<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-13551
------------------------
WESTERN BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3863296
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
4100 NEWPORT PLACE, SUITE 900,
NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER (714) 863-2300
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 8, 1998: 15,692,128
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997............................................................................. 3
Condensed Consolidated Statements of Income for three month periods ended March 31, 1998 and
1997.......................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31,
1998 and 1997................................................................................. 5
Notes to Condensed Consolidated Financial Statements March 31, 1998........................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................. 9
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................................. 17
ITEM 2. Change in Securities.......................................................................... 17
ITEM 3. Default Upon Senior Securities................................................................ 17
ITEM 4. Submission of Matters to a Vote of Security Holders........................................... 17
ITEM 5. Other Information............................................................................. 18
ITEM 6. Exhibits and Reports on Form 8-K.............................................................. 18
SIGNATURES................................................................................................. 19
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998(A) 1997
---------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS:
Cash and due from banks.............................................. $ 145,300 $ 97,456
Federal funds sold................................................... 239,621 138,702
---------- ------------
Total cash and cash equivalents.................................... 384,921 236,158
FRB and FHLB stock................................................... 5,673 5,610
Securities available for sale (amortized cost of
$251,113 and $202,064)............................................. 250,997 201,904
---------- ------------
Total securities................................................... 256,670 207,514
Net loans............................................................ 1,228,902 864,840
Property, plant and equipment........................................ 31,065 13,685
Other real estate owned.............................................. 7,508 6,261
Goodwill............................................................. 148,135 30,430
Other assets......................................................... 27,542 24,622
---------- ------------
Total assets....................................................... $2,084,743 $1,383,510
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Noninterest bearing deposits......................................... $ 631,002 $ 457,503
Interest bearing deposits............................................ 1,132,622 769,290
---------- ------------
Total deposits..................................................... 1,763,624 1,226,793
Borrowed funds....................................................... 18,169 12,751
Accrued interest payable and other liabilities....................... 18,045 14,311
---------- ------------
Total liabilities.................................................. 1,799,838 1,253,855
SHAREHOLDERS' EQUITY:
Preferred stock no par value, 5 million shares
authorized, none issued - -
Common stock, no par value, 100,000,000 shares
authorized, 15,689,866 and 10,648,317 shares issued
and outstanding.................................................... 262,968 112,947
Retained earnings.................................................... 22,005 16,802
Accumulated other comprehensive income--
unrealized net (losses) on securities
available for sale, net of tax..................................... (68) (94)
---------- ------------
Total shareholders' equity......................................... 284,905 129,655
Total liabilities and shareholders' equity....................... $2,084,743 $1,383,510
---------- ------------
---------- ------------
Number of common shares outstanding.................................. 15,689.9 10,648.3
Common shareholders' equity per share................................ $ 18.16 $ 12.18
Tangible common shareholders' equity per share....................... $ 8.71 $ 9.32
</TABLE>
(a) Reflects the acquisition of Santa Monica Bank on January 27, 1998.
See "Notes to Unaudited Condensed Consolidated Financial Statements."
3
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998(A) 1997(A)
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE PER
DATA)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans and leases........................... $ 26,755 $ 19,045
Interest on investment securities............................... 3,710 4,308
Interest on federal funds sold.................................. 2,302 612
--------- ---------
Total interest income....................................... 32,767 23,965
INTEREST EXPENSE:
Interest expense on deposits.................................... 8,665 6,676
Interest expense on borrowed funds.............................. 217 339
--------- ---------
Total interest expense...................................... 8,882 7,015
--------- ---------
Net interest income:................................................ 23,885 16,950
Less: provision for loan and lease losses....................... 150 725
--------- ---------
Net interest income after provision for loan and lease losses....... 23,735 16,225
NON INTEREST INCOME:
Service charges and fees on deposit accounts.................... 1,909 1,383
Trust fees...................................................... 637 -
Escrow fees..................................................... 258 155
Other fees and charges.......................................... 443 504
Gain on sale of loans and other assets.......................... - 78
Securities gains................................................ 113 107
Other income.................................................... 253 282
--------- ---------
Total noninterest income.................................... 3,613 2,509
NON INTEREST EXPENSE:
Salaries and benefits........................................... 8,542 6,660
Occupancy, furniture and equipment.............................. 2,347 1,916
Advertising and business development............................ 276 370
Other real estate owned......................................... 189 46
Professional services........................................... 838 1,064
Telephone, stationery and supplies.............................. 736 712
Goodwill amortization........................................... 1,951 636
Data processing................................................. 558 388
Customer services cost.......................................... 321 131
Merger costs.................................................... - 66
Other........................................................... 1,223 1,338
--------- ---------
Total noninterest expense................................... 16,981 13,327
--------- ---------
Income before income taxes...................................... 10,367 5,407
Income taxes.................................................... 5,032 2,431
--------- ---------
Net income.................................................. $ 5,335 $ 2,976
--------- ---------
--------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic......................................................... 13,938.4 10,487.0
Diluted....................................................... 14,141.8 10,757.7
NET INCOME PER SHARE:
Basic......................................................... $ 0.38 $ 0.28
Diluted....................................................... $ 0.38 $ 0.28
</TABLE>
(a) Santa Monica Bank was acquired on January 27, 1998. Accordingly, Santa
Monica Bank's operating results are not included in the amounts for the 1997
period and are included for only two months of the 1998 period.
See "Notes to Unaudited Condensed Consolidated Financial Statements."
