<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
Commission file number 0-10794
STERLING WEST BANCORP
(Exact name of registrant as specified in its charter)
California 95-3712404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3287 Wilshire Boulevard, Los Angeles, California 90010 (Address of
principal executive offices) (Zip Code)
(213) 384-4444
(Registrant's telephone number, including area code)
Indicate by check 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
1,710,429
(Number of shares of common stock outstanding November 10, 1995)
This Form 10-Q contains 16 pages.
Exhibit Index: None
<PAGE>
<PAGE 2>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 28,960,000 $ 20,294,000
Investment securities
(market value of $7,640,000)
in 1995 and $6,832,000 in 1994 7,627,000 6,974,000
Loans Receivable, net 68,887,000 89,462,000
Fixed assets
Land and building 227,000 227,000
Furniture and equipment 2,917,000 2,635,000
Leasehold improvements 1,411,000 1,400,000
4,555,000 4,262,000
Less accumulated depreciation (3,317,000) (3,089,000)
1,238,000 1,173,000
Accrued interest receivable 790,000 954,000
Real estate held for sale 6,437,000 7,808,000
Other assets 839,000 1,504,000
Assets of discontinued operations 845,000 4,322,000
Total assets $115,623,000 $132,491,000
LIABILITIES
Deposits
Demand $ 31,923,000 $ 31,097,000
Savings and NOW 56,780,000 57,652,000
Money market 8,330,000 10,183,000
Time deposits $100,000 or greater 3,878,000 3,505,000
Other time deposits 3,400,000 4,661,000
104,311,000 107,098,000
Notes payable 200,000 11,900,000
Other liabilities 2,095,000 3,136,000
Total liabilities 106,606,000 122,134,000
STOCKHOLDERS' EQUITY
Common stock - authorized 5,000,000
shares without par value; issued
and outstanding 1,710,429 shares
at September 30, 1995 and
December 31, 1994 8,686,000 8,686,000
Retained earnings 331,000 1,671,000
9,017,000 10,357,000
Total Liabilities and Stockholders Equity $115,623,000 $132,491,000
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE 3>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C>
Interest income
Loans $ 2,777,000 $ 2,862,000 $ 9,102,000 $ 8,334,000
Federal funds sold 225,000 193,000 524,000 350,000
Investment securities held
to maturity 132,000 114,000 379,000 339,000
Trading Securities -- 1,000 -- 69,000
3,134,000 3,170,000 10,005,000 9,092,000
Interest expense
Savings and NOW 672,000 592,000 1,986,000 1,256,000
Money market 30,000 57,000 107,000 171,000
Time deposits $100,000
or greater 52,000 151,000 122,000 386,000
Other time deposits 35,000 153,000 120,000 234,000
Notes Payable 288,000 369,000 1,081,000 877,000
1,077,000 1,322,000 3,416,000 2,924,000
Net interest income 2,057,000 1,848,000 6,589,000 6,168,000
Provision for loan losses 486,000 150,000 686,000 175,000
Net interest income
after provision for
loan losses 1,571,000 1,698,000 5,903,000 5,993,000
Non-interest income
Service charges on deposit
accounts 82,000 62,000 244,000 216,000
Gain on sale of SBA loans 30,000 -- 133,000 49,000
Gain on sale of SBC assets 1,504,000 -- 1,504,000 --
Other 118,000 165,000 409,000 411,000
1,734,000 227,000 2,290,000 676,000
Non-interest expense
Salaries, wages and employee
benefits 929,000 1,095,000 3,215,000 3,366,000
Occupancy 211,000 212,000 622,000 720,000
Furniture and equipment 92,000 57,000 264,000 175,000
Real estate operations, net 608,000 130,000 880,000 540,000
Other 553,000 505,000 1,821,000 1,539,000
2,393,000 1,999,000 6,802,000 6,340,000
Income from continuing operations
before income taxes 912,000 (74,000) 1,391,000 329,000
Income tax provision 707,000 (40,000) 907,000 197,000
Income from continuing operations 205,000 (34,000) 484,000 132,000
Loss from discontinued
operations (1,390,000) (112,000) (1,824,000) (1,532,000)
NET INCOME (LOSS) $(1,185,000) $ (146,000) (1,340,000) (1,400,000)
============ =========== ========== ===========
Income (loss) per common share:
From continuing operations $ 0.12 $ (0.02) 0.28 0.08
From discontinued operations (0.81) (0.07) (1.07) (0.90)
Net income (loss) per share$ (0.69) $ (0.09) (0.79) (0.82)
============ =========== ========== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE 4>
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the three months ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,340,000) $(1,400,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 227,000 220,000
Provision for loan losses 686,000 175,000
Provision (benefit) for deferred taxes 514,000 (825,000)
Decrease in trading securities, net -- 6,038,000
Real estate valuation adjustments, net 1,219,000 953,000
Decrease in interest receivable 164,000 (48,000)
Decrease (increase) other assets 149,000 1,471,000
Increase in other liabilities (1,040,000) 837,000
Decrease in assets of discontinued operations 3,259,000 (3,030,000)
Total adjustments 5,178,000 5,791,000
Net cash provided by
operating activities 3,838,000 4,391,000
Cash flows from investing activities
Proceeds from maturities of investment securities 1,672,000 2,761,000
Purchases of investment securities (2,324,000) (2,062,000)
Net (increase) decrease in loans receivable 20,286,000 (1,860,000)
Proceeds from sale of real estate 1,160,000 4,211,000
Payment on real estate owned (1,405,000) (1,047,000)
Purchase of furniture and equipment (74,000) (154,000)
Net cash provided by (used in)
investing activities 19,315,000 1,849,000
Cash flows from financing activities
Net increase in demand deposits, savings
and other money market accounts (1,899,000) 16,167,000
Net decrease in certificates of deposit (888,000) (17,305,000)
Net increase (decrease) in note payable to
financial institution (10,207,000) (407,000)
Proceeds from issuance of commercial paper -- 88,000
Payments of maturing commercial paper -- (1,041,000)
Payments on maturing promissory notes (1,493,000) --
Net cash used in
financing activities (14,487,000) (2,498,000)
Net decrease in cash and cash equivalents 8,666,000 3,742,000
Cash and cash equivalents at beginning of period 20,294,000 17,163,000
Cash and cash equivalents at end of period $ 28,960,000 $20,905,000
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE 5>
PART I: FINANCIAL INFORMATION
Notes to Financial Statements of Registrant
September 30, 1995
1. The consolidated financial statements are unaudited and reflect
all adjustments and reclassifications which are, in the opinion of
Management, necessary for a fair presentation of the results of
operations for the interim period. The results of operations and cash
flows for the interim period ended September 30, 1995 are not
necessarily indicative of results which may be expected for any other
interim period or the year as a whole.
2. In the ordinary course of business the Company enters into
commitments to extend credit to its customers. These commitments are
not reflected in the accompanying consolidated financial statements
and Management does not expect any loss to result from such
commitments. As of September 30, 1995 and December 31, 1994 the
Company had entered into the following commitments:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Letters of Credit $ 866,000 $ 1,641,000
Undisbursed Loan Commitments $ 13,385,000 $ 12,895,000
</TABLE>
3. Earnings per share amounts have been computed using the weighted
average number of common shares and dilutive common equivalent shares
outstanding. The number of such primary shares are 1,710,429 for
September 30, 1995 and 1994.
4. Certain reclassifications have been made in the 1994 financial
statements to conform to the presentation used in 1995.
<PAGE>
<PAGE 6>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to provide a better understanding
of the material changes in trends relating to the financial condition,
results of operations, and liquidity of Sterling West Bancorp (the
"Company"). The discussion and analysis for the third quarter ended
September 30, 1995 reflect the operations of the Company's two
subsidiary companies, Sterling Bank ("Bank") and Sterling Business
Credit, Inc. ("Business Credit"). The Bank and Business Credit are
wholly-owned subsidiaries of the Company. During the third quarter of
1995 Business Credit sold substantially all of its assets to an
unaffiliated third party. During the fourth quarter of 1994 the
Company decided to discontinue its mortgage banking operations which
were performed substantially by BSC Mortgage Corporation, a wholly
owned subsidiary of the Bank. Unless otherwise specified, the
discussion below relates to the Company's consolidated financial
condition and operations.
During the third quarter of 1995, the Company had a net loss of
$1,185,000 as compared to a net loss of $146,000 in the same quarter
in 1994. The increase in net loss resulted from a loss from
discontinued operations of $1,390,000 as compared to a loss from
discontinued operations of $112,000 in the same period of 1994. The
loss from discontinued operations resulted from a provision for
expected losses related to repurchased loans which were originated by
BSC Mortgage Corporation. The provision was necessary because of a
settlement with a third party for an amount in excess of related
reserves. Our legal counsel in an arbitration proceeding advised us,
during the third quarter, that, as a result of findings during
discovery, our prospects for recovery were significantly less than
originally anticipated and that we should pursue a settlement.
Income from continuing operations was $205,000 in the third quarter
of 1995 compared to loss from continuing operations of $34,000 for the
same period of 1994. The increase resulted from a $1.5 million gain
on sale of assets of Business Credit which was offset by a $0.3
million increase in the provision for loan losses, a $0.5 million
increase for real estate operations, net and a higher tax rate
resulting from an inability to use tax loss credits. The Company's
real estate held for sale and nonaccrual loans decreased to $8.6
million at September 30, 1995 from $11.4 million at September 30, 1994
as compared to $9.5 million at December 31, 1994.
