<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission File Number 0-11046
SC BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3585586
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3800 E. LA PALMA AVE., ANAHEIM, CALIFORNIA 92807-1798
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 238-3110
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES. [ X ] NO. [ ]
There were 7,480,355 shares of common stock for the registrant issued and
outstanding as of November 1, 1996.
<PAGE>
Part I-Financial Information
Item 1. Financial Statements
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Balance Sheets
(Dollars in thousands)
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 28,956 $ 29,088
Federal funds sold 5,600 --
- ------------------------------------------------------------------------------
Cash and cash equivalents 34,556 29,088
- ------------------------------------------------------------------------------
Securities available-for-sale, at fair
value (Notes 1 and 2) 78,171 94,030
Loans (Notes 1 and 3) 337,023 316,841
Less: Deferred fee income (718) (531)
Allowance for possible loan losses (5,369) (5,734)
- ------------------------------------------------------------------------------
Loans, net 330,936 310,576
- ------------------------------------------------------------------------------
Premises and equipment, net 8,105 9,734
Other real estate owned, net 1,618 2,073
Accrued interest receivable 2,653 4,297
Other assets 11,613 11,885
- ------------------------------------------------------------------------------
TOTAL ASSETS $467,652 $461,683
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES
Deposits:
Interest-bearing $286,598 $276,433
Noninterest-bearing 123,869 130,378
- ------------------------------------------------------------------------------
Total deposits 410,467 406,811
- ------------------------------------------------------------------------------
Borrowed funds and other interest-bearing
liabilities 6,498 6,407
Accrued interest payable and other liabilities 2,736 2,953
- ------------------------------------------------------------------------------
Total liabilities 419,701 416,171
- ------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par or stated
value: 10,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par or stated value:
20,000,000 shares authorized; 7,477,805 and
7,471,505 shares issued and outstanding at
September 30, 1996 and December 31, 1995,
respectively. 37,687 37,658
Retained earnings 11,533 8,600
Unrealized loss on available-for-sale
securities, net of taxes (Note 1) (1,269) (746)
- ------------------------------------------------------------------------------
Total shareholders' equity 47,951 45,512
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $467,652 $461,683
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,628 $ 7,090 $22,395 $18,790
Interest on investment securities 1,038 1,618 3,243 5,060
Interest on Federal funds sold 174 88 346 727
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 8,840 8,797 25,984 24,577
- ---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 723 399 1,689 1,031
Savings 230 280 710 884
Time certificates of deposit 1,884 2,313 5,799 6,305
- ---------------------------------------------------------------------------------------------------------------------
Total interest on deposits 2,837 2,992 8,198 8,220
- ---------------------------------------------------------------------------------------------------------------------
Other interest expense 135 116 624 920
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 2,972 3,108 8,822 9,140
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 5,868 5,689 17,162 15,437
Provision for (recovery of) possible loan losses (Note 3) -- 900 (470) 1,224
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 5,868 4,789 17,632 14,213
- ---------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME 1,323 759 3,856 3,732
NONINTEREST EXPENSE:
Salaries and benefits 2,491 2,981 7,669 8,023
Net occupancy, furniture and equipment 946 1,534 3,134 3,876
Other operating expense 1,611 2,318 5,642 6,193
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 5,048 6,833 16,445 18,092
- ---------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,143 (1,285) 5,043 (147)
Provision for income taxes 893 (377) 2,110 (14)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $1,250 $ (908) $ 2,933 $ (133)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 7,477 7,469 7,475 7,469
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Earnings per share $ 0.17 $ (0.12) $ 0.39 $ (0.02)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended
September 30,
(Unaudited)
- -------------------------------------------------------------------------------
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,933 $ (133)
Adjustments to reconcile net income to
net cash provided by operating activities:
(Recovery of) provision for possible loan losses (470) 1,224
Provision for loss on other real estate owned 428 128
Loss (gain) on sale of other real estate owned 1 (46)
Gain on sale of available-for-sale investment
securities (14) --
Net amortization of premiums on investment
securities 691 827
Net amortization of deferred fees and unearned
income on loans 187 (53)
Depreciation and amortization 1,387 1,104
Loss on sale of fixed assets 33 --
Net decrease (increase) in accrued interest
receivable and other assets 1,913 (501)
Net increase (decrease) in accrued interest
payable and other liabilities 246 (979)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 7,335 1,571
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale investment
securities 8,549 --
Proceeds from maturities of available-for-sale
investment securities 6,569 5,000
Proceeds from maturities of held-to-maturity
investment securities -- 3,197
Purchase of investment securities (832) --
Purchase of IOBC loans -- (71,576)
Net increase in loans (20,776) (8,138)
Proceeds from sale of fixed assets and other
assets 256 --
Purchase of fixed assets (253) (940)
Proceeds from sale of other real estate owned 622 1,333
- --------------------------------------------------------------------------------
Net cash used in investing activities (5,865) (71,124)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 30 --
Purchase of IOBC interest-bearing deposits -- 14,965
Purchase of IOBC noninterest-bearing deposits -- 19,762
Increase in interest-bearing deposits 10,165 55,771
Decrease in noninterest-bearing deposits (6,509) (3,399)
Increase (decrease) in other borrowings 312 (7,789)
- --------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities 3,998 79,310
- --------------------------------------------------------------------------------
Increase in cash and cash equivalents 5,468 9,757
Cash and cash equivalents, beginning of period 29,088 31,118
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 34,556 $ 40,875
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Unrealized loss on investment securities,
available-for-sale, net of tax $ 524 $ 2,517
Transfers of loans to other real estate owned 699 979
Asset sales offset to restructuring reserve 91 --
Close out of capital lease accounts 118 --
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
3
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Notes to Consolidated Financial Statements
(Unaudited, except for information as of and for the year ended
December 31, 1995)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
SC Bancorp, a California bank holding company (the "Company"), and its
subsidiary, Southern California Bank, a California state-chartered bank (the
"Bank"), operates 14 branches in Southern California. The Company's primary
source of revenue is providing loans to customers who are predominantly small
and mid-sized businesses. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and general practices within
the banking industry. See the notes to SC Bancorp's consolidated financial
statements contained in the Company's annual report on Form 10-K.
The interim period financial statements are unaudited. It is the opinion of
Company management that all adjustments consisting of normal, recurring accruals
necessary for a fair presentation of the results of operations have been
reflected therein. Results for the period ending September 30, 1996 are not
necessarily indicative of results that may be expected for any other interim
periods or for the year as a whole.
SECURITIES:
At September 30, 1996, the Company's available-for-sale portfolio had a net
unrealized loss of $2.2 million. The tax-effected reduction to shareholders'
equity at September 30, 1996, was $1.3 million. In January 1995, the FDIC
issued a final rule excluding unrealized holding gains and losses on available-
for-sale debt securities from the calculation of Tier 1 capital.
LOANS:
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures-An Amendment of FASB Statement No. 114,"
effective January 1, 1995. The Company's recorded investment in impaired loans
at September 30, 1996 was $7.2 million. The Company's allowance for possible
loan losses at September 30, 1996 includes $1.5 million related to impaired
loans.
STOCK-BASED COMPENSATION
The Company maintains a stock option plan for the benefit of its executives. In
1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
which encourages companies to account for stock-based compensation awards at
their fair values at the date the awards are granted. This statement does not
require the application of the fair value method and allows the continuance of
the current accounting method, which requires accounting for stock-based
compensation awards at their intrinsic values, if any, as of the grant date.
The accounting and disclosure requirements of this statement are effective for
financial statements at various dates beginning after December 15, 1995. The
Company has elected not to adopt the fair value provisions of this statement.
4
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities as of
September 30, 1996 and December 31, 1995 are as follows:
(DOLLARS IN THOUSANDS) September 30, 1996
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ------------ ----------
AVAILABLE-FOR-SALE
U.S. Treasury securities and
obligations of U.S.
government agencies $ 33,097 $ -- $ (456) $ 32,641
Mortgage-backed securities 45,208 -- (1,712) 43,496
FHLB and FRB stock 2,034 -- -- 2,034
- --------------------------------------------------------------------------------
Total $ 80,339 $ -- $(2,168) $ 78,171
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) December 31, 1995
- --------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ------------ ----------
AVAILABLE-FOR-SALE:
U.S. Treasury securities and
obligations of US
government agencies $42,036 $ -- $ (363) $41,673
Mortgage-backed securities 52,062 -- (910) 51,152
FHLB Stock 1,205 -- -- 1,205
- --------------------------------------------------------------------------------
Total $95,303 $ -- $(1,273) $94,030
- --------------------------------------------------------------------------------
Investment securities with a carrying value of $15.7 million and $18.6 million
were pledged to secure public deposits and as collateral for other borrowings at
September 30, 1996 and December 31, 1995, respectively.
The amortized cost and estimated fair value of debt securities at September 30,
1996 by contractual maturities are shown in the following table. Expected
maturities will differ from contractual maturities, particularly with respect to
mortgage-backed securities, because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) Maturing in
- ------------------------------------------------------------------------------------------------------------------------------------
Over one Over five
One year year through years through Over
SEPTEMBER 30, 1996 or less five years ten years ten years Total
------------ -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Available-for-sale, amortized cost $ 15,453 $ 56,098 $ 8,709 $ 79 $ 80,339
Available-for-sale, estimated fair value $ 15,375 $ 54,267 $ 8,450 $ 79 $ 78,171
</TABLE>
Proceeds from sales of investment securities during the first quarter of 1996
were $8.5 million. A gross gain of $14 thousand was realized on the sale.
There were no sales of investment securities during the third quarter of 1996.
5
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS
Loans by category are summarized below:
<TABLE>
<CAPTION>
September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 Percent 1995 Percent
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 153,422 45.52% $ 147,230 46.47%
Real estate, construction 5,622 1.67% 4,416 1.39%
Real estate, mortgage 108,100 32.08% 107,662 33.98%
Consumer 69,879 20.73% 57,533 18.16%
- -----------------------------------------------------------------------------------------------------------------
Gross loans 337,023 100.00% 316,841 100.00%
---------- ----------
---------- ----------
Deferred fee income (718) (531)
Allowance for possible loan losses (5,369) (5,734)
- ------------------------------------------------------------------ ------------
Loans, net $ 330,936 $ 310,576
- ------------------------------------------------------------------ ------------
- ------------------------------------------------------------------ ------------
</TABLE>
No industry constitutes a concentration in the Company's loan portfolio. In
April 1995, the Company purchased approximately
$72 million of floating rate commercial, real estate and consumer loans from
Independence One Bank of California, FSB ("IOBC").
The following table summarizes the balances and changes in the allowance for
possible loan losses for the periods indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995 1995 1994
- ----------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Average balance of gross loans outstanding $ 318,456 $ 261,631 $ 253,506 $ 203,760
- ----------------------------------------------- ---------------------------- ----------------------------
- ----------------------------------------------- ---------------------------- ----------------------------
Gross loan balance at end of period $ 337,023 $ 316,841 $ 278,699 $ 207,688
- ----------------------------------------------- ---------------------------- ----------------------------
- ----------------------------------------------- ---------------------------- ----------------------------
Allowance at beginning of period $ 5,734 $ 5,318 $ 5,318 $ 10,800
Charge-offs:
Commercial 80 834 734 2,004
Real estate 138 1,227 1,207 3,453
Consumer 152 587 500 362
- ----------------------------------------------- ---------------------------- ----------------------------
Total charge-offs 370 2,648 2,441 5,819
Recoveries:
Commercial 416 587 421 915
Real estate 22 129 64 214
Consumer 37 192 151 58
- ----------------------------------------------- ---------------------------- ----------------------------
Total recoveries 475 908 636 1,187
Net (recoveries) charge-offs (105) 1,740 1,805 4,632
Provision (recovery) charged (credited) to expense (470) 1,539 1,224 (850)
Allowance on purchased loans - 617 617 0
- ----------------------------------------------- ---------------------------- ----------------------------
Allowance at end of period $ 5,369 $ 5,734 $ 5,354 $ 5,318
- ----------------------------------------------- ---------------------------- ----------------------------
- ----------------------------------------------- ---------------------------- ----------------------------
</TABLE>
6
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - LOANS (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31, September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995 1995 1994
- ---------------------------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ratio of allowance for loan losses to loans
outstanding at end of period 1.59% 1.81% 1.92% 2.56%
Ratio of allowance for loan losses to
nonaccrual loans at end of period 232.12% 414.01% 292.73% 329.90%
Ratio of annualized net charge-offs to
average loans -0.04% 0.67% 0.95% 2.27%
</TABLE>
Loans on nonaccrual status were $2.3 million and $1.8 million, respectively at
September 30, 1996 and 1995. Interest income that would have been collected on
these loans had they performed in accordance with their original terms was
approximately $149 thousand and $167 thousand, for the nine months ended
September 30, 1996 and 1995, respectively.
NOTE 4-COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments to
extend credit which are not reflected in the accompanying consolidated financial
statements. The Company does not anticipate losses as a result of these
transactions. However, the commitments are a component of the estimate of the
allowance for possible loan losses. Commercial and standby letters of credit
totaled approximately $7.0 million and $4.3 million at September 30, 1996, and
December 31, 1995, respectively. In addition, the Company had unfunded loan
commitments of $110.6 million and $85.0 million at September 30, 1996 and
December 31, 1995, respectively.
The Company uses the same credit policies in making commitments and conditional
obligations as it does in extending loan facilities to customers. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
The Company has entered into two interest rate swap agreements to reduce the
impact of changes in interest rates on its floating-rate loan portfolio. At
September 30, 1996, the Company had outstanding one interest rate swap agreement
with a commercial bank having a total notional principal amount of $50 million
(Swap #1), and one interest rate swap agreement with a securities broker having
a notional principal amount of $25 million (Swap #2). The agreements were
intended to reduce the Company's exposure to declines in prime lending rates by
artificially converting $75 million of the Company's prime-based loans to fixed
rates for the duration of the agreements. Swap #1 was entered into in September
1993. The terms of the first agreement require the Company to pay interest
quarterly based on three-month LIBOR and to receive interest semi-annually at a
fixed rate of 4.865%. The agreement matures in September 1998. Swap #2 was
entered into in January 1994. The terms of the second agreement require the
Company to pay interest quarterly based on three-month LIBOR in arrears, and to
receive interest semi-annually at a fixed rate of 5.04% through the January 1997
maturity date.
