UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-11117
SDNB FINANCIAL CORP.
(Exact name of Registrant as Specified in its Charter)
Incorporated in California - IRS Employer I.D. No. 95-3725079
1420 Kettner Boulevard, San Diego, California 92101
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number including area code: 619-233-1234
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of the close of business on March 4, 1996: $ 14,662,000
The number of shares of Common Stock outstanding as of the close of business
on March 4, 1996: 3,073,260
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1995 Annual Report to Shareholders is incorporated by
reference into Part IV of this Form 10-K.
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business. SDNB Financial
Corp (the "Company") was organized under the laws of California
on April 15, 1982, at the direction of San Diego National Bank
(the "Bank") for the purpose of becoming a bank holding company
by acquiring all of the outstanding capital stock of the Bank, a
national banking association. The Federal Reserve Board
("Reserve Board") approved the Company's application to become a
bank holding company on November 1, 1982, and continues as the
Company's primary regulator.
The Bank was granted its Charter by the Comptroller of the
Currency ("Comptroller") on November 12, 1981, and commenced
operations as a national bank on the same date. The Bank is
engaged in a general commercial banking business through its head
office in San Diego, California. The Comptroller is the Bank's
primary regulator.
Until June 30, 1993, the Company owned SDNB Development Corp
("Devco"), a California corporation, for the purpose of said
entity participating as a joint venture partner in the San Diego
National Bank Building Joint Venture (the "Joint Venture"), a
partnership formed for the purpose of constructing and developing
an office building in downtown San Diego to house the Company and
the Bank. Effective July 1, 1993, the Company merged Devco into
itself, thus assuming the position as Joint Venture partner.
In addition, the Company owns SDNB Mortgage Bankers
("Mortgage"), a California corporation, for the purpose of said
entity engaging in mortgage banking and brokerage activities
pursuant to approval from the Federal Reserve Bank of San
Francisco as permitted by Section 225.25(b)(1) of Regulation Y
and Section 4(c)(3) of the Bank Holding Company Act of 1956.
Mortgage has obtained a corporate real estate broker's license
from the California Department of Real Estate. Mortgage is
currently inactive.
(b) Financial Information About Industry Segments.
Not applicable to the Company, which presently operates in only
one business area, banking.
(c) Narrative Description of Business.
1. Supervision and Regulation. The banking industry is
subject to extensive federal regulation and is undergoing
significant change. In 1991, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") was enacted. FDICIA
substantially amended the Federal Deposit Insurance Act ("FDI
Act") and certain other statutes. Since FDICIA's enactment, the
federal bank regulatory agencies have been in the process of
adopting regulations to implement its statutory provisions. Most
of these new regulatory provisions are now in effect, while
others are being phased in over time. FDICIA and its
implementing regulations contain a number of substantial
provisions that likely will have a significant impact on the
banking industry as a whole and potentially could have a material
impact upon the operations and earnings of the Company.
The following discussion summarizes certain aspects of the
banking laws and regulations that affect the Company. Proposals
to change the laws and regulations governing the banking industry
are frequently raised in Congress and before the various bank
regulatory agencies. The likelihood and timing of any changes
and the impact such changes might have on the Company are
impossible to determine with certainty. A change in applicable
laws or regulations, or a change in the way such laws or
regulations are interpreted by regulatory agencies or courts, may
have a material impact on the business of the Company. To the
extent that the following information describes statutory or
regulatory provisions, it is qualified entirely by reference to
the particular statutory or regulatory provision.
(a) Bank Holding Company Regulation. As a registered
bank holding company, the Company and its nonbank subsidiaries
are subject to supervision and regulation under the Bank Holding
Company Act ("BHCA") by the Reserve Board. The Reserve Board
requires regular reports from the Company and is authorized by
the BHCA to make regular examinations of the Company and its
subsidiaries.
Under the BHCA, the Company may not acquire direct or
indirect ownership or control of more than 5% of the voting
shares of any company, including a bank, without the prior
approval of the Reserve Board, except as specifically authorized
under the BHCA. The Company is also subject to regulation under
this banking law with respect to certain acquisitions of domestic
banks. Under the BHCA, the Company, subject to the approval of
the Reserve Board, may acquire shares of nonbanking corporations,
the activities of which are deemed by the Reserve Board to be so
closely related to banking or managing or controlling banks as to
be a proper incident thereto.
The Reserve Board has enforcement powers over bank holding
companies and their nonbanking subsidiaries, among other things
to interdict activities that represent unsafe or unsound
practices or constitute violations of law, rule, regulation,
administrative orders or written agreements with a federal bank
regulator. These powers may be exercised through the issuance of
cease-and-desist orders, civil money penalties and other actions.
Under the Reserve Board's statement of policy with respect
to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its
subsidiary depository institutions and to commit all available
resources to support such institutions in circumstances where it
might not do so absent such policy. Although this "source of
strength" policy has been challenged in litigation, the Reserve
Board continues to take the position that it has authority to
enforce it. For a discussion of circumstances under which a bank
holding company may be required to guarantee the capital levels
or performance of its subsidiary bank, see "Capital Adequacy"
below. The Reserve Board also has the authority to terminate any
activity of a bank holding company that constitutes a serious
risk to the financial soundness or stability of any subsidiary
depository institution or to terminate its control of any bank or
nonbank subsidiaries.
Bank holding companies and their subsidiary banks are
also subject to the provisions of the Community Reinvestment Act
of 1977 ("CRA"). Under the terms of the CRA, the Comptroller (or
other appropriate bank regulatory agency) is required in
connection with its examination of a bank to assess such bank's
record in meeting the credit needs of the community served by
that bank, including low- and moderate-income neighborhoods.
Further, such assessment is also required of any bank that has
applied, among other things, to merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally-
regulated financial institution, or to open or relocate a branch
office. In the case of a bank holding company applying for
approval to acquire a bank or bank holding company, the Reserve
Board will assess the record of each subsidiary bank of the
applicant bank holding company in considering the application.
Under recently enacted revisions to the CRA regulations,
the current CRA assessment is being replaced with a new
evaluation system that would rate institutions based on their
actual performance (rather than efforts) in meeting community
credit needs. Under new regulations, each institution would be
evaluated based on the degree to which it is providing loans (the
leading test), branches and other services (the service test)
and investments (the investment test) to low and moderate income
areas in the communities it serves, based on the communities
demographics, characteristics and the institution's capacity,
product offerings and business strategy. Each depository
institution would have to report to its federal supervisory
agency and make available to the public data on the geographic
distribution of its loan applications, denial, originations and
purchases. Institutions would continue to receive one of four
composite ratings: Outstanding, Satisfactory, Needs to Improve or
Substantial Noncompliance. The new rules are going into effect
in stages from July 1995 to January 1997. The Company does not
believe that the new CRA regulations will substantially change
its program and policies designed to meet the needs of its
communities.
The primary assets of the Company consist of the ownership
of the Bank, and through the Joint Venture, a 62% interest in the
San Diego National Bank Building. Various legal limitations
affect the extent to which the Bank may extend credit, pay
dividends, or otherwise supply funds to the Company or the Bank's
other affiliates. In particular, the Bank is subject to certain
restrictions imposed by Federal law on any extensions of credit
to the Company or, with certain exceptions, other affiliates.
Such restrictions prohibit the Company or such other affiliates
from borrowing from the Bank unless the loans are secured by
specified collateral. Further, such secured loans and
investments by the Bank are limited to 10% of the Bank's capital
and surplus in the case of the Company or to any other such
affiliate and 20% of the Bank's capital and surplus as to the
Company and all such affiliates in the aggregate.
In addition, there are certain limitations on the payment
of dividends to the Company by the Bank. In general, the Bank
may pay dividends out of its net profits. However, the prior
approval of the Comptroller is required if the total of all
dividends declared by the Bank in any calendar year will exceed
the Bank's net profits for that year combined with its retained
net profits for the preceding two years. At January 1, 1996, the
Bank had available for dividends to the Company approximately
$1,370,000 without the approval of the Comptroller.
In addition, the Comptroller and the Federal Deposit
Insurance Corporation ("FDIC") have authority to prohibit a bank
from engaging in an unsafe or unsound practice in conducting its
business. The payment of dividends, depending upon the financial
condition of the bank in question, could be deemed to constitute
such an unsafe or unsound practice, and the regulatory agencies
have indicated their view that it generally would be an unsafe
and unsound practice to pay dividends except out of current
operating earnings.
Finally, under FDICIA, an insured depository institution
is prohibited from making any capital distribution to its owner,
including any dividend, if, after making such distribution, the
depository institution fails to meet the required minimum level
for any relevant capital measure, including the risk-based
capital adequacy and leverage standards discussed below.
The Company and the Federal Reserve Bank of San Francisco
("Reserve Bank") entered into an agreement on November 20, 1992,
pursuant to which the Company must obtain the approval of the
Reserve Bank prior to the declaration of any cash dividends or
the incurrence of debt, other than in the ordinary course of
business, and the Company must give notice to the Reserve Bank
prior to adding or replacing a director or a senior executive
officer. Also, the Company submitted a proposed capital infusion
plan. As outlined in the management discussion and analysis and
the notes to the consolidated financial statements, the capital
infusion was successfully completed in 1995.
(b) Capital Adequacy. The Reserve Board and the
Comptroller have adopted risk-based capital adequacy guidelines
for bank holding companies and banks under their supervision.
Under the guidelines the so-called "Tier 1 capital" and "total
capital" as a percentage of risk weighted assets and certain
off-balance sheet instruments must be at least 4% and 8%,
respectively.
The Reserve Board and the Comptroller have also imposed a
leverage standard to supplement their risk based ratios. This
leverage standard focuses on a banking institution's ratio of
Tier 1 capital to average total assets adjusted for goodwill and
certain other items. Under these guidelines, banking
institutions that meet certain criteria, including excellent
asset quality, high liquidity, low interest rate exposure and
good earnings, and have received the highest regulatory rating
must maintain a ratio of Tier 1 capital to total assets of at
least 3%. Institutions not meeting these criteria, as well as
institutions with supervisory, financial or operational
weaknesses, along with those experiencing or anticipating
significant growth are expected to maintain a Tier l capital to
total assets ratio equal to at least 4% to 5%.
As reflected in the following table, the risk-based
capital ratios and leverage ratios of the Company and the Bank as
of December 31, 1995 exceeded the fully phased-in risk-based
capital adequacy guidelines and the leverage standard.
Capital Components and Ratios at December 31, 1995
(dollars in thousands)
Company Bank
Capital Components
Tier 1 capital $16,726 $13,656
Total capital 18,218 15,017
Risk-weighted assets
and off-balance sheet
instruments 117,967 107,310
Risk-based Capital Ratio
Tier 1 capital 14.18% 12.73%
Total capital 15.43% 13.98%
Leverage Ratio 9.37% 8.43%
FDICIA requires each federal banking agency, including the
Reserve Board, to revise its risk-based capital standards, in
order to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risk of
nontraditional activities, as well as reflect the actual
performance and expected risk of loss on multifamily mortgages.
The federal banking agencies in September 1993 issued proposed
rules whereby exposures to interest rate risk would be measured
as the effect that a specified change in market interest rates
would have on the net economic value of a bank. This economic
perspective considers the effect that changing market interest
rates may have on the value of a bank's assets, liabilities, and
off-balance-sheet positions. Institutions with interest rate
risk exposure in excess of a threshold level would be required to
hold additional capital proportionate to that risk. The Company
is studying these latest proposals but cannot assess at this
point the impact the proposals would have on the Company's
capital requirements.
The Reserve Board, the FDIC, the Comptroller and the Office
of Thrift Supervision have issued a final rule amending the
risk-based capital guidelines to take account of concentration of
credit risk and the risk of non-traditional activities. The
final rule amends each agency's risk-based capital standards by
explicitly identifying concentration of credit risk and the risk
arising from non-traditional activities, as well as an
institution's ability to manage those risks, as important factors
to be taken into account by the agency in assessing an
institution's overall capital adequacy. This final rule has not
materially impacted the Company's capital requirements, but there
can be no assurance that the adoption of other proposals
implementing FDICIA will not have an adverse impact on the
Company's capital requirements.
Bank regulators and legislators continue to indicate their
desire to raise capital requirements applicable to banking
organizations beyond current levels. However, management is
unable to predict whether and when higher capital requirements
would be imposed and if so, at what levels and on what schedule.
FDICIA substantially revised the bank regulatory and
funding provisions of the FDI Act and made revisions to several
other federal banking statutes. Among other things, FDICIA
required the federal banking agencies to take "prompt corrective
action" in respect to depository institutions that do not meet
minimum capital requirements. FDICIA established five capital
tiers: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" and
"critically undercapitalized". A depository institution's
capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will include
a risk-based capital measure and a leverage ratio capital
measure, and certain other factors.
Under the implementing regulations adopted by the federal
banking agencies, a bank is considered "well capitalized" if it
has (i) a total risk-based capital ratio of 10% or greater,
(ii) a Tier 1 risk-based capital ratio of 6% of greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately
capitalized" bank is defined as one that has (i) a total-risk-
based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater and (iii) a leverage ratio of 4%
or greater (or 3% or greater in the case of a bank with a
composite CAMEL rating of 1). A bank is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio
of less than 6%, (ii) a Tier 1 risk-based capital ratio of less
than 4% or (iii) a leverage ratio of less than 4% (or 3% or
greater in the case of a bank with a composite CAMEL rating of
1), (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, or (ii) a tier 1
risk-based capital ratio of less than 3% or (iii) a leverage
ratio of less than 3% and (C) "critically undercapitalized" if
the bank has a ratio of tangible equity to total assets equal to
or less than 2%. The Reserve Board may reclassify a "well
capitalized" bank as "adequately capitalized" or subject an
"adequately capitalized" or "undercapitalized" institution to the
supervisory actions applicable to the next lower capital category
if it determines that the bank is in an unsafe or unsound
condition or deems the bank to be engaged in an unsafe or unsound
practice and not to have corrected the deficiency. The Bank
currently meets the definition of a "well capitalized"
institution.
"Undercapitalized" depository institutions, among other
things, are subject to growth limitations, are prohibited, with
certain exceptions, from making capital distributions, are
limited in their ability to obtain funding from a Federal Reserve
Bank and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution will
comply with such capital restoration plan and provide appropriate
assurance of performance. If a depository institution fails to
submit an appropriate plan, including if the holding company
refuses or is unable to make the guarantee described in the
previous sentence, it is treated as if it is "significantly
undercapitalized". Failure to submit or implement an acceptable
capital plan also is grounds for the appointment of a conservator
or a receiver. "Significantly undercapitalized" depository
institutions may be subject to a number of additional
requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cessation of receipt of
deposits from correspondent banks. Moreover, the parent holding
company of a significantly undercapitalized depository
institution may be ordered to divest itself of the institution or
of nonbank subsidiaries of the holding company. "Critically
undercapitalized" institutions, among other things, are
prohibited from making any payments of principal and interest on
subordinated debt, and are subject to the appointment of a
receiver or conservator.
FDICIA directed, among other things, that each federal
banking agency prescribe standards for depository institutions
and depository institution holding companies relating to internal
controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum
ratio of market value to book value for publicly traded shares
and other standards as they deem appropriate. The Reserve Board
adopted such standards in 1993.
FDICIA also contains a variety of other provisions that may
affect the operations of the Company, including new reporting
requirements, regulatory standards for real estate lending,
"truth in savings" provisions, limitations on the amount of
purchased mortgage servicing rights and purchased credit card
relationships includable in Tier 1 capital, and the requirement
that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch.
FDICIA also contains a prohibition on the acceptance or removal
of brokered deposits by depository institutions that are not
"well capitalized" or are "adequately capitalized" and have not
received a waiver from the FDIC.
(c) FDIC Deposit Insurance Assessments. As an institution
insured by the Bank Insurance Fund ("BIF"), the Bank is subject
to FDIC deposit insurance assessments. Under current law, as
amended by FDICIA, the insurance assessment to be paid by
BIF-insured institutions shall be specified in a schedule
required to be issued by the FDIC that specifies, at semi-annual
intervals, target reserve ratios designed to increase the reserve
ratio to 1.25% of estimated insured deposits (or such higher
ratio as the FDIC may determine in accordance with the statute)
in 15 years. FDICIA also authorizes the FDIC to impose one or
more special assessments in any amounts deemed necessary to
enable repayment of amounts borrowed by the FDIC from the
Treasury Department. The FDIC set an assessment rate for the BIF
of 0.195% for periods prior to June 30, 1992, and an assessment
rate of 0.23% effective on June 30, 1992. Consistent with
FDICIA, on September 15, 1992, the FDIC approved the
implementation of a risk-based deposit premium assessment system
under which each depository institution is placed in one of nine
assessment categories based on the institution's capital
classification under the prompt corrective action provisions
described above and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory
concerns. The assessment rates, when the new system became
effective on January 1, 1993, ranged from 0.23% to 0.31%
depending upon the assessment category into which the insured
institution was placed. The Bank's assessment rate increased
significantly under the new system which resulted in an increase
in deposit insurance assessment expense. The rates were reduced
effective July 1, 1995 to a range of .04% to .31% and effective
January 1, 1996 to a range of 0 (with a minimum of $1,000 per
semi-annual period) to .27%.
A significant increase in the assessment rate or a special
additional assessment with respect to insured deposits, however,
could have an adverse impact on the results of operations and
capital of the Bank.
(d) Governmental Policies. The earnings of the Company are
significantly affected by the monetary and fiscal policies of
governmental authorities, including the Reserve Board. Among the
instruments of monetary policy used by the Reserve Board to
implement these objectives are open-market operations in U.S.
Government securities and Federal funds, changes in the discount
rate on member bank borrowings and changes in reserve
requirements against member bank deposits. These instruments of
monetary policy are used in varying combinations to influence the
overall level of bank loans, investments and deposits, and the
interest rates charged on loans and paid for deposits. The
Reserve Board frequently uses these instruments of monetary
policy, especially its open-market operations and the discount
rate, to influence the level of interest rates and to affect the
strength of the economy, the level of inflation or the price of
the dollar in foreign exchange markets. The monetary policies of
the Reserve Board have had a significant effect on the operating
results of banking institutions in the past and are expected to
continue to do so in the future. It is not possible to predict
the nature of future changes in monetary and fiscal policies, or
the effect which they may have on the Company's business and
results of operations.
(e) Other Legislative Initiatives. From time to time,
various proposals are introduced in the United States Congress
and before various bank regulatory authorities which would alter
the powers of, and restrictions on, different types of banking
organizations and which would restructure part or all of the
existing regulatory framework for banks, bank holding companies
and other financial institutions.
Moreover, a number of other bills have been introduced in
Congress which would further regulate, deregulate or restructure
the financial services industry. It is not possible to predict
whether these or any other proposals will be enacted into law or,
even if enacted, the effect which they may have on the Company's
business and results of operations.
2. Business of the Bank. The Bank focuses primarily upon
wholesale commercial banking operations, emphasizing the needs of
small and medium size business firms and corporations and the
personal banking needs of business executives and professional
persons located in the Bank's immediate service area. The Bank's
marketing strategy stresses its local ownership and commitment to
service community business needs.
Because the Bank's primary service area is comprised largely
of commercial and professional businesses, the Bank places
particular emphasis on banking services appropriate to serve the
financial requirements of these business sectors. The Bank
concentrates on business with commercial, industrial and
professional customers in connection with both loans and
deposits. In addition, the Bank seeks business from
manufacturing and industrial corporations in San Diego County for
whom it can provide financing and other banking needs. The Bank
believes that the attraction of such businesses or large personal
accounts enables it to provide professional, efficient and
personalized banking services on an effective basis. The Bank
also offers courier services, collection services, notary public
services, money market certificates of deposit, letters of credit
and other customary bank services to its business customers.
On September 13, 1988, the Bank was granted trust powers by
the Comptroller. The trust department, specializing in self-
directed employee benefit plans, began active operations in 1989.
In 1992, the Bank, citing failure of the department to achieve
profitable operations, discontinued operations and transferred
the Bank's fiduciary responsibilities to another institution. In
1994, the Bank entered into an agreement with Danielson Trust
Company ("Danielson") under which Danielson will provide trust
and related services to Bank customers.
In addition to offering a comprehensive array of general
banking services, the Bank offers specialized services to certain
businesses that have been identified by the Bank's management as
key sources of deposits and loans. In 1995, the Bank established
its International Department and now offers a full array of such
services, including letters of credit and documentary
collections. Other services, which are offered directly or
through the Bank's correspondent banks, include cash management
consulting and money market investments.
As a corollary and supplement to its wholesale banking
operations, the Bank provides a full range of retail commercial
banking services, including checking and savings accounts, safe
deposit boxes, traveler's checks, and cashier's checks. The
Bank issues credit cards through third parties and is a merchant
depository for cardholder drafts.
The Bank engages in a full range of lending activities. The
types of credit made available are:
Business Loans and Lines of Credit
Business acquisition and expansion
Equipment and vehicle financing
Working capital
Accounts receivable and inventory financing
Standby letters of credit
SBA and CSSBDC guaranteed loans
Consumer Loans and Lines of Credit
Personal loans (secured and unsecured)
Personal property loans (automobiles, boats, airplanes,
recreational vehicles, mobile homes)
Home equity loans (secured by 1-4 family dwellings)
Home improvement loans (secured and unsecured)
Home equity lines of credit (secured by deed of trust on 1-
4 family dwellings)
Personal lines of credit (Ready Money-unsecured lines
attached to a checking account)
Real Estate Financing
Mini-perm loans for commercial and multi-family property
Residential and commercial land loans
Development, interim construction and rehabilitation
loans for commercial, 1-4 family and multi-family
property
HUD guaranteed loans
The commercial lending (business loans and lines of credit)
is directed primarily at businesses whose demands for funds fall
within the Bank's unsecured lending limit (approximately
$2,300,000 at December 31, 1995), and who are depositors with the
Bank.
The Bank has no foreign loans or highly leveraged
transactions. At December 31, 1995, approximately fifty-nine
percent (59%) of the Bank's total loans were commercial, a
majority of which are written with an original maturity of 90 to
180 days. Real estate loans, including interim construction and
mini-perm, comprised approximately thirty-eight percent (38%) of
the portfolio, with an average maturity of nine to eighteen
months for interim construction loans and five years for the mini-
perm loans. The balance of the loans are installment and
consumer loans. Most of the loans bear adjustable interest
rates, which change with the Bank's base rate. The Bank's loan
loss reserve was approximately $2,002,000, or two and two-tenths
percent (2.2%) of gross loans at December 31, 1995. The Bank
intends to maintain the loan loss reserve at a level sufficient
to absorb charge-offs from unexpected and adverse economic
developments.
The Bank's investment portfolio includes United States
government and agency investments, state and municipal bonds,
bankers acceptances, certificates of deposit and other
miscellaneous investments.
A majority of the Bank's deposits are derived from customers
who have other account relationships with the Bank. The Bank has
never used money brokers to secure deposits. The Bank's deposits
are comprised of time certificates of deposit, demand accounts
(including interest bearing demand accounts) and savings deposits
(including money market savings).
During the years 1993 through 1995, the Company and the Bank
have been adversely affected by a number of factors emanating
primarily from the condition of the economy in San Diego. These
factors, more fully described in management's discussion and
analysis and in the statistical information which follows,
include:
a)Reduction in the level of the loan portfolio resulting
from continuing low demand.
b)Higher than normal loan loss provisions in 1994 and
1993.
c)OREO losses and expenses from higher than normal levels
of OREO properties in 1994 and 1993.
Additionally, the Bank has incurred substantial expense in
connection with legal fees and provision for settlement costs
involving the Pioneer Mortgage Company litigation, which was
settled late in 1995.
Competition. The Bank competes with other commercial banks,
savings and loan associations, finance companies, money market
funds, credit unions, insurance companies and brokerage firms.
Many of the regulations and limitations imposed upon account
balances and interest rates were eliminated by the Depository
Institutions Deregulation and Monetary Control Act of 1980.
Savings and loan associations, credit unions and other business
concerns were allowed to offer traditional banking services as a
result of the Garn-St. Germain Depository Institutions Act of
1982 (the "Garn Act"). Among other provisions, the Garn Act
enabled federally insured institutions to offer a new account
similar to and directly competitive with money market accounts.
Over the years following passage of the Garn Act, these changes
have impacted the Bank's competition for deposits and the
corresponding cost of deposits and have also resulted in a
greater portion of the Bank's deposits being subject to rate
changes.
The Bank also competes for deposits with other institutions,
such as brokerage firms and credit card companies, which offer
alternative investment vehicles, such as money market funds, as
well as traditional banking services, such as check access to
money market funds and check advances on credit card accounts.
In 1989, the Bank initiated the Executive Money Market account,
designed to be competitive with accounts offered by securities
firms. Other entities (both public and private) seeking to raise
capital through the issuance and sale of debt or equity
securities also compete with the Bank in the acquisition of
deposits.
As stated previously, nationwide reciprocal interstate
banking became effective in California on January 1, 1991 (after
having been allowed on a regional basis since 1987). In 1992,
Bank of America merged with Security Pacific National Bank and in
1994 First Interstate Bank acquired San Diego Trust & Savings
Bank. In 1996, Wells Fargo Bank successfully bid for First
Interstate Bank (completion of the acquisition is scheduled in
1996). Management and the Board of Directors believe that the
reduction in the number of the independent banks represents a
business development opportunity for the Bank to obtain customers
who would prefer to do business with a locally-based bank rather
than one headquartered elsewhere.
The Company has formed a Strategic Planning Committee which
is studying the Bank's position in the marketplace as affected by
the developments cited above. The Committee reports periodically
to the Board.
3. Employees. As of March 4, 1996, the Company and/or the
Bank had one hundred fourteen (114) full-time employees, of whom
ten (10) were executive officers. Four (4) of the executive
officers have entered into employment contracts with the Company.
None of the Company's or the Bank's employees is covered by a
collective bargaining agreement and the Company believes that its
relationship with its employees is satisfactory.
4. Statistical Disclosure. Following is the statistical
disclosure required for bank holding companies.