FINANCIAL CONDITION
Assets
At September 30, 1995 assets of the Company were $115,623,000, a
decrease of 12.7% from the $132,491,000 at December 31, 1994. The
decreased asset levels reflect the need to reduce size in order to
satisfy regulatory capital ratio requirements applicable to the
<PAGE 7>
Company and the Bank and the slow economic environment . Significant
changes in the distribution of assets included a $8.7 million increase
in cash and cash equivalents as assets being liquidated, primarily
relating to the Business Credit sale, were invested in federal funds
sold. Loans receivable decreased $20.6 million primarily as a result
of the sale of assets of Business Credit. Assets of discontinued
operations decreased $3.5 million as a result of the continued
liquidation of receivables of BSC, and the use of cash to liquidate
payables. Other assets decreased $0.7 million with the receipt of a
tax refund. Notes payable decreased $11.7 million as the line of
credit used to finance Business Credit was paid out of the Business
Credit sale proceeds along with the notes issued by the Company.
The Company's real estate held for sale consists of real estate owned
and real estate investments, and decreased to $6.4 million at
September 30, 1995 from $7.8 million at December 31, 1994 as compared
to $8.5 million at September 30, 1994. During the third quarter 8
single family residences with a book value of $1.0 million were added
to real estate held for sale as a result of the settlement of a
repurchase dispute with a third party. One residential lot with a book
value of $0.1 million was sold. Properties held at September 30, 1995
consisted of fourteen single family residences, three apartment
buildings, one four unit condominium development, one residential lot
development, three residential lots and one commercial building. All
properties are stated at the lower of cost or estimated fair market
value less estimated selling costs. Subsequent to September 30, 1995
two of the single family residences with a total book value of $0.2
million were in escrow or had been sold at amounts approximating book
value.
While management does not expect any substantial additional material
losses on the sale of these properties in excess of the allowances
already provided in the financial statements, because of the fact that
74% of the Bank's loan portfolio is real estate secured, management
expects that further foreclosures will occur and no assurance can be
given that additional losses will not occur. See "RESULTS OF
OPERATIONS - Net Interest Income" and "RESULTS OF OPERATIONS -
Noninterest Expense" for a description of the effect of these assets
on net interest income and noninterest expense.
Source of Funds
Total deposits were $104.3 million at September 30, 1995 compared to
$107.1 million at December 31, 1994. The decrease primarily consisted
of a $1.9 million decrease in money market deposits and a $1.3 million
decrease in other time deposits. These deposit changes reflect normal
fluctuations in these accounts and the asset-liability management
process at the Bank which considered reduced funding needs as a result
of the drop in assets. Notes payable decreased from $11.9 million at
December 31, 1994 to $0.2 million at September 30, 1995 as a result
of payoff at Business Credit of its line of credit from Security
Pacific Business Credit, Inc. with the sale of most of its assets. The
Company also paid off the $1.4 million of outstanding notes the
<PAGE 8>
proceeds of which had been downstreamed to Business Credit. The
remaining outstanding notes payable consist of borrowings under a $1.5
million line of credit provided by First Capital Corporation, the
entity which acquired substantially all the assets of Business Credit.
That line of credit is collateralized by the remaining loan portfolio
of Business Credit. The line of credit matures on September 7, 1996
and provides for interest to be charged on the outstanding daily loan
balance of Business Credit at the rate of 1-3/4% over the prime rate,
from time to time, of NatWest Bank N.A.
There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Bank as well as
statutory limitations on the amount of dividends which may be paid to
the Company by Business Credit. At September 30, 1995 the Bank is
prohibited from paying dividends under these provisions. The Bank is
also prohibited from paying cash dividends to the Company under the
terms of memorandums of understanding with the Federal Reserve Bank
of San Francisco ("FRB"), the Federal Deposit Insurance Corporation
("FDIC") and the State Banking Department unless the payment is
approved in advance by the FRB, the Regional Director of the FDIC and
the California Superintendent of Banks. Please see "CAPITAL
RESOURCES" below for a discussion of the terms of these memorandums
of understanding.
RESULTS OF OPERATIONS
Net Income
During the third quarter of 1995, the Company had a net loss of
$1,185,000 as compared to a net loss of $146,000 in the same quarter
in 1994. The net loss resulted primarily from losses from discontinued
mortgage banking operations of $1,390,000 in 1995 as compared to
$112,000 in 1994. Income from continuing operations was $205,000 in
the third quarter of 1995 compared to loss from continuing operations
of $34,000 for the same period of 1994. The improvement resulted from
a $1.5 million gain on sale of assets of Business Credit on September
6, 1995 which was offset by a $0.3 million increase in the provision
for loan losses, a $0.5 million increase for real estate operations,
net and a higher tax rate resulting from an inability to use tax loss
credits. Net interest income increased $0.2 million as interest income
decreased slightly in the third quarter of 1995 as compared to the
same period of 1994 as the effect of lower loans outstanding was
offset by a higher prime rate; interest expense did not experience
similar increases in interest expense as a result of changes in the
Bank's deposit mix.
The loss from discontinued operations resulted from an increased
provision for expected losses related to repurchased loans which were
originated by BSC Mortgage Corporation. The increased provision
resulted from a settlement with a third party for an amount in excess
of related reserves. Our legal counsel in an arbitration proceeding
advised us during the third quarter that, as a result of findings
<PAGE 9>
during discovery, our prospects for recovery were significantly less
than originally anticipated and that we should pursue a settlement.
For the nine months ended September 30, 1995 the Company reported a
net loss of $1,340,000 compared to a net loss of $1,400,000 in the
same period in 1994. Income from continuing operations was $484,000
in the first nine months of 1995 compared to income from continuing
operations of $132,000 for the same period of 1994. The increase
resulted from a $1.5 million gain on sale of assets of Business Credit
on September 6, 1995 which was offset by a $0.5 million increase in
the provision for loan losses, a $0.3 million increase for real estate
operations, net and a higher tax rate resulting from an inability to
use tax loss credits. Interest income at the Bank increased in the
first nine months of 1995 as compared to the same period of 1994 as
a result of a higher prime rate, however the increase was partially
offset by similar increases in interest expense.
The Company's discontinued mortgage banking operation was in the
business of originating and selling in the secondary market first and
second trust deed loans secured by residential properties. In the
ordinary course of business the Company made representations and
warranties to the purchasers and insurers of mortgage loans and the
purchasers of mortgage servicing rights regarding compliance with
laws, regulations and program standards and as to accuracy of
information. Under certain circumstances the Company may become
liable for certain damages or may be required to repurchase a loan if
there has been a breach of representations or warranties. Although
the repurchase obligations are not triggered by defaults the investor
does not usually request a repurchase unless there is a default.
Since the suspension by FHLMC, in August of 1993, of BSC's eligibility
to sell mortgages to and service mortgages for FHLMC the number of
repurchase requests had increased. The repurchase and make whole
requests (where the loan has already been foreclosed upon and the
related collateral has been sold at a loss) relating to 39 loans sold
to FHLMC were the subject of a dispute between the Company and a
mortgage servicer to whom the Company sold the related residential
mortgage servicing rights. FHLMC had required the servicer to
repurchase the loans or to otherwise make them whole and the servicer
had requested the Company to indemnify it. The Company and the
mortgage servicer settled this dispute in the third quarter of 1995.
The Company paid $3.8 million to the servicer and received loans and
REOs with a principal balance of $1,976,000. As a result of this
settlement the Company booked a charge to discontinued operations in
the third quarter of 1995 of approximately $1.5 million. At September
30, 1995 the Company has no outstanding repurchase requests from FHLMC
but has outstanding from other investors requests to repurchase 2
foreclosed properties totaling $221,000 and 5 make whole requests
which are alleged to be $0.3 million. During 1995 the Company has
received 5 repurchase requests compared to 45 repurchase requests
during 1994 and has received none since July, 1995. The loans for
which repurchases and makewholes have been requested were generally
<PAGE 10>
originated in 1989, 1990 and the first half of 1991, a period of high
real estate prices in Southern California and a period during which
most of BSC's originations were sold to FHLMC. As a result of the
real estate recession in Southern California these repurchases
frequently result in losses. The Company maintained at September 30,
1995, in addition to its allowance for loan losses, an allowance for
repurchase losses of $0.9 million to cover this repurchase contingency
and contingencies related to repurchase requests which may be received
in the future.
The Company continues to have a potential liability for
representations and warranties made to FHLMC and other investors in
loans originated by BSC. The loans were sold in the Bank's name and
the Bank made the representations and warranties to the purchaser.
No assurance can be given that such requests will not continue or that
other requests will not be received from other investors. The
discontinuance of BSC operations will not effect the Bank's
responsibility for representations and warranties in the sale of such
mortgage loans.
Net Interest Income
Net interest income is the difference between interest and fees earned
on earning assets and interest paid on deposits and other sources of
funds. Net interest income increased 11.3%, or $0.2 million, for the
third quarter of 1995 as compared to the same period in 1994. The
increase in the Company's net interest income for the third quarter
was due substantially to the generally higher level of interest rates,
including the prime rate, during the third quarter of 1995 as compared
to the third quarter of 1994, to the sale of Business Credit assets
and the related payoff of the Company's notes payable and to changes
in the Bank's deposit mix as a result of the normal asset-liability
changes directed by Bank management. These changes, which were
influenced by the discontinuance of the Company's mortgage banking
operations in the fourth quarter of 1994 and the need to reduce asset
size for capital ratio purposes, resulted in decreases in interest
bearing deposit accounts and an increase in non-interest bearing
demand deposit accounts. The interest expense related to those types
of deposits changed accordingly. This effect was offset by decreases
in the amount of loans and deposits outstanding. The increase in
interest expense on savings and Now accounts is due to the fact that
the Bank has a savings account product which is tied to the prime
rate.
