald, its President, and attested by Joan Manning, its
Secretary, this 24th day of May 1995.
SOCAL HOLDINGS, INC.
By: /s/ Robert MacDonald
------------------------------
Name: Robert MacDonald
Title: President
Attest:
/s/ Joan E. Manning
- -----------------------------------
Name: Joan E. Manning
Title: Secretary
6
<PAGE>
CERTIFICATE OF DESIGNATIONS AND PREFERENCES
CUMULATIVE NONVOTING PREFERRED STOCK, SERIES E
of
SOCAL HOLDINGS, INC.
------------------------------
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware
------------------------------
The undersigned duly authorized officer of SoCal Holdings, Inc. (the
"Corporation"), a Delaware corporation, in accordance with the provisions of
Section 103 of the General Corporation Law of the State of Delaware, and
pursuant to Section 151 thereof, does hereby certify that the following
resolution was adopted by the Board of Directors of the Corporation at a meeting
duly convened and held on May 12, 1995, at which a quorum was present and acting
throughout:
"RESOLVED that pursuant to the authority expressly granted to and vested in
this Board of Directors by the Amended and Restated Certificate of Incorporation
of the Corporation, the Board of Directors hereby authorizes the creation of a
series of Cumulative Nonvoting Preferred Stock, Series E, stated value $100.00
per share, of the Corporation upon the terms and conditions set forth herein and
hereby fixes the designation and number of shares thereof and fixes the other
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions thereof as follows:
1. DESIGNATION AND AMOUNT; FRACTIONAL SHARES. There shall be a series of
preferred stock of the Corporation designated as "Cumulative Nonvoting Preferred
Stock, Series E" and the number of shares constituting such series shall be
332,000. Such series is referred to herein as the "Series E Preferred Stock."
The Series E Preferred Stock is issuable solely in whole shares.
2. STATED VALUE AND ISSUE PRICE. The stated value of each share of
Series E Preferred Stock is $100.00 and the issue price of each such share is
$100.00.
3. DIVIDENDS. The holders of the Series E Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors and out
of the assets of the Corporation which are by law available for the payment of
dividends, cumulative preferential cash dividends payable quarterly on June 30,
September 30, December 31, and March 31 of each year unless such day is a
non-business day, in which event on the next business day, commencing June 30,
1995, at the fixed annual rate of $12.00 per share ($3.00 per quarter). Such
dividends shall be paid to the holders of record of the Series E Preferred Stock
at the date specified by the Board of Directors of the Corporation, which shall
not be more than ten (10) days prior to the respective dividend payment date.
Each quarterly
1
<PAGE>
dividend shall be fully cumulative and dividends shall accrue, whether or not
earned, declared or the Corporation shall have funds or assets available for the
payment of dividends, from the first day of the quarter in which such dividends
may be payable as herein provided, except that with respect to the first
quarterly dividend, such dividend shall accrue from the date of issue of the
Series E Preferred Stock. Accrued but unpaid dividends shall compound
additional dividends on an annual basis, commencing June 30, 1996, at the rate
applicable to the Series E Preferred Stock. Additional dividends shall continue
to be compounded on the due but unpaid dividends until all cumulative dividends
accumulated on the Series E Preferred Stock shall have been paid in full and
provision has been made in full for the payment of dividends for the current
quarterly period.
So long as any Series E Preferred Stock remains outstanding:
(a) no dividend whatsoever shall be declared or paid upon or set
apart for payment, and no distribution shall be ordered or made in respect
of: (i) the Corporation's common stock, par value $.01 per share, or any
other outstanding common stock of the Corporation (the "Common Stock"); or
(ii) any other class of stock or series thereof ranking junior to the
Series E Preferred Stock in the payment of dividends; and
(b) no shares of Common Stock and no shares of any other class of
stock or series thereof ranking junior to the Series E Preferred Stock in
the payment of dividends shall be redeemed or purchased by the Corporation
or any subsidiary thereof; and
(c) no moneys, funds or other assets shall be paid to or made
available for a sinking fund for the redemption or purchase of any shares
of: (i) Common Stock; or (ii) any other class of stock or series thereof
ranking junior to the Series E Preferred Stock in the payment of dividends;
unless, in each instance, full dividends on all outstanding shares of Series E
Preferred: (i) for all past dividend periods shall have been paid; and (ii) for
the then current calendar quarter shall have been paid or declared and set aside
for payment; provided that, notwithstanding anything to the contrary contained
herein, the Corporation shall redeem all shares of Series A Preferred Stock of
the Corporation and all shares of Series B Preferred Stock of the Corporation
outstanding on the date of issuance of the Series E Preferred Stock in
accordance with the Amended and Restated Certificate of Incorporation of the
Corporation.
In addition, so long as any Series E Preferred Stock remains outstanding,
no dividend whatsoever shall be declared or paid upon or set apart for payment,
and no distribution shall be ordered or made in respect of, any share or shares
of any class of stock or series thereof ranking on a parity with the Series E
Preferred Stock in the payment of dividends, unless, for the applicable calendar
quarter:
2
<PAGE>
(a) full dividends shall be paid or declared and set apart for
payment on all shares of: (i) the Series E Preferred Stock; and (ii) any
class of stock or series thereof ranking on a parity with the Series E
Preferred Stock in the payment of dividends; or
(b) in the event all such dividends for the applicable calendar
quarter are not or cannot be paid or declared and set apart for payment in
full, a pro rata portion of the full dividends shall be paid or declared
and set apart for payment on all shares of: (i) the Series E Preferred
Stock; and (ii) any class of stock or series thereof ranking on a parity
with the Series E Preferred Stock in the payment of dividends. Such pro
rata portion shall be calculated upon the ratio that the total amount
available for the payment of all required dividends on the Series E
Preferred Stock and such parity stock for the applicable calendar quarter
bears to the total required dividends on the Series E Preferred Stock and
such parity stock for such calendar quarter.
4. PREFERENCE ON LIQUIDATION. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series E Preferred Stock shall be entitled to receive, out of the
net assets of the Corporation available for distribution to its stockholders and
before any distribution shall be made to the holders of Common Stock or to the
holders of any other class of stock or series thereof ranking junior to the
Series E Preferred Stock in the distribution of assets, an amount equal to
$100.00 per share, plus an amount equal to all dividends accrued and unpaid on
each share of Series E Preferred Stock to but excluding the date fixed for
distribution, and no more. If upon such voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation the net assets of
the Corporation shall be insufficient to permit payment in full of the amounts
required to be paid to the holders of the Series E Preferred Stock and to the
holders of any class of stock or series thereof ranking on a parity with the
Series E Preferred Stock in respect of the distribution of assets, then a pro
rata portion of the full amount required to be paid upon such dissolution,
liquidation or winding up shall be paid to: (a) the holders of Series E
Preferred Stock; and (b) the holders of any class of stock or series thereof
ranking on a parity with the Series E Preferred Stock in respect of the
distribution of assets. Such pro rata portion shall be calculated upon the
ratio that the total amount available for distribution to such holders bears to
the total distribution required to be made on the Series E Preferred Stock and
such parity stock.
Nothing herein contained shall be deemed to prevent redemption of Series E
Preferred Stock by the Corporation in the manner provided in Paragraph 5 of
these resolutions. Neither the merger nor consolidation of the Corporation into
or with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding up of the Corporation within the meaning of
this Paragraph 4.
3
<PAGE>
Written notice of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Corporation, stating a payment date and the
place where the distribution amounts shall be payable, shall be given by first
class mail, postage prepaid, at least thirty (30) days but not more than sixty
(60) days prior to the payment date stated therein, to the holders of record of
the Series E Preferred Stock at their respective addresses as the same shall
appear on the books of the Corporation.
5. REDEMPTION. The Corporation shall have the right, at its option and
by resolution of its Board of Directors, to redeem at any time and from time to
time the Series E Preferred Stock, in whole or in part, upon payment in cash in
respect of each share of Series E Preferred Stock redeemed at $100.00 per share,
plus an amount equal to all dividends accrued and unpaid thereon to but
excluding the date fixed for redemption, provided that the Corporation may not
redeem the Series E Preferred Stock in whole or in part unless it also redeems
in whole or in part any class of stock or series thereof ranking on a parity
with the Series E Preferred Stock in respect of redemption.
If less than all of the outstanding shares of the Series E Preferred Stock
and any class of stock or series thereof ranking on a parity with the Series E
Preferred Stock in respect of redemption shall be redeemed, the particular
shares to be redeemed shall be allocated by the Corporation among the respective
holders of Series E Preferred Stock and any class of stock or series thereof
ranking on a parity with the Series E Preferred Stock in respect of redemption,
pro rata, by lot or by a substantially equivalent method selected by the Board
of Directors of the Corporation. Under such circumstances, new certificates
shall be issued evidencing unredeemed shares to the extent applicable.
Notice of any redemption specifying the date fixed for said redemption and
the place where the amount to be paid upon redemption is payable shall be given
by first class mail, postage prepaid, at least ten (10) days but not more than
sixty (60) days prior to said redemption date to the holders of record of the
Series E Preferred Stock to be redeemed at their respective addresses as the
same shall appear on the books of the Corporation. Any notice that is mailed as
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder of shares of Series E Preferred Stock receives such notice;
and failure to give such notice by mail, or any defect in such notice to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series E Preferred
Stock. If proper notice of redemption shall have been so mailed, and if on or
before the redemption date specified in such notice all funds necessary for such
redemption shall have been irrevocably set aside by the Corporation separate and
apart from its other funds, in trust for the account of the holders of the
shares so to be redeemed, so as to be and continue to be available therefor,
then, on and after said redemption date, notwithstanding that any certificate
for shares of the Series E Preferred Stock so called for redemption shall not
have been surrendered for cancellation, the shares represented thereby so called
for redemption shall be deemed to be no longer outstanding, the right to receive
dividends thereon shall cease to accrue, and all rights with respect to such
shares of the Series E Preferred Stock so called for redemption shall
4
<PAGE>
forthwith cease and terminate, except only the right of the holders thereof to
receive out of the funds so set aside in trust the amount payable on redemption
thereof, but without interest. If funds legally available for such purpose are
not sufficient for redemption of the shares of Series E Preferred Stock which
were to be redeemed, then the certificates evidencing such shares shall be
deemed to be outstanding and the right of holders of shares of Series E
Preferred Stock thereafter shall continue to be only those of a holder of shares
of the Series E Preferred Stock.