<PAGE>
<TABLE>
<CAPTION>
SELECTED STATISTICAL INFORMATION
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(IN THOUSANDS)
1995 1994 1993
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans
Commerical 54,290 5,900 10.87% 63,180 5,597 8.86% 78,229 6,601 8.44%
Real estate 36,370 3,903 10.73% 37,082 3,623 9.77% 40,137 3,446 8.59%
Installment 2,932 287 9.79% 3,146 280 8.90% 3,392 357 10.52%
Total loans (including fees) 93,592 10,090 10.78% 103,408 9,500 9.19% 121,758 10,404 8.54%
Investment securities
U.S. Treasury securities 5,770 298 5.16% 4,184 165 3.94% 3,700 129 3.49%
Securities of government agencies 18,803 1,044 5.55% 20,917 1,021 4.88% 14,416 642 4.45%
State and political obligations 2,610 216 8.28% 4,617 397 8.60% 3,332 406 12.18%
Other securities 1,691 103 6.09% 682 39 5.72% 903 55 6.09%
Total investment securities 28,874 1,661 5.75% 30,400 1,622 5.34% 22,351 1,232 5.51%
Certificates of deposit in other banks 2,271 137 6.03% 1,469 63 4.29% 1,494 67 4.48%
Federal Funds Sold 15,547 904 5.81% 18,407 732 3.98% 13,235 364 2.75%
Total interest-earning assets 140,284 12,792 9.12% 153,684 11,917 7.75% 158,838 12,067 7.60%
Noninterest-earning assets
Cash and due from banks 12,864 12,415 12,315
Premises and equipment 10,918 11,408 11,742
Other, less allowance for loan losses 168 143 3,472
Total noninterest-earning assets 23,950 23,966 27,529
TOTAL ASSETS 164,234 177,650 186,367
<CAPTION>
SELECTED STATISTICAL INFORMATION
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(IN THOUSANDS)
1995 1994 1993
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense Rate Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities
Deposits
Savings, NOW accounts, and
money markets 69,160 1,965 2.84% 71,173 1,700 2.39% 64,430 1,452 2.25%
Time deposits 18,542 963 5.19% 22,831 797 3.49% 45,391 1,694 3.73%
Total interest-bearing deposits 87,702 2,928 3.34% 94,004 2,497 2.66% 109,821 3,146 2.86%
Securities sold under repurchase agreements
and federal funds purchased 9,668 255 2.64% 14,603 367 2.51% 7,762 185 2.38%
Short-term debt 1,777 177 9.96% 2,456 209 8.51% 2,393 174 7.27%
Long-term debt 9,963 797 8.00% 10,251 621 6.06% 10,486 673 6.42%
Total interest-bearing liabilities 109,110 4,157 3.81% 121,314 3,694 3.04% 130,462 4,178 3.20%
Noninterest-bearing liabilities
Demand deposits 42,244 46,354 44,265
Other liabilities 969 364 282
Total liabilities 152,323 168,032 175,009
Minority interest in subsidiary 0 0 0
Stockholders' equity 11,911 9,618 11,358
TOTAL LIABILITIES AND
STOCKHOLDERS'EQUITY 164,234 177,650 186,367
Net interest income 8,635 8,223 7,889
Margin analysis
Interest income/earning assets 9.12% 7.75% 7.60%
Interest expense/earning assets 2.96% 2.40% 2.63%
Net interest income/earning assets 6.16% 5.35% 4.97%
<FN>
<F1>
1) All loans are stated net of unearned income.
<F2>
2) Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 34%.
<F3>
3) These averages reflect the consolidated assets and liabilities of SDNB Financial Corp and subsidiaries.
The averages for San Diego National Bank are calculated on a daily basis. The average for SDNB Financial Corp.
and other subsidiaries are calculated on a quarterly basis.
<F4>
4) Non-accrual loans - Loans are placed on non-accrual status when a reasonable doubt exists as to the collectibility
of interest or principal. As of December 31, 1995, 1994, and 1993, the Bank had loans on non-accrual status
totaling $6,969, $6,046, and $5,343, respectively. Average balances for loans include these amounts; however,
revenue is recognized on a cash basis for these loans.
<F5>
5) Revenue for loans includes portions of fees recognized as current income of $540, $453, and $532 in 1995, 1994,
and 1993, respectively.
<F6>
6) Expense for short-term debt totaling $144 in 1995, $167 in 1994, and $147 in 1993, and the expense for long-term
debt of $797 in 1995, $621 in 1994, and $673 in 1993, are classified as building operating expense on the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOLUME/RATE VARIANCE ANALYSIS
1995 COMPARED TO 1994 1994 COMPARED TO 1993 1993 COMPARED TO 1992
Volume Rate Total Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN INTEREST ON EARNING ASSETS:
Loans
Commercial loans (856) 1,159 303 (1,320) 316 (1,004) (466) 36 (430)
Real estate loans (71) 351 280 (275) 452 177 258 (269) (11)
Installment loans (20) 27 7 (25) (52) (77) (51) 71 20
Total loans (947) 1,537 590 (1,620) 716 (904) (259) (162) (421)
Investment securities
U.S. Treasury securities 73 60 133 18 18 36 (5) (58) (63)
Securities of government agencies (109) 132 23 312 67 379 376 (82) 294
State and political obligations (167) (14) (181) 130 (139) (9) (25) (5) (30)
Other securities 61 3 64 (13) (3) (16) (65) 19 (46)
Total investment securities (142) 181 39 447 (57) 390 281 (126) 155
Certificates of deposit in other bank 42 32 74 (1) (3) (4) (78) (27) (105)
Federal funds sold (127) 299 172 172 196 368 19 (63) (44)
Total interest income change (1,174) 2,049 875 (1,002) 852 (150) (37) (378) (415)
INCREASE (DECREASE) IN INTEREST PAID ON LIABILITIES:
Interest on deposits
Savings, NOW accounts,
and money markets (49) 314 265 158 90 248 (194) (279) (473)
Other domestic time deposits (170) 336 166 (794) (103) (897) 76 (326) (250)
Total interest on deposits (219) 650 431 (636) (13) (649) (118) (605) (723)
Securities sold under agreement to repurchase
and federal funds purchased (129) 17 (112) 171 11 182 101 (60) 41
Short-term debt (64) 32 (32) 5 30 35 29 (10) 19
Long-term debt (18) 194 176 (15) (37) (52) (20) (140) (160)
Total interest expense change (430) 893 463 (475) (9) (484) (8) (815) (823)
Net change in net interest income (744) 1,156 412 (527) 861 334 (29) 437 408
<FN>
<F1>
Note: Change in interest income or expense can be attributed to (a) changes in volume (change in volume times old rate), (b)
changes in rate (change in rate times old volume),and (c) changes in rate/volume (change in rate times the change in volume).
The rate/volume variances are allocated proportionally between the rate and the volume variances based on their absolute values.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
1995 1994
(Book Value) (Book Value)
<S> <C> <C>
December 31, 1995 and 1994:
Available-For-Sale:
U.S. Treasuries 13,515 0
Average maturity (in years) 0.12 0
U.S. Government agencies 12,773 9,637
Average maturity (in years) 1.62 2.11
Other securities 472 0
Average maturity (in years) 0.00 0
FRB Stock 273 273
27,033 9,910
Held-To-Maturity:
U.S. Treasuries 1,000 1,998
Average maturity (in years) 0.08 0.83
U.S. Government agencies 4,021 11,397
Average maturity (in years) 2.39 2.74
States and municipalities 1,637 3,176
Average maturity (in years) 1.36 3.43
Other bonds and notes 750 750
Average maturity (in years) 3.58 4.58
7,408 17,321
<CAPTION>
1993
(Book Value)
December 31, 1993:
Held-For-Investment:
U.S. Treasuries 6,004
Average maturity (in years) 0.47
U.S. Government agencies 19,588
Average maturity (in years) 3.72
States and municipalities 4,362
Average maturity (in years) 2.69
FRB Stock 273
30,227
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
MATURITY IN YEARS
Under 1 1 to 5 5 to 10 Over 10 Total
<S> <C> <C> <C> <C> <C>
Available-For-Sale:
U.S. Treasuries 13,515 0 0 0 13,515
Weighted average interest rate 5.44% 0.00% 0.00% 0.00% 5.44%
U.S. Government agencies 1,799 10,974 0 0 12,773
Weighted average interest rate 5.51% 5.61% 0.00% 0.00% 5.60%
Other securities 472 0 0 0 472
Weighted average interest rate 5.52% 0.00% 0.00% 0.00% 5.52%
FRB Stock 0 0 0 273 273
Weighted average interest rate 0.00% 0.00% 0.00% 6.00% 6.00%
15,786 10,974 0 273 27,033
Held-To-Maturity:
U.S. Treasuries 1,000 0 0 0 1,000
Weighted average interest rate 4.37% 0.00% 0.00% 0.00% 4.37%
U.S. Government agencies 1,000 2,000 1,021 0 4,021
Weighted average interest rate 6.87% 5.15% 7.07% 0.00% 6.07%
States and municipalities * 1,000 637 0 0 1,637
Weighted average interest rate 4.66% 5.70% 0.00% 0.00% 5.06%
Other bonds and notes 0 500 250 0 750
Weighted average interest rate 0.00% 7.30% 8.50% 0.00% 7.70%
3,000 3,137 1,271 0 7,408
<FN>
<F1>
* Taxable equivalent yield based upon 34% Federal Income Tax rate.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO
LOAN TYPE
Real Estate Real Estate Installment Lease
Commercial Construction Mortgage and Consumer Financing Total
<S> <C> <C> <C> <C> <C> <C>
Totals at year-end:
1995 54,372 5,618 29,332 2,873 136 92,331
1994 57,613 5,750 31,461 2,234 0 97,058
1993 67,087 8,995 32,099 2,852 0 111,033
1992 85,377 12,717 30,721 3,306 0 132,121
1991 81,120 12,682 23,751 4,275 0 121,828
Maturities at the end of 1995:
1 year or less 43,330 5,245 2,679 2,065 33 53,352
1 - 5 years 10,333 24 23,984 801 103 35,245
after 5 years 709 349 2,669 7 0 3,734
Outstanding loans at the end
of 1995 which are due after
one year earn interest as follows:
Fixed rate 1,120 0 3,527 520 103 5,270
Adjustable rate 9,922 373 23,126 288 0 33,709
<CAPTION>
RISK ELEMENTS
Nonperforming assets consist of non-accrual loans, restructured loans, past due loans
and other real estate owned. Non-accrual loans are loans on which interest recognition
has been suspended until realized because of doubts as to the borrower's ability to
repay principal or interest. Restructured loans are loans where the terms have been
altered to provide a reduction or deferral of interest or principal because of a
deterioration in the borrower's financial position. Past due loans are accruing loans
that are contractually past due 90 days or more as to interest or principal payments.
The following summarizes the nonperforming assets at December 31:
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Non-accrual loans 6,969 6,046 5,343 1,918 2,442
Restructured loans (still accruing) 1,364 2,316 3,162 0 0
Loans 90 days past due 93 20 481 248 2,238
8,426 8,382 8,986 2,166 4,680
Other real estate owned 181 268 1,050 2,091 4,987
Total 8,607 8,650 10,036 4,257 9,667
<FN>
<F1>
1) Non-accrual loans are placed on non-accrual when a reasonable doubt exists as to
the collectibility of interest or principal. Gross interest income that would have
been recorded for the year ended December 31, 1995, if non-accrual loans had been
current and in accordance with their original terms, is approximately $819. Interest
actually recognized for those loans was $589. Non-accrual loans totaling $5,561 in 1995,
$1,144 in 1994, $1,196 in 1993, $521 in 1992 and $326 in 1991 were also classified as
restructured loans.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
(as of Jan. 1) 2,148 2,522 2,111 2,011 1,499
Losses charged-off
Commerical 619 2,211 2,277 1,294 722
Real estate construction 0 0 20 120 0
Real estate mortgage 0 0 264 101 56
Installment 36 151 155 60 70
Lease financing 0 0 0 0 0
Total loans charged-off 655 2,362 2,716 1,575 848
Recoveries of losses previously charged-off
Commerical 276 121 144 299 81
Real estate construction 0 0 0 0 0
Real estate mortgage 0 10 4 50 0
Installment 33 7 29 6 9
Lease financing 0 0 0 0 0
Total recoveries 309 138 177 355 90
Net loans charged-off 346 2,224 2,539 1,220 758
Additions charged to
operating expense 200 1,850 2,950 1,320 1,270
Allowance for loan losses
(as of Dec. 31) 2,002 2,148 2,522 2,111 2,011
Average loans outstanding 92,376 103,897 121,758 124,945 123,490
Ratio of net charge-offs to average
loans outstanding 0.37% 2.14% 2.09% 0.98% 0.61%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES BY CATEGORY
1995 1994 1993 1992 1991
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commerical 933 57.6% 1,635 59.4% 1,862 60.4% 1,304 64.5% 1,417 66.6%
Real estate construction 25 6.1% 49 5.9% 57 8.1% 101 9.6% 96 10.4%
Real estate mortgage 293 33.1% 80 32.4% 206 28.9% 222 23.4% 196 19.5%
Installment 12 3.1% 62 2.3% 93 2.6% 25 2.5% 30 3.5%
Lease financing 1 0.1% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Unallocated 738 NA 322 NA 304 NA 459 NA 272 NA
Total 2,002 100.0% 2,148 100.0% 2,522 100.0% 2,111 1 00.0% 2,011 100.0%
<FN>
<F1>
1) Beginning in 1993, the Bank evaluates the adequacy of its allowance for loan losses using a "migration analysis" of
net charge-offs to classified loans. Certain loans are segregated by management and reserved specifically based on
potential loss exposure. The remainder of the loans in the portfolio are segregated into significant pools.
Potential loss exposure is determined by creating a loss experience percentage for loans with similar
characteristics and quality. These percentages are applied to the Bank's current portfolio to estimate the amount
of future losses. The Bank also makes a provision for undrawn commitments and letters of credit. This quantitative
analysis is supplemented with a provision based on qualitative factors including but not limited to trends in volume
and severity of past due and classified loans and trends in the volume of nonaccural loans troubled debt-
restructurings and other loan modifications, trends in the nature and volume of the portfolio, experience ability
and depth of lending management and staff, trends in lending policies and procedures including underwriting
standards and collection charge-off and recovery practices, national and local economic and business conditions and
developments including the condition of various market segments, existence and effect of any concentrations of
credit and changes in the level of such concentrations, quality of the institution's loan review system and the
degree of oversight by the institution's board of directors, effect of external factors such as competition and
legal and regulatory requirements on the level of estimated credit losses in the institution's current portfolio.
The reserve balance represents the aggregate of these allocations.
Prior to 1993, the Bank evaluated the adequacy of its allowance for loan losses on an individual loan basis. In
determining the adequacy of the allowance, management evaluated each loan with regard to creditworthiness of the
borrower, sources of repayment, general and industry specific economic conditions, and collateral. The bank
reserved non-classified loans on a percentage basis related to past loss experience. Loans determined to be of higher
than normal risk were assigned a higher reserve amount based upon possible loss exposure. The reserve balance for
the years 1990 - 1992 were the aggregate of those allocations.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEPOSITS
1995 1994 1993
Average Average Average
Outstanding Yield Outstanding Yield Outstanding Yield
<S> <C> <C> <C> <C> <C> <C>
Demand 42,244 0.00% 46,354 0.00% 44,265 0.00%
Interest-bearing demand 14,166 1.52% 14,496 1.48% 14,280 1.47%
Savings 54,994 3.18% 56,677 2.63% 50,150 2.48%
Time deposits 18,542 5.19% 22,831 3.49% 45,391 3.73%
<CAPTION>
At December 31, 1995, time deposits in amounts of $100,000 or more had a maturity breakdown as follows (in thousands):
Time All
Certificates Other
of Deposit Time
<S> <C> <C>
3 months or less 6,167 201
Over 3 through 6 months 3,360 200
Over 6 through 12 months 2,498 0
Over 12 months 0 322
12,025 723
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
1995 1994 1993
<S> <C> <C> <C>
Return on assets 0.13% (0.09)% (1.37)%
(Net income divided by average total assets)
Return on equity 1.68% (1.65)% (22.56)%
(Net income divided by average equity)
Equity to assets 7.69% 5.41% 6.09%
(Average equity divided by average total assets)
Dividend payout ratio 0.00% 0.00% 0.00%
(Dividends per share divided by net income per share)
<CAPTION>
SHORT-TERM BORROWINGS
1995 1994 1993
Securities sold under repurchase agreements
and federal funds sold
a) Outstanding at end of period 12,934 12,285 9,273
b) Average interest rate, end of period 2.66% 2.78% 2.16%
c) Maximum outstanding during period 14,333 18,614 12,393
d) Approximate average amount
outstanding during period 9,668 14,603 7,762
e) Weighted average interest rate 2.64% 2.51% 2.38%
Short-term debt
a) Outstanding at end of period 0 2,544 2,384
b) Average interest rate, end of period 0.00% 9.19% 7.36%
c) Maximum outstanding during period 2,544 2,554 2,448
d) Approximate average amount
outstanding during period 1,777 2,456 2,393
e) Weighted average interest rate 9.96% 8.51% 7.27%
</TABLE>
<PAGE>
Item 2. Properties.
The Company owned no properties directly at December 31,
1995. The Company's executive offices and the Bank's executive
offices and banking facilities are located at 1420 Kettner
Boulevard, San Diego, California 92101 (the "Bank Building"),
which is owned by the Joint Venture. In January 1982, the Bank
executed a 99-year ground lease, which was subsequently assumed
by the Joint Venture, for approximately 27,000 square feet of
undeveloped real property located at the site. The Company's
wholly-owned subsidiary, Devco, was the 50% joint venturer with a
limited partnership, Kettner Building Associates, Ltd. ("KBA"),
in the ownership and operation of the Bank Building. As
previously stated, effective July 1, 1993, Devco was merged into
the Company and the Company assumed the partnership ownership.
Commencing in 1985 and continuing into 1987, the Company (through
Devco) acquired the 10% general partnership interest and a 14%
limited partnership interest in KBA. The only activity of KBA is
its 50% interest in the Joint Venture. Therefore, the
acquisition of the partnership interests increased the Company's
combined interest in the Bank Building to approximately 62% at
December 31, 1987.
On March 3, 1987, the Joint Venture obtained long-term
financing from Home Fed Bank in the original amount of
$11,250,000 (the "Loan"). During 1993, Resolution Trust
Corporation, as successor to Home Fed, sold the Loan to an
investment group as a part of a package.
In November 1994, the Loan was purchased by the two limited
partnerships managed by WHR Management Corp. ("WHR") which
subsequently purchased some of the Company's stock (see
management discussion and analysis and notes to the consolidated
financial statements). In January 1995, the Joint Venture and
WHR entered into a modification agreement which, inter alia,
allowed for prepayment of the Loan at a discount. On November
30, 1995 the Loan was paid off at a discount from face value of
$1,579,000 resulting in a net gain, after expenses and taxes, of
$1,457,000. Because the Loan was held by a related party, the
gain has been credited directly to shareholders' equity.
The Bank Building was refinanced with a new loan from PKH
Kettner Investors, LLC ("PKH") in the initial principal of $8
million, collateralized by a first deed of trust. The loan is
payable in monthly installments of $76,145 which include interest
at 9.8% per annum and is all due and payable December 1, 2005.
As additional consideration for the loan, the Company issued to
PKH a warrant to purchase 150,000 shares of the Company's common
stock at a price of $5.44 per share (the average of the bid and
ask prices on the day prior to the closing of the loan) until
November 30, 1999. A member of PKH, Mr. Sol Price, is a
principal shareholder of Price Enterprises, Inc. Murray L.
Galinson, President, Chief Executive Officer and a Director of
the Company and Vice Chairman, Chief Executive Officer and a
Director of the Bank, serves as a Director of Price Enterprises,
Inc.
On January 4, 1988, the Joint Venture obtained a $2
million loan from PVCC, Inc. ("PVCC") a corporation controlled
by Charles I. Feurzeig, Chairman of the Board of the Company.
The proceeds of the loan were used to retire existing debt of the
Joint Venture and to provide reserves for tenant improvements and
negative cash flows. The loan was fully paid November 29, 1995.
The Bank has leased the ground floor and the mezzanine of
the Bank Building, which constitutes approximately 26,000 square
feet, and the Company has leased a portion of the seventh floor,
which constitutes approximately 12,000 square feet. The ground
floor and mezzanine lease term is for 20 years, commencing May
1985, with an option for the Bank to renew on the same terms for
two consecutive seven-year periods following the expiration of
the initial term. The base rent paid by the Bank is currently
$2.30 per square foot per month, subject to annual upward cost-of-
living adjustments limited to an increase of 5% of the base rent
for each year and 15% of the base rent for each five year period.
The base rent includes all taxes, utilities, insurance,
maintenance and operational common area expenses (the "pass-
through expenses"). If the pass-through expenses exceed in any
year the sum of $5.00 per square foot, the Bank pays such excess.
The lease also provides for a right of first refusal in favor of
the Bank on not less than one full leasable floor (approximately
17,000 square feet) as the same shall become available for lease
within the Bank Building.
The seventh floor lease term is five years and seven months
commencing September 1990, with an option to renew for two
consecutive five year terms. The base rate is currently $2.00
per square foot per month, subject to annual upward cost-of-
living adjustments and pass-through expense similar to the Bank
lease.
The Bank is also renting additional space in the building on
a month-to-month basis. The Company and the Bank believe the
space at 1420 Kettner Boulevard (including the right of first
refusal space) will be adequate for their needs for the
foreseeable future.
The Bank has leased property for its South Bay office at 398
H Street, Chula Vista, California. The lease term is seven years
from November 1, 1995 with three options to extend of seven years
each. Monthly rental is $6,900 for the first year and escalates
4% each year thereafter. The Bank is responsible for all
operating expenses except for major repairs.
At December 31, 1995, the Bank Building was approximately
98% leased, although concessions to some tenants who are not
utilizing all of their leased premises would reduce the effective
occupancy to approximately 93%.
Item 3. Legal Proceedings.
In January 1993, the Bank was named as a defendant in an
adversary proceeding filed by Pioneer Liquidating Corporation
("PLC"), successor to six bankrupt Pioneer Mortgage Company
entities (collectively, "Pioneer") in the Bankruptcy Court for
the Southern District of California. Investors in Pioneer had
previously filed suit against the Bank, which litigation was
settled in 1992. The PLC case was settled with the final
settlement agreement approved by the Federal District Court for
the Southern District of California on November 29, 1995.
A preliminary agreement between the Bank and PLC
contemplated that the Bank would make payment to PLC on execution
of the settlement agreement and assign to PLC certain charged-off
loans, without recourse. The preliminary agreement further
provided that after being given credit for the payment by the
Bank and the collections on the assigned charged-off loans,
payment of the remaining balance of the total settlement amount
was to be guaranteed by Charles I. Feurzeig, Chairman of the
Board of the Company, and PVCC, Inc., a corporation controlled by
Mr. Feurzeig (collectively, the "Feurzeig Entities"). Such
guarantee was being given by the Feurzeig Entities for
consideration independent of Mr. Feurzeig's investment in the
Company.
Subsequent negotiations led to the settlement agreement
approved by the Court whereby the Bank paid $600,000 to PLC and
the Feurzeig Entities paid $1,050,000 to PLC upon execution of
the settlement agreement and the Feurzeig Entities took the place
of PLC with respect to assignment of the charged-off loans. In
consideration of the modification of the original list of charged-
off loans to eliminate certain loans which had been only
partially charged-off, the Bank agreed to assign additional newly
charged-off loans (90 days after charge-off) to the Feurzeig
Entities, until the first to occur of:
a) Five years after the date of the settlement agreement;
or
b) Such time as the Feurzeig Entities have collected on
such loans $1,050,000 plus a return equal to the rate of 9.5% per
year on the unpaid portion of such $1,050,000.
Pursuant to the settlement agreement the Feurzeig Entities
do not have recourse or a claim against the Bank should the
collections on the assigned charged-off loans amount to less than
$1,050,000. Should collections exceed $1,050,000 plus the return
referred to above, the Feurzeig Entities have agreed to pay to
the Bank 50% of such excess collections.
Item 4. Submission of Matters to a Vote of Security
Holders.
No matter was submitted to a vote of security holders,
through solicitation of proxies or otherwise, during the fourth
quarter of 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) Market Information. Since October 6, 1987, the
Company's Common Stock has been listed on the National
Association of Securities Dealers ("NASDAQ") National Market
System. There is only a limited market for the Company's Common
Stock.
Stock Price Information
Period 1995 1994
First Quarter
Low $3.25 $ 2.50
High 4.25 3.25
Second Quarter
Low 3.625 2.50
High 4.25 3.25
Third Quarter
Low 3.50 2.50
High 4.50 4.75
Fourth Quarter
Low 4.50 3.00
High 6.25 4.75
(b) Holders. As of March 4, 1996, the Company's
outstanding shares of Common Stock were held by approximately
1,000 shareholders of record (including those through
broker/nominees).
(c) Dividends. There were no stock or cash dividends
declared in 1995 or 1994.
Item 6. Selected Financial Data.
Consolidated Financial Highlights
Incorporated by reference - see inside front cover of
the 1995 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Incorporated by reference - see pages 7 to 12 of the 1995
Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference - see pages 13 to 23 of the 1995
Annual Report to Shareholders.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures.
None.
PART III
The information required under PART III, Items 10, 11, 12 and 13,
has been omitted from this Report because the Company intends to
file with the Securities and Exchange Commission, not later than
120 days after the close of its fiscal year, a definitive proxy
statement prepared pursuant to Regulation 14A, which will contain
such information and which information is hereby incorporated by
reference.
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
1. Financial statements Page*
Consolidated Balance Sheets at December 31,
1995 and 1994. 13
Consolidated Statements of Operations for each of
the three years in the period ended December
31, 1995. 14
Consolidated Statements of Shareholders' Equity
for each of the three years in the period ended
December 31, 1995. 15
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31,
1995. 16
Notes to Consolidated Financial Statements. 17-23
Report of Independent Accountants. 24
*Refers to respective page numbers of Annual
Report to Shareholders for the year ended December 31,
1995 which is incorporated by reference.
2. Financial statement schedules.
All schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
3. Exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 of Regulation S-K).
(a) 3 (a) Restated Articles of Incorporation of the Company and
amendment -incorporated by reference from 1988
Form 10-K.
(b) Bylaws of the Company as amended through May 18, 1988 -
incorporated by reference from 1988 Form 10-K.
10. (a)(1) Company's 1984 Stock Option Plan, as amended -
incorporated by reference from 1992 Form 10-K.
(2) The Company's 1994 Stock Option Plan - incorporated by
reference from 1995 Form 10-K.
(b) Employment contracts of certain executive officers.
