<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
--------------
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)
(213) 384-4444
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has field 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
--- ---
1,710,214
---------
(Number of shares of common stock outstanding May 14, 1996)
This Form 10Q contains 13 pages.
Exhibit Index None
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<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $14,206,000 $35,835,000
Investment securities held to maturity
(fair value of $7,575,000 in 1996 and
$7,664,000 in 1995) 7,604,000 7,614,000
Loans receivable, net 69,573,000 70,896,000
Real estate held for sale 3,750,000 4,409,000
Fixed assets
Land and building 227,000 227,000
Furniture and equipment 3,000,000 2,972,000
Leasehold improvements 1,411,000 1,411,000
----------- ------------
4,638,000 4,610,000
Less accumulated depreciation (3,438,000) (3,395,000)
----------- ------------
1,200,000 1,215,000
Accrued interest receivable 747,000 725,000
Other assets 866,000 858,000
Assets of discontinued operations 837,000 867,000
----------- ------------
$98,783,000 $122,419,000
=========== ============
LIABILITIES
Deposits
Demand $24,136,000 $37,598,000
Savings and NOW 51,701,000 61,316,000
Money market 7,071,000 6,990,000
Time deposits $100,000 or greater 3,272,000 3,281,000
Other time deposits 3,103,000 3,191,000
----------- ------------
89,283,000 112,376,000
Notes payable 398,000 1,372,000
Other liabilities 2,148,000 1,753,000
=========== ============
91,829,000 115,501,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - authorized 5,000,000
shares without par value; issued and
outstanding 1,710,214 shares in 1995 and 1994 8,686,000 8,686,000
Accumulated deficit, restricted (1,732,000) (1,768,000)
----------- ------------
6,954,000 6,918,000
----------- ------------
$98,783,000 $122,419,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For three months ended March 31,
--------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Interest income
Loans $1,964,000 $3,087,000
Federal funds sold 175,000 152,000
Investment securities held to maturity 115,000 97,000
---------- ----------
2,254,000 3,336,000
Interest expense
Savings and NOW 539,000 658,000
Money Market 10,000 43,000
Time deposits $100,000 or greater 65,000 26,000
Other time deposits 17,000 44,000
Notes payable 26,000 374,000
---------- ----------
657,000 1,145,000
---------- ----------
Net interest income 1,597,000 2,191,000
Provisions for loan losses 61,000 200,000
---------- ----------
Net interest income after provisions for loan losses 1,536,000 1,991,000
Non-interest income
Service charges on deposit accounts 95,000 74,000
Gain on sale of SBA loans -- 45,000
Other 101,000 124,000
---------- ----------
196,000 243,000
Non-interest expenses
Salaries, wages and employee benefits 785,000 1,109,000
Occupancy 221,000 195,000
Furniture and equipment 57,000 86,000
Real estate operations, net 134,000 85,000
Other 469,000 548,000
---------- ----------
1,666,000 2,023,000
Income before income taxes 66,000 211,000
Income taxes 30,000 84,000
---------- ----------
NET INCOME $ 36,000 $ 127,000
========== ==========
Net income per share $ 0.02 $ 0.07
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended March 31,
---------------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 36,000 $ 127,000
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 43,000 86,000
Provision for loan losses 61,000 200,000
Provision for deferred taxes -- (140,000)
Real estate valuation adjustments, net 707,000 567,000
(Increase) decrease in accrued interest
receivable (22,000) 74,000
(Increase) decrease in other assets (7,000) 157,000
Increase (decrease) in other liabilities 407,000 143,000
Decrease in assets of discontinued operations 31,000 830,000
---------- ----------
Total adjustments 1,220,000 1,917,000
---------- ----------
Net cash provided by operating activities 1,256,000 2,044,000
---------- ----------
Cash flows from investing activities
Purchase of investment securities -- (88,000)
Net decrease in loans receivable 193,000 1,158,000
Proceeds from sale of real estate 1,020,000 274,000
Purchase of furniture and equipment (29,000) (235,000)
---------- ----------
Net cash provided by investing activities 1,184,000 1,109,000
---------- ----------
Cash flows from financing activities
Net decrease in demand deposits,
savings and other money market accounts (22,995,000) (8,385,000)