Any provision of this Paragraph 5 to the contrary notwithstanding, if any
quarterly dividend due on the Series E Preferred Stock shall be in default, and
until all such defaults shall have been cured, the Corporation shall not redeem
any shares of Series E Preferred Stock unless all outstanding shares of Series E
Preferred Stock and any class of stock or series thereof ranking on a parity
with the Series E Preferred Stock in respect of redemption are simultaneously
redeemed and the Corporation shall not purchase or otherwise acquire any shares
of Series E Preferred Stock except in accordance with a purchase offer made by
the Corporation on the same terms to all holders of record of Series E Preferred
Stock and any class of stock or series thereof ranking on a parity with the
Series E Preferred Stock in respect of redemption.
6. VOTING RIGHTS. The holders of the Series E Preferred Stock shall not
have any voting rights except as otherwise from time to time required by law.
7. SINKING FUND. No sinking fund or funds shall be established for the
retirement or redemption of the Series E Preferred Stock.
8. CONVERTIBILITY. Shares of the Series E Preferred Stock shall not be
convertible into Common Stock or any other class of capital stock of the
Corporation.
9. RANKING. For purposes hereof, any class or classes of stock of the
Corporation shall be deemed to rank:
(a) senior or prior to the Series E Preferred Stock, as to dividends
or as to distribution of assets upon redemption, liquidation, dissolution
or winding up, if the holders of such class shall be entitled to the
receipt of dividends or of amounts distributable upon redemption,
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series E Preferred Stock;
(b) on a parity with the Series E Preferred Stock, as to dividends or
as to distribution of assets upon redemption, liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from those
of the Series E Preferred Stock, if the holders of such class of stock and
the Series E Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon redemption, liquidation, dissolution or
winding up, as the case may be, in proportion to their
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<PAGE>
respective amounts of accrued and unpaid dividends per share, redemption
prices or liquidation prices, without preferences or priority one over the
other; and
(c) junior to the Series E Preferred Stock, as to dividends or as to
the distribution of assets upon redemption, liquidation, dissolution or
winding up, if such stock shall be Common Stock or if the holders of Series
E Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon redemption, liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of shares of such
stock.
The Series E Preferred Stock and the Cumulative Voting Preferred Stock,
Series D of the Corporation shall be deemed to rank on a parity with each other
and junior to the Cumulative Voting Preferred Stock, Series C of the
Corporation."
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Robert MacDonald, its President, and attested by Joan Manning, its
Secretary, this 24th day of May 1995.
SOCAL HOLDINGS, INC.
By: /s/ Robert MacDonald
------------------------------
Name: Robert MacDonald
Title: President
Attest:
/s/ Joan E. Manning
- -----------------------------------
Name: Joan E. Manning
Title: Secretary
6
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SOCAL HOLDINGS, INC.
Rudolf P. Guenzel and J. Michael Holmes hereby certify that:
A. They are the President and Secretary, respectively, of SoCal Holdings,
Inc., a Delaware corporation (the "Corporation").
B. Pursuant to the authority conferred upon the Board of Directors by the
Amended and Restated Certificate of Incorporation of the Corporation, and
pursuant to the provisions of Section 141 of the General Corporation Law of the
State of Delaware (the "GCL"), the Board of Directors, at a meeting duly noticed
and held on the 20th day of March, 1998, duly adopted resolutions providing for
the amendment of the Amended and Restated Certificate of Incorporation of the
Corporation, which resolutions are as follows:
"1. Article 1 of the Certificate of Incorporation shall be amended in its
entirety to read:
"ARTICLE 1. Name. The name of the corporation is PBOC Holdings,
Inc. (hereinafter referred to as the "Corporation")."
2. "PBOC Holdings, Inc." shall be deemed to be substituted for "SoCal
Holdings, Inc." wherever it shall appear in the Certificate of Incorporation.
3. Article 4 of the Certificate of Incorporation shall be amended in its
entirety to read:
"ARTICLE 4. Capital Stock. The total number of shares of
capital stock which the Corporation has authority to issue is
100,000,000, of which 25,000,000 shall be serial preferred stock, $.01
par value per share (hereinafter the "Preferred Stock"), and
75,000,000 shall be common stock, par value $.01 per share
(hereinafter the "Common Stock"). The Preferred Stock shall include
the following series of Preferred Stock: 85,000 shares of Series C
Preferred Stock, $.01 par value per share, 68,000 shares of Series D
Preferred Stock, $.01 par value per share and 332,000 shares of Series
E Preferred Stock, $.01 par value per share.
Except as provided in any resolution or resolutions establishing a
class or series of Preferred Stock pursuant to this Article 4, the
holders of the Common Stock shall exclusively possess all voting
power. Each holder of shares of Common Stock shall be entitled to
.5939 of a vote for each share held by such holder, and holders of
shares may not cumulate votes for the election of directors.
<PAGE>
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class or
series of stock having preference over the Common Stock as to the
payment of dividends, the full amount of dividends and of sinking
fund, retirement fund or other retirement payments, if any, to which
such holders are respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock and on any class
or series of stock entitled to participate therewith as to dividends
out of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock (and the holders of any
class or series of stock entitled to participate with the Common Stock
in the distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the Corporation available for distribution
remaining after: (i) payment or provision for payment of the
Corporation's debts and liabilities; and (ii) distributions or
provisions for distributions to holders of any class or series of
stock having preference over the Common Stock in the liquidation,
dissolution or winding up of the Corporation. Each share of Common
Stock shall have the same relative rights as and be identical in all
respects with all the other shares of Common Stock.
The Board of Directors is hereby expressly authorized, by
resolution or resolutions to provide, out of the unissued shares of
Preferred Stock, for series of Preferred Stock. Before any shares of
any such series are issued, the Board of Directors shall fix, and
hereby is expressly empowered to fix, by resolution or resolutions,
the following provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different from
the par value thereof;
(b) whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the
terms of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of this class;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
<PAGE>
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or other corporate purposes and the terms and provisions
relative to the operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other
series of this class or any other securities, and, if so, the price or
prices or the rate or rates of conversion or exchange and the method,
if any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other
series of this class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions thereof.
The powers, preferences and relative, participating,
optional and other special rights, of each series of
Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of
any and all other series at any time outstanding. All
shares of any one series of Preferred Stock shall be
identical in all respects with all other shares of such
series, except that shares of any one series issued at
different times may differ as to the dates from which
dividends thereon shall accrue and/or be cumulative."
<PAGE>
4. Article 6 of the Certificate of Incorporation shall be amended in its
entirety to read:
"ARTICLE 6. Directors and Number of Directors. The business and
affairs of the Corporation shall be managed by or under the direction
of a Board of Directors. Except as otherwise fixed pursuant to the
provisions of Article 4 hereof relating to the rights of the holders
of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional
directors, the number of directors shall be determined as stated in
the Corporation's Bylaws, as may be amended from time to time.
A. Classification and Term. The Board of Directors, other than
those who may be elected by the holders of any class or series of
stock having preference over the Common Stock as to dividends or upon
liquidation, shall be divided into three classes as nearly equal in
number as possible, with one class to be elected annually. The term
of office of the directors of the Corporation shall be as follows:
the term of directors of the first class shall expire at the first
annual meeting of stockholders after the effective date of the filing
of the Amended and Restated Certificate of Incorporation in connection
with the Corporation's initial public offering; the term of office of
the directors of the second class shall expire at the second annual
meeting of stockholders after the effective date of the filing of said
Amended and Restated Certificate of Incorporation; and the term of
office of the third class shall expire at the third annual meeting of
stockholders after the effective date of the filing of said Amended
and Restated Certificate of Incorporation; and, as to directors of
each class, when their respective successors are elected and
qualified. At each annual meeting of stockholders, directors elected
to succeed those whose terms are expiring shall be elected for a term
of office to expire at the third succeeding annual meeting of
stockholders and when their respective successors are elected and
qualified.
B. No Cumulative Voting. Stockholders of the Corporation shall
not be permitted to cumulate their votes for the election of
directors.
C. Vacancies. Except as otherwise fixed pursuant to the
provisions of Article 4 hereof relating to the rights of the holders
of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect directors, any
vacancy occurring in the Board of Directors, including any vacancy
created by reason of an increase in the number of directors, may be
filled by a majority vote of the directors then in office, whether or
not a quorum is present, or by a sole remaining director, and any
director so chosen shall hold office for the remainder of the term to
which the director has been selected and until such director's
successor shall have been elected and qualified. When the number of
directors is changed, the Board of Directors shall determine the class
or classes to which the increased or decreased number of directors
shall be apportioned; provided that no decrease in the number of
directors shall shorten the term of any incumbent director.
<PAGE>
D. Removal. Subject to the rights of any class or series of stock
having preference over the Common Stock as to dividends or upon
liquidation to elect directors, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may
be removed from office only with cause by an affirmative vote of not
less than a majority of the votes eligible to be cast by stockholders
at a duly constituted meeting of stockholders called expressly for
such purpose."
C. That the shareholders of the Corporation, pursuant to Section 228 of
the GCL, by a unanimous written consent of all of the shareholders of the
Corporation, have approved the Amendment as set forth above.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Amended and Restated Certificate of Incorporation to be duly
executed this 20th day of March, 1998.
By: /s/ Rudolf P. Guenzel
--------------------------------
Rudolf P. Guenzel
President and Chief Executive Officer
ATTEST:
By: /s/ J. Michael Holmes
---------------------------
J. Michael Holmes
Secretary
<PAGE>
Exhibit 3.1.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
PBOC HOLDINGS, INC.
PBOC Holdings, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is PBOC Holdings, Inc. The original
Certificate of Incorporation of the Corporation was filed with the Secretary
of State of the State of Delaware on March 2, 1987, was amended on October
29, 1989 and July 29, 1992 and amended and restated on June 1, 1995 (the
"First Amended and Restated Certificate of Incorporation"). A Certificate of
Amendment of Amended and Restated Certificate of Incorporation was filed on
March 20, 1998 ("Certificate of Amendment").
2. The Corporation, by resolutions duly adopted and declared advisable
by its Board of Directors, has authorized an amendment and restatement of the
Certificate of Incorporation (the "Amended and Restated Certificate of
Incorporation") in accordance with Sections 242 and 245 of the Delaware General
Corporation law. Such Amended and Restated Certificate of Incorporation has been
duly adopted by the Corporation's stockholders by unanimous written consent in
accordance with the Corporation's Bylaws and in accordance with the Delaware
General Corporation Law.
3. On the date of effectiveness of the Amended and Restated
Certificate of Incorporation, (i) each outstanding share of the Corporation's
common stock, par value $0.01 per share ("Common Stock"), which heretofore
was entitled to 0.5939 of a vote for each share held by such holder on any
matter requiring a vote by holders of the Common Stock shall be entitled
automatically and without further action to one (1) vote for each share held
by such holder on any matter requiring a vote by holders of the Common Stock;
and (ii) all 85,000 shares of the Corporation's Series C Preferred Stock, par
value $0.01 per share, all 68,000 shares of the Corporation's Series D
Preferred Stock, par value $0.01 per share, and all 332,000 shares of the
Corporation's Series E Preferred Stock, par value $0.01 per share,
(collectively, the "Preferred Stock") shall be exchanged for shares of the
Corporation's Common Stock in accordance with the terms of a Stockholders'
Agreement dated _________ __, 1998, between the Corporation and all of the
holders of its Common Stock and Preferred Stock as of the date thereof; each
such series of Preferred Stock shall be retired; and all of the Certificates
of Designations and Preferences to the First Amended and Restated Certificate
of Incorporation shall be cancelled.
