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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________________to____________________
Commission file number 0-17901
BAY VIEW CAPITAL CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 94-3078031
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2121 SOUTH EL CAMINO REAL
SAN MATEO, CALIFORNIA 94403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 573-7300
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definite proxy or information statement
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K [X]
As of January 31 , 1997, there were outstanding 6,693,772 shares of the
registrant's Common Stock. The aggregate market value of the voting stock held
by non-affiliates of the registrant, computed by reference to the closing price
of such stock as of January 31, 1997, was $341,382,000. (The exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an admission by the registrant that such person is an affiliate of the
registrant)
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K - Portions of Proxy Statement for 1997 Annual Meeting of
Stockholders.
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FORM 10-K
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PART I
Item 1. Business
General............................................................ 3
Lending Activities................................................. 4
Securities Activities.............................................. 7
Retail Deposit Activities.......................................... 7
Borrowing Activities............................................... 8
Competition........................................................ 8
Supervision and Regulation......................................... 9
Other Subsidiaries................................................. 14
Employees.......................................................... 14
Executive Officers of the Registrant............................... 14
Item 2. Properties........................................................... 15
Item 3. Legal Proceedings.................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders.................. 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data - Five-Year Financial Information............ 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 19
Item 8. Financial Statements and Supplementary Data.......................... 55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 98
PART III
Item 10. Directors and Executive Officers of the Registrant................... 98
Item 11. Executive Compensation............................................... 98
Item 12. Security Ownership of Certain Beneficial Owners and Management....... 98
Item 13. Certain Relationships and Related Transactions....................... 98
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 98
SIGNATURES
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FORWARD-LOOKING STATEMENTS
When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
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PART I
ITEM 1. BUSINESS
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GENERAL
Bay View Capital Corporation (the "Company" or "BVCC"), a Delaware
corporation, is a savings and loan holding company incorporated in 1989. The
Company has been focused on the diversification of its asset origination
activities during 1996 and expects to continue this process prospectively (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations "Strategic Overview" for further discussion of these diversification
efforts). Currently, the Company's principal business activities consist of the
operation of i) a bank through its wholly owned subsidiary, Bay View Federal
Bank, a Federal Savings Bank ("BVFB") and ii) a consumer finance company through
its wholly owned subsidiary, California Thrift & Loan, an industrial loan
company ("CTL"). The Company is also the holding company for Bay View
Securitization Corporation ("BVSC"), a Delaware corporation formed for the
purpose of issuing asset-backed securities through a trust.
Bay View Federal Bank
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BVFB is a federally chartered capital stock savings bank incorporated in
1911. In 1986, BVFB converted from a mutual to a stock association. In 1989,
BVFB became a wholly owned subsidiary of the Company. BVFB is a member of the
Federal Home Loan Bank of San Francisco ( the "FHLBSF").
BVFB has 26 banking centers serving primarily the San Francisco Bay Area
and its principal business consists of attracting deposits from the general
public and using those deposits, together with borrowings and other funds, to
originate loans secured by real estate. All of the mortgage loans originated by
BVFB are secured by properties located in California, primarily Northern
California. BVFB originates both fixed rate and adjustable rate loans. Since
1983, BVFB has shifted the concentration of its real estate loan portfolio to
adjustable rate mortgages ("ARMs"), which are sensitive to fluctuations in
market interest rates. The majority of these loans are secured by multifamily
residential properties. BVFB also originates real estate loans secured by
commercial and industrial properties. During 1996, BVFB discontinued its single
family mortgage lending activity.
California Thrift & Loan
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CTL was acquired by the Company effective June 1, 1996 in a business
purchase combination and is an FDIC-insured industrial loan company incorporated
under the laws of the State of California. CTL has 19 offices throughout
California and the western United States, and offers automobile and other
consumer financing. Its business strategy is to originate consumer loans at
yields which are generally above those offered by conventional financing sources
(such as commercial banks) while applying its traditional underwriting criteria
on a case-by-case basis to mitigate any potential loan losses. CTL underwrites
and purchases both new and used fixed-rate motor vehicle loans and consumer
installment contracts. The Company began implementing a planned restructuring
of CTL in late 1996. This restructuring, when completed, may also include
converting CTL to a "pure" finance company subject to supervision and regulation
only by the Commissioner of Corporations of the State of California.
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LENDING ACTIVITIES
Bay View Federal Bank
Residential Lending
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Multifamily Mortgage Loans (five or more units). At December 31, 1996,
loans secured by multifamily residential real estate totaled $1.03 billion,
representing 50.0% of BVFB's total loan portfolio at that date. In general,
these loans were originated as ARMs with terms of 30 years, although some of
these loans have monthly payments calculated on a 30-year amortization period
with a balloon payment due at maturity, typically 15 years. The majority of the
ARMs originated by BVFB prior to 1996 are indices to the Eleventh District Cost
of Funds ("COFI"). During 1996, management re-directed its business lending
practices and BVFB is moving away from COFI as its index for ARMs. Currently,
BVFB utilizes the London Interbank Offered Rate ("LIBOR") and prime rate as its
variable interest rate indices for the majority of its new originations.
BVFB generally does not lend more than 75% of the appraised value of
multifamily residences on a first mortgage loan. The property's net income
available for loan payments is also a limiting factor on the approved loan
amount for multifamily residences. Properties securing multifamily loans are
required to generate cash flow sufficient to cover loan payments and other
property expenditures.
Single Family Mortgage Loans (one to four units). At December 31, 1996,
single family loans totaled $610.6 million and represented 29.5% of BVFB's total
loan portfolio at that date. Generally, ARMs secured by single family
residential properties have terms of 30 years. During 1996, BVFB de-emphasized
its focus on single family mortgage lending and discontinued its loan
origination operations.
Commercial Real Estate Lending
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At December 31, 1996, loans secured by commercial real estate totaled
$367.1 million, representing 17.7% of BVFB's total loan portfolio at that date.
Substantially all of the BVFB's commercial loans are ARMs. ARMs secured by
commercial real estate are generally made upon the same terms and conditions as
ARMs secured by multifamily residences. Currently, BVFB utilizes the LIBOR and
prime rate as its variable interest rate indexes for the majority of its new
originations.
Most of BVFB's commercial real estate loans consist of loans secured by
improved property such as office buildings, warehouses and retail sales
facilities. A majority of these loans are in amounts ranging from $250,000 to
$1 million. BVFB generally does not originate commercial real estate loans
which exceed an LTV of 70%. The property's cash flow available for loan payments
is a limiting factor on the approved loan amount. Properties securing commercial
real estate loans are required to generate cash flow sufficient to cover loan
payments and other property expenditures.
Commercial real estate lending entails significant additional risks
compared to single family residential mortgage lending. Income producing
property loans may involve large loan balances to single borrowers or groups of
related borrowers. In addition, the payment experience on loans secured by
commercial real estate properties is typically dependent on the successful
operation of the properties, as well as to adverse conditions in the real estate
market or the economy in general.
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Consumer Lending
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BVFB engages in consumer lending, primarily by making home equity loans and
auto loans. In November 1996, BVFB entered into a strategic alliance with Ultra
Funding, Ltd. ("Ultra"), a Texas limited partnership, under which BVFB has sole
first right of refusal to purchase all of the motor vehicle installment
contracts originated by Ultra subject to established underwriting criteria.
These auto receivables are serviced by CTL and are anticipated to be securitized
by BVSC on a periodic basis together with the future production from CTL.
Management expects Ultra to be a significant component (current production
approximates $3 million to $4 million per month) of its expanding consumer
finance strategy. At December 31, 1996, the consumer loan portfolio of BVFB
totaled $57.8 million, representing 2.8% of its total loan portfolio at that
date. See "California Thrift & Loan-Motor Vehicle Loans" below with regard to
the Company's strategy to securitize and sell its current assets as well as
future production.
Business Lending
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During 1995, BVFB introduced a new product line designed for small and
medium-sized businesses. Business loan products (i.e., business loans, credit
lines and term loans) and other services are being offered in order to expand
BVFB's customer base and make BVFB more competitive in the community banking
environment. As of December 31, 1996, BVFB's business loan portfolio was not
material in relation to its other lending.
Underwriting Policies and Procedures
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BVFB originates real estate loans through internal loan production
personnel. As part of the loan underwriting process, staff appraisers or
qualified independent appraisers inspect and appraise the property that would
secure the loan. A loan underwriter analyzes the merits of the loan based on
information obtained relative to the borrower and property (i.e., income, credit
history, assets, liabilities, cash flows and the value of the real property as
stated on the appraisal report). Loans are then approved at various levels of
authority depending upon the amount and type of loan.
BVFB requires the American Land Title Association form of title insurance
on all loans secured by real property and requires that fire and extended
coverage casualty insurance in amounts sufficient to rebuild or replace the
improvements at current replacement costs be maintained on all properties
securing the loans. BVFB also requires flood insurance for properties in flood
hazard zones to protect the property securing its interest. Consistent with
regional industry practices, BVFB does not necessarily require earthquake
insurance as part of its general underwriting practices, however, BVFB may
require mudslide, earthquake and/or other hazard insurance depending on the
location of the property.
Sales and Servicing of Real Estate Loans
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BVFB has historically sold (none in 1996 or 1995) whole real estate loans
and participation interests in real estate loans. BVFB generally sells real
estate loans and loan participations for cash equal to the unpaid principal
amount of the loans or loan participation, based upon yields currently required
in the secondary market. This may result in a gain or loss on the sale. When
loans are sold, BVFB typically retains the responsibility for collecting and
remitting loan payments, inspecting the properties securing the loans, making
certain that monthly principal and interest payments and real estate tax
payments are made on behalf of borrowers, and otherwise servicing the loans.