4
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................................................. $ 5,335 $ 2,976
Adjustments to reconcile net income to net cash provided by operations:
(Gain) on sale of securities available for sale.......................................... (113) (107)
(Gain) on sale of fixed assets........................................................... (5) (4)
(Gain) on sale of other real estate owned................................................ (77) (35)
Provision for loan and lease losses...................................................... 150 725
Provision for selling expenses of other real estate owned................................ -- 43
Goodwill amortization.................................................................... 1,951 636
Depreciation............................................................................. 814 675
(Gain) on sale of loans.................................................................. -- (78)
Amortization of (discounts) premiums on investment securities............................ (396) 91
(Decrease) in unearned lease income...................................................... (125) (156)
Net increase (decrease) in accrued interest payable and other liabilities................ (2,254) (1,601)
Net (increase) decrease in other assets.................................................. 1,336 4,065
--------- ---------
Net cash provided by operating activities.............................................. 6,616 7,230
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities available for sale............................. 10,127 6,075
Principal payments received on investment securities available for sale.................... 83,558 78,088
Principal payments received on investment securities held to maturity...................... -- 344
Purchase of investment securities available for sale....................................... (52,983) (39,558)
Purchase of FRB or FHLB stock.............................................................. (63) (23)
Proceeds from sale of fixed assets......................................................... 59 4
(Increase) decrease in net loans and leases................................................ 22,942 (3,395)
Recoveries of loans and investment in leases............................................... 580 51
(Additions) to premises and equipment...................................................... (1,921) (209)
Reductions to other real estate owned...................................................... 2,148 186
Change in assets and liabilities due to the acquisition of Santa Monica Bank:
Increase in investments available for sale............................................... (89,238) --
Increase in loans........................................................................ (387,609) --
Increase in other real estate owned...................................................... (3,318) --
Increase in other assets................................................................. (4,277) --
Increase in premises and equipment....................................................... (16,328) --
Increase in deposits..................................................................... 584,095 --
Increase in borrowed funds............................................................... 1,960 --
Increase in other liabilities............................................................ 5,988 --
Goodwill................................................................................. (119,656) --
--------- ---------
Net cash provided by investing activities.............................................. $ 36,064 $ 41,563
CASH FLOW FROM FINANCING ACTIVITIES:
Cash received from exercise of options..................................................... $ 192 $ 323
Proceeds from issuance of common stock..................................................... 149,840 --
Common stock repurchased and retired....................................................... (11) --
Dividends declared......................................................................... (132) (374)
Net (decrease) increase in deposits........................................................ (47,264) 24,286
Additional (repayment of) borrowings....................................................... 3,458 (7,353)
--------- ---------
Net cash provided by financing activities.............................................. 106,083 16,882
--------- ---------
Net increase in cash and cash equivalents.................................................. 148,763 65,675
Cash and cash equivalents at the beginning of the period................................... 236,158 118,719
--------- ---------
Cash and cash equivalents at the end of the period......................................... $ 384,921 $ 184,394
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Property acquired through foreclosure...................................................... $ -- $ 4,437
Loans to facilitate the sale of OREO....................................................... 256 --
Increase (decrease) in unrealized gain on securities available for sale, net of tax........ 26 (942)
Cash paid for interest..................................................................... 9,184 7,005
Cash paid for taxes........................................................................ -- --
ACQUISITION OF SMB:........................................................................
Fair value of assets acquired............................................................ 794,782 --
Common stock issued to shareholders of SMB............................................... (84,669) --
Cash paid................................................................................ (118,070) --
--------- ---------
Liabilities assumed.................................................................... $ 592,043 --
--------- ---------
--------- ---------
</TABLE>
See "Notes to Unaudited Condensed Consolidated Financial Statements."
5
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1--BASIS OF PRESENTATION
Western Bancorp (the "Company") is the holding company for Southern
California Bank ("SCB"), Santa Monica Bank ("SMB" and together with SCB, the
"Banks") and Venture Partners, Inc. The unaudited condensed consolidated
financial statements of the Company included herein reflect all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
periods indicated. Certain reclassifications have been made to the condensed
consolidated financial statements for 1997 to conform to the 1998 presentation.
Certain information and note disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission"). The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results of operations to be expected for the remainder of the
year.
The preparation of condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates subject to change include the allowance for loan and lease
losses, the carrying value of other real estate owned, and the deferred tax
asset.
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report filed on Form 10-K, for
the year ended December 31, 1997 and the financial statements and notes thereto
included in SMB's Annual Report for the year ended December 31, 1997 which was
included as an exhibit to a Current Report on Form 8-K/A filed by the Company on
April 9, 1998. (As described more fully below, SMB was acquired by the Company
on January 27, 1998.)
NOTE 2--COMPLETED ACQUISITIONS
On January 27, 1998, the Company acquired SMB through the merger of SMB with
and into Western Bank, a banking subsidiary of the Company (the "SMB
Acquisition"). As part of the SMB Acquisition, the name of Western Bank was
changed to "Santa Monica Bank." Upon the SMB Acquisition becoming effective,
each share of common stock, $3.00 par value, of Santa Monica Bank (the "SMB
Common Stock") issued and outstanding at the time was converted into the right
to receive either (i) $28.00 in cash (the "Cash Consideration") or (ii) 0.875
shares of Common Stock of the Company (the "Stock Consideration"). Of the
7,084,244 shares of SMB Common Stock outstanding at the time of the SMB
Acquisition, approximately 57.3 percent elected to receive the Cash
Consideration, resulting in a payment of $113,722,700 in the aggregate, and
approximately 42.7 percent received the Stock Consideration resulting in the
issuance of approximately 2,646,000 shares of common stock, no par value, of the
Company. In order to fund a part of the Cash Consideration payments, the Company
issued an additional 2,327,550 shares of Company Common Stock to certain private
investors for $65,171,400 in the aggregate. Accordingly, in the aggregate,
approximately 4,973,550 shares of Company Common Stock were issued in connection
with the SMB Acquisition. The total value of the consideration paid in the SMB
Acquisition was approximately $198.4 million in Company Common Stock and cash.
NOTE 3--PENDING ACQUISITIONS
On April 17, 1998 the Company announced it signed a definitive agreement to
acquire (the "BKLA Acquisition") the Bank of Los Angeles ("BKLA"). Shareholders
of BKLA will receive 0.4224 shares of Company Common Stock for each share of
common stock, no par value, of BKLA ("BKLA Common
6
<PAGE>
Stock"). The BKLA Acquisition will use the pooling-of-interests method
accounting and is expected to close in the fourth quarter of 1998.
NOTE 4--UNAUDITED SUMMARY PRO FORMA DATA
The following tables show unaudited summary pro forma balance sheet and
income statement information for the SMB Acquisition consummated on January 27,
1998 and for the pending BKLA Acquisition. Purchase accounting is used for the
pro forma information presented for the SMB Acquisition, and
pooling-of-interests accounting is used for the pro forma information presented
for the BKLA Acquisition. SMB is already included in the balance sheet as of
March 31, 1998. The pro forma income statement information for the three month
periods ended March 31, 1998 and March 31, 1997 includes operating results of
SMB as if the SMB Acquisition was consummated at the beginning of those periods.