4. The text of the First Amended and Restated Certificate of
Incorporation, as amended by the Certificate of Amendment is hereby amended
and restated in its entirety to read as herein set forth in full:
<PAGE>
ARTICLE I
NAME
The name of the corporation is PBOC Holdings, Inc. (hereinafter
referred to as the "Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the city of Wilmington, county of New Castle.
The name of the registered agent at such address is The Corporation Trust
Company.
ARTICLE III
NATURE OF BUSINESS
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation has
authority to issue is 100,000,000, of which 25,000,000 shall be serial preferred
stock, $.01 par value per share (hereinafter the "Preferred Stock"), and
75,000,000 shall be common stock, par value $.01 per share (hereinafter the
"Common Stock").
Except as provided in any resolution or resolutions establishing a class
or series of Preferred Stock pursuant to this Article IV, the holders of the
Common Stock shall exclusively possess all voting power. Each holder of shares
of Common Stock shall be entitled to one (1) vote for each share held by such
holder, and holders of shares may not cumulate votes for the election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class or series of
stock having preference over the Common Stock as to the payment of dividends,
the full amount of dividends and of sinking fund, retirement fund or other
retirement payments, if any, to which such holders are respectively entitled in
preference to the Common Stock, then dividends may be paid on the Common Stock
and on any class or series of stock entitled to participate therewith as to
dividends out of any
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<PAGE>
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of the Common Stock (and the holders of any class or
series of stock entitled to participate with the Common Stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Corporation available for distribution remaining after: (i)
payment or provision for payment of the Corporation's debts and liabilities; and
(ii) distributions or provisions for distributions to holders of any class or
series of stock having preference over the Common Stock in the liquidation,
dissolution or winding up of the Corporation. Each share of Common Stock shall
have the same relative rights as and be identical in all respects with all the
other shares of Common Stock.
The Board of Directors is hereby expressly authorized, by resolution or
resolutions to provide, out of the unissued shares of Preferred Stock, for
series of Preferred Stock. Before any shares of any such series are issued, the
Board of Directors shall fix, and hereby is expressly empowered to fix, by
resolution or resolutions, the following provisions of the shares thereof:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof if different from
the par value thereof;
(b) whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms
of such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other series of
this class;
(d) whether the shares of such series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;
3
<PAGE>
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other
series of this class or any other securities, and, if so, the price or
prices or the rate or rates of conversion or exchange and the method, if
any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional
stock, including additional shares of such series or of any other series
of this class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations
and restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
ARTICLE V
PREEMPTIVE RIGHTS
No holder of the capital stock of the Corporation shall be entitled as
such, as a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever of the Corporation, or of
securities convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of a dividend.
4
<PAGE>
ARTICLE VI
DIRECTORS
A. Directors and Number of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
Except as otherwise fixed pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors, the number of directors shall be determined as stated in
the Corporation's Bylaws, as may be amended from time to time.
B. Classification and Term. The Board of Directors, other than those
who may be elected by the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, shall
be divided into three classes as nearly equal in number as possible, with one
class to be elected annually. The term of office of the directors of the
Corporation shall be as follows: the term of directors of the first class
shall expire at the first annual meeting of stockholders after the effective
date of the filing of the Amended and Restated Certificate of Incorporation
in connection with the Corporation's initial public offering; the term of
office of the directors of the second class shall expire at the second annual
meeting of stockholders after the effective date of the filing of said
Amended and Restated Certificate of Incorporation; and the term of office of
the third class shall expire at the third annual meeting of stockholders
after the effective date of the filing of said Amended and Restated
Certificate of Incorporation; and, as to directors of each class, when their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors elected to succeed those whose terms are expiring
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders and when their respective successors are
elected and qualified.
C. No Cumulative Voting. Stockholders of the Corporation shall not be
permitted to cumulate their votes for the election of directors.
D. Vacancies. Except as otherwise fixed pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors, any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by a majority vote of the directors then in office,
whether or not a quorum is present, or by a sole remaining director, and any
director so chosen shall hold office for the remainder of the term to which the
director has been selected and until such director's successor shall have been
elected and qualified. When the number of directors is changed, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; provided that no decrease in
the number of directors shall shorten the term of any incumbent director.
E. Removal. Subject to the rights of any class or series of stock having
preference over
5
<PAGE>
the Common Stock as to dividends or upon liquidation to elect
directors, any director (including persons elected by directors to fill
vacancies in the Board of Directors) may be removed from office only with cause
by an affirmative vote of not less than a majority of the votes eligible to be
cast by stockholders at a duly constituted meeting of stockholders called
expressly for such purpose.
ARTICLE VII
MEETINGS OF STOCKHOLDERS AND BYLAWS
A. Meetings of Stockholders. No action required by the General
Corporation Law of the State of Delaware to be taken at any annual or special
meetings of stockholders, nor any action which may be taken at any annual or
special meetings of stockholders, may be taken without a meeting, without prior
notice and without a vote of such stockholders. Except as otherwise required by
law and subject to the rights of the holders of any class or series of Preferred
Stock, special meetings of the stockholders may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative vote of a
majority of the directors then in office.
B. Bylaws. The Board of Directors or stockholders may adopt, alter,
amend or repeal the Bylaws of the Corporation. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
a majority of the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a ingle class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof, provided that the affirmative vote of the holders of at
least 75% of the shares of the Corporation entitled to vote generally in an
election of directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof, shall be required to amend, adopt, alter, change or repeal
any provision of the Bylaws of the Corporation which is inconsistent with
Articles VI, VII, VIII, IX and X of this Amended and Restated Certificate of
Incorporation or Sections 2.3, 2.14 and 4.15 of the Bylaws of the Corporation
and which is not approved by the affirmative vote of 80% of the members of the
Corporation's Board of Directors then in office.
ARTICLE VIII
LIABILITY OF DIRECTORS AND OFFICERS
The personal liability of the directors and officers of the Corporation
for monetary damages shall be eliminated to the fullest extent permitted by the
General Corporation Law of the State of Delaware as it exists on the effective
date of this Amended and Restated Certificate of
6
<PAGE>
Incorporation or as such law may be thereafter in effect. No amendment,
modification or repeal of this Article VIII shall adversely affect the rights
provided hereby with respect to any claim, issue or matter in any proceeding
that is based in any respect on any alleged action or failure to act prior to
such amendment, modification or repeal.
ARTICLE IX
INDEMNIFICATION, ETC. OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
A. Indemnification. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation or any predecessor of the
Corporation, or is or was serving at the request of the Corporation or any
predecessor of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent authorized by Section 145
of the General Corporation Law of the State of Delaware, provided that the
Corporation shall not be liable for any amounts which may be due to any person
in connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding initiated by
any person seeking indemnification hereunder without its prior written consent.
B. Advancement of Expenses. Reasonable expenses (including attorneys'
fees) incurred by a director, officer or employee of the Corporation in
defending any civil, criminal, administrative or investigative action, suit or
proceeding described hereunder shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors only upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that the person
is not entitled to be indemnified by the Corporation.
C. Other Rights and Remedies. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article IX shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to actions in
their official capacity and as to actions in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
D. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer,
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<PAGE>
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Amended and
Restated Certificate of Incorporation or this Article IX.
E. Modification. The duties of the Corporation to indemnify and to
advance expenses to a director, officer, employee or agent provided in this
Article IX shall be in the nature of a contract between the Corporation and each
such person, and no amendment or repeal of any provision of this Article IX
shall alter, to the detriment of such person, the right of such person to the
advance of expenses or indemnification related to a claim based on an act or
failure to act which took place prior to such amendment or repeal.
F. Compliance with Applicable Law. Any payments made pursuant to
paragraphs A and B of this Article IX shall be subject to compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
ARTICLE X
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by law, and all rights conferred upon
stockholders herein are granted subject to this reservation. No amendment,
addition, alteration, change or repeal of this Amended and Restated Certificate
of Incorporation shall be made unless it is first approved by the Board of
Directors of the Corporation pursuant to a resolution adopted by the affirmative
vote of a majority of the directors then in office, and, to the extent required
by applicable law, is thereafter approved by the holders of a majority (except
as provided below) of the shares of the Corporation entitled to vote generally
in an election of directors, voting together as a single class, as well as such
additional vote of the Preferred Stock as may be required by the provisions of
any series thereof. Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 75% of the shares of the Corporation entitled to vote
generally in an election of directors, voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof, shall be required to amend, adopt, alter,
change or repeal any provision inconsistent with Articles VI, VII, VIII, IX and
X hereof and which is not approved by the affirmative vote of 80% of the
Corporation's Board of Directors then in office.
8
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IN WITNESS WHEREOF, PBOC Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary on this _____ day of ________ 1998.
PBOC Holdings, Inc.
Attest:
By:
- --------------------------- ----------------------------
Name: J. Michael Holmes Name: Rudolf P. Guenzel
Title: Secretary Title: President and Chief
Executive Officer
<PAGE>
EXHIBIT 3.2
AMENDED BYLAWS
(March 20, 1998)
1. Sections 3.02, 3.03, 3.05 and 3.12 of Article III of the Bylaws shall
be amended in their entirety to read:
"SECTION 3.02 NUMBER OF DIRECTORS. The Board of Directors shall
consist of seven persons. The number of directors may at any time be
increased or decreased by a vote of a majority of the Board of
Directors, provided that no decrease shall have the effect of
shortening the term of any incumbent director. Notwithstanding
anything to the contrary contained within these Bylaws, the number of
directors may not be less than seven nor more than 15.
SECTION 3.03 CLASSIFICATION AND TERM. The Board of directors shall
be divided into three classes as nearly equal in number as possible.
The term of directors of the first class shall expire at the first
annual meeting of stockholders after the effective date of the filing
of the Amended and Restated Certificate of Incorporation in connection
with the Corporation's initial public offering; the term of office of
the directors of the second class shall expire at the second annual
meeting of stockholders after the effective date of the filing of said
Amended and Restated Certificate of Incorporation; and the term of
office of the third class shall expire at the third annual meeting of
stockholders after the effective date of the filing of said Amended
and Restated Certificate of Incorporation; and, as to directors of
each class, when their respective successors are elected and
qualified. At each annual meeting of stockholders, directors elected
to succeed those whose terms are expiring shall be elected for a term
of office to expire at the third succeeding annual meeting of
stockholders and when their respective successors are elected and
qualified.