Net interest income increased 6.8% for the first nine months of 1995
as compared to the same period in 1994. The increase in the Company's
net interest income was due substantially to a $0.8 million increase
in interest income on loans and a $0.5 million increase in interest
expense. The increase in interest income on loans resulted from the
generally higher level of interest rates, including the prime rate,
during 1995 as compared to 1994. The increase in interest expense also
<PAGE 11>
resulted from the higher level of interest rates but was lessened as
the Company reduced interest bearing deposits.
Nonperforming assets, consisting of nonaccrual loans and real estate
held for sale, amounted to $9.1 million at September 30, 1995 compared
to $9.5 million at December 31, 1994 and $11.5 million at September
30, 1994. Nonaccrual loans amounted to $2.1 million at September 30,
1995 as compared to $1.7 million at December 31, 1994 and $1.5 million
at September 30, 1994. Real estate held for sale decreased from $9.8
million at September 30, 1994 and $7.8 million at December 31, 1994
and to $6.4 million at September 30, 1995. The decrease in real
estate held for sale in the first nine months is due to the sale of
six properties with an aggregate book value of $1.9 million. The high
level of nonaccrual loans and real estate held for sale results from
the recessionary environment in Southern California.
The Company expects that the continued ownership of these generally
non-earning assets will have a negative impact on net interest margin
and on net earnings of the Company in the short run. A high level of
non-earning assets negatively effects net interest income because the
Company incurs interest expense to finance the ownership of the asset
but earns no corresponding interest income. See "RESULTS OF
OPERATIONS - Allowance and Provision for Possible Loan Losses" below
for a description of the nonaccrual loans and see "FINANCIAL CONDITION
- - Assets" above for a description of the real estate held for sale.
Allowance and Provision for Possible Loan Losses
The provision for loan losses is determined by management based upon
the Company's loan loss experience, the performance of loans in the
Company's portfolio, the quality of loans in the Company's portfolio,
evaluation of collateral for such loans, the economic conditions
affecting collectibility of loans, the prospects and financial
condition of the respective borrowers or guarantors and such other
factors which in management's judgment deserve recognition in the
estimation of probable loan losses. In addition, regulatory agencies,
as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance or to take charge-offs
(reductions in the allowance) in anticipation of losses.
A substantial portion of the balance of the Company's loan portfolio,
including a substantial portion of its commercial, industrial and
agricultural loans, is secured by real estate collateral, almost all
of which is located in Southern California. While in most cases the
amount of the loan is less than 75% of the original appraised value
of the property or the cost of the project, the Company has suffered
from the recent effects of the downturn in the real estate market and
continues to be vulnerable to further such downturns.
At September 30, 1995, the allowance for possible loan losses was
$1,673,000 or 2.4% of total loans, as compared to $1,613,000, or
1.77% of total loans at December 31, 1994 and $1,760,000, or 2.0% of
<PAGE 12>
total loans at September 30, 1994. The allowance for loan losses was
79% of nonaccrual loans at September 30, 1995 as compared to 93% at
December 31, 1994 and 117% at September 30, 1994. The Company
generally maintains at least a 15% allocation in its allowance for
loan losses for nonaccrual loans based on its historical loss ratio.
During the first nine months of 1995 the Company made additions to the
allowance of $686,000 compared to $175,000 during the same period in
1994. Reductions from the reserve in the form of net charge-offs
amounted to $902,000 for the first nine months of 1995 as compared to
$452,000 for the same period in 1994.
Nonaccrual loans amounted to $2.1 million at September 30, 1995 as
compared to $1.7 million at December 31, 1994 and $1.5 million at
September 30, 1994. These loans, at September 30, 1995 include eight
loans which were more than 90 days past due at that date. One loan
for $1.1 million is secured by junior liens on an office building in
Long Beach and a hotel in Los Angeles. Four loans for a total of $0.6
million are secured by first trust deeds on single family residences.
One loan for $0.2 million is secured by a second trust deed on a
commercial property. One loan for $0.1 million is secured by a first
trust deed on a commercial property. The remaining loan is for $0.1
million and is secured by a uniform commercial code filing on the
assets of the borrower. The risk inherent in these loans, the
strength of the collateral and guarantees securing them as well as the
decrease in real estate values in Southern California has been taken
into consideration in determining the adequacy of the allowance for
loan losses.
The total recorded investment in loans considered impaired under SFAS
114 at September 30, 1995 was $2.1 million (all of which were on a
nonaccrual basis). Included in this amount is $1.0 million of impaired
loans for which the related allowance for credit losses is $0.1
million and $1.1 million of impaired loans that, as a result of
expected collection of nonaccrued interest, do not have an allowance
for credit losses. The average recorded investment in impaired loans
during the nine months ended September 30, 1995 was approximately $1.9
million. For the nine months ended September 30, 1995, the Company
recognized interest income on those impaired loans of $25,000, which
included $11,000 of interest income recognized using the cash basis
method of income recognition. Discounted future cash flows have been
used to measure the value of all impaired loans. Management considers
a loan impaired if payment is 90 or more days past due and an
evaluation of collateral indicates that it is unlikely that all
contractual amounts due will be received. Interest received on
impaired loans generally is applied against principal or reported as
interest income, according to management's judgement as to the
collectibility of principal.
The Company has established a separate allowance for repurchase losses
which amounted to $0.9 million at September 30, 1995 which is not
included in the allowance for loan losses but is carried in other
liabilities. The Company has also established a separate allowance
for losses on real estate held for sale which amounted to $0.5 million
<PAGE 13>
at September 30, 1995 which is not included in the allowance for loan
losses but is carried as a reduction of real estate held for sale.
Taking into account economic trends in Southern California and the
condition of the loan portfolio management believes that the allowance
for loan losses at September 30, 1995 was adequate to absorb known and
inherent risks in the loan portfolio. However, given the
deterioration in the market for real estate in the Southern California
area, no assurance can be given that the Company will not incur
additional losses on these loans.
Noninterest Income
Noninterest income for the third quarter of 1995 increased $1.5
million to $1,734,000 compared to $227,000 for the third quarter of
1994. This increase is due primarily to the $1.5 million gain on the
sale of Business Credit assets.
Noninterest income for the first nine months of 1995 increased $1.6
million to $2,290,000 compared to $676,000 for the first nine months
of 1994. This increase is due primarily to the $1.5 million gain on
the sale of Business Credit assets and secondarily to a $$0.1 million
increase in gains on the sale of loans guaranteed by the Small
Business Administration.
Noninterest Expense
Noninterest expense increased 20% for the third quarter of 1995 to
$2,393,000 as compared to $1,999,000 for the same period of 1994
primarily as a result of the $478,000 increase in real estate
operations, net. Other noninterest expense increased $48,000 which
consisted primarily of increases in legal fees related to the pending
arbitration proceeding and consulting fees in connection with
personnel matters. These increases were partially offset by lower
directors fees.
Noninterest expense increased 7% for the first nine months of 1995 as
compared to the same period of 1994 as a result of the $0.3 million
increase in other noninterest expense which consisted primarily of
legal and consulting fees and a $0.3 million increase in real estate
operations, net. Occupancy costs were lower as a result of the move
of two branches to improved locations at lower rent and a one time
credit related to lower property taxes on the headquarters location.
The continued high level of real estate operations, net results from
the high level of real estate held for sale. During the third quarter
of 1995 the Company incurred expenses of $550,000 for writedown and
loss provision on other real estate owned and $58,000 for the
maintenance and operation of such properties. During the quarter the
Company sold one foreclosed property and two other properties were in
<PAGE 14>
escrow at the end of the quarter.
CAPITAL RESOURCES
Management seeks to maintain a level of capital adequate to support
asset growth and credit risks and to ensure that the Company is within
established regulatory guidelines and industry standards. The Company
and the Bank are required to achieve risk-based capital standards and
leverage capital standards. The risk-based capital standards
establish capital requirements that are more sensitive to risk
differences between various assets, consider off balance sheet
activities in assessing capital adequacy and minimize the disincentive
to holding liquid, low risk assets. The Company and the Bank are
required to achieve a minimum 8.0% total capital to risk-weighted
assets ratio (of which at least 4.0% must be Tier 1 Capital consisting
primarily of common stock and retained earnings, less goodwill). The
Bank is also subject to minimum capital requirements in a Memorandum
of Understanding with the California State Banking Department and the
FDIC (the "Memorandum"). The following table sets forth the Company's
and the Bank's capital ratios at September 30, 1995 (dollars in
thousands).
<TABLE>
<CAPTION>
Company Bank
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
Tier 1 risk based capital$ 9,017 11.36% $ 7,520 9.69%
Tier 1 risk based capital
minimum requirement 3,174 4.00 3,104 4.00
Excess 5,843 7.36 4,416 5.69
Total risk based capital $ 10,009 12.61 $ 8,491 10.94
Total risk based capital
minimum requirement 6,348 8.00 6,207 8.00
Excess 3,661 4.61 2,284 2.94
Risk-weighted assets $ 79,344 $77,591
Tier 1 leverage capital $ 9,017 7.19% $ 7,520 6.79%
Tier 1 leverage capital
minimum requirement 5,641 4.50
Memorandum requirement 7,477 6.75
Excess 3,376 2.69 43 0.04
Total average assets 125,372 110,777
</TABLE>
The Bank is subject to the provisions of a memorandum of understanding
entered into in March, 1995 with the FDIC (the "Memorandum") which
replaced and superseded the provisions of a previous memorandum of
understanding. Under the Memorandum the Bank is required, among other
things, to achieve and maintain Tier 1 capital equal to or above 6.75%
of total assets; charge off all assets classified "Loss" as of
September 26, 1994; reduce assets classified as "Substandard" as of
<PAGE 15>
September 26, 1994 to not more than $7,500,000 by June 13, 1995, not
more than $6,500,000 by September 11, 1995 and not more than
$4,500,000 by March 10, 1996; establish and maintain an adequate
allowance for loan losses; develop a plan to control overhead and
other expenses; install procedures to correct certain internal routine
and control deficiencies; and not pay cash dividends without the prior
written consent of the FDIC and the California Superintendent of
Banks.