BVFB receives a fee for performing these services.
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California Thrift & Loan
Motor Vehicle Loans
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At December 31, 1996, motor vehicle loans totaled $286.3 million,
representing 67.8% of CTL's total loan portfolio at that date. CTL underwrites
and purchases fixed rate loans on both new and used motor vehicles on a non-
recourse basis. CTL's typical motor vehicle loan customer desires a higher
relative loan amount and/or longer term than is offered by many automobile
financing sources. In return for the flexibility of the product it offers,
management expects to continue to charge interest rates of 200 to 300 basis
points over the rates typically offered by traditional sources of motor vehicle
financing such as banks and captive finance companies. Management's primary
focus is on the credit quality of the customer rather than the value of the
collateral, and CTL will accordingly finance the full retail sales price of the
automobile plus taxes, licensing fees, insurance, dealer preparation fees and
extended warranty. CTL uses available technology, including a custom credit
scoring system, to process approval decisions typically within three hours of
receipt of information from a dealer.
CTL began to offer its motor vehicle loan products to an increased number
of selected used car dealerships in 1994. Prior to this, the amount of motor
vehicle loan business derived from used car dealerships was not significant.
CTL began offering 84-month motor vehicle loan financing in December 1994.
Prior to this, the typical motor vehicle loan had a term of 48 to 72 months.
Management believes that 84-month financing will allow it to further distinguish
its motor vehicle loan product without significantly increasing charge-offs or
delinquencies.
The Company's business strategy for CTL is focused on expanding its asset
origination capabilities and increasing the velocity of its capital utilization
through sales of its auto loans and subsequent securitization of the auto loans
by BVSC which will return a large portion of CTL's capital to the Company.
Other Consumer Financing
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At December 31, 1996, other consumer financing loans totaled $30.5 million,
representing 7.3% of CTL's total loan portfolio at that date. This activity was
discontinued in November 1996. CTL underwrites and purchases installment
contracts for larger home enhancement products such as organs, pianos and spas.
Like motor vehicle loans, installment contract financing usually comes to CTL
from dealers of the financed products. CTL will also make unsecured direct
loans and loans secured by personal property, but these loans comprise an
insignificant portion of CTL's loan portfolio. Management applies the same
credit criteria to other consumer financing as it applies to motor vehicle
lending.
Mortgage Loans, Revolving Credit Lines and Real Estate Participations
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At December 31, 1996, CTL's portfolio of mortgage loans, revolving credit
lines, and real estate loan participations totaled $105.3 million representing
24.9% of its total loan portfolio. The loan portfolio is primarily comprised of
first and second deeds of trust secured by single family residences. Almost all
of CTL's home equity loans are fixed-rate term loans, with maturities of up to
15 years. CTL's revolving credit lines (home equity lines of credit) are
variable-rate loans, which are tied to the prime rate. CTL's real estate loan
participations were purchased from and serviced by one unrelated party in 1996
and 1995. All of the real estate securing these loans is located in California.
CTL generally adheres to a maximum loan-to-value ratio of 75% at the time
of origination, supported by a thorough appraisal process. Therefore,
management has been willing to make loans to borrowers whose credit history or
financial condition might not qualify under conventional mortgage underwriting
and secondary market requirements.
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CTL's typical loan customer is a borrower who seeks to reduce monthly debt
payments. Exceptions to CTL's 75% loan-to-value criteria are small consumer-
based real estate-secured loans such as credit lines under $35,000, which are
primarily underwritten to applicants based on creditworthiness.
Commercial Equipment Leasing
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Prior to December 1996, CTL offered fixed-rate commercial equipment leases
principally in the state of California. In December 1996, CTL sold its entire
commercial equipment leasing portfolio and the related servicing obligations to
a local financial institution without recourse.
SECURITIES ACTIVITIES
The Company's securities activities are primarily conducted by BVFB. BVFB
purchases securities when high quality loan production is not available. The
securities portfolio is categorized into two general components: (i) investment
securities; and (ii) mortgage-backed securities. The investment securities
portfolio mainly consists of government agency notes and debentures. The
mortgage-backed securities portfolio mainly consists of securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA") and Government National Mortgage Association ("GNMA").
Securities are classified as held-to-maturity or available-for-sale. BVFB
does not maintain a trading portfolio. Securities in the held-to-maturity
category consist of securities purchased for long-term investment in order to
enhance BVFB's ongoing stream of net interest income and core earnings.
Securities deemed held-to-maturity are classified as such because BVFB has both
the intent and ability to hold the securities to maturity. Securities purchased
which may be sold prior to maturity are designated as available-for-sale at the
time of purchase.
As part of the Company's strategic objectives, management is de-emphasizing
the less profitable aspects of its business such as wholesale investment
activities. As a result, BVFB sold approximately $55 million of its MBS
available-for-sale in 1996. There were no additional mortgage-backed securities
purchased in 1996.
RETAIL DEPOSIT ACTIVITIES
Bay View Federal Bank
BVFB attracts both short-term and long-term deposits from the general
public by offering a wide range of deposit products and services. BVFB, through
its banking centers network, provides its banking customers with the following
services:
. Savings and checking accounts
. Certificates of deposit
. Individual retirement accounts
. 24-hour automated teller machines (STAR System and CIRRUS System Network)
Enhancing the value of BVFB's retail branch franchise remains one of
Management's primary objectives. BVFB plans to continue to expand its retail
banking presence in Northern California through internal growth, new product
development and the acquisition or purchase of deposits from other institutions.
During 1995, BVFB began offering a variety of deposit and related banking
services designed for small businesses, including specialized checking. In
1996, BVFB continued to emphasize the development and marketing of its
transaction account products, and as a result has successfully increased its
percentage of transaction accounts in relation to total customer deposits to
more than 30% which has contributed to lower cost of funds.
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California Thrift & Loan
CTL's customer deposits are primarily comprised of thrift certificates
which are similar to certificates of deposits with the exception that they are
callable at par plus accrued interest. When thrift certificates are purchased by
customers, CTL has, as thrift certificates have been issued, reserved the right
to repurchase the certificates at any time upon thirty days notice. Utilizing
this call provision, CTL redeemed the higher cost component (higher than BVFB's
incremental borrowing cost) of these deposits at face value (approximately $267
million) as of December 31, 1996.
The remainder of the CTL customer deposits (which are lower cost than
BVFB's incremental borrowing cost) will be sold to BVFB. An application for the
approval of the sale of these deposits to BVFB has been filed with the Office of
Thrift Supervision. The sale is anticipated to be completed during the first
quarter of 1997.
BORROWING ACTIVITIES
The Company's borrowing activities are primarily conducted by BVFB. The
Federal Home Loan Bank ("FHLB") System functions in a reserve credit capacity
for savings institutions. As a member, BVFB is required to own capital stock in
the FHLBSF and has the authority to apply for advances from the FHLBSF utilizing
FHLBSF capital stock, qualifying mortgage loans and mortgage-backed securities
as collateral.
The FHLBSF offers a full range of borrowing programs on its advances with
terms of up to ten years at competitive market rates. A prepayment penalty is
usually imposed for early repayment of FHLBSF advances. BVFB is also a member
of the Federal Reserve System ("Federal Reserve") and may borrow from the
Federal Reserve Bank of San Francisco. Thrifts are required to utilize their
FHLBSF borrowing capacity before borrowing from the Federal Reserve.
BVFB also utilizes borrowings under reverse repurchase agreements with
securities dealers and the FHLBSF. Reverse repurchase agreements are sales of
securities owned by BVFB to security dealers with a commitment by BVFB to
repurchase such securities for a predetermined price at a future date.
COMPETITION
Bay View Federal Bank
BVFB faces strong competition both in originating loans and in attracting
deposits. Competition in originating multi-family and commercial real estate
mortgage loans comes primarily from other savings institutions, commercial banks
and mortgage bankers located in the San Francisco Bay Area. BVFB competes for
mortgage loans principally on the basis of interest rates, types of products,
loan fees charged and the quality of customer service it provides to borrowers.
Competition in attracting deposits comes primarily from other savings
institutions, commercial banks, brokerage firms, mutual funds, credit unions and
other types of investment companies. The ability of BVFB to attract and retain
deposits depends on a number of factors which include:
. Interest rates offered on deposit products
. Fees
. Types of deposit products
. Convenient office locations
. Advertising
. Automated teller machines (ATMs)
. Quality customer service
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BVFB has ATMs located throughout the San Francisco Bay Area which provide
24-hour cash availability to its customers. BVFB also participates in the STAR
System and the CIRRUS System Network, which link BVFB ATMs with those of a
number of major financial institutions. This linkage provides customers with
cash availability across the United States.
BVFB also has a wholly owned subsidiary, MoneyCare, Inc., which offers
uninsured investment products such as mutual funds and annuities which provide
BVFB's customers with additional choices and products that meet their individual
investment needs.
California Thrift & Loan
CTL has experienced increased competition, particularly for its motor
vehicle loan programs. This competition comes primarily from large well-
capitalized lending institutions and finance companies. Management intends to
build origination and purchase volumes through more competitive loan pricing and
further improvements in service, marketing and product flexibility. It also
intends to expand origination capability and market share through geographic
expansion and additional business acquisitions, as warranted.
SUPERVISION AND REGULATION
Bay View Capital Corporation
General. The Company, together with its subsidiaries, is subject to
extensive examination, supervision and regulation by the OTS and the Federal
Deposit Insurance Corporation (the "FDIC"). Applicable regulations govern, among
other things, BVFB's lending and investment powers, the types of accounts it is
permitted to offer, the types of business in which it may engage and
requirements for regulatory capital. The Company is also subject to the
regulations of the Board of Governors of the Federal Reserve System with respect
to required reserves and certain other matters.