Results for the Company for the three month period ended March 31, 1998 already
include the results of SMB for the months of February and March. January results
for SMB and an additional month of amortization of purchase accounting entries
are included in the pro forma results shown below. The balance sheet and income
statement adjustments shown below are based on management's estimates, for pro
forma presentation, of costs and, in the case of the SMB Acquisition, the fair
value adjustments associated with these transactions. The Company's cost
estimates are forward-looking. Readers are cautioned that the type and amount of
actual costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management in
determining the current estimate of these costs.
The unaudited summary pro forma balance sheet information is not necessarily
indicative of the actual financial position that would have existed had the BKLA
Acquisition been consummated on March 31, 1998 or December 31, 1997, or that may
exist in the future. The unaudited summary pro forma income statement
information is not necessarily indicative of the results that would have
occurred had either the SMB Acquisition or the BKLA Acquisition been consummated
on the dates indicated or that may be achieved in the future. Assuming the
consummation of the BKLA Acquisition, the actual financial position and results
of operations will differ, perhaps significantly, from the pro forma amounts
reflected herein because of a variety of factors, including changes in value and
changes in operating results between the dates of the pro forma financial data
and the date on which the BKLA Acquisition takes place.
UNAUDITED SUMMARY PRO FORMA BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------------------------------
PRO FORMA
THE COMPANY BKLA ADJUSTMENTS COMBINED
------------ ---------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total assets................................................ $ 2,084,743 $ 278,161 $ 2,362,904
Securities.................................................. 256,670 79,382 336,052
Loans and leases, net....................................... 1,228,902 143,615 1,372,517
Goodwill.................................................... 148,135 5,816 153,951
Deposits.................................................... 1,763,624 236,720 2,000,344
Shareholders' equity........................................ 284,905 32,099 (5,400) 311,604
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------
PRO FORMA
THE COMPANY BKLA ADJUSTMENTS COMBINED
------------ ---------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total assets................................................ $ 1,383,510 $ 272,033 $ 1,655,543
Securities.................................................. 207,514 60,433 267,947
Loans and leases, net....................................... 864,840 139,814 1,004,654
Goodwill.................................................... 30,430 5,939 36,369
Deposits.................................................... 1,226,793 238,012 1,464,805
Shareholders' equity........................................ 129,655 31,054 (5,400) 155,309
</TABLE>
7
<PAGE>
UNAUDITED SUMMARY PRO FORMA INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------
SMB PRO FORMA
THE COMPANY BKLA (JANUARY) ADJUSTMENTS COMBINED
----------- --------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income..................................... $ 23,885 $ 3,665 $ 2,970 (235) $ 30,285
Provision for loan and lease losses..................... 150 -- 80 -- 230
Non interest income..................................... 3,613 487 614 -- 4,714
Non interest expense.................................... 16,981 2,682 2,350 677 22,690
Net income.............................................. 5,335 939 691 (810) 6,155
Basic net income per share.............................. $ 0.38 $ 0.20 $ 0.10 -- $ 0.35
Diluted net income per share............................ $ 0.38 $ 0.17 $ 0.10 -- $ 0.34
Weighted average shares outstanding:
Basic................................................. 13,938 4,759 -- 17,606
Diluted............................................... 14,142 5,403 -- 18,082
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------------
PRO FORMA
THE COMPANY BKLA SMB ADJUSTMENTS COMBINED
----------- --------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net interest income..................................... $ 16,950 $ 1,794 $ 8,278 $ (704) $ 26,318
Provision for loan and lease losses..................... 725 85 -- -- 810
Non interest income..................................... 2,509 261 1,726 -- 4,496
Non interest expense.................................... 13,327 1,577 6,038 2,030 22,972
Net income.............................................. 2,976 393 2,613 (2,427) 3,555
Basic net income per share.............................. $ 0.28 $ 0.18 $ 0.37 -- $ 0.22
Diluted net income per share............................ $ 0.28 $ 0.15 $ 0.37 -- $ 0.21
Weighted average shares outstanding:
Basic................................................. 10,487 2,195 -- 16,388
Diluted............................................... 10,758 2,576 -- 16,819
</TABLE>
NOTE 5--STATEMENT OF COMPREHENSIVE INCOME
Effective with the quarter ending March 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed in equal prominence with
the other financial statements and to disclose as a part of shareholders' equity
accumulated comprehensive income. The Company has chosen, for purposes of its
interim financial reporting, to present a statement of comprehensive income in
the notes to the financial statements. Comprehensive income is defined as the
change in equity during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income generally includes
net income, foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on investments in certain debt and equity securities
(i.e., securities available for sale). The Company's statement of comprehensive
income for the periods presented is as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
1998 31, 1997
<S> <C> <C>
Net income..................................................................................... $ 5,335 $ 2,976
Other comprehensive income (loss), net of related income taxes:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period................................ 101 (880)
Less reclassification of realized gains included in income................................. (75) (62)
--------- ---------
26 (942)
--------- ---------
Comprehensive income........................................................................... $ 5,361 $ 2,034
--------- ---------
--------- ---------
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following tables and data set forth certain statistical information
relating to the Company as of March 31, 1998 and for the three months ended
March 31, 1998 and March 31, 1997. This discussion should be read in conjunction
with the Unaudited Condensed Consolidated Financial Statements as of March 31,
1998 and December 31, 1997 and for the three month periods ended March 31, 1998
and March 31, 1997.
When the Company uses or incorporates by reference in this Quarterly Report
on Form 10-Q (the "Quarterly Report") the words "anticipate," "estimate,"
"expect," "project," "intend," "commit," "believe" and similar expressions, the
Company intends to identify certain forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions, including those
described in this Quarterly Report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected,
projected, intended, committed or believed.