(c) Sample indemnification agreements with directors and
officers - incorporated by reference from 1988
Form 10-K.
13. Annual Report to Shareholders.
22. Subsidiaries of the Registrant.
23. (a). Consent of Independent Accountants.
(b) Reports on Form 8-K
A report on Form 8-K was filed on December 5, 1995
reporting settlement of litigation against the Bank.
(c) Exhibits required by Item 601 of Regulation S-K and not
incorporated by reference are attached.
(d) Not applicable.
27. Financial Data Schedule (submitted only in electronic
format and omitted from paper copies pursuant to
Paragraph (c)(v) of Regulation S-K (17 CFR 220.601(c)(v))
and Note 2 to Paragraph (c)(1)(vi) of Regulation S-K
(17 CFR 229.601(c)(1)(vi))).
<PAGE>
SIGNATURES
Pursuant to the Requirements of Section 13 or Section 15(d)
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.
SDNB FINANCIAL CORP.
Dated: March 27, 1996 By: /s/Murray L. Galinson
Murray L. Galinson
President and Chief Executive Officer
By: /s/Howard W. Brotman
Howard W. Brotman
Senior Vice President, Secretary
and Chief Financial Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures Title Date
Chairman of the Board March , 1996
CHARLES I. FEURZEIG and Director
/s/Murray L. Galinson President, Chief March 27, 1996
MURRAY L. GALINSON Executive Officer and
Director
/s/ Douglas E. Barnhart Director March 27, 1996
DOUGLAS E. BARNHART
/s/Margaret Costanza Director March 27, 1996
MARGARET COSTANZA
/s/Karla J. Hertzog Director March 27, 1996
KARLA J. HERTZOG
/s/Robert B. Horsman Director March 27, 1996
ROBERT B. HORSMAN
/s/Mark P. Mandell Director March 27, 1996
MARK P. MANDELL
/s/ Patricia L. Roscoe Director March 27, 1996
PATRICIA L. ROSCOE
/s/Julius H. Zolezzi Director March 27, 1996
JULIUS H. ZOLEZZI
/s/Howard W. Brotman Director, Senior Vice March 27, 1996
HOWARD W. BROTMAN President, Secretary and
Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
Exhibit Number
10 (b) Employment contracts of certain executive officers.
13 Annual Report to Shareholders.
22 Subsidiaries of Registrant.
23 (a) Consent of Independent Accountants.
27 Financial Data Schedule (submitted only in electronic
format and omitted from paper copies pursuant to
Paragraph (c)(v) of Regulation S-K (17 CFR 220.601(c)(v))
and Note 2 to Paragraph (c)(1)(vi) of Regulation S-K
(17 CFR 229.601(c)(1)(vi))).
<PAGE>
EXHIBIT "10 (b)"
EMPLOYMENT CONTRACTS OF CERTAIN EXECUTIVE OFFICERS
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This is an Employment Agreement (hereinafter referred to as
this ("Agreement") made effective as of this 27th day of
March , 1996 by and between SDNB Financial Corp., a California
corporation("Employer") sometimes referred to hereafter as
("Financial") and Murray L. Galinson (hereinafter referred to
as "Employee").
RECITAL
This Agreement is made with reference to the following
facts:
A. Employee is currently employed as President and Chief
Executive Officer of Financial and CEO of Employer's wholly owned
subsidiary, San Diego National Bank, a national association
(hereinafter referred to as the "Bank").
B. Employer believes it to be in its best interest to have
Employee continue his/her employment with the Bank in such
capacities and in order to induce Employee to accept such
continued employment as President and Chief Executive Officer,
Employer is willing to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration,
Employer and Employee covenant and agree as follows:
1. Term of Employment. Employer hereby agrees to cause the
Bank and Financial to employ Employee and Employee hereby accepts
employment with the Bank & Financial for a period beginning on
the effective date of this Agreement as set forth hereinabove and
continuing through and until December 31, 1998 (hereinafter
referred to as the "Initial Employment Term"). In the event of
any extension of this Agreement for one or more consecutive one
(1) year terms upon the agreement of the parties hereto, or
pursuant to the provisions of Section 9 hereof, the terms of this
Agreement shall be deemed to continue in effect for the term of
such extension (hereinafter referred to as the "Extended
Employment Term") (the Initial Employment Term and the Extended
Employment Term hereinafter collectively referred to as the
"Employment Term").
2. Duties of Employee. Employee shall serve as President
and Chief Executive Officer throughout the Employment Term.
Employee shall have such duties and responsibilities as are
presently set forth in the Bylaws of the Bank and as are
commensurate with such position, as may be from time to time more
particularly set fourth by the Board of Directors of the Bank and
Financial. Employee shall devote such portion of his productive
time and attention to the business of the Bank as shall be
reasonably necessary to carry out his duties during the
Employment Term. Employee shall also serve as director of the
Bank and Financial and shall be required to serve as an officer
and director of all other corporations which are wholly-owned
subsidiaries of Financial which exist now or may exist during the
Employment Term. Subject to the provision of Section 12 hereof,
this Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private
business affairs if such activities do not materially interfere
with the services required under this Agreement.
3. Indemnification. Employer shall indemnify and hold
Employee harmless from all losses, costs, damages, liability,
therefor, charges, claims, demands, attorneys' fees and/or
expenses, actions and causes of action of any nature or sort,
liquidated or unliquidated, past, present and future, of
whatsoever kind or character which shall or may at any time
incurred, suffered or sustained by Employee arising from the
discharge of his duties on behalf of the Bank and/or Financial
and/or other subsidiaries of Financial for which Employee
provides services.
4. Compensation. As full compensation for the services to
be performed hereunder, Employee shall receive the following:
a. Basic Salary Subject to approved annual
increases as hereinafter provided, basic salary at the rate of
One Hundred Eighty Five Thousand One Hundred Twenty Dollars
($185,120) per year to be paid in accordance with the payroll
schedule established by the Bank's Board of Directors for all
Bank employees as in effect from time to time. The basic annual
salary set forth in this paragraph may be adjusted on January 1
or each year of the Employment Term at the discretion of the
Employer's Board of Directors for all Bank employees as in effect
from time to time. The basic annual salary set forth in this
paragraph shall be adjusted on January 1 of each year of the
Employment Term at the discretion of the Employer's Board of
Directors, but in no event shall the adjusted amount less than
the amount of Employee's basic annual salary for the preceding
year.
b. Bonuses and Deferred Savings Plan. Employee shall
be entitled to receive such other compensation as may be
determined by the Employer's Board of Directors to be
appropriate, in its sole discretion, including without limitation
any amounts payable to Employee by participation in the Bank's
Bonus Program and Deferred Savings Plan in accordance with the
terms and conditions of said plans as in effect during the
Employment Term. Employer shall not reduce during the Employment
Term the proportionate annual share of the total amount of said
Bonus Program and Deferred Savings Plan which Employee is
eligible to receive based upon said Program and Plan as presently
in effect as of the date of this Agreement. Further, if said
Program and/or Plan are eliminated by Employer or Bank, Employee
shall nevertheless continue to receive during the Employment Term
an annual share of the Bank's profits which Employee last
received pursuant to said program and/or Plan.
5. Tax Withholding. Employer shall have the right to
deduct or withhold from the compensation due to Employee
hereunder any and all sums required for any and all federal,
social security, state and local taxes now applicable or that may
be enacted and become applicable in the future.
6. Employee Benefits.
a. Vacation Time. Employee shall be entitled to
vacation time as set forth in the Bank's policies each calendar
year during the Employment Term without loss of compensation.
One increment of such annual vacation time shall be taken by
Employee for a period of not less than two (2) consecutive weeks.
In the event that Employee does not for any reason take the total
amount of vacation time authorized herein during any year, the
amount of time not taken in said year shall accumulate, and be
available as additional vacation time in subsequent years;
however, Employee shall not be permitted at any time to
accumulate vacation time in excess of the amount of vacation time
authorized for Employee during a two-year period.
b. Use of Automobile. Employer shall provide Employee
with the use of an "executive class" automobile throughout the
Employment Term, or alternatively, at the discretion of Employer,
an automobile allowance of Six Hundred ($600) Dollars per month.
In addition, whether Employer provides Employee with an
automobile or with an automobile allowance, Employer shall pay or
reimburse for all operating expense of the automobile used by
Employee, including a reasonable gasoline allowance and shall
further provide and maintain liability insurance on such
automobile, with coverage in amounts to be determined by the
Employer's Board of Directors, but in any event not less than the
minimum liability coverage required by California law. Employee
shall be required to maintain adequate records of all business
mileage incurred an all automobile operating expenses, such
records to be maintained in compliance with IRS record-keeping
guidelines then in effect.
c. Seminars. Employer shall reimburse Employee for
all costs and expenses, including without limitation registration
fees, transportation costs, meals and lodging, incurred by
Employee in connection with Employee's attendance at all
professional seminars relating to the financial services industry
for which Employee's attendance would be of benefit to Employer.
d. Club. Employer shall pay all ongoing dues related
to employee's membership in one "country-club" type club selected
by Employee and subject to the express approval of the Employer's
Board of Directors, shall pay all membership and/or initiation
fees connected with said membership.
e. Disability Insurance. Employer shall pay all
costs and expenses, including without limitation premiums, to
provide disability insurance coverage for Employee, which
coverage shall be in an appropriate and customary amount based
upon Employee's position and salary hereunder and subject to
approval of medical records by the insurer.
f. Additional Benefits. Employee shall be entitled to
receive the greater of: (1) all employment benefits made
available to other officers of the Bank and its affiliates and
commensurate with Employee's position and title with the Bank,
and (2) all employment benefits currently received by Employee as
of the date of this Agreement. Such benefits shall include, but
are not limited to, such health insurance, life insurance, sick
leave, pension, and retirement plans as are adopted from time to
time by the Bank. In the event that any benefit plan or plans
adopted by the Bank or all of its employees conflicts with or
overlaps any specific benefit set forth in this paragraph 6,
Employee shall be entitled to whichever benefit is the greater of
the two...
7. Life Insurance. In addition to any life insurance
policies paid for by Employer pursuant to Section 6.c, in which
Employee is named as its insured and in discretion, may purchase
such life insurance policies as it deems necessary or
appropriate, naming Employee as the insured and Employer as
beneficiary. Employee hereby agrees to submit, at employer's
cost, to any reasonable medical examination required for the
purchase of such insurance.
8. Expenses. Employee shall be reimbursed for all
reasonable expenses incurred by his pursuant to he performance of
his duties and responsibilities hereunder. Employee shall keep
complete and accurate records, including but not limited to proof
of payment of all such expenses, so that he may fully account to
the Employer if so requested.
9. Extension of Term Upon Changing Control. In the event
that there is a change in control of the Bank and/or Financial,
as that term is defined in 12 U.S.C. Section 1817 (Change in Bank
Control Act of 1978), whether by merger, acquisition, "friendly"
or hostile" "takeover" or otherwise, this Agreement shall be
deemed extended for three years from the date of said change in
control. During said period of extension, Employee shall be paid
his compensation then applicable hereunder, and shall continue
his participation in the Bank's Bonus Sharing Program and
Deferred Savings Plan in accordance with Section 4.b hereof, and
in no case shall Employer have any right to terminate the
employment of Employee hereunder, except "for cause," as said
term is defined in Section 10.a hereof. Further, in said event,
Employee shall receive during the Extended Employment term a
minimum of a ten percent (10%) increase in salary per annum each
January 1 subsequent to the date of said change in control.
10. Termination of Agreement.
a. Termination for Cause. Employer may terminate
this Agreement without notice for "cause." For the purposes of
this Agreement, "Cause" shall be defined as willful misconduct or
willful dishonesty of Employee in his capacity as President and
Chief Executive Officer of Bank and/or Financial, or willful
material breach or habitual neglect of the duties which Employee
is required to perform under the terms of this agreement.
b. Effect of Termination. In the event of termination
of Employee for cause as set froth in Section 10.a, and assuming
that Employer is not in material default hereunder, all future
bonuses or other salaries payable to or claimed by Employee are
waived, and any additional salary or bonus shall be paid only in
the sole and absolute discretion of Employer. In the event
Employee voluntarily terminates his employment hereunder,
Employee shall be entitled to a pro rata share of bonus
compensation based upon the formula contained in Section 10.c
hereof. Nothing in this Section 10 shall affect the rights of
the parties under Section 12 hereof.
c. Disability and Death. If, during the Employment
Term Employee should die or suffer any physical or mental illness
that renders him incapable of fulfilling his obligations under
this Agreement, and such incapacity exists or may reasonably be
expected to exist for more than one hundred and fifty (150)
consecutive days, Employer may, upon forty-five (45) days written
notice to Employee, terminate this Agreement. The determination
of Employer that Employee is incapable of fulfilling his
obligations under this Agreement, so long as such determination
is made in good faith and is supported by a reasonable medical
opinion, shall be final and binding. In the event of termination
under this Section 10.c, Employee, or his estate, shall be
entitled (I) to an amount equal to twelve (12) months' salary
payable forthwith, and (ii) to a pro rata share of bonus
compensation based upon the ratio of the number of days of the
portion of the bonus term then in effect prior to Employee's
death or disability, as the case may be, to the number of days of
the full bonus term, payable at the time when said bonus is
payable to all employees, and (iii) to any other accrued
compensation, plus such additional benefits, if any, as may be
approved by Employer's Board of Directors. Employee, or his
estate, shall, upon termination under the terms of this Section
10.c, be further entitled to additional pro rata compensation
based upon the ratio of the number of accrued vacation days, if
any, not taken by Employee during the year, as defined for the
purposes of vacation, in which Employee was so terminated, to 365
days.
d. Communication of Termination. Any termination by
Employer of Employee shall be communicated by written notice of
termination which shall indicate the specific termination
provision of this Agreement relied upon by Employer, and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
11. Location. Employee shall not be required to move from
or perform his duties hereunder in any geographical area other
than the San Diego County area.
12. Non-Competition.
a. While Employed. During the Employment Term,
Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal partner,
stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in
or acquire, hold, or retain any interest in any business of the
Bank in any location, unless such participation or interest is
fully disclosed to the Bank and Financial Corp. approval by a
majority of the Board of Directors of each. The foregoing
notwithstanding, Employee may acquire, hold or retain equity
ownership of any publicly-held company, provided that such equity
ownership does not exceed five percent (5%) of the issued and
outstanding shares of voting stock of such company.
b. Upon Early Termination or Termination for Cause.
If Employee is terminated for cause (as defined in Section 10.a
hereof) or voluntarily resigns from employment hereunder prior
to the termination of the Initial Employment Term without the
consent of Employer, Employee shall not acquire, hold or retain
any interest (direct or indirect) in any business in the County
of San Diego, in the State of California, and in such other
locations where the Bank is then engaged in business from time to
time during the remainder of the Initial Employment Term that is
in competition with the business of the Bank until the date on
which the employees' employment was to naturally terminate
according to the terms hereof; provided, however, that in the
event that prior to any such voluntary resignation as aforesaid,
Employer has offered in writing to extend the term of this
Agreement for an additional year on the same terms and conditions
as set forth in this Agreement with compensation increased in
accordance with Section 4.a hereof, then Employee's obligation
under this Section 12.b shall be extended for an additional one
(1) year beyond the Initial Employment Term.
c. If any portion of this Section 12 is held to be
illegal, unenforceable, void, or voidable, the remainder shall
remain in full force and effect, and this Section 12 shall be
deemed altered and amended to the minimum extent necessary to
bring it within the legal requirements.
13. Unique Services. Employee hereby represents and
agrees that the services to be performed under the terms of this
Agreement are of a special, unique, unusual, extraordinary and
intellectual character that gives them a peculiar value, the loss
of which cannot be reasonable or adequately compensated in
damages in any action at law. Employee, therefore, expressly
agrees that Employer, in addition to any rights or remedies that
Employer might possess, shall be entitled to injunctive and other
equitable relief to prevent or remedy a breach of this Agreement
by Employee.
14. Confidential Information.
a. For purposes of this Agreement, "Confidential
Information: shall mean information or material proprietary to
Employer or Bank or designated as Confidential Information by
Employer or Bank and not generally known by non-Bank personnel
which Employee develops or of which Employee may obtain knowledge
or access through or as a result of Employee's employment with
the Employer or Bank (including information conceived,
originated, discovered, or developed, in whole or in part, by
Employee). The Confidential Information includes, but is not
limited to, the following types of information and other
information of a similar nature (whether or not reduced to
writing): Drawings, specifications, models, data, documentation,
diagrams, flow charts, research, development, procedures,
marketing techniques and materials, marketing and development
plans, customer lists, and names and other information related to
customers, pricing and loan policies, financial information and
projections customer loans and employee files. Confidential
Information also includes any information described above which
Employer obtains from another party, and which Employer treats as
proprietary or designates as Confidential Information, whether or
not owned or developed by Employer, For purposes of this Section
a., Employer and/or Bank shall mean the Bank, Financial or any of
their affiliates. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY
EMPLOYED BY FINANCIAL INSTITUTIONS AT OR AFTER THE TIME EMPLOYEE
FIRST HEARS OF SUCH INFORMATION OR GENERIC INFORMATION, OR
GENERAL KNOWLEDGE WHICH EMPLOYEE WOULD HAVE LEARNED IN THE COURSE
OF SIMILAR EMPLOYMENT OR WORK ELSEWHERE SHALL NOT BE DEEMED PART
OF THE CONFIDENTIAL INFORMATION.
b. All notes, data, reference materials, sketches,
drawings, memoranda, documentation, and records in any way
incorporating or reflecting any of the Confidential Information
and all proprietary rights therein, including copy rights, shall
belong exclusively to Employer, and Employee agrees to turn over
all copies of such materials in Employee's possession or control
to Employer upon request or upon termination of Employee's
employment with Employer.
c. Employee agrees during his employment by Employer
and thereafter to hold in confidence and not to directly or
indirectly reveal, report, publish, disclose, or transfer any of
the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in
the due performance of Employee's services for Employer.
d. Because of the unique nature of the Confidential
Information, Employee understands and agrees that Employer will
suffer irreparable harm in the event that Employee fails to
comply with any of his obligations under this Section 14, and
that monetary damages will be inadequate to compensate Employer
for such breach. Accordingly, Employee agrees that Employer
will, in addition to any other remedies available to them at law
or in equity, be entitled to injunctive relief to enforce the
terms of this Section 14.
15. Notices. Any notices to be given hereunder by
either party to the other shall be in writing and may be
transmitted by personal delivery or by certified mail, return
receipt requested. Mailed notices shall be addressed the parties
as follows:
If notice is to Financial, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Bank, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Employee, to:
Name: Murray L. Galinson
Address: 7919 Prospect Place
City/State: La Jolla, CA 92037
Either party may change its address by written notice in
accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of the date of actual receipt;
mailed notices shall be deemed communicated as of forty-eight
(48) hours after the date of mailing.
16. Entire Agreement. This Agreement, in combination
with any collateral documents referred to herein, supersedes any
and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by the
Employer and contains all of the covenants and agreements between
the parties with respect to said employment.
17. Modifications. Any modification of this Agreement
shall be effective only if it is in writing and signed by the
parties hereto.
18. Effect of Waiver. The failure of either party to
insist on strict compliance with any of the terms, covenants or
conditions of this Agreement by the other party shall not be
deemed a waiver of that term, covenant, or condition, nor shall
any waiver or relinquishment of any right or power at any one
time or times be deemed a waiver or relinquishment of that right
or power for all or any other times.
19. Partial Invalidity. If any provision of this
Agreement is held be a court of competent jurisdiction to be
invalid, void, or unenforceable, the remaining provisions shall
nevertheless continue in full force without being impaired or
invalidated in any way, unless such partial invalidity materially
affects the intent of the parties as indicated herein.
20. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the state of
California applicable to contracts between residents of
California which are wholly executed and performed in California.
21. Assignability. The rights and duties of either
party hereunder shall not be assignable by either party, except
that this Agreement and all rights and obligations hereunder may
be assigned by Employer to, and be assumed by, any corporation or
other business entity which succeeds to all or substantially all
of the assets and business of Employer through merger,
consolidation acquisition of assets, or other corporate
reorganization. Subject to the provisions of the immediately
preceding sentence, this agreement shall be binding upon and
inure to the benefit of the heirs, executors and/or
administrators of Employee and to the successors and assigns of
Employer.
22. Arbitration. Any controversy or claim arising
out of or relating to this agreement, or the breach thereof,
shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (as such rules shall be in effect on the date a
demand for arbitrating is communicated from one party to the
other party hereto) in San Diego, California, and judgment upon
the award rendered by thereof. Employer shall bay the fees of
all arbitrators, witnesses and such other expenses as may be
generated by the arbitration's, including without limitation,
attorneys' fees of the Parties, unless in the event the
arbitration was instituted by Employee, the majority of the
Arbitrators conclude that said arbitration was not initiated in
good faith by Employee; under said circumstance, the arbitrators
shall be authorized to allocate costs and attorneys' fees as they
shell deem appropriate with due consideration to both the
relative financial abilities of the parties and the merits of the
positions of the parties with respect to the dispute underlying
the arbitration.
23. Headings. The headings used in this Agreement are
for convenience of reference only and are not part of this
Agreement and do not in any way limit or amplify the terms and
provisions hereof.
24. Further Acts and Documents. The parties hereto
agree to perform all further acts and execute all further
documents reasonably necessary to implement to purposes of this
Agreement.
Employer:
SDNB Financial Corp.
a California Corporation
By:
/s/Murray L. Galinson /s/Julius Zolezzi
Murray L. Galinson Julius Zolezzi
President/Chief Executive Officer Vice Chairman
of the Board
Date: March 27, 1996 Date: March 27, 1996
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This is an Employment Agreement (hereinafter referred to as
this ("Agreement") made effective as of this 27th day of
March , 1996 by and between San Diego National Bank, ("Employer"
)and Robert B. Horsman (hereinafter referred to as
"Employee").
RECITAL
This Agreement is made with reference to the following
facts:
A. Employee is currently employed as President, San Diego
National Bank, a national banking association (hereinafter
referred to as the "Bank").
B. Employer believes it to be in its best interest to have
Employee continue his/her employment with the Bank in such
capacities and in order to induce Employee to accept such
continued employment as President, Employer is willing to enter
into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration,
Employer and Employee covenant and agree as follows:
1. Term of Employment. Employer hereby agrees to cause the
Bank to employ Employee and Employee hereby accepts employment
with the Bank for a period beginning on the effective date of
this Agreement as set forth hereinabove and continuing through
and until December 31, 1998 (hereinafter referred to as the
"Initial Employment Term"). In the event of any extension of
this Agreement for one or more consecutive one (1) year terms
upon the agreement of the parties hereto, or pursuant to the
provisions of Section 9 hereof, the terms of this Agreement shall
be deemed to continue in effect for the term of such extension
(hereinafter referred to as the "Extended Employment Term") (the
Initial Employment Term and the Extended Employment Term
hereinafter collectively referred to as the "Employment Term").
2. Duties of Employee. Employee shall serve as President
of the Bank, throughout the Employment Term. Employee shall have
such duties and responsibilities as are presently set forth in
the Bylaws of the Bank and as are commensurate with such
position, as may be from time to time more particularly set
fourth by the Board of Directors of the Bank and Financial.
Employee shall devote such portion of his productive time and
attention to the business of the Bank as shall be reasonably
necessary to carry out his duties during the Employment Term.
Employee shall also serve as director of the Bank and Financial
and shall be required to serve as an officer and director of all
other corporations which are wholly-owned subsidiaries of
Financial which exist now or may exist during the Employment
Term. Subject to the provision of Section 12 hereof, this
Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private
business affairs if such activities do not materially interfere
with the services required under this Agreement.
3. Indemnification. Employer shall indemnify and hold
Employee harmless from all losses, costs, damages, liability,
therefor, charges, claims, demands, attorneys' fees and/or
expenses, actions and causes of action of any nature or sort,
liquidated or unliquidated, past, present and future, of
whatsoever kind or character which shall or may at any time
incurred, suffered or sustained by Employee arising from the
discharge of his duties on behalf of the Bank and/or Financial
and/or other subsidiaries of Financial for which Employee
provides services.
4. Compensation. As full compensation for the services to
be performed hereunder, Employee shall receive the following:
a. Basic Salary Subject to approved annual
increases as hereinafter provided, basic salary at the rate of
One Hundred Twenty Three Thousand Five Hundred and Fifty Dollars
($123,550) per year to be paid in accordance with the payroll
schedule established by the Bank's Board of Directors for all
Bank employees as in effect from time to time. The basic annual
salary set forth in this paragraph may be adjusted on January 1
or each year of the Employment Term at the discretion of the
Employer's Board of Directors for all Bank employees as in effect
from time to time. The basic annual salary set forth in this
paragraph shall be adjusted on January 1 of each year of the
Employment Term at the discretion of the Employer's Board of
Directors, but in no event shall the adjusted amount less than
the amount of Employee's basic annual salary for the preceding
year.
b. Bonuses and Deferred Savings Plan. Employee shall
be entitled to receive such other compensation as may be
determined by the Employer's Board of Directors to be
appropriate, in its sole discretion, including without limitation
any amounts payable to Employee by participation in the Bank's
Bonus Program and Deferred Savings Plan in accordance with the
terms and conditions of said plans as in effect during the
Employment Term. Employer shall not reduce during the Employment
Term the proportionate annual share of the total amount of said
Bonus Program and Deferred Savings Plan which Employee is
eligible to receive based upon said Program and Plan as presently
in effect as of the date of this Agreement. Further, if said
Program and/or Plan are eliminated by Employer or Bank, Employee
shall nevertheless continue to receive during the Employment Term
an annual share of the Bank's profits which Employee last
received pursuant to said program and/or Plan.
5. Tax Withholding. Employer shall have the right to
deduct or withhold from the compensation due to Employee
hereunder any and all sums required for any and all federal,
social security, state and local taxes now applicable or that may
be enacted and become applicable in the future.
6. Employee Benefits.
a. Vacation Time. Employee shall be entitled to
vacation time as set forth in the Bank's policies each calendar
year during the Employment Term without loss of compensation.
One increment of such annual vacation time shall be taken by
Employee for a period of not less than two (2) consecutive weeks.