Holding Company Regulations. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the
Company is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings institution.
Bay View Federal Bank
Federal Regulation of Savings Institutions. The OTS has extensive
authority over the operations of savings institutions. As part of this
authority, BVFB is required to file periodic reports with the OTS and the FDIC.
The OTS has extensive enforcement authority over all savings institutions and
their holding companies, including BVFB and the Company, and their affiliated
parties such as directors, officers, agents and other persons providing services
to the institution or holding company.
Insurance of Accounts and Regulation by the FDIC. BVFB is a member of the
Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC.
BVFB's deposits are insured up to applicable limits by the FDIC. As insurer, the
FDIC has adopted a risk-based deposit insurance system that assesses deposit
insurance premiums for all FDIC-insured banks and thrifts according to the level
of risk involved in an institution's activities. An institution's risk category
is based upon whether the institution is classified as "well capitalized,"
"adequately capitalized" or "undercapitalized" and within each risk category
there are three subcategories.
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The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. In addition, the FDIC may impose special assessments on SAIF members to
repay amounts borrowed from the United States Treasury or for any other reason
deemed necessary by the FDIC.
Disparity Between BIF and SAIF Insurance Premiums. Federal law requires
that the FDIC maintain the reserve level of both the SAIF and the Bank Insurance
Fund ("BIF") at a level equal to 1.25% of insured deposits. The reserves are
funded through the payment of insurance premiums by the insured institutional
members of each fund. As a result of the BIF reaching the designated reserve
ratio, effective in the third quarter of 1995, the FDIC revised the assessment
matrix for BIF-insured institutions to provide a range of .04% to .31%. The
matrix was further revised, effective January 1996, to provide a range of 0% to
.27%, with a minimum annual assessment of $2,000 for more than 90% of all BIF
members.
During the third quarter of 1996, federal legislation to recapitalize and
fully fund the Savings Association Insurance Fund was signed into law. Customer
deposits for BVFB are SAIF-insured, and as a result of the legislation BVFB was
required to pay a one-time special assessment of $11.7 million pre-tax ($6.7
million after tax or $.97 per share). The legislation had no effect on CTL, as
its deposits are insured under the Bank Insurance Fund.
Pursuant to this legislation, premiums on SAIF-insured deposits for BVFB
will be reduced in 1997 from the previously anticipated 23 basis points to
approximately 6.48 basis points which will translate into lower annual deposit
costs in 1997. The estimated annual savings associated with these lower
premiums will be approximately $2.7 million based on the level of deposits for
BVFB at December 31, 1996.
Regulatory Capital Requirements. Federally insured savings institutions
such as BVFB are required to maintain a minimum level of regulatory capital. The
OTS has established capital standards, including a tangible capital requirement,
a leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings institutions. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual institutions on a case-by-case basis. At
December 31, 1996, the Bank was deemed "well capitalized" under current capital
regulations and exceeded its fully phased-in regulatory capital requirements.
In August 1993, the OTS issued a final rule for the calculation of an
interest rate risk component for institutions with a greater than normal (i.e.,
greater than 2%) level of interest rate risk exposure. Currently, the OTS has
deferred implementation of the interest rate risk component. At December 31,
1996, if the interest risk component regulation had been implemented, BVFB would
not have been subject to an interest rate risk capital deduction for risk-based
capital purposes.
Limitations on Dividends and Other Capital Distributions. The retained
earnings of BVFB are substantially restricted based on certain laws and
regulations relating to the payment of dividends. Federal regulations impose
various restrictions or requirements on institutions with respect to their
ability to pay dividends or make other distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the equity account.
Generally, Tier I institutions, which are institutions that before and
after the proposed distribution meet or exceed their capital requirements, may,
after the receipt of no objection by the regulators, make capital distributions
during any calendar year equal to the greater of 100% of net income on a year-
to-date basis plus 50% of the amount by which the institutions tangible core or
risk-based capital exceeds its respective fully
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phased-in capital requirement, as measured at the beginning of the calendar
year, or 75% of its net income for the most recent four quarter period. BVFB
meets the requirements for a Tier I institution.
Federal Reserve System. The Federal Reserve requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 1996, BVFB was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve may be used to satisfy liquidity requirements
imposed by the OTS.
Federal Home Loan Bank System. BVFB is a member of the FHLBSF, one of 12
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned geographic region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the board of directors of the FHLB. These policies and
procedures are subject to the regulation and oversight of the Federal Housing
Finance Board. All advances from the FHLBSF are required to be fully secured by
sufficient collateral as determined by the FHLBSF. In addition, all long-term
advances are restricted to providing funds for residential home financing.
California Thrift & Loan
CTL is subject to supervision and regulation by the Commissioner of
Corporations of the State of California (the "Commissioner") and, as a Federally
insured depository institution, by the FDIC. In addition, CTL is subject to
regulation in Arizona, Colorado, Illinois, Nevada, New Mexico, Oregon and Texas
as a result of its operations in those states. The Company began implementing a
significant restructuring of CTL in late 1996. This restructuring, when
completed, may also include converting CTL to a "pure" finance company subject
to supervision and regulation by the Commissioner only.
CALIFORNIA LAW
The thrift and loan business conducted by CTL is governed by the California
Industrial Loan Law and the rules and regulations of the Commissioner, which,
among other things, regulate the issuance of certain thrift investment
certificates as well as the collateral requirements and maximum maturities of
the various types of loans that are permitted to be made by California-chartered
industrial loan companies (also called thrift and loan companies).
Subject to restrictions imposed by California law, CTL is permitted to make
secured and unsecured consumer and non-consumer loans. The maximum term for
repayment of loans made by thrift and loan companies ranges up to 40 years
depending upon the type of collateral and priority of secured position, if any.
Although non-consumer secured loans of fewer than 10 years may generally be
repaid in unequal periodic payments, consumer loans must generally be repaid in
substantially equal periodic payments. California law limits lending activities
outside of California by thrift and loan companies to no more than 40% of total
assets.
California law contains extensive requirements for the diversification of
the loan portfolios of thrift and loan companies. A thrift and loan with
outstanding investment certificates may not, among other things, place more than
25% of its loans or other obligations in loans or obligations which are secured
only partially, but not primarily, by real property; may not make any one loan
secured primarily by improved real property which exceeds 20% of its paid-up and
unimpaired capital stock and surplus not available for dividends (10% for
unimproved property); may not lend an amount in excess of 5% of its paid-up and
unimpaired capital stock and surplus not available for dividends upon the
security of the stock of any one corporation; may not make loans to, or hold the
obligations of, any one person as primary obligor in an aggregate principal
amount exceeding 20% of its paid-up and unimpaired capital stock and surplus not
available for dividends (5% if the loans are unsecured); may
11
<PAGE>
not have outstanding leases which exceed 20% of the thrift's aggregate
receivables; and may have no more than 70% of its total assets consisting of
loans which have remaining terms to maturity in excess of seven years and are
secured solely or primarily by real property. Loans that are for the purchase or
refinance of residential property, are salable in the secondary market and are
owned by the company for less than 90 days are considered to have a remaining
term less than seven years for this purpose. Any loan insured by a federal or
state agency is also deemed to have a term of less than seven years for this
purpose. Management believes that CTL can maintain compliance with such
regulatory requirements by managing the mix of its assets and loans without any
material adverse impact on earnings or liquidity.
A thrift and loan generally may not make any loan to, or hold an obligation
of, any of its directors or officers or any director or officer of its holding
company or affiliates, except in specified cases and subject to regulation by
the Commissioner. A thrift and loan also may not make any loan to, or hold any
obligation of, any of its stockholders or any stockholder of its holding company
or affiliates, except that this prohibition does not apply to persons who own
less than 10% of the stock of a holding company or affiliates which are listed
on a national securities exchange.
A thrift and loan is subject to certain leverage limitations which are not
generally applicable to commercial banks or savings and loan associations, but
these are generally preempted by stricter federal rules. The Commissioner may
limit the amount of brokered deposits a thrift and loan may have outstanding.
The limit on CTL's brokered deposits is $100 million.
Thrift and loan companies are not permitted to borrow, except by the sale
of thrift investment certificates, in an amount exceeding 300% of tangible net
worth, surplus and undivided profits without the Commissioner's prior consent.
All sums borrowed in excess of 150% of tangible net worth, surplus and undivided
profits must be unsecured borrowings or, if secured, approved in advance by the
Commissioner, and be included as thrift investment certificates for purposes of
computing the maximum amount of certificates a thrift and loan may issue.
However, collateralized Federal Home Loan Bank advances are excluded for this
test of secured borrowings and are not specifically limited by California law.
Under California law, thrift and loan companies are generally limited to
investments, other than loans, that are legal investments for commercial banks.
Current policy of the Commissioner prohibits investment in subsidiary companies.
California commercial banks are prohibited from investing an amount exceeding
15% of stockholders' equity in the securities of any one issuer, except for
specified obligations of the United States, California and local governments and
agencies. A thrift and loan company may acquire real property only in
satisfaction of debts previously contracted, pursuant to certain foreclosure
transactions or as may be necessary for the transaction of its business, in
which case such investment is limited to one-third of a thrift and loan's paid-
in capital stock and surplus not available for dividends. Management believes
it is in compliance with these requirements.
The California Industrial Loan Law allows a thrift and loan to increase its
secondary capital by issuing interest-bearing capital notes in the form of
subordinated notes and debentures. Such notes are not deposits and are not
insured by the FDIC or any other governmental agency, and generally are required
to have a maturity of at least seven years, and are subordinated to thrift
investment certificate holders, general creditors and secured creditors of the
issuing thrift.