SECTION 3.05 VACANCIES. All vacancies in the Board of directors
shall be filed in the manner provided in the Corporation's Amended and
Restated Certificate of Incorporation.
SECTION 3.12 REMOVAL OF DIRECTORS. Directors may be removed in the
manner provided in the Corporation's Amended and Restated Certificate
of Incorporation."
<PAGE>
AMENDMENTS TO BYLAWS
( )
WHEREAS, it is in the best interests of SCH that the Bylaws of SCH be
consistent with the Amended and Restated Certificate of Incorporation described
above;
NOW, THEREFORE, BE IT RESOLVED, that ARTICLE III, Sections 3.02, 3.03,
3.05, and 3.12 of the Bylaws shall be amended in their entirety to read as
follows:
"Section 3.02 Number of Directors. The number of directors
shall not be less than three nor more than fifteen, as from time to
time set by the stockholders of the Corporation.
Section 3.03 Election and Term of Directors. The directors
shall be elected annually by the stockholders at the annual meeting of
the stockholders of the Corporation and shall hold office until his or
her successor is elected and qualified.
Section 3.05 Vacancies. Except as otherwise provided in the
Certificate of Incorporation for the Corporation relating to the
rights of the holders of any class or series of stock having a
preference over the common stock of the Corporation as to dividends or
upon liquidation to elect directors, any vacancy occurring in the
Board of Directors, including any vacancy created by reason of an
increase in the number of directors, may only be filled by an
affirmative vote of not less than a majority of the votes eligible to
be cast by stockholders at a duly constituted meeting of stockholders.
When the number of directors is changed, the stockholders shall
determine the class or classes to which the increased or decreased
number of directors shall be apportioned, provided that no decrease in
the number of directors shall shorten the term of any incumbent
director.
Section 3.12 Removal of Directors. Subject to the rights of any
class or series of stock having preference over the common stock of
the Corporation as to dividends or upon liquidation to elect
directors, any director may be removed from office with or without
cause by an affirmative vote of not less than a majority of the votes
eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose."
RESOLVED, FURTHER, that ARTICLE II, Sections 2.02 and 2.09 of the Bylaws
shall be amended in their entirety to read as follows:
"Section 2.02 Special Meetings. Except as otherwise required by
law and subject to the rights of the holders of any class or series of
preferred stock, special meetings of the stockholders may be called by
the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the directors then in office, and
special meetings of the
<PAGE>
stockholders shall be called by the Board of Directors on the request of
the holders of not less than a majority of the shares entitled to vote at
the meeting.
Section 2.09 Action Without Meeting. Notwithstanding anything
contained in the Certificate of Incorporation of the Corporation to
the contrary, any action required under the General Corporation Law of
the State of Delaware or under the Certificate of Incorporation of the
Corporation to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer
or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made
to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested."
RESOLVED, FURTHER, that ARTICLE VIII, Section 8.03 of the Bylaws shall be
amended in its entirety to read as follows:
"Section 8.03 Amendments. The stockholders of the Corporation shall
have the exclusive authority to adopt, alter, amend or repeal the Bylaws of the
Corporation. such action by the stockholders shall require the affirmative vote
of at least a majority of the total votes eligible to be cast by stockholders at
a duly constituted meeting of stockholders called expressly for such purpose."
RESOLVED, FURTHER, that ARTICLE VII, sections 7.01, 7.02, 7.03, 7.04, and
7.05 of the Bylaws shall be amended in their entirety to read as follows:
"Section 7.01 Indemnification. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation, or is or was
serving at the request of the Corporation or any predecessor of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other
2
<PAGE>
enterprise against expenses (including attorneys' fees), judgments, fines,
excise taxes and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding
to the fullest extent authorized by Section 145(a)-(d) of the General
Corporation Law of the State of Delaware, provided that the Corporation
shall not be liable for any amount which may be due to any person in
connection with a settlement of any action, suit or proceeding effected
without its prior written consent or any action, suit or proceeding
initiated by any person seeking indemnification hereunder (other than to
enforce the requirements of this ARTICLE VII) without its prior written
consent.
Section 7.02 Advancement of Expenses. Reasonable expenses
(including attorneys' fees) incurred by a director, officer or
employee of the Corporation in defending any civil, criminal,
administrative or investigative action, suit or proceeding described
in this ARTICLE VII shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by
the Board of Directors only upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be
determined that the person is not entitled to be indemnified by the
Corporation.
Section 7.03 Other Rights and Remedies. The indemnification and
advancement of expenses provided by, or granted pursuant to, this
ARTICLE VII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to actions in their official capacity
and as to actions in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer
or employee and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 7.04 Insurance. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or employee of
the Corporation, or is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer or employee of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the Corporation would
have the power to indemnify him against such liability under the
provisions of this ARTICLE VII.
Section 7.05 Compliance with Applicable Law. Any payments made
pursuant to Sections 7.01 and 7.02 of this ARTICLE VII shall be
subject to
3
<PAGE>
compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated
thereunder."
RESOLVED, FURTHER, that the foregoing amendments to the Bylaws of SCH shall
be effective concurrent with the filing of the above described Amended and
Restated Certificate of Incorporation with the Office of the Secretary of State
of the State of Delaware.
4
<PAGE>
SOCAL HOLDINGS, INC.
(a Delaware corporation)
BYLAWS
ARTICLE I
Offices
SECTION 1.01 Registered Office. The registered office of SoCal Holdings,
Inc. (hereinafter called the Corporation) in the State of Delaware shall be at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, and the name of the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the Board) may from time
to time determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the stockholders for
the transaction of any proper business may be called at any time by a majority
of the directors then in office.
SECTION 2.03 Place of Meetings. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meetings. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his post office address last
known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or
<PAGE>
wireless. Except as otherwise expressly required by law, no publication of any
notice of a meeting of the stockholders shall be required. Every notice of a
meeting of the stockholders shall state the place, date and hour of the meeting,
and, in the case of a special meeting, shall also state the purpose or purposes
for which the meeting is called. Notice of any meeting of stockholders shall
not be required to be given to any stockholder who shall have waived such notice
and such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 2.06 Voting.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and
to vote at such meeting, or
(ii) if no such record data shall have been so fixed, then (a) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived, at
the close of business on the day next preceding the day on which the
meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to
2
<PAGE>
vote nor be counted for quorum purposes. Persons holding stock of the
Corporation in a fiduciary capacity shall be entitled to vote such stock.
Persons whose stock is pledged shall be entitled to vote, unless in the transfer
by the pledgor on the books of the Corporation he shall have expressly empowered
the pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon. Stock having voting power standing of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants in common, tenants by entirety or otherwise, or with
respect to which two or more persons have the same fiduciary relationship, shall
be voted in accordance with the provisions of the General Corporation Law of the
State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or bylaw, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot each ballot, unless so
directed by the Chairman of the meeting. On a vote by ballot each shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
it shall state the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the
3
<PAGE>
Secretary of the Corporation. The judges need not be stockholders of the
Corporation, and any officer of the Corporation may be a judge on any question
other than a vote for or against a proposal in which he shall have a material
interest.
SECTION 2.09 Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
Board of Directors
SECTION 3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors shall be
fixed from time to time by the board of directors pursuant to a resolution
adopted by the affirmative vote of a majority of the entire Board. Directors
need not be stockholders. The authorized number of directors shall in no case
be fewer than three nor more than eighteen. Each of the directors of the
Corporation shall hold office until his successor shall have been duly elected
and shall qualify or until he shall resign or shall have been removed in the
manner hereinafter provided.
SECTION 3.03 Election of Directors. The directors shall be elected
annually by the stockholders of the Corporation and the persons receiving the
greatest number of votes, up to the number of directors to be elected, shall be
the directors. The directors of the Corporation shall be divided into three
classes, as nearly equal in number as possible: the first class, the second
class and the third class. Each director shall serve for a term ending on the
third annual meeting following the annual meeting at which such director was
elected; provided, however, that the directors first elected to the first class
shall serve for a term ending upon the election of directors at the annual
meeting next following the end of the calendar year 1987, the directors first
elected to the second class shall serve for a term ending upon the election of
directors at the second annual meeting next following the end of the calendar
year 1987, and the directors first elected to the third class shall serve for a
term ending upon the election of directors at the third annual meeting next
following the end of the calendar year 1987.
4
<PAGE>
At each annual election commencing at the first annual meeting of
stockholders, the successors to the class of directors whose term expires at
that time shall be elected by the stockholders to hold office for a term of
three years to succeed those directors whose term expires, so that the term of
one class of directors shall expire each year, unless, by reason of any
intervening changes in the authorized number of directors, the board of
directors shall have designated one or more directorships whose term then expire
as directorships of another class in order more nearly to achieve equality of
number of directors among the classes of directors.
Notwithstanding the requirement that the three classes of directors shall
be as nearly equal in number of directors as possible, in the event of any
change in the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of which he
is a member until the expiration of his current term, or his prior resignation,
disqualification, disability or removal.
SECTION 3.04 Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate
of Incorporation, any vacancies on the board of directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by the affirmative vote of a majority of directors then in
office, although less than a quorum, or by the sole remaining director, or, in
the event of the failure of the directors or sole remaining director so to act,
by the shareholders at the next election of directors; provided, that if the
holders of any class or classes of stock or series thereof of the Corporation,
voting separately, are entitled to elect one or more directors, vacancies and
newly created directorships of such class or classes or series may be filled by
a majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected. Directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which they have been elected expires. A director
elected to fill a vacancy by reason of an increase in the number of
directorships shall be elected by a majority of vote the directors then in
office, although less than a quorum of the board of directors, to serve until
the next election of the class for which such director shall have been chosen.
If the number of directors is changed, any increase or decrease shall be
apportioned among the three classes so as to make all classes as nearly equal in
number as possible. If, consistent with the preceding requirement, the increase
or decrease may be allocated to more than one class, the increase or decrease
may be allocated to any such class the board of directors selects in its
discretion. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.
5
<PAGE>
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special
meeting of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
SECTION 3.08 Regular Meetings. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.09 Special Meetings. Special meetings of the Board shall be
held whenever called by the President or a majority of the authorized number of
directors. Except as otherwise provided by law or by these Bylaws, notice of
the time and place of each such special meeting shall be mailed to each
director, addressed to him at his residence or usual place of business, at least
five (5) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegraph or cable or be delivered personally not
less than forty-eight (48) hours before the time at which the meeting is to be
held. Except where otherwise required by law or by these Bylaws, notice of the
purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at such
meeting, except a director who shall attend such meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 3.10 Quorum and Manner of Acting. Except as otherwise provided
in these Bylaws or by law, the presence of a majority of the authorized number
of directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a
6
<PAGE>
meeting if a written consent thereto is signed by all members of the Board or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board or committee.