FINANCIAL CONDITION
On January 27, 1998, the Company consummated the SMB Acquisition in a
transaction accounted for using the purchase method of accounting. As a result
of the SMB Acquisition and the additional equity that was raised to help fund
the transaction, consolidated assets, total deposits and shareholders' equity
increased by approximately $795 million, $584 million and $150 million,
respectively (based on SMB's unaudited balance sheet at January 31, 1998). Due
to the use of purchase accounting for the SMB Acquisition, goodwill accounted
for approximately $120 million of the total increase in assets resulting from
this transaction.
Adjusting for the increases related to the SMB Acquisition, since December
31, 1997 the Company's total assets have declined by approximately $94 million.
The major components of this decline in assets are a decrease in federal funds
sold of $19 million, a decrease of $40 million in securities available for sale
and a decrease in net loans of $24 million. The reduction in securities resulted
from sales of approximately $10 million of securities and maturities, net of
purchases, of approximately $30 million of securities. The decline in loans
relates to the repayment of a few large loans, normal maturities and the
increase in competition for loans in the Southern California market place.
Management of the Company has determined to not compromise its credit standards
in order to increase loan totals.
Adjusting for the increases related to the SMB Acquisition, since December
31, 1997 the Company's total deposits have declined by approximately $47
million. Most of this decline relates to interest bearing deposits. This decline
results primarily from the decision by Management of the Company to close some
branches and to lower the rate paid on some of its higher cost deposits.
RESULTS OF OPERATIONS
Consolidated net income for the quarter ended March 31, 1998 was $5,335,000,
or $0.38 per diluted share. This compares with earnings of $2,976,000, or $0.28
per diluted share, for the quarter ended March 31, 1997. On an operating basis,
before the amortization of goodwill and before the after-tax gain on sale of
loans, net income for the three month periods would have been $7,286,000 and
$3,632,000 in 1998 and 1997, respectively, or $0.52 and $0.34 per diluted share,
respectively, a growth of approximately 53%. Diluted operating net income per
share grew approximately 11% from $0.46 per diluted share in the fourth quarter
of 1997.
9
<PAGE>
The Company's operating return on tangible assets improved from 1.15% in the
first quarter of 1997 to 1.46% in the fourth quarter of 1997 to 1.71% in the
first quarter of 1998. This improvement comes from improving credit quality, a
higher net interest margin and improvements in efficiency.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS
MARCH 31, ENDED
-------------------------- DEC. 31,
1998 1997 1997
------------ ------------ ---------------
<S> <C> <C> <C>
PER SHARE INFORMATION (Shares in thousands)
Number of shares (weighted average)............................... 13,938.4 10,487.0 10,621.0
Diluted shares (weighted shares).................................. 14,141.8 10,757.7 10,835.0
Basic income (loss) per share..................................... $ 0.38 $ 0.28 $ (0.41)
Diluted income (loss) per share................................... $ 0.38 $ 0.28 $ (0.41)
Before merger costs and goodwill amortization
Basic income per share............................................ $ 0.52 $ 0.35 $ 0.47
Diluted income per share.......................................... $ 0.52 $ 0.34 $ 0.46
PROFITABLILITY MEASURES:
Return on average assets.......................................... 1.18% 0.92% (1.25)%
Return on average equity.......................................... 9.5% 9.2% (12.9)%
Before merger costs and goodwill amortization.....................
Return on average tangible assets................................. 1.71% 1.15% 1.46%
Return on average equity.......................................... 12.9% 11.2% 14.8%
Efficiency ratio.................................................. 54.7% 65.1% 55.5%
ADJUSTMENTS TO NET INCOME (In thousands)
Net income........................................................ $ 5,335 $ 2,976
Merger costs...................................................... -- 66
Tax benefits.................................................... -- --
------------ ------------
After tax merger costs............................................ -- 66
Goodwill amortization............................................. 1,951 636
Gain on sale of loans available for sale--after tax............... -- (46)
------------ ------------
ADJUSTED NET INCOME........................................... $ 7,286 $ 3,632
------------ ------------
------------ ------------
ADJUSTMENTS TO REVENUES (In thousands)
Net interest income............................................... $ 23,885 $ 16,950
Non interest income............................................... 3,613 2,509
------------ ------------
Revenue before adjustments...................................... 27,498 19,459
Gain on sale of loans............................................. -- (78)
------------ ------------
ADJUSTED REVENUE.............................................. $ 27,498 $ 19,381
------------ ------------
------------ ------------
ADJUSTMENTS TO EXPENSES (In thousands)
Non interest expense.............................................. $ 16,981 $ 13,327
Merger costs...................................................... -- (66)
Goodwill amortization............................................. (1,951) (636)
------------ ------------
------------ ------------
ADJUSTED EXPENSE.............................................. $ 15,030 $ 12,625
------------ ------------
------------ ------------
</TABLE>
Operating profits for the Company are dependent on loan growth, controlling
costs and continual efforts to prevent any unexpected loan and lease losses that
would require additions to the allowance for loan and lease losses ("ALLL"). The
demand for quality loans has increased in the Company's primary market areas,
and the Company plans to take advantage of this increased demand, while
maintaining its credit quality standards. However, the competition for loans has
also increased with some lenders willing to lend on terms that management of the
Company is unwilling to match due to its credit philosophy. As a
10
<PAGE>
result of such increased competition and this credit philosophy and the SMB
Acquisition, the Company's loan-to-deposit ratio has declined slightly from
71.8% as of December 31, 1997 to 71.1% as of March 31, 1998.
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and
interest paid on liabilities. Net interest margin is net interest income
expressed as a percentage of average interest-earning assets. The following
table provides information concerning average interest-earning assets and
interest-bearing liabilities and yields and rates thereon for the three months
ended March 31, 1998 and March 31, 1997, respectively. Nonaccrual loans are
included in the average earning assets amounts.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, THREE MONTHS
-------------------------- ENDED DEC.