Although investment authority and other activities that may be engaged in
by CTL generally are prescribed under the California Industrial Loan Law,
certain federal laws may limit CTL's ability to engage in certain activities
that otherwise are authorized under the California Industrial Loan Law. See
"Federal Law" below.
12
<PAGE>
FEDERAL LAW
CTL's thrift investment certificates are insured by the Bank Insurance Fund
(the "BIF") administered by the FDIC to the full extent by law. As an insurer of
deposits, the FDIC issues regulations, conducts examinations, requires the
filing of reports and generally supervises the operations of institutions to
which it provides deposit insurance. The FDIC is also the federal agency charged
with regulating state-chartered banks that are not members of the Federal
Reserve System. For this purpose, CTL is considered to be a state-chartered
bank. The approval or non-objection of the FDIC is required prior to any merger,
consolidation or acquisition of control of CTL, and prior to the establishment
or relocation of a branch office facility of CTL. An acquirer may be deemed to
control CTL if it holds, directly or indirectly or acting in concert with
others, 10% or more of a class of voting stock of CTL. This supervision and
regulation is intended primarily for the protection of depositors.
FDIC Insurance Assessments and Regulatory Capital. All FDIC-insured
institutions pay semi-annual assessments against deposit balances. CTL paid 23
cents per $100 of deposits effective January 1, 1994 based on its "well-
capitalized" status. The FDIC reduced deposit insurance premium rates to 4 cents
per $100 of deposits effective June 1, 1995, and then reduced the annual deposit
insurance premium to a flat $2,000 effective January 1, 1996. CTL's capital
ratios at December 31, 1996 placed it in the "well capitalized" category.
Brokered Deposits and Benefit Plan Deposits. An undercapitalized bank
cannot accept, renew, or roll over deposits obtained through a deposit broker,
and may not solicit deposits by offering interest rates that are more than 75
basis points higher than market rates. Banks that are adequately capitalized
but not well capitalized must obtain a waiver from the FDIC in order to accept,
renew or roll over brokered deposits, and even if a waiver is granted may not
solicit deposits, through a broker or otherwise, by offering interest rates that
exceed market rates by more than 75 basis points. Similarly, the ability to
accept benefit plan deposits with pass-through deposit insurance (for each plan
beneficiary) is tied to capitalization levels. CTL is well capitalized, and
therefore may accept brokered deposits and benefit plan deposits free from these
restrictions.
Fair Lending Laws. The Federal government announced a policy of strict
enforcement of laws that prohibit discrimination against protected groups in
lending and require banking institutions to serve the credit needs of their
communities. Federal regulations seek to measure whether a retail institution,
such as CTL, is adequately serving the credit needs of low and moderate income
communities in its markets. Management believes that CTL's lending practices and
other policies fully comply with current law.
Restrictions on Activities. Under FDIC regulations, CTL may not engage as
principal in any activities that are not permissible for national banks and
their subsidiaries unless (i) CTL meets the applicable FDIC capital standards
described above, and (ii) the FDIC has determined that the activity would pose
no significant risk to the BIF. The types of consumer finance, real property
lending (including second mortgage lending) and equipment leasing activities
conducted by CTL have been determined by the Office of the Comptroller of the
Currency to be permissible activities for national banks.
CTL is prohibited, under both federal and state laws, from engaging in
certain tying arrangements in connection with an extension of credit, sale or
lease of property or provision of services. For example, with certain
exceptions, CTL may not require a customer to obtain other services provided by
CTL and may not require the customer to promise not to obtain other services
from a competitor as a condition to an extension of credit or reduced
consideration for credit to the customer.
In addition, federal law imposes restrictions on transactions between CTL
and its affiliates. All such transactions, including leases and service
contracts, must be on terms and under circumstances that are substantially the
same, or at least as favorable to CTL, as those prevailing at the time for
comparable transactions involving non-affiliated companies. Affiliate
transactions are also subject to certain quantitative limits.
13
<PAGE>
OTHER SUBSIDIARIES
Previously, the Company had invested in real estate with various joint
venture partners for the development of single family homes through Regent
Financial Corporation, a subsidiary of the Company, and Bay View Financial
Corporation ("BVFC"), a subsidiary of BVFB. BVFC is a wholly owned service
corporation subsidiary of BVFB with the power to engage generally in service
corporation activities, and has three subsidiaries: Bay View Auxiliary
Corporation, Bay Counties Insurance Agency, Inc. and Carquinez Reserve, Inc.
During 1993, the Company curtailed its participation in real estate joint
ventures and sold off all of its related interests in these type of ventures.
The Company has no current plans to re-enter this type of business. At present,
these subsidiaries of BVFB are principally inactive and were insignificant to
the Company's operations during 1996 and 1995.
MoneyCare, Inc. ("MoneyCare"), a wholly owned subsidiary of BVFB, is also a
service corporation. The primary activity of MoneyCare is to sell uninsured
investment products such as mutual funds and annuities under an arrangement with
CoreLink Financial Inc. MoneyCare receives commissions on sales of such
products. BVFB stresses cross-selling to improve profitability and solidify
customer relationships.
EMPLOYEES
At December 31, 1996, the Company had a total of 576 employees on a full-
time equivalent ("FTE") basis (383 FTE at BVFB and 193 FTE at CTL). The
Company's employees are not represented by any collective bargaining groups. The
Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Registrant.
<TABLE>
<CAPTION>
YEAR
NAME AGE POSITION APPOINTED
- ----------------------- ----- ------------------------------- ---------
<S> <C> <C> <C>
Edward H. Sondker 49 Director, President and Chief 1995
Executive Officer
Robert J. Flax 47 Executive Vice President, 1985
General Counsel and Corporate
Secretary
David A. Heaberlin 47 Executive Vice President and 1995
Chief Financial Officer
John N. Buckley 39 Senior Vice President and 1994
Director of Credit
Administration for the Company
and BVFB
Cynthia L. Hart 49 Senior Vice President and 1992
Director of Banking Centers
for the Company and BVFB
</TABLE>
The business experience of each of the executive officers of the Company is
as follows:
Mr. Sondker has been a Director, President and Chief Executive Officer of
the Company since 1995. He joined BVFB in August 1995 as President and Chief
Executive Officer. Previously, he served as President and Chief Executive
Officer of Independence One Bank of California, FSB, a subsidiary of Michigan
National Corporation. From 1985 to 1990, he was the President and Chief
Executive Officer of La Jolla Bank & Trust Company. Prior to 1985, Mr. Sondker
held executive and management positions with a community bank holding company in
Kansas City, Missouri.
Mr. Flax has been Executive Vice President and General Counsel of BVFB
since 1985 and has served in various capacities since 1980. He has served as
Executive Vice President, General Counsel and Corporate Secretary of the Company
since its formation. Before joining BVFB, he was a trial attorney in private
practice in San Francisco from 1976 to 1980.
14
<PAGE>
Mr. Heaberlin has been Executive Vice President and Chief Financial Officer
since November 1995. Previously, he served as Senior Vice President and Chief
Financial Officer for First California/Mortgage Service America. During 1993
and 1994, he was Executive Vice President and Treasurer of ITT Residential
Capital Corporation. Prior to ITT, he was Executive Vice President for Numerica
Financial Corporation, a multi-bank holding company located in Manchester, New
Hampshire. He has over 20 years experience in commercial banking, savings banks
and the financial services industry. Mr. Heaberlin is a Certified Public
Accountant.
Mr. Buckley has been Senior Vice President and Director of Credit
Administration since January 1995 and Manager of Credit Administration and Asset
Management since June 1994. He joined BVFB in September 1993. Previously, he
served at Bank of America in various capacities from 1985 to 1993. His last
position was Vice President and Regional Credit Administrator for the Real
Estate Industries Division at Bank of America.
Ms. Hart has been Senior Vice President and Director of Banking Centers
since January 1995 and Asset Management Manager of BVFB since 1992. She was a
Portfolio Manager with HomeFed Bank from 1991 to 1992, and was with the Bank of
New England from 1990 to 1991 as a Group Leader of Controlled Loans. From 1988
to 1990, she was with American Savings Bank as a Senior Asset Manager, and from
1986 to 1988, she was Director of Asset Quality for the FHLBSF.
There is no family relationship among the above officers. All executive
officers serve at the pleasure of the Board of Directors.
ITEM 2. PROPERTIES
- --------------------
As of December 31, 1996, BVFB occupies 25 of its 26 banking centers and the
administrative corporate office for the Company under operating lease
arrangements expiring at various dates through 2012. BVFB owns the property in
which one of its banking centers is located. In 1996, the Company sold its
corporate office complex and entered into an operating lease arrangement for new
facilities.