SECTION 3.12 Removal of Directors. Subject to the provisions of the
Certificate of Incorporation, a director may be removed only for cause as
determined by the affirmative vote of the holders of at least a majority of the
shares then entitled to vote in an election of directors, which vote may only be
taken at a meeting of shareholders called expressly for that purpose. Cause for
removal shall be deemed to exist only if the director whose removal is proposed
has been convicted of a felony by a court of competent jurisdiction or has been
adjudged by a court of competent jurisdiction to be liable for gross negligence
or misconduct in the performance of such director's duty to the corporation and
such adjudication is no longer subject to direct appeal.
SECTION 3.13 Stockholder Nomination of Directors. Stockholder
nominations of persons for election as director of the Corporation and
shareholder proposals must, in order to be voted upon, be made in writing and
delivered to the secretary of the Corporation at least 60 days prior to the date
of the meeting at which such nominations are proposed to be voted upon.
SECTION 3.14 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.15 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board and except as otherwise
limited by law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member.
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ARTICLE IV
Officers
SECTION 4.01 Number. The officers of the Corporation shall be a Chairman
of the Board, a President, one or more Vice Presidents (the number thereof and
their respective titles to be determined by the Board), a Secretary and a
Treasurer.
SECTION 4.02 Election, Term of Office and Qualifications. The officers
of the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at the first meeting
thereof held after the election thereof. Each officer shall hold office until
his successor shall have been duly chosen and shall qualify or until his
resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the
officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each or whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to any
officer of the Corporation or any committee of the Board the power to appoint,
remove and prescribe the duties of any such assistants, agents or employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant; agent or
employee, by any officer of the Corporation or committee of the Board upon whom
or which such power of removal may be conferred by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at any
time by giving written notice of his resignation to the Board or the Secretary
of the Corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof by the
Board or the Secretary, as the case may be; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The President. The President of the Corporation shall be
the chief executive officer of the Corporation and shall have, subject to the
control of the Board,
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general and active supervision and management over the business of the
Corporation and over its several officers, assistants, agents and employees.
SECTION 4.08 The Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board may from time to time prescribe. At
the request of the President, or in case of the President's absence or inability
to act upon the request of the Board, a Vice President shall perform the duties
of the President and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 4.09 The Secretary. The Secretary shall, if present, record the
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
SECTION 4.10 The Treasurer. The Treasurer shall have the general care
and custody of the funds and securities of the Corporation, and shall deposit
all such funds in the name of the Corporation in such banks, trust companies or
other depositories as shall be selected by the Board. He shall receive, and
give receipts for, moneys due and payable to the Corporation from any source
whatsoever. He shall exercise general supervision over expenditures and
disbursements made by officers, agents and employees of the Corporation and the
preparation of such records and reports in connection therewith as may be
necessary of desirable. He shall, in general, perform all other duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board.
SECTION 4.11 Compensation. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary Corporation, in any other capacity and receiving proper compensation
therefor.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 5.01 Execution of Contracts. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any
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contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the Board or by these Bylaws, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or in any amount.
SECTION 5.01 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by an officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer of officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
SECTION 5.04 General and Special Bank Accounts. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by an officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
Shares and Their Transfer
SECTION 6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose
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facsimile signature has been placed upon, any such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by the Corporation with
the same effect as though the person who signed such certificate, or whose
facsimile signature shall have been placed thereupon, were such officer,
transfer agent or registrar at the date of issue. A record shall be kept of the
respective names of the persons, firms or corporations owning the stock
represented by such certificate, the number and class of shares represented by
such certificates, respectively, and the respective dates thereof, and in case
of cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be cancelled, and
no new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so cancelled, except
in cases provided for in Section 6.04.
SECTION 6.02 Transfer of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or transfer
agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect
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of any other change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If in any case involving the
determination of stockholders for any purpose other than notice of or voting at
a meeting of stockholders or expressing consent to corporate action without a
meeting the Board shall not fix such a record date, the record date for
determining stockholders for such purpose shall be the close of business on the
day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
Indemnification
SECTION 7.01 Action, Etc. Other Than by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful.
SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to
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be in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have bee adjusted to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expense which the Court of Chancery or such other court shall deem proper.
SECTION 7.03 Determination of Right of Indemnification. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 7.01 and 7.02. Such determination shall be made
(i) by the Board by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum or disinterested directors so
directors, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 7.04 Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.05 Prepaid Expenses. Expenses incurred by an officer of
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of any undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
SECTION 7.06 Other Rights and Remedies. The indemnification and
advancement of expenses provided by this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
SECTION 7.07 Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was
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a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
SECTION 7.08 Constituent Corporations. For the purposes of this Article,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
SECTION 7.09 Other Enterprise, Fines, and Serving at Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Seal. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation and words and figures showing that the
Corporation was incorporated in the State of Delaware and the year of
incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
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SECTION 8.03 Amendments. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, or (ii) by the stockholders, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made
or altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
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EXHIBIT 3.2.1
BYLAWS
of
PBOC HOLDINGS, INC.
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of
SoCal Holdings, Inc. ("Corporation") shall be located in the State of Delaware
at such place as may be fixed from time to time by the Board of Directors upon
filing of such notices as may be required by law, and the registered agent shall
have a business office identical with such registered office.
1.2 Other Offices. The Corporation may have other offices within or
without the State of Delaware at such place or places as the Board of Directors
may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETINGS
2.1 Meeting Place. All meetings of the stockholders shall be held at the
principal place of business of the Corporation, or at such other place within or
without the State of Delaware as shall be determined from time to time by the
Board of Directors, and the place at which any such meeting shall be held shall
be stated in the notice of the meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year on the fourth
Monday of April at such time prescribed by the Board of Directors, if not a
legal holiday, and if a legal holiday, then on such other date and time as
may be determined by the Board of Directors and stated in the notice of such
meeting.
2.3 Organization. Each meeting of the stockholders shall be presided
over by the Chairman of the Board, or in his absence by the President. The
Secretary, or in his absence a temporary Secretary, shall act as secretary of
each meeting of the stockholders. In the absence of the Secretary and any
temporary Secretary, the chairman of the meeting may appoint any person present
to act as secretary of the meeting. The chairman of any meeting of the
stockholders shall announce the date and time of the opening and the closing of
the polls for each matter upon which the stockholders will vote at a meeting
and, unless prescribed by law or regulation or unless the Board of Directors has
otherwise determined, shall determine the order of the business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussions as seem to him in order.
<PAGE>
2.4 Special Meetings. Except as otherwise required by law and subject to
the rights of the holders of any class or series of Preferred Stock (as that
term is defined in the Amended and Restated Certificate of Incorporation),
special meetings of the stockholders may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative vote of a
majority of the directors then in office.
2.5 Notice.
(a) Notice of the time and place of the annual meeting of stockholders
shall be given by delivering personally or by mailing a written notice of the
same, not less than ten days and not more than sixty days prior to the date of
the meeting, to each stockholder of record entitled to vote at such meeting.
When any stockholders' meeting, either annual or special, is adjourned for
thirty days or more, or if a new record date is fixed for an adjourned meeting
of stockholders, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty days (unless a new
record date is fixed therefor), other than an announcement at the meeting at
which such adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
(b) Not less than ten days and not more than sixty days prior to the
meeting, a written notice of each special meeting of stockholders, stating the
place, day and hour of such meeting, and the purpose or purposes for which the
meeting is called, shall be either delivered personally or mailed to each
stockholder of record entitled to vote at such meeting.
2.6 Voting Record. At least ten days before each meeting of
stockholders, a complete record of the stockholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares registered in the name of each,
which record shall be kept open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten days prior to such meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The record also shall be kept open at the time and place of such meeting for the
inspection of any stockholder.
2.7 Quorum; Actions of Stockholders. Except as otherwise required by
law:
(a) A quorum at any annual or special meeting of stockholders shall
consist of stockholders representing, either in person or by proxy, a majority
of the outstanding capital stock of the Corporation entitled to vote at such
meeting.
(b) In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to
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vote on the subject matter shall be the act of the stockholders. Directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. If, at any meeting of the stockholders, due to a vacancy or vacancies
or otherwise, directors of more than one class of the Board of Directors are to
be elected, each class of directors to be elected at the meeting shall be
elected in a separate election by a plurality vote.
2.8 Voting of Shares. Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denied by the Amended and Restated Certificate of Incorporation, each
stockholder, on each matter submitted to a vote at a meeting of stockholders,
shall have one vote for each share of stock registered in his name on the books
of the Corporation.
2.9 Fixing of the Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or entitled to receive payment of any dividend, the
Board of Directors may fix in advance a record date for any such determination
of stockholders, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty days and, in case of a meeting of
stockholders, not less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be taken.
2.10 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder or his duly authorized attorney-in-fact.
Without limiting the manner in which a stockholder may authorize another person
or persons to act for him as proxy, a stockholder may grant such authority in
the manner specified in Section 212(c) of the General Corporation Law of the
State of Delaware. No proxy shall be valid after three years from the date of
its execution, unless otherwise provided in the proxy.
2.11 Waiver of Notice. A waiver of any notice required to be given any
stockholder, signed by the person or persons entitled to such notice, whether
before or after the time stated therein for the meeting, shall be equivalent to
the giving of such notice.
2.12 Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided, at
any meeting of the stockholders of the Corporation any one or more of such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock stand,
the vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such stock and present in person or
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by proxy at such meeting, but no votes shall be cast for such stock if a
majority cannot agree, except to the extent provided in Section 217(b)(3) of the
General Corporation Law of the State of Delaware.
2.13 Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by an officer, agent or proxy as the bylaws of
such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee shall
be entitled to vote the shares so transferred.
2.14 Proposals. At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
(a) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, or (b) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation.
To be timely a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not later than
ninety days prior to the annual anniversary date of the mailing of proxy
materials by the Corporation in connection with the immediately preceding
annual meeting of stockholders of the Corporation or, in the case of the
annual meeting of stockholders of the Corporation which is expected to be
held on the fourth Monday of April 1999, notice by the stockholder must be so
delivered or received no later than the close of business on the fourth
Monday of January 1999, notwithstanding a determination by the Corporation to
schedule such annual meeting at a date later than the fourth Monday of April
1999. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting, (b) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such business. The
chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Article II, Section 2.14,
and if he should so determine, he shall so declare
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to the meeting and any such business not properly brought before the meeting
shall not be transacted. This provision is not a limitation on any other
applicable laws and regulations.