The Bank is currently in compliance with the provisions of the
Memorandum. Management believes that it will be able to remain in
compliance with the Memorandum and otherwise meet capital
requirements, and that any actions taken to so comply will not have
a material adverse effect on the Company's future financial condition
or results of operations.
The Company suspended its quarterly cash dividends in the third
quarter of 1993. The Company expects that future cash dividends will
depend on a return to profitability and the maintenance of acceptable
financial results in the future.
The provision for income taxes for the nine month period ended
September 30, 1995 is as follows:
<TABLE>
<CAPTION>
Federal State Total
<S> <C> <C> <C>
Current $ 404,000 $219,000 $623,000
Deferred -- -- --
$ 404,000 $219,000 $623,000
</TABLE>
The provision for income taxes reflects an effective tax rate of 68%
on income before income taxes. The components of income tax expense
causing the variation from the expected statutory federal tax rate are
not significantly different than the amounts disclosed in the prior
year.
The following table shows the components of the current and deferred
tax asset recorded in the balance sheet at September 30, 1995:
Current $410,000
Deferred 598,000
Total $1,008,000
<PAGE>
<PAGE 16>
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on 8-K.
(A) Exhibits:
Exhibit 10.31 - Indemnification agreement dated October 1,
1995 between Douglas B. Swets and Sterling West Bancorp.
Exhibit 10.32 - Indemnification agreement dated October 1,
1995 between Paul Leichenger and Sterling Business Credit,
Inc.
Exhibit 10.33 - Indemnification agreement dated October 1,
1995 between Robert Brito and Sterling Business Credit,
Inc.
Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K:
A report on Form 8-K was filed dated September 7, 1995
reporting on the following items:
Item 2: Disposition of Assets - This item described the
sale of Sterling Business Credit, Inc.
Item 7: Financial Statements, Pro Forma Financial
Information and Exhibits - This item described the pro
forma effect on the financial statements of the sale of a
substantial portion of the assets of Sterling Business
Credit, Inc.
SIGNATURES
Pursuant to the requirement 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.
STERLING WEST BANCORP
(Registrant)
DATED: November 13, 1995 By:/s/Douglas B. Swets
Douglas B. Swets
Chief Financial Officer
(Principal Financial and
Accounting Officer)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of October 1,
1995, is made by and between STERLING WEST BANCORP, a California
corporation (the "Corporation"), and DOUGLAS B. SWETS (the
"Indemnitee"), an officer of the Corporation.
RECITALS
A. The Corporation and the Indemnitee recognize that
the present state of the law is too uncertain to provide the
officers and directors of the Corporation or its subsidiaries with
adequate and reliable advance knowledge or guidance with respect to
the legal risks and potential liabilities to which they may become
personally exposed as a result of performing their duties for the
Corporation or its subsidiaries;
B. The Corporation and the Indemnitee are aware of the
substantial growth in the number of lawsuits filed against
corporate officers and directors in connection with their
activities in such capacities and by reason of their status as
such;
C. The Corporation and the Indemnitee recognize that
the cost of defending against such lawsuits, whether or not
meritorious, is typically beyond the financial resources of most
officers and directors of the Corporation or its subsidiaries;
D. The Corporation and the Indemnitee recognize that
the legal risks and potential liabilities, and the threat thereof,
associated with proceedings filed against the officers and
directors of the Corporation or its subsidiaries bear no reasonable
relationship to the amount of compensation received by such -
officers and directors;
E. The Corporation, after reasonable investigation
prior to the date hereof, has determined that the liability
insurance coverage available to the Corporation as of the date
hereof is inadequate, unreasonably expensive or both. The
Corporation believes, therefore, that the interest of the Corpora-
tion's shareholders would be best served by a combination of (i)
such insurance as the Corporation may obtain pursuant to the
Corporation's obligations hereunder and (ii) a contract with its
officers and directors and those of its subsidiaries, including the
Indemnitee, to indemnify them to the fullest extent permitted by
law (as in effect on the date hereof, or, to the extent any
amendment may expand such permitted indemnification, as hereafter
in effect) against personal liability for actions taken in the
performance of their duties to the Corporation or its subsidiaries;
F. Section 317 of the California General Corporation
Law empowers California corporations to indemnify their officers
and directors and individuals serving at the request of such
corporations as a director, officer, employee or agent of another
corporation, and further states that the indemnification provided
by Section 317 "shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors,
or otherwise, to the extent the additional rights to
indemnification are authorized in the articles of the corporation";
thus, Section 317 does not by itself limit the extent to which the
Corporation may indemnify persons serving as officers and directors
of the Corporation or its subsidiaries;
G. The Corporation's Articles of Incorporation and
Bylaws authorize the indemnification of the officers and directors
of the Corporation, including individuals serving at the request of
the Corporation as an officer, employee or agent of another
corporation, in excess of that expressly permitted by Section 317,
subject to the limitations set forth in Section 204(a)(11) of the
California General Corporation Law;
H. The Board of Directors of the Corporation has
concluded that, to retain and attract talented and experienced
individuals to serve as officers and directors of the Corporation
or its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Corporation and its
subsidiaries, it is necessary for the Corporation to contractually
indemnify officers and directors of the Corporation or its
subsidiaries, and to assume for itself liability for expenses and
damages in connection with claims against such officers and
directors in connection with their service to the Corporation or
its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm
to the Corporation and its shareholders;
I. The Corporation desires and has requested the
Indemnitee to serve or continue to serve the Corporation and
certain of its subsidiaries, free from undue concern for the risks
and potential liabilities associated with such service; and
J. The Indemnitee is willing to serve, or continue to
serve, the Corporation and certain of its subsidiaries, provided,
and on the expressed condition, that he is furnished with the
indemnification provided for herein.
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as
follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this
Agreement, all direct and indirect costs of any type or nature
whatsoever (including, without limitation, any fees and
disbursements of Indemnitee's counsel, accountants and other
experts and other out-of-pocket costs) actually and reasonably
incurred by the Indemnitee in connection with the investigation,
preparation, defense or appeal of a Proceeding; provided, however,
that Expenses shall not include judgments, fines, penalties or
amounts paid in settlement of a Proceeding.
(b) "Proceeding" means, for the purposes of this
Agreement, any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (including an action brought by or in the right of
the Corporation), in which Indemnitee may be or may have been
involved as a party or otherwise, by reason of the fact that
Indemnitee is or was an officer of the Corporation, by reason of
any action taken by him or of any inaction on his part while acting
as such officer or by reason of the fact that he is or was serving
at the request of the Corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director and/or
officer of the foreign or domestic corporation which was a
predecessor corporation to the Corporation or of another enterprise
at the request of such predecessor corporation, whether or not he
is serving in such capacity at the time any liability or expense is
incurred for which indemnification or reimbursement can be provided
under this Agreement.
2. Agreement to Serve. Indemnitee agrees to serve or
continue to serve as an officer of the Corporation and an officer
and/or director of the Corporation's subsidiaries, as appropriate,
to the best of his abilities at the will of the Corporation and
such subsidiaries or under separate contract, if such contract
exists, for so long as Indemnitee is duly elected or appointed and
qualified or until such time as he tenders his resignation in
writing. Nothing contained in this Agreement is intended to create
in Indemnitee any right to continued employment.
3. Indemnification.
(a) Third-Party Proceedings. The Corporation shall
indemnify Indemnitee against Expenses, judgments, fines, penalties
or amounts paid in settlement (if the settlement is approved in
advance by the Corporation) actually and reasonably incurred by
Indemnitee in connection with a Proceeding (other than a Proceeding
by or in the right of the Corporation) if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the
best interests of the Corporation or any of its subsidiaries, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably
believed to be in the best interests of the Corporation or its
subsidiaries, or, with respect to any criminal Proceeding, had no
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Corporation.
To the fullest extent permitted by law, the Corporation shall
indemnify Indemnitee against Expenses and amounts paid in settle-
ment, actually and reasonably incurred by Indemnitee in connection
with a Proceeding by or in the right of the Corporation or any of
its subsidiaries to procure a judgment in its favor if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed
to be in the best interests of the Corporation or any of its
subsidiaries and their respective shareholders. Notwithstanding
the foregoing, no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been
adjudged liable to the Corporation or any of its subsidiaries in
the performance of Indemnitee's duty to the Corporation or any of
its subsidiaries and their respective shareholders, unless and only
to the extent that the court in which such action or proceeding is
or was pending shall determine upon application that, in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement but subject to Section 14(b) hereof, the Corporation
shall indemnify the Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically
authorized by other provisions of this Agreement, the Corporation's
Articles of Incorporation, the Corporation's Bylaws or by statute.