As of December 31, 1996, CTL occupies 19 offices under operating lease
arrangements expiring on various dates through 2006. In 1996, CTLs corporate
office complex was sold and CTL relocated its administrative offices.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
See Note 19 of the Consolidated Financial Statement Notes at Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matter was submitted for a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------------------------------------
The Company's common stock (symbol: BVFS) is traded on the NASDAQ National
Market. At December 31, 1996, there were 6,674,635 shares of the Company's
common stock outstanding, which were owned by 1,441 shareholders of record. The
following is a summary of year-end values for 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Stock price $42 3/8 $28 1/2
Book value per share $29.97 $29.29
Price/book ratio 141% 97%
Tangible book value per share $28.45 $28.46
Price/tangible book ratio 149% 100%
Earnings (loss) per share $ 1.58 $(0.64)
Earnings multiple 26.8 N/A
Core earnings per share (note 1) $ 2.55 $ 0.91
Core earnings multiple 16.6 31.3
Tangible cash earnings per share (note 2) $ 2.93 $ 1.32
Tangible cash earnings multiple 14.5 21.6
</TABLE>
The following is a summary of selected financial ratios excluding special
mention items and SAIF recapitalization assessment for 1996 and fourth quarter
nonrecurring charges for 1995. See also Item 6 for these selected financial
ratios including such items:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Ratio of general and administrative
expenses to average assets 1.65% 1.53%
Efficiency ratio 58.04% 73.46%
Return on average assets 0.55% 0.21%
Return on average equity 8.70% 2.99%
Dividend payout ratio 23.92% 65.93%
</TABLE>
The following is a summary of selected quarterly financial data, stock
price activity and dividends declared for 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
(DOLLARS IN THOUSANDS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Core earnings (note 1) $ 3,993 $ 4,216 $ 4,648 $ 4,868
Per share data:
Core earnings (note 1) $ 0.56 $ 0.60 $ 0.67 $ 0.72
Tangible cash earnings (note 2) $ 0.62 $ 0.68 $ 0.83 $ 0.80
Stock price - high $33 1/8 $35 1/2 $39 1/4 $43 1/2
Stock price - low $26 1/4 $30 1/4 $ 32 $34 3/4
Dividends $ 0.15 $ 0.15 $ 0.15 $ 0.16
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
(DOLLARS IN THOUSANDS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Core earnings (loss) (note 1) $ 2,443 $ (749) $ 2,276 $ 2,676
Per share data:
Core earnings (loss) (note 1) $ 0.34 $ (0.10) $ 0.31 $ 0.36
Tangible cash earnings (loss) (note 2) $ 0.40 $ (0.04) $ 0.37 $ 0.59
Stock price - high $23 1/4 $27 7/8 $28 1/2 $29 3/4
Stock price - low $17 3/4 $22 1/4 $ 24 $ 26
Dividends $ 0.15 $ 0.15 $ 0.15 $ 0.15
</TABLE>
Note:
(1) Core earnings are calculated excluding the one-time SAIF recapitalization
assessment of $6.7 million ($0.97 per share) for 1996 and excluding fourth
quarter 1995 nonrecurring charges of $11.3 million ($1.55 per share).
(2) The tangible cash earnings calculation is based on core earnings excluding
charges tied to the market value of the Company's shares related to
management incentive plans, the Employee Stock Ownership Plan and non-cash
charges associated with the amortization of intangibles. The following table
shows the components of tangible cash earnings for the respective periods:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Core earnings $17,725 $6,646
Adjustments:
Amortization of intangibles 1,746 2,758
ESOP 222 203
Management incentive plans 690 -
------------ ------------
Tangible cash earnings $20,383 $9,607
============ ============
</TABLE>
The ability of the Company to pay dividends may be limited by certain
regulatory restrictions. "See Supervision and Regulatory Limitations on
Dividends and Other Capital Distributions" at Item 1 and Note 14 of the
Consolidated Financial Statements at Item 8.
On May 28, 1996, the Company completed the sale of $50 million of 8.42%
Senior debentures (the "Debentures") which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), in a private
placement under Section 4(2) of the Securities Act. The debentures were sold
only to (i) "qualified institutional buyers," as defined in, and in accordance
with, Rule 144A under the Securities Act and (ii) a small number of private
investment companies, each of which had assets of at least $20 million and was
an "accredited investor" as defined in, and in accordance with, Regulation D
under the Securities Act. The aggregate offering price was $50 million. Keefe,
Bruyette & Woods, Inc. acted as placement agent on a best efforts basis in
connection with the sale of the Debentures. For its services as placement agent,
Keefe, Bruyette & Woods, Inc. received $700,000 in commissions.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA - FIVE-YEAR FINANCIAL INFORMATION (INCLUDING
- -----------------------------------------------------------------------------
CTL EFFECTIVE JUNE 1, 1996) (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET INFORMATION
Total assets $3,300,262 $3,004,496 $3,166,529 $2,663,542 $2,586,775
Investment securities 29,006 47,963 32,841 11,399 23,231
Mortgage-backed securities 577,613 731,378 921,680 718,696 457,215
Loans receivable 2,474,717 2,062,268 2,054,563 1,776,820 1,943,346
Customer deposits 1,763,967 1,819,840 1,707,376 1,694,263 1,488,252
Borrowings 1,245,537 941,465 1,219,958 741,414 884,479
Stockholders' equity 200,062 207,977 217,315 210,976 196,869
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED RESULTS OF OPERATIONS
INFORMATION
Interest income $ 241,755 $ 216,463 $ 197,326 $ 191,526 $ 219,834
Interest expense (160,773) (160,547) (130,401) (121,850) (148,295)
--------- --------- --------- --------- ---------
Net interest income 80,982 55,916 66,925 69,676 71,539
Provision for losses on loans (1,898) (4,284) (2,367) (7,031) (24,953)
Gain (loss) on loans and securities (1,453) (2,510) (1,081) 1,091 378
Other income 10,017 8,652 8,619 8,465 6,708
Equity in loss of real estate joint - - - - (1,275)
ventures
Provision for losses on real estate 103 (749) (145) (819) (1,872)
SAIF recapitalization assessment (11,750) - - - -
Other expenses (56,755) (59,879) (49,610) (48,976) (40,834)
--------- --------- --------- --------- ---------
Income (loss) before income tax expense 19,246 (2,854) 22,341 22,406 9,691
Income tax (expense) benefit (8,277) 708 (7,828) (9,765) (3,596)
Cumulative effect of accounting change - - - - 4,197
Extraordinary items, net of tax - (2,544) - (132) (265)
--------- --------- --------- --------- ---------
Net income (loss) $ 10,969 $ (4,690) $ 14,513 $ 12,509 $ 10,027
========= ========= ========= ========= =========
Primary earnings (loss) per share:
Income before cumulative effect of
accounting $ 1.58 $ (0.29) $ 2.02 $ 1.80 $ 0.89
change and extraordinary items
Net income (loss) $ 1.58 $ (0.64) $ 2.02 $ 1.78 $ 1.47
Dividends per share $ 0.61 $ 0.60 $ 0.60 $ 0.60 $ 0.60
SELECTED OTHER INFORMATION
Net interest margin 2.57% 1.86% 2.34% 2.74% 2.84%
Ratio of general and administrative
expenses to average assets 1.84% 1.84% 1.59% 1.78% 1.51%
Efficiency ratio 64.79% 88.30% 62.60% 59.98% 49.95%
Return on average assets 0.34% (0.15)% 0.49% 0.47% 0.38%
Return on average equity 5.39% (2.11)% 6.79% 6.14% 5.10%
Dividend payout ratio 38.61% (93.75)% 29.70% 33.71% 40.82%
Book value per share $ 29.97 $ 29.29 $ 30.32 $ 29.90 $ 28.65
Tangible book value per share $ 28.45 $ 28.46 $ 28.95 $ 28.17 $ 27.55
Average capital/average assets 6.37% 7.17% 7.17% 7.61% 7.47%
Ratio of capital to total assets 6.06% 6.92% 6.86% 7.92% 7.61%
Nonperforming assets $ 24,310 $ 38,811 $ 50,577 $ 72,365 $ 69,301
Ratio to total assets 0.74% 1.29% 1.60% 2.72% 2.68%
Troubled debt restructures $ 509 $ 15,641 $ 13,948 $ 14,188 $ 20,791
Ratio to total assets 0.02% 0.52% 0.44% 0.53% 0.80%
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------
RESULTS OF OPERATION
- --------------------
INDEX
<TABLE>
<S> <C>
Strategic Overview.............................................................. 20
Acquisition of California Thrift & Loan......................................... 23
Results of Operations........................................................... 25
Net Interest Income.......................................................... 27
Interest Income................................................................. 30
Interest Income on Loans Receivable.......................................... 30
Interest Income on Mortgage-backed Securities................................ 30
Interest and Dividends on Investments........................................ 30
Interest Expense................................................................ 31
Interest Expense on Customer Deposits........................................ 31
Interest Expense on Borrowings............................................... 32
Provision for Losses on Loans................................................... 33
Noninterest Income.............................................................. 33
Noninterest Expense............................................................. 33
General and Administrative Expense........................................... 33
SAIF Recapitalization Assessment............................................. 35
Income and Expenses from Real Estate Owned................................... 35
Amortization and Write-down of Intangibles................................... 35
Income Taxes................................................................. 36
Extraordinary Item........................................................... 36
Balance Sheet Analysis.......................................................... 37
Securities................................................................... 37
Loans and Real Estate Owned.................................................. 39
Loan Portfolio Composition............................................... 39
Loan Originations, Purchases and Sales................................... 40
Delinquent, Nonaccrual and Restructured Loans............................ 41
Loans Delinquent 60 days or More......................................... 41
Nonperforming Assets, Troubled Debt Restructures and Real Estate Owned... 41
Allowance for Losses on Loans................................................ 43
Retail Customer Deposits..................................................... 45
Borrowings................................................................... 47
Asset/Liability Management...................................................... 48
General...................................................................... 48
Interest Rate Risk........................................................... 48
Interest Rate Sensitivity.................................................... 49
Liquidity and Capital Resources................................................. 52
Liquidity.................................................................... 52
Capital Resources............................................................ 53
Impact of New Accounting Standards.............................................. 54
Impact of Inflation and Changing Prices......................................... 54
</TABLE>
19
<PAGE>
STRATEGIC OVERVIEW
------------------
The Company has been aggressively restructuring and diversifying its
operations since late 1995. The following is an overview of the principal
strategies being pursued and the most significant actions implemented thus far.
THE COMPANY'S MISSION STATEMENT
To build a diversified financial services company by investing in and
creating niche lending generating companies that originate high yielding assets
and maximizing per share market value.