2.15 Inspectors. For each meeting of stockholders, the Board of
Directors shall appoint one or more inspectors of election, who shall make a
written report of such meeting. If for any meeting the inspector(s) appointed by
the Board of Directors shall be unable to act or the Board of Directors shall
fail to appoint any inspector, one or more inspectors shall be appointed at the
meeting by the chairman thereof. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability. An inspector or inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
(v) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The date and time of the
opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at the meeting by the chairman
thereof. An inspector or inspectors shall not accept a ballot, proxy or vote,
nor any revocations thereof or changes thereto, after the closing of the polls
(unless the Court of Chancery of the State of Delaware upon application by a
stockholder shall determine otherwise) and may appoint or retain other persons
or entities to assist them in the performance of their duties. Inspectors need
not be stockholders and may not be nominees for election as directors.
ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
Chairman of the Board or the President, and the Secretary or the Treasurer, and
may be sealed with the seal of the Corporation or facsimile thereof. Any or all
of the signatures on the certificate may be by facsimile. If an officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon such certificate ceases to be an officer, transfer agent or
registrar before the certificate is issued, it may be issued by the Corporation
with the same effect as if the person were an officer, transfer agent or
registrar on the date of issue. Each certificate of stock shall state:
(a) that the Corporation is organized under the laws of the State of
Delaware;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if
any, which such certificate represents; and
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(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock transfer books
of the Corporation, kept at the registered office of the Corporation or at its
principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder of
said certificate. No shares of stock shall be transferred on the books of the
Corporation until the outstanding certificates therefor have been surrendered to
the Corporation.
(c) A written restriction on the transfer or registration of transfer of
a certificate evidencing stock of the Corporation, if permitted by the General
Corporation Law of the State of Delaware and noted conspicuously on such
certificate, may be enforced against the holder of the restricted certificate or
any successor or transferee of the holder, including an executor, administrator,
trustee, guardian or other fiduciary entrusted with like responsibility for the
person or estate of the holder.
3.3 Registered Owner. Registered stockholders shall be treated by the
Corporation as the holders in fact of the stock standing in their respective
names and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
3.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
new certificate of stock in place of any certificate previously issued by it
which is alleged to have been lost, stolen or destroyed, and the Corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions
of a share which shall entitle the holder to exercise voting rights, to receive
dividends thereon and to participate in any of the assets of the Corporation in
the event of liquidation; (b) arrange for the disposition of fractional
interests by those entitled thereto; (c) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such shares are
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determined; or (d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Powers. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors, which may exercise all such
authority and powers of the Corporation and do all such lawful acts and things
as are not by law, the Amended and Restated Certificate of Incorporation or
these Bylaws directed or required to be exercised or done by the stockholders.
4.2 Classification and Term. The Board of Directors, other than those
who may be elected by the holders of any class or series of Stock having
preference over the Common Stock as to dividends or upon liquidation, shall be
divided into three classes as nearly equal in number as possible. The term of
office of the directors of the Corporation shall be as follows: the term of
directors of the first class shall expire at the first annual meeting of
stockholders after the effective date of the filing of the Amended and
Restated Certificate of Incorporation in connection with the Corporation's
initial public offering; the term of office of the directors of the second
class shall expire at the second annual meeting of stockholders after the
effective date of the filing of said Amended and Restated Certificate of
Incorporation; and the term of office of the third class shall expire at the
third annual meeting of stockholders after the effective date of the filing
of said Amended and Restated Certificate of Incorporation; and, as to
directors of each class, when their respective successors are elected and
qualified. At each annual meeting of stockholders, directors elected to
succeed those whose terms are expiring shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders and when
their respective successors are elected and qualified.
4.3 Number of Directors. The Board of Directors shall consist of seven
persons. The number of directors may at any time be increased or decreased by a
vote of a majority of the Board of Directors, provided that no decrease shall
have the effect of shortening the term of any incumbent director.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may not be less than seven nor more than 15.
4.4 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Corporation's Amended and Restated Certificate of
Incorporation.
4.5 Removal of Directors. Directors may be removed in the manner
provided in the Corporation's Amended and Restated Certificate of Incorporation.
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4.6 Regular Meetings. Regular meetings of the Board of Directors or any
committee thereof may be held without notice at the principal place of business
of the Corporation or at such other place or places, either within or without
the State of Delaware, as the Board of Directors or such committee, as the case
may be, may from time to time designate. Unless otherwise determined by the
Board of Directors, the annual meeting of the Board of Directors shall be held
without notice immediately after the adjournment of the annual meeting of
stockholders.
4.7 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any time
by the Chairman of the Board, the President or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Corporation or at such other place or places as the Board of Directors or the
person or persons calling such meeting may from time to time designate. Notice
of all special meetings of the Board of Directors shall be given to each
director by five days' service of the same by telegram, by letter or personally.
Such notice need not specify the business to be transacted at, nor the purpose
of, the meeting.
(b) Special meetings of any committee of the Board of Directors may be
called at any time by such person or persons and with such notice as shall be
specified for such committee by the Board of Directors, or in the absence of
such specification, in the manner and with the notice required for special
meetings of the Board of Directors.
4.8 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before or after the time stated for the meeting,
shall be equivalent to the giving of notice.
4.9 Quorum; Actions of the Board of Directors. Except as may be
otherwise specifically provided by law, the Amended and Restated Certificate of
Incorporation or these Bylaws, at all meetings of the Board of Directors, a
majority of the fully authorized number of the Board of Directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors who are present at a meeting at which a quorum previously has been
established shall be the act of the Board of Directors, regardless of whether a
quorum is present at the time such action is taken. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
4.10 Action by Directors Without a Meeting. Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be
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signed by all of the directors, or all of the members of the committee, as the
case may be, and such consents are filed with the minutes of proceedings of the
Board of Directors or committee, as the case may be. Such consent shall have the
same effect as a unanimous vote.
4.11 Action by Directors by Communications Equipment. Any action
required or which may be taken at a meeting of directors, or of a committee
thereof, may be taken by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time.
4.12 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
4.13 Executive and Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees which in each case consist of one or more directors of the
Corporation, and may from time to time invest such committees with such powers
as it may see fit, subject to such conditions as may be prescribed by the Board.
An Executive Committee may be appointed by resolution passed by a majority of
the full Board of Directors. It shall have and exercise all of the authority of
the Board of Directors, except in reference to amending the Amended and Restated
Certificate of Incorporation, adopting an agreement of merger or consolidation
or plan of voluntary liquidation, recommending to the stockholders the sale,
lease or exchange or other disposition of all or substantially all the property
and assets of the Corporation, declaring a dividend on the Corporation's capital
stock or amending these Bylaws. The designation of any such committee, and the
delegation of authority thereto, shall not relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
4.14 Remuneration. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors, a stated salary as
director and/or such other compensation as may be fixed by the Board of
Directors. Members of special or standing committees may be allowed like
compensation for serving on committees of the Board of Directors. No such
payments shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
4.15 Nominations of Directors Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or committee appointed by the Board of Directors
or by any stockholder entitled to vote
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generally in an election of directors. However, any stockholder entitled to
vote generally in an election of directors may nominate one or more persons
for election as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid to the
Secretary of the Corporation not later than (i) ninety days prior to the
anniversary date of the mailing of proxy materials by the Corporation in
connection with the immediately preceding annual meeting of stockholders of
the Corporation or, in the case of the annual meeting of stockholders of the
Corporation which is expected to be held on the fourth Monday of April 1999,
nominations by the stockholder must be so delivered or received no later than
the close of business on the fourth Monday of January 1999, notwithstanding a
determination by the Corporation to schedule such annual meeting at a date
later than the fourth Monday of April 1999, and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. Each such notice shall
set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures.
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Corporation shall be a President,
a Secretary and a Treasurer appointed by the Board of Directors, as well as such
other officers as the Board of Directors or the President may designate.
Officers of the Corporation shall be elected for one year by the directors at
their first meeting after the annual meeting of stockholders, and officers of
the Corporation shall hold office until their successors are elected and
qualified. Any two or more offices may be held by the same person.
5.2 Powers and Duties. The officers of the Corporation shall have such
authority and perform such duties as the Board of Directors or, in the case of
officers with a title of Vice President or lower, the President, may from time
to time authorize or determine. In the absence of action by the Board of
Directors or the President, as applicable, the officers shall have such powers
and duties as generally pertain to their respective offices.
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5.3 Delegation. In the case of absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any director or other person whom
it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Term - Removal. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or by the President may be removed at any
time, with or without cause, by the affirmative vote of a majority of the whole
Board of Directors, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
5.6 Bonds. The Board of Directors may, by resolution, require any and
all of the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditions for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI. DIVIDENDS; FINANCE; AND FISCAL YEAR
6.1 Dividends. Subject to the applicable provisions of the General
Corporation Law of the State of Delaware, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property or in shares of the
capital stock of the Corporation. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves to meet contingencies, or for repairing
or maintaining any property of the Corporation, or for any other proper purpose,
and the Board of Directors may modify or abolish any such reserve.
6.2 Disbursements. All checks or demand for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
6.3 Depositories. The monies of the Corporation shall be deposited in
the name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
6.4 Fiscal Year. The fiscal year of the Corporation shall end on the
31st day of December of each year.
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ARTICLE VII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally or by mail. If mailed, the
notice shall be deemed to have been delivered when deposited in the United
States mail, addressed to the addressee at his last known address in the records
of the Corporation, with postage thereon prepaid.
ARTICLE VIII. SEAL
The corporate seal of the Corporation shall be in such form and bear
such inscription as may be adopted by resolution of the Board of Directors, or
by usage of the officers on behalf of the Corporation.
ARTICLE IX. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes and proceedings of its stockholders and Board of
Directors (including committees thereof). Any books, records and minutes may be
in written form or any other form capable of being converted into written form
within a reasonable time.
ARTICLE X. AMENDMENTS
10.1 Amendments. These Bylaws may be altered, amended or repealed in the
manner provided in the Corporation's Amended and Restated Certificate of
Incorporation.
10.2 Emergency Bylaws. The Board of Directors may adopt emergency
Bylaws, subject to repeal or change or by action of the stockholders, which
shall be operative during any emergency in the conduct of the business of the
Corporation resulting from an attack on the United States, any nuclear or atomic
disaster or during the existence of any catastrophe or other similar emergency
condition.
ARTICLE XI. USE OF PRONOUNS
Use of the masculine gender in these Bylaws shall be considered to
represent either masculine or feminine gender whenever appropriate.
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Exhibit 5
Law Offices
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12th Floor
734 15th Street, N.W.
Washington, D.C. 20005
Telephone (202) 347-0300
March 20, 1998
Board of Directors
PBOC Holdings, Inc.