4. Limitations on Indemnification. Any other
provision herein to the contrary notwithstanding, the Corporation
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any
acts or omissions or transactions from which an officer or director
may not be relieved of liability under Section 204 of the
California General Corporation Law;
(b) Claims Initiated by Indemnitee. To indemnify or
advance Expenses to Indemnitee with respect to Proceedings or
claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to
establish or enforce a right to indemnification under this
Agreement or any other statute or law or otherwise as required
under Section 317 of the California General Corporation Law, but
such indemnification or advancement of Expenses may be provided by
the Corporation in specific cases if the Board of Directors has
approved the initiation or bringing of such suit;
(c) Lack of Good Faith. To indemnify Indemnitee for
any Expenses incurred by the Indemnitee with respect to any
proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the Indemnitee in such
proceeding was not made in good faith or was frivolous;
(d) Insured Claims. To indemnify Indemnitee for
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to or on
behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the
Corporation or any of its subsidiaries or any other policy of
insurance maintained by the Corporation or any of its subsidiaries
or the Indemnitee; or
(e) Claims Under Section 16(b). To indemnify
Indemnitee for Expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.
5. Determination of Right to Indemnification.
Upon receipt of a written claim addressed to the Board of
Directors for indemnification pursuant to Section 3, the
Corporation shall determine by any of the methods set forth in
Section 317(e) of the California General Corporation Law whether
Indemnitee has met the applicable standards of conduct which makes
it permissible under applicable law to indemnify Indemnitee. If a
claim under Section 3 is not paid in full by the Corporation within
ninety (90) days after such written claim has been received by the
Corporation, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim
and, unless such action is dismissed by the court as frivolous or
brought in bad faith, the Indemnitee shall be entitled to be paid
also the expense of prosecuting such claim. The court in which
such action is brought shall determine whether Indemnitee or the
Corporation shall have the burden of proof concerning whether
Indemnitee has or has not met the applicable standard of conduct.
6. Advancement and Repayment of Expenses.
The Expenses incurred by Indemnitee in defending and
investigating any Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding within 30 days
after receiving from Indemnitee the copies of invoices presented to
Indemnitee for such Expenses, if Indemnitee shall provide an
undertaking to the Corporation to repay such amount to the extent
it is ultimately determined that Indemnitee is not entitled to
indemnification. In determining whether or not to make an advance
hereunder, the ability of Indemnitee to repay shall not be a
factor. Notwithstanding the foregoing, in a proceeding brought by
the Corporation directly, in its own right (as distinguished from
an action brought derivatively or by any receiver or trustee), the
Corporation shall not be required to make the advances called for
hereby if the Board of Directors determines, in its sole
discretion, that it does not appear that Indemnitee has met the
standards of conduct which make it permissible under applicable law
to indemnify Indemnitee and the advancement of Expenses would not
be in the best interests of the Corporation and its shareholders.
7. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification
or advancement by the Corporation of some or a portion of any
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, penalties, and amounts paid in
settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to
indemnification or advancement of the total amount thereof, the
Corporation shall nevertheless indemnify or pay advancements to the
Indemnitee for the portion of such Expenses or liabilities to which
the Indemnitee is entitled.
8. Notice to Corporation by Indemnitee. Indemnitee
shall notify the Corporation in writing of any matter with respect
to which Indemnitee intends to seek indemnification hereunder as
soon as reasonably practicable following the receipt by Indemnitee
of written notice thereof; provided that any delay in so notifying
Corporation shall not constitute a waiver by Indemnitee of his
rights hereunder. The written notification to the Corporation
shall be addressed to the Board of Directors and shall include a
description of the nature of the Proceeding and the facts
underlying the Proceeding and be accompanied by copies of any
documents filed with the court in which the Proceeding is pending.
In addition, Indemnitee shall give the Corporation such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
9. Maintenance of Liability Insurance.
(a) The Corporation hereby agrees that so long as
Indemnitee shall continue to serve as an officer or director of the
Corporation or any of its subsidiaries and thereafter so long as
Indemnitee shall be subject to any possible Proceeding, the
Corporation, subject to Section 9(b) hereof, shall use its best
efforts to obtain and maintain in full force and effect directors'
and officers' liability insurance ("D&O Insurance") which provides
Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Corporation's officers and/or directors,
as appropriate.
(b) Notwithstanding the foregoing, the Corporation shall
have no obligation to obtain or maintain D&O Insurance with respect
to the Indemnitee if the Corporation determines in good faith that
such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or the
Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Corporation.
(c) Notice to Insurers. If, at the time of the receipt
of a notice of a claim pursuant to Section 8 hereof, the
Corporation has D&O Insurance in effect, the Corporation shall give
prompt notice of the commencement of such Proceeding to the
insurers in accordance with the procedures set forth in the
respective policies. The Corporation shall thereafter take all
necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.
10. Defense of Claim. In the event that the
Corporation shall be obligated under Section 6 hereof to pay the
Expenses of any Proceeding against Indemnitee, the Corporation, if
appropriate, shall be entitled to assume the defense of such
Proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee
of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Corporation, the Corporation will not be liable
to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same
Proceeding, provided that (i) Indemnitee shall have the right to
employ his counsel in any such Proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Corporation, or (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest
between the Corporation and the Indemnitee in the conduct of such
defense, or (C) the Corporation shall not, in fact, have employed
counsel to assume the defense of such Proceeding, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the
Corporation.
11. Attorneys' Fees. In the event that Indemnitee or
the Corporation institutes an action to enforce or interpret any
terms of this Agreement, the Corporation shall reimburse Indemnitee
for all of the Indemnitee's reasonable fees and expenses in
bringing and pursuing such action or defense, unless as part of
such action or defense, a court of competent jurisdiction
determines that the material assertions made by Indemnitee as a
basis for such action or defense were not made in good faith or
were frivolous.
12. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue
during the period the Indemnitee is an officer of the Corporation,
or is or was serving at the request of the Corporation as a
director, officer, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
and shall continue thereafter so long as the Indemnitee shall be
subject to any possible proceeding by reason of the fact that
Indemnitee served in any capacity referred to herein.
13. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the
benefit of, the successors, assigns, heirs and legal
representatives of the parties hereto.
14. Non-exclusivity.
(a) The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed to be
exclusive of any other rights that the Indemnitee may have under
any provision of law, the Corporation's Articles of Incorporation
or Bylaws, the vote of the Corporation's shareholders or
disinterested directors, other agreements or otherwise, both as to
action in his official capacity and action in another capacity
while occupying his position(s) as an officer or director of the
Corporation or any of its subsidiaries.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule which expand the
right of a California corporation to indemnify its officers and
directors, the Indemnitee's rights and the Corporation's
obligations under this Agreement shall be expanded to the full
extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule, which narrow the right of a
California corporation to indemnify a director or officer, such
changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
15. Effectiveness of Agreement. To the extent that the
indemnification permitted under the terms of certain provisions of
this Agreement exceeds the scope of the indemnification provided
for in the California General Corporation Law, such provisions
shall not be effective unless and until the Corporation's Articles
of Incorporation authorize such additional rights of
indemnification. In all other respects, the balance of this
Agreement shall be effective as of the date set forth on the first
page and may apply to acts or omissions of Indemnitee which
occurred prior to such date if Indemnitee was an officer, director,
employee or other agent of the Corporation, or was serving at the
request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, at the time such act or omission occurred.
16. Severability. Nothing in this Agreement is intended
to require or shall be construed as requiring the Corporation to do
or fail to do any act in violation of applicable law. The
Corporation's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 16. If this Agreement or any
portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless
indemnify the Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms.
17. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of
California. To the extent permitted by applicable law, the parties
hereby waive any provisions of law which render any provision of
this Agreement unenforceable in any respect.
18. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be
deemed duly given (i) if delivered by hand and receipted for by the
party addressee or (ii) if mailed by certified or registered mail with
postage prepaid, on the third business day after the mailing date.
Addresses for notice to either party are as shown on the signature page
of this Agreement, or as subsequently modified by written notice.
19. Mutual Acknowledgment. Both the Corporation and
Indemnitee acknowledge that in certain instances, federal law or
applicable public policy may prohibit the Corporation from indemnifying
its directors and officers under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Corporation has
undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination
of the Corporation's right under public policy to indemnify Indemnitee.
20. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.
21. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless
in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
STERLING WEST BANCORP
/S/Allan E. Dalshaug
By: ___________________________
Allan E. Dalshaug
Name: ___________________________
Chief Executive Officer
Title: ___________________________
Address: 3287 Wilshire Boulevard
Los Angeles, California
90010
THE INDEMNITEE
/S/Douglas B. Swets
__________________________________________
Douglas B. Swets
6400 Via Colinita
(Address)
Rancho Palos Verdes Ca 90275
(Address)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of October 1,
1995, is made by and between STERLING WEST BANCORP, a California
corporation (the "Corporation"), and PAUL S. LEICHENGER (the
"Indemnitee"), an officer of Sterling Business Credit, Inc., a
California corporation and indirect subsidiary of the Corporation
("Business Credit").