The Company accrues monthly interest income and expense on the swaps, the net of
which is included in income on loans. Net interest expense of $424 thousand and
$751 thousand related to the swap agreements is included in interest income for
the nine months ended September 30, 1996 and 1995, respectively. The Company is
required to pledge collateral on the swaps. U.S. Agency notes having a fair
value of approximately $5.3 million were pledged as collateral for the
agreements as of September 30, 1996. The Company is exposed to credit loss in
the event of nonperformance by the counterparties to the agreements. However,
the Company does not anticipate nonperformance by the counterparties.
7
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion presents information about the results of operations,
financial condition, liquidity and capital resources of SC Bancorp and its
subsidiary, Southern California Bank (together, the "Company"). This
information should be read in conjunction with the audited 1995 consolidated
financial statements of the Company and the notes thereto, and the accompanying
quarterly unaudited consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
The Company reported net income of $1.2 million for the third quarter of 1996
compared to a net loss of $908 thousand for the third quarter of 1995. Net
income for the third quarter of 1996 reflects the cost savings associated with
the sale of two branches and the consolidation of a third branch earlier in the
year. The net loss for the third quarter of 1995 reflects $1.7 million pretax
of restructuring charges associated with a restructuring plan announced during
the quarter ("1995 Restructuring"), and $600 thousand pretax of additional loan
loss provisions related to a few specifically identified commercial real estate
loans.
Net income for the first nine months of 1996 was $2.9 million compared to a loss
of $133 thousand for the same period in 1995. Year-to-date net income for the
current year includes a full nine months of operating revenues and expenses for
the private and corporate banking business acquired from Independence One Bank
of California, FSB ("IOBC") on April 30, 1995. Year-to-date net income for 1995
also includes the restructuring charges discussed above, a $408 thousand
nonrecurring adjustment to interest expense related to the Company's deferred
compensation plan, and a $407 thousand benefit payment received on corporate-
owned life insurance.
The following table summarizes key performance indicators pertaining to the
Company's operating results:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
- ---------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average assets (1) 1.07% -0.76% 0.86% -0.04%
as adjusted for restructuring charges (2) 0.08% 0.26%
Return on average shareholders' equity (1) 10.61% -7.96% 8.49% -0.41%
as adjusted for restructuring charges (2) 0.86% 2.66%
Net income $ 1,250 $ (908) $ 2,933 $ (133)
Earnings per share $ 0.17 $ (0.12) $ 0.39 $ (0.02)
Total average assets $ 465,615 $ 472,612 $ 458,092 $ 455,093
- -------------------------------------------------
(1) Annualized
(2) Restructuring charges:
Loss on securities $ 620 $ 620
Loss on fixed assets 109 109
Noninterest expense 948 948
------------ ------------
Total 1,677 1,677
------------ ------------
Restructuring charges net of taxes $ 1,006 $ 1,006
------------ ------------
</TABLE>
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and
interest paid on liabilities. Net interest margin is net interest income
expressed as a percentage of average interest-earning assets. The following
tables provides information concerning average interest-earning assets and
interest-bearing liabilities and the yields and rates thereon for the periods
indicated. They also provide a summary of the changes in interest income and
interest expense resulting from changes in average interest rates (rate) and
8
<PAGE>
Part I. Item 2 (continued)
changes in average balances (volume). Average balances are average daily
balances. Nonaccrual loans are included in total average loans outstanding.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three months ended 1996 and 1995
- ---------------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1995 Increase (decrease)
-----------------------------------------------------------------
Average Yield/ Average Yield/ due to change in Net
(DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1) Rate Volume Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans, net of deferred fees (2) $ 324,659 $ 7,628 9.35% $ 285,502 $ 7,090 9.85% $ (373) $ 911 $ 138
Investment securities 81,786 1,038 5.05% 126,071 1,618 5.09% (13) (568) (580)
Federal funds sold and other 13,219 174 3.23% 5,880 88 5.95% (12) 97 86
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning 419,685 8,839 8.38% 417,453 8,797 8.36% 13 29 42
assets/interest income
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 45,930 55,159
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $465,615 $ 472,612
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' equity
Interest-bearing deposits $ 287,309 $ 2,837 3.93% $ 291,075 $ 2,992 4.08% $ (115) $ (40) $ (155)
Other interest-bearing liabilities 6,633 135 8.09% 5,405 116 8.51% (6) 25 19
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 293,941 2,971 4.02% 296,481 3,108 4.18% (109) (28) (137)
liabilities/interest expense
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 124,815 130,882
Shareholders' equity 46,859 45,250
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 465,615 $ 472,612
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/net interest
margin $ 5,868 5.56% $ 5,680 5.41% $ 150 $ 29 $ 179
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
The Company's net interest income was $5.9 million for the three months ended
September 30, 1996, compared to $5.7 million for the three months ended
September 30, 1995. The net interest margin increased to 5.56% for the third
quarter of 1996, compared to 5.41% for the prior year.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Nine months ended 1996 and 1995
- ---------------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1995 Increase (decrease)
-----------------------------------------------------------------
Average Yield/ Average Yield/ due to change in Net
(DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1) Rate Volume Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans, net of deffered fees(2) $ 317,911 $ 22,395 9.44% $ 253,164 $ 18,790 9.22% $ (443) $6,048 $3,605
Investment securities 85,059 3,243 5.11% 130,976 2,060 5.17% (18) (1,758) (1,817)
Federal funds sold and other 8,702 346 5.34% 16,400 727 5.93% (67) (314) (381)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning
assets/interest income 411,672 25,984 8.46% 400,540 24,577 8.20% 750 657 1,407
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 46,420 54,553
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 458,092 $ 455,093
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 279,489 $ 8,198 3.93% $ 277,418 $ 8,220 3.96% $ (52) $ 30 $ (22)
Other interest-bearing liabilities 11,743 624 7.13% 9,439 920 13.03% (386) 90 (296)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities/interest expense 291,232 8,822 4.06% 286,857 9,140 4.26% (380) 62 (318)
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 120,726 124,366
Shareholders' equity 46,134 43,867
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 458,092 $ 455,090
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/net interest margin $ 17,162 5.59% $ 15,437 5.15% $ 1,302 $ 423 $1,725
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) Includes loans on nonaccrual status of approximately $2.3 million and $1.8
million at September 30, 1996 and 1995, respectively. The amount of
interest income foregone on loans that were on nonaccrual status was
approximately $149 thousand and $167 thousand for the nine months ended
September 30, 1996 and 1995, respectively. Interest income on loans
includes amortization of net loan fees of approximately $694 thousand and
$569 thousand for the nine months ended September 30, 1996 and 1995,
respectively. Additionally, net interest expense of $424 thousand and $751
thousand relating to the interest rate swap agreements was included in
interest income from loans for the nine months ended September 30, 1996 and
1995, respectively.
Net interest income was $17.2 million for the nine months ended September 30,
1996, compared to $15.4 million for the comparable period for the prior year.
The net interest margin increased to 5.59% for the first nine months of 1996
from 5.15% for the
9
<PAGE>
Part I. Item 2. (continued)
comparable period of the prior year. The increase in the net interest margin is
attibutable in part to a change in the earning asset mix that includes a higher
proportion of loans to investment securities, and to a decrease in funding
costs. On a year-to-date basis, average loans increased to 77% of total average
earning assets for the current year from 63% of average earning assets a year
ago. The increase was largely due to the $72 million of loans acquired from
IOBC on April 30, 1995. The decrease in investment securities reflects the sale
of $27 million of investment securities during the third quarter of 1995, and
the sale of $8.5 million of U.S. agency securities during the first quarter of
1996. The decrease in funding costs compared to the prior year is due to the
fact that higher rate certificates of deposit raised prior to the IOBC
transaction have largely been replaced with lower cost deposits. The average
rate paid on certificates of deposit decreased to 5.40% for the nine months
ended September 30, 1996 from 5.85% for the nine months ended September 30,
1995. Interest expense for 1995 also included a $408 thousand nonrecurring
adjustment on the Company's deferred compensation plans.
The average yield on earning assets for the nine months ended September 30, 1996
increased to 8.46% from 8.20% for the comparable period of the prior year. This
increase occurred despite an approximately 59 basis point decrease in the
average prime rate for the first nine months of 1996 compared to the same period
in 1995. The Company's overall funding costs decreased approximately 20 basis
points from the prior year due to the reasons discussed above.
PROVISION FOR POSSIBLE LOAN LOSSES
There were no additions to the provision for possible loan losses during the
third quarter of 1996. Loan charge-offs and recoveries for the quarter were
$31 thousand and $73 thousand, respectively. Nonaccrual loans increased to $2.3
million at September 30, 1996 from $1.4 million at December 31, 1995. The
increase is due to two loans to the same borrower that had previously been
reported as restructured. The ratio of the allowance for possible loan losses
to total loans decreased to 1.59% at September 30, 1996 from 1.81% at December
31, 1995. Refer to NOTE 3-LOANS of the Company's consolidated financial
statements which are included in Part I, Item 1, of this Form 10-Q.
The Company recorded a $470 thousand reduction to the provision for possible
loan losses for the first nine months of 1996 compared to a $1.2 million
provision for the comparable period of 1995. Year-to-date loan charge-offs and
recoveries for the current year were $370 thousand and $475 thousand,
respectively, representing a year-to-date net recovery of $105 thousand. Year-
to-date charge-offs and recoveries for the same period of the prior year were
$2.4 million and $636 thousand, respectively, representing a year-to-date net
charge-off of $1.8 million.
NONINTEREST INCOME
The following tables set forth the major components of noninterest income for
the periods indicated:
Three Months Ended
(DOLLARS IN THOUSANDS) September 30,
- --------------------------------------------------------------------------------
1996 1995 Restructuring 1995, Net
Service charges on deposit accounts $ 294 $ 449 -- $ 449
Other fees and charges 796 668 -- 668
Merchant bankcard income 144 145 -- 145
Net gain (loss) on sales of securities -- (620) (620) --
Net gains on sales of loans -- 148 -- 148
Net loss on sales of fixed assets (9) (107) (109) 2
Life insurance income 32 53 -- 53
Other income 66 23 -- 23
- --------------------------------------------------------------------------------
Total noninterest income $ 1,323 $ 759 $ (729) $1,488
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Noninterest income was $1.3 million and $759 thousand for the three months ended
September 30, 1996 and 1995, respectively.
Noninterest income for the third quarter of 1995 includes a $620 loss on sales
of investment securities incurred in conjunction with the 1995 Restructuring.
10
<PAGE>
Part I. Item 2. (continued)
NONINTEREST INCOME
Nine Months Ended
(DOLLARS IN THOUSANDS) September 30,
- --------------------------------------------------------------------------------
1996 1995 Restructuring 1995, Net
Service charges on deposit accounts $ 1,058 $ 1,292 $ -- $ 1,292
Other fees and charges 2,061 1,968 -- 1,968
Merchant bankcard income 387 382 382
Net gain on sales of investment
securities 14 (620) (620) --
Net gains on sales of loans 148 148
Net loss on sales of fixed assets (33) (107) (109) 2
Life insurance income 85 460 -- 460
Other income 284 209 -- 209
- --------------------------------------------------------------------------------
Total noninterest income $ 3,856 $ 3,732 $ (729) $ 4,461
- --------------------------------------------------------------------------------
Year-to-date noninterest income was $3.9 million in 1996 compared to $3.7
million for the same period in 1995. In addition to the loss on sales of
securities, year-to-date noninterest income for 1995 included a $407 thousand
benefit payment on a corporate-owned life insurance policy. Service charge
income for the first nine months of 1996 was $234 thousand below the comparable
period of the prior year due to competitive pricing on commercial accounts.
Other fees and charges relating to deposit accounts includes NSF, stop payment
and wire fees. Other income includes check printing upcharge income, sundry
operating recoveries and miscellaneous income.
NONINTEREST EXPENSE
The following tables provide detail of the Company's noninterest expense by
category for the periods indicated:
11
<PAGE>
Part I. Item 2. (continued)
Three Months Ended
(DOLLARS IN THOUSANDS) September 30,
- -----------------------------------------------------------------------------
1996 1995 Restructuring 1995, Net
Salaries and employee benefits $ 2,491 $ 2,981 $ 179 $ 2,802
Net occupancy, furniture and
equipment 946 1,565 256 1,309
Legal 172 241 -- 241
Other real estate owned 40 142 -- 142
Professional fees 205 315 86 229
Postage and delivery 153 150 -- 150
Miscellaneous 118 78 -- 78
Advertising and promotion 93 118 -- 118
Goodwill amortization 135 552 427 125
Merchant bankcard expense 111 132 -- 132
Professional and community 46 (54) -- (54)
Telecommunications 76 125 -- 125
Stationery and supplies 59 128 -- 128
Data processing 76 65 -- 65
Software 99 100 -- 100
Other operating expense 228 195 -- 195
- -----------------------------------------------------------------------------
Total noninterest expense $ 5,048 $ 6,833 $ 948 $ 5,885
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Annualized noninterest expense
as a % of average earning assets 4.79% 6.49% 5.59%
Noninterest expense for the third quarter of 1996 decreased to $5.0 million from
$5.9 million for the third quarter of 1995 net of restructuring charges. Total
noninterest expense for the third quarter of 1995 included $948 thousand of
restructuring charges relating to the sale of two branches, closure of a third
branch and the closure of an administrative facility in Anaheim. These
transactions were finalized during the first quarter of 1996. Salary and
benefits expense has been favorably impacted by the reduction in the number of
full-time equivalent staff to 210 at September 30, 1996 from 235 at September
30, 1995. Net occupancy expense for the third quarter of 1996 was $946 thousand
compared to $1.3 million net of restructuring charges for the same period in
1995 The reduction in ongoing occupancy expense can be attributed to the
reduced number of locations following the restructuring.
12
<PAGE>
Part I. Item 2. (continued)
NONINTEREST EXPENSE
Nine Months Ended
(DOLLARS IN THOUSANDS) September 30,
- -----------------------------------------------------------------------------
1996 1995 Restructuring 1995, Net
---- ---- ------------- ---------
Salaries and employee benefits $ 7,669 $ 8,282 $ 179 $ 8,103
Net occupancy, furniture and
equipment 3,134 3,608 256 3,352
Legal 812 597 -- 597
Professional fees 566 562 86 476
Other real estate owned 522 387 -- 387
Postage and delivery 468 433 -- 433
Goodwill amortization 370 706 427 279
Miscellaneous 354 283 -- 283
Advertising and promotion 321 331 -- 331
Merchant bankcard expense 314 354 -- 354
Telecommunications 273 343 -- 343
Stationery and supplies 222 288 -- 288
Data processing 223 180 -- 180
Software 221 267 -- 267
Other operating expense 976 1,471 -- 1,471
--------- --------- -------- ---------
$16,445 $18,092 $ 948 $17,144
--------- --------- -------- ---------
--------- --------- -------- ---------
Annualized noninterest expense
as a % of average earning assets 5.34% 6.04% 5.72%
Noninterest expense for the nine months ending September 30, 1996 was $16.4
million compared to $17.1 million net of restructuring charges for the
comparable period of 1995. Current year noninterest expense reflects the impact
of the 1995 Restructuring, and includes a full nine months of expenses
associated with the two corporate banking offices and two branches added
following the IOBC transaction during the second quarter of 1995. The decrease
in other operating expense to $976 thousand from $1.5 million for the prior year
is largely due to a $362 thousand reduction in FDIC deposit insurance premiums.