1998 1997 31, 1997
------------ ------------ -------------
<S> <C> <C> <C>
AVERAGE BALANCE SHEETS (In thousands)
AVERAGE ASSETS
Loans and leases, net of deferred fees and costs..................... $ 1,128,806 $ 811,963
Investments.......................................................... 264,318 299,414
Federal funds sold................................................... 168,082 47,511
Interest bearing deposits at banks................................... -- 813
------------ ------------
AVERAGE EARNING ASSETS............................................. 1,561,206 1,159,701
Goodwill............................................................. 107,941 32,644
Other assets......................................................... 161,911 124,511
------------ ------------
AVERAGE ASSETS..................................................... $ 1,831,058 $ 1,316,856
------------ ------------
------------ ------------
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits......................................... $ 550,132 $ 390,149
Interest bearing deposits............................................ 1,016,388 767,480
------------ ------------
AVERAGE DEPOSITS................................................... 1,566,520 1,157,629
Other interest bearing liabilities................................... 14,739 17,764
Other liabilities.................................................... 21,124 10,343
------------ ------------
AVERAGE LIABILITIES................................................ 1,602,383 1,185,736
Shareholders' equity................................................. 228,675 131,120
------------ ------------
AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 1,831,058 $ 1,316,856
------------ ------------
------------ ------------
YIELD ANALYSIS (Dollars in millions)
Average earning assets................................................. $ 1,561.2 $ 1,159.7 $ 1,232.9
Yield................................................................ 8.51% 8.38% 8.43%
Average interest bearing deposits...................................... $ 1,016.4 $ 767.5 $ 804.5
Cost................................................................. 3.46% 3.53% 3.63%
Average deposits....................................................... $ 1,566.5 $ 1,157.6 $ 1,232.8
Cost................................................................. 2.24% 2.34% 2.37%
Average interest bearing liabilities................................... $ 1,031.1 $ 785.2 $ 817.7
Cost................................................................. 3.49% 3.62% 3.71%
Interest spread........................................................ 5.02% 4.76% 4.72%
Net interest margin.................................................... 6.20% 5.93% 5.97%
</TABLE>
11
<PAGE>
Interest income increased by $8.8 million from $24.0 million for the first
quarter of 1997 to $32.8 million for the same period of 1998. The increase was
mostly due to the SMB Acquisition which was consummated on January 27, 1998.
The following table shows the average earning assets and interest income for
the first quarter of 1998 and 1997 and the amount of increase attributable to
SMB since the SMB Acquisition (dollars in thousand):
<TABLE>
<CAPTION>
NET
INCREASE
CONSOLIDATED IMPACT OF CONSOLIDATED BEFORE
1998 SMB 1998 1997 SMB
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Average earning assets................................... $1,561,206 $ 383,534 $1,159,701 $ 17,971
Interest income.......................................... 32,767 7,862 23,965 940
Yield.................................................. 8.51% 8.31% 8.38%
</TABLE>
The significant increase in interest income in relation to the increase in
average earning assets was largely due to a decline in nonaccrual loans and
payments on loans with lower yields. The nonaccrual loans, excluding SMB's
nonaccrual loans of $2.2 million as of March 31, 1998, amounted to $9.5 million
as of March 31, 1998 compared to $17.1 million as of March 31, 1997.
Interest expense increased by $1.9 million from $7.0 million for the first
quarter of 1997 to $8.9 million for the same period of 1998. The increase was
mostly due to the SMB Acquisition which was consummated on January 27, 1998.
The following table shows the average interest bearing liabilities and
interest expense for the first quarter of 1998 and 1997 and the amount of
increase attributable to SMB (dollars in thousands):
<TABLE>
<CAPTION>
NET
DECREASE
CONSOLIDATED IMPACT OF CONSOLIDATED BEFORE
1998 SMB 1998 1997 SMB
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Average interest bearing liabilities..................... $1,031,127 $ 268,521 $ 785,244 $ (22,638)
Interest expense......................................... 8,882 2,256 7,015 (389)
Cost................................................... 3.49% 3.40% 3.62%
</TABLE>
The decline in interest expense before the SMB Acquisition was due to the
reduction in average interest bearing liabilities which, excluding SMB's average
interest bearing liabilities, declined by $22.6 million from $785.2 million in
1997 to $762.6 million in the same period of 1998. The decline was largely
related to the downward pricing of higher cost time deposits.
ALLOWANCE FOR LOAN AND LEASE LOSSES
During the three months ended March 31, 1998, approximately $296,000 in
loans were charged to the Company's ALLL, and approximately $580,000 of loans
were recovered resulting in a net recovery for the period of approximately
$284,000. The ratio of ALLL to total loans was 1.99% as of March 31, 1998
compared to 1.80% as of December 31, 1997. During the three months ended March
31, 1998, the ALLL increased by approximately $9,091,000 from $15,894,000 at
December 31, 1997 to $24,985,000 at March 31, 1998 due to the net recoveries,
provision of $150,000 and $8,657,000 added through the SMB Acquisition.
Nonperforming assets increased by approximately $5,472,000 as of March 31,
1998 from approximately $13,749,000 at December 31, 1998 to approximately
$19,221,000 at March 31, 1998 mainly due to an increase in nonaccrual loans of
approximately $2,177,000 and an increase in Other Real Estate Owned of
approximately $3,318,000 which were included in the portfolio of SMB at the time
of the SMB Acquisition. Although nonperforming assets increased in total, the
coverage of ALLL to nonperforming assets increased from 115.6% at December 31,
1997 to 130.0% at March 31, 1998. Due to improved credit quality in the loan
portfolio, management believes that the ALLL is adequate based on all currently
available information.
12
<PAGE>
NON INTEREST INCOME
The following tables show the details of non interest income for the three
month periods ended March 31, 1998 and March 31, 1997. Due to the purchase
accounting treatment of the of SMB Acquisition, the 1997 numbers do not include
SMB:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
1998 1997
---------------------------------------
THE COMPANY -------------
SMB WITHOUT SMB CONSOLIDATED CONSOLIDATED
--------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service charges and fees on deposit accounts................. $ 524 $ 1,385 $ 1,909 $ 1,383
Trust fees................................................... 637 -- 637 --
Escrow fees.................................................. -- 258 258 155
Other fees and charges....................................... 80 363 443 504
Gain on sale of loans and other assets....................... -- -- -- 78
Securities gains............................................. -- 113 113 107
Other income................................................. 40 213 253 282
--------- ------ ------ ------
Total non interest income.................................. $ 1,281 $ 2,332 $ 3,613 $ 2,509
--------- ------ ------ ------
--------- ------ ------ ------
</TABLE>
Before giving effect to the SMB Acquisition, non interest income declined by
$177,000 from $2,509,000 in the first quarter of 1997 to $2,332,000 in the same
period of 1998. The non interest income of 1997 includes a gain on sale of SBA
loans in the amount of $78,000. The remaining variance of $99,000 is
attributable to a $103,000 increase in escrow fees as the Company focused more
resources on this business, a $141,000 decrease in other fees and charges mostly
due to a servicing portfolio no longer being serviced by the Company and small
changes in other components of the above-listed categories. Trust fees are
generated from the approximately $725 million of assets held in trust by SMB.