Net decrease in certificates of deposit (99,000) (677,000)
Net increase (decrease) in note payable to
financial institution (975,000) 1,543,000
---------- ----------
Net cash used in financial activities (24,069,000) (7,519,000)
---------- ----------
Net decrease in cash and cash equivalents (21,629,000) (4,366,000)
---------- ----------
Cash and cash equivalents at beginning of period 35,835,000 20,294,000
---------- ----------
Cash and cash equivalents at end of period $ 14,206,000 $ 15,928,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PART I: FINANCIAL INFORMATION
Notes to financial Statements of Registrant
March 31, 1996
1. The consolidated financial statements of Sterling West Bancorp (the
Company) 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 Company is the holding company
for Sterling Bank (the Bank). The results of operations and cash flows for the
interim period ended March 31, 1996 are not necessarily indicative of results
which may be expected for any 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 March 31, 1996 and December 31,
1995 the Company had entered into the following commitments:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Letters of Credit $501,000 $840,000
Undisbursed Loan Commitments $8,402,000 $10,391,000
</TABLE>
3. Earnings per share amount have been computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding.
The number of such primary shares are 1,710,214 for March 31, 1996 and 1995.
4. Certain reclassifications have been made in the 1995 consolidated financial
statements to conform to the March 31, 1996 presentation.
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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 the Company. The discussion and analysis for the first quarter
ended March 31, 1996 primarily reflect the operations of the Bank. The
financial results of the first quarter ended March 31, 1995 included income
earned by the formerly active subsidiary, Sterling Business Credit, Inc.
("Business Credit"), the few remaining assets of Business Credit made no
contribution to profit in the first quarter of 1996. The Bank and Business
Credit are wholly-owned subsidiaries of the Company. Unless otherwise specified,
the discussion below relates to the Company's consolidated financial condition
and operations.
During the first quarter of 1996, the Company had net income of $36,000 as
compared to net income of $127,000 in the first quarter of 1995. Excluding
first quarter 1995 net income from Business Credit, the net loss for the Company
was $27,000 in the first quarter of 1995 compared to net income of $36,000 for
the first quarter of 1996. The increase primarily resulted from a lower loan
loss provision during the quarter. For the period ended March 31, 1996, there
was a reduction attained in Real Estate Held for Sale, with the disposal of $3.2
million of foreclosed properties compared to the same period in 1995. In
addition, many of the properties remaining at the end of the first quarter of
1996 were, or have since been placed in escrow.
FINANCIAL CONDITION
Assets
At March 31, 1996 assets of the Company were $98,783,000, a decrease of 19.3%
from $122,419,000 at December 31, 1995. The significant change in the
distribution of assets occurred in cash and cash equivalents, which decreased
$21.6 million to $14.2 million at March 31, 1996 compared to $35.8 million at
December 31, 1995. The reduction is primarily the result of the asset-liability
management process at the Bank, which is used to accommodate changes in loan
demand and core deposit levels, as well as the continued downsizing of the
balance sheet in order to satisfy regulatory capital ratio requirements
applicable to the Company and the Bank.
The Company's real estate held for sale consists of real estate owned and real
estate investments. At March 31, 1996, the Company had $3.8 million of Real
estate held for sale, a 15% reduction from the $4.4 million at December 31,
1995, and a 46% reduction as compared to the same period in 1995. All
properties are stated at the lower of cost or estimated fair market value less
estimated selling costs.
While management does not expect any substantial additional losses on the sale
of remaining properties in excess of the allowances already provided in the
consolidated financial statements, the fact remains that 73% 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" for a description of the
effect of these assets on net interest income.