THE COMPANY'S CAPITAL STRATEGY
In order to realize the Company's objectives, management is pursuing a
capital strategy that encompasses the following:
1. To de-emphasize the less profitable elements of the Company's
subsidiaries.
2. To return the capital of subsidiaries in excess of the regulatory "well
capitalized" requirement to the Company.
3. To redeploy excess capital to generate a more profitable, risk-based
return or repurchase shares.
4. To increase the velocity of capital utilization.
BAY VIEW FEDERAL BANK STRATEGIES
BVFB has 26 branches servicing primarily the San Francisco Bay Area. Its
principal business consists of attracting deposits from the general public and
using those deposits, together with borrowings, to originate loans secured by
real estate. Historically, BVFB's performance has been negatively impacted by
weak retail asset origination (primarily COFI-based, commodity oriented mortgage
products), high general and administrative expenses and also unfavorable
interest rate risk exposure. In addition, BVFB had purchased mortgage-backed
securities ("MBS") when high quality loan production was not available.
In 1996, management redirected BVFB's strategic focus to concentrate on
enhancing the deposit franchise and (beginning in late 1995) the restructuring
of the wholesale (MBS/borrowings) portion of the balance sheet. As a result,
transaction accounts as a percentage of total deposits increased to 30.3% at
December 31, 1996 from approximately 20% at year-end 1995. In addition, BVFB
prepaid a significant portion of its high cost borrowings and also sold certain
MBS from its available-for-sale portfolio to mitigate its interest rate risk
exposure. At December 31, 1996, BVFB had entered into interest rate swaps with
notional amounts of $421 million which provide interest rate risk protection by
matching the floating interest rate risk of its balance sheet. Including the
effect of interest rate swaps, interest rate risk sensitivity estimated by
management (as measured by the change in the net portfolio value of equity as a
percentage of the present value of assets from an immediate 200 basis point
increase/decrease in interest rates) was 1.15% and 0.79% at December 31, 1996
and 1995, respectively, as compared to 3.02% at December 31, 1994.
20
<PAGE>
CALIFORNIA THRIFT & LOAN STRATEGIES
CTL is the Company's consumer finance subsidiary which underwrites and
purchases primarily high quality, high yielding auto loans and has successfully
carved out a niche in the increasingly competitive auto finance industry. The
Company acquired CTL in June 1996 and the acquisition was accounted for under
the purchase accounting method. It is currently headquartered in Covina,
California and operates 19 offices throughout California and western United
States.
The Company's focus at CTL is to capture asset values and increase the
velocity of capital utilization. As a result, the Company's management began
implementing a significant restructuring of CTL's balance sheet in late 1996.
The following summarizes the status of those actions.
Sale of Equipment Leasing Portfolio
- -----------------------------------
CTL signed a definitive agreement for the sale of its entire equipment
leasing portfolio for cash. The leases sold aggregated $60 million and this
transaction closed in December, 1996. The proceeds from this transaction
slightly exceeded the value established during the purchase accounting valuation
process. This sale combined with other restructuring efforts outlined herein
enabled CTL to return $15 million of capital to the Company for redeployment on
December 31, 1996.
Reduction of High Cost Customer Deposits
- ----------------------------------------
CTL's customer deposits are primarily comprised of thrift certificates
which are similar to certificates of deposit with the exception that they are
callable at par plus accrued interest. When thrift certificates are purchased by
customers, CTL reserves the right to repurchase the certificates at any time
upon thirty days notice. Utilizing this call provision, CTL redeemed the higher
cost component (higher than BVFB's incremental borrowing cost) of these deposits
at face value (approximately $267 million) as of December 31, 1996.
The remainder of the CTL customer deposits (which are lower cost than
BVFB's incremental borrowing cost) will be sold to BVFB. An application for the
approval of the sale of these deposits to BVFB has been filed with the OTS. The
sale is anticipated to be completed during the first quarter of 1997 and will
allow CTL to further return approximately $8 million of capital to the Company.
Sale and Securitization of Auto Loan Portfolio
- ----------------------------------------------
CTL intends to sell a portion of its auto loan portfolio to BVSC, a
Delaware corporation formed for the purpose of issuing asset-backed securities
through a trust. The sale of the auto loans is expected to enable CTL to return
approximately $25 million of capital to the Company.
The premium arising from the sale of the auto loan portfolio has been
recorded as part of the purchase accounting valuations related to the June 1996
acquisition of CTL. In conjunction with the decision to securitize the auto
loan portfolio, management entered into certain hedges which materially
insulated the purchase accounting valuation from movements in interest rates.
In November 1996, BVSC filed with the Securities and Exchange Commission
("SEC") a shelf registration statement on Form S-3 for $500 million of
automobile receivable-backed securities. The shelf registration statement was
declared effective by the SEC and in January 1997, $253 million of such
securities were issued pursuant to this shelf registration. Capital Markets
Assurance Corporation provided credit enhancement of this initial transaction.
21
<PAGE>
BVFB has entered into a strategic alliance with Ultra Funding, Ltd., a
Texas limited partnership, to purchase motor vehicle installment contracts
("auto receivables") originated by Ultra. These auto receivables are serviced by
CTL and are anticipated to be securitized on a periodic basis together with the
future production from CTL. Management expects Ultra to be a significant
component (current production approximates $3 - $4 million per month) of its
expanding consumer finance strategy.
The actions described above are consistent with the Company's capital
strategy to increase the velocity of capital utilization, de-emphasize less
profitable activities and return the capital of subsidiaries in excess of the
regulatory "well capitalized" requirement to the Company. The Company expects to
utilize the estimated $48 million of capital being returned by CTL to
aggressively pursue accretive acquisition opportunities and/or repurchase
additional shares. See discussion on "Capital Redeployment Strategies".
CAPITAL REDEPLOYMENT STRATEGIES
Stock Repurchase Program
- ------------------------
The Company's outstanding shares of common stock at December 31, 1996 and
1995 were 6,674,635 shares and 7,101,590 shares, respectively. The decrease in
the number of outstanding shares was primarily attributable to the repurchase of
495,000 shares in 1996 partially offset by the exercise of stock options. As a
result of the stock repurchases, weighted average shares outstanding (including
certain common stock equivalents) used for earnings per share calculations has
decreased from 7,293,492 shares for 1995 to 6,949,919 shares for 1996, a
decrease of approximately 4.9%. The Company's share repurchases during 1995 and
1996 completed its previously announced intention to repurchase 800,000 shares
of common stock. These shares were repurchased at an average cost of $31.97.
In January 1997, the Company approved a further repurchase program of $25
million to further redeploy its excess capital. This authorization should
enable the Company to repurchase approximately 475,000 shares (based on most
recent share price of $52.875) bringing the aggregate repurchases to
approximately 1.3 million shares or 17.5% of the 7.4 million shares outstanding
when the initial share repurchase program was approved.
Acquisition of EXXE Data Corporation/Concord Growth Corporation
- ---------------------------------------------------------------
In January 1997, the Company signed a definitive agreement to acquire EXXE
Data Corporation ("EXXE") and its wholly owned nationwide commercial finance
subsidiary, Concord Growth Corporation ("CGC"). Under the terms of the
definitive agreement, holders of EXXE capital stock, warrants and options will
receive an initial aggregate payment of $19.8 million at closing and will be
entitled to potential future payments, dependent on the future financial
performance of CGC, of up to $34 million.
The Company estimates that the first full year EPS enhancement from this
transaction will approximate $.14 per share or $.05 (50%+) more than the
estimated $.09 per share benefit that which would be achieved from utilizing the
$19.8 million to repurchase shares of the Company's common stock. The closing
payment of $19.8 million constitutes approximately 9.4 times the estimated
initial year net income for CGC. Cash basis EPS enhancement from this
transaction, which excludes the amortization of goodwill arising from the
transaction, is estimated at $.30 for the first full year of operations or more
than 300% better than that which would be achieved by utilizing the $19.8
million to repurchase the Company shares. When measured against the first full
year cash basis EPS, the closing payment of $19.8 million represents
approximately 6.2 times the initial year earnings estimate for CGC. The Company
expects, for the twelve months following the completion of the CGC acquisition,
that consumer and commercial finance activities will contribute approximately
20% of the Company's consolidated profits.
22
<PAGE>
The acquisition of EXXE/CGC will be accounted for as a purchase and is
expected to be completed during March 1997. Subject to the approval of EXXE
shareholders, the purchase price is currently estimated to exceed the fair value
of the net assets acquired by $16.5 million which the Company anticipates
amortizing over a 15 year period. CGC is expected to be a stand-alone
subsidiary of the Company.
Other Capital Strategies
- ------------------------
The Company has estimated that capital of $48 million would be returned
from CTL in connection with the sales of CTL's auto loans and the subsequent
securitization of such assets by BVSC and balance sheet restructuring of CTL.
The capital returned from CTL when combined with excess capital available at
BVFB and excess cash at the Company would approximate more than $80 million.
The Company is currently contemplating the issuance of commercial paper and
the issuance of subordinated notes by BVFB. The commercial paper issuance would
be utilized as a funding alternative for CGC, CTL and certain BVFB assets. The
subordinated notes would be utilized to expand BVFB's Tier II regulatory capital
and reduce Tier I capital. Management estimates that these actions combined
with 1997 earnings will enable the Company to generate at least $40 million of
additional capital for redeployment.
The EXXE/CGC acquisition and the $25 million share repurchase will redeploy
roughly $50 million of the $80 million currently available. Following the
completion of these transactions, the Company estimates that at least $70
million of capital remains available for redeployment during 1997.