NON INTEREST EXPENSE
The following tables show the details of non interest expense for the three
month periods ended March 31, 1998 and March 31, 1997. Due to purchase
accounting treatment of the of SMB Acquisition, SMB results are not included in
the 1997 numbers:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
1998
-------------------------------------- 1997
THE COMPANY ------------
SMB WITHOUT SMB CONSOLIDATED CONSOLIDATED
--------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and benefits........................................ $ 2,516 $ 6,026 $ 8,542 $ 6,660
Occupancy, furniture and equipment........................... 727 1,620 2,347 1,916
Advertising and business development......................... 105 171 276 370
Other real estate owned...................................... 17 172 189 46
Professional services........................................ 168 670 838 1,064
Telephone, stationery and supplies........................... 215 521 736 712
Data processing.............................................. -- 558 558 388
Customer services cost....................................... 14 307 321 131
Other........................................................ 154 1,069 1,223 1,338
--------- ------------- ------------ ------------
Operating non interest expense............................... 3,916 11,114 15,030 12,625
Goodwill amortization...................................... 1,317 634 1,951 636
Merger costs............................................... -- -- -- 66
--------- ------------- ------------ ------------
Total non interest expense................................. $ 5,233 $ 11,748 $ 16,981 $ 13,327
--------- ------------- ------------ ------------
--------- ------------- ------------ ------------
</TABLE>
13
<PAGE>
Before giving effect to the SMB Acquisition, operating non interest expense
declined by $1,511,000 from $12,625,000 in the first quarter of 1997 to
$11,114,000 in the same period of 1998. The reduction was in almost every
category listed above as combined resources of all banks acquired were applied
to achieve increased efficiencies, especially in salaries, benefits and
professional services. Increased efficiencies are expected as data processing
systems of SCB and SMB are combined and additional functions are consolidated.
The efficiency ratio (operating expense before goodwill amortization divided
by net interest income plus non interest income) is a measure of how effective
the Company is at using its expense dollars. A lower or declining ratio
indicates improving efficiency. Due to the efficiency improvements discussed
above, the Company's efficiency ratio improved significantly from 65.1% in the
first quarter of 1997 to 54.7% in the first quarter of 1998.
CREDIT QUALITY AND ANALYSIS
The Company defines nonperforming assets to include (i) loans on which it
has ceased to accrue interest ("Nonaccrual Loans") and, (ii) foreclosed real
estate owned. "Impaired loans" are commercial, commercial real estate, and
individually significant mortgage and consumer loans for which it is probable
that the Company will not be able to collect all amounts due according to
contractual terms of the loan agreement. The category of "impaired loans" is not
coextensive with the category of "nonaccural loans," although the two categories
overlap. "Nonaccrual loans" include impaired loans and are those on which the
accrual of interest is discontinued when collectibility of principal or interest
is uncertain or payments of principal or interest have become contractually past
due 90 days. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the loan
impaired, if (i) it is probable that the Company will collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is not a
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is
probable, the impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are not individually significant are measured
for impairment collectively. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Planned-workout arrangements are currently in place for all nonperforming
assets, and, unless there are any unexpected changes in the financial condition
of the borrowers, management is not aware of any additional significant loss
potential that has not already been included in the ALLL.
14
<PAGE>
The following table shows the historical trends in nonperforming assets and
comparative key credit statistics at the Company:
CREDIT QUALITY MEASURES
(Dollars in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED YEAR
-------------------------------------------------------------- ENDED
MAR 31, DEC 31, SEP 30, JUN 30, MAR 31, DEC 31,
1998 1997 1997 1997 1997 1996
-------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Loans past due 90 days and still
accruing........................... $ -- $ 31 $ 1,267 $ 422 $ 472 $ 193
Nonaccrual loans and leases......... 11,713(1) 7,488 9,468 14,665 17,134 16,157
Other real estate owned............. 7,508(2) 6,261 8,354 7,680 10,966 7,082
-------------- ---------- ---------- ---------- ---------- ----------
Nonperforming assets.............. 19,221 13,749 17,822 22,345 28,100 23,239
Impaired loans, gross............... 17,579 13,482 14,960 18,530 19,259 21,034
Allocated reserves.................. 679 679 418 1,806 1,895 2,172
-------------- ---------- ---------- ---------- ---------- ----------
Net investment in impaired
loans........................... 16,900 12,803 14,542 16,724 17,364 18,862
Charge-offs......................... 296 422 1,461 1,394 888 4,675
Recoveries.......................... 580 481 551 349 121 1,123
-------------- ---------- ---------- ---------- ---------- ----------
Net charge-offs (recoveries)...... (284) (59) 910 1,045 767 3,552
</TABLE>
- ------------------------
(1) Includes approximately $2.2 million related to the January 27, 1998 SMB
Acquisition.
(2) Includes approximately $3.3 million related to the January 27, 1998 SMB
Acquisition.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ALLL........................... 24,985 15,894 15,160 15,345 15,715 15,757
Loans and leases, net of
deferred fees and costs....... 1,253,887 880,734 874,283 849,141 816,907 818,592
Average loans and leases, net
of deferred fees and costs.... 1,128,806 868,466 854,323 828,362 811,963 613,676
ALLL to loans and leases....... 1.99% 1.80% 1.73% 1.81% 1.92% 1.92%
ALLL to nonaccrual loans and
leases........................ 213.3% 212.3% 160.1% 104.6% 91.7% 97.5%
ALLL to nonperforming assets... 130.0% 115.6% 85.1% 68.7% 55.9% 67.8%
Nonperforming assets to loans,
leases and OREO............... 1.52% 1.55% 2.02% 2.61% 3.39% 2.81%
Annualized net charge-offs
(recoveries) to average
Loans and leases............... (0.10%) (0.03%) 0.43% 0.50% 0.38%
Full year net charge-offs to
average
Loans and leases............. 0.31% 0.58%
</TABLE>
The Company has established a monitoring system for its loans in order to
identify impaired loans, potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the ALLL in a timely manner. The
monitoring system and ALLL methodology have evolved over a period of years and
loan classifications have been incorporated into the determination of the ALLL.