Certain categories of noninterest expense increased over the prior year. The
increase in legal and professional fees is due in part to fees associated with
evaluating potential acquisition opportunities. Current year professional fees
also include fees associated with outsourcing the Company's internal audit
function. The increase in year-to-date OREO expense over the prior year is
primarily due to valuation reserves taken to facilitate the disposition of one
property. The sale of this property closed on October 30, 1996 resulting in a
$87 thousand gain.
The Company has improved its ongoing operating efficiencies on a larger earning
asset base. Year-to-date noninterest expense for the first nine months of 1996
as a percentage of average earning assets has decreased to 5.34% from 5.72% net
of restructuring charges for a year ago.
FINANCIAL CONDITION
Total assets at September 30, 1996 were $467.7 million, an increase of $6.0
million from $461.7 million at December 31, 1995. Net loan balances increased
to $330.9 million at September 30, 1996 from $310.6 million at December 31,
1995. Total deposits increased to $410.5 million at September 30, 1996 from
$406.8 million at December 31, 1995. The increase in deposit balances was
achieved despite the sale of two branches with deposits totaling approximately
$7.5 million during the first quarter of 1996.
13
<PAGE>
Part I. Item 2. (continued)
The following table provides a summary comparison of assets and liabilities
in the Company's consolidated balance sheets and the percentage change in
these balances for the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, Amount Percent
(DOLLARS IN THOUSANDS) 1996 1995 Change Change
- ----------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 34,556 $ 29,088 $ 5,468 18.80%
Securities available-for-sale, at fair value 78,171 94,030 (15,859) -16.87%
Loans, net 330,936 310,576 20,360 6.56%
Premises and equipment, net 8,105 9,734 (1,629) -16.74%
Other real estate owned, net 1,618 2,073 (455) -21.95%
Accrued interest receivable 2,653 4,297 (1,644) -38.26%
Other assets 11,613 11,885 (272) -2.29%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 467,652 $ 461,683 $ 5,969 1.29%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 123,869 $ 130,378 $ (6,509) -4.99%
Interest-bearing demand & savings deposits 148,512 130,301 18,211 13.98%
Time certificates of deposit 138,086 146,132 (8,046) -5.51%
- ----------------------------------------------------------------------------------------------------
Total deposits 410,467 406,811 3,656 0.90%
- ----------------------------------------------------------------------------------------------------
Borrowed funds and other
interest-bearing liabilities 6,498 6,407 91 1.42%
Accrued interest payable and other liabilities 2,736 2,953 (217) -7.35%
Total shareholders' equity 47,951 45,512 2,439 5.36%
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 467,652 $ 461,683 $ 5,969 1.29%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits at correspondent
banks and overnight investment of excess cash balances as Federal funds sold.
The Company maintains balances at correspondent banks adequate to cover daily
inclearings and other charges. The Company's reserve requirement with the
Federal Reserve Bank was $10.0 million at September 30, 1996.
Cash and cash equivalents increased $5.5 million to $34.6 million at September
30, 1996 from $29.1 million at December 31, 1995. The increase is due to a $5.6
million investment in overnight Federal funds sold. There were no Federal funds
sold at December 31, 1995.
INVESTMENT SECURITIES
The Company's securities portfolio includes U.S. Treasury securities and U.S.
government agency securities, most of which are mortgage-backed securities. The
Company reclassified it entire held-to-maturity portfolio to the available-for-
sale category in December, 1995 under the special one-time exemption authorized
by the Financial Accounting Standards Board.
14
<PAGE>
Part I. Item 2. (continued)
The following table sets forth the maturity distribution of the Company's
investment securities at their estimated fair values at
September 30, 1996:
<TABLE>
<CAPTION>
Maturing in
- -----------------------------------------------------------------------------------------------------------
Over one Over five
One year year through years through Over
(DOLLARS IN THOUSANDS) or less five years ten years ten years Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 5,012 $ -- $ -- $ 79 $ 5,091
U.S. government agency securities 10,363 17,187 2,034 -- 29,584
Mortgage-backed securities -- 37,080 6,416 -- 43,496
- -----------------------------------------------------------------------------------------------------------
Total $ 15,375 $ 54,267 $ 8,450 $ 79 $ 78,171
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
LOANS
The Company provides a full range of credit products designed to meet the credit
needs of borrowers in its service area. The Company engages in medium-term
commercial real estate loans secured by commercial properties, commercial loans,
term financing, SBA loans, and consumer loans principally in the form of home
equity lines of credit, vehicle loans, and loans to high net worth individuals.
Additionally, the Company offers construction loan products principally for
entry level housing and owner-user commercial industrial properties.
Refer to NOTE 3-LOANS of the Company's consolidated financial statements which
are included in Part 1. Item 1. of this Form 10-Q for a comparison of loans by
category at September 30, 1996 and December 31, 1995.
COMMERCIAL LOANS. Commercial loans totaled $153.4 million, or 45.5%, of total
loans and $147.2 million, or 46.5%, of total loans at September 30, 1996 and
December 31, 1995, respectively. Most of the Bank's commercial borrowers and
customers are small to medium sized businesses and professionals. Most of the
commercial loans are short term, are reviewed or renewed annually, and bear a
floating rate of interest. Approximately 64% of the commercial loan portfolio
is secured. Collateral for these loans consists of accounts receivable,
inventories, equipment and other business assets, including real estate. At
September 30, 1996, $38.1 million, or 11.3%, of total loans were secured by
accounts receivable as compared to $29.5 million, or 9.3%, of loans at December
31, 1995. Commercial loans secured by real estate comprised $18.4 million, or
5.5%, of total loans at September 30, 1996, compared to $18.9 million, or 6.0%,
of loans at December 31, 1995. In 1995, the Company began participating in
government-insured lending programs, including SBA loans. At September 30,
1996, the Company had $20.4 million of SBA loans.
REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans increased to
$5.6 million, or 1.7%, of total loans at September 30, 1996 compared to $4.4
million, or 1.4%, of total loans at December 31, 1995.
REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprise $108.1 million,
or 32.1%, of the total loan portfolio at September 30, 1996 compared to $107.7
million, or 34.0%, of the total loans outstanding at December 31, 1995.
Approximately $16.8 million of such real estate loans were purchased from IOBC.
Company management continues to monitor the concentration of real estate loans
in the loan portfolio. New real estate loans are made only to existing
borrowers who are owner/users or to new borrowers who provide a new major
banking relationship and demonstrate adequate cash flows. All new real estate
borrowers must provide financial reporting that meets FDICIA standards and the
loans must have conservative loan to value ratios. Approximately 80% of the
Bank's real estate loans are secured by first trust deeds, and approximately 50%
are to owner/users.
CONSUMER LOANS. Approximately $69.9 million, or 20.7%, of the loan portfolio is
consumer loans at September 30, 1996. This represents an increase from the $58
million, or 18.2%, of the loan portfolio it comprised at December 31, 1995. The
consumer loan portfolio includes $28.4 million of home equity loans and home
equity lines of credit representing 8.4% of total loans. Vehicle loans comprise
approximately $20.0 million, or 5.9%, of total loans at September 30, 1996. The
levels of consumer loans at period ends may fluctuate and may not necessarily be
representative of average levels experienced during the respective periods due
to the timing of advances and payments made on such loans by borrowers.
15
<PAGE>
Part I. Item 2. (continued)
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES. The
following table sets forth the maturity distribution of the Company's loan
portfolio (excluding consumer and nonaccrual loans) at September 30, 1996 based
on remaining scheduled principal repayments:
<TABLE>
<CAPTION>
Maturing in
- -----------------------------------------------------------------------------------
Over one
One year year through Over
(DOLLARS IN THOUSANDS) or less five years five years Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 77,468 $ 47,846 $ 27,398 $ 152,712
Real estate, construction 2,590 795 2,237 5,622
Real estate, mortgage 23,823 58,959 23,835 106,617
- -----------------------------------------------------------------------------------
Total $ 103,881 $ 107,600 $ 53,470 $ 264,951
- -----------------------------------------------------------------------------------
</TABLE>
The following table sets forth information on sensitivity to changes in
interest rates for the Company's loan portfolio (excluding consumer and
nonaccrual loans) at September 30, 1996:
<TABLE>
<CAPTION>
Maturity or Repricing in
- -----------------------------------------------------------------------------------
Over one
One year year through Over
(DOLLARS IN THOUSANDS) or less five years five years Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed interest rates $ 18,454 $ 39,356 $ 18,041 $ 75,851
Variable interest rates 189,064 36 -- 189,100
- -----------------------------------------------------------------------------------
Total $ 207,518 $ 39,392 $ 18,041 $ 264,951
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
The amounts reported in the categories in the tables do not reflect loan
prepayments or other factors which may cause the loans to react in different
degrees and at different times to changes in market interest rates.
ASSET QUALITY
NONACCRUAL, PAST DUE AND MODIFIED LOANS
The Company recognizes income principally on the accrual basis of accounting.
In determining income from loans, the Company generally adheres to a policy of
not accruing interest on loans on which a default of principal or interest has
existed for a period of 90 days or more. The Company's policy is to assign
nonaccrual status to a loan if either (i) principal or interest payments are
past due in excess of 90 days, unless the loan is both well secured and in the
process of collection; or (ii) the full collection of interest or principal
becomes uncertain, regardless of the length of past due status. When a loan
reaches "nonaccrual" status, any interest accrued on such a loan is reversed and
charged against current income.
16
<PAGE>
Part I. Item 2. (continued)
Nonaccrual loans by category are summarized below:
September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
--------------------------------------------------------------
Commercial $ 710 $ 620
Real estate, construction -- --
Real estate, mortgage 1,483 615
Consumer 120 150
--------------------------------------------------------------
Total nonaccrual loans $ 2,313 $ 1,385
--------------------------------------------------------------
--------------------------------------------------------------
Delinquent loans (past due 30 to 89 days and still accruing interest) by
category are summarized below:
September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
---------------------------------------------------------------
Commercial $ 123 $ 548
Real estate, construction -- --
Real estate, mortgage -- 503
Consumer 273 411
---------------------------------------------------------------
Total delinquent loans $ 396 $ 1,462
---------------------------------------------------------------
---------------------------------------------------------------
Percentage of total gross loans:
Nonaccrual loans 0.69% 0.44%
Delinquent loans, still accruing interest 0.12% 0.46%
Nonaccrual and delinquent loans 0.80% 0.90%
ALLOWANCE FOR POSSIBLE LOAN LOSSES
A certain degree of risk is inherent in the extension of credit. Management has
adopted a policy to maintain the allowance for possible loan and lease losses at
a level considered by management to be adequate to absorb estimated known and
inherent risks in the existing portfolio.
Management performs a comprehensive analysis of the loan portfolio on a regular
basis and its current allowance for loan losses to determine if loans are
currently protected according to financial and collateral standards deemed
acceptable. The allowance for possible loan losses represents management's
recognition of the assumed risks of extending credit and the quality of the loan
portfolio. The allowance is management's estimate, which is inherently
uncertain and depends on the outcome of future events. The evaluation of the
quality of the loan portfolio considers the borrower's management, financial
condition, cash flow and repayment program, as well as the existence of
collateral and guarantees. External business and economic factors beyond the
borrower's control, combined with the Company's previous loan loss experience,
are considered in management's evaluation of the allowance for possible loan
losses. In addition, bank regulatory authorities, as an integral part of their
examination process, periodically review the Company's allowance for possible
loan losses and may recommend additions to the allowance based on their
assessment of information available to them at the time of their examination.
When it is determined that additions are required, additions to the allowance
are made through charges to operations and are reflected in the statements of
operations as a provision for loan losses. Loans which are deemed to be
uncollectible are charged to the allowance. Subsequent recoveries, if any, are
credited back to the allowance. Refer to NOTE 3-LOANS of the Company's
consolidated financial statements which are included in Part I. Item 1. of this
Form 10-Q for additional information concerning activity in the allowance for
possible loan losses, including charge-offs and recoveries. The provision for
possible loan losses is discussed above in Item 2.
17
<PAGE>
Part I. Item 2. (continued)
OTHER REAL ESTATE OWNED
OREO primarily includes properties acquired through foreclosure or through full
or partial satisfaction of loans. The difference between the fair value of the
real estate collateral and the loan balance at the time of transfer to OREO is
reflected in the allowance for possible loan losses as a charge-off. Any
subsequent declines in the fair value of the OREO property after the date of
transfer are recorded through a provision for writedowns on OREO. Routine
holding costs, net of any income and net gains or losses on disposal, are
reported in noninterest expense. Activity in OREO for the periods indicated is
as follows:
Nine months
Ended Year Ended
September 30, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
------------------------------------------------------------------
Balance, beginning of period $2,073 $ 5,837
Additions 699 1,923
Sales (673) (5,689)
Valuation and senior liens (481) 2
------------------------------------------------------------------
Balance, end of period $1,618 $ 2,073
------------------------------------------------------------------
------------------------------------------------------------------
At September 30, 1996, the OREO portfolio consisted of three properties. One
property having a net book value of $1.1 million was sold on October 30, 1996.
A gain of $87 thousand was recognized on this sale. The Company is actively
marketing the remaining properties.
DEPOSITS
Total deposits at September 30, 1996 were $410.5 million, a $3.7 million
increase from $406.8 million at December 31, 1995, 1996.
The following table sets forth the distribution of average deposits and the
rates paid thereon for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
Average Average
(DOLLARS IN THOUSANDS) Balance Rate (1) % of total Balance Rate % of total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 117,459 29.58% $ 123,815 30.47%
NOW/MMDA 90,307 2.50% 22.75% 81,815 1.77% 20.13%
Savings 45,134 2.10% 11.37% 55,204 2.08% 13.58%
TCDs 144,048 5.38% 36.30% 145,555 5.77% 35.82%
- ---------------------------------------------------------------------------------------------------------------------
Deposits $ 396,947 100.00% $ 406,389 100.00%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
The decrease in average demand deposit balances to $117.5 million at September
30, 1996 from $123.8 million at December 31, 1995 can be attributed to the use
of investment sweep accounts by selected business customers and to the sale of
two branches during the first quarter of 1996.