In the event that Employee does not for any reason take the total
amount of vacation time authorized herein during any year, the
amount of time not taken in said year shall accumulate, and be
available as additional vacation time in subsequent years;
however, Employee shall not be permitted at any time to
accumulate vacation time in excess of the amount of vacation time
authorized for Employee during a two-year period.
b. Use of Automobile. Employer shall provide Employee
with the use of an "executive class" automobile throughout the
Employment Term, or alternatively, at the discretion of Employer,
an automobile allowance of Six Hundred ($600) Dollars per month.
In addition, whether Employer provides Employee with an
automobile or with an automobile allowance, Employer shall pay or
reimburse for all operating expense of the automobile used by
Employee, including a reasonable gasoline allowance and shall
further provide and maintain liability insurance on such
automobile, with coverage in amounts to be determined by the
Employer's Board of Directors, but in any event not less than the
minimum liability coverage required by California law. Employee
shall be required to maintain adequate records of all business
mileage incurred an all automobile operating expenses, such
records to be maintained in compliance with IRS record-keeping
guidelines then in effect.
c. Seminars. Employer shall reimburse Employee for
all costs and expenses, including without limitation registration
fees, transportation costs, meals and lodging, incurred by
Employee in connection with Employee's attendance at all
professional seminars relating to the financial services industry
for which Employee's attendance would be of benefit to Employer.
d. Club. Employer shall pay all ongoing dues related
to employee's membership in one "country-club" type club selected
by Employee and subject to the express approval of the Employer's
Board of Directors, shall pay all membership and/or initiation
fees connected with said membership.
e. Disability Insurance. Employer shall pay all
costs and expenses, including without limitation premiums, to
provide disability insurance coverage for Employee, which
coverage shall be in an appropriate and customary amount based
upon Employee's position and salary hereunder and subject to
approval of medical records by the insurer.
f. Additional Benefits. Employee shall be entitled to
receive the greater of: (1) all employment benefits made
available to other officers of the Bank and its affiliates and
commensurate with Employee's position and title with the Bank,
and (2) all employment benefits currently received by Employee as
of the date of this Agreement. Such benefits shall include, but
are not limited to, such health insurance, life insurance, sick
leave, pension, and retirement plans as are adopted from time to
time by the Bank. In the event that any benefit plan or plans
adopted by the Bank or all of its employees conflicts with or
overlaps any specific benefit set forth in this paragraph 6,
Employee shall be entitled to whichever benefit is the greater of
the two...
7. Life Insurance. In addition to any life insurance
policies paid for by Employer pursuant to Section 6.c, in which
Employee is named as its insured and in discretion, may purchase
such life insurance policies as it deems necessary or
appropriate, naming Employee as the insured and Employer as
beneficiary. Employee hereby agrees to submit, at employer's
cost, to any reasonable medical examination required for the
purchase of such insurance.
8. Expenses. Employee shall be reimbursed for all
reasonable expenses incurred by his pursuant to he performance of
his duties and responsibilities hereunder. Employee shall keep
complete and accurate records, including but not limited to proof
of payment of all such expenses, so that he may fully account to
the Employer if so requested.
9. Extension of Term Upon Changing Control. In the event
that there is a change in control of the Bank and/or Financial,
as that term is defined in 12 U.S.C. Section 1817 (Change in Bank
Control Act of 1978), whether by merger, acquisition, "friendly"
or hostile" "takeover" or otherwise, this Agreement shall be
deemed extended for three years from the date of said change in
control. During said period of extension, Employee shall be paid
his compensation then applicable hereunder, and shall continue
his participation in the Bank's Bonus Sharing Program and
Deferred Savings Plan in accordance with Section 4.b hereof, and
in no case shall Employer have any right to terminate the
employment of Employee hereunder, except "for cause," as said
term is defined in Section 10.a hereof. Further, in said event,
Employee shall receive during the Extended Employment term a
minimum of a ten percent (10%) increase in salary per annum each
January 1 subsequent to the date of said change in control.
10. Termination of Agreement.
a. Termination for Cause. Employer may terminate
this Agreement without notice for "cause." For the purposes of
this Agreement, "Cause" shall be defined as willful misconduct or
willful dishonesty of Employee in his capacity as President of
Bank and/or Financial, or willful material breach or habitual
neglect of the duties which Employee is required to perform under
the terms of this agreement.
b. Effect of Termination. In the event of termination
of Employee for cause as set froth in Section 10.a, and assuming
that Employer is not in material default hereunder, all future
bonuses or other salaries payable to or claimed by Employee are
waived, and any additional salary or bonus shall be paid only in
the sole and absolute discretion of Employer. In the event
Employee voluntarily terminates his employment hereunder,
Employee shall be entitled to a pro rata share of bonus
compensation based upon the formula contained in Section 10.c
hereof. Nothing in this Section 10 shall affect the rights of
the parties under Section 12 hereof.
c. Disability and Death. If, during the Employment
Term Employee should die or suffer any physical or mental illness
that renders him incapable of fulfilling his obligations under
this Agreement, and such incapacity exists or may reasonably be
expected to exist for more than one hundred and fifty (150)
consecutive days, Employer may, upon forty-five (45) days written
notice to Employee, terminate this Agreement. The determination
of Employer that Employee is incapable of fulfilling his
obligations under this Agreement, so long as such determination
is made in good faith and is supported by a reasonable medical
opinion, shall be final and binding. In the event of termination
under this Section 10.c, Employee, or his estate, shall be
entitled (I) to an amount equal to twelve (12) months' salary
payable forthwith, and (ii) to a pro rata share of bonus
compensation based upon the ratio of the number of days of the
portion of the bonus term then in effect prior to Employee's
death or disability, as the case may be, to the number of days of
the full bonus term, payable at the time when said bonus is
payable to all employees, and (iii) to any other accrued
compensation, plus such additional benefits, if any, as may be
approved by Employer's Board of Directors. Employee, or his
estate, shall, upon termination under the terms of this Section
10.c, be further entitled to additional pro rata compensation
based upon the ratio of the number of accrued vacation days, if
any, not taken by Employee during the year, as defined for the
purposes of vacation, in which Employee was so terminated, to 365
days.
d. Communication of Termination. Any termination by
Employer of Employee shall be communicated by written notice of
termination which shall indicate the specific termination
provision of this Agreement relied upon by Employer, and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
11. Location. Employee shall not be required to move from
or perform his duties hereunder in any geographical area other
than the San Diego County area.
12. Non-Competition.
a. While Employed. During the Employment Term,
Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal partner,
stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in
or acquire, hold, or retain any interest in any business of the
Bank in any location, unless such participation or interest is
fully disclosed to the Bank and Financial Corp. approval by a
majority of the Board of Directors of each. The foregoing
notwithstanding, Employee may acquire, hold or retain equity
ownership of any publicly-held company, provided that such equity
ownership does not exceed five percent (5%) of the issued and
outstanding shares of voting stock of such company.
b. Upon Early Termination or Termination for Cause.
If Employee is terminated for cause (as defined in Section 10.a
hereof) or voluntarily resigns from employment hereunder prior
to the termination of the Initial Employment Term without the
consent of Employer, Employee shall not acquire, hold or retain
any interest (direct or indirect) in any business in the County
of San Diego, in the State of California, and in such other
locations where the Bank is then engaged in business from time to
time during the remainder of the Initial Employment Term that is
in competition with the business of the Bank until the date on
which the employees' employment was to naturally terminate
according to the terms hereof; provided, however, that in the
event that prior to any such voluntary resignation as aforesaid,
Employer has offered in writing to extend the term of this
Agreement for an additional year on the same terms and conditions
as set forth in this Agreement with compensation increased in
accordance with Section 4.a hereof, then Employee's obligation
under this Section 12.b shall be extended for an additional one
(1) year beyond the Initial Employment Term.
c. If any portion of this Section 12 is held to be
illegal, unenforceable, void, or voidable, the remainder shall
remain in full force and effect, and this Section 12 shall be
deemed altered and amended to the minimum extent necessary to
bring it within the legal requirements.
13. Unique Services. Employee hereby represents and
agrees that the services to be performed under the terms of this
Agreement are of a special, unique, unusual, extraordinary and
intellectual character that gives them a peculiar value, the loss
of which cannot be reasonable or adequately compensated in
damages in any action at law. Employee, therefore, expressly
agrees that Employer, in addition to any rights or remedies that
Employer might possess, shall be entitled to injunctive and other
equitable relief to prevent or remedy a breach of this Agreement
by Employee.
14. Confidential Information.
a. For purposes of this Agreement, "Confidential
Information: shall mean information or material proprietary to
Employer or Bank or designated as Confidential Information by
Employer or Bank and not generally known by non-Bank personnel
which Employee develops or of which Employee may obtain knowledge
or access through or as a result of Employee's employment with
the Employer or Bank (including information conceived,
originated, discovered, or developed, in whole or in part, by
Employee). The Confidential Information includes, but is not
limited to, the following types of information and other
information of a similar nature (whether or not reduced to
writing): Drawings, specifications, models, data, documentation,
diagrams, flow charts, research, development, procedures,
marketing techniques and materials, marketing and development
plans, customer lists, and names and other information related to
customers, pricing and loan policies, financial information and
projections customer loans and employee files. Confidential
Information also includes any information described above which
Employer obtains from another party, and which Employer treats as
proprietary or designates as Confidential Information, whether or
not owned or developed by Employer, For purposes of this Section
a., Employer and/or Bank shall mean the Bank, Financial or any of
their affiliates. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY
EMPLOYED BY FINANCIAL INSTITUTIONS AT OR AFTER THE TIME EMPLOYEE
FIRST HEARS OF SUCH INFORMATION OR GENERIC INFORMATION, OR
GENERAL KNOWLEDGE WHICH EMPLOYEE WOULD HAVE LEARNED IN THE COURSE
OF SIMILAR EMPLOYMENT OR WORK ELSEWHERE SHALL NOT BE DEEMED PART
OF THE CONFIDENTIAL INFORMATION.
b. All notes, data, reference materials, sketches,
drawings, memoranda, documentation, and records in any way
incorporating or reflecting any of the Confidential Information
and all proprietary rights therein, including copy rights, shall
belong exclusively to Employer, and Employee agrees to turn over
all copies of such materials in Employee's possession or control
to Employer upon request or upon termination of Employee's
employment with Employer.
c. Employee agrees during his employment by Employer
and thereafter to hold in confidence and not to directly or
indirectly reveal, report, publish, disclose, or transfer any of
the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in
the due performance of Employee's services for Employer.
d. Because of the unique nature of the Confidential
Information, Employee understands and agrees that Employer will
suffer irreparable harm in the event that Employee fails to
comply with any of his obligations under this Section 14, and
that monetary damages will be inadequate to compensate Employer
for such breach. Accordingly, Employee agrees that Employer
will, in addition to any other remedies available to them at law
or in equity, be entitled to injunctive relief to enforce the
terms of this Section 14.
15. Notices. Any notices to be given hereunder by
either party to the other shall be in writing and may be
transmitted by personal delivery or by certified mail, return
receipt requested. Mailed notices shall be addressed the parties
as follows:
If notice is to Financial, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Bank, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Employee, to:
Name: Robert Horsman
Address: 837 Golden Park Avenue
City/State: San Diego, CA 92106
Either party may change its address by written notice in
accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of the date of actual receipt;
mailed notices shall be deemed communicated as of forty-eight
(48) hours after the date of mailing.
16. Entire Agreement. This Agreement, in combination
with any collateral documents referred to herein, supersedes any
and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by the
Employer and contains all of the covenants and agreements between
the parties with respect to said employment.
17. Modifications. Any modification of this Agreement
shall be effective only if it is in writing and signed by the
parties hereto.
18. Effect of Waiver. The failure of either party to
insist on strict compliance with any of the terms, covenants or
conditions of this Agreement by the other party shall not be
deemed a waiver of that term, covenant, or condition, nor shall
any waiver or relinquishment of any right or power at any one
time or times be deemed a waiver or relinquishment of that right
or power for all or any other times.
19. Partial Invalidity. If any provision of this
Agreement is held be a court of competent jurisdiction to be
invalid, void, or unenforceable, the remaining provisions shall
nevertheless continue in full force without being impaired or
invalidated in any way, unless such partial invalidity materially
affects the intent of the parties as indicated herein.
20. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the state of
California applicable to contracts between residents of
California which are wholly executed and performed in California.
21. Assignability. The rights and duties of either
party hereunder shall not be assignable by either party, except
that this Agreement and all rights and obligations hereunder may
be assigned by Employer to, and be assumed by, any corporation or
other business entity which succeeds to all or substantially all
of the assets and business of Employer through merger,
consolidation acquisition of assets, or other corporate
reorganization. Subject to the provisions of the immediately
preceding sentence, this agreement shall be binding upon and
inure to the benefit of the heirs, executors and/or
administrators of Employee and to the successors and assigns of
Employer.
22. Arbitration. Any controversy or claim arising
out of or relating to this agreement, or the breach thereof,
shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (as such rules shall be in effect on the date a
demand for arbitrating is communicated from one party to the
other party hereto) in San Diego, California, and judgment upon
the award rendered by thereof. Employer shall bay the fees of
all arbitrators, witnesses and such other expenses as may be
generated by the arbitration's, including without limitation,
attorneys' fees of the Parties, unless in the event the
arbitration was instituted by Employee, the majority of the
Arbitrators conclude that said arbitration was not initiated in
good faith by Employee; under said circumstance, the arbitrators
shall be authorized to allocate costs and attorneys' fees as they
shell deem appropriate with due consideration to both the
relative financial abilities of the parties and the merits of the
positions of the parties with respect to the dispute underlying
the arbitration.
23. Headings. The headings used in this Agreement are
for convenience of reference only and are not part of this
Agreement and do not in any way limit or amplify the terms and
provisions hereof.
24. Further Acts and Documents. The parties hereto
agree to perform all further acts and execute all further
documents reasonably necessary to implement to purposes of this
Agreement.
Employer:
SDNB Financial Corp.
a California Corporation
/s/Robert Horsman By:/s/Murray L. Galinson
Robert Horsman Murray L. Galinson
President President/CEO
Date: March 27, 1996 Date: March 27, 1996
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This is an Employment Agreement (hereinafter referred to as
this ("Agreement") made effective as of this 27th day of
March , 1996 by and between San Diego National Bank, ("Employer"
)and Joyce Chewning (hereinafter referred to as "Employee").
RECITAL
This Agreement is made with reference to the following
facts:
A. Employee is currently employed as Executive Vice
President, San Diego National Bank, a national banking
association (hereinafter referred to as the "Bank").
B. Employer believes it to be in its best interest to have
Employee continue his/her employment with the Bank in such
capacities and in order to induce Employee to accept such
continued employment as Executive Vice President, Employer is
willing to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration,
Employer and Employee covenant and agree as follows:
1. Term of Employment. Employer hereby agrees to cause the
Bank to employ Employee and Employee hereby accepts employment
with the Bank for a period beginning on the effective date of
this Agreement as set forth hereinabove and continuing through
and until December 31, 1998 (hereinafter referred to as the
"Initial Employment Term"). In the event of any extension of
this Agreement for one or more consecutive one (1) year terms
upon the agreement of the parties hereto, or pursuant to the
provisions of Section 9 hereof, the terms of this Agreement shall
be deemed to continue in effect for the term of such extension
(hereinafter referred to as the "Extended Employment Term") (the
Initial Employment Term and the Extended Employment Term
hereinafter collectively referred to as the "Employment Term").
2. Duties of Employee. Employee shall serve as Executive
Vice President, throughout the Employment Term. Employee shall
have such duties and responsibilities as are presently set forth
in the Bylaws of the Bank and as are commensurate with such
position, as may be from time to time more particularly set
fourth by the Board of Directors of the Bank and Financial.
Employee shall devote such portion of his productive time and
attention to the business of the Bank as shall be reasonably
necessary to carry out his duties during the Employment Term.
Employee shall also serve as director of the Bank and Financial
and shall be required to serve as an officer and director of all
other corporations which are wholly-owned subsidiaries of
Financial which exist now or may exist during the Employment
Term. Subject to the provision of Section 12 hereof, this
Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private
business affairs if such activities do not materially interfere
with the services required under this Agreement.
3. Indemnification. Employer shall indemnify and hold
Employee harmless from all losses, costs, damages, liability,
therefor, charges, claims, demands, attorneys' fees and/or
expenses, actions and causes of action of any nature or sort,
liquidated or unliquidated, past, present and future, of
whatsoever kind or character which shall or may at any time
incurred, suffered or sustained by Employee arising from the
discharge of his duties on behalf of the Bank and/or Financial
and/or other subsidiaries of Financial for which Employee
provides services.
4. Compensation. As full compensation for the services to
be performed hereunder, Employee shall receive the following:
a. Basic Salary Subject to approved annual
increases as hereinafter provided, basic salary at the rate of
One Hundred Five Thousand Nine Hundred Thirty Dollars ,
($105,930) per year to be paid in accordance with the payroll
schedule established by the Bank's Board of Directors for all
Bank employees as in effect from time to time. The basic annual
salary set forth in this paragraph may be adjusted on January 1
or each year of the Employment Term at the discretion of the
Employer's Board of Directors for all Bank employees as in effect
from time to time. The basic annual salary set forth in this
paragraph shall be adjusted on January 1 of each year of the
Employment Term at the discretion of the Employer's Board of
Directors, but in no event shall the adjusted amount less than
the amount of Employee's basic annual salary for the preceding
year.
b. Bonuses and Deferred Savings Plan. Employee shall
be entitled to receive such other compensation as may be
determined by the Employer's Board of Directors to be
appropriate, in its sole discretion, including without limitation
any amounts payable to Employee by participation in the Bank's
Bonus Program and Deferred Savings Plan in accordance with the
terms and conditions of said plans as in effect during the
Employment Term. Employer shall not reduce during the Employment
Term the proportionate annual share of the total amount of said
Bonus Program and Deferred Savings Plan which Employee is
eligible to receive based upon said Program and Plan as presently
in effect as of the date of this Agreement. Further, if said
Program and/or Plan are eliminated by Employer or Bank, Employee
shall nevertheless continue to receive during the Employment Term
an annual share of the Bank's profits which Employee last
received pursuant to said program and/or Plan.
5. Tax Withholding. Employer shall have the right to
deduct or withhold from the compensation due to Employee
hereunder any and all sums required for any and all federal,
social security, state and local taxes now applicable or that may
be enacted and become applicable in the future.
6. Employee Benefits.
a. Vacation Time. Employee shall be entitled to
vacation time as set forth in the Bank's policies each calendar
year during the Employment Term without loss of compensation.
One increment of such annual vacation time shall be taken by
Employee for a period of not less than two (2) consecutive weeks.
In the event that Employee does not for any reason take the total
amount of vacation time authorized herein during any year, the
amount of time not taken in said year shall accumulate, and be
available as additional vacation time in subsequent years;
however, Employee shall not be permitted at any time to
accumulate vacation time in excess of the amount of vacation time
authorized for Employee during a two-year period.
b. Use of Automobile. Employer shall provide Employee
with the use of an "executive class" automobile throughout the
Employment Term, or alternatively, at the discretion of Employer,
an automobile allowance of Six Hundred ($600) Dollars per month.
In addition, whether Employer provides Employee with an
automobile or with an automobile allowance, Employer shall pay or
reimburse for all operating expense of the automobile used by
Employee, including a reasonable gasoline allowance and shall
further provide and maintain liability insurance on such
automobile, with coverage in amounts to be determined by the
Employer's Board of Directors, but in any event not less than the
minimum liability coverage required by California law. Employee
shall be required to maintain adequate records of all business
mileage incurred an all automobile operating expenses, such
records to be maintained in compliance with IRS record-keeping
guidelines then in effect.
c. Seminars. Employer shall reimburse Employee for
all costs and expenses, including without limitation registration
fees, transportation costs, meals and lodging, incurred by
Employee in connection with Employee's attendance at all
professional seminars relating to the financial services industry
for which Employee's attendance would be of benefit to Employer.
d. Club. Employer shall pay all ongoing dues related
to employee's membership in one "country-club" type club selected
by Employee and subject to the express approval of the Employer's
Board of Directors, shall pay all membership and/or initiation
fees connected with said membership.
e. Disability Insurance. Employer shall pay all
costs and expenses, including without limitation premiums, to
provide disability insurance coverage for Employee, which
coverage shall be in an appropriate and customary amount based
upon Employee's position and salary hereunder and subject to
approval of medical records by the insurer.
f. Additional Benefits. Employee shall be entitled to
receive the greater of: (1) all employment benefits made
available to other officers of the Bank and its affiliates and
commensurate with Employee's position and title with the Bank,
and (2) all employment benefits currently received by Employee as
of the date of this Agreement. Such benefits shall include, but
are not limited to, such health insurance, life insurance, sick
leave, pension, and retirement plans as are adopted from time to
time by the Bank. In the event that any benefit plan or plans
adopted by the Bank or all of its employees conflicts with or
overlaps any specific benefit set forth in this paragraph 6,
Employee shall be entitled to whichever benefit is the greater of
the two...
7. Life Insurance. In addition to any life insurance
policies paid for by Employer pursuant to Section 6.c, in which
Employee is named as its insured and in discretion, may purchase
such life insurance policies as it deems necessary or
appropriate, naming Employee as the insured and Employer as
beneficiary. Employee hereby agrees to submit, at employer's
cost, to any reasonable medical examination required for the
purchase of such insurance.
8. Expenses. Employee shall be reimbursed for all
reasonable expenses incurred by his pursuant to he performance of
his duties and responsibilities hereunder. Employee shall keep
complete and accurate records, including but not limited to proof
of payment of all such expenses, so that he may fully account to
the Employer if so requested.
9. Extension of Term Upon Changing Control. In the event
that there is a change in control of the Bank and/or Financial,
as that term is defined in 12 U.S.C. Section 1817 (Change in Bank
Control Act of 1978), whether by merger, acquisition, "friendly"
or hostile" "takeover" or otherwise, this Agreement shall be
deemed extended for three years from the date of said change in
control. During said period of extension, Employee shall be paid
his compensation then applicable hereunder, and shall continue
his participation in the Bank's Bonus Sharing Program and
Deferred Savings Plan in accordance with Section 4.b hereof, and
in no case shall Employer have any right to terminate the
employment of Employee hereunder, except "for cause," as said
term is defined in Section 10.a hereof. Further, in said event,
Employee shall receive during the Extended Employment term a
minimum of a ten percent (10%) increase in salary per annum each
January 1 subsequent to the date of said change in control.
10. Termination of Agreement.
a. Termination for Cause. Employer may terminate
this Agreement without notice for "cause." For the purposes of
this Agreement, "Cause" shall be defined as willful misconduct or
willful dishonesty of Employee in his capacity as Executive Vice
President of Bank and/or Financial, or willful material breach or
habitual neglect of the duties which Employee is required to
perform under the terms of this agreement.
b. Effect of Termination. In the event of termination
of Employee for cause as set froth in Section 10.a, and assuming
that Employer is not in material default hereunder, all future
bonuses or other salaries payable to or claimed by Employee are
waived, and any additional salary or bonus shall be paid only in
the sole and absolute discretion of Employer. In the event
Employee voluntarily terminates his employment hereunder,
Employee shall be entitled to a pro rata share of bonus
compensation based upon the formula contained in Section 10.c
hereof. Nothing in this Section 10 shall affect the rights of
the parties under Section 12 hereof.
c. Disability and Death. If, during the Employment
Term Employee should die or suffer any physical or mental illness
that renders him incapable of fulfilling his obligations under
this Agreement, and such incapacity exists or may reasonably be
expected to exist for more than one hundred and fifty (150)
consecutive days, Employer may, upon forty-five (45) days written
notice to Employee, terminate this Agreement. The determination
of Employer that Employee is incapable of fulfilling his
obligations under this Agreement, so long as such determination
is made in good faith and is supported by a reasonable medical
opinion, shall be final and binding. In the event of termination
under this Section 10.c, Employee, or his estate, shall be
entitled (I) to an amount equal to twelve (12) months' salary
payable forthwith, and (ii) to a pro rata share of bonus
compensation based upon the ratio of the number of days of the
portion of the bonus term then in effect prior to Employee's
death or disability, as the case may be, to the number of days of
the full bonus term, payable at the time when said bonus is
payable to all employees, and (iii) to any other accrued
compensation, plus such additional benefits, if any, as may be
approved by Employer's Board of Directors. Employee, or his
estate, shall, upon termination under the terms of this Section
10.c, be further entitled to additional pro rata compensation
based upon the ratio of the number of accrued vacation days, if
any, not taken by Employee during the year, as defined for the
purposes of vacation, in which Employee was so terminated, to 365
days.
d. Communication of Termination. Any termination by
Employer of Employee shall be communicated by written notice of
termination which shall indicate the specific termination
provision of this Agreement relied upon by Employer, and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
11. Location. Employee shall not be required to move from
or perform his duties hereunder in any geographical area other
than the San Diego County area.
12. Non-Competition.
a. While Employed. During the Employment Term,
Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal partner,
stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in
or acquire, hold, or retain any interest in any business of the
Bank in any location, unless such participation or interest is
fully disclosed to the Bank and Financial Corp. approval by a
majority of the Board of Directors of each. The foregoing
notwithstanding, Employee may acquire, hold or retain equity
ownership of any publicly-held company, provided that such equity
ownership does not exceed five percent (5%) of the issued and
outstanding shares of voting stock of such company.
b. Upon Early Termination or Termination for Cause.
If Employee is terminated for cause (as defined in Section 10.a
hereof) or voluntarily resigns from employment hereunder prior
to the termination of the Initial Employment Term without the
consent of Employer, Employee shall not acquire, hold or retain
any interest (direct or indirect) in any business in the County
of San Diego, in the State of California, and in such other
locations where the Bank is then engaged in business from time to
time during the remainder of the Initial Employment Term that is
in competition with the business of the Bank until the date on
which the employees' employment was to naturally terminate
according to the terms hereof; provided, however, that in the
event that prior to any such voluntary resignation as aforesaid,
Employer has offered in writing to extend the term of this
Agreement for an additional year on the same terms and conditions
as set forth in this Agreement with compensation increased in
accordance with Section 4.a hereof, then Employee's obligation
under this Section 12.b shall be extended for an additional one
(1) year beyond the Initial Employment Term.
c. If any portion of this Section 12 is held to be
illegal, unenforceable, void, or voidable, the remainder shall
remain in full force and effect, and this Section 12 shall be
deemed altered and amended to the minimum extent necessary to
bring it within the legal requirements.