This monitoring system and allowance methodology include a loan-by-loan analysis
for all classified loans as well as loss factors for the balance of the
portfolio that are based on migration analysis relative to the unclassified
portfolio. This analysis includes such factors as historical loss experience,
current portfolio delinquency and trends, and other inherent risk factors such
as economic conditions, risk levels of particular loan categories, internal loan
review and oversight, and concentrations in the portfolio.
15
<PAGE>
On March 31, 1998, the Company had approximately $17,579,000 of loans, which
were considered to be impaired, which increased from $13,482,000 at December 31,
1997. The increase was due in part to the addition of approximately $3,813,000
in impaired loans as a result of the SMB Acquisition. Specific reserves of
approximately $679,000 were established for these impaired loans and leases in
addition to reserves estimated in the quarterly ALLL review. Of these loans,
approximately $11,700,000 are on
nonaccrual status.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
On a stand-alone basis, the Company's sources of liquidity include dividends
from the Banks and outside borrowings. The amount of dividends that the Banks
can pay to the Company is restricted by regulatory guidelines.
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities at the Banks. Liquidity management
involves the ability to meet the cash flow requirements of customers who may be
either depositors wanting to withdraw funds or borrowers who may need assurance
that sufficient funds will be available to meet their credit needs. Interest
rate sensitivity management seeks to avoid fluctuating interest margins and to
enhance consistent growth of net interest income through periods of changing
interest rates.
Historically, the overall liquidity of the Banks is based on the core
deposit base of the Banks. The Banks have not relied on large denomination time
deposits.
To meet short-term liquidity needs, the Company has maintained at the Banks
what it believes are adequate balances in federal funds sold, certificates of
deposits with other financial institutions and investment securities having
maturities of five years or less. On a consolidated basis, liquid assets (cash,
federal funds sold and investment securities available for sale) as a percent of
total deposits are 36.1% and 35.7% as of March 31, 1998 and December 31, 1997,
respectively.
INCOME TAXES
The Company's normal effective income tax rate is approximately 41.5%,
representing a blend of the statutory Federal income tax rate of 34.0% and the
California income tax rate of 10.84%. The Company's actual effective income tax
rates were 48.5% and 45.0% for the three months ended March 31, 1998 and 1997,
respectively. The actual effective tax rates are higher during the 1998 and 1997
periods largely as a result of nondeductible goodwill.
REGULATORY MATTERS
The regulatory capital guidelines as well as the actual regulatory capital
ratios for SCB, SMB and the Company on a consolidated basis, as of March 31,
1998, follow:
<TABLE>
<CAPTION>
REGULATORY REQUIREMENTS
---------------------------- ACTUAL
ADEQUATELY WELL --------------------
CAPITALIZED CAPITALIZED SCB SMB CONSOLIDATED
----------- --------------- --------- --------- ------------
(GREATER THAN OR EQUAL TO
STATED PERCENTAGE)
<S> <C> <C> <C> <C> <C>
Detailed computations of
Tier 1 leverage capital ratio............... 4.00% 5.00% 8.12% 7.79% 7.47%
Tier 1 risk-based capital ratio............. 4.00% 6.00% 9.81% 10.15% 9.38%
Total risk-based capital.................... 8.00% 10.00% 11.06% 11.41% 10.63%
</TABLE>
16
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
THE 1998 PRIVATE PLACEMENT
In order to raise a portion of the capital necessary to fund the payment of
the Cash Consideration paid in the SMB Acquisition, in November 1997 the Company
entered into Standby Stock Purchase Agreements with the certain "accredited
investors" within the meaning of Rule 501(a) under the Securities Act of 1933,
as amended (the "Private Placement Investors"), pursuant to which the Private
Placement Investors committed to purchase a minimum of approximately 1,982,000
shares of Company Common Stock and to standby to purchase up to approximately
2,311,500 additional shares of Company Common Stock if requested to do so by the
Company (the "Private Placement Shares"). The purchase price of the Private
Placement Shares was $28.00 per share. The Private Placement Investors agreed to
pay the purchase price of the Private Placement Shares prior to the effective
time of the SMB Acquisition. In this private placement, on January 27, 1998 the
Company issued a total of 2,327,550 shares of Common Stock for $65,171,400 in
the aggregate. The Private Placement Shares were exempt from registration under
the Securities Act of 1933, as amended, (the "Securities Act") pursuant to
Regulation D of the Securities Act; however, pursuant to the Standby Agreements,
the Company agreed to file under the Securities Act a "shelf" Registration
Statement providing for the registration of the Private Placement Shares no
later than 120 days after the effective date of the SMB Acquisition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual Meeting of Shareholders on April 30, 1998
(the "1998 Annual Meeting"). There were 15,678,960 issued and outstanding shares
of Company Common Stock on March 13, 1998, the Record Date for the 1998 Annual
Meeting.
At the 1998 Annual Meeting, the following actions were taken:
ELECTION OF DIRECTORS
At the 1998 Annual Meeting, nine directors of the Company were elected. The
following chart indicates the number of shares cast for each elected director:
<TABLE>
<CAPTION>
VOTES
DIRECTOR VOTES FOR WITHHELD
- --------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Aubrey L. Austin..................................................... 12,497,773 82,433
Rice E. Brown........................................................ 12,475,877 104,329
John M. Eggemeyer.................................................... 12,497,859 82,347
William C. Greenbeck................................................. 12,495,322 84,884
Robert L. McKay...................................................... 12,497,792 82,414
Hugh S. Smith, Jr.................................................... 12,497,453 82,753
Mark H. Stuenkel..................................................... 12,481,055 99,151
Matthew P. Wagner.................................................... 12,495,155 85,051
Dale E. Walter....................................................... 12,497,792 82,414
</TABLE>
17
<PAGE>
STOCK OPTION PLAN AMENDMENT
The following chart indicated the results of the vote on the approval of the
amendment and restatement of the Company's 1993 Stock Option Plan:
<TABLE>
<S> <C>
FOR............................................................. 11,754,431
AGAINST......................................................... 228,966
ABSTAIN......................................................... 462,722
BROKER NON VOTES................................................ 134,087
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of April 16, 1998, by and among Western Bancorp, Santa Monica
Bank and Bank of Los Angeles (Exhibit 99.3 to Western Bancorp's Current Report on Form 8-K dated April
30, 1997 incorporated herein by reference).