5900 Wilshire Boulevard
Los Angeles, California 90036
Re: Registration Statement on S-1
$218,500,005 aggregate amount of Common Stock
Ladies and Gentlemen:
We have acted as special counsel to PBOC Holdings, Inc. (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), of a Registration Statement on Form S-1 (the
"Registration Statement") which registers for sale $218,500,005 aggregate
amount of the Company's common stock, $0.01 par value per share. As such
counsel, we have made such legal and factual examinations and inquiries as we
deemed advisable for the purpose of rendering this opinion.
Based upon the foregoing, it is our opinion that the Common Stock, when
issued, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Legal Matters" in the Prospectus constituting a part thereof.
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ Norman B. Antin
---------------------------------
Norman B. Antin, a Partner
<PAGE>
Exhibit 10.4
DOREEN J. BLAUSCHILD
ATTORNEY-AT-LAW
13914 BORA BORA WAY, #102D
MARINA DEL RAY, CA 90292
VIA FACSIMILE AND U.S. MAIL
April 11, 1995
Mr. Rudolf P. Guenzel
President and Chief Executive Officer
Southern California Federal Savings and Loan Association
9100 Wilshire Blvd.
Beverly Hills, CA 90212
Dear Rudy:
The following sets forth the terms of the compromise we agreed to
relating to any claims I may have against Southern California Federal Savings
and Loan Association ("SoCal"), and the basis on which we have agreed that I
will continue to work for SoCal.
1. Employment and Compensation. SoCal will continue to employ me as
Senior Vice President/General Counsel or in a capacity not less than such
position and at compensation not less than my current compensation for a minimum
guaranteed period of six months from March 17, 1995 ("Guaranteed Period"). For
this purpose, current compensation ("Current Compensation") shall include: base
salary of $12,500 per month; car allowance of $625 per month plus reimbursement
for gas and oil; payment for car telephone and business calls thereon; payment
for home facsimile line. In addition, for any period of my employment with
SoCal, whether before or after the Guaranteed Period, I will be entitled to at
least four (4) weeks paid vacation per year, accrued each year at May 31, plus
participation in such other benefit plans or programs as are now or may
hereafter be provided generally to other senior executives of SoCal and as those
plans or programs may be modified or amended from time to time ("Benefit
Plans"). We agree for these purposes that Benefit Plans do not include the Long
Term Incentive Plan nor the Supplemental Executive Retirement Plan (assuming
they are terminated), which are referred to elsewhere in this letter agreement.
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2. Standards of Performance. I will perform all of my duties in a fully
professional manner pursuant to the standards of skill, competence and
efficiency expected of my position and subject to the lawful direction and
control of the Chief Executive Officer and the Board of Directors of SoCal. I
will devote my full business time, energy and attention exclusively to the
furtherance and best interests of SoCal and to the performance of my duties
hereunder. Except as otherwise provided herein, I continue to be subject to
and/or covered by SoCal's personnel and other operating policies, procedures and
programs, as they may be modified from time to time.
Voluntary Resignation. In the event I resign except as authorized in
PARA 10 below, I will be entitled to any earned and unpaid compensation and any
accrued but unpaid vacation through the resignation date, plus any vested
benefits through the resignation date to which I would otherwise be entitled
under the terms of Benefit Plans in which I have participated or am then
participating. In addition, the releases referenced in PARA 9 below shall become
fully effective as of the resignation date provided that SoCal has made the
salary and vacation payments to me referenced in this PARA 2, except that our
agreement as set forth in PARA 8 below will continue.
3. Termination without cause after Guaranteed Period. In the event SoCal
terminates my employment without cause (as defined below in PARA 5) at any time
after the Guaranteed Period, I shall be entitled to: (i) payment of four months
base salary (at the greater of my current salary or my salary at the time of
termination) payable in at least monthly installments and commencing from the
termination date; (ii) immediate payment of accrued and unpaid vacation; (iii)
lump sum payment of $25,000 payable immediately upon termination and
simultaneously in exchange for a release of any and all claims I may have up to
that point for emotional distress, discrimination or any other tort claims (copy
of Tort Release attached), which Tort Release shall be effective on the date of
my receipt of such payment; (iv) continuation of coverage or payment of premiums
to continue coverage under SoCal's group health, dental, and life plans and its
long term disability plan (to the extent SoCal is able to obtain disability
coverage from a third party insurer), all subject to payment of any required
employee contribution, according to the terms of those plans as they may be
amended or modified from time to time with respect to all other participants,
such coverage to continue for the earlier of six months from the termination
date or until I become eligible for comparable group benefit coverage; and (v)
continued benefit of SoCal's indemnification obligations as of the termination
date and such coverage as is provided pursuant to SoCal's D & O insurance policy
existing as of the termination date so long as such policy remains in effect or
as it may be modified. I will also be eligible to continue to participate in
SoCal's Cafeteria (Section 125) Plan for the lesser of six months from the
termination date or the remainder of the calendar year in which my employment is
terminated. At the expiration of the time period in 3(iv), SoCal will make
available medical and dental insurance coverage under COBRA for a period of 18
months pursuant to the provisions of COBRA.
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4. Termination without cause during Guaranteed Period. In the event
SoCal terminates my employment without cause prior to the expiration of the
Guaranteed Period, in addition to the payments and entitlements under the
provisions of 3(i), 3(ii), 3(iii), 3(iv), and 3(v) above, I shall also be
entitled to continued payment of Current Compensation plus continuation of group
health, dental, life and disability (to the extent obtainable from a third party
insurer) insurance coverages as provided in 3(iv) above for the period between
the termination date and the expiration of the Guaranteed Period as well as
continued participation in SoCal's Cafeteria (Section 125) Plan. In other words,
in the event SoCal terminates me without cause prior to the expiration of the
Guaranteed Period, I will be entitled to immediate payment pursuant to 3(ii) and
3(iii) above, to continuation of Current Compensation and existing group benefit
coverage for the remainder of the Guaranteed Period, at the expiration of which
I will be entitled to the payments and/or coverages as set forth in PARA 3(i),
3(iv), 3(v), and the last two sentences of PARA 3, except that these payments
and coverages will commence at the expiration of the Guaranteed Period.
5. Cause. For these purposes, cause ("Cause") shall be defined as set
forth in 12 C.F.R. Section 563.39(b)(1) as it may be amended from time to time
and which is incorporated herein by reference.
6. Regulatory provisions. All other provisions of 12 C.F.R. Section
563.39(b) and of 12 U.S.C. Section 1828(k), or any successor regulations, are
incorporated herein by reference.
7. SERP. Upon formal liquidation of the SERP trust, my proportionate
share, currently calculated to be approximately $14,430.31, shall be a vested
right, shall be placed in an interest bearing account through Severson &
Werson's client trust account, and shall be paid to me with such interest on the
Release Date in exchange for the Releases set forth in PARA 9 below.
8. Long Term Incentive Plan. Notwithstanding any termination of the
Executive Long Term Plan (which I understand is contemplated), I will be
entitled to a payment equal to .25% (one-fourth of 1%) of the amount by which
any net recovery (i.e. gross amount less attorneys' fees incurred by SoCal in
connection with such litigation) by and payable to SoCal relating to the
goodwill litigation, whether by judgment or settlement, exceeds $150,000,000,
such payment to be made as promptly as practicable upon SoCal's receipt of such
recovery.
9. Releases. SoCal and I will execute the Mutual Releases upon execution
of this agreement (copy of Mutual Releases attached) and deliver them to
Severson & Werson to be held pending their effectiveness in accordance with this
agreement. Such Mutual Releases will not become effective until the earlier of
(i) SoCal's payment of the salary and vacation amounts described under the
second paragraph of PARA 2 based upon my resignation except an Authorized
Resignation, (ii) SoCal's full performance under the terms of this agreement, or
(iii) in the event I remain employed by SoCal as of March 17, 1996, then March
17, 1996 (hereinafter "Release Date").
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10. Authorized Resignation. If my Current Compensation is reduced
without my written consent, I am entitled to resign ("Authorized Resignation")
and thereupon shall be entitled to payments and entitlements as set forth in
PARA 3, 4, 7 & 8 above as if I were terminated without cause as of my
resignation date.
11. Confidentiality. SoCal and I agree to keep all terms of this
agreement confidential. I agree to discuss it only with my attorneys,
accountants, immediate family and appropriate regulatory authorities. SoCal
agrees to discuss it only with officers, directors or agents with a specific
need to know and appropriate regulatory officials. I represent and warrant that
I have not discussed the terms of this agreement with any current or former
employee of SoCal except Don Vena, Senior Vice President, Administration. SoCal
and I agree that these confidentiality provisions are considered material
provisions of this agreement. This agreement shall be binding on the successors
and assigns of SoCal.
12. Effective date and tolling. This agreement shall be effective and
binding upon the parties upon execution of this letter below by the President
and Chief Executive Officer and the Chairman of the Board of Directors of SoCal
and the written approval or non-objection of the OTS and FDIC. Pending
regulatory approval or non-objection, all statutes of limitation or other time
requirements contained in my 1993 Employment Agreement as amended and the SERP
Agreement are tolled. In addition, once the agreement is effective, all statutes
of limitation or other time requirements contained in my 1993 Employment
Agreement as amended and the SERP Agreement are tolled until the Release Date.
13. Consultation with counsel. By its execution below, SoCal and I
acknowledge that we each have consulted with outside counsel in connection with
this agreement.
4
<PAGE>
Please acknowledge SoCal's agreement to the terms herein by signing
where indicated below and returning a duplicate original of this letter to me
together with the written approval of non-objection by the OTS and FDIC.
Very truly yours,
Doreen J. Blauschild
THE UNDERSIGNED ACKNOWLEDGE THAT THE BOARD OF DIRECTORS
OF SOCAL HAS APPROVED THE TERMS OF THE AGREEMENT SET FORTH
HEREINABOVE.
- ------------------------- ------------------------------
Rudolf P. Guenzel Preston Martin
President and Chief Chairman of the Board
Executive Officer
- ------------------------- ------------------------------
Date Date
5
<PAGE>
RELEASE OF TORT CLAIMS
PURSUANT TO SECTION 3(iii) OF LETTER AGREEMENT BETWEEN
DOREEN BLAUSCHILD (EXECUTIVE) AND SOCAL DATED APRIL 11, 1995
("LETTER AGREEMENT").
(a) Executive acknowledges that the payment of monies as set forth in
Section 3(iii) of the Letter Agreement between herself and SoCal are in full and
reasonable settlement of any and all emotional distress, discrimination, or
other tort claims which she may have against SoCal as of the effective date of
this Release of Tort Claims, as set forth in Section 3(iii) of the Letter
Agreement ("Effective Date").