RECITALS
A. The Corporation and the Indemnitee recognize that
the present state of the law is too uncertain to provide the
officers and directors of the Corporation or its subsidiaries with
adequate and reliable advance knowledge or guidance with respect to
the legal risks and potential liabilities to which they may become
personally exposed as a result of performing their duties for the
Corporation or its subsidiaries;
B. The Corporation and the Indemnitee are aware of the
substantial growth in the number of lawsuits filed against
corporate officers and directors in connection with their
activities in such capacities and by reason of their status as
such;
C. The Corporation and the Indemnitee recognize that
the cost of defending against such lawsuits, whether or not
meritorious, is typically beyond the financial resources of most
officers and directors of the Corporation or its subsidiaries;
D. The Corporation and the Indemnitee recognize that
the legal risks and potential liabilities, and the threat thereof,
associated with proceedings filed against the officers and
directors of the Corporation or its subsidiaries bear no reasonable
relationship to the amount of compensation received by such -
officers and directors;
E. The Corporation, after reasonable investigation
prior to the date hereof, has determined that the liability
insurance coverage available to the Corporation as of the date
hereof is inadequate, unreasonably expensive or both. The
Corporation believes, therefore, that the interest of the Corpora-
tion's shareholders would be best served by a combination of (i)
such insurance as the Corporation may obtain pursuant to the
Corporation's obligations hereunder and (ii) a contract with its
officers and directors and those of its subsidiaries, including the
Indemnitee, to indemnify them to the fullest extent permitted by
law (as in effect on the date hereof, or, to the extent any
amendment may expand such permitted indemnification, as hereafter
in effect) against personal liability for actions taken in the
performance of their duties to the Corporation or its subsidiaries;
F. Section 317 of the California General Corporation
Law empowers California corporations to indemnify their officers
and directors and individuals serving at the request of such
corporations as a director, officer, employee or agent of another
corporation, and further states that the indemnification provided
by Section 317 "shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors,
or otherwise, to the extent the additional rights to
indemnification are authorized in the articles of the corporation";
thus, Section 317 does not by itself limit the extent to which the
Corporation may indemnify persons serving as officers and directors
of the Corporation or its subsidiaries;
G. The Corporation's Articles of Incorporation and
Bylaws authorize the indemnification of the officers and directors
of the Corporation, including individuals serving at the request of
the Corporation as an officer, employee or agent of another
corporation, in excess of that expressly permitted by Section 317,
subject to the limitations set forth in Section 204(a)(11) of the
California General Corporation Law;
H. The Board of Directors of the Corporation has
concluded that, to retain and attract talented and experienced
individuals to serve as officers and directors of the Corporation
or its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Corporation and its
subsidiaries, it is necessary for the Corporation to contractually
indemnify officers and directors of the Corporation or its
subsidiaries, and to assume for itself liability for expenses and
damages in connection with claims against such officers and
directors in connection with their service to the Corporation or
its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm
to the Corporation and its shareholders;
I. The Corporation desires and has requested the
Indemnitee to serve or continue to serve Business Credit, free from
undue concern for the risks and potential liabilities associated
with such service; and
J. The Indemnitee is willing to serve, or continue to
serve, Business Credit, provided, and on the expressed condition,
that he is furnished with the indemnification provided for herein.
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as
follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this
Agreement, all direct and indirect costs of any type or nature
whatsoever (including, without limitation, any fees and
disbursements of Indemnitee's counsel, accountants and other
experts and other out-of-pocket costs) actually and reasonably
incurred by the Indemnitee in connection with the investigation,
preparation, defense or appeal of a Proceeding; provided, however,
that Expenses shall not include judgments, fines, penalties or
amounts paid in settlement of a Proceeding.
(b) "Proceeding" means, for the purposes of this
Agreement, any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (including an action brought by or in the right of
the Corporation), in which Indemnitee may be or may have been
involved as a party or otherwise, by reason of the fact that the
Indemnitee is or was an officer or director of Business Credit or
by reason of any action taken by him or of any inaction on his part
while acting as an officer or director of Business Credit, whether
or not he is serving in such capacity at the time any liability or
expense is incurred for which indemnification or reimbursement can
be provided under this Agreement.
2. Agreement to Serve. Indemnitee agrees to serve or
continue to serve as an officer or director of Business Credit, as
the case may be, to the best of his abilities, at the will of
Business Credit and the Corporation or under separate contract, if
such contract exists, for so long as Indemnitee is duly elected or
appointed and qualified or until such time as he tenders his
resignation in writing. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. Indemnification.
(a) Third-Party Proceedings. The Corporation shall
indemnify Indemnitee against Expenses, judgments, fines, penalties
or amounts paid in settlement (if the settlement is approved in
advance by the Corporation) actually and reasonably incurred by
Indemnitee in connection with a Proceeding (other than a Proceeding
by or in the right of the Corporation) if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the
best interests of the Corporation or any of its subsidiaries, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably
believed to be in the best interests of the Corporation or any of
its subsidiaries, or, with respect to any criminal Proceeding, had
no reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Corporation.
To the fullest extent permitted by law, the Corporation shall
indemnify Indemnitee against Expenses and amounts paid in settle-
ment, actually and reasonably incurred by Indemnitee in connection
with a Proceeding by or in the right of the Corporation or any of
its subsidiaries to procure a judgment in their favor if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed
to be in the best interests of the Corporation or any of its
subsidiaries and their respective shareholders. Notwithstanding
the foregoing, no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been
adjudged liable to the Corporation or any of its subsidiaries in
the performance of Indemnitee's duty to the Corporation or any of
its subsidiaries and their respective shareholders, unless and only
to the extent that the court in which such action or proceeding is
or was pending shall determine upon application that, in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement but subject to Section 14(b) hereof, the Corporation
shall indemnify the Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically
authorized by other provisions of this Agreement, the Corporation's
Articles of Incorporation, the Corporation's Bylaws or by statute.
4. Limitations on Indemnification. Any other
provision herein to the contrary notwithstanding, the Corporation
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any
acts or omissions or transactions from which an officer or director
may not be relieved of liability under Section 204 of the
California General Corporation Law;
(b) Claims Initiated by Indemnitee. To indemnify or
advance Expenses to Indemnitee with respect to Proceedings or
claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to
establish or enforce a right to indemnification under this
Agreement or any other statute or law or otherwise as required
under Section 317 of the California General Corporation Law, but
such indemnification or advancement of Expenses may be provided by
the Corporation in specific cases if the Board of Directors has
approved the initiation or bringing of such suit;
(c) Lack of Good Faith. To indemnify Indemnitee for
any Expenses incurred by the Indemnitee with respect to any
proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the Indemnitee in such
proceeding was not made in good faith or was frivolous;
(d) Insured Claims. To indemnify Indemnitee for
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to or on
behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the
Corporation or any of its subsidiaries or any other policy of
insurance maintained by the Corporation or any of its subsidiaries
or the Indemnitee; or
(e) Claims Under Section 16(b). To indemnify
Indemnitee for Expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.
5. Determination of Right to Indemnification.
Upon receipt of a written claim addressed to the Board of
Directors for indemnification pursuant to Section 3, the
Corporation shall determine by any of the methods set forth in
Section 317(e) of the California General Corporation Law whether
Indemnitee has met the applicable standards of conduct which makes
it permissible under applicable law to indemnify Indemnitee. If a
claim under Section 3 is not paid in full by the Corporation within
ninety (90) days after such written claim has been received by the
Corporation, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim
and, unless such action is dismissed by the court as frivolous or
brought in bad faith, the Indemnitee shall be entitled to be paid
also the expense of prosecuting such claim. The court in which
such action is brought shall determine whether Indemnitee or the
Corporation shall have the burden of proof concerning whether
Indemnitee has or has not met the applicable standard of conduct.
6. Advancement and Repayment of Expenses.
The Expenses incurred by Indemnitee in defending and
investigating any Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding within 30 days
after receiving from Indemnitee the copies of invoices presented to
Indemnitee for such Expenses, if Indemnitee shall provide an
undertaking to the Corporation to repay such amount to the extent
it is ultimately determined that Indemnitee is not entitled to
indemnification. In determining whether or not to make an advance
hereunder, the ability of Indemnitee to repay shall not be a
factor. Notwithstanding the foregoing, in a proceeding brought by
the Corporation directly, in its own right (as distinguished from
an action brought derivatively or by any receiver or trustee), the
Corporation shall not be required to make the advances called for
hereby if the Board of Directors determines, in its sole
discretion, that it does not appear that Indemnitee has met the
standards of conduct which make it permissible under applicable law
to indemnify Indemnitee and the advancement of Expenses would not
be in the best interests of the Corporation and its shareholders.
7. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification
or advancement by the Corporation of some or a portion of any
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, penalties, and amounts paid in
settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to
indemnification or advancement of the total amount thereof, the
Corporation shall nevertheless indemnify or pay advancements to the
Indemnitee for the portion of such Expenses or liabilities to which
the Indemnitee is entitled.
8. Notice to Corporation by Indemnitee. Indemnitee
shall notify the Corporation in writing of any matter with respect
to which Indemnitee intends to seek indemnification hereunder as
soon as reasonably practicable following the receipt by Indemnitee
of written notice thereof; provided that any delay in so notifying
Corporation shall not constitute a waiver by Indemnitee of his
rights hereunder. The written notification to the Corporation
shall be addressed to the Board of Directors and shall include a
description of the nature of the Proceeding and the facts
underlying the Proceeding and be accompanied by copies of any
documents filed with the court in which the Proceeding is pending.
In addition, Indemnitee shall give the Corporation such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
9. Maintenance of Liability Insurance.
(a) The Corporation hereby agrees that so long as
Indemnitee shall continue to serve as an officer or director of
Business Credit and thereafter so long as Indemnitee shall be
subject to any possible Proceeding, the Corporation, subject to
Section 9(b) hereof, shall use its best efforts to obtain and
maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") which provides Indemnitee the
same rights and benefits as are accorded to the most favorably
insured of the Corporation's officers or directors.
(b) Notwithstanding the foregoing, the Corporation shall
have no obligation to obtain or maintain D&O Insurance with respect
to the Indemnitee if the Corporation determines in good faith that
such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or the
Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Corporation.