The Company expects to continue utilizing this capital pool to aggressively
pursue accretive acquisition opportunities to expand its commercial and consumer
finance platforms. Management will also continue to explore the acquisition of
other potential high quality niche origination capabilities, as well as
opportunities to further enhance the BVFB deposit franchise. These acquisition
activities are likely to be combined with further future share repurchases.
ACQUISITION OF CALIFORNIA THRIFT & LOAN
On June 14, 1996, the Company acquired CTL Credit, Inc. ("CTL Credit"), a
Delaware corporation and the holding company for CTL. In connection with the
acquisition, CTL Credit was liquidated with its assets transferred to and
liabilities assumed by the Company, and CTL became a stand-alone subsidiary of
the Company and a sister bank to BVFB.
The Company acquired all of the outstanding common stock of CTL Credit for
$18.00 per share, or total cash consideration of approximately $62 million,
which was funded with existing cash and borrowings. During May 1996, the
Company issued $50 million in Senior Debentures yielding 8.42% (all-in cost was
8.91% annualized), and $26 million of the proceeds were used to finance the CTL
Credit acquisition. The residual proceeds of the debt offering will be utilized
for future accretive acquisitions or other business purposes deemed to enhance
shareholder value, such as the repurchase of the Company's common stock, if
warranted (see "Capital Redeployment Strategies").
The CTL Credit acquisition has been accounted for as a purchase effective
June 1, 1996. Under the purchase accounting method, the purchase price is
allocated to assets acquired and liabilities assumed based on their estimated
fair values at the time of consummation of the transaction. Based on initial
estimates performed in association with the June 30, 1996 interim financial
statements, aggregate costs exceeded the estimated fair value of net assets
acquired (i.e., goodwill) by $18.4 million. Subsequent market data and analysis
has determined that the realizable value of the acquired assets is higher than
the initial estimates, specifically the value attributable to certain assets
positioned for securitization or sale. Given the revised estimates, goodwill
has been adjusted to $7.0 million and is being amortized on a straight-line
basis over a period of seven years.
23
<PAGE>
The following table summarizes the revised purchase accounting valuation
and related adjustments as compared to the initial estimates performed for the
June 30, 1996 interim financial statements. The revised purchase price
allocations are based on estimates of the fair value of the net assets acquired
given available information and may be subject to further adjustment in
accordance with the guidelines established under Accounting Principles Board
Opinion No. 16 "Business Combinations".
<TABLE>
<CAPTION>
REVISED PURCHASE ACCOUNTING
ALLOCATION
-----------------------------------
INITIAL REVISED
(DOLLARS IN MILLIONS) ESTIMATE ADJUSTMENTS ESTIMATE
-------- ----------- --------
<S> <C> <C> <C>
Cash paid $ 62.2 $ - $ 62.2
Cash and cash equivalents acquired from CTL (1.4) - (1.4)
Acquisition costs 0.4 0.6 1.0
------ ------ ------
Total purchase price 61.2 0.6 61.8
Liabilities assumed
Deposits 456.9 - 456.9
Debt 6.3 - 6.3
Deferred tax (1.5) 8.5 7.0
Other liabilities 6.2 0.1 6.3
------ ------ ------
Total purchase price and assumed
liabilities 529.1 9.2 538.3
Less fair value of acquired assets
Cash and cash equivalents 0.3 0.3
Securities 17.5 17.5
Loans 481.5 20.8 502.3
Fixed assets 3.4 0.3 3.7
Real estate owned 2.2 (0.4) 1.8
Other assets 5.8 (0.1) 5.7
------ ------ ------
Cost in excess of fair value of net
assets acquired $ 18.4 $(11.4) $ 7.0
====== ====== ======
</TABLE>
SIGNIFICANT PURCHASE PRICE ALLOCATION ASSUMPTIONS
The significant assumptions utilized in association with the purchase
accounting valuations as of the date of acquisition are as follows:
A. The estimated fair value of loans held for investment was determined by
discounting the applicable cash flows at the market rate as of the
effective date of the acquisition. The market rate represents the
corresponding yield that a willing buyer would receive as a result of the
sale of similar loans issued to borrowers of similar credit risk. The
applicable cash flows represent the projected loan payments, net of
estimated prepayments based on historical experience and published data for
similar loans. Fair values of loans held for sale are based on prices for
similar loans in the secondary market. The initial estimate of the fair
value of the loan portfolio was based on carrying amounts. The adjustment
was based on fair values that management expects to realize from the sale
of such loans.
B. The adjustment to real estate owned represents a write-down based on a
revised evaluation of the fair value less estimated costs to sell.
C. The adjustment to fixed assets is based on a revised estimate of the
proceeds from the sale of the building (sale closed in December 1996) used
as the corporate headquarters of CTL.
24
<PAGE>
D. The adjustment to other liabilities represents reserves established for
costs to be incurred from terminating lease obligations, data processing
activities and CTL's employee automobile program. The adjustment also
includes costs associated with termination and integration of certain
employee functions.
E. No adjustment has been made for valuations associated with the deposit
portfolio. It was assumed that these liabilities will be sold to BVFB or
retired at face value as selective assets are sold or securitized.
F. The adjustment related to deferred taxes represents the tax impact of all
purchase accounting adjustments by applying enacted statutory taxes
applicable to future years. This adjustment effectively represents the
estimated future tax consequences associated with these purchase price
valuations.
RESULTS OF OPERATIONS
The Company reported consolidated net income of $11.0 million or $1.58 per
share for the year ended December 31, 1996 (including CTL effective June 1,
1996) as compared to a consolidated net loss of $4.7 million or $0.64 per share
for the year ended December 31, 1995 and consolidated net income of $14.5
million or $2.02 per share for the year ended December 31, 1994. Operating
results for 1996 included a one-time charge of $6.7 million or $0.97 per share
($11.7 million pre-tax) relating to a special assessment to recapitalize the
Savings Association Insurance Fund. Operating results for 1995 included certain
nonrecurring charges of $11.3 million after tax ($18.0 million pre-tax) related
to performance impediments which were eliminated to improve the Company's future
profitability and enhance shareholder value. Excluding the impact of the SAIF
recapitalization assessment in 1996 and the nonrecurring charges in 1995, the
increase in earnings for 1996 over 1995 was primarily due to an improvement in
net interest margin and lower general and administrative expenses as discussed
further elsewhere herein.
SPECIAL MENTION ITEMS
- ---------------------
Net income for the year ended December 31, 1996 contained certain items
which deserve special mention. The impact of these items on full year 1996
earnings was a net decrease of $52,000 or $0.01 per share.
First Quarter 1996 (pretax)
- ------------------
The net impact of the following items on first quarter 1996 results was a net
improvement of $109,000 after tax or $0.01 per share.
- - $800,000 gain from the sale of and income received from certain real estate
owned properties.
- - $350,000 write-off of core deposit intangibles and fixed assets due to a
branch closure.
- - $260,000 loss resulting from the sale of approximately $24 million of
mortgage-backed securities from the available-for-sale portfolio.
Second Quarter 1996 (pretax)
- -------------------
The net impact of the following items on second quarter 1996 results was a net
decrease of approximately $89,000 after tax or $0.01 per share.
- - $770,000 gain from the sale of and income received from certain real estate
owned properties.
- - $500,000 additional write-down due to the sale of the corporate office
complex which closed in the third quarter of 1996. The Company had
provided a write-down of $7.1 million on this property in 1995.
25
<PAGE>
- - $425,000 write-down related to certain computer hardware and software. The
computer-related write-down was directly related to the Company's decision
to enter into a long-term information services technology agreement with
BISYS Group, Inc.
Third Quarter 1996 (pretax)
- ------------------
The net impact of the following items on third quarter 1996 results was a net
decrease of $72,000 after tax or $0.01 per share.
- - $3.2 million gain from the sale of and income received from certain real
estate owned properties.
- - $2.0 million accrual for termination of data processing contracts and an
additional write-down for computer hardware relating to the Company's long-
term information services technology agreement with BISYS Group, Inc.
- - $1.4 million of enhanced profitability resulting from purchase accounting
valuations associated with the CTL assets being held-for-sale.
- - $1.3 million loss accrual for lease obligations in excess of related
sublease rentals resulting from unfavorable lease agreement terms.
- - $1.2 million expense accrual for long-term incentive plan awards.
- - $210,000 accrual for downsizing loan operations and relocation of
administrative functions.
Fourth Quarter 1996 (pretax)
- -------------------
The net impact of the following items on fourth quarter 1996 results completely
offset each other.
- - $1.0 million of enhanced profitability resulting from purchase accounting
valuations associated with the CTL assets being held-for-sale.
- - $538,000 loss on sale of mortgage-backed securities and short sale of
Treasury securities.
- - $400,000 additional accrual for the termination of data processing
contracts which was finalized during the fourth quarter of 1996.
- - $80,000 net expense arising from the impact of the sale of the leasing
portfolio partially offset by refunds of FDIC insurance premiums.
The decrease in net income in 1995 compared with 1994 was primarily
attributable to lower net interest income, nonrecurring charges relating to
losses on the sale of mortgage-backed securities available-for-sale, severance
payments relating to workforce reductions, fixed assets written-off, write-down
of corporate office complex, write-down of intangibles and prepayment penalties
on FHLBSF advances.