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<PAGE> 7
Source of Funds
Total deposits decreased 20.6% to $89.3 million at March 31, 1996 from $112.4
million at December 31, 1995. The decrease was primarily the result of lower
demand deposits and Savings and NOW deposits, which reflect what management
believes to be normal fluctuations in these accounts and the effect of the Banks
asset-liability management process which serves to accommodate the reduced
funding needs of the Bank.
There are statutory and regulatory limitations on the amount of dividends which
may be paid to the Company by the Bank. At March 31, 1996 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 a memorandum of
understanding with the FDIC (the "FDIC Memorandum") unless the payment is
approved in advance by the Regional Director of the FDIC and the State
Superintendent of Banks. Please see "CAPITAL RESOURCES" below for a discussion
of the terms of the FDIC Memorandum.
RESULTS OF OPERATIONS
Net Income
During the first quarter of 1996, the Company had net income of $36,000 as
compared to net income of $127,000 in the first quarter of 1995. Excluding
first quarter 1995 net Income from Business Credit, the net loss for the Company
was $27,000 in the first quarter of 1995 compared to a net income of $36,000 for
the first quarter of 1996. The increase primarily resulted from lower loan loss
provisions during the quarter.
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 decreased 27.1% for the first quarter of 1996 as compared to the
first quarter of 1995. The decrease in the Company's net interest income for
the first quarter of 1996 compared with the same period in 1995, was due
primarily to a 36.3% reduction in interest income and a 93% reduction in
interest expenses on notes payable. Net interest income for the first quarter
of 1995 includes $0.6 million of net interest income from Business Credit loans,
most of which were sold during the third quarter of 1995. Net interest income
remained relatively unchanged when the Business Credit net interest income is
excluded from the first quarter of 1995. The Company's net interest income for
the period ending March 31, 1995 (excluding the Business Credit $0.6 million of
net interest income) was $1.6 million compared to $1.6 million for the same
period in 1996.
Nonperforming assets, consisting of nonaccrual loans and real estate held for
sale, amounted to $5.4 million at March 31, 1996 compared to $7.0 million at
December 31, 1995 and $8.6 million at March 31, 1995. Nonaccrual loans amounted
to $1.6 million at March 31, 1996 as compared to $2.6 million at December 31,
1995 and $1.8 million at March 31, 1995. Real estate held for sale decreased
from $6.9 million at March 31, 1995 and $4.4 million at December 31, 1995, to
$3.7 million at March 31, 1996. In addition, many of the properties remaining
at the end of March 1996 were, or have since been placed in escrow. With the
continued liquidation of real estate held for sale, comes the elimination of
certain costs associated with maintaining those assets, which have been
substantial.
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<PAGE> 8
The Company acknowledges, that continued ownership of these generally
non-earning assets does 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.
Allowance and Provision for 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 Company's loan portfolio, including its
commercial, industrial and agricultural loans, is secured by real estate
collateral, substantially all of which is located in Southern California. While
in most cases the amount of the loan is less than 75% of the 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 March 31, 1996, the allowance for loan losses was $1.4 million or 2.00% of
total loans, as compared to $1.5 million or 2.09% of total loans at December
31, 1995 and $1.7 million or 1.89% of total loans at March 31, 1995. The
allowance for loan losses was 86% of nonaccrual loans at March 31, 1996 as
compared to 59% at December 31, 1995 and 93% at March 31, 1995. The Company
generally maintains a 15% allocation in its allowance for loan losses for
nonaccrual loans based on its historical loss ratio. During the first three
months of 1996, the Company made additions to the allowance of $61,000 compared
to $200,000 during the same period in 1995. Reductions from the allowance in
the form of net charge-offs amounted to $173,000 for the first three months of
1996 as compared to $219,000 for the same period in 1995.
Nonaccrual loans amounted to $1.6 million at March 31, 1996 as compared to $2.6
million at December 31, 1995 and $1.8 million at March 31, 1995. The risk
inherent in these loans, the strength of the collateral and guarantees securing
them as well as changes in real estate values in Southern California have been
taken into consideration in determining the adequacy of the allowance for loan
losses. The Company has established a separate allowance for losses on real
estate held for sale which amounted to $0.1 million, $1.1 million, and $0.1
million, at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively.