The reduction in the average rate paid on time certificates of deposit to 5.38%
for the nine months ending September 30, 1996 from 5.77% for 1995, is due in
part to the maturity of the higher rate accounts raised prior to the IOBC
transaction. These accounts have largely been replaced with lower cost
deposits.
18
<PAGE>
Part I. Item 2. (continued)
The following table sets forth the maturities of the Company's time certificate
of deposit accounts at the dates indicated:
<TABLE>
<CAPTION>
September 30, 1996
Maturing in
- -------------------------------------------------------------------------------------------------
Over three Over six
Three months months Over
months through through twelve
(DOLLARS IN THOUSANDS) or less six months twelve months months Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $100,000 $ 27,602 $ 25,310 $ 22,309 $ 8,522 $ 83,743
$100,000 and over 29,194 10,687 11,095 3,367 54,343
- -------------------------------------------------------------------------------------------------
Total $ 56,796 $ 35,997 $ 33,404 $ 11,889 $ 138,086
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
December 31, 1995
Maturing in
- -------------------------------------------------------------------------------------------------
Over three Over six
Three months months Over
months through through twelve
(DOLLARS IN THOUSANDS) or less six months twelve months months Total
- -------------------------------------------------------------------------------------------------
Under $100,000 $ 32,926 $ 28,532 $ 31,492 $ 7,034 $ 99,984
$100,000 and over 20,183 13,587 9,260 3,118 46,148
- -------------------------------------------------------------------------------------------------
Total $ 53,109 $ 42,119 $ 40,752 $ 10,152 $ 146,132
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES
Borrowed funds and other interest-bearing liabilities consist of overnight
Federal funds purchased, Treasury, tax and loan notes ("TT&L"), obligations
under securities repurchase agreements, the principal portions of capitalized
lease obligations, obligations to senior lienholders for certain OREO properties
and deferred compensation liabilities. The balance of borrowed funds and other
interest-bearing liabilities increased slightly to $6.5 million at September 30,
1996 from $6.4 million at December 31, 1995.
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to manage and control the
Company's exposure to interest rate fluctuations while maintaining adequate
levels of liquidity and capital. The Company seeks to achieve this objective by
matching its interest rate-sensitive assets and liabilities, and maintaining
the maturity and repricing of these assets and liabilities at appropriate levels
given the interest rate environment. Generally, if rate-sensitive assets exceed
rate-sensitive liabilities, the net interest income will be positively impacted
during a rising rate environment and negatively impacted during a declining rate
environment. When rate-sensitive liabilities exceed rate-sensitive assets, the
net interest income will generally be positively impacted during a declining
rate environment and negatively impacted during a rising rate environment.
However, because interest rates for different asset and liability products
offered by depository institutions respond differently to changes in the
interest rate environment, the gap between rate-sensitive assets and rate-
sensitive liabilities can only be used as a general indicator of interest rate
sensitivity.
The following gap repricing table sets forth information concerning the
Company's rate-sensitive assets and rate-sensitive liabilities, including the
off-balance sheet amounts for interest rate swaps, as of September 30, 1996.
Such assets and liabilities are classified by the earlier of maturity or
repricing date in accordance with their contractual terms. Certain shortcomings
are inherent in the method of analysis presented in the following gap table.
For example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees and at different
times to changes in market interest rates. Also, loan prepayments and changes
in the mix or level of deposits could cause the interest sensitivities to vary
from those which appear in the table.
19
<PAGE>
Part I. Item 2. (continued)
<TABLE>
<CAPTION>
Over three Over one
Three months year
months through through Over
(DOLLARS IN THOUSANDS) or less twelve months five years five years Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold $ 5,600 $ -- $ -- $ -- $ 5,600
Investment securities -- 15,375 54,267 8,529 78,171
Gross Loans (1) 212,662 38,078 55,390 28,580 334,710
Interest rate swap -- 25,000 50,000 -- 75,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $218,262 $78,453 $159,657 $37,109 $493,481
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Interest-bearing demand and
savings deposits $ -- $ 26,732 $103,958 $ 17,821 $148,512
Time certificates of deposit 56,796 69,401 11,889 -- 138,086
Other borrowings and interest-
bearing liabilities 5,327 1,171 -- -- 6,498
Interest rate swap 75,000 -- -- -- 75,000
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $137,123 $ 97,304 $115,847 $ 17,821 $368,096
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 81,139 $(18,851) $ 43,810 $ 19,288
Cumulative interest rate sensitivity gap 81,139 62,288 106,098 125,385
Cumulative interest rate sensitivity gap
as a percentage of total interest-
earning assets 16.44% 12.62% 21.50% 25.41%
</TABLE>
- -------------------------------------------------------
(1) Excludes nonaccrual loans of $2.3 million.
At September 30, 1996, the Company's rate-sensitive balance sheet was shown to
be in a positive gap position over a one-year horizon. The gap between assets
and liabilities that reprice within 12 months was $62.3 million or 12.62% of
assets. The table above implies that the Company is moderately asset-sensitive
and that its earnings would increase in the short-term if interest rates rise.
Repricing of the Company's interest-bearing demand and savings deposits
generally lags repricing on the Company's variable rate loan portfolio. These
core deposits tend to be fairly stable over time and exhibit a low sensitivity
to changes in interest rates. In preparing the gap table, management
distributes core deposit balances across the maturity ranges in accordance with
regulatory guidelines in order to incorporate these characteristics of its core
deposits.
In addition to utilizing the repricing gap table above in managing its interest
rate risk, the Company performs a quarterly income simulation analysis. This
simulation analysis provides a dynamic evaluation of the Company's balance sheet
and income statement under varying scenarios, providing an estimate of both the
dollar amount and percentage change in net interest income under various changes
in interest rates. Based on this income simulation analysis, the Company has
tended to be moderately asset-sensitive. Thus, a rising rate environment would
tend to lead to a moderate increase in net interest income.
LIQUIDITY
Liquidity management involves the Company's ability to meet the cash flow
requirements of its customers who may be depositors wanting to withdraw funds or
borrowers needing assurance that sufficient funds will be available to meet
their credit needs. The Company's liquid assets consist of cash and cash
equivalents and investment securities, excluding those pledged as collateral.
It is the Company's policy to maintain a liquidity ratio (liquid assets to
liabilities) of between 20% and 40%, and to limit loans to no more than 85% of
deposits. At September 30, 1996, the Company's ratios were within these
guidelines: the liquidity ratio was 22.2% and the loan to deposit ratio was
82.9%.
20
<PAGE>
Part I. Item 2. (continued)
The Company maintains short-term sources of funds to meet periodic planned and
unplanned increases in loan demand and deposit withdrawals and maturities. The
initial source of liquidity is the excess funds sold daily to other banks in the
form of Federal funds. Besides cash and cash equivalents, the Company maintains
a portion of its investment securities portfolio as available-for-sale.
Available-for-sale securities can be sold in response to liquidity needs or used
as collateral under reverse repurchase agreements.
The Company's liquid assets were $90.4 million at September 30, 1996, a decrease
of $10.7 million from December 31, 1995. The decrease can be attributed to the
reduction in deposits resulting from the managed reduction of the promotional
certificates of deposit raised prior to the IOBC acquisition and to the sale of
two branches during the first quarter of 1996.
Secondary sources of liquidity include reverse repurchase arrangements to borrow
cash for short to intermediate periods of time using the Company's available-
for-sale securities as collateral and Federal funds lines of credit that allow
the Company to temporarily borrow an aggregate of up to $30 million from three
commercial banks. At September 30, 1996, the Company had approximately $62.5
million in unpledged securities that could be used to secure borrowings such as
reverse repurchase agreements. During the three months ended September 30,
1996, the largest amount of funds so borrowed was $9.7 million. Federal funds
arrangements with correspondent banks are subject to the terms of the individual
arrangements and may be terminated at the discretion of the correspondent bank.
Federal funds purchases of up to $5.0 million were borrowed during the quarter
ended September 30, 1996.
CAPITAL RESOURCES
The Company and its bank subsidiary are subject to risk-based capital
regulations adopted by the federal banking regulators in January 1990. These
guidelines are used to evaluate capital adequacy, and are based on an
institution's asset risk profile and off-balance sheet exposures, such as unused
loan commitments and letters of credit. The regulations require that a portion
of total capital be core, or Tier 1, capital consisting of common shareholders'
equity and perpetual preferred stock, less goodwill and certain other
deductions, with the remaining, or Tier 2, capital consisting of other elements,
primarily subordinated debt, mandatory convertible debt, and grandfathered
senior debt, plus the allowance for possible loan losses, subject to certain
limitations. As of December 1992, the risk-based capital rules were further
supplemented by a leverage ratio defined as Tier 1 capital divided by quarterly
average assets after certain adjustments. The minimum leverage ratio is 3
percent for banking organizations that do not anticipate significant growth and
have well-diversified risk (including no undue interest rate exposure),
excellent asset quality, high liquidity and good earnings. Other banking
organizations not meeting these standards are expected to have ratios of at
least 4 to 5 percent, depending on their particular condition and growth plans.
Higher capital ratios can be mandated by the regulators if warranted by the
particular circumstances or risk profile of a banking organization. In the
current regulatory environment, banking companies must stay well-capitalized, as
defined in the banking regulations, in order to receive favorable regulatory
treatment on acquisitions and favorable risk-based deposit insurance
assessments. Management seeks to maintain capital ratios in excess of the
regulatory minimums. As of September 30, 1996, the capital ratios of the
Company and the Bank exceeded the well-capitalized thresholds prescribed in the
rules.
21
<PAGE>
Part I. Item 2. (continued)
The following table sets forth the Company's and the Bank's leverage and risk-
based capital ratios at September 30, 1996:
<TABLE>
<CAPTION>
Company Bank
- ----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) Amount % Amount %
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leverage ratio $ 45,469 9.83% $ 43,197 9.34%
Regulatory minimum 18,497 4.00% (c) 18,497 4.00% (c)
Excess 26,972 5.83% 24,700 5.34%
Risk-based ratios
Tier 1 capital $ 45,459 (a) 10.90% (b) $ 43,197 (a) 10.36% (b)
Tier 1 minimum 16,678 4.00% (c) 16,678 4.00% (c)
Excess 28,781 6.90% 26,519 6.36%
Total capital $ 50,673 (d) 12.15% (b) $ 48,411 (d) 11.61% (b)
Total capital minimum 33,356 8.00% 33,356 8.00% (c)
Excess 17,317 4.15% 15,055 3.61%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes common shareholders' equity (excluding unrealized losses on
available-for-sale securities) less goodwill. The Tier 1 capital ratio is
adjusted for the disallowed portion of deferred tax assets, if applicable.
(b) Risk-weighted assets of $417 million were used to compute these
percentages.
(c) Insured institutions, such as the Bank, must maintain a leverage capital
ratio of at least 4% or 5%, a Tier 1 captial ratio of at least 4% or 6%,
and a Total capital ratio of at least 8% or 10% in order to be categorized
adequately capitalized or well-capitalized, respectively.
(d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of
total risk-weighted assets.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
- --------------------------------------------------------------------------------
Exhibit Description
No.
- --------------------------------------------------------------------------------
3(i).1 SC Bancorp Articles of Incorporation as previously amended(a)
3(i).2 Amendment to SC Bancorp Articles of Incorporation dated May 9, 1995(b)
3(ii).1 Bylaws, as amended through March 25, 1996(b)
4.1 Specimen Common Stock Certificate(b)
4.2 SC Bancorp 1989 Stock Option Plan (February 1990)(c)
4.3.1 Amended and restated Southern California Bank Employee Retirement Plan
dated January 1, 1992(d)
4.3.2 First amendment to the amended and restated Southern California Bank
Employee Retirement Plan(b)
4.3.3 Second amendment to the amended and restated Southern California Bank
Employee Retirement Plan(b)
4.3.4 Third amendment to the amended and restated Southern California Bank
Employee Retirement Plan(b)
4.3.5 Fourth amendment to the amended and restated Southern California Bank
Employee Retirement Plan(b)
4.4 SC Bancorp Executive Deferral Plan (IV) (February 1990)(c)
4.5 Southern California Bank Executive Incentive Compensation Plans for
1994 (December 1993)(e)
4.6 Southern California Bank Executive Incentive Compensation Plans for
1995(b)
10.1 First amendment to license agreement between Southern California Bank
and The Vons Companies, Inc. dated December 18, 1992, for supermarket
space in Anaheim Hills, California.
10.2 License agreement between Southern California Bank and The Vons
Companies, Inc. dated February 22, 1996, for supermarket space in
La Habra, California.
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
(a) This exhibit is contained in SC Bancorp's Quarterly Report on Form
10-Q for the period ended March 31, 1995, filed with the Commission
on May 15, 1995, (Commission File No. 0-11046) and incorporated
herein by reference.
(b) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K
for the year ended December 31, 1995 filed with the Commission on
March 29, 1996, (Commission File No. 0-11046) and incorporated herein
by reference.
(c) This exhibit is contained in SC Bancorp's Proxy Statement, filed with
the Commission on March 23, 1990, (Commission File No. 0-11046) and
incorporated herein by reference.
(d) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K
for the year ended December 31, 1991, filed with the Commission on
March 30, 1992, (Commission File No. 0-11046) and incorporated herein
by reference.
(e) This exhibit is contained in SC Bancorp's Registration Statement on
Form S-2, filed with the Commission on March 9, 1994, (Commission File
No. 33-76274), and incorporated herein by reference.
- ---------------
(b) Reports filed on Form 8-K
None filed during the third quarter of 1996.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: 8 November, 1996 SC BANCORP
(Registrant)
By: /S/ Bruce Roat
-----------------------------
Bruce Roat
E.V.P./C.F.O.
(Principal Financial and
Accounting Officer)
24
<PAGE>
LICENSE AGREEMENT
BETWEEN
THE VONS COMPANIES, INC.