(b) Effective as of the Effective Date, Executive, on behalf of herself,
her marital community, heirs, executors, administrators and assigns (herein
collectively "Executive") hereby forever and in full releases, discharges, and
acquits SoCal, its subsidiaries, affiliates, divisions, predecessors, successors
and parents and any of their agents, representatives, officers, directors,
employees, shareholders, heirs, assigns, past and present, and their attorneys,
and all persons acting by, through, under or in concert with them or any of
them, (herein collectively called "Associated Persons") from any and all claims,
causes of action, demands, liabilities, damages, expenses and obligations of
every kind or nature, whether known or unknown, contingent or fixed, and whether
or not matured and sounding solely in tort (collectively "Tort Claims"), which
Executive may now have or may hereafter have against SoCal and Associated
Persons, by reason of any matter, cause or thing whatsoever from the beginning
of time to the date hereof arising from or relating to Executive's employment
with SoCal or termination therefrom, including without limitation Tort Claims
for (i) wrongful termination, breach of employment contract, breach of the
covenant of good faith and fair dealing, retaliation, intentional or negligent
infliction of emotional distress, tortious interference with existing or
prospective economic advantage, negligence, misrepresentation, breach of
privacy, defamation, loss of consortium, breach of fiduciary duty, violation of
public policy or any other common law tort claim of any kind; (ii) any violation
or alleged violation of Title VII of the Civil Rights Act of 1964, as amended,
the Age Discrimination in Employment Act, as amended, the Older Workers Benefit
Protection Act of 1990, the Equal Pay Act, as amended, the Fair Labor Standards
Act, the Employee Retirement Income Security Act, the Americans With
Disabilities Act, the California Fair Employment and Housing Act, the California
Labor Code, the California Unemployment Insurance Act, the California Workers'
Compensation Act, the Civil Rights Act of 1866, the Consolidated Omnibus Budget
Reconciliation Act, California Labor Code Section 1102.5; (iii) any tort claim
relating to or arising under any other local, state or federal statute or
1
<PAGE>
regulation or principle of common law governing the employment of individuals,
discrimination in employment and/or the payment of wages or benefits.
EXECUTED THIS ____________ DAY OF _______________, 199___.
- ----------------------------------
DOREEN J. BLAUSCHILD
2
<PAGE>
MUTUAL RELEASES
PURSUANT TO SECTION 9 OF THE LETTER AGREEMENT BETWEEN
DOREEN BLAUSCHILD (EXECUTIVE) AND SOCAL DATED APRIL 11, 1995
("LETTER AGREEMENT")
1. MUTUAL RELEASES
(a) Executive acknowledges that the provisions for compensation
and other benefits as set forth in the Letter Agreement between the parties are
in full and reasonable settlement of any and all claims which she may have
against SoCal and Associated Persons effective as of the Release Date as defined
in Section 9 of the Letter Agreement.
(b) Effective as of the Release Date, and except for the rights
and obligations created by the Letter Agreement, Executive, on behalf of
herself, her marital community, heirs, executors, administrators and assigns
(herein collectively "Executive") hereby forever and in full releases,
discharges, and acquits SoCal, its subsidiaries, affiliates, divisions,
predecessors, successors and parents and any of their agents, representatives,
officers, directors, employees, shareholders, heirs, assigns, past and present,
and their attorneys, and all persons acting by, through, under or in concert
with them or any of them, (herein collectively called "Associated Persons") from
any and all claims, causes of action, demands, liabilities, damages, expenses
and obligations of every kind or nature, whether known or unknown, contingent or
fixed, and whether or not matured (collectively, "Claims"), which Executive may
now have or may hereafter have against SoCal and Associated Persons, by reasons
of any matter, cause or thing whatsoever from the beginning of time to the date
hereof arising from or relating to Executive's employment with SoCal or
termination therefrom, including without limitation all Claims for salary,
severance pay, or amounts payable under any written or oral employment
agreements, incentive compensation plans, long-term plans, or other compensation
or benefit or supplemental retirement arrangements between SoCal and Executive,
EXCEPT that this Release is not intended to and specifically excludes any and
all benefits to which Executive may be entitled under SoCal's Defined Benefit
Plan, under SoCal's Savings Plus (401k) Plan, and under any other Benefit Plans
as defined in the Letter Agreement, all pursuant to the terms of those
respective plans, and EXCEPT FURTHER that this Release is not intended to and
specifically excludes the provisions of Section 8 of the Letter Agreement.
Without limiting the generality of the foregoing, and except for the
rights and obligations created in the Letter Agreement, the Claims released
herein include any Claims arising out of, based upon or in any way related to
(i) any prior employment agreements, incentive agreements or benefits or
supplemental retirement plans; (ii) any property, contract or tort claims,
including wrongful discharge, breach of employment contract, breach of the
covenant of good faith and fair dealing, retaliation, intentional or negligent
infliction of emotional distress, tortious interference with existing or
prospective economic advantage, negligence, misrepresentation, breach of
privacy, defamation, loss of consortium, breach of
1
<PAGE>
fiduciary duty, violation of public policy or any other common law claim of any
kind; (iii) any violation or alleged violation of Title VII of the Civil Rights
Act of 1964, as amended, the Age Discrimination in Employment Act, as amended,
the Older Workers Benefit Protection Act of 1990, the Equal Pay Act, as amended,
the Fair Labor Standards Act, the Employee Retirement Income Security Act, the
Americans With Disabilities Act, the California Fair Employment and Housing Act,
the California Labor Code, the California Unemployment Insurance Act, the
California Workers' Compensation Act, the Civil Rights Act of 1866, the
Consolidated Omnibus Budget Reconciliation Act, California Labor Code Section
1102.5; (iv) any claims for severance pay, bonus, sick leave, vacation or
holiday pay, life insurance, health, disability or medical insurance or any
other fringe benefit; and (v) any claim relating to or arising under any other
local, state or federal statute or regulation or principle of common law
(whether in contract or in tort) governing the employment of individuals,
discrimination in employment and/or the payment of wages or benefits.
(c) SoCal and Associated Persons hereby forever and in full
release, discharge and acquit Executive from any and all claims, causes of
action, demands, liabilities, damages, expenses and obligations of every kind or
nature, whether known or unknown, contingent or fixed, and whether or not
matured (Collectively "Claims"), which SoCal and/or Associated Persons may now
have or may hereafter have against Executive by reason of any matter, cause or
thing whatsoever from the beginning of time to the date hereof arising from or
relating to Executive's employment with SoCal or termination therefrom, except
that this release is not intended to and does not include release of any claims
based upon or allegations of fraudulent or unlawful conduct on the part of
Executive up to the date of the Release.
(d) The parties understand that if any fact with respect to any
matter covered by this Mutual Release is found to be other than, or different
from the facts now believed by them to be true, they expressly accept and assume
the risk of such possible difference in facts and agree that this Mutual Release
shall be, and remain, in full force and effect notwithstanding such difference
in fact.
The parties acknowledge and warrant that there are no claims or actions
currently filed or pending relating to the subject matter of this Mutual
Release.
2. GENERAL RELEASE.
With respect to the matters released hereinabove ("Released
Matters"), the Released Matters are intended to encompass all known and unknown,
foreseen and unforeseen claims which the parties may have against one another up
to and including the date of this Mutual Release. It is further understood and
agreed that the parties expressly waive all rights with respect to the Released
Matters under Section 1542 of the Civil Code of the State of California and any
similar law of any state or territory of the United States.
Said section provides as follows:
2
<PAGE>
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
This waiver of the provisions of Section 1542 of the California Civil Code was
separately bargained for, and the parties expressly agree that the releases
contained herein shall be given full force and effect in accordance with each
and all of the express terms and provisions relating to unknown and unsuspected
claims, demands and causes of action, if any.
EXECUTED THIS ____________ DAY OF _______________, 199___.
DOREEN J. BLAUSCHILD SOUTHERN CALIFORNIA FEDERAL
SAVINGS AND LOAN ASSOCIATION
By:
--------------------------------
Its:
--------------------------------
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0001057672
<NAME> PBOC HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,113
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,004
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 571,160
<INVESTMENTS-CARRYING> 9,671
<INVESTMENTS-MARKET> 9,743
<LOANS> 1,551,036
<ALLOWANCE> 17,824
<TOTAL-ASSETS> 2,213,054
<DEPOSITS> 1,266,615
<SHORT-TERM> 433,788
<LIABILITIES-OTHER> 9,686
<LONG-TERM> 390,113
0
5
<COMMON> 1
<OTHER-SE> 79,596
<TOTAL-LIABILITIES-AND-EQUITY> 2,213,054
<INTEREST-LOAN> 89,938
<INTEREST-INVEST> 40,018
<INTEREST-OTHER> 1,023
<INTEREST-TOTAL> 130,979
<INTEREST-DEPOSIT> 67,247
<INTEREST-EXPENSE> 97,205
<INTEREST-INCOME-NET> 33,774
<LOAN-LOSSES> 2,046
<SECURITIES-GAINS> 1,275
<EXPENSE-OTHER> 29,543
<INCOME-PRETAX> 6,443
<INCOME-PRE-EXTRAORDINARY> 10,942
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,942
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 7.13
<LOANS-NON> 9,904
<LOANS-PAST> 0
<LOANS-TROUBLED> 11,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,280
<CHARGE-OFFS> 7,608
<RECOVERIES> 106
<ALLOWANCE-CLOSE> 17,824
<ALLOWANCE-DOMESTIC> 17,824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT
The undersigned hereby consents to being named as a prospective
director of PBOC Holdings, Inc. in the Registration Statement on Form S-1
filed by PBOC Holdings, Inc. with the Securities and Exchange Commission, to
which Registration Statement this Consent is an Exhibit, and in any
amendments (including post-effective amendments) thereto.
/s/ Robert M. MacDonald
- --------------------------------
Robert M. MacDonald
Dated: March 20, 1998
<PAGE>
EXHIBIT 99.2
CONSENT
The undersigned hereby consents to being named as a prospective
director of PBOC Holdings, Inc. in the Registration Statement on Form S-1
filed by PBOC Holdings, Inc. with the Securities and Exchange Commission, to
which Registration Statement this Consent is an Exhibit, and in any
amendments (including post-effective amendments) thereto.
/s/ John F. Davis
- --------------------------------
John F. Davis
Dated: March 20, 1998
<PAGE>
EXHIBIT 99.3
CONSENT
The undersigned hereby consents to being named as a prospective
director of PBOC Holdings, Inc. in the Registration Statement on Form S-1
filed by PBOC Holdings, Inc. with the Securities and Exchange Commission, to
which Registration Statement this Consent is an Exhibit, and in any
amendments (including post-effective amendments) thereto.
/s/ J. Michael Holmes
- --------------------------------
J. Michael Holmes
Dated: March 20, 1998