13. Unique Services. Employee hereby represents and
agrees that the services to be performed under the terms of this
Agreement are of a special, unique, unusual, extraordinary and
intellectual character that gives them a peculiar value, the loss
of which cannot be reasonable or adequately compensated in
damages in any action at law. Employee, therefore, expressly
agrees that Employer, in addition to any rights or remedies that
Employer might possess, shall be entitled to injunctive and other
equitable relief to prevent or remedy a breach of this Agreement
by Employee.
14. Confidential Information.
a. For purposes of this Agreement, "Confidential
Information: shall mean information or material proprietary to
Employer or Bank or designated as Confidential Information by
Employer or Bank and not generally known by non-Bank personnel
which Employee develops or of which Employee may obtain knowledge
or access through or as a result of Employee's employment with
the Employer or Bank (including information conceived,
originated, discovered, or developed, in whole or in part, by
Employee). The Confidential Information includes, but is not
limited to, the following types of information and other
information of a similar nature (whether or not reduced to
writing): Drawings, specifications, models, data, documentation,
diagrams, flow charts, research, development, procedures,
marketing techniques and materials, marketing and development
plans, customer lists, and names and other information related to
customers, pricing and loan policies, financial information and
projections customer loans and employee files. Confidential
Information also includes any information described above which
Employer obtains from another party, and which Employer treats as
proprietary or designates as Confidential Information, whether or
not owned or developed by Employer, For purposes of this Section
a., Employer and/or Bank shall mean the Bank, Financial or any of
their affiliates. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY
EMPLOYED BY FINANCIAL INSTITUTIONS AT OR AFTER THE TIME EMPLOYEE
FIRST HEARS OF SUCH INFORMATION OR GENERIC INFORMATION, OR
GENERAL KNOWLEDGE WHICH EMPLOYEE WOULD HAVE LEARNED IN THE COURSE
OF SIMILAR EMPLOYMENT OR WORK ELSEWHERE SHALL NOT BE DEEMED PART
OF THE CONFIDENTIAL INFORMATION.
b. All notes, data, reference materials, sketches,
drawings, memoranda, documentation, and records in any way
incorporating or reflecting any of the Confidential Information
and all proprietary rights therein, including copy rights, shall
belong exclusively to Employer, and Employee agrees to turn over
all copies of such materials in Employee's possession or control
to Employer upon request or upon termination of Employee's
employment with Employer.
c. Employee agrees during his employment by Employer
and thereafter to hold in confidence and not to directly or
indirectly reveal, report, publish, disclose, or transfer any of
the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in
the due performance of Employee's services for Employer.
d. Because of the unique nature of the Confidential
Information, Employee understands and agrees that Employer will
suffer irreparable harm in the event that Employee fails to
comply with any of his obligations under this Section 14, and
that monetary damages will be inadequate to compensate Employer
for such breach. Accordingly, Employee agrees that Employer
will, in addition to any other remedies available to them at law
or in equity, be entitled to injunctive relief to enforce the
terms of this Section 14.
15. Notices. Any notices to be given hereunder by
either party to the other shall be in writing and may be
transmitted by personal delivery or by certified mail, return
receipt requested. Mailed notices shall be addressed the parties
as follows:
If notice is to Financial, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Bank, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Employee, to:
Name: Joyce Chewning
Address: 3206 Cottonwood Springs Lane
City/State: Jamul, CA 91935
Either party may change its address by written notice in
accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of the date of actual receipt;
mailed notices shall be deemed communicated as of forty-eight
(48) hours after the date of mailing.
16. Entire Agreement. This Agreement, in combination
with any collateral documents referred to herein, supersedes any
and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by the
Employer and contains all of the covenants and agreements between
the parties with respect to said employment.
17. Modifications. Any modification of this Agreement
shall be effective only if it is in writing and signed by the
parties hereto.
18. Effect of Waiver. The failure of either party to
insist on strict compliance with any of the terms, covenants or
conditions of this Agreement by the other party shall not be
deemed a waiver of that term, covenant, or condition, nor shall
any waiver or relinquishment of any right or power at any one
time or times be deemed a waiver or relinquishment of that right
or power for all or any other times.
19. Partial Invalidity. If any provision of this
Agreement is held be a court of competent jurisdiction to be
invalid, void, or unenforceable, the remaining provisions shall
nevertheless continue in full force without being impaired or
invalidated in any way, unless such partial invalidity materially
affects the intent of the parties as indicated herein.
20. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the state of
California applicable to contracts between residents of
California which are wholly executed and performed in California.
21. Assignability. The rights and duties of either
party hereunder shall not be assignable by either party, except
that this Agreement and all rights and obligations hereunder may
be assigned by Employer to, and be assumed by, any corporation or
other business entity which succeeds to all or substantially all
of the assets and business of Employer through merger,
consolidation acquisition of assets, or other corporate
reorganization. Subject to the provisions of the immediately
preceding sentence, this agreement shall be binding upon and
inure to the benefit of the heirs, executors and/or
administrators of Employee and to the successors and assigns of
Employer.
22. Arbitration. Any controversy or claim arising
out of or relating to this agreement, or the breach thereof,
shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (as such rules shall be in effect on the date a
demand for arbitrating is communicated from one party to the
other party hereto) in San Diego, California, and judgment upon
the award rendered by thereof. Employer shall bay the fees of
all arbitrators, witnesses and such other expenses as may be
generated by the arbitration's, including without limitation,
attorneys' fees of the Parties, unless in the event the
arbitration was instituted by Employee, the majority of the
Arbitrators conclude that said arbitration was not initiated in
good faith by Employee; under said circumstance, the arbitrators
shall be authorized to allocate costs and attorneys' fees as they
shell deem appropriate with due consideration to both the
relative financial abilities of the parties and the merits of the
positions of the parties with respect to the dispute underlying
the arbitration.
23. Headings. The headings used in this Agreement are
for convenience of reference only and are not part of this
Agreement and do not in any way limit or amplify the terms and
provisions hereof.
24. Further Acts and Documents. The parties hereto
agree to perform all further acts and execute all further
documents reasonably necessary to implement to purposes of this
Agreement.
Employer:
SDNB Financial Corp.
a California Corporation
/s/Joyce Chewning By:/s/Murray L. Galinson
Joyce Chewning Murray L. Galinson
Executive Vice President President/CEO
Date: March 27, 1996 Date: March 27, 1996
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This is an Employment Agreement (hereinafter referred to as
this ("Agreement") made effective as of this 27th day of
March , 1996 by and between San Diego National Bank, ("Employer"
)and Howard Brotman (hereinafter referred to as "Employee").
RECITAL
This Agreement is made with reference to the following
facts:
A. Employee is currently employed as Senior Vice President
and Cheif Financial Officer, San Diego National Bank, a national
banking association (hereinafter referred to as the "Bank").
B. Employer believes it to be in its best interest to have
Employee continue his/her employment with the Bank in such
capacities and in order to induce Employee to accept such
continued employment as Senior Vice President and Chief Finanical
Officer, Employer is willing to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration,
Employer and Employee covenant and agree as follows:
1. Term of Employment. Employer hereby agrees to cause the
Bank to employ Employee and Employee hereby accepts employment
with the Bank for a period beginning on the effective date of
this Agreement as set forth hereinabove and continuing through
and until December 31, 1998 (hereinafter referred to as the
"Initial Employment Term"). In the event of any extension of
this Agreement for one or more consecutive one (1) year terms
upon the agreement of the parties hereto, or pursuant to the
provisions of Section 9 hereof, the terms of this Agreement shall
be deemed to continue in effect for the term of such extension
(hereinafter referred to as the "Extended Employment Term") (the
Initial Employment Term and the Extended Employment Term
hereinafter collectively referred to as the "Employment Term").
2. Duties of Employee. Employee shall serve as Senior Vice
President and Chief Financial Officer throughout the Employment
Term. Employee shall have such duties and responsibilities as
are presently set forth in the Bylaws of the Bank and as are
commensurate with such position, as may be from time to time more
particularly set fourth by the Board of Directors of the Bank and
Financial. Employee shall devote such portion of his productive
time and attention to the business of the Bank as shall be
reasonably necessary to carry out his duties during the
Employment Term. Employee shall also serve as director of the
Bank and Financial and shall be required to serve as an officer
and director of all other corporations which are wholly-owned
subsidiaries of Financial which exist now or may exist during the
Employment Term. Subject to the provision of Section 12 hereof,
this Agreement shall not be interpreted to prohibit Employee from
making passive personal investments or conducting private
business affairs if such activities do not materially interfere
with the services required under this Agreement.
3. Indemnification. Employer shall indemnify and hold
Employee harmless from all losses, costs, damages, liability,
therefor, charges, claims, demands, attorneys' fees and/or
expenses, actions and causes of action of any nature or sort,
liquidated or unliquidated, past, present and future, of
whatsoever kind or character which shall or may at any time
incurred, suffered or sustained by Employee arising from the
discharge of his duties on behalf of the Bank and/or Financial
and/or other subsidiaries of Financial for which Employee
provides services.
4. Compensation. As full compensation for the services to
be performed hereunder, Employee shall receive the following:
a. Basic Salary Subject to approved annual
increases as hereinafter provided, basic salary at the rate of
One Hundred One Thousand Six Hundred Fifty Eight ($101,658) per
year to be paid in accordance with the payroll schedule
established by the Bank's Board of Directors for all Bank
employees as in effect from time to time. The basic annual
salary set forth in this paragraph may be adjusted on January 1
or each year of the Employment Term at the discretion of the
Employer's Board of Directors for all Bank employees as in effect
from time to time. The basic annual salary set forth in this
paragraph shall be adjusted on January 1 of each year of the
Employment Term at the discretion of the Employer's Board of
Directors, but in no event shall the adjusted amount less than
the amount of Employee's basic annual salary for the preceding
year.
b. Bonuses and Deferred Savings Plan. Employee shall
be entitled to receive such other compensation as may be
determined by the Employer's Board of Directors to be
appropriate, in its sole discretion, including without limitation
any amounts payable to Employee by participation in the Bank's
Bonus Program and Deferred Savings Plan in accordance with the
terms and conditions of said plans as in effect during the
Employment Term. Employer shall not reduce during the Employment
Term the proportionate annual share of the total amount of said
Bonus Program and Deferred Savings Plan which Employee is
eligible to receive based upon said Program and Plan as presently
in effect as of the date of this Agreement. Further, if said
Program and/or Plan are eliminated by Employer or Bank, Employee
shall nevertheless continue to receive during the Employment Term
an annual share of the Bank's profits which Employee last
received pursuant to said program and/or Plan.
5. Tax Withholding. Employer shall have the right to
deduct or withhold from the compensation due to Employee
hereunder any and all sums required for any and all federal,
social security, state and local taxes now applicable or that may
be enacted and become applicable in the future.
6. Employee Benefits.
a. Vacation Time. Employee shall be entitled to
vacation time as set forth in the Bank's policies each calendar
year during the Employment Term without loss of compensation.
One increment of such annual vacation time shall be taken by
Employee for a period of not less than two (2) consecutive weeks.
In the event that Employee does not for any reason take the total
amount of vacation time authorized herein during any year, the
amount of time not taken in said year shall accumulate, and be
available as additional vacation time in subsequent years;
however, Employee shall not be permitted at any time to
accumulate vacation time in excess of the amount of vacation time
authorized for Employee during a two-year period.
b. Use of Automobile. Employer shall provide Employee
with the use of an "executive class" automobile throughout the
Employment Term, or alternatively, at the discretion of Employer,
an automobile allowance of Six Hundred ($600) Dollars per month.
In addition, whether Employer provides Employee with an
automobile or with an automobile allowance, Employer shall pay or
reimburse for all operating expense of the automobile used by
Employee, including a reasonable gasoline allowance and shall
further provide and maintain liability insurance on such
automobile, with coverage in amounts to be determined by the
Employer's Board of Directors, but in any event not less than the
minimum liability coverage required by California law. Employee
shall be required to maintain adequate records of all business
mileage incurred an all automobile operating expenses, such
records to be maintained in compliance with IRS record-keeping
guidelines then in effect.
c. Seminars. Employer shall reimburse Employee for
all costs and expenses, including without limitation registration
fees, transportation costs, meals and lodging, incurred by
Employee in connection with Employee's attendance at all
professional seminars relating to the financial services industry
for which Employee's attendance would be of benefit to Employer.
d. Club. Employer shall pay all ongoing dues related
to employee's membership in one "country-club" type club selected
by Employee and subject to the express approval of the Employer's
Board of Directors, shall pay all membership and/or initiation
fees connected with said membership.
e. Disability Insurance. Employer shall pay all
costs and expenses, including without limitation premiums, to
provide disability insurance coverage for Employee, which
coverage shall be in an appropriate and customary amount based
upon Employee's position and salary hereunder and subject to
approval of medical records by the insurer.
f. Additional Benefits. Employee shall be entitled to
receive the greater of: (1) all employment benefits made
available to other officers of the Bank and its affiliates and
commensurate with Employee's position and title with the Bank,
and (2) all employment benefits currently received by Employee as
of the date of this Agreement. Such benefits shall include, but
are not limited to, such health insurance, life insurance, sick
leave, pension, and retirement plans as are adopted from time to
time by the Bank. In the event that any benefit plan or plans
adopted by the Bank or all of its employees conflicts with or
overlaps any specific benefit set forth in this paragraph 6,
Employee shall be entitled to whichever benefit is the greater of
the two...
7. Life Insurance. In addition to any life insurance
policies paid for by Employer pursuant to Section 6.c, in which
Employee is named as its insured and in discretion, may purchase
such life insurance policies as it deems necessary or
appropriate, naming Employee as the insured and Employer as
beneficiary. Employee hereby agrees to submit, at employer's
cost, to any reasonable medical examination required for the
purchase of such insurance.
8. Expenses. Employee shall be reimbursed for all
reasonable expenses incurred by his pursuant to he performance of
his duties and responsibilities hereunder. Employee shall keep
complete and accurate records, including but not limited to proof
of payment of all such expenses, so that he may fully account to
the Employer if so requested.
9. Extension of Term Upon Changing Control. In the event
that there is a change in control of the Bank and/or Financial,
as that term is defined in 12 U.S.C. Section 1817 (Change in Bank
Control Act of 1978), whether by merger, acquisition, "friendly"
or hostile" "takeover" or otherwise, this Agreement shall be
deemed extended for three years from the date of said change in
control. During said period of extension, Employee shall be paid
his compensation then applicable hereunder, and shall continue
his participation in the Bank's Bonus Sharing Program and
Deferred Savings Plan in accordance with Section 4.b hereof, and
in no case shall Employer have any right to terminate the
employment of Employee hereunder, except "for cause," as said
term is defined in Section 10.a hereof. Further, in said event,
Employee shall receive during the Extended Employment term a
minimum of a ten percent (10%) increase in salary per annum each
January 1 subsequent to the date of said change in control.
10. Termination of Agreement.
a. Termination for Cause. Employer may terminate
this Agreement without notice for "cause." For the purposes of
this Agreement, "Cause" shall be defined as willful misconduct or
willful dishonesty of Employee in his capacity as Senior Vice
President and Chief Financial Officer of Bank and/or Financial,
or willful material breach or habitual neglect of the duties
which Employee is required to perform under the terms of this
agreement.
b. Effect of Termination. In the event of termination
of Employee for cause as set froth in Section 10.a, and assuming
that Employer is not in material default hereunder, all future
bonuses or other salaries payable to or claimed by Employee are
waived, and any additional salary or bonus shall be paid only in
the sole and absolute discretion of Employer. In the event
Employee voluntarily terminates his employment hereunder,
Employee shall be entitled to a pro rata share of bonus
compensation based upon the formula contained in Section 10.c
hereof. Nothing in this Section 10 shall affect the rights of
the parties under Section 12 hereof.
c. Disability and Death. If, during the Employment
Term Employee should die or suffer any physical or mental illness
that renders him incapable of fulfilling his obligations under
this Agreement, and such incapacity exists or may reasonably be
expected to exist for more than one hundred and fifty (150)
consecutive days, Employer may, upon forty-five (45) days written
notice to Employee, terminate this Agreement. The determination
of Employer that Employee is incapable of fulfilling his
obligations under this Agreement, so long as such determination
is made in good faith and is supported by a reasonable medical
opinion, shall be final and binding. In the event of termination
under this Section 10.c, Employee, or his estate, shall be
entitled (I) to an amount equal to twelve (12) months' salary
payable forthwith, and (ii) to a pro rata share of bonus
compensation based upon the ratio of the number of days of the
portion of the bonus term then in effect prior to Employee's
death or disability, as the case may be, to the number of days of
the full bonus term, payable at the time when said bonus is
payable to all employees, and (iii) to any other accrued
compensation, plus such additional benefits, if any, as may be
approved by Employer's Board of Directors. Employee, or his
estate, shall, upon termination under the terms of this Section
10.c, be further entitled to additional pro rata compensation
based upon the ratio of the number of accrued vacation days, if
any, not taken by Employee during the year, as defined for the
purposes of vacation, in which Employee was so terminated, to 365
days.
d. Communication of Termination. Any termination by
Employer of Employee shall be communicated by written notice of
termination which shall indicate the specific termination
provision of this Agreement relied upon by Employer, and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
11. Location. Employee shall not be required to move from
or perform his duties hereunder in any geographical area other
than the San Diego County area.
12. Non-Competition.
a. While Employed. During the Employment Term,
Employee shall not, directly or indirectly, either as an
employee, employer, consultant, agent, principal partner,
stockholder, corporate officer, director, or in any other
individual or representative capacity, engage or participate in
or acquire, hold, or retain any interest in any business of the
Bank in any location, unless such participation or interest is
fully disclosed to the Bank and Financial Corp. approval by a
majority of the Board of Directors of each. The foregoing
notwithstanding, Employee may acquire, hold or retain equity
ownership of any publicly-held company, provided that such equity
ownership does not exceed five percent (5%) of the issued and
outstanding shares of voting stock of such company.
b. Upon Early Termination or Termination for Cause.
If Employee is terminated for cause (as defined in Section 10.a
hereof) or voluntarily resigns from employment hereunder prior
to the termination of the Initial Employment Term without the
consent of Employer, Employee shall not acquire, hold or retain
any interest (direct or indirect) in any business in the County
of San Diego, in the State of California, and in such other
locations where the Bank is then engaged in business from time to
time during the remainder of the Initial Employment Term that is
in competition with the business of the Bank until the date on
which the employees' employment was to naturally terminate
according to the terms hereof; provided, however, that in the
event that prior to any such voluntary resignation as aforesaid,
Employer has offered in writing to extend the term of this
Agreement for an additional year on the same terms and conditions
as set forth in this Agreement with compensation increased in
accordance with Section 4.a hereof, then Employee's obligation
under this Section 12.b shall be extended for an additional one
(1) year beyond the Initial Employment Term.
c. If any portion of this Section 12 is held to be
illegal, unenforceable, void, or voidable, the remainder shall
remain in full force and effect, and this Section 12 shall be
deemed altered and amended to the minimum extent necessary to
bring it within the legal requirements.
13. Unique Services. Employee hereby represents and
agrees that the services to be performed under the terms of this
Agreement are of a special, unique, unusual, extraordinary and
intellectual character that gives them a peculiar value, the loss
of which cannot be reasonable or adequately compensated in
damages in any action at law. Employee, therefore, expressly
agrees that Employer, in addition to any rights or remedies that
Employer might possess, shall be entitled to injunctive and other
equitable relief to prevent or remedy a breach of this Agreement
by Employee.
14. Confidential Information.
a. For purposes of this Agreement, "Confidential
Information: shall mean information or material proprietary to
Employer or Bank or designated as Confidential Information by
Employer or Bank and not generally known by non-Bank personnel
which Employee develops or of which Employee may obtain knowledge
or access through or as a result of Employee's employment with
the Employer or Bank (including information conceived,
originated, discovered, or developed, in whole or in part, by
Employee). The Confidential Information includes, but is not
limited to, the following types of information and other
information of a similar nature (whether or not reduced to
writing): Drawings, specifications, models, data, documentation,
diagrams, flow charts, research, development, procedures,
marketing techniques and materials, marketing and development
plans, customer lists, and names and other information related to
customers, pricing and loan policies, financial information and
projections customer loans and employee files. Confidential
Information also includes any information described above which
Employer obtains from another party, and which Employer treats as
proprietary or designates as Confidential Information, whether or
not owned or developed by Employer, For purposes of this Section
a., Employer and/or Bank shall mean the Bank, Financial or any of
their affiliates. INFORMATION PUBLICLY KNOWN THAT IS GENERALLY
EMPLOYED BY FINANCIAL INSTITUTIONS AT OR AFTER THE TIME EMPLOYEE
FIRST HEARS OF SUCH INFORMATION OR GENERIC INFORMATION, OR
GENERAL KNOWLEDGE WHICH EMPLOYEE WOULD HAVE LEARNED IN THE COURSE
OF SIMILAR EMPLOYMENT OR WORK ELSEWHERE SHALL NOT BE DEEMED PART
OF THE CONFIDENTIAL INFORMATION.
b. All notes, data, reference materials, sketches,
drawings, memoranda, documentation, and records in any way
incorporating or reflecting any of the Confidential Information
and all proprietary rights therein, including copy rights, shall
belong exclusively to Employer, and Employee agrees to turn over
all copies of such materials in Employee's possession or control
to Employer upon request or upon termination of Employee's
employment with Employer.
c. Employee agrees during his employment by Employer
and thereafter to hold in confidence and not to directly or
indirectly reveal, report, publish, disclose, or transfer any of
the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in
the due performance of Employee's services for Employer.
d. Because of the unique nature of the Confidential
Information, Employee understands and agrees that Employer will
suffer irreparable harm in the event that Employee fails to
comply with any of his obligations under this Section 14, and
that monetary damages will be inadequate to compensate Employer
for such breach. Accordingly, Employee agrees that Employer
will, in addition to any other remedies available to them at law
or in equity, be entitled to injunctive relief to enforce the
terms of this Section 14.
15. Notices. Any notices to be given hereunder by
either party to the other shall be in writing and may be
transmitted by personal delivery or by certified mail, return
receipt requested. Mailed notices shall be addressed the parties
as follows:
If notice is to Financial, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Bank, to:
Board of Directors
SDNB Financial Corp.
1420 Kettner Blvd.
San Diego National Bank
If notice is to Employee, to:
Name: Howard Brotman
Address: 2455 Amity Street
City/State: San Diego, CA 92109
Either party may change its address by written notice in
accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of the date of actual receipt;
mailed notices shall be deemed communicated as of forty-eight
(48) hours after the date of mailing.
16. Entire Agreement. This Agreement, in combination
with any collateral documents referred to herein, supersedes any
and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Employee by the
Employer and contains all of the covenants and agreements between
the parties with respect to said employment.
17. Modifications. Any modification of this Agreement
shall be effective only if it is in writing and signed by the
parties hereto.
18. Effect of Waiver. The failure of either party to
insist on strict compliance with any of the terms, covenants or
conditions of this Agreement by the other party shall not be
deemed a waiver of that term, covenant, or condition, nor shall
any waiver or relinquishment of any right or power at any one
time or times be deemed a waiver or relinquishment of that right
or power for all or any other times.
19. Partial Invalidity. If any provision of this
Agreement is held be a court of competent jurisdiction to be
invalid, void, or unenforceable, the remaining provisions shall
nevertheless continue in full force without being impaired or
invalidated in any way, unless such partial invalidity materially
affects the intent of the parties as indicated herein.
20. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the state of
California applicable to contracts between residents of
California which are wholly executed and performed in California.
21. Assignability. The rights and duties of either
party hereunder shall not be assignable by either party, except
that this Agreement and all rights and obligations hereunder may
be assigned by Employer to, and be assumed by, any corporation or
other business entity which succeeds to all or substantially all
of the assets and business of Employer through merger,
consolidation acquisition of assets, or other corporate
reorganization. Subject to the provisions of the immediately
preceding sentence, this agreement shall be binding upon and
inure to the benefit of the heirs, executors and/or
administrators of Employee and to the successors and assigns of
Employer.
22. Arbitration. Any controversy or claim arising
out of or relating to this agreement, or the breach thereof,
shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association (as such rules shall be in effect on the date a
demand for arbitrating is communicated from one party to the
other party hereto) in San Diego, California, and judgment upon
the award rendered by thereof. Employer shall bay the fees of
all arbitrators, witnesses and such other expenses as may be
generated by the arbitration's, including without limitation,
attorneys' fees of the Parties, unless in the event the
arbitration was instituted by Employee, the majority of the
Arbitrators conclude that said arbitration was not initiated in
good faith by Employee; under said circumstance, the arbitrators
shall be authorized to allocate costs and attorneys' fees as they
shell deem appropriate with due consideration to both the
relative financial abilities of the parties and the merits of the
positions of the parties with respect to the dispute underlying
the arbitration.
23. Headings. The headings used in this Agreement are
for convenience of reference only and are not part of this
Agreement and do not in any way limit or amplify the terms and
provisions hereof.
24. Further Acts and Documents. The parties hereto
agree to perform all further acts and execute all further
documents reasonably necessary to implement to purposes of this
Agreement.
Employer:
SDNB Financial Corp.
a California Corporation
/s/Howard Brotman By:/s/Murray L. Galinson
Howard Brotman Murray L. Galinson
Sr. Vice President/ President/CEO
Chief Financial Officer
Date: March 27, 1996 Date: March 27, 1996
EXHIBIT "13"
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
SDNB Financial Corp. Annual Report 1995 cover page.
(Cover page includes four graphics illustrating concepts of Diversification,
International, Community and Branching Out.)
<PAGE>
DIVERSIFICATION, GROWTH AND PROFITABILITY SIGNIFY THE SUCCESS OF SDNB
FINANCIAL CORP. IN 1995. WE COMMISSIONED TOM VOSS, A LOCAL SAN DIEGO
ILLUSTRATOR, TO CREATE ART THAT REPRESENTS FOUR AREAS OF ACHIEVEMENT FOR SDNB
FINANCIAL CORP. EACH WORK OF ART DEPICTS A SEGMENT OF OUR GROWTH THROUGH THE
EYES OF THE ARTIST. AS A SUPPORTER OF THE SAN DIEGO COMMUNITY AND THE ARTS,
WE ARE PROUD TO DISPLAY THE ORIGINAL ART IN OUR DOWNTOWN OFFICE.
SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
FOR THE YEAR, IN THOUSANDS
Total interest income $12,743 $11,818 $11,930 $12,334 $15,116
Net interest income 9,527 8,912 8,571 8,321 8,468
Securities gains, net 11 0 0 25 80
Provision for loan losses 200 1,850 2,950 1,320 1,270
Net income (loss) 212 (159) (2,562) (2,211) (511)
AT YEAR END, IN THOUSANDS
Assets $178,572 $173,185 $170,693 $194,689 $205,232
Deposits 140,409 138,276 138,150 164,739 154,979
Loans, net 90,329 94,910 108,511 130,010 119,817
Investment securities 34,441 27,231 30,227 17,943 15,006
Long term obligations 7,989 10,158 10,379 10,630 10,881
Shareholders' equity 16,686 8,969 9,488 12,050 14,261
PER SHARE
Net income (loss) $0.10 ($0.10) ($1.67) ($1.44) ($0.33)
Cash dividends paid 0.00 0.00 0.00 0.00 0.08
Shareholders' equity 5.43 5.83 6.17 7.83 9.27
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear Shareholders, it is fair to say this was a very significant year!
In 1995, SDNB Financial Corp's vision for expansion and diversification
became a reality. We welcomed 300 new shareholders and gave thanks to 700
existing shareholders who reconfirmed their support by participating in our
capital offering. Our capital grew from $9 million to $16.7 million. We
also refinanced the San Diego National Bank headquarters building,
increasing the book value of each share of stock by 48 cents.
Good news from the bottom line: 1995 brought a significant turn in
profits for the holding company and San Diego National Bank. SDNB Financial
Corp enjoyed earnings of $212,000, a dramatic improvement over 1994's loss
of $159,000. The bank gave a stellar performance with increased earnings of
$989,000, compared to the year-earlier profits of $328,000.
1995 brought to a close the final chapter and costs of the Pioneer
Mortgage Company litigation.
We believed 1995 was ripe for capturing the disgruntled and besieged
victims of the megamerger frenzy going on with San Diego banks. For those
who did not find "bigger to be better," San Diego National Bank offered
itself as the friendly alternative to the corporate indifference of large
banks. While giant banks wrestled for turf and acquisitions, we
concentrated on building our assets by meeting the needs of customers.
Innovative product lines and state-of-the-art banking technologies were
designed to match businesses with industry-sensitive services tailored to
specific types of businesses. For example, we created a package of services
for property management companies and home owners associations to meet their
individual processing needs. In addition to building on our solid customer
following in the legal, medical and accountancy professions, we branched out
into select new areas, like manufacturing and wholesaling.
At the end of the year, we proudly announced our new international
division. Concerned that San Diego would miss the boat without local
financial institution backing to ensure local entrepreneurs the necessary
support to compete, we decided to get involved. This was done with the
recognition that this new area is for serious bankers - bankers who are
willing to do everything it takes to extend themselves in assisting local
companies to enter the global market place.
We are excited by the staff (continued on page 6)
<PAGE>
(Graphic picture illustating Diversification & Growth)
Diversification & Growth
1995 WAS A PROSPEROUS YEAR FOR SDNB FINANCIAL CORP. THE ANNUAL HARVEST
BROUGHT DIVERSIFICATION AND GROWTH IN SERVICES, NEW FINANCIAL MARKETS AND
PROFITS. THE MANY DIFFERENT FRUITS OF OUR LABOR WERE REALIZED WHEN WE
OPENED OUR NEW INTERNATIONAL DEPARTMENT AND AN OFFICE IN THE SOUTH BAY.
<PAGE>
(Graphic picture illustating International)
International
SDNB FINANCIAL CORP. LOOKED TO THE FUTURE AND PLANTED SEEDS THAT WOULD
ALLOW SAN DIEGO AND THE COMPANY TO PARTICIPATE IN THE EMERGING GLOBAL
ECONOMY. THE NEWLY-OPENED INTERNATIONAL DEPARTMENT NOT ONLY FILLS A VOID IN
SAN DIEGO'S FINANCIAL COMMUNITY, BUT ESTABLISHES OUR PRESENCE IN AN EVOLVING
AND FERTILE MARKET.
<PAGE>
(Graphic picture illustating Branching Out)
Branching Out
NEW BRANCHES ARE A FIRST SIGN OF GROWTH. A SIGN OF OUR GROWTH BEGINS WITH
OUR NEW BRANCH IN CHULA VISTA, STRENGTHENING OUR COMMITMENT TO SERVING THE
GREATER SAN DIEGO REGION AND YIELDING NEW BUSINESS OPPORTUNITIES BOTH FOR
THE COMPANY AND THE SOUTH BAY.
<PAGE>
(Graphic picture illustating Community)
Community
DEEPLY ROOTED IN THE COMMUNITY AND REMEMBERING THE IMPORTANCE OF GIVING BACK
TO OUR COMMUNITY, THE PEOPLE OF SDNB CONTINUED TO EXPAND SERVICE AND
PARTICIPATION IN BETTERING THE QUALITY OF LIFE IN SAN DIEGO THROUGH
INVOLVEMENT IN SOCIAL AND HEALTH SERVICE ORGANIZATIONS, THE ARTS AND CIVIC
PROGRAMS.
<PAGE>
LETTER TO OUR SHAREHOLDERS
Continued from page 1
and resources we have put together, as well as the challenge and opportunity
international banking offers, for both the San Diego business community and
your company.
Our expansion and diversification of product lines, services and
markets culminated with the opening of our new South Bay office, located in
Chula Vista. Always a good customer source for the bank, the timing and
proximity to the international border and developing manufacturing and
wholesale clientele was a perfect fit. We expect great things from this
enthusiastic and energetic office.
The courier service continued to extend our customer reach countywide.
San Diego National Bank and courier banking have become synonymous, setting
the standard for bringing banking to the office.
For SDNB employees, directors and management, service to the community
extended past closing time and beyond banking business. As San Diego's
leading community bank, we invested in the civic, charitable, arts and
culture infrastructure that make up the heart of our community. Time,
expertise and monetary contributions went to more than 100 charities and
organizations.
None of this would have been possible without your faith and vision.
The vision that became reality in 1995 was also the result of top-notch
banking professionals, working together with a collective mission of
excellence and service.
Looking to superior achievements every year, we are pleased to
announce a number of promotions. Robert Horsman has been named President
of San Diego National Bank, and Joyce Chewning, Executive Vice President.
Howard Brotman will join the Board Of Directors of SDNB Financial Corp and
Mark Mandell will be joining the senior management team of the bank, along
with Ron Bird, Senior Vice President and Director of the Business Services
Department.
It was a great year. Thanks to all of you for sharing it with us.
Sincerely,
/s/ Murray L. Galinson
MURRAY L. GALINSON
PRESIDENT AND CEO
(picture of Murray L. Galinson next to his signature)
/s/ Charles I. Feurzeig
CHARLES I. FEURZEIG
CHAIRMAN OF THE BOARD
(picture of Charles I. Feurzeig next to his signature)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
SDNB Financial Corp. and Subsidiaries
OVERVIEW
The operations and financial condition of the Company improved substantially
during 1995. The Company recorded a profit in 1995 of $212,000 compared to
losses of $159,000 and $2,562,000 in 1994 and 1993, respectively. In
addition to the return to profitability, the Company also benefited by:
1. A successful capital infusion program which added a net of $5.7
million to capital.
2. Refinancing of the mortgage on the San Diego National Bank Building
which resulted in a gain of $1.46 million credited to shareholders' equity.
3. Settlement of the long standing Pioneer Mortgage litigation against
San Diego National Bank.
4. Opening of the new South Bay Office and International Department of
the Bank.
For the past several years, the Company and the Bank had been adversely
affected by a number of factors emanating primarily from the condition of
the economy in San Diego. These factors, which are more fully described
herein, have included:
a. The continued need for a high loan loss provisions.
b. OREO losses and expenses from higher than normal levels of OREO
property.
c. Reduction in the level of the loan portfolio resulting from continuing
low loan demand.
Additionally, the Company has incurred substantial expense in
connection with legal fees and provisions for settlement costs of the Pioneer
Mortgage litigation (see "Other Non-Interest Expenses").
Loan loss provision and OREO losses and expenses were reduced
dramatically in 1995 and as cited above, the Pioneer Mortgage litigation has
been settled, although there was still substantial expense in 1995.
While the Company reports a profit in 1995 and a much reduced loss in
1994 than in 1993, there can be no assurances of the factors noted above, or
other factors, will not continue to adversely impact the Company and the
Bank. Discussion of the individual elements of the Company's operations is
contained in subsequent sections of this report.
Liquidity and Asset/Liability Management
By the nature of its commercial/wholesale focus, the Bank has moderate
interest-rate risk exposure in a declining-rate environment. This
phenomenon can be seen in the "Static Gap Summary" (Table 1). At
December 31, 1995, approximately 70% of the Bank's earning assets adjust
immediately to changes in interest rates. Within three months, this
increases to 86% of earning assets. Consequently, the Bank utilizes deposit
liabilities that also adjust relatively quickly. Within the same three-
month period, approximately 92% of the Bank's interest-bearing liabilities
(mostly deposits) adjust to current rates.
The Bank's cumulative gap position at the three month repricing
interval has increased approximately $10.8 million, or 43% from $26.0 million
at December 31, 1994 to $35.8 million at December 31, 1995. Volume of
assets and liabilities have both increased from the year earlier. Increases
of $13.0 million in securities and $4.5 million in deposits are partially
offset by a decrease of $1.2 million in loans within the three month horizon.
During February 1995, the Bank entered into an interest rate swap to
hedge against the effects on income of falling interest rates. If the prime
interest rate falls below eight percent during the life of the contract, the
Bank will receive payments amounting to the difference between the then
existing prime rate and eight percent on the contract amount of $20 million.
These payments continue while the prime interest rate stays below eight
percent or until expiration of the contract, February 3, 1998. This contract
helps to stabilize the Bank's net interest spread which, absent any hedge,
decreases during periods of rapidly falling interest rates. To date, there
have been no payments received under this contract.
The Bank's liquidity needs are projected by comparing anticipated
funding needs against current resources and anticipated deposit growth.
Any current surplus of funds is invested to maximize income while maintaining
safety and providing for future liquidity.
During the year ended December 31, 1995, cash and cash equivalents
increased $3.6 million. Operating activities provided $1.2 million during
the period. Approximately $2.3 million was used by investing activities.
The two major components were net investment of $6.5 million in securities
($27.1 million purchases of securities offset by $20.6 million of sales,
maturities, and calls) and decrease in gross loans totaling $4.3 million.
Financing activities provided $4.7 million during the period. Deposits
increased $2.1 million while borrowings decreased $3.1 million. The
issuance of new stock during the year provided a net amount of $5.7 million.
Liquidity is provided on a daily basis by federal funds sold and on a
longer-term basis by the structuring of the Bank's investment portfolio to
provide a steady stream of maturing issues. Additionally, the Bank may
raise additional funds from time to time through money desk operations or
via the sale of loans to another institution.
The Bank has never purchased high-yield securities or participated in
highly-leveraged transactions.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1. STATIC GAP SUMMARY
DECEMBER 31, 1995
Immediately Non-rate
Adjustable 1 Day Sensitve
Or 1 Day Through 3 Through 6 Through And Over
(In thousands) Maturity 3 Months 6 Months 12 Months 12 Months Total
<S> <C> <C> <C> <C> <C> <C>
Loans (net) 82,630 1,881 982 1,263 5,575 92,331
Investment securities - 22,580 1,963 1,001 8,425 33,969
Certificates of deposit in other banks - - 1,490 793 - 2,283
Federal funds sold 24,700 - - - - 24,700
Total interest earning assets 107,330 24,461 4,435 3,057 14,000 153,283
Non-interest earning assets - - - - 14,367 14,367
Total assets 107,330 24,461 4,435 3,057 28,367 167,650
Deposits:
Savings, NOW accounts and money markets 68,330 - - - - 68,330
Time deposits - 14,762 4,680 3,157 136 22,735
Total deposits 68,330 14,762 4,680 3,157 136 91,065
Securities sold under agreement
to repurchase 12,934 - - - - 12,934
Total interest bearing liabilities 81,264 14,762 4,680 3,157 136 103,999
Non-interest bearing liabities - - - - 50,036 50,036
Shareholders' equity - - - - 13,615 13,615
Total liabilities and shareholders' equity 81,264 14,762 4,680 3,157 63,787 167,650
Interest rate sensitivity gap 26,066 9,699 (245) (100) (35,420)
Cumulative interest rate sensitivity gap 26,066 35,765 35,520 35,420 -
</TABLE>
Capital Resources
Since its initial capitalization in 1981, the Company had relied primarily
on internally generated income to fund its growth and provide for depositor
protection. During 1994, the Company concluded that additional capital
would be beneficial and proposed a plan for additional capitalization which
was approved by regulatory authorities on March 9, 1995, and by the
shareholders of the Company on March 17, 1995. The plan encompassed the
following steps:
1. Sale of 510,121 newly issued shares of the Company's Common Stock to
two limited partnerships managed by WHR Management Corp. ("WHR") at $4.34
per share for a gross amount of $2,213,925. This step was completed on
March 28, 1995.
2. A rights offering to existing shareholders and, pursuant to a best-
efforts underwriting agreement, to third parties encompassing 769,582 shares
of newly issued Common Stock at a subscription price of $4.34 per share for
a gross amount of $3,339,986. This step was completed on September 28, 1995.
3. Sale to WHR of an additional 255,193 newly issued shares of Common
Stock at $4.34 per share for a gross amount of $1,107,538. This step was
completed on October 6, 1995.
Additionally, in 1995 the Company issued the following warrants to
purchase shares of Common Stock:
1. A warrant to purchase 37,363 shares at $4.34 per share to Torrey Pines
Securities, Inc. pursuant to a Rights Agent Agreement as further
compensation for its services in connection with the rights offering to
existing shareholders.
2. A warrant to purchase 150,000 shares at a price of $5.44 per share to
PKH Kettner Investors, LLC as additional consideration for granting a loan
secured by a first trust deed on the Bank Building.
The net proceeds from the sale of Common Stock have been used for
general corporate purposes which include the following:
1. $250,000 loan to San Diego National Bank Building Joint Venture
("Joint Venture") which in turn made a partial payment on a note (the "PV
Note") owed to PVCC, Inc. which was secured by a second trust deed on the
Bank Building. PVCC, Inc. is a corporation controlled by Charles I.
Feurzeig, chairman of the Company's Board of Directors.
2. $630,000 to pay off Company notes payable which included $390,000 due
to officers and/or directors of the Company.
3. $1,125,640 to purchase customer notes from the Bank, at par, which
were then assigned to the Joint Venture, which in turn assigned the notes to
PVCC, Inc. as further payment of the PV Note.
4. $1,188,172, which along with $8,000,000 in proceeds of a new note
secured by a first trust deed on the Bank Building, to refinance the Bank
Building, paying $8,579,000 to WHR (and realizing a prepayment discount of
$1,579,000) and $524,360 to pay the balance of the PV Note.
5. $1,000,000 additional invested in San Diego National Bank.
The remaining proceeds will be used for general corporate purposes,
which may include investments in or extensions of credit to the Company's
subsidiaries, reduction of existing debt, or financing possible future
acquisitions of other banking institutions or related businesses.
<PAGE>
At the present time, the Company does not have any specific plans,
agreements or understandings, written or oral, pertaining to the proposed
acquisition of any banking institution or related business.
As a national bank subject to the regulation of the Office of the
Comptroller of the Currency (the "Comptroller"), the Bank is subject to
legal limitations on the source and amount of dividends it is permitted to
pay to the Company. The approval of the Comptroller is required for any
dividend by a national bank if the total of all dividends declared by the
bank in any calendar year would exceed the total of its net profits, as
defined by the Comptroller, for that year, combined with its retained net
profits for the preceding two years. As of January 1, 1996, the Bank had
available for dividends approximately $1,370,000 without the approval of the
Comptroller. The payment of dividends by the Bank may also be affected by
other factors, such as requirements for the maintenance of adequate
capital. In addition, the Comptroller and the Federal Deposit Insurance
Corporation (the "FDIC") are authorized to determine under certain
circumstances relating to the financial condition of a national bank whether
the payment of dividends would be an unsafe or unsound banking practice and
to prohibit payment thereof. Finally, under the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA"), an insured depository institution is
prohibited from making any capital distribution to its owner, including any
dividend, if, after making such distribution, the depository institution
fails to meet the required minimum level for any relevant capital measure,
including the risk-based capital adequacy and leverage standards discussed
under "Capital" below.
The Company and the Federal Reserve Bank of San Francisco ("Reserve
Bank") entered into an agreement on November 20, 1992, pursuant which the
Company must obtain the approval of the Reserve Bank prior to, among other
actions, the declaration of any cash dividends.
The Comptroller has established a framework for supervisory
requirements of national banks based upon capital ratios. Based upon this
framework, a bank's capitalization is defined as well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized or
critically undercapitalized. Under the Comptroller's framework a bank is
well capitalized if its ratios are greater than or equal to 6% and 10% for
tier 1 capital and risk weighted capital, respectively. As of December 31,
1995, the Bank was considered "well capitalized".
The Federal Reserve Board ("Reserve Board"), as the regulatory body of
the Company, has capital ratio requirements. Under the Reserve Board's
Capital Adequacy Guidelines, all bank holding companies should meet a
minimum ratio of qualifying total capital to weighted-risk assets of 8
percent, of which at least 4.0 percentage points should be in the form of
tier 1 capital.
The Reserve Board and the Comptroller have also imposed a leverage
standard to supplement their risk-based ratios. This leverage standard
focuses on a banking institution's ratio of Tier 1 capital to average total
assets adjusted for goodwill and other certain items. Under these
guidelines, banking institutions that meet certain criteria, including
excellent asset quality, high liquidity, low interest rate exposure and good
earnings, and have received the highest regulatory rating must maintain a
ratio of Tier 1 capital to total assets of at least 3%. Institutions not
meeting this criteria, as well as institutions with supervisory, financial
or operational weaknesses, along with those experiencing or anticipating
significant growth are expected to maintain a Tier 1 capital to total assets
ratio equal to at least 4% to 5%.
As reflected in the following table, the risk-based capital ratios and
leverage ratios of the Company and the Bank as of December 31, 1995,
exceeded the fully phased-in regulatory risk-based capital adequacy
guidelines and the leverage standard.
Capital Components and Ratios
December 31, 1995 December 31, 1994
(dollars in thousands) Company Bank Company Bank
Capital Components:
Tier 1 Capital $16,726 $13,656 $9,329 $11,667
Total Capital 18,207 15,006 10,868 13,081
Risk-weighted assets
and off-balance
sheet instruments 117,967 107,310 122,833 112,672
Tier 1 risk-based:
Actual 14.18% 12.73% 7.59% 10.35%
Required 4.00% 6.00% 4.00% 6.00%
Excess 10.18% 6.73% 3.59% 4.35%
Total risk-based:
Actual 15.43% 13.98% 8.85% 11.61%
Required 8.00% 10.00% 8.00% 10.00%
Excess 7.43% 3.98% 0.85% 1.61%
Leverage:
Actual 9.37% 8.43% 5.33% 7.09%
Required 5.00% 5.00% 5.00% 5.00%
Excess 4.37% 3.43% .33% 2.09%
Investment Securities
As reflected in the consolidated financial statements and in the
accompanying notes thereto, the investment portfolio of the Bank has
recovered a substantial portion of the loss in market value experienced in
1994. That loss was due to higher interest rates during 1994, compounded by
adverse market conditions for "structured notes" and other derivative
securities. Management believes that there is sufficient current liquidity
and available sources of liquidity to allow all structured notes (which are
issued by United States government agencies) to mature as scheduled and thus
avoid realization of any material amount of loss due to decline in market
value.
Net Interest Income/Net Interest Margin
Net interest income for 1995 was $9,527,000 compared to $8,912,000 for
1994 and $8,571,000 for 1993, which represents increases of 7% and 4%,
respectively.
Net interest income is determined by the spread of earnings on assets
over the cost of funds. The three-year history is shown in the following
chart:
1995 1994 1993
NET INTEREST SPREAD
Yield on average earnings assets
(taxable equivalent) 9.12% 7.75% 7.60%
Cost of funds 2.29% 1.89% 2.11%
Net interest spread 6.83% 5.86% 5.49%
<PAGE>
<TABLE>
<CAPTION>
TABLE 2. VOLUME/RATE VARIANCE ANALYSIS
1995 COMPARED TO 1994 1994 COMPARED TO 1993 1993 COMPARED TO 1992
Volume Rate Total Volume Rate Total Volume Rate Total
INCREASE (DECREASE) IN INTEREST ON EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
Commercial loans (856) 1,159 303 (1,320) 316 (1,004) (466) 36 (430)
Real estate loans (71) 351 280 (275) 452 177 258 (269) (11)
Installment loans (20) 27 7 (25) (52) (77) (51) 71 20
Total loans (947) 1,537 590 (1,620) 716 (904) (259) (162) (421)
Investment securities
U.S. Treasury securities 73 60 133 18 18 36 (5) (58) (63)
Securities of government agencies (109) 132 23 312 67 379 376 (82) 294
State and political obligations (167) (14) (181) 130 (139) (9) (25) (5) (30)
Other securities 61 3 64 (13) (3) (16) (65) 19 (46)
Total investment securities (142) 181 39 447 (57) 390 281 (126) 155
Certificates of deposit in other bank 42 32 74 (1) (3) (4) (78) (27) (105)
Federal funds sold (127) 299 172 172 196 368 19 (63) (44)
Total interest income change (1,174) 2,049 875 (1,002) 852 (150) (37) (378) (415)
INCREASE (DECREASE) IN INTEREST PAID ON LIABILITIES:
Interest on deposits
Savings, NOW accounts,
and money markets (49) 314 265 158 90 248 (194) (279) (473)
Other domestic time deposits (170) 336 166 (794) (103) (897) 76 (326) (250)
Total interest on deposits (219) 650 431 (636) (13) (649) (118) (605) (723)
Securities sold under agreement to repurchase
and federal funds purchased (129) 17 (112) 171 11 182 101 (60) 41
Short-term debt (64) 32 (32) 5 30 35 29 (10) 19
Long-term debt (18) 194 176 (15) (37) (52) (20) (140) (160)
Total interest expense change (430) 893 463 (475) (9) (484) (8) (815) (823)
Net change in net interest income (744) 1,156 412 (527) 861 334 (29) 437 408
<FN>
<F1>
Note: Change in interest income or expense can be attributed to (a) changes in volume (change in volume times old rate), (b)
changes in rate (change in rate times old volume),and (c) changes in rate/volume (change in rate times the change in volume).
The rate/volume variances are allocated proportionally between the rate and the volume variances based on their absolute values.
</FN>
</TABLE>
Since the vast majority of the Bank's loans (91% at December 31, 1995)
are at variable rates, changes in the prime interest rate impact the yield
shown above. The Wall Street Prime interest rate during this period was as
follows:
1995 1994 1993
High 9.00% 8.50% 6.00%
Low 8.50% 6.00% 6.00%
Average 8.83% 7.14% 6.00%
In addition to interest rates, changes in the volumes of assets and
liabilities also affect net interest income. The volume/rate variance
analysis (Table 2) shows the change in net interest income that is
attributable to changes in volume versus changes in rates. As reflected
in Table 2, net interest spread is affected by several factors, including:
1. The reduction of average loan balances, which began in 1993, continued
during 1995, resulting in a substantial decrease in interest earned based on
volume.
2. The amount of time deposits has declined from $45.3 million average in
1993 to $18.5 million average in 1995. The decline in time deposits is
attributable to two major factors:
a. In response to slowing loan demand, the Bank priced "money desk"
certificates of deposit unattractively, assuring that those funds already in
the Bank would be withdrawn at maturity.
b. Continuing depositors have apparently chosen to shift to the more
flexible money market accounts as the interest rate differential between
those accounts and time certificates diminished.
<PAGE>
Loans and Allowance and Provision for Loan Losses
Management employs a 'migration analysis method' to establish the required
amount of loan loss allowance. This process tracks realized loan losses
back through the prior two years to estimate loss exposure on the classified
and unclassified loan portfolios. Additionally, loss experience is tracked
in pools of loans with similar characteristics to estimate the loss exposure
unique to various loan types. The measured loss exposure is then applied to
the current loan portfolio and further adjusted for 'qualitative factors'
such as:
Changes in the trends of the volume and severity of past due and
classified loans; and trends in the volume of non-accrual loans, troubled
debt restructurings and other loan modifications;
Changes in the nature and volume of the portfolio;
Changes in the experience, ability, and depth of lending management and
staff;
Changes in lending policies and procedures, including underwriting
standards and collections, charge-offs and recovery practices;
Changes in national and local economic and business conditions and
developments, including the condition of various market segments;
The existence and effect of any concentrations of credit, and changes in
the level of such concentrations;
Changes in the quality of the loan review system and the degree of
oversight by the Board of Directors; and
The effect of external factors such as competition and legal and
regulatory requirements on the level of estimated credit losses in the
current portfolio.
This method of establishing loan loss reserves complies with the
policies of the Office of the Comptroller of the Currency as reflected in
Banking Circular 201, revised, dated February 20, 1992, and in Banking
Bulletin 93-60, dated December 21, 1993. The Company began testing this new
method during 1992 and comparing its results to results reached by the
previously existing procedures employed by the Company. The test proved
that the two methods were comparable, and the Company adopted the new
migration analysis method during 1993.
Evaluation and classification of problem loans is an ongoing process
involving grading by loan officers, evaluation by the credit administration
department of the Bank, and a review on a regular basis by an independent
loan review firm. Additionally, in response to the problems in the economy
and increases in the level of classified loans, in 1993 the Bank established
a Special Assets Department to deal solely with problem loans including
identification, modification where appropriate, and early recognition of
loss potential. The introduction of the Special Assets Department has
resulted in improved early recognition of problem loans and opportunity to
restructure them, thereby increasing the amount of loans reported as
nonperforming (both those that are current in payment and those that are not
current), but improving the collection record on such loans. The migration
analysis adequately recognizes the loss potential included in those credits.
Accordingly, the Company believes its method for establishing the loan
loss allowance is sound. But no method, however valid, can consistently
predict future events with complete accuracy. In recent years, several
factors used by the Bank to establish loan loss allowances have been subject
to considerable volatility, and this in turn has affected the volatility of
nonperforming loans, charge-offs, and the coverage ratio. In addition, the
Bank's method of reporting, particularly its conservative listing of loans
as nonperforming, is not always an accurate indicator of actual future
losses.