AND
SOUTHERN CALIFORNIA BANK
DATED FEBRUARY 22, 1996
VONS #524
2101 WEST IMPERIAL HIGHWAY
LA HABRA, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
RECITALS 5
AGREEMENTS 5
DEFINITIONS 5
DEFINITIONS 5
GRANT OF LICENSE 6
TERM 6
USE 7
LICENSE FEE 7
EMPLOYEES 8
IMPROVEMENTS, ADDITIONS AND SIGNS 8
APPROVALS 10
MAINTENANCE AND REPAIR 10
ADVERTISING, PROMOTION AND RELATED ACTIVITIES 11
INSURANCE AND INDEMNIFICATION 12
TAXES 13
TERMINATION OF AGREEMENT BY VONS 14
TERMINATION OF AGREEMENT BY SCB 15
SURRENDER OF POSSESSION 16
<PAGE>
DAMAGE TO PREMISES 16
CONDEMNATION 16
PEACEFUL POSSESSION 17
ASSIGNMENT 17
REMODELING OR CLOSURE OF SUPERMARKET. 17
SECURITY 19
CONFIDENTIALITY 19
NO PARTNERSHIP 19
MORTGAGE SUBORDINATION 19
HOLDING OVER 19
DISCLAIMER 20
LAWS 20
WAIVER OF SUBROGATION 20
WAIVER OF LIENS 20
ENTIRE AGREEMENT 21
CAPTIONS 21
LANGUAGE NOT CONSTRUED AGAINST EITHER PARTY 21
SEVERABILITY 22
GOVERNING LAW 22
BINDING EFFECT 22
<PAGE>
NOTICES 22
ATTORNEY'S FEES; EXPENSES 23
NONWAIVER OF RIGHTS 23
INTEREST ON OVERDUE OBLIGATIONS 23
RETAIL CLERKS UNION 23
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "AGREEMENT") is made and entered into as
of the 22nd day of February, 1996, by and between THE VONS COMPANIES, INC., a
Michigan corporation ("VONS") and SOUTHERN CALIFORNIA BANK, a California
corporation ("SCB").
RECITALS
This Agreement is made with reference to the following facts:
A. SCB operates financial service facilities throughout the
State of California. VONS operates a chain of supermarkets throughout
California and the State of Nevada.
B. VONS is the sublessee of certain real property upon which
VONS will operate a supermarket facility. SCB desires to occupy and utilize
a portion of such supermarket to install, maintain, and operate a financial
service facility, and VONS desires to permit such occupancy and use.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and adequacy of which is hereby acknowledged, VONS and SCB hereby
agree as follows:
AGREEMENTS
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "Automated Teller Machine" or "ATM" shall mean an electronic
information processing device which accepts or dispenses cash in connection
with a credit or deposit account, but shall not include any device used
solely to facilitate check guarantees or check authorization, or used in
connection with the acceptance or dispensing of cash on a person-to-person
basis, such as by a store cashier.
(b) "Effective Date" shall mean February 22, 1996.
(c) "Financial Service Facility" or "FSF" shall mean a banking
facility staffed with one (1) or more bank employees whose functions may
include, without limitation, opening new deposit accounts insured by the
Federal Deposit Insurance Corporation, accepting loan applications and
performing customary teller transactions, such as cashing checks and taking
deposits. A FSF may or may not be equipped with an ATM, safe deposit boxes,
vault, cash dispensers or a night depository. A FSF may also offer such
other products or services as may be permitted by applicable law and
regulation, including, without limitation, insurance and investment services.
<PAGE>
(d) "License Fee" shall mean the fee set forth in Section 5
hereof with respect to the Basic Term or any of the Renewal Terms, as the
case may be.
(e) "Premises" shall mean that approximately five hundred (500)
square foot portion of the Supermarket cross-hatched on Exhibit "A" attached
hereto and incorporated herein by this reference.
(f) "Premises FSF" shall mean the FSF located in the Premises
and subject to this Agreement.
(g) "Property" shall mean that certain real property commonly
known as 2101 West Imperial Highway, La Habra, California, as depicted on
Exhibit "B" attached hereto and incorporated herein by this reference. VONS
subleases the Property pursuant to that certain Sublease dated as of February
22, 1996 (the "Sublease") between Smith's Food & Drug Centers, Inc., as
sublessor, and The Vons Companies, Inc., as sublessee, a short form of which
as recorded on February 22, 1996 as Document No. 19960084574 in the Official
Records of Orange County, California.
(h) "Supermarket" means the supermarket facility to be operated
by VONS on the Property.
2. GRANT OF LICENSE
Commencing on the Effective Date, VONS grants to SCB and SCB's
employees, customers and invitees, a limited, exclusive and revocable license
("License") to use the Premises in accordance with the terms and conditions
set forth herein.
3. TERM
(a) BASIC TERM. The "Basic Term" of this Agreement shall
commence upon the Effective Date and shall continue for a period of three (3)
years immediately following commencement of the Basic Term, subject to
Section 20 below.
(b) Renewal Options. Unless this Agreement has been sooner
terminated pursuant to the terms hereof, SCB shall have the option (each such
Option being herein referred to as a "Renewal Option") of extending the Basic
Term for three (3) additional periods of five (5) years each (each a "Renewal
Term"), by notifying VONS in writing no earlier than one hundred twenty (120)
days and no later than sixty (60) days prior to the expiration of the Basic
Term or Renewal Term then in effect. Each Renewal Term shall be on the same
terms and conditions as set forth herein, except for the License Fee, which
shall calculated as set forth in Section 5 hereof.
(c) Regulatory Compliance. Notwithstanding any other provision
of this Agreement, if SCB elects not to extend the term of this Agreement or
this Agreement is otherwise terminated for any reason, SCB shall take prompt
action to obtain all necessary regulatory approvals for the closure or
relocation of the Premises FSF and to proceed to close the Premises FSF and
remove its improvements, signs and personal property from the Supermarket.
Until all such regulatory approvals are obtained and the Premises FSF is
closed, this Agreement shall continue on a month-to-month basis on the same
terms and conditions as contained herein and at the License Fee applicable to
the period immediately preceding SCB's election not to extend this Agreement
or such other termination .
<PAGE>
4. USE
(a) SCB shall have the right to occupy and use the Premises for
the construction, operation, maintenance, repair and servicing of a FSF but
for no other use. SCB may provide or promote all financial services which
are transacted or conducted by SCB in the operation of any of its other
consumer and commercial banking facilities.
(b) Each party shall conduct its business at the Supermarket in a
first-class and proper manner. Each party agrees that it shall not
unreasonably block or restrict the aisles or passageways of the other party,
nor shall either party interfere with the other party's business. VONS
reserves the right to approve any of SCB's merchandising or advertising
displays which are placed on the exterior walls of the Premises FSF exclusive
of signage permitted in accordance with Section 7(f) hereof, such approval
not to be unreasonably withheld or delayed.
(c) Subject to force majeure (as hereinafter defined) and the
other provisions of this Agreement, following the Effective Date, the
Premises FSF shall be open for business for a minimum of forty eight (48)
hours a week allocated over seven (7) days; provided, however, that (i) the
Premises FSF shall not be open less than four (4) hours on any given day;
(ii) the hours of operation for the Premises FSF must be consistent with the
operating hours of the Supermarket; and (iii) the hours of operation of
active ATMs located in the Premises FSF shall not count toward this
requirement. Such minimum hours of operation shall be shortened for any week
during which a "Bank Holiday" (as such term is customarily understood in the
banking industry) occurs and any week during which the Supermarket is not
open for business, and shall be subject to force majeure. If a bank holiday
is observed on a Friday or Monday with respect to a holiday occurring on a
Saturday or Sunday, such adjustment may, at SCB's discretion, include either
or both of such actual holiday and such bank holiday. The operating hours of
the Supermarket are currently scheduled to be 6:00 a.m. to midnight, seven
(7) days a week; provided, however, that, subject to Section 20 hereof, such
hours of operation are subject to change at any time at VONS' sole
discretion, but the Supermarket will nevertheless remain open during any
minimum hours required for operation of the Premises FSF by applicable
regulatory authority (such hours are currently 10:00 a.m. to 3:00 p.m. on
Mondays through Fridays, bank holidays excepted). VONS shall immediately
notify SCB of any change in the Supermarket's hours of operation and shall
use reasonable efforts to give SCB thirty (30) days' notice prior to changing
the hours of operations of the Supermarket. SCB shall not be required to
operate the Premises FSF during any hours when the Supermarket is not open
for business. Following the Effective Date, VONS and SCB shall implement a
mutually agreeable procedure to allow SCB emergency access to the Premises
during any hours when the Supermarket is not open for business.
(d) SCB shall offer services in the Premises FSF generally
consistent with the services offered at other SCB full-service branches
taking into account limitations in service due to the size of the Premises
FSF.
5. LICENSE FEE
Commencing on the Effective Date and continuing throughout the term
of this Agreement, SCB will pay rent ("License Fee") to VONS on or before the
first day of each calendar month. The License Fee for the first year of the
Basic Term will be One Thousand Seven Hundred Fifty Dollars ($1,750) per
month ($21,000 per year). If the Effective Date is not the first day of a
month, the License Fee will be prorated based on the number of days in that
month and will be paid on the first day of the following month. If the
Agreement ends on the day that is not the last day of the month, License Fee
will be prorated based on the number of days in that month.
<PAGE>
The License Fee will be paid to VONS in lawful money of the United
States of America at the address stated in Section 37 hereof. VONS, or any
successor in interest to VONS, may elect to have the License Fee paid to
another payee or mailed to any other address, provided that VONS must give
SCB written notice as to the payee and/or address to which the License Fee
must be sent.
Effective upon February 22, 1997, the License Fee shall be adjusted
in accordance with the fee structure attached hereto as Schedule "1"
("License Fee Adjustment"). The License Fee Adjustment (which shall
determine the License Fee for the remainder of the Basic Term and the Renewal
Terms) shall be based upon VONS' average weekly customer count for the
Supermarket during the final twelve (12) full weeks of the first year of the
Basic Term.
6. EMPLOYEES
(a) SCB Shall be solely responsible for the hiring of its
personnel and for the staffing of the Premises FSF at all times during the
Basic Term and any Renewal Terms under this Agreement. All persons employed
by SCB in or about, or in connection with, the operation of the Premises FSF
shall be SCB's employees for all purposes under this Agreement. None of
SCB's employees shall in any way be deemed to be employees, agents or
representatives of VONS.
(b) VONS shall be solely responsible for the hiring of its
personnel and for the staffing of the Supermarket at all times during the
Basic Term and any Renewal Terms under this Agreement. All persons employed
by VONS in or about, or in connection with, the operation of the Supermarket
shall be VONS' employees for all purposes under this Agreement. None of
VONS' employees shall in any way be deemed to be employees, agents or
representatives of SCB.
(c) SCB and VONS shall each, at its own cost and expense,
maintain workers' compensation coverage, unemployment compensation coverage
and other insurance which may be required by law with respect to their
respective employees. SCB and VONS shall each be solely responsible for the
payment of all salaries, compensation, withholding taxes, health and welfare
benefits and other similar charges associated with the employment of their
respective employees. Should any such assessment be made against either
party with respect to such party's employees, each party expressly agrees to
indemnify the other and hold the other harmless from any such assessment or
liability. Compensation and benefits payable by SCB and VONS to or on
account of their respective employees shall be proved by each party in
accordance with such policies and procedures as each party, in its sole
discretion, shall adopt, provided that all such compensation and benefits
comply with all applicable state and federal laws.
(d) SCB shall comply with and abide by, and cause its employees
to comply with and abide by, all reasonable rules and regulations adopted by
VONS regarding safety, security, conduct and customer relations at the
Supermarket, provided such rules and regulations are made available in
advance to SCB and its employees at least three (3) business days in advance
of the effectiveness thereof, and provided VONS' employees are also required
to comply with and abide by such rules and regulations.
<PAGE>
(e) SCB's employees, whole working at the Premises FSF, shall be
entitled to use all facilities in the Supermarket provided by VONS for the
convenience of VONS' employees at the Supermarket including, but not limited
to, toilet facilities, lunchrooms and breakrooms.
(f) SCB's employees shall not park their automobiles in the
primary customer parking area as designated by VONS for the Supermarket, but
shall park their automobiles only in locations designated by VONS, which
locations shall be the same as those designated for parking by VONS'
employees.
(g) SCB's employees and agents and employees of companies which
manufacture or service the Premises FSF who are not SCB's employees or agents
shall be granted access to the Premises for the purpose of servicing,
maintaining and otherwise performing services I connection with the Premises
FSF. VONS agrees to cooperate with SCB so that SCB's employees or
contractors shall have access to the Premises during periods of time in which
the Supermarket may not be open for business.
7. IMPROVEMENTS, ADDITIONS AND SIGNS
(a) Plans and Specifications. Intentionally omitted.
(b) Construction. SCB shall not engage in any substantial
construction activities for the period from November 1 through January 1 with
VONS' prior written consent (except for emergency repairs and required
maintenance). Construction shall be completed in accordance with all
applicable laws and building codes and shall be completed in a good and
workmanlike manner. SCB shall not construct the Premises FSF in such a
manner as to affect VONS' "Highly Protected Risk" ("HPR") insurance rating.
VONS may, in its reasonable discretion, limit SCB's construction time within
the Supermarket so as to minimize any safety hazards to customers and
employees and any disruption of VONS' operations in the Supermarket. SCB
shall schedule heavy construction prior to noon and light construction
between noon and 6:00 p.m. SCB shall indemnify, defend and hold VONS
harmless from and against any mechanics' liens and other liens or claims in
connection with SCB's alterations and/or improvements.
(c) Fixtures, Equipment and Furnishings. SCB at its sole cost
and expense, shall furnish all fixtures, equipment and furnishings which it
deems necessary or desirable for operation of the Premises FSF and shall pay
any and all costs of modification of the Premises for the installation of
such fixtures, equipment and furnishings. SCB shall not make any
modification or attach any substantial fixtures or equipment without VONS'
prior written approval, which shall not be unreasonably withheld or delayed.
Premises which may be necessary or required by reason of any law, rule,
regulation or order promulgated by any governmental authority regulating SCB
or the Premises. However, if the scope of said alteration substantially
alters the form and/or arrangement of the Premises FSF as provided in the
Plans, either VONS or SCB may terminate this Agreements.
(d) Site Preparation Costs SCB previously operated a banking
facility in the Premises during the time the Property was operated as a
supermarket by Smith's Food & Drug Centers, Inc. VONS and SCB acknowledge
that the Premises FSF has already been constructed in the Premises and is
currently being operated by SCB. SCB accepts the Premises FSF in its "as is"
condition.
(e) Construction Insurance. SCB shall obtain or cause its
general contractor to obtain, such insurance as will protect SCB and VONS
from claims for property damage or personal injury bodily injury, including
death which may arise in connection with SCB's construction work. Such
insurance shall be obtained from a financially
<PAGE>
responsible company which is licensed to do business as an insurance company
in the State of California and shall name VONS as an additional insured.