Further, the Company maintains an allowance for losses on loan repurchases
which amounted to $0.6 million at March 31, 1996, $0.8 million at December 31,
1995 and $1.2 million at March 31, 1995. This allowance is carried in other
liabilities on the balance sheet. In determining the amount of this allowance,
the Company considered the exposure of the Company to repurchases which takes
into
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<PAGE> 9
account the Company's past experience with repurchases, the potential for
future repurchases and any losses thereon. Management believes that the
allowance for losses on loan repurchase at March 31, 1996 was adequate to
absorb future losses on loan repurchase. However, no assurance can be given
that the Company not incur additional losses on such repurchase.
Taking into account economic trends in Southern California and the condition of
the loan portfolio management believes that the allowance for loan losses at
March 31, 1996 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 first quarter of 1996 decreased 19% to $196,000 from
$243,000 for the same period in 1995. The decrease results primarily from a
$45,000 decline in gains on the sale of loans guaranteed by the small Business
Administration during the first quarter of 1996 as compared to the first
quarter of 1995.
Noninterest Expense
Noninterest expense decreased 17% for the first quarter of 1996 to $785,000
compared to $1,109,000 for the same period in 1995, primarily as a result of a
$324,000 decrease in salaries, wages and employee benefits. The decrease in
salaries, wages and employee benefits were a direct benefit of the Company's
continued downsizing of its balance sheet in order to satisfy regulatory
capital ratio requirements applicable to the Company and the Bank.
Income taxes
The provision for income taxes for the three month period ended March 31, 1996
is as follows:
<TABLE>
<CAPTION>
Federal State Total
--------------------------------------------
<S> <C> <C> <C>
Current $ 21,000 $ 9,000 $ 30,000
Deferred -- -- --
--------------------------------------------
$ 21,000 $ 9,000 $ 30,000
============================================
</TABLE>
The provision for income taxes reflects an effective tax rate of 43% on income
before income taxes. The components of income taxes causing the variation
from the expected statutory federal tax rate are not significantly different
than the amounts disclosed in the prior year.
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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 4.00% must be Tier 1 capital consisting primarily of common
stock and retained earnings, less goodwill).
The following table sets forth the capital ratios of the Company and
the Bank at March 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Company Bank
------------------------ ------------------------
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
Tier 1 Capital 6,954 8.63% 7,206 9.21%
Tier 1 Capital
minimum requirement 3,223 4.00% 3,129 4.00%
----- ----- ----- -----
Excess 3,732 4.63% 4,077 5.21%
Total capital 7966 9.89% 8,190 10.47%
Total capital
minimum requirement 6,446 8.00% 6,258 8.00%
----- ----- ----- -----
Excess 1,521 1.89% 1,932 2.47%
Risk-weighted assets $80,574 $78,225
Tier 1 capital $6,954 6.55% $7,206 6.97%
Tier 1 capital
minimum requirement 4,245 4.00%
------ -----
Memorandum
requirement 6,975 6.75%
------ -----
Excess 2,709 2.55% 231 0.22%
Total average assets $106,128 $103,334
</TABLE>
The leverage ratio consists of tangible Tier 1 capital divided by total average
assets. As of March 31, 1996, the Company and the Bank had leverage ratios of
6.55% and 6.97%, respectively. Regulators have established a minimum leverage
ratio of 3.00% for the highest rated banks. However, institutions experiencing
or anticipating significant growth, or those with other than minimum risk
profiles, will be expected to maintain capital well above the minimum.
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<PAGE> 11
In November 1995, the Federal Reserve Bank and the Board of Directors of the
Company entered into a memorandum of understanding ("the FRB Memorandum").