(c) Notice to Insurers. If, at the time of the receipt
of a notice of a claim pursuant to Section 8 hereof, the
Corporation has D&O Insurance in effect, the Corporation shall give
prompt notice of the commencement of such Proceeding to the
insurers in accordance with the procedures set forth in the
respective policies. The Corporation shall thereafter take all
necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.
10. Defense of Claim. In the event that the
Corporation shall be obligated under Section 6 hereof to pay the
Expenses of any Proceeding against Indemnitee, the Corporation, if
appropriate, shall be entitled to assume the defense of such
Proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee
of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Corporation, the Corporation will not be liable
to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same
Proceeding, provided that (i) Indemnitee shall have the right to
employ his counsel in any such Proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Corporation, or (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest
between the Corporation and the Indemnitee in the conduct of such
defense, or (C) the Corporation shall not, in fact, have employed
counsel to assume the defense of such Proceeding, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the
Corporation.
11. Attorneys' Fees. In the event that Indemnitee or
the Corporation institutes an action to enforce or interpret any
terms of this Agreement, the Corporation shall reimburse Indemnitee
for all of the Indemnitee's reasonable fees and expenses in
bringing and pursuing such action or defense, unless as part of
such action or defense, a court of competent jurisdiction
determines that the material assertions made by Indemnitee as a
basis for such action or defense were not made in good faith or
were frivolous.
12. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue
during the period the Indemnitee is serving at the request of the
Corporation as an officer or director of Business Credit, and shall
continue thereafter so long as the Indemnitee shall be subject to
any possible proceeding by reason of the fact that Indemnitee
served in any capacity referred to herein.
13. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the
benefit of, the successors, assigns, heirs and legal
representatives of the parties hereto.
14. Non-exclusivity.
(a) The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed to be
exclusive of any other rights that the Indemnitee may have under
any provision of law, the Corporation's Articles of Incorporation
or Bylaws, the vote of the Corporation's shareholders or
disinterested directors, other agreements or otherwise, both as to
action in his official capacity and action in another capacity
while occupying his position(s) as an officer or director of
Business Credit.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule which expand the
right of a California corporation to indemnify its officers and
directors, the Indemnitee's rights and the Corporation's
obligations under this Agreement shall be expanded to the full
extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule, which narrow the right of a
California corporation to indemnify a director or officer, such
changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
15. Effectiveness of Agreement. To the extent that the
indemnification permitted under the terms of certain provisions of
this Agreement exceeds the scope of the indemnification provided
for in the California General Corporation Law, such provisions
shall not be effective unless and until the Corporation's Articles
of Incorporation authorize such additional rights of
indemnification. In all other respects, the balance of this
Agreement shall be effective as of the date set forth on the first
page and may apply to acts or omissions of Indemnitee which
occurred prior to such date if Indemnitee was an officer, director,
employee or other agent of Business Credit at the time such act or
omission occurred.
16. Severability. Nothing in this Agreement is intended
to require or shall be construed as requiring the Corporation to do
or fail to do any act in violation of applicable law. The
Corporation's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 16. If this Agreement or any
portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless
indemnify the Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms.
17. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of
California. To the extent permitted by applicable law, the parties
hereby waive any provisions of law which render any provision of
this Agreement unenforceable in any respect.
18. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall
be deemed duly given (i) if delivered by hand and receipted for by
the party addressee or (ii) if mailed by certified or registered
mail with postage prepaid, on the third business day after the
mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified
by written notice.
19. Mutual Acknowledgment. Both the Corporation and
Indemnitee acknowledge that in certain instances, federal law or
applicable public policy may prohibit the Corporation from
indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for
a determination of the Corporation's right under public policy to
indemnify Indemnitee.
20. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original.
21. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement shall
be effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
STERLING WEST BANCORP
/S/Allan E. Dalshaug
By: ___________________________
Allan E. Dalshaug
Name: ___________________________
Title: Chief Executive Officer
Address: 3287 Wilshire Boulevard
Los Angeles, California 90010
THE INDEMNITEE
/S/Paul S. Leichenger
__________________________________________
Paul S. Leichenger
4054 Jill Place
(Address)
Encino, CA 91436
(Address)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of October 1,
1995, is made by and between STERLING WEST BANCORP, a California
corporation (the "Corporation"), and ROBERT A. BRITO (the
"Indemnitee"), an officer of Sterling Business Credit, Inc., a
California corporation and indirect subsidiary of the Corporation
("Business Credit").
RECITALS
A. The Corporation and the Indemnitee recognize that
the present state of the law is too uncertain to provide the
officers and directors of the Corporation or its subsidiaries with
adequate and reliable advance knowledge or guidance with respect to
the legal risks and potential liabilities to which they may become
personally exposed as a result of performing their duties for the
Corporation or its subsidiaries;
B. The Corporation and the Indemnitee are aware of the
substantial growth in the number of lawsuits filed against
corporate officers and directors in connection with their
activities in such capacities and by reason of their status as
such;
C. The Corporation and the Indemnitee recognize that
the cost of defending against such lawsuits, whether or not
meritorious, is typically beyond the financial resources of most
officers and directors of the Corporation or its subsidiaries;
D. The Corporation and the Indemnitee recognize that
the legal risks and potential liabilities, and the threat thereof,
associated with proceedings filed against the officers and
directors of the Corporation or its subsidiaries bear no reasonable
relationship to the amount of compensation received by such -
officers and directors;
E. The Corporation, after reasonable investigation
prior to the date hereof, has determined that the liability
insurance coverage available to the Corporation as of the date
hereof is inadequate, unreasonably expensive or both. The
Corporation believes, therefore, that the interest of the Corpora-
tion's shareholders would be best served by a combination of (i)
such insurance as the Corporation may obtain pursuant to the
Corporation's obligations hereunder and (ii) a contract with its
officers and directors and those of its subsidiaries, including the
Indemnitee, to indemnify them to the fullest extent permitted by
law (as in effect on the date hereof, or, to the extent any
amendment may expand such permitted indemnification, as hereafter
in effect) against personal liability for actions taken in the
performance of their duties to the Corporation or its subsidiaries;
F. Section 317 of the California General Corporation
Law empowers California corporations to indemnify their officers
and directors and individuals serving at the request of such
corporations as a director, officer, employee or agent of another
corporation, and further states that the indemnification provided
by Section 317 "shall not be deemed exclusive of any other rights
to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors,
or otherwise, to the extent the additional rights to
indemnification are authorized in the articles of the corporation";
thus, Section 317 does not by itself limit the extent to which the
Corporation may indemnify persons serving as officers and directors
of the Corporation or its subsidiaries;
G. The Corporation's Articles of Incorporation and
Bylaws authorize the indemnification of the officers and directors
of the Corporation, including individuals serving at the request of
the Corporation as an officer, employee or agent of another
corporation, in excess of that expressly permitted by Section 317,
subject to the limitations set forth in Section 204(a)(11) of the
California General Corporation Law;
H. The Board of Directors of the Corporation has
concluded that, to retain and attract talented and experienced
individuals to serve as officers and directors of the Corporation
or its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Corporation and its
subsidiaries, it is necessary for the Corporation to contractually
indemnify officers and directors of the Corporation or its
subsidiaries, and to assume for itself liability for expenses and
damages in connection with claims against such officers and
directors in connection with their service to the Corporation or
its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm
to the Corporation and its shareholders;
I. The Corporation desires and has requested the
Indemnitee to serve or continue to serve Business Credit, free from
undue concern for the risks and potential liabilities associated
with such service; and
J. The Indemnitee is willing to serve, or continue to
serve, Business Credit, provided, and on the expressed condition,
that he is furnished with the indemnification provided for herein.
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as
follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this
Agreement, all direct and indirect costs of any type or nature
whatsoever (including, without limitation, any fees and
disbursements of Indemnitee's counsel, accountants and other
experts and other out-of-pocket costs) actually and reasonably
incurred by the Indemnitee in connection with the investigation,
preparation, defense or appeal of a Proceeding; provided, however,
that Expenses shall not include judgments, fines, penalties or
amounts paid in settlement of a Proceeding.
(b) "Proceeding" means, for the purposes of this
Agreement, any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (including an action brought by or in the right of
the Corporation), in which Indemnitee may be or may have been
involved as a party or otherwise, by reason of the fact that the
Indemnitee is or was an officer or director of Business Credit or
by reason of any action taken by him or of any inaction on his part
while acting as an officer or director of Business Credit, whether
or not he is serving in such capacity at the time any liability or
expense is incurred for which indemnification or reimbursement can
be provided under this Agreement.
2. Agreement to Serve. Indemnitee agrees to serve or
continue to serve as an officer or director of Business Credit, as
the case may be, to the best of his abilities, at the will of
Business Credit and the Corporation or under separate contract, if
such contract exists, for so long as Indemnitee is duly elected or
appointed and qualified or until such time as he tenders his
resignation in writing. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. Indemnification.
(a) Third-Party Proceedings. The Corporation shall
indemnify Indemnitee against Expenses, judgments, fines, penalties
or amounts paid in settlement (if the settlement is approved in
advance by the Corporation) actually and reasonably incurred by
Indemnitee in connection with a Proceeding (other than a Proceeding
by or in the right of the Corporation) if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the
best interests of the Corporation or any of its subsidiaries, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably
believed to be in the best interests of the Corporation or any of
its subsidiaries, or, with respect to any criminal Proceeding, had
no reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Corporation.