3.1 Restated Articles of Incorporation of Western Bancorp (Exhibit 3.6 of Registration Statement No.
333-26915 incorporated herein by reference)
3.3 Restated Bylaws of Western Bancorp approved on October 10, 1997 (Exhibit 3.2 of Registration Statement
No. 333-35271 incorporated herein by reference)
10.1 Third Amendment to Revolving Credit Agreement, First Amendment to Pledge Agreement and Waiver, dated
January 26, 1997. (Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference)
10.2 Amended and Restated 1993 Stock Option Plan (Exhibit 10.1 of the Company's Proxy Materials for the 1998
Annual Meeting of Shareholders filed on Schedule 14A and incorporated herein by reference)
10.3 Employment Agreement, dated January 1, 1997, by and among Western Bank and Aubry L. Austin. (Exhibit
10.7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference)
10.4 Western Bancorp Executive Severance Policy. (Exhibit 10.8 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and incorporated herein by reference)
11.1 Computation of Per Share Earnings (See Condensed Consolidated Statements of Income contained in Item 1
of this Quarterly Report on Form 10-Q)
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
On February 11, 1998, the Company filed a current report on Form 8-K
announcing 1997 financial results and the consummation of the SMB Acquisition.
On April 9, 1998, the Company filed a Current Report on Form 8-K/A which
included the financial statements reflecting the effect of the SMB Acquisition.
18
<PAGE>
On May 1, 1998, the Company filed a Current Report on Form 8-K announcing
the signing of a definitive agreement to acquire Bank of Los Angeles.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN BANCORP
Date: May 13, 1998
/s/ ARNOLD C. HAHN
---------------------------------------------------------------
Arnold C. Hahn,
Executive Vice President and
Chief Financial Officer
Date: May 13, 1998
/s/ JULIUS G. CHRISTENSEN
----------------------------------------------------------------------
Julius G. Christensen,
Executive Vice President,
General Counsel and Secretary
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 145,300
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 239,621
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 250,997
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,253,889
<ALLOWANCE> 24,985
<TOTAL-ASSETS> 2,084,743
<DEPOSITS> 1,763,624
<SHORT-TERM> 16,212
<LIABILITIES-OTHER> 18,045
<LONG-TERM> 1,957
0
0
<COMMON> 262,968
<OTHER-SE> 21,937
<TOTAL-LIABILITIES-AND-EQUITY> 2,084,743
<INTEREST-LOAN> 26,755
<INTEREST-INVEST> 3,710
<INTEREST-OTHER> 2,302
<INTEREST-TOTAL> 32,767
<INTEREST-DEPOSIT> 8,665
<INTEREST-EXPENSE> 8,882
<INTEREST-INCOME-NET> 23,885
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 113
<EXPENSE-OTHER> 16,981
<INCOME-PRETAX> 10,367
<INCOME-PRE-EXTRAORDINARY> 5,335
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,335
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 6.20
<LOANS-NON> 11,713
<LOANS-PAST> 0
<LOANS-TROUBLED> 10,776
<LOANS-PROBLEM> 17,579
<ALLOWANCE-OPEN> 15,894
<CHARGE-OFFS> 296
<RECOVERIES> 580
<ALLOWANCE-CLOSE> 24,985
<ALLOWANCE-DOMESTIC> 24,985
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 95,968 95,295 105,962
<INT-BEARING-DEPOSITS> 0 0 9
<FED-FUNDS-SOLD> 88,426 73,304 84,000
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 277,526 271,848 233,379
<INVESTMENTS-CARRYING> 6,928 6,902 5,365
<INVESTMENTS-MARKET> 6,909 6,902 5,404
<LOANS> 816,370 851,147 875,020
<ALLOWANCE> 15,714 15,345 15,160
<TOTAL-ASSETS> 1,357,268 1,367,665 1,369,815
<DEPOSITS> 1,201,300 1,207,714 1,199,408
<SHORT-TERM> 13,830 18,194 23,733
<LIABILITIES-OTHER> 11,106 10,115 12,147
<LONG-TERM> 0 0 0
0 0 0
0 0 0
<COMMON> 111,152 111,186 111,311
<OTHER-SE> 19,880 20,456 23,216
<TOTAL-LIABILITIES-AND-EQUITY> 1,357,268 1,367,665 1,369,815
<INTEREST-LOAN> 19,045 38,605 59,700
<INTEREST-INVEST> 4,308 8,500 12,343
<INTEREST-OTHER> 612 1,653 2,796
<INTEREST-TOTAL> 23,965 48,758 74,839
<INTEREST-DEPOSIT> 6,676 13,735 20,915
<INTEREST-EXPENSE> 7,015 14,329 21,769
<INTEREST-INCOME-NET> 16,950 34,429 53,070
<LOAN-LOSSES> 725 1,400 2,125
<SECURITIES-GAINS> 107 337 342
<EXPENSE-OTHER> 13,327 29,800 42,824
<INCOME-PRETAX> 5,407 8,256 15,550
<INCOME-PRE-EXTRAORDINARY> 2,976 3,445 7,520
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,976 3,445 7,528
<EPS-PRIMARY> 0.28 0.33 0.72
<EPS-DILUTED> 0.28 0.32 0.70
<YIELD-ACTUAL> 5.93 5.91 5.99
<LOANS-NON> 17,134 14,665 9,468
<LOANS-PAST> 472 422 1,267
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 19,259 18,530 14,960
<ALLOWANCE-OPEN> 15,757 15,757 15,757
<CHARGE-OFFS> 888 2,282 3,743
<RECOVERIES> 121 470 1,021
<ALLOWANCE-CLOSE> 15,715 15,345 15,160
<ALLOWANCE-DOMESTIC> 15,715 15,345 15,160
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