The economy in San Diego suffered a sharp downturn in recent years,
particularly in the real estate market. The Bank is a community bank with a
relatively small loan portfolio comprised of mostly commercial/real estate
loans that tend to be individually larger in amount than loans made by
retail banks. As a result of these and other factors, the Bank can
experience large swings in nonperforming loans, charge-offs, and the
coverage ratio when one or a few loans are transferred from one category to
another. These factors are not reasons for changing a valid method of
determining loan loss allowances and are not always accurate predictors of
losses, but they do have short-term effects on those allowances and related
reported figures.
Significant components of the loan loss charge-offs in 1994 ($1.2
million of a total of $2.4 million) and in 1993 ($660,000 of a total of $2.7
million) were attributable in each year to a single loan which became a
problem loan late in the year. In both cases, the Bank responded with a
partial charge-off, consistent with its conservative reporting of problem
loans.
Conservative reporting of nonperforming loans is a useful management
tool, but it is not always a good predictor of loan losses (nor is it
intended to be) and there is no direct correlation between nonperforming
loans and the proper level of loan loss reserves (nor should there be). As
the following chart shows, a significant portion of the loans reported as
"nonperforming" are in fact performing in that payments on those loans are
current. (See the percentages in the final line of the chart.) Also, many
of the Bank's loans are collateralized (84% were collateralized at December
31, 1995), and that collateral can improve the recovery on troubled loans.
Loans reported as non-performing at December 31:
(in thousands) 1995 1994 1993
CURRENT AND NONCURRENT
Non-accrual loans 6,969 6,046 5,343
Restructured loans (still accruing) 1,364 2,316 3,162
Loans 90 days past due 93 20 481
8,426 8,382 8,986
Other real estate owned 181 268 1,050
Total 8,607 8,650 10,036
NONCURRENT
Non-accrual loans 3,160 1,276 3,373
Restructured loans (still accruing) 0 0 0
Loans 90 days past due 93 20 481
3,253 1,296 3,854
Other real estate owned 181 268 1,050
Total 3,434 1,564 4,904
Loans reported as nonperforming
but which are current, as a
percentage of total loans reported
as nonperforming 61% 82% 51%
<PAGE>
Miscellaneous Other Operating Income
During 1994, the Bank and its directors' and officers' insurer settled
their dispute regarding the Bank's legal and settlement costs in the Pioneer
Mortgage federal class action and state court cases (see notes to
consolidated financial statements). Under the terms of the settlement, the
insurer paid the Bank $712,500 (in addition to the $750,000 the insurer had
previously advanced toward the Bank's settlement with the plaintiffs) which
was credited to miscellaneous other operating income.
Other Non-Interest Expenses
Included in other non-interest expenses are the following:
1. Legal fees and settlement costs (and provisions therefor) in
connection with the Pioneer Mortgage Company and Pioneer Liquidating
Corporation litigation:
In 1995 $988,000
In 1994 $504,000
In 1993 $592,000
Matters pertaining to the federal class action and state court cases
resulting from the 1991 Pioneer Mortgage Company litigation, including the
Bank's claim against its insurer, have been settled. The 1993 litigation
brought by Pioneer Liquidating Corporation was settled in 1995.
2. Other Real Estate Owned ("OREO") losses and expenses:
In 1995 $129,000
In 1994 $462,000
In 1993 $754,000
OREO property, which peaked at approximately $5 million in 1991,
continued to decline in 1995 (to $181,000 at December 31, 1995) as
Management continued vigorous efforts to dispose of repossessed property.
Management expects that there will be other repossessions in the future but
intends to continue to dispose of such properties as quickly as is prudent.
3. Miscellaneous expense in 1993 includes provision for a loss in the
amount of $500,000 due to an unfavorable arbitration decision which required
the Bank to rescind the 1988 sale of a single family residence which it had
taken in foreclosure in 1987. The property was resold in 1994.
Subsidiary Data
San Diego National Bank. The Bank earned $989,000 in 1995 and $382,000 in
1994 compared to a loss of $1,870,000 in 1993. Return on average assets
(ROA) was 0.65%, 0.23%, and (1.07%), respectively. Return on average equity
(ROE) was $8.07%, 3.20%, and (14.65%), respectively. The reasons for the
change in Bank earnings have been enumerated in the preceding pages.
See notes to the consolidated financial statements and "Capital
Resources" for information regarding the Bank's capital ratios.
San Diego National Bank Building Joint Venture. The Joint Venture recorded
pre-consolidation gross building revenues of $1,947,000, $2,046,000, and
$2,048,000 in 1995, 1994, and 1993, respectively, resulting in pre-
consolidation pre-tax losses of $769,000, $447,000, and $453,000,
respectively. Depreciation and amortization expenses were $601,000,
$636,000, and $640,000 in 1995, 1994 and 1993, respectively. The increased
loss in 1995 is attributable primarily to the reduced revenues (see
discussion below) and increased interest payable to the Company on advances
used to pay down the building mortgage loans, which is eliminated from the
financial statements in consolidation (see "Capital Resources").
At the beginning of the Joint Venture, the limited partners' share of
its losses were charged against the investment capital accounts of the
limited partners. During 1990, these capital accounts reached zero,
requiring the Company to absorb additional operating losses of approximately
$288,000 in 1995, $168,000 in 1994 and $194,000 in 1993 which would
otherwise have been charged to the limited partners. In 1995, the limited
partners' cumulative share of the operating losses absorbed by the Company
was reduced by their share of the gain on the prepayment discount on the
mortgage (see below; approximately $562,000) resulting in net losses
absorbed by the Company of $1,017,000 as of December 31, 1995.
There is substantial amount of vacant office space in downtown San Diego.
A recent study indicated that the downtown occupancy level was approximately
79% (29th lowest among 31 U.S. cities included in the survey). This creates
a highly competitive rental market, generally requiring the granting of
generous lease concessions and/or low rental rates to obtain new tenants or
retain existing ones. Some tenants with limited time remaining on existing
leases have negotiated for lower current rental rates in exchange for
extensions of their leases. At the end of 1995, the building was
approximately 98% leased, although concessions to some tenants who are not
utilizing all of their leased premises would reduce the effective occupancy
to approximately 93%.
In November 1994, the then existing first mortgage loan on the building
was purchased by the two limited partnerships managed by WHR Management
Corp. which subsequently purchased the Company's stock (see "Capital
Resources"). In January 1995, the Joint Venture and WHR entered into a
modification agreement which, inter alia, allowed for prepayment of the loan
at a discount. On November 30, 1995 the loan was paid off at a discount of
$1,579,000 from face value resulting in a net gain, after expenses and taxes
of $1,457,000. Because the mortgage was held by a related party, the gain
has been credited directly to shareholders' equity.
Business Environment
Through the 1990's, economic recovery of San Diego and the entire Southern
California area has lagged behind that of the nation as a whole.
Interest rates began to fall during 1995 after rising in 1994. Should
interest rates continue to decline, net interest spread will be negatively
impacted. The majority of the Bank's variable rate loans adjust on the day
that a rate reduction is made. The offsetting reduction in interest paid
on deposits is delayed until certificates of deposit mature and,
additionally, competitive pressure from savings institutions and non-bank
money funds may inhibit reduction in rates paid on these and other interest-
bearing accounts.
<PAGE>
CONSOLIDATED BALANCE SHEETS
SDNB Financial Corp. and Subsidiaries
December 31,
(dollars in thousands) 1995 1994
ASSETS
Cash and due from banks $ 13,440 $11,936
Interest bearing deposits in other banks 2,780 1,381
Investment securities held-to-maturity 7,408 17,321
Investment securities available-for-sale 27,033 9,910
Federal funds sold 24,700 24,000
Loans 92,331 97,058
Less allowance for loan losses 2,002 2,148
Net loans 90,329 94,910
Premises and equipment, net 10,975 11,089
Other real estate owned 181 268
Accrued interest receivable and other assets 1,726 2,370
$ 178,572 $173,185
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 49,505 $45,693
Interest bearing 90,904 92,583
Total deposits 140,409 138,276
Securities sold under agreement to repurchase 12,934 12,285
Accrued interest payable and other liabilities 554 953
Notes payable 7,989 12,702
Total liabilities 161,886 164,216
Commitments and contingencies (notes 9, 10 and 11)
Shareholders' equity:
Common stock, no par value; authorized
15,000,000 shares, issued and outstanding
3,073,260 in 1995 and 1,538,364 in 1994 20,314 14,585
Accumulated deficit (3,587) (5,256)
Net unrealized holding losses on
available-for-sale securities (41) (360)
Total shareholders' equity 16,686 8,969
$178,572 $173,185
The accompanying notes are an integral part of the financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
SDNB Financial Corp. and Subsidiaries
Years ended December 31,
(dollars in thousands except per share amounts) 1995 1994 1993
Interest Income:
Interest and fees on loans $10,090 $9,500 $10,404
Interest on federal funds sold 904 732 364
Interest on investment securities:
Taxable 1,655 1,394 899
Exempt from federal income tax 94 192 263
Total interest income 12,743 11,818 11,930
Interest Expense:
Deposits 2,928 2,497 3,146
Short-term borrowings 288 409 213
Total interest expense 3,216 2,906 3,359
Net interest income 9,527 8,912 8,571
Provision For Loan Losses 200 1,850 2,950
Net interest income after provision
for loan losses 9,327 7,062 5,621
Other Operating Income:
Security gains, net 11 0 0
Building income 903 1,067 1,088
Miscellaneous 816 1,580 1,017
Total other operating income 1,730 2,647 2,105
Other Operating Expenses:
Salaries and employee benefits 4,056 3,630 3,371
Occupancy 532 492 486
Building operating expenses, including interest
expense of $941, $788, and $820
for 1995, 1994 and 1993, respectively 2,422 2,296 2,310
Other non-interest expenses 3,830 3,447 4,355
Total other operating expenses 10,840 9,865 10,522
Income (loss) before income tax
and cumulative effect of accounting change 217 (156) (2,796)
Income Tax 5 3 0
Income (loss) before cumulative effect
of accounting change 212 (159) (2,796)
Cumulative Effect of Accounting
Change ($0.15 Per Share) 0 0 234
Net income (loss) $ 212 $(159) $(2,562)
Net income (loss) per share $ 0.10 $(0.10) $ (1.67)
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SDNB Financial Corp. and Subsidiaries
Net unrealized
holding losses in
For years ended December 31, 1995, 1994 and 1993 Common Accumulated available-for-sale
(dollars in thousands) Stock Deficit securities Total
<S> <C> <C> <C> <C>
Balances at January 1, 1993 $ 14,585 $ (2,535) $0 $12,050
Net loss 0 (2,562) 0 (2,562)
Balances at December 31, 1993 14,585 (5,097) 0 9,488
Effect of adopting Statement of Financial
Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities
("SFAS No.115"), on January 1, 1994 0 0 (10) (10)
Net change in fair value of
available-for-sale securities 0 0 (350) (350)
Net loss 0 (159) 0 (159)
Balances at December 31, 1994 $ 14,585 ($ 5,256) ($ 360) $ 8,969
Proceeds from issuance of common stock, 1,534,896
shares issued at $4.34/share less associated
costs of $932. A warrant to purchase 37,363
shares of common stock at $4.34 per share until
September 29, 1997 was issued to Torrey Pines
Securities, Inc. which acted as underwriter in
the stock offering. 5,729 0 0 5,729
Gain on early payment of loan (Note 22) 0 1,457 0 1,457
Net change in fair value of available-for-sale
securities 0 0 319 319
Net income 0 212 0 212
Balances at December 31, 1995 $ 20,314 $( 3,587) ($ 41) $ 16,686
<FN>
<F1>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SDNB Financial Corp. and Subsidiaries
Years ended December 31,
(dollars in thousands) 1995 1994 1993
OPERATING ACTIVITIES:
Net income (loss) $ 212 $(159) $(2,562)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for loan losses 200 1,850 2,950
Provision for depreciation and amortization 1,279 1,332 1,102
Cumulative effect of accounting change 0 0 (234)
Amortization of investment security discounts (240) (65) (84)
Other expense not utilizing (providing) cash 173 175 106
Unearned loan fees 157 104 (5)
Taxes refundable 33 (30) 477
Interest receivable and other assets (807) (144) (691)
Interest payable and other liabilities (399) (66) 545
Total adjustments 396 3,156 4,166
Net cash provided by operating activities 608 2,997 1,604
INVESTING ACTIVITIES:
Proceeds from maturities of held for
investment securities 0 0 10,699
Proceeds from maturities of
held-to-maturity securities 6,504 9,443 0
Proceeds from called held-to-maturity securities,
including gross realized gains of $10 1,802 0 0
Proceeds from maturities of
available-for-sale securities 6,993 6,927 0
Proceeds from sales of available-for-sale securities,
including gross realized gains of $1 5,324 0 0
Purchases of held for investment securities 0 0 (23,037)
Purchases of held-to-maturity securities (2,000) (8,847) 0
Purchases of available-for-sale securities (25,097) (4,950) 0
Net change in gross loans 4,320 11,508 18,549
Proceeds from OREO properties 556 889 1,041
Purchases of OREO properties 0 (520) 0
Purchases of premises and equipment (737) (232) (221)
Net cash provided (used)
by investing activites (2,335) 14,218 7,031
FINANCING ACTIVITIES:
Net change in deposits 2,133 126 (26,589)
Net change in short-term borrowings (1,894) 3,172 4,619
Proceeds from issuance of long-term debt,
net of associated costs of $48 7,952 0 0
Payments of long-term borrowings (8,590) (222) (251)
Proceeds from issuance of common stock 6,661 0 0
Payments of costs associated with issuance
of common stock (932) 0 0
Net cash provided (used)
by financing activities 5,330 3,076 (22,221)
Change in cash and cash equivalents 3,603 20,291 (13,586)
Cash and cash equivalents at beginning of year 37,317 17,026 30,612
Cash and cash equivalents at end of year $40,920 $37,317 $17,026
For the purpose of the statement of cash flows, the Company considers cash and
cash equivalents to be as follows at December 31, 1995 1994 1993
Cash and due from banks $13,440 $11,936 $9,044
Interest-bearing deposits in other banks 2,780 1,381 1,682
Federal funds sold 24,700 24,000 6,300
Totals $40,920 $37,317 $17,026
Supplemental cash flow information: 1995 1994 1993
CASH PAID FOR:
Interest $4,316 $3,661 $4,163
Income Taxes $1 $3 $0
Non-cash items: transfer of loans to OREO $553 $0 $739
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SDNB Financial Corp. and Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of SDNB Financial Corp. (the Company)
and subsidiaries are in accordance with generally accepted accounting
principles and conform to general practices within the banking industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and iabilities and disclosure
of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results differ from those estimates. The
following is a summary of the more significant policies:
BASIS OF PRESENTATION All dollar amounts are presented in thousands
unless otherwise indicated.
The consolidated financial statements include the accounts of SDNB
Financial Corp. and all companies which are more than 50% owned, directly or
indirectly, including San Diego National Bank (the Bank), 100% owned, the
Company's principal subsidiary. All significant inter-company items are
eliminated.
INVESTMENT SECURITIES The Company implemented Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt
and Equity Securities ("SFAS No. 115") effective January 1, 1994. The
impact of adoption was immaterial. SFAS No. 115 was issued in May 1993 and
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. Investments are to be classified in three categories and
accounted for as follows:
CLASSIFICATION ACCOUNTING
Held-to-maturity Reported at amortized cost
Trading securities Reported at fair value; unrealized
gains and losses included in net
income
Available-for-sale Reported at fair value; unrealized
gains and losses included as a
separate component of shareholders' equity
Prior to adoption of SFAS No. 115, due to management's intent and
ability to hold to maturity, all securities in the investment portfolio were
classified as held for investment and were stated at cost, adjusted for
amortization of premiums and accretion of discounts. Such amortization and
accretion were recognized as adjustments to interest income on investment
securities. On November 15, 1995, the Financial Accounting Standards Board
("FASB") authorized a one-time transfer between classifications which was
required to be made no later than December 31, l995. Pursuant to such
authority, the Bank transferred securities with an amortized cost of $3.8
million and an unrealized loss of $19 thousand from "held to maturity" to
"available for sale."
Realized gains or losses, if any, are determined using the specific
identification method.
LOANS Interest on loans is credited to income based on the principal
amount outstanding. Loan fees received, to the extent they exceed
origination costs, are deferred and amortized over the expected loan term.
Effective January 1, 1995, the Company implemented Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan ("SFAS No. 114") as amended by Statement of Financial
Accounting Standards No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures ("SFAS No. 118"). Under SFAS No.
114, a loan is considered impaired, based on current information and events,
if it is probable the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. The measurement of impaired loans is generally
based on the present value of expected future cash flows discounted at the
historical effective interest rate, except that collateral dependent loans
are measured for impairment based on the fair value of the collateral.
Adoption of SFAS No. 114 did not have a material effect on the Company's
financial statements.
Loans are placed on non-accrual when a reasonable doubt exists as to
the collectibility of interest or principal. Loans may be returned to
accrual status when all principal and interest amounts contractually due
are reasonably assured of repayment in an acceptable period of time, and
there is a sustained period of repayment performance (generally a minimum of
six months) by the borrower.
While a loans is classified as non-accrual and the future
collectibility of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectibility of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case of
a partially charged-off loan, interest income is limited to that which would
have been recognized on the remaining recorded loan balance. Cash interest
receipts in excess of that amount are recorded as recoveries to the
allowance for loan losses until prior charge-offs have been fully recovered.
ALLOWANCE FOR LOAN LOSSES An allowance for loan losses is maintained
at the level deemed appropriate by management to provide for known and
inherent risks in the loan portfolio. The allowance is based on a
continuing review of the portfolio, past loan loss experience, current
economic conditions which may affect the borrowers' ability to pay, and the
underlying collateral value of the loans. Loans which are deemed to be
uncollectible are charged off and deducted from the allowance. The
provision for loan losses and recoveries on loans previously charged off are
added to the allowance.
The allowance for possible loan losses is based on estimates, and
ultimate losses may vary from the current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are
reported in earnings in the periods in which they become known.
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is charged to operating expense
using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized to operating
expense over the term of the respective lease or the estimated useful life
of the improvement, whichever is shorter. When assets are sold or retired,
the assets and accumulated depreciation are removed from the accounts. Gains
or losses on disposals are credited or charged to income.
OTHER REAL ESTATE OWNED (OREO) OREO property is accounted for at the
lower of the recorded investment in the loan satisfied or its appraised
value at the time of transfer to the OREO category, less estimated selling
costs. Investment in the loan satisfied is the unpaid balance of the loan
increased by accrued and uncollected interest, unamortized premium, and loan
acquisition costs, if any, and decreased by previous direct write-down,
finance charges, and unamortized discount,
<PAGE>
if any. Any excess of the recorded investment in the loan satisfied over
the appraised value of the property is charged against the allowance for
loan losses. Legal fees and direct costs of acquiring the property and
costs of carrying the property subsequent to recording as OREO are expensed
as incurred. Any reduction in the value of the property subsequent to its
being recorded as OREO is charged directly to expense and is recorded as an
allowance. The allowance for OREO at December 31, 1995 and 1994 was $14 and
$20, respectively.
INCOME TAXES The Company files a consolidated federal income tax
return and a combined California state franchise tax return with its
subsidiaries. Amounts equal to tax benefits of those companies having
taxable losses or credits are reimbursed by those companies which incur
tax liabilities. Any excess of alternative minimum tax over regular tax
determined on a consolidated basis will be borne by the parent company.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"),
which requires the use of the liability method in the computation of income
tax expense and current and deferred income taxes payable. Under SFAS No.
109, income tax expense consists of taxes payable for the year and the
changes during the year in deferred tax assets and liabilities. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
EARNINGS PER SHARE Net income per share for 1995 is based on 2,197,615
weighted average shares outstanding. Net loss per share for 1994 and 1993
are based on 1,538,364 shares outstanding.
EMPLOYEE STOCK COMPENSATION PLANS In October 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("SFAS No. 123"). Under the provisions of SFAS No. 123,
the Company is encouraged, but not required, to measure compensation costs
related to its employee stock compensation plans under the fair value
method. Under this method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service
period, which is usually the vesting period. If the Company elects not to
recognize compensation expense under this method it is required to disclose
the pro forma net income and earnings per share effects based on the SFAS No.
123 fair value methodology. SFAS No. 123 applies to financial statements
for fiscal years beginning after December 15, 1995. Earlier implementation
is permitted. The Company will implement the requirements of SFAS No. 123
in 1996 and will only adopt the disclosure provisions of this statement.
NOTE 2: CASH AND DUE FROM BANKS
The Bank is required to maintain reserves with the Federal Reserve
Bank. Reserve requirements are based on a percentage of deposit
liabilities. The average amounts held at the Federal Reserve Bank for
the years ended December 31, 1995 and 1994 were approximately $1,706 and
$1,371, respectively.
NOTE 3: INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
are summarized as follows at December 31, 1995:
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
DECEMBER 31, 1995:
Available for sale:
U.S. Treasury $13,532 $0 $(17) $13,515
U.S. Government agencies 12,797 28 (52) 12,773
Other 472 0 0 472
Federal Reserve Bank stock 273 0 0 273
$27,074 $28 $(69) $27,033
Held to maturity:
U.S. Treasury $1,000 $0 $(2) $998
U.S. Government agencies 4,021 10 (61) 3,970
States and municipalities 1,637 6 (12) 1,631
Other 750 0 0 750
$7,408 $16 $(75) $7,349
DECEMBER 31, 1994:
Available for sale:
U.S. Government agencies $9,997 $0 $(360) $9,637
Federal Reserve Bank stock 273 0 0 273
$10,270 $0 $(360) $9,910
Held to maturity:
U.S. Treasury $1,998 $0 $(45) $1,953
U.S. Government agencies 11,397 0 (602) 10,795
States and municipalities 3,176 0 (33) 3,143
Other 750 0 0 750
$17,321 $0 $(680) $16,641
Estimated
Amortized Market
Cost Value
DECEMBER 31, 1995:
Available for sale:
Due in one year or less $15,804 $15,786
Due after one year through five years 10,997 10,974
Due after five years through ten years 0 0
Federal Reserve Bank stock 273 273
$27,074 $27,033
Held to maturity:
Due in one year or less $3,000 $2,997
Due after one year through five years 3,137 3,082
Due after five years through ten years 1,271 1,270
$7,408 $7,349
Investment securities with a carrying value of $3,778 and
$3,276 at December 31, 1995 and 1994, respectively, were pledged
as security for public deposits and other purposes.
NOTE 4. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES
At December 31, 1995 and 1994 loans consist of the following:
1995 1994
Commercial $54,628 $57,808
Real estate 35,192 37,534
Installment 2,877 2,239
Unearned loan fees (366) (523)
$92,331 $97,058
<PAGE>
In the normal course of business, the Bank has made loans to certain
executive officers and directors or entities with which these individuals
are associated under terms consistent with the Bank's general lending
policies. In October 1990, the Bank discontinued further lending to such
persons or entities (except for cash secured loans) beyond the maturity of
existing loans. Exceptions to this policy were granted to one director
where the amounts of loans outstanding are less than the amounts outstanding
when the policy was adopted and to another whose guarantee of a loan was
made prior to his becoming a director.
A summary of the activity in the allowance for loan losses is as
follows:
1995 1994 1993
Balance at beginning of year $2,148 $2,522 $2,111
Provision charged to operating expenses 200 1,850 2,950
Loans charged off (655) (2,362) (2,716)
Recoveries 309 138 177
Balance at end of year $2,002 $2,148 $2,522
As of December 31, 1995 and 1994, restructured loans were $6,925 and
$3,460, respectively. Of these totals, $1,364 and $2,316 were accruing at
December 31, 1995 and 1994, respectively. The difference between interest
income recorded as restructured and interest income that would have been
recorded if not restructured was immaterial.
As of December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 totaled
$5,422. Of this total , $1,265 related to loans with no valuation
allowance, either because the loans have been partially written down
through charge-offs or because collateral value exceeds contractual amounts
due. The remaining $4,157 related to to loans with a valuation allowance
of $241. For the year ended December 31, 1995, the average recorded
investment in impaired loans was approximately $2,951. The Company
recognized $212 of interest on impaired loans (during the portion of the
year they were impaired) all of which represents income recognized using a
cash basis method of accounting during the time within the year the loans
were impaired.
NOTE 5: PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 are summarized
as follows:
1995 1994
Building $11,705 $11,708
Furniture, fixtures and equipment 2,936 2,855
Leasehold improvements 4,010 4,356
18,651 18,919
Less accumulated depreciation
and amortization 7,676 7,830
$10,975 $11,089
NOTE 6: DEPOSITS
The year-end balances for deposits by major classification are as follows:
1995 1994
Non-interest bearing demand $ 49,505 $ 45,693
Interest bearing demand 64,185 69,839
Savings 3,982 4,844
Time deposits of $100 or more 12,748 10,374
Other time deposits 9,989 7,526
$140,409 $138,276
Interest expense on deposits was comprised of the following:
1995 1994 1993
Interest bearing demand $1,873 $1,623 $1,373
Savings 92 77 79
Time deposits of $100 or more 471 347 725
Other time deposits 492 450 969
$2,928 $2,497 $3,146
Domestic time deposits over $100 at December 31, 1995 mature in the
following periods:
Time Certificates All Other
of Deposit Time Deposits
Three months or less $6,167 $201
Over three through six months 3,360 200
Over six through twelve months 2,498 0
Over twelve months 0 322
$12,025 $723
NOTE 7: NOTES PAYABLE
Notes payable consist of the following:
1995 1994
Note payable to a limited liability company
payable in monthly installments of $76 which
include interest at 9.8%. The loan is
collateralized by the bank building and is due
December 1, 2005. As additional consideration for
the loan the Company issued warrants to purchase
150,000 shares of Common Stock at $5.44 per share
until November 30, 1999. $7,989 $0
Note payable to two limited partnerships, managed
by WHR Management Corp. (owner of 24.9% of the
Company's Common Stock) paid November 29, 1995 at a
discount (see Note 22). 0 10,158
Note payable to a corporation (which is owned by a
member of the Company's Board of Directors); paid
November 29, 1995. 0 1,900
Notes payable to individuals (officers and/or
directors of the Company)paid September 30, 1995. 0 390
Notes payable to individuals paid March 31, 1995. 0 240
Notes payable to a corporation paid May 9, 1995. 0 14
$7,989 $12,702
NOTE 8: INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS No. 109"), as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes
increased 1993 net income by $234 ($0.15 per share) and is reported
separately in the consolidated statement of operations.