To the fullest extent permitted by law, the Corporation shall
indemnify Indemnitee against Expenses and amounts paid in settle-
ment, actually and reasonably incurred by Indemnitee in connection
with a Proceeding by or in the right of the Corporation or any of
its subsidiaries to procure a judgment in their favor if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed
to be in the best interests of the Corporation or any of its
subsidiaries and their respective shareholders. Notwithstanding
the foregoing, no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been
adjudged liable to the Corporation or any of its subsidiaries in
the performance of Indemnitee's duty to the Corporation or any of
its subsidiaries and their respective shareholders, unless and only
to the extent that the court in which such action or proceeding is
or was pending shall determine upon application that, in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement but subject to Section 14(b) hereof, the Corporation
shall indemnify the Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically
authorized by other provisions of this Agreement, the Corporation's
Articles of Incorporation, the Corporation's Bylaws or by statute.
4. Limitations on Indemnification. Any other
provision herein to the contrary notwithstanding, the Corporation
shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any
acts or omissions or transactions from which an officer or director
may not be relieved of liability under Section 204 of the
California General Corporation Law;
(b) Claims Initiated by Indemnitee. To indemnify or
advance Expenses to Indemnitee with respect to Proceedings or
claims initiated or brought voluntarily by Indemnitee and not by
way of defense, except with respect to proceedings brought to
establish or enforce a right to indemnification under this
Agreement or any other statute or law or otherwise as required
under Section 317 of the California General Corporation Law, but
such indemnification or advancement of Expenses may be provided by
the Corporation in specific cases if the Board of Directors has
approved the initiation or bringing of such suit;
(c) Lack of Good Faith. To indemnify Indemnitee for
any Expenses incurred by the Indemnitee with respect to any
proceeding instituted by Indemnitee to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the Indemnitee in such
proceeding was not made in good faith or was frivolous;
(d) Insured Claims. To indemnify Indemnitee for
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to or on
behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the
Corporation or any of its subsidiaries or any other policy of
insurance maintained by the Corporation or any of its subsidiaries
or the Indemnitee; or
(e) Claims Under Section 16(b). To indemnify
Indemnitee for Expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.
5. Determination of Right to Indemnification.
Upon receipt of a written claim addressed to the Board of
Directors for indemnification pursuant to Section 3, the
Corporation shall determine by any of the methods set forth in
Section 317(e) of the California General Corporation Law whether
Indemnitee has met the applicable standards of conduct which makes
it permissible under applicable law to indemnify Indemnitee. If a
claim under Section 3 is not paid in full by the Corporation within
ninety (90) days after such written claim has been received by the
Corporation, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim
and, unless such action is dismissed by the court as frivolous or
brought in bad faith, the Indemnitee shall be entitled to be paid
also the expense of prosecuting such claim. The court in which
such action is brought shall determine whether Indemnitee or the
Corporation shall have the burden of proof concerning whether
Indemnitee has or has not met the applicable standard of conduct.
6. Advancement and Repayment of Expenses.
The Expenses incurred by Indemnitee in defending and
investigating any Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding within 30 days
after receiving from Indemnitee the copies of invoices presented to
Indemnitee for such Expenses, if Indemnitee shall provide an
undertaking to the Corporation to repay such amount to the extent
it is ultimately determined that Indemnitee is not entitled to
indemnification. In determining whether or not to make an advance
hereunder, the ability of Indemnitee to repay shall not be a
factor. Notwithstanding the foregoing, in a proceeding brought by
the Corporation directly, in its own right (as distinguished from
an action brought derivatively or by any receiver or trustee), the
Corporation shall not be required to make the advances called for
hereby if the Board of Directors determines, in its sole
discretion, that it does not appear that Indemnitee has met the
standards of conduct which make it permissible under applicable law
to indemnify Indemnitee and the advancement of Expenses would not
be in the best interests of the Corporation and its shareholders.
7. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification
or advancement by the Corporation of some or a portion of any
Expenses or liabilities of any type whatsoever (including, but not
limited to, judgments, fines, penalties, and amounts paid in
settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to
indemnification or advancement of the total amount thereof, the
Corporation shall nevertheless indemnify or pay advancements to the
Indemnitee for the portion of such Expenses or liabilities to which
the Indemnitee is entitled.
8. Notice to Corporation by Indemnitee. Indemnitee
shall notify the Corporation in writing of any matter with respect
to which Indemnitee intends to seek indemnification hereunder as
soon as reasonably practicable following the receipt by Indemnitee
of written notice thereof; provided that any delay in so notifying
Corporation shall not constitute a waiver by Indemnitee of his
rights hereunder. The written notification to the Corporation
shall be addressed to the Board of Directors and shall include a
description of the nature of the Proceeding and the facts
underlying the Proceeding and be accompanied by copies of any
documents filed with the court in which the Proceeding is pending.
In addition, Indemnitee shall give the Corporation such information
and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
9. Maintenance of Liability Insurance.
(a) The Corporation hereby agrees that so long as
Indemnitee shall continue to serve as an officer or director of
Business Credit and thereafter so long as Indemnitee shall be
subject to any possible Proceeding, the Corporation, subject to
Section 9(b) hereof, shall use its best efforts to obtain and
maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") which provides Indemnitee the
same rights and benefits as are accorded to the most favorably
insured of the Corporation's officers or directors.
(b) Notwithstanding the foregoing, the Corporation shall
have no obligation to obtain or maintain D&O Insurance with respect
to the Indemnitee if the Corporation determines in good faith that
such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit, or the
Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Corporation.
(c) Notice to Insurers. If, at the time of the receipt
of a notice of a claim pursuant to Section 8 hereof, the
Corporation has D&O Insurance in effect, the Corporation shall give
prompt notice of the commencement of such Proceeding to the
insurers in accordance with the procedures set forth in the
respective policies. The Corporation shall thereafter take all
necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.
10. Defense of Claim. In the event that the
Corporation shall be obligated under Section 6 hereof to pay the
Expenses of any Proceeding against Indemnitee, the Corporation, if
appropriate, shall be entitled to assume the defense of such
Proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee
of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Corporation, the Corporation will not be liable
to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same
Proceeding, provided that (i) Indemnitee shall have the right to
employ his counsel in any such Proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Corporation, or (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest
between the Corporation and the Indemnitee in the conduct of such
defense, or (C) the Corporation shall not, in fact, have employed
counsel to assume the defense of such Proceeding, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the
Corporation.
11. Attorneys' Fees. In the event that Indemnitee or
the Corporation institutes an action to enforce or interpret any
terms of this Agreement, the Corporation shall reimburse Indemnitee
for all of the Indemnitee's reasonable fees and expenses in
bringing and pursuing such action or defense, unless as part of
such action or defense, a court of competent jurisdiction
determines that the material assertions made by Indemnitee as a
basis for such action or defense were not made in good faith or
were frivolous.
12. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue
during the period the Indemnitee is serving at the request of the
Corporation as an officer or director of Business Credit, and shall
continue thereafter so long as the Indemnitee shall be subject to
any possible proceeding by reason of the fact that Indemnitee
served in any capacity referred to herein.
13. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the
benefit of, the successors, assigns, heirs and legal
representatives of the parties hereto.
14. Non-exclusivity.
(a) The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed to be
exclusive of any other rights that the Indemnitee may have under
any provision of law, the Corporation's Articles of Incorporation
or Bylaws, the vote of the Corporation's shareholders or
disinterested directors, other agreements or otherwise, both as to
action in his official capacity and action in another capacity
while occupying his position(s) as an officer or director of
Business Credit.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule which expand the
right of a California corporation to indemnify its officers and
directors, the Indemnitee's rights and the Corporation's
obligations under this Agreement shall be expanded to the full
extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule, which narrow the right of a
California corporation to indemnify a director or officer, such
changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement, shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
15. Effectiveness of Agreement. To the extent that the
indemnification permitted under the terms of certain provisions of
this Agreement exceeds the scope of the indemnification provided
for in the California General Corporation Law, such provisions
shall not be effective unless and until the Corporation's Articles
of Incorporation authorize such additional rights of
indemnification. In all other respects, the balance of this
Agreement shall be effective as of the date set forth on the first
page and may apply to acts or omissions of Indemnitee which
occurred prior to such date if Indemnitee was an officer, director,
employee or other agent of Business Credit at the time such act or
omission occurred.
16. Severability. Nothing in this Agreement is intended
to require or shall be construed as requiring the Corporation to do
or fail to do any act in violation of applicable law. The
Corporation's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 16. If this Agreement or any
portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless
indemnify the Indemnitee to the full extent permitted by any
applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms.
17. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of
California. To the extent permitted by applicable law, the parties
hereby waive any provisions of law which render any provision of
this Agreement unenforceable in any respect.
18. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall
be deemed duly given (i) if delivered by hand and receipted for by
the party addressee or (ii) if mailed by certified or registered
mail with postage prepaid, on the third business day after the
mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified
by written notice.
19. Mutual Acknowledgment. Both the Corporation and
Indemnitee acknowledge that in certain instances, federal law or
applicable public policy may prohibit the Corporation from
indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for
a determination of the Corporation's right under public policy to
indemnify Indemnitee.
20. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original.
21. Amendment and Termination. No amendment,
modification, termination or cancellation of this Agreement shall
be effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
STERLING WEST BANCORP
By: /S/Allan E. Dalshaug
Name: Allan E. Dalshaug
Title: Chief Executive Officer
Address: 3287 Wilshire Boulevard
Los Angeles, California 90010
THE INDEMNITEE
/S/Robert A. Brito
__________________________________________
Robert A. Brito
1901 Via Justino
(Address)
San Dimas, CA 91773
(Address)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STERLING
WEST BANCORP AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> SEP-30-1995 DEC-31-1994
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