Such commercial general liability and property insurance shall be for limits
of not less than One Million Dollars ($1,000,000) single limit bodily injury
and property damage liability. SCB shall furnish VONS with a certificate of
insurance evidencing the issuance of the required insurance prior to the
commencement of SCB's construction work.
(f) Signage. VONS shall permit SCB to place signs
identifying its operations within the Supermarket in the vicinity of the
Premises FSF, such signs being of such dimensions and such locations as shown
in the Design Plans and as are consistent with any applicable governmental
laws, rules and regulations. Exterior signs shall be subject to the consent
of any required parties pursuant to any existing ground leases, reciprocal
easements, space leases, covenants, conditions and restrictions or other
agreements relating to the Property and shall comply with the requirements of
any governmental authority having appropriate jurisdiction. All contractual
approvals for such SCB signage shall be obtained by VONS but at no cost to
VONS; all permits, variances or similar governmental entitlements necessary
to allow SCB's placement of such signs shall be obtained by SCB at its sole
cost and expense. All SCB signage will be fabricated, installed and
maintained at SCB's sole cost and expense and shall be consistent with
current SCB signage standards. Subject to any applicable governmental laws,
rules or regulations, SCB may change its signage at any time with VONS' prior
written consent, which shall not be unreasonably withheld or delayed;
provided however, that SCB shall not need VONS' consent to change signage
based upon a change in SCB's name or logo.
8. APPROVALS
VONS shall take reasonable steps to obtain the consent, where
necessary, of any property manager or other entity, except governmental
entities, required for the operation of the Premises FSF. SCB shall
procure, where necessary, any and all governmental permits, consents,
licenses or other authorizations required for the operation of the Premises
FSF at its sole cost and expense. VONS agrees to cooperate with and assist
SCB in obtaining approvals and permits in connection with the construction,
installation, operation, relocation or discontinuance of the Premises FSF.
If the necessary approvals and/or permits to construct, install and operate
the Premises FSF are not obtained after reasonable efforts by VONS and/or
SCB, either party may terminate this Agreement.
9. MAINTENANCE AND REPAIR
(a) Obligations of SCB. SCB shall, at its sole cost and expense,
maintain the Premises as follows:
(i) SCB shall keep and maintain the Premises in good
order and repair, including all equipment installed therein and all
electrical or other transmission lines used by SCB for computer data
processing and transmission;
(ii) SCB shall pay for telephone, data lines, or related
services required for SCB's operations;
(iii) SCB shall provide all necessary janitorial
services for the Premises; and
(iv) SCB shall maintain any glass windows which are
installed by SCB as part of the Premises FSF (excluding exterior glass
windows of the Supermarket).
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Notwithstanding the foregoing, SCB shall not be responsible for the
maintenance of the Supermarket or the parking or common areas of the shopping
center of which the Supermarket is a part.
(b) Obligations of VONS. VONS shall, at its sole cost and
expense, provide the following maintenance and services:
(i) VONS shall furnish from facilities presently
existing at the Supermarket, all lighting, air conditioning, heating, and
other utilities for the Premises, excluding telephone lines and services.
However, VONS shall not be responsible for any additional electrical,
heating, cooling, lighting and/or telephone equipment that may be required by
SCB for SCB's operations;
(ii) If for any reason, not the fault of VONS, such
utilities are suspended or discontinued, VONS shall not be liable to SCB for
any interruption of its operations by reason of such suspension or
discontinuance, but SCB shall be entitled to a proportionate abatement of the
License Fee if the utilities servicing the Premises are suspended or
discontinued for more than forty-eight (48) hours;
(iii) VONS shall keep and maintain the Supermarket,
including, but not limited to, exterior glass windows, and toilet facilities
in good order and repair, including, without limitation, plumbing and
electrical equipment (with the exception of computer data processing and
transmission lines used by SCB), heating, air conditioning, doors, windows
and all other structural portions of the Supermarket (with exception of those
structural portions installed or revised by SCB). VONS shall also maintain,
or cause to be maintained, the parking and common areas of the shopping
center of which the Supermarket is a part;
(iv) VONS shall maintain the Supermarket free and clear
of any sales items, fixtures, barriers, signs or other obstructions that
would inhibit the ingress to and egress from the Premises FSF and shall, in
all events, keep Supermarket free and clear of all items within a reasonable
distance from the service counters in the Premises FSF. VONS shall keep all
exterior walls that are used by SCB for merchandising free and clear of all
signs and fixtures; and
(v) Subject to SCB's security requirements as reasonably
established, and upon not less than one (1) business day's prior notice
(except in the event of an emergency ) VONS and/or its agents shall have the
right to enter the Premises at any reasonable hour (or, in an emergency, at
any hour), to perform an inspection or accomplish any other lawful purpose.
10. ADVERTISING, PROMOTION AND RELATED ACTIVITIES
(a) Both VONS and SCB recognize that it is in their mutual best
interest to promote jointly the business of each other at the Supermarket.
Each party and its employees agree to cooperate with and promote the goodwill
and business of the other party at the Supermarket, including, without
limitations, working together in good faith to coordinate joint promotions
for the Premises FSF and the Supermarket.
(b) Both VONS and SCB may, at their own expense, advertise the
existence and location of the Premises FSF in such media and in such manner
as each deems appropriate. However, the prior approval of each party shall
be obtained with regard to any advertisement that is to be transmitted by or
appear in any medium that refers to both parties.
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(c) VONS and SCB shall at all times retain prior approval of any
marketing or promotional advertisement by the other party which bears the
other party's name, logo or trademark or those of any of the other party's
fictitious business names.
(d) SCB and VONS acknowledge and agree that each party's
trademarks and tradenames are solely the property of such party,
respectively, and that this Agreement does not in any way grant to the other
party the right to use same. Full title and all rights with respect to such
trademarks and tradenames shall be and remain the property of VONS and SCB,
respectively.
(e) Subject to VONS' approval, which will not be unreasonably
withheld or delayed, SCB may advertise or sell products or services outside
the Premises FSF within the Supermarket itself. SCB shall be responsible for
any clean-up of the Supermarket associated with such sale of products or
services. VONS agrees that "silent radio" announcements broadcast in the
Supermarket or in-store public address announcements will not promote
depository institutions other than SCB.
(f) SCB personnel may canvass and distribute information
regarding SCB's services in the Premises FSF in the aisles of the Supermarket
as long as such personnel do not interfere with or otherwise disrupt VONS'
customers while such customers are making buying decisions. SCB shall be
responsible for any clean-up of the Supermarket associated with such
advertising or distribution of literature.
(g) SCB may promote the Premises FSF in selected SCB statement
stuffers or messages sent to certain of SCB's branches as mutually agreeable
to VONS and SCB.
(h) VONS and SCB shall develop and conduct cooperative grand
opening promotional activities and offers.
(i) SCB shall have access to the intercom located in the
Supermarket, proved that the use of such intercom shall be coordinated by the
store manager and SCB's use of the intercom shall at all times be subject to
the prior approval of the store manager, which approval shall not
unreasonably withheld. It is the parties' intention that the joint use of
this intercom shall be to the benefit of both parties for the purpose of
paging and announcing various specials being promoted by either party within
the Supermarket.
11. INSURANCE AND INDEMNIFICATION
(a) Personal Property Insurance. SCB and VONS shall each carry
its own personal property insurance.
(b) Liability Insurance. SCB shall maintain in full force and
effect during the term of this Agreement commercial general liability
insurance including broad form blanket contractual coverage against claims
for bodily injury, death and/or property damage occurring within or upon the
Premises, which insurance shall afford "single occurrence" protection to at
least a limit of Two Million Dollars ($2,000,000). Such commercial general
liability insurance shall name VONS as an additional insured as respects its
interest in the Premises, shall provide that VONS shall receive thirty (30)
days' prior written notice of any non-renewal, cancellation or material
change in coverage under such policy, and shall state that the insurance
coverage provided is primary and non-contributory as regards
<PAGE>
any other insurance carried by SCB. SCB shall furnish VONS with a
certificate of insurance evidencing the coverage required under this
paragraph.
(c) Property Insurance. VONS shall maintain in full force and
effect throughout the term of this Agreement all risk property insurance in
an amount equal to the full replacement cost of the improvements now or
hereafter located upon the Property.
(d) Self-Insurance. SCB (or VONS) may elect at any time during
the term of this Agreement not carry the commercial general liability
insurance and all risk property insurance required by this Section 11 and to
"self-insure" against such risks provided that (i) SCB (or VONS) has in
effect for the benefit of its branches (or stores) a program of
"self-insurance" against such risks, (ii) SCB (or VONS) has and maintains a
net worth of at least Fifty Million Dollars ($50,000,000), and (iii) the
failure to carry such insurance does not violate any law, statute, code, act,
ordinance, order, judgment, decree, injunction, rule regulation, permit,
license, authorization or other requirement which is issued by any government
or governmental agency with jurisdiction over the Premises (or the Property)
or which is applicable to SCB (or VONS) in the conduct of its business.
(e) Compliance with Regulations. SCB and VONS shall each, at its
own cost and expense, comply with all reasonable rules and orders of its
insurance company or companies related to its respective operations in the
Premises FSF and the Supermarket.
(f) Indemnification. Subject to the provisions of Section 28,
VONS and SCB hereby mutually agree to indemnify, defend and hold each other
harmless from any and all claims, losses, expenses, actions or causes of
action, including, but not limited to, reasonable attorneys' fees in defense
thereof, arising from, or in connection with the negligence or willful
misconduct of their employees, agents, representatives, contractors or any of
them in performance of the terms of this Agreement.
12. TAXES
SCB shall be liable for all taxes assessed by any taxing authority
(including sales taxes) which are attributable to SCB's operations at the
Premises FSF and shall pay all personal property taxes assessed on SCB's
fixture, equipment and machinery located in the Supermarket. SCB shall also
pay any license or other fee incident to the conduct of its business whether
billed directly to SCB or to VONS. In the event that any unapportioned tax
assessed against VONS includes SCB property, other than real estate taxes,
SCB shall pay such portion of the tax as the value of such SCB property that
was included in VONS' assessment at the time of the assessment bears to the
total value of the property assessed in the Supermarket.
Notwithstanding anything to the contrary contained in this Section
12, SCB shall not be liable for any of the following taxes and/or assessments
related to VONS' occupancy or use or ownership of the property:
(a) Personal property, fixture or equipment taxes
assessed against VONS property;
(b) Franchise Taxes assessed against VONS;
(c) Taxes on VONS gross rents or profits;
<PAGE>
(d) Inheritance, state, gift, income, transfer or excess
profit taxes assessed against VONS;
(e) Sales taxes payable by VONS; and
(f) Real property taxes and assessments, including, but
not limited to, any fees, interest and penalties arising from any such tax or
assessment, assessed against all or any portion of the Property and the
improvements located thereon, including, but not limited to, any such taxes
and assessments attributable to the Premises, the Premises FSF or any portion
of either.
In the event that any unapportioned property tax (other than
a real property tax or assessment) is assessed against either party hereto
and includes property owned by the other party hereto, VONS and SCB agree to
cooperate to have the portion of such tax that relates to property owned by
such other party assessed to such other party. If VONS and SCB cannot
convince the assessor to so reapportion such tax, the party owing the
property so taxed agrees to pay to the party being assessed the portion of
such tax relating to such property.
13. TERMINATION OF AGREEMENT BY VONS
Notwithstanding any provision of this Agreement (but subject to
Sections 3(c) and 27 hereof) or any implied covenant to the contrary, VONS
shall have the right to terminate this Agreement upon thirty (30) days'
written notice to SCB in the event of any of the following occurrences:
(a) SCB's failure to make any payment of the License Fee required
hereunder when the same is due, and SCB's failure to cure such default within
ten (10) days following written notice thereof by VONS to SCB;
(b) SCB's failure to make any payment required hereunder (other
than a payment of the License Fee) when the same is due and SCB's failure to
cure such default within thirty (30) days following written notice thereof by
VONS to SCB except to the extent that SCB provides VONS with written notice
prior to the expiration of said thirty (30) -day period that SCB disputes
VONS' calculation or other determination of the amount of any such payment
and thereafter proceeds in good faith to promptly resolve said dispute;
(c) A non-monetary default under this Agreement which is not
timely cured by SCB. SCB shall not be in default under this Section 13(c) if
SCB cures such non-monetary default within a period of thirty (30) days after
receipt of written notice thereof from VONS to SCB. If the default is of
such a nature that the same cannot be rectified or cured within said thirty
(30) days period, then such default shall be deemed to be rectified or cured
if SCB shall, within the thirty (30) day period, commence to rectify and cure
the same and shall thereafter complete such rectification and cure with due
diligence;
(d) SCB's failure, after the Effective Date, to operate the
Premises as a FSF for any reason (except during a temporary closure of the
Supermarket as set forth in Section 20 (a), hereof), as a result of "force
majeure" (as hereinafter defined), or during a strike, boycott, lockout or
other labor disturbance which, in SCB's reasonable determination, would
endanger SCB's employees or customers for seven (7) consecutive days during
VONS' normal operating business hours provided that the Supermarket has been
operating for such seven (7) day period;
<PAGE>
(e) SCB's (i) failure to maintain, at a minimum, the following
banking services at the FSF: opening new deposit accounts insured by the
Federal Deposit Insurance Corporation, accepting loan applications and
performing customary teller transactions, such as cashing checks and taking
deposits which continues after VONS has give ten (10) days' written notice of
such service deficiencies to SCB and SCB has failed to cure same or (ii)
SCB's substantial modification of the consumer and commercial banking format
of the Premises FSF;
(f) VONS' closure of the Supermarket (subject to the provisions
of Section 20 (c) below:
(g) Anything in this Agreement to the contrary notwithstanding,
in the event that SCB is closed, or taken over by the authority of the United
States, or other government supervisory authority, VONS may terminate this
Agreement only with the concurrence of such governmental authority or other
supervisory authority, and any such authority shall in any event have the
election either to continue to terminate this Agreement; provided, however,
that in the event this Agreement is terminated in whole or in part, the
maximum claim of VONS for damages or indemnity for injury, resulting from the
rejection or abandonment of the remaining term of this Agreement shall in no
event be in an amount exceeding the License Fee reserved hereunder for the
Premises affected, without acceleration, for the year next succeeding the
date of re-entry into the Premises by VONS, whichever occurs first, whether
before or after the closing of the Premises FSF, plus an amount equal to the
unpaid License Fee accrued without acceleration, up to such date; and
(h) The termination of VONS' Sublease for the Property.