Under the FRB Memorandum, the Company is required, among other things, to
comply with the FDIC memorandum; submit a written plan designed to enhance the
board's supervision of the operations and management of the consolidated
organization, to ensure that the Company has sufficient cash to pay its
expenses and to service its debt; the Company may not, directly or indirectly,
acquire or sell any interest in any entity, line of business, problem loans or
other assets, without the prior written approval of the Federal Reserve Bank;
and to not pay cash dividends without the prior written consent of the Federal
Reserve Bank.
In March 1995, the FDIC and the Board of Directors of the Bank entered into a
memorandum of understanding ("FDIC Memorandum"). Under the FDIC 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 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
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 Company and the Bank are currently in compliance, and management believes
that it can continue to comply with the terms of the FRB Memorandum and the
FDIC Memorandum, and otherwise meet regulatory capital requirements, and that
any actions taken to so comply in the future will not have a material adverse
effect on the Company's future financial condition or results of operations.
However, failure to comply with either Memorandum could result in further
regulatory action, including issuance of a Cease and Desist Order.
The Company suspended its quarterly cash dividends in the third quarter of
1993. The Company expects that future dividends will depend on a return to
profitability and the maintenance of acceptable financial results in the
future.
11
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PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on 8-K.
(A) Exhibits: Exhibit 27 - Financial Data Schedule
(B) Exhibits: Exhibit 10.32 - Farhad Motra settlement agreement
(C) Report on Form 8-K: None.
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: May 14, 1996 By /s/ Joseph C. Carona
-----------------------------
Joseph C. Carona
Chief Financial and
Accounting officer)
12
<PAGE> 1
EXHIBIT 10.32
SETTLEMENT AGREEMENT
AND MUTUAL RELEASE OF CLAIMS
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF CLAIMS (the
"Agreement") is made and entered into by and between Farhad Motia ("Motia"), on
the one hand, and Sterling Business Credit, Inc., a California corporation,
(the "Company"), on the other hand, for the following purposes and with
reference to the following facts:
RECITALS
A. For the purposes of this Agreement, the "Company" includes
Sterling Business Credit, Inc., all managed, affiliated and/or wholly owned
entities, and each of their officers, directors, shareholders, employees,
representatives, attorneys, and/or agents. For purposes of this Agreement,
"Motia" includes Farhad Motia, his representatives, attorneys, agents, heirs,
successors and assigns.
B. WHEREAS, the Company has entered into an asset purchase
agreement (the "Asset Purchase Agreement") dated September 6, 1995 by and among
Sterling West Bancorp, Sterling Business Credit, Inc. and First Capital
Corporation.
C. WHEREAS, Motia has been employed as the Company's President
and Chief Executive Officer pursuant to the terms of a written employment
agreement dated July 1, 1989, as amended and modified thereafter;
D. WHEREAS, Motia and the Company have engaged in discussions
regarding the termination of Motia's employment with the Company; and
E. WHEREAS, the purpose of this Agreement is to settle and
compromise all disputes and controversies that do and may exist between the
parties.
NOW, THEREFORE, in consideration of the covenants and promises
set forth below, it is agreed by and between the parties as follows:
AGREEMENT
1. TERMINATION OF EMPLOYMENT. Motia's employment
pursuant to his written employment agreement is terminated effective September
7, 1995.
2. SALARY. The Company agrees to continue to pay
Motia's regular salary for a period of three months from the effective date of
this Agreement, up to and including December 7, 1995, in the total amount of
$40,853.50. Motia acknowledges and agrees that, other than the compensation
and benefits contained in this paragraph 2, and paragraphs 3, 4, and 5 and 6
below,
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<PAGE> 2
all of which shall be paid upon the parties' execution of this Agreement, Motia
is not entitled to accrue or earn any additional benefits or compensation from
the Company.
3. VACATION PAY. The Company will pay Motia all of his
accrued and unused vacation pay in the amount of $8,799.43.
4. DEFERRED COMPENSATION. The Company will pay to Motia
his deferred compensation through August 31, 1995, in the total amount of
$277,600.00.