<PAGE>
The components of income tax expense attributable to continuing
operations for the years ended December 31, are as follows:
1995 1994 1993
Current:
Federal $2 $0 $0
State 3 3 0
Total current 5 3 0
Deferred:
Federal 0 0 0
State 0 0 0
Total deferred 0 0 0
Income tax expense $5 $3 $0
Income tax expense attributable to operations differs from the
amounts computed using the federal statutory income tax rate as a result
of the following at December 31:
1995 1994 1993
Computed expected taxes $74 $(57) $(951)
California franchise tax,net
of federal income tax benefit 3 0 0
Nontaxable interest income (30) (113) (84)
Alternative minimum tax 2 0 0
Net operating loss (57) 0 0
Adjustment of the valuation
allowance 0 168 1,003
Other 13 5 32
Income tax expense $5 $3 $0
The components of net deferred taxes at December 31, 1995 and 1994
are as follows:
Deferred
December (Expense) December
31,1994 Benefit 31,1995
OREO gains/losses ($438) $483 $45
Joint venture (313) 28 (285)
Bad debt allowance 373 94 467
Deferred compensation 14 2 16
Land lease 163 (114) 49
Depreciation (149) (49) (198)
Miscellaneous 30 37 67
Net operating loss 2,292 (1,071) 1,221
Debt refinance 0 622 622
AMT credit carryforward 0 148 148
Net deferred tax asset 1,972 180 2,152
Valuation allowance (1,972) (180) (2,152)
$0 $0 $0
At December 31, 1995, the Company has net operating loss ("NOL")
carryforwards for Federal tax purposes of approximately $3,083, to offset
future Federal taxable income. The Company also has NOL carryforwards for
California Franchise Tax purposes of approximately $4,944, of which 50% is
available to offset future state taxable income, subject to the limitations
below. The Federal NOLs begin to expire in 2007 and the California NOLs
begin to expire in 1997.
The Company also has Alternative Minimum Tax credits for financial
reporting purposes to offset future federal taxes of approximately $148.
Current tax statutes impose substantial limitations under certain
circumstances on the use of carryforwards upon the occurrence of an
"ownership change". An ownership change can result from the issuance of
equity securities by the Company, purchases of the Company's securities
in the secondary market or a combination of the foregoing.
NOTE 9: LEASE COMMITMENTS
At December 31, 1995, minimum rental payments due under the Company's
operating leases having initial or remaining non-cancelable lease terms
in excess of one year are as follows:
1996 $ 1,122
1997 1,029
1998 1,033
1999 1,033
2000 988
Thereafter 17,994
$ 23,199
Total minimum lease payments include $6,787 of rental payments to
the Joint Venture (the Company's 62%-owned subsidiary). The other
primary component of the minimum lease payments is the Joint Venture's
rental payments under a 99 year ground lease.
Total rental expense under operating leases was $1,337 in 1995,
$1,289 in 1994, and $1,259 in 1993. There are no contingent rental
payments applicable to any of the leases. All leases provide that the
Company pay taxes, maintenance, insurance and certain other operating
expenses applicable to the leased premises or property in addition to
the monthly minimum payments. Certain of the leases contain renewal
clauses at the option of the lessee.
NOTE 10: CONTINGENCIES
In the ordinary course of business, there are outstanding various
commitments to extend credit and guarantees, as well as certain claims
resulting from law suits, which are not reflected in the accompanying
consolidated financial statements. Management does not believe that
these items will have a material adverse effect on the consolidated
financial condition of the Company.
In January 1993, the Bank was named as a defendant in an adversary
proceeding filed by Pioneer Liquidating Corporation ("PLC"), successor
to six bankrupt Pioneer Mortgage Company entities (collectively,
"Pioneer") in the Bankruptcy Court of the Southern District of
California. Investors in Pioneer had previously filed suit against the
Bank, which litigation was settled in 1992. The PLC case was settled
with the final settlement agreement approved by the Federal District
Court for the Southern District of California on November 29, 1995.
A preliminary agreement between the Bank and PLC contemplated that
the Bank would make payment to PLC on execution of the settlement
agreement and assign to PLC certain charged-off loans, without recourse.
The preliminary agreement further provided that after being given credit
for the payment by the Bank and the collections on the assigned charged-
off loans, payment of the remaining balance of the total settlement
amount was to be guaranteed by Charles I. Feurzeig, Chairman of the
Board of the Company, and PVCC, Inc., a corporation controlled by Mr.
Feurzeig (collectively, the "Feurzeig Entities"). Such guarantee was
being given by the Feurzeig Entities for consideration independent of
Mr. Feurzeig's investment in the Company.
Subsequent negotiations led to the settlement agreement approved by
the Court whereby the Bank paid $600 to PLC and the Feurzeig Entities
paid $1,050 to PLC upon execution of the settlement agreement and the
Feurzeig Entities took the place of PLC with respect to assignment of
the charged-off loans. In consideration of the modification of the
original list of charged-off loans to eliminate certain loans which had
been only partially charged-off, the Bank agreed to assign additional
newly charged-off loans (90 days after charge-off) to the Feurzeig
Entities, until the first to occur of:
(a) Five years after the date of the settlement agreement; or
(b) Such time as the Feurzeig Entities have collected on such
loans $1,050 plus a return equal to the rate of 9.5% per year on the
unpaid portion of such $1,050.
<PAGE>
Pursuant to the settlement agreement the Feurzeig Entities do not
have recourse or a claim against the Bank should the collections on the
assigned charged-off loans amount to less than $1,050. Should the
collections exceed $1,050 plus the return referred to above, the
Feurzeig Entities have agreed to pay to the Bank 50% of such excess
collections.
NOTE 11: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments may include loan commitments,
interest rate exchange contracts, and standby letters of credit. The
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the financial
statements.
The Bank's exposure to credit loss in the event of non-performance
by the other party for loan commitments and letters of credit is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Bank has
no significant concentrations of credit risk with any individual
counterparty or groups of counterparties to originate loans. The Bank's
lending is concentrated in San Diego County. Variable rate loans
totaled $84,076 at December 31, 1995. The total contract amounts of
financial instruments with off-balance sheet risk at December 31 are
as follows:
1995 1994
LOAN COMMITMENTS:
Variable rate $42,667 $48,140
Fixed rate 707 431
Letters of credit 2,633 1,997
$46,007 $50,568
Since many of the loan commitments may expire without being drawn
upon, the total commitment amount does not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank 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 residential and income-producing properties. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
During February 1995, the Bank entered into an interest rate swap
to hedge against the effects of falling interest rates on income. If
the prime interest rate falls below eight percent during the life of the
contract, the Bank will receive payments amounting to the difference
between the then existing prime rate and eight percent on the contract
amount of $20 million. These payments continue while the prime interest
rate stays below eight percent or until expiration of the contract,
February 3, 1998. The Bank's exposure to credit loss in the event of
non-performance of the counterparty is represented by the amount of
these payments, which is presently undeterminable.
NOTE 12: EMPLOYEE BENEFIT PLANS
The Bank maintains a Profit Sharing Plan and Deferred Savings Plan for
the benefit of all employees. Contributions to the Profit Sharing Plan
are made at the discretion of the Board. The Deferred Savings Plan
provides a 401(k) plan for which the Bank may make discretionary
matching contributions on a percentage basis. The Bank accrued $59
under the plans in 1995. No accrual was made for the years 1994 and
1993.
NOTE 13: AVAILABILITY OF FUNDS FROM SUBSIDIARIES
Funds available for the payment of dividends by the Company would be
obtained from the Bank.
There are legal limitations on the ability of the Bank to provide
funds for the Company. Under federal banking law, dividends declared by
the Bank in any calendar year may not, without the approval of the
Comptroller of the Currency, exceed its net income, as defined, for that
year combined with its retained net income for the preceding two years.
At January 1, 1996, the Bank had available for dividends to the Company
approximately $1,370 without approval of the Comptroller. Federal
banking law also restricts the Bank from extending credit to the Company
in excess of 10% of capital stock and surplus, as defined, of the Bank.
Any such extensions of credit are subject to strict collateral requirements.
The Company and the Federal Reserve Bank of San Francisco ("Reserve
Bank") entered into an agreement on November 20, 1992, pursuant to which
the Company must obtain the approval of the Reserve Bank prior to the
declaration of any cash dividends.
NOTE 14: STOCK OPTIONS
In 1994 the Board of Directors adopted the "1994 Stock Option Plan"
("1994 Plan"), which was approved by the Company's shareholders on
March 17, 1995. The Company has reserved 400,000 shares for issuance
under the plan. Options are granted under the plan at a price not less
than the fair market value of the Company's common stock on the date of
grant. The options are exercisable in increments over a number of years
as determined by the Board of Directors but not to exceed 10 years and
expire three months after termination of employment or cessation of
affiliation as a director. The plan expires September 10, 2004, as to
any shares not at the time subject to option. Options can, depending on
the circumstances of issuance, be either incentive stock options, which
are qualified under provisions of the Internal Revenue Code for certain
tax-advantaged treatment, or non-qualified options.
The 1994 Plan replaced a similar plan, the "1984 Stock Option Plan"
("1984 Plan") which had expired.
As of December 31, 1995, there were non-qualified options
outstanding under the 1984 Plan for 168,294 shares at exercise prices
ranging from $3.25 to $7.94 per share and Incentive Stock Options
outstanding for 250,401 shares at exercise prices ranging from $3.25 to
$11.13 per share.
As of December 31, 1995, there were non-qualified options
outstanding under the 1994 Plan for 98,000 shares at a price of $6.00
per share and Incentive Stock Options outstanding for 67,000 shares at
prices ranging from $3.25 to $6.00 per share.
NOTE 15: LEASE INCOME
The Joint Venture (the Company's 62%-owned subsidiary) is the lessor of
the Building in which the Bank has its main office. The lease term is
20 years. Certain of the Building leases contain renewal clauses at the
option of the lessees. At December 31, 1995, minimum lease payments to
be received by the Joint Venture on non-cancelable operating leases are
as follows:
1996 $ 1,724
1997 1,471
1998 1,302
1999 1,199
2000 1,155
Thereafter 3,800
$10,651
<PAGE>
NOTE 16: INVESTMENT IN JOINT VENTURE
The Company's wholly-owned subsidiary, SDNB Development Corp ("Devco")
was the general partner with a 62% interest in a joint venture with a
limited partnership, Kettner Building Associates, Ltd. ("KBA"), in the
ownership and operation of the Building in which the Company has its
headquarters. On July 1, 1993, Devco was merged into the Company and
the Company became the general partner.
The results of operations attributable to the Company's controlling
interest in the Joint Venture are included in consolidated results of
operations with an appropriate allocation to the minority interest, the
remaining limited partners in KBA. During 1990, however, the allocation
exhausted the contributed capital of the remaining limited partners and
the Company began absorbing the entire loss.
NOTE 17: PARENT COMPANY INFORMATION
The following financial information represents the condensed balance
sheets of SDNB Financial Corp. (parent company only) as of December 31,
1995 and 1994, and the related condensed statements of income and cash
flows for each of the three years in the period ended December 31, 1995.
CONDENSED BALANCE SHEETS 1995 1994
ASSETS
Cash in San Diego National Bank $142 $30
Interest bearing deposits in other banks 497 0
Investment securities available-for-sale 472 0
Investment in San Diego National Bank 13,615 11,307
Investment in SDNB Building Joint Venture (2,647) (3,375)
Investment in SDNB Mortgage Bankers 6 6
Note receivable from Joint Venture 4,558 1,413
Other assets 119 462
$16,762 $9,843
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to subsidiaries for income taxes $7 $32
Other liabilities 69 212
Notes payable 0 630
Total Liabilities $76 $874
Shareholder's equity:
Common Stock, no par value; authorized
15,000,000 shares, issued 3,073,260
in 1995 and 1,538,364 in 1994 20,314 14,585
Accumulated Deficit (3,587) (5,256)
Net unrealized holding losses on
available-for-sale securities (41) (360)
Total shareholders' equity 16,686 8,969
$16,762 $9,843
CONDENSED STATEMENTS
OF OPERATIONS 1995 1994 1993
Management income $39 $41 $21
Interest income 311 136 66
Rental income 198 225 218
Total income 548 402 305
Operating expenses 584 498 433
Loss before income taxes and equity in
undistributed income (loss) of subsidiaries
and cumulative effect of accounting change (36) (96) (128)
Allocated income tax 21 (1) 0
Loss before equity in undistributed
income (loss) of subsidiaries and cumulative
effect of accounting change (15) (97) (128)
Equity in undistributed income (loss)
of subsidiaries 227 (62) (2,313)
Income (loss) before cumulative effect of
accounting change 212 (159) (2,441)
Cumulative effect of accounting change 0 0 (121)
Net income (loss) $212 $(159) $(2,562)
CONDENSED STATEMENTS
OF CASH FLOWS 1995 1994 1993
OPERATING ACTIVITIES:
Net income (loss) $212 $(159) $(2,562)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Net change in taxes payable 0 (30) (600)
Provision for depreciation and amortization 15 4 6
Cumulative effect of accounting changes 0 0 (121)
Net change in other assets 345 (267) 16
Net change in other liabilities (148) 59 50
(Income) loss of wholly-owned subsidiaries (227) 62 2,434
Total adjustments (15) (172) 1,785
Net cash provided (used) by operating activities 197 (331) (777)
INVESTING ACTIVITIES:
Purchase of investment activities (3,336) 0 0
Sales of investment securities 2,864 0 0
Purchase of leasehold improvements 0 0 30
Advances to subsidiaries (4,161) 0 0
Payments from subsidiaries 0 100 173
Net cash provided (used) by
investing activities (4,633) 100 203
FINANCING ACTIVITIES
Proceeds from short-term borrowings 0 275 440
Repayments of short-term borrowings (630) (85) 0
Proceeds from advances from subsidiaries 0 83 488
Repayment of advances from subsidiaries (54) (26) (516)
Proceeds from issuance of common stock 5,729 0 0
Payments for costs associated with
issuance of common stock (932) 0 0
Net cash provided by financing activities 5,045 247 412
Increase (decrease) in cash 609 16 (162)
Cash at beginning of year 30 14 176
Cash at end of year $639 $30 $14
<PAGE>
NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In 1992, the Company adopted SFAS 107 which requires the disclosure of
the estimated fair value of its financial instruments. The following
methods and assumptions were used to estimate the fair value of the
other classes of financial instruments for which it is practice to
estimate that value. Carrying value approximates fair value for cash
and due from banks, federal funds sold and securities sold under
agreements to repurchase.
Interest Bearing Deposits In Other Banks For privately placed
certificates of deposit, fair value is estimated using the rates
currently offered for deposits of similar remaining maturities.
Investment Securities Fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans Fair value for variable rate loans is determined by using
the present value of cash flows discounted from the first repricing
opportunity. For fixed rate loans, the cash flows to maturity are
discounted to achieve the present value. In each case, the discount
rate is equal to the rate at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. Non-accrual loans are discounted based on cash flows
including principal repayment only at maturity.
Deposit Liabilities The fair value of demand deposits, savings
accounts, NOW accounts and money market accounts is the amount payable
on demand at the reporting date. The fair value of certificates of
deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
Acceptances Outstanding And Commercial Letters Of Credit
Settlement value approximates fair value.
Notes Payable Rates currently available to the Company for debt
with similar terms and remaining maturities are used to estimate fair
value of existing debt.
Commitments, Guarantees And Standby Letters Of Credit The fair
values approximate the carrying amounts which are comprised of
unamortized fee income.
Interest Rate Contracts The fair value approximates the carrying
amount which represents remaining unamortized contract price.
Carrying amount Fair value
FINANCIAL ASSETS:
Cash and due from banks $13,440 $13,440
Interest bearing deposits in other banks 2,780 2,782
Investment securities held-to-maturity 7,408 7,349
Investment securities available-for-sale 27,033 27,033
Federal funds sold 24,700 24,700
Loans 92,331
Less allowance for loan losses 2,002
Net loans 90,329 90,312
FINANCIAL LIABILITIES:
Deposits:
Non-interest bearing $49,505 $49,505
Interest bearing 90,904 90,922
Total deposits 140,409 140,427
Securities sold under agreements
to repurchase 12,934 12,934
Notes payable 7,989 7,989
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Acceptances outstanding and commercial
letters of credit $785
Commitments, guarantees and standby
letters of credit $128
Interest rate contracts $ 27
NOTE 19: MISCELLANEOUS OPERATING INCOME
Miscellaneous operating income consists of the following:
1995 1994 1993
Service charge on deposits $ 583 $ 633 $ 737
Other service charges 162 149 165
OREO income 44 55 93
Other 27 743 22
$ 816 $1,580 $1,017
NOTE 20: OTHER NON-INTEREST EXPENSES
Other non-interest expenses consist of the following:
1995 1994 1993
Data Processing $ 210 $ 223 $ 239
FDIC insurance premiums and
OCC assessments 273 442 487
Professional fees 865 506 758
Provision for litigation settlement 350 250 150
Loan and collection expense 416 330 318
OREO expense 52 59 168
Losses on OREO property 77 403 586
Miscellaneous 1,587 1,234 1,649
$3,830 $3,447 $4,355
NOTE 21: CAPITAL RATIOS
The Comptroller of the Currency ("OCC") has established a framework for
supervisory requirements of national banks based upon capital ratios.
Based upon this framework, a bank's capitalization is defined as well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized or critically undercapitalized. As of December 31,
1995, the Bank's capital ratios were 12.73% and 13.98% for tier 1
capital and risk weighted capital, respectively. Under the OCC
framework, a bank is well capitalized if its ratios are greater than or
equal to 6% and 10% for tier 1 capital and risk weighted capital,
respectively.
The Federal Reserve Bank ("FRB"), as the regulatory body of the
Company, has capital ratio requirements. Under the FRB Capital Adequacy
Guidelines, all bank holding companies should meet a minimum ratio of
qualifying total capital to weighted-risk assets of 8 percent, of which
at least 4.0 percentage points should be in the form of tier 1 capital.
At December 31, 1995, the Company's capital ratios were 14.18% and
15.43% for tier 1 capital and risk weighted capital, respectively.
NOTE 22: GAIN ON EARLY PAYMENT OF LOAN
In January 1995, the note payable to the two limited partnerships
managed by WHR Management Corp. was modified to provide for a discount
for early payment. In November 1995, the note was paid in full.
Because the transaction was with a related party, the gain, $1,457, net
of expenses and income taxes, has been credited directly to
shareholders' equity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of SDNB Financial Corp.
We have audited the accompanying consolidated balance sheets of SDNB
Financial Corp. and the subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SDNB Financial Corp. and subsidiaries at December 31, 1995 and 1994,
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in notes 1 and 8 to the consolidated financial
statements, the Company changed its method of accounting for income
taxes effective January 1, 1993.
/s/Coopers & Lybrand L.L.P.
San Diego, California
February 5, 1996
INVESTOR RELATIONS INFORMATION
Availability Of Form 10-K
The Company will furnish, without charge, upon written request of any
shareholder, a copy of the Company's annual report to the Securities and
Exchange Commission on Form 10-K (including financial statements and
financial statement schedules, but without exhibits) for the fiscal year
ended December 31, 1995. Requests should be addressed to:
Howard W. Brotman, Secretary
SDNB Financial Corp.
Post Office Box 12605
San Diego, CA 92112-3605
Direct Mailing To "Street Name" Holders
Shareholders who have certificates of SDNB Financial Corp. common stock
held in brokerage accounts or otherwise not in their own names should
receive the Company's annual reports from their brokers or other record
holders. If you are such a shareholder and desire to receive those and
other reports directly from SDNB Financial Corp. at the same time as
record holders, please contact in writing:
Howard W. Brotman, Secretary
SDNB Financial Corp.
Post Office Box 12605
San Diego, CA 92112-3605
Independent Accountants
Coopers & Lybrand L.L.P.
402 West Broadway
San Diego, CA 92101
Stock Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Stock Information
Since October 6, 1987 the Company's common stock has been listed on the
NASDAQ National Market System. There is only a limited market for the
Company's common stock.
The Company had approximately 1,000 shareholders as of December 31, 1995.
Price Information By Period
1995 1994
First quarter
Low $3.25 $2.50
High 4.25 3.25
Second quarter
Low 3.625 2.50
High 4.25 3.25
Third quarter
Low 3.50 2.50
High 4.50 4.75
Fourth quarter
Low 4.50 3.00
High 6.25 4.75
Dividend Information
There were no stock or cash dividends declared in 1995 or 1994.
Common Stock Listing
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: SDNB.
<PAGE>
BOARD OF DIRECTORS
SDNB Financial Corp.
(Individual pictures of SDNB Financial Corp. Board of Directors. From left
to right (top row) Charles I. Feurzig, Douglas E. Barnhart, Howard W.
Brotman, Julius H. Zolezzi, Karla Hertzog, (bottom row) Mark P. Mandell,
Margaret "Midge" Costanza, Murray L. Galinson, Patricia L. Roscoe and Robert
B. Horsman.)
(Group picture of SDNB Senior Management Team (from left to right): Robert
B. Horsman, Murray L. Galinson, Ronald P. Bird, Mark P. Mandell, Joyce
Chewning-Johnson, Howard W. Brotman.)
<PAGE>
Board of Directors
Douglas E. Barnhart Howard W. Brotman
Chief Executive Officer, Director,
Douglas E. Barnhart, Inc. SDNB Financial Corp.
Senior Vice President,
San Diego National Bank
Margaret "Midge" Costanza Charles I. Feurzeig
Partner, Chairman of the Board,
Martin & Costanza SDNB Financial Corp;
Communications President,
PVCC, Inc.
Murray L. Galinson Karla J. Hertzog
Chief Executive Officer, President,
San Diego National Bank TOPS Total Personnel Services,
President, Chief Executive Officer, Inc.
SDNB Financial Corp.
Robert B. Horsman Mark P. Mandell
President, Attorney-at-Law
San Diego National Bank
Patricia L. Roscoe Julius H. Zolezzi
Chairman, President,
Patti Roscoe & Associates, Inc. Zolezzi Enterprises
Officers of SDNB Financial Corp.
Murray L. Galinson Robert B. Horsman
President, President,
Chief Executive Officer San Diego National Bank
Howard W. Brotman Joyce Chewning-Johnson
Senior Vice President, Secretary, Executive Vice President
Chief Financial Officer
San Diego National Bank
Business Advisory Council
John L. Baldwin Betty Byrnes
President, Medical Administrator
Baldwin Pacific Corp.
Shlomo Caspi Marvin Cohen
President, Architect
Caspi, Inc. & Caspi Enterprises
Michael H. Dessent Norman Eisenberg, CPA
Dean, Eisenberg & Bonk
California Western School Of Law
James T. Gianulis Wayne L. Hanson
President, President,
Pacific Income Properties, Inc. Cygnus Corp.
Warren O. Kessler, M.D. Ed Mendelsohn
Hillcrest Urological President,
Medical Group ESM & Associates
Rebecca Newman James S. Nierman
Real Estate Broker Real Estate Investor
Gordon W. Parkman Reint Reinders
President, President,
Parkman Realty Corp. San Diego Convention and
Visitors Bureau
Winifred Reno Nancy L. Scott
Owner, President,
The Plantry Capital Equities of La Jolla
C. Randolph Strada William Verbeck
President, President,
First San Diego Co.,Inc. WNV, Inc.
Arnold Winston
President,
BancCorp Companies, Inc.
San Diego National Bank
Senior Management Committee
Murray L. Galinson Robert B. Horsman
Chief Executive Officer President
Joyce Chewning-Johnson Howard W. Brotman
Executive Vice President Senior Vice President,
Chief Financial Officer
Ronald P. Bird Mark P. Mandell
Senior Vice President, Director of Strategic Planning
Director of Business Services and Business Development
San Diego National Bank Officers
Gail Jensen-Bigknife Richard Nance
Senior Vice President, Senior Vice President,
Real Estate Department Credit Administration
Nancy A. Aul Paul A. Fairweather
Vice President, Vice President,
Commercial Banking Group Commercial Banking Group,
Manager
Julius J. Kukta Eric W. Larson
Vice President, Vice President,
Corporate Banking Group Finance
Rafael Martinez Pamela A. McMahon
Vice President, Vice President, Manager,
International Banking Corporate Banking Group
John K. McNulty Debra Perkins
Vice President, Vice President,
Business Development Manager Compliance
Connie M. Reckling Roger Remnant
Vice President, Vice President
Human Resources Real Estate Department
Carlos Rivera Dawn Serafin
Vice President, Vice President,
Lending Manager, Operations
South Bay Office
Margherita Stutz John G. Weaver
Vice President, Vice President,
Corporate Banking Group Commercial Banking Group
Don R. Wolfe Kristy Gregg
Vice President, Assistant Vice President,
Corporate Administration Community Relations Manager
Kaye Hobson JoAnn Piper
Assistant Vice President, Assistant Vice President,
Finance Business Services
Carol A. States Cynthia Velez
Assistant Vice President, Assistant Vice President,
Commercial Banking Group Operations
Willie Armas Barbara J. Bellini
Operations Officer Operations Officer
Daryl Durham Linda Eggen
EDP Manager Real Estate Administration
Officer
Susie Mummery Jacqueline M. Murphy
Administrative Officer Operations Officer
Susan Ohlendorf William D. Scheffel
Operations Officer, Corporate Banking Lending Officer
Bankcard Services
Thomas S. Sperla Mary Beth Wilder
Special Assets Manager Financial Analyst
SDNB Financial Corp., 1420 Kettner Boulevard, San Diego, CA 92101,
(619) 231-4989
SAN DIEGO NATIONAL BANK is a member of FDIC and an Equal Housing Lender
EXHIBIT "22"
SUBSIDIARIES OF REGISTRANT
1. San Diego National Bank, a national banking association
2. SDNB Mortgage Bankers, a California corporation
3. San Diego National Bank Building Joint Venture, a California
general partnership
EXHIBIT "23 (a)"
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by refernce in the registration statement
of SDNB Financial Corp. on Form S-8 of our report dated February 5, 1996,
on our audits of the financial statements and financial statement schedules
of SDNB Financial Corp. as of December 31, 1995 and 1994, and for the years
ended December 31, 1995, 1994 and 1993, which report is included (or
incorporated by reference) in the Annual Report on Form 10-K.
/s/Coopers & Lybrand, L.L.P.
San Diego, California
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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0
0
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