14. TERMINATION OF AGREEMENT BY SCB
Default. Notwithstanding any provision of this Agreement (but
subject to Sections 3(c) and 27 hereof) or any implied covenant the contrary,
SCB shall have the right to terminate this Agreement upon thirty (30) days'
written notice to VONS in the event of any of the following occurrences:
(a) VONS failure to make any payment required hereunder when the
same is due, and VONS' failure to cure such default within thirty (30) days
following written notice thereof by SCB to VONS except to the extent VONS
provides SCB with written notice prior to the expiration of said thirty
(3)-day period that VONS disputes SCB's calculation or other determination of
the amount of any such payment and thereafter proceeds in good faith to
promptly resolve said dispute;
(b) A non-monetary default under this Agreement which is not
timely cured by VONS. VONS shall not be in default under this Section 14(b)
if VONS cures such non-monetary default within a period of thirty (30) days
after receipt of written notice thereof from SCB to VONS. If the default is
of such a nature that that the same cannot be rectified or cured within said
thirty (30)-day period, then such default shall be deemed to be rectified or
cured if VONS shall, within the thirty (30)-day period, commence to rectify
and cure the same and shall thereafter complete such rectification cure with
due diligence; and
(c) VONS' substantial modification of the retail supermarket
format of the Supermarket (i.e., from a retail supermarket to a "warehouse"
club format). Notwithstanding the foregoing, VONS shall have the express
right to add or remove any departments, features or services as VONS deems
desirable in its reasonable business judgment to operate a retail supermarket
in the Supermarket.
<PAGE>
15. SURRENDER OF POSSESSION
(a) Possession. Subject to the provisions of Section 3(c)
and Section 27 hereof, upon the effective date of any termination of this
Agreement, SCB shall surrender peaceful possession of the Premises to Vons
and shall, at its expense, remove any and all alterations, additions or
improvements (with exception of major structural modifications made by SCB)
which SCB has made to the Premises and restore the Premises to as good a
condition as it received same, loss or damage by fire and ordinary wear and
tear from reasonable use excepted.
(b) Fixtures. The parties agree that all fixtures,
furnishings, machinery and equipment placed in or on the Premises by or
through SCB shall be the property of SCB and shall be removed by SCB at the
termination of this Agreement.
16. DAMAGE TO PREMISES.
If by fire or other casualty, the Premises and/or the Supermarket are
destroyed or damaged to the extent that SCB is deprived of occupancy or use
of the same, and if such damage or destruction can be repaired within ninety
(90) days from the date of such damage or destruction, VONS shall promptly
restore the Premises and the Supermarket and SCB shall restore the Premises
FSF to substantially the same condition as existed before such damage or
destruction. The License Fee payable by SCB hereunder shall be equitably
abated to the extent that SCB is unable to occupy and use the Premises.
In the event such damage or destruction cannot be repaired within
ninety (90) days, VONS shall notify SCB as soon as practicable whether (i)
VONS has elected to repair and rebuild the Supermarket as may be permitted
pursuant to the terms of the VONS Sublease, or (ii) VONS has elected not to
rebuild the Supermarket and to terminate the VONS Sublease. If VONS has
elected to rebuild the Supermarket, SCB shall provide VONS with written
notice no later than thirty (30) days after receipt of VONS' notice whether
or not SCB desires to reopen the Premises FSF in the Supermarket. If SCB
desires to reopen the Premises FSF, this Agreement shall continue in effect
and the License Fee payable by SCB hereunder shall be equitably abated to the
extent that SCB is unable to occupy and use the Premises. If (i) VONS elects
not to rebuild the Supermarket or if (ii) SCB elects not to reopen the
Premises FSF, this Agreement shall terminate effective as of the date of such
damage or destruction.
17. CONDEMNATION
All awards made by reason of condemnation shall be made to VONS and
SCB shall assign to VONS all of its right, title and interest in and to such
award. VONS shall, however, pay to SCB any portion of an award which may be
allocable to permanent improvements to the Supermarket made by SCB. Also, if
any award includes an amount of compensation for moving fixtures, SCB will be
entitled to recover out of the award SCB's actual cost of removing its
fixtures. Notwithstanding the foregoing, SCB shall be entitled to any award
intended to compensate SCB for expenses of locating and moving SCB's
operations to a new space. Nothing contained in this paragraph shall
preclude SCB from filing a separate claim against the condemning authority
for the undepreciated value of it leasehold improvements and relocation
expenses, provided that any award to SCB will not result in a diminution of
an award to VONS.
<PAGE>
If the Supermarket, the Premises or any portion thereof is taken or
condemned by any competent authority so as to prevent SCB from conducting its
operations in substantially the same manner as theretofore conducted, this
Agreement shall terminate.
18 PEACEFUL POSSESSION
So long as SCB performs its obligations under this Agreement, SCB
shall have peaceful and uninterrupted possession of the Premises during the
term of this Agreement, except by reason of force majeure. The "force
majeure" as applied to a party to this Agreement shall mean acts of God,
strikes, boycotts, explosions, sabotage, accidents, riots or civil commotion,
acts of war, fire or other casualty, or other cause or causes beyond such
party's reasonable control.
19. ASSIGNMENT
The obligations of, and services to be provided by, each party
hereunder are considered to by unique and have been specifically bargained
for based upon subjective criteria by each party. Therefore, this Agreement
and the rights and obligations set out hereunder shall not be assigned
subleased, licensed, or delegated, in whole or in part, by either party
without the prior written consent of the other party, which consent shall be
in the party's sole and absolute discretion. Notwithstanding the foregoing,
either party may, whether by assignment, or transfer by operations of law,
transfer its rights, obligations, duties and benefits under this Agreement to
a parent, wholly-owned subsidiary of affiliated entity of the transferring
party, to a successor by merger or consolidation, or to an entity which
acquires substantially all of the assets of the transferring entity in the
county in which the Supermarket is located; provided, however, that the
transferee agrees in writing, for the benefit of the non-transferring party,
to be bound by the duties and obligations of the transferring party under
this Agreement.
In the event VONS sells, leases, subleases, assigns or otherwise
transfers it interest in the Supermarket to an entity ("Transferee") other
than a parent, subsidiary or affiliated entity of VONS (including, but not
limited to, a partnership of which VONS is a majority owner), this Agreement
shall terminate upon sixty (60) day's written notice by VONS to SCB, subject
to Section 3(c) and Section 27 hereof. Notwithstanding the foregoing, this
Agreement shall not terminate in the event of a sale/leaseback transaction
with respect to the supermarket, so long as the Supermarket continues to be
operated under the "VONS" name.
Upon notice by VONS of termination pursuant to the foregoing
paragraph, subject to Section 3(c) and section 27 hereof, SCB shall vacate
the Premises in accordance with the provision of Section 15 of this
Agreement, except that the Premises shall be vacated within thirty (30) days
of receipt of such notice unless a longer period is required under federal or
state law. In addition , all electrical lines shall be capped and labeled
and not be visible to the sales area of the Supermarket.
20. REMODELING OR CLOSURE OF SUPERMARKET.
(a) Remodel of Supermarket; Relocation of Premises FSF. In the
event VONS, in its sole discretion, finds it desirable to remodel or enlarge
the Supermarket, the Premises FSF may be moved from the Premises to a
location within the Supermarket mutually satisfactory to SCB and VONS. If
remodeling occurs during the Basic Term or the first Renewal Term, the
relocation of the Premises FSF shall be completed at VONS' cost and expense,
which cost and expense shall include, but not limited to, remodeling
construction and utility hook-ups. If the
<PAGE>
remodeling occurs during the second or third Renewal Term, the relocation of
the Premises FSF shall be completed at the cost and expense of the party
initiating such relocation, which cost and expense shall include, but not be
limited to, remodeling, construction and utility hook-ups. VONS shall use its
best efforts to avoid relocating the Premises FSF from its initially approved
Premises. The various options shall be reviewed by the parties prior to such
relocation being undertaken.
(b) Remodel or Renovation of Supermarket. Except for temporary
closures which result from fire or other casualty, VONS shall give SCB at
least ninety (90) days' written notice ("remodel Notice") in the event that
VONS temporarily closes the Supermarket for remodeling purposes. The Remodel
Notice shall describe in reasonable detail the extent of such renovation or
remodeling and the estimated time schedule for completion.
If the Supermarket is temporally closed, VONS shall reimburse SCB for
(i) all reasonable costs incurred by SCB for (1) temporary replacement
facilities in the event the Premises FSF will be closed from more than two
(2) days (unless SCB can relocated into a nearby SCB branch facility) and
relocation expenses incurred by SCB in connection with temporarily relocating
the Premises FSF or (2) construction, and relocation expenses incurred by SCB
in temporarily relocating the branch with the Supermarket (if the parties
mutually agree to such relocation), as the case may be and (ii) all
reasonable costs incurred by SCB for any required notification to customers
or governmental authorities with respect to the temporary closure of the
Premises FSF.
If SCB, in its reasonable discretion, believes such renovation work
will make it impractical to fully operate the Premises FSF for a period in
excess of thirty (30) days (or for an aggregate of fifty (50) days over any
three (3)-month period), SCB will have the right to terminate this Agreement
and to treat such renovation or remodeling as a "Closure of Supermarket by
VONS" in accordance with Section 20(c) below.
If SCB does not elect to terminate this Agreement as provided in the
immediately preceding paragraph, VONS will use it best efforts to perform
such renovation or remodeling in accordance with the Remodel Notice and in a
manner to minimize the disruption of SCB's operation of the Premises FSF.
During any such renovation, the License Fee will be equitably abated to
reflect any suspension or disruption of the Premises FSF operation.
(c) Closure of Supermarket by VONS. SCB acknowledges and agrees
that nothing contained in this Agreement shall obligate VONS to continue its
retail operation at the Supermarket. If VONS desires to cease its retail
operation at the Supermarket, VONS shall provide SCB with ninety (90) days'
written notice of its intent to cease operations and the estimated date of
closure of the Supermarket ("Notice of Closure"). SCB acknowledges that the
Notice of Closure is confidential and proprietary to VONS. Accordingly,
except for disclosure required by law (including notices to consumers) and
disclosures to key employees of SCB, SCB shall keep the Notice of Closure
confidential until it files an application to its regulators for relocation
or closure of the Premises FSF. SCB, at a time and in a manner approved by
VONS, may notify its employees and the public at large of the contemplated
closure of the Supermarket.
If the Supermarket is closed or is to be relocated in another
building in the same trade area, SCB shall have the option of terminating
this Agreement or relocating the Premises FSF in the new store under the same
terms and conditions as proved under this Agreement at the time of such
relocation. If SCB elects to relocate the Premises FSF, such relocation
shall be at SCB's cost and expense.
21. SECURITY
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(a) SCB shall have the right, and VONS shall have no obligation,
to provide security for the Premises. SCB shall have the right to have an
unarmed security guard in the Premises FSF at all times. With VONS' prior
written consent, which consent shall be unreasonably withheld or delayed, SCB
may install such electronic surveillance equipment, security devices, gates
and other security equipment within the Premises as SCB deems necessary.
(b) VONS shall have the right, and SCB shall have no obligation,
to provide security for the Supermarket and the rest of the Property
excluding the Premises FSF.
(c) SCB hereby releases VONS from any claims, loss or damage that
SCB might sustain by reason of a robbery or attempted robbery of or theft or
attempted theft from the Premises FSF or the Supermarket unless perpetrated
by an employee or agent of VONS. VONS hereby releases SCB from any claims,
loss or damage that VONS might sustain by reason of a robbery or attempted
robbery of or theft or attempted theft from the Premises FSF or the
Supermarket unless perpetrated by an employee or agent of SCB. VONS and SCB
agree that any armored car companies utilized by either VONS or SCB are not
agents of VONS or SCB, respectively, for the purpose of the foregoing
reciprocal releases.
22. CONFIDENTIALITY
Each party acknowledges that in connection with this Agreement or in
the performance hereof, it has or will come into possession or knowledge of
material and information which is proprietary to the other party. Each
party, therefore, agrees to hold such material and information in strictest
confidence, not to make use thereof except in the performance of this
Agreement, and not to release or disclose it to any other party with the
exception of the parties' parent companies, subsidiaries, affiliates,
attorneys, auditors and except as may be required by law. The obligations of
each party under this Section shall survive the termination of this Agreement.
23. NO PARTNERSHIP
This Agreement does not constitute a joint venture partnership or
employer-employee relationship between SCB and VONS.
24. MORTGAGE SUBORDINATION
Upon written request of VONS, SCB agrees to subordinate its rights
under this Agreement to the liens of any mortgages or security agreements
that are presently or may hereafter be placed upon the Property and to any
and all advances to be made thereunder, and all renewals, replacements and
extensions thereof.
25. HOLDING OVER
Any holding over after the expiration of the Basic Term or any
Renewal Term of this Agreement with VONS consent shall be construed to be an
arrangement from month to month on the same terms and conditions, which,
subject to Sections 3(c) and 27 hereof, either party may terminate with a
thirty (30)-day written notice.
26. DISCLAIMER
<PAGE>
This Agreement shall not constitute a deed or grant of easement, and
shall not be deemed an easement by virtue of any work performed by the
parties hereto.
27. LAWS
SCB shall comply with all applicable laws, ordinances, regulations
and recorded restrictions affecting the use or occupancy of the Premises and
in the conduct of its business operations. VONS shall comply with all
applicable law, ordinance, regulations and recorded restrictions affecting
the use or occupancy of the Property and in the conduct of its business
operations.
VONS recognizes and agrees that all of SCB's covenants and
obligations hereunder, including, but not limited to, the establishment,
maintenance, closure, relocation and hours of operation of the Premises FSF
and any ATM are at all times subject to SCB's obtaining the consent or
approval of all state and federal regulatory agencies now or hereafter
empowered to regulate SCB and it business operations.
28. WAIVER OF SUBROGATION
Both parties wish to eliminate (i) any cause of action which either
party may have against the other because of negligence, and the resulting
loss to property which is required to be insured in accordance with this
Agreement (whether or not self-insured) and (ii) the right of either party to
assign any cause of action by way of subrogation, to any insurance company
carrying fire and extended coverage polices on their respective properties.
Therefore, it is agreed that:
(a) Notwithstanding any other provision of this Agreement to the
contrary (including, without limitation, Section 11(f) hereof), each party
expressly waives every claim which arises or may arise in its favor and
against the other party during the term of this Agreement for any and all
loss of or damage to any of its property located within or upon the
Supermarket and/or Premises, which loss or damage is required to be insured
in accordance with this Agreement. The waiver contained in this Section 28
(a) shall be effective whether such loss or damage is actually insured or
self-insured pursuant to the terms of this Agreement.