5. STERLING WEST BANCORP STOCK. The Company will issue
to Motia 43,861 shares of Sterling West Bancorp stock held by the Company as
additional deferred compensation, all of which shares are evidenced by
certificates which contain a legend restricting transferability.
6. ADDITIONAL SALARY. The Company will pay Motia cash
in the amount of $15,374.00 which includes the amount of regular salary Motia
had voluntarily foregone.
7. DENIAL OF LIABILITY. This Agreement does not
constitute an admission by Motia or the Company of any violation of any policy
or procedure, or of any state or federal law or regulation. Moreover, neither
this Agreement nor any of its provisions shall be construed to be, or shall
be, admissible in any proceeding as evidence or any admission by Motia or the
Company of any violation of any policy, procedure, or state or federal law or
regulation. However, this agreement may be introduced in any proceeding to
enforce the terms of this Agreement.
8. RELEASE. In consideration of this Agreement's terms,
Motia, on behalf of his representatives, successors-in-interest, assigns, and
heirs, unconditionally and irrevocably releases and forever discharges the
Company, as well as its current and former officers, directors, employees,
representatives, attorneys, agents, successors and assigns, from any and all
claims, demands, liabilities, suits or damages of any types or kind, whether
suspected or unsuspected, arising from or in any way related to Motia's
employment with the Company or the termination of his employment with the
Company, including without limitation, any bonus, incentive or compensation
plan, and any and all other claims relating to the termination of Motia's
employment with the Company, on or before the effective date of this Agreement.
This release includes, without in any way limiting the generality of the
foregoing, any and all claims for breach of contract, interference with
contract or prospective economic advantage, defamation, any tort or statutory
claims, claims for indemnification and/or contribution, wrongful discharge, or
any claims arising under Title VII of the Civil Rights Act of 1964, as amended,
the Age Discrimination in Employment Act of 1967, as amended, and the
California Fair Employment Housing Act.
In consideration for Motia's promises contained herein, the
Company does hereby for itself and its predecessors, legal representatives,
agents, successors-in-interest, partners, subsidiaries, affiliated or related
companies, officers, directors, employees, and attorneys irrevocably and
unconditionally releases and discharges Motia, his heirs, legal representatives
and
2
<PAGE> 3
assigns from any and all causes of action, claims, actions, rights, judgments,
obligations, damages, and demands which it has against Motia by reason of or
arising out of or concerning his employment with the Company, which existed,
may have existed or which do exist prior to the date of the execution of this
Agreement.
9. WARRANTY. The parties specifically warrant that they
have not assigned any such claim, action, cause of action, right, demand, debt,
obligation, damages or accounting released by paragraph 8 above, and agree to
indemnify and hold harmless each other for any such assignment.
10. ASSISTANCE AND COOPERATION. Motia further agrees
that he will fully cooperate with the Company and will make himself available
from the date hereof until December 31, 1995 for no more than ten (10) hours
per month (and to the extent reasonably practicable, such availability will be
by telephone rather than face-to-face meetings) to meet with employees and
representatives of the Company in connection with the loans on the books of the
Company as of the date hereof not included among the Purchased Loans and also
cooperate with any existing or future investigation, lawsuits, arbitrations, or
other proceedings, whether civil, criminal or administrative in nature, in
which the Company is a party or a witness.
11. COMPANY PROPERTY. From the date hereof, Motia shall
not remove or copy any documents, computer disks, manuals, or writings of any
kind which pertain to the business of the Company, including personnel matters,
which material is the confidential property of the Company.
12. COUNSEL. The parties acknowledge and represent that
prior to the effective date of this Agreement, they have consulted and have had
this Agreement reviewed by their respective counsel concerning the terms and
conditions set forth in this Agreement.
13. KNOWING AND VOLUNTARY. Motia and the Company
acknowledge and represent that they have carefully read and fully understand
all of the provisions of this Agreement. Motia and the Company further
acknowledge that they enter into this Agreement freely, knowingly and without
coercion and based on their own judgement and not in reliance upon any
representation or promise made by any other party.