(b) Each party agrees to give to each insurance company which has
issued to it policies of fire and extended coverage insurance written notice
of the terms of this mutual waiver and to have said insurance polices
properly endorsed (if necessary) to prevent the invalidation of said
insurance coverage by reason of said waiver (and if requested in writing) to
give to the other party a certificate from its insurance company to that
effect.
29. WAIVER OF LIENS
(a) Waiver of Liens Against Depositor's Property. VONS hereby
waives any lien for the payment of rent by SCB or the performance of any
other obligation of SCB under this Agreement ("VONS Lien") with respect to
any property of any depositors of SCB, any property or contents contained in
safe deposit boxes and any cash deposit, securities or security instrument
deposited by customers of SCB.
<PAGE>
(b) Waiver of Liens Against SCB's Property. VONS hereby
subordinates any VONS Lien in its favor to any perfected security interest or
lease in favor of SCB's creditors that secures or evidences financing of any
furniture, fixtures or equipment of SCB located from time to time in the
Premises, provided that SCB provides VONS with a copy of any such security
interest or lease.'
30. BANKRUPTCY
The following shall be an Event of Bankruptcy under this Agreement:
(a) Either party becoming insolvent, as that term is defined in
Title 11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101
et seq. (the "Bankruptcy Code"), or under the insolvency laws of any State,
District, Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for a substantial
portion of either party's property or assets;
(c) The filing of a voluntary petition under the provisions of
the Bankruptcy Code or Insolvency Law:
(d) The filing of an involuntary petition against either party as
the subject debtor under the Bankruptcy Code or Insolvency Laws, which is
either not dismissed within thirty (30) days of filing, or results in the
issuance of an order for relief against the debtor, whichever is later; or
(e) Either party making or consenting to an assignment of the
benefit of creditors or common law composition of creditors;
Upon occurrence of an Event of Bankruptcy, subject to Section 3(c)
and 27 hereof, the party not causing the Event of Bankruptcy ("Solvent
Party") shall have the right to terminate this Agreement by written notice
thereof. If the Solvent Party elects to terminate this Agreement, everything
contained in this Agreement to be done and performed by the Solvent Party
shall cease without prejudice as of the termination date of this Agreement.
31. ENTIRE AGREEMENT
The parties agree that this Agreement and any exhibits attached
hereto set forth all the promises, agreements and understandings between them
with respect to SCB's right to install, operate and maintain the Premises FSF
at the Supermarket. It is further agreed that any amendment or modification
to this Agreement shall not be binding unless such amendment or modification
is reduced to writing and signed by both parties.
32. CAPTIONS
The captions of the several Sections of this Agreement are not part
of the context hereof and shall be ignored in construing this Agreement.
They are intended only as an aid in locating various provision hereof.
33. LANGUAGE NOT CONSTRUED AGAINST EITHER PARTY
<PAGE>
The language of all the parts of this Agreement shall be construed
simply and according to its fair meaning and shall not be construed either
for or against either party.
34. SEVERABILITY
Each provision contained in the Agreement shall be independent and
severable from all other provisions contained herein, and the invalidity of
any such provision shall in no way affect the enforceability of other
provisions.
35. GOVERNING LAW
This Agreement is deemed to have been executed in the State of
California, and it is agreed that any controversy or claim arising from or
related in any way to this Agreement shall be governed and controlled by the
laws of the State of California.
36. BINDING EFFECT
This Agreement shall be binding upon and shall inure to the benefit
of VONS and SCB and their respective legal representatives, successors and
permanent assigns.
37. NOTICES
a) All notices required or permitted hereunder shall be in
writing and signed by a duly authorized representative of the party making
the same. All notices shall be deemed effective when delivered personally or
to Federal Express Corporation or similar overnight delivery service or two
(2) business days following deposit in the United States mail, registered or
certified, return receipt requested, postage or overnight delivery charge
prepaid, addressed as follows:
(i) If to VONS, then to:
The Vons Companies, Inc.
618 Michillinda Avenue
Arcadia, California 91007-1734
Attention: Legal Department
The License Fee shall be payable to:
The Vons Companies, Inc.
P.O. Box 12109
Los Angeles, California 90074-2109
(ii) If to SCB, then to:
Southern California Bank
3800 East La Palma Avenue
<PAGE>
P.O. Box 19049
Anaheim, California 92817-9049
Attention: Mr. David A. McCoy
Executive Vice President
(b) The names and addresses for the purpose of this Section may
be changed by giving written notice of such change in the manner herein
provided for giving notice. Unless and until such written notice is actually
received, the last name and address stated by written notice or provided
herein, if no such written notice of changes has been received, shall be
deemed to continue in effect for all purposes hereunder.
38. ATTORNEY'S FEES; EXPENSES
If any legal action is instituted under this Agreement, the
prevailing party shall be entitled to recover all costs incurred therein or
in any ancillary proceeding or on appeal, including, but not limited to,
reasonable attorneys' fees and expenses, in addition to any other relief
granted.
39. NONWAIVER OF RIGHTS
Unless herein expressly proved to the contrary, if either party
elects to terminate this Agreement as set forth herein, such election shall
not be deemed a waiver of any right which such party may have at law or in
equity against the other party for any breach of this Agreement.
40. INTEREST ON OVERDUE OBLIGATIONS
Any amount due hereunder which is not paid when due shall bear
interest at the "Interest Rate" from the date of delinquency to and
including the date of payment. The "Interest Rate" shall mean three (3)
percentage points over the discount rate announced from time to time by the
Federal Reserve Bank, San Francisco, California. In no event shall the rate
of interest hereunder be greater than the highest rate then allowable by law.
An installment of the License Fee shall be considered past due ten (10) days
following notice of nonpayment thereof by VONS to SCB; any other amount
required to be paid hereunder shall be considered past due thirty (30) days
following notice of nonpayment thereof by the party of whom such payment is
due to the other.
41. RETAIL CLERKS UNION
VONS employs members of the United Food and Commercial Workers Union
(the "Union") for its supermarket operations. Should (i) the Union assert
that Section 6 of this Agreement violates VONS' collective bargaining
agreement contract with the Union or that any SCB employees, agents, or
representative are deemed to be part of VONS' collective bargaining agreement
contract with the Union and such assertion is a condition to the negotiation
of such collective bargaining agreement or (ii) the Supermarket or Premises
FSF be subjected to handbilling, picketing, works stoppages, or other
economic action which is directly related to Section 6 of this Agreement or
(iii) any successor union with jurisdiction over VONS' supermarket operations
make an assertion similar to that set forth in subsection (i) above, either
VONS or SCB shall have the right to terminate this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
VONS: THE VONS COMPANIES, INC.
a Michigan corporation
By: /s/
-------------------------------
Print Name: Donald J. Howard
-----------------------
Title: SR. Vice President
----------------------------
SCB: SOUTHERN CALIFORNIA BANK
a California banking corporation
By: /s/
-------------------------------
Print Name: David A. McCoy
-----------------------
Title: EVP & COO
----------------------------
<PAGE>
SCHEDULE "1"
LICENSE FEE STRUCTURE
Supermarket Banking Facility
Vons #216
8010 East Santa Ana Canyon Road
Anaheim Hills, California
Vons's Average Customer Count
During Final 12 Weeks of Each
Year of Renewal Terms
ANNUAL LICENSE FEE DURING RENEWAL TERMS
<TABLE>
<CAPTION>
Years Years
1 & 2 3,4 & 5
of First of First Second Third
Renewal Renewal Renewal Renewal
Term Term Term Term
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Less than 10,000 customers per week: $15,000 $18,000 $23,000 $23,000 plus
annual 4%
increase
10,000 to 14,999 customers per week: $18,000 $21,000 $26,000 $26,000 plus
annual 4%
increase
15,000 to 19,999 customers per week: $21,000 $24,000 $29,000 $29,000 plus
annual 4%
increase
20,000 to 24,999 customers per week: $25,000 $28,000 $33,000 $33,000 plus
annual 4%
increase
25,000 or more customers per week: $30,000 $33,000 $38,000 $38,000 plus
annual 4%
increase
</TABLE>
<PAGE>
FIRST AMENDMENT TO LICENSE AGREEMENT
THIS FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") is made
and entered into this 12th day of September, 1996, by and between the THE
VONS COMPANIES, INC., a Michigan corporation ("VONS"), and SOUTHERN
CALIFORNIA BANK, a California banking corporation ("SCB").
RECITALS
This First Amendment is made with reference to the following facts:
A. By written license agreement dated December 18, 1992 (the
"Agreement"), VONS licensed to SCB certain premises containing approximately
four hundred forty-one (441) square feet (the "Premises"), which Premises are
a part of the supermarket building located at 8010 East Santa Ana Canyon
Road, Anaheim Hills, California.
B. SCB is currently operating a full-service banking facility in
the Premises.
C. VONS and SCB now desire to amend and modify the Agreement to
adjust the License Fee payable by SCB and to confirm SCB's exercise of its
first Renewal Option contained therein. All terms not otherwise defined
herein shall have the meanings ascribed to them in the Agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, VONS and SCB hereby amend and modify the
Agreement as follows:
1. ACKNOWLEDGMENT OF SCB'S EXERCISE OF OPTION. VONS and SCB
acknowledge that, upon the execution of this First Amendment by SCB and VONS,
SCB shall be deemed to have exercised the first of its three five (5)-year
Renewal Options set forth in the Agreement to extend the Basic Term for a
period of five (5) years (the "First Renewal Term"). The First Renewal Term
shall commence on June 1, 1996.
2. USE. The first sentence of Section 4(c) of the Agreement is
hereby deleted in its entirety and the following substituted therefore:
<PAGE>
(c) Subject to force majeure (as hereinafter defined) and the other
provisions of this Agreement, following the Effective Date, the
Premises FSF shall be open for business for a minimum of forty
eight (48) hours a week allocated over seven (7) days;
provided, however, that (i) the Premises FSF shall not be open
less than four (4) hours on any given day; (ii) the hours of
operation for the Premises FSF must be consistent with the
operating hours of the Supermarket; and (iii) the hours of
operation of active ATMs located in the Premises FSF shall not
count toward this requirement.
3. LICENSE FEE. Section 5 of the Agreement is hereby deleted in
its entirety and the following substituted therefore:
ANNUAL FEE. As to the Effective Date, SCB agrees to pay to VONS
an annual License Fee as set forth below:
Years 1, 2, and 3 of Basic Term: $27,000/yr.
"On the commencement of the First Renewal Term and annually
thereafter during each Renewal Term, the License Fee shall be
adjusted in accordance with the fee structure attached hereto
as SCHEDULE "1" ("License Fee Adjustment"). The License Fee
Adjustment shall be based upon VONS' average weekly customer
count for the Supermarket during the final twelve (12) full
weeks of each year of the Basic Term and any Renewal Terms."
4. NOTICES. Section 37(a)(ii) is hereby deleted in its entirety
and the following substituted therefore:
(ii) If to SCB, then to:
Southern California Bank
3800 East La Palma Avenue
Box 19049
Anaheim, California 92817-9049
Attention: Mr. David A. McCoy
Executive Vice President
5. MERGER. This First Amendment constitutes the final, complete
and exclusive statement of the terms of the First Amendment. All preliminary
negotiations and agreements of whatsoever kind or nature are merged herein,
and no oral statement or representation or prior written matter not contained
in this instrument shall have any force and effect. This First Amendment
shall constitute a binding obligation between the parties hereto.
<PAGE>
6. ACKNOWLEDGMENT. Except as modified by this First Amendment,
VONS and SCB acknowledge that terms and conditions of the Agreement, as
amended and modified, are in full force and effect.
7. COUNTERPARTS. This First Amendment may be executed in
multiple counterparts, each of which shall have the force and effect of an
original as of the day and date first above written.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment on the day and year first set forth above.
VONS: THE VONS COMPANIES INC.,
a Michigan Corporation
By: /s/
-----------------------------
Print Name: Donald J. Howard
---------------------
Title: SR. Vice President
--------------------------
SCB: SOUTHERN CALIFORNIA BANK
a California banking corporation
By: /s/
-----------------------------
Print Name: David A. McCoy
---------------------
Title: EVP & COO
--------------------------
<PAGE>
SCHEDULE "1"
LICENSE FEE STRUCTURE
Supermarket Banking Facility
Vons #216
8010 East Santa Ana Canyon Road
Anaheim Hills, California
Vons's Average Customer Count
During Final 12 Weeks of Each
Year of Renewal Terms
ANNUAL LICENSE FEE DURING RENEWAL TERMS
<TABLE>
<CAPTION>
Years Years
1 & 2 3,4 & 5
of First of First Second Third
Renewal Renewal Renewal Renewal
Term Term Term Term
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Less than 10,000 customers per week: $15,000 $18,000 $23,000 $23,000 plus
annual 4%
increase
10,000 to 14,999 customers per week: $18,000 $21,000 $26,000 $26,000 plus
annual 4%
increase
15,000 to 19,999 customers per week: $21,000 $24,000 $29,000 $29,000 plus
annual 4%
increase
20,000 to 24,999 customers per week: $25,000 $28,000 $33,000 $33,000 plus
annual 4%
increase
25,000 or more customers per week: $30,000 $33,000 $38,000 $38,000 plus
annual 4%
increase
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 28,956
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,171
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 336,305
<ALLOWANCE> 5,369
<TOTAL-ASSETS> 467,652
<DEPOSITS> 410,467
<SHORT-TERM> 6,498
<LIABILITIES-OTHER> 2,736
<LONG-TERM> 0
0
0
<COMMON> 37,687
<OTHER-SE> 10,264
<TOTAL-LIABILITIES-AND-EQUITY> 467,652
<INTEREST-LOAN> 22,395
<INTEREST-INVEST> 3,243
<INTEREST-OTHER> 346
<INTEREST-TOTAL> 25,984
<INTEREST-DEPOSIT> 8,198
<INTEREST-EXPENSE> 8,822
<INTEREST-INCOME-NET> 17,162
<LOAN-LOSSES> (470)
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 16,445
<INCOME-PRETAX> 5,043
<INCOME-PRE-EXTRAORDINARY> 5,043
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,933
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 5.59
<LOANS-NON> 2,313
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,734
<CHARGE-OFFS> 370
<RECOVERIES> 475
<ALLOWANCE-CLOSE> 5,369
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