14. ARBITRATION. Any and all disputes, controversies or
claims arising under or in connection with this Agreement, or relating to the
general validity or enforceability of this Agreement, including fraud in the
inducement, or any claims relating to Motia's employment at the Company, or
Motia's separation of his employment from the Company, shall be submitted to
final and binding arbitration under the auspices and rules of the American
Arbitration Association. The prevailing party in any such preceding shall be
entitled to its costs and reasonable attorney's fees.
3
<PAGE> 4
15. GOVERNING LAW. This Agreement shall be construed and
governed exclusively by the laws of the state of California without giving
effect to its conflict of laws provisions.
16. SEVERABILITY. If any provision of this Agreement is
deemed to be illegal, invalid or unenforceable, the legality, validity and
enforceability of the remaining parts shall not be effected.
17. ENTIRE AGREEMENT. This Agreement contains all of the
terms and conditions agreed upon by the parties regarding the subject matter of
this Agreement. Any prior agreements, promises, negotiations or
representations, wither oral or written, relating to the subject matter of this
Agreement, not expressly set forth in this Agreement, are of no force and
effect. Further, this Agreement is executed without reliance upon any
representation by any person concerning the nature or extent of injuries or
damages or legal liability.
18. REVOCATION. This Agreement is revocable by Motia for
a period of seven calendar days following his execution of this Agreement. The
revocation must be in writing, must specifically revoke this Agreement, and
must be received by the Company prior to the eighth calendar day following the
execution of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each Party hereto and delivered to each Party hereto.
THE SIGNATORIES HAVE CAREFULLY READ THIS ENTIRE AGREEMENT.
ITS CONTENTS HAVE BEEN FULLY EXPLAINED TO THEM BY THEIR ATTORNEYS. THE
SIGNATORIES FULLY UNDERSTAND THE FINAL AND BINDING EFFECT OF THIS AGREEMENT.
THE ONLY PROMISES MADE TO ANY SIGNATORY ABOUT THIS AGREEMENT, AND TO SIGN THIS
AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. THE SIGNATORIES ARE SIGNING THIS
AGREEMENT VOLUNTARILY.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Settlement
Agreement and Mutual Release on the date set forth below.
Dated: /s/ Farhad Motia
----------------- -------------------------------------
FARHAD MOTIA
Dated: /s/ Allan E. Dalshaug
----------------- -------------------------------------
STERLING BUSINESS CREDIT, INC.
APPROVED AS TO FORM: MANATT, PHELPS & PHILLIPS
Dated: /s/ Barbara Polsky
----------------- -------------------------------------
BARBARA POLSKY, ESQ.
PILLSBURY, MADISON & SUTRO
Dated: /s/ William Stoner
----------------- -------------------------------------
WILLIAM STONER, ESQ.
5
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,206
<INT-BEARING-DEPOSITS> 198
<FED-FUNDS-SOLD> 8,230
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 7,604
<INVESTMENTS-MARKET> 7,575
<LOANS> 70,970
<ALLOWANCE> 1,397
<TOTAL-ASSETS> 98,783
<DEPOSITS> 89,283
<SHORT-TERM> 398
<LIABILITIES-OTHER> 2,148
<LONG-TERM> 0
0
0
<COMMON> 8,686
<OTHER-SE> (1,732)
<TOTAL-LIABILITIES-AND-EQUITY> 98,783
<INTEREST-LOAN> 1,964
<INTEREST-INVEST> 175
<INTEREST-OTHER> 115
<INTEREST-TOTAL> 2,254
<INTEREST-DEPOSIT> 631
<INTEREST-EXPENSE> 657
<INTEREST-INCOME-NET> 1,597
<LOAN-LOSSES> 61
<SECURITIES-GAINS> 196
<EXPENSE-OTHER> 1,666
<INCOME-PRETAX> 66
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 7.46
<LOANS-NON> 1,629
<LOANS-PAST> 195
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,510
<CHARGE-OFFS> 195
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 1,397
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