26
<PAGE>
NET INTEREST INCOME
Net interest income was $81.0 million for the year ended December 31, 1996
as compared to $55.9 million and $66.9 million for the years 1995 and 1994,
respectively. The increase in net interest income for 1996 as compared to 1995
was primarily due to an improvement in net interest margin for BVFB which
increased to 2.38% in 1996 from 1.86% in 1995 and also the impact of the
acquisition of CTL. The decrease in net income in 1995 from 1994 was primarily
attributable to a lower net interest margin, which declined to 1.86% in 1995
from 2.34% in 1994. The following table summarizes net interest income
(excluding intercompany interest income/expense) for each of the years
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
--------------------- -------------------- -------------------
NET NET NET NET NET NET
INTEREST INTEREST INTEREST INTEREST INTEREST INTEREST
(DOLLARS IN THOUSANDS) INCOME MARGIN INCOME MARGIN INCOME MARGIN
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BBVFB $67,303 2.38% $55,837 1.86% $66,846 2.34%
CCTL (beginning June 1, 1996) 16,222 5.10 - NA - NA
BBVCC (2,543) NA 79 NA 79 NA
------- ---- ------- ---- ------- ----
BBVCC-Consolidated $80,982 2.57% $55,916 1.86% $66,925 2.34%
======= ==== ======= ==== ======= ====
</TABLE>
Bay View Capital Corporation
- ----------------------------
The net interest expense for BVCC in 1996 consists primarily of interest
expense on $50 million of 8.42% senior debentures (all-in cost 8.91% annualized)
issued in May 1996.
Bay View Federal Bank
- ---------------------
BVFB's 1996 net interest margin was 2.38%, an increase of 52 basis points
as compared to net interest margin of 1.86% for 1995. The improvement in net
interest margin was primarily due to lower cost of funds related to retail
deposits.
The cost of retail deposits at December 31, 1996 was 4.60%, 24 basis points
below COFI of 4.84%. The cost of retail deposits decreased by 64 basis points
as compared to December 31, 1995. The decrease in the cost of retail deposits
was primarily due to favorable repricing of certificates of deposit and an
increase in transaction accounts which are at lower rates than certificates of
deposit. As of December 31, 1996, transaction accounts as a percentage of total
deposits increased to 30.3% from 21.3% and 22.2% at December 31, 1995 and 1994,
respectively. The following table is a summary of cost of retail deposits for
BVFB versus COFI as of December 31 for each of the years indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cost of retail deposits 4.60% 5.24% 4.53%
COFI 4.84 5.12 4.37
----------------- ----------------- -----------------
Spread above/(below) COFI (0.24)% 0.12% 0.16%
================= ================= =================
</TABLE>
A significant portion of BVFB's adjustable rate loan portfolio is indexed
to COFI which typically lags market interest rate movements. Generally, BFVB's
net interest margin is favorably affected during periods of declining interest
rates as the cost of BVFB's interest-bearing liabilities may adjust to market
rates more quickly than the yield on its interest-earning assets. Conversely,
during periods of rising interest rates, BVFB's net interest margin is
unfavorably affected by this lag factor. The Federal Reserve began increasing
the discount rate and/or federal funds rates in 1994 and as a result, the
general interest rate environment was higher in 1996 as compared to 1995. The
net interest margin in 1996 for BVFB was adversely affected by the movements in
the
27
<PAGE>
COFI as a result of the rising interest rates and BVFB's exposure to interest
rate movements. However, the decrease in the cost of retail deposits more than
offset the unfavorable impact of COFI in 1996 which resulted in an improvement
in BVFB's net interest margin. Management actions in late 1995 and early 1996
which significantly reduced BVFB's exposure to interest rates also benefited the
net interest margin during 1996 (see "Asset and Liability Management" for
further discussion).
The net interest margin was lower in 1995 as compared to 1994 primarily due
to this lag factor compounded by higher cost of retail deposits and BVFB's
exposure to interest rate movements.
California Thrift & Loan
- ------------------------
CTL's 1996 net interest margin was 5.10%. As discussed elsewhere herein,
the Company began implementing a significant restructuring of CTL's balance
sheet in late 1996 which included a sale of its entire equipment leasing
portfolio, reduction of high cost customer deposits, sale of its auto loan
portfolio and subsequent securitization by BVSC.
Average Balance Sheet. The following table sets forth certain information
relating to the Company's consolidated statements of financial condition and
reflects the average yields on interest-earning assets and average rates paid on
interest-bearing liabilities for the years indicated. Such yields and rates are
derived by dividing interest income or expense by the average balances of
interest-earning assets of interest-bearing liabilities, respectively, for the
periods shown. The yields for the periods indicated include the amortization of
deferred loan origination fees, net of costs, which were considered adjustments
to yield.
28
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
--------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1996 1995
---------------------------------------- ----------------------------------------
AVERAGE ACTUAL AVERAGE AVERAGE ACTUAL AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
----------- ------------ ---------- ----------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Loans $2,370,501 $192,443 8.12% $2,083,700 $155,853 7.48%
Mortgage-backed securities 654,671 42,081 6.43 810,982 54,236 6.69
Investments 126,056 7,231 5.74 110,720 6,374 5.76
---------- -------- ---- ---------- -------- ----
Total interest-earning assets 3,151,228 241,755 7.67 3,005,402 216,463 7.20
-------- ---- -------- ----
Nonperforming assets 23,949 49,673
Other assets 24,374 44,667
---------- ----------
Total assets $3,199,551 $3,099,742
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Transaction accounts $ 447,915 11,037 2.46 $ 367,164 8,245 2.25
Certificates of deposits 1,523,213 89,188 5.86 1,438,353 85,153 5.92
---------- -------- ---- ---------- -------- ----
Total customer deposits 1,971,128 100,225 5.08 1,805,517 93,398 5.17
Borrowings 979,069 60,548 6.18 1,049,107 67,149 6.40
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities 2,950,197 160,773 5.45 2,854,624 160,547 5.62
-------- ---- -------- ----
Other liabilities 45,677 22,886
---------- ----------
Total liabilities 2,995,874 2,877,510
Stockholders' equity 203,677 222,232
---------- ----------
Total liabilities and stockholders'
equity $3,199,551 $3,099,742
========== ==========
Net interest income/net interest
spread $ 80,982 2.22% $ 55,916 1.58%
======== ==== ======== ====
Net interest earning assets $ 201,031 $ 150,778
========== ==========
Net interest margin including
nonperforming assets 2.55% 1.83%
========== ==========
Net interest margin excluding
nonperforming assets 2.57% 1.86%
========== ==========
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
----------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------
1994
----------------------------------------
AVERAGE ACTUAL AVERAGE
BALANCE INTEREST YIELD/RATE
----------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Loans $1,840,742 $131,783 7.16%
Mortgage-backed securities 933,334 61,111 6.55
Investments 81,243 4,432 5.46
---------- -------- ----
Total interest-earning assets 2,855,319 197,326 6.91
-------- ----
Nonperforming assets 70,965
Other assets 54,481
----------
Total assets $2,980,765
==========
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Transaction accounts $ 395,791 8,298 2.10
Certificates of deposits 1,259,744 58,126 4.61
---------- -------- ----
Total customer deposits 1,655,535 66,424 4.01
Borrowings 1,088,495 63,977 5.88
---------- -------- ----
Total interest-bearing liabilities 2,744,030 130,401 4.75
-------- ----
Other liabilities 23,132
----------
Total liabilities 2,767,162
Stockholders' equity 213,603
----------
Total liabilities and stockholders'
equity $2,980,765
==========
Net interest income/net interest
spread $ 66,925 2.16%
======== ====
Net interest earning assets $ 111,289
==========
Net interest margin including
nonperforming assets 2.29%
==========
Net interest margin excluding
nonperforming assets 2.34%
==========
</TABLE>
(1) Interest expense for borrowings includes interest expense on interest rate
swaps of $2.6 million, $40,000 and $80,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
(2) Average balances and yields for securities available-for-sale are based on
historical amortized cost balances.
29
<PAGE>
INTEREST INCOME
INTEREST INCOME ON LOANS RECEIVABLE
Interest income on loans was $192.4 million for the year ended December 31,
1996 as compared to $155.9 million and $131.8 million for the years 1995 and
1994, respectively. The following table is a summary of interest income on
loans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
AMOUNTS YIELDS AMOUNTS YIELDS AMOUNTS YIELDS
--------- ------ --------- ------ --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BVFB $161,149 7.79% $155,853 7.48% $131,783 7.16%
CTL (beginning June 1, 1996) 31,294 10.32% - - - -
-------- ----- -------- ---- -------- ----
BVCC - Consolidated $192,443 8.12% $155,853 7.48% $131,783 7.16%
======== ===== ======== ==== ======== ====
</TABLE>
Bay View Federal Bank
- ---------------------
The increase in yields on loans for BVFB of 31 basis points between 1996
and 1995 was primarily due to the repricing of a significant portion of loans
indexed to the COFI and to a lesser extent, the one-year Treasury note. The
average monthly COFI for the years ended December 31, 1996 and 1995, which
impacted BVFB's adjustable rate mortgages, increased by 16 basis points. The
average loan balances for 1996 and 1995 were essentially the same at $2.07
billion and $2.08 billion, respectively. The average monthly COFI for the years
ended December 31, 1995 and 1994, which impacted BVFB's adjustable rate
mortgages, increased by 101 basis points. However, this increase was partially
offset by slower repricing of loans which adjust other than on a monthly basis
and a higher amortization of SFAS 91 deferred fees due to higher level of loan
prepayments.
California Thrift & Loan
- ------------------------
The interest income on loans for CTL primarily relates to interest income
on auto loans, mortgage loans, revolving lines of credit, and indirect equipment
leases. The interest income on loans for CTL includes the amortization of
purchase accounting valuation adjustments for loans held for investment. The
yields on loans for CTL remained essentially the same since acquisition date.
In December 1996, CTL sold its entire leasing portfolio of $60 million for cash.
INTEREST INCOME ON MORTGAGE-BACKED SECURITIES
Interest income on MBS was $42.1 million for the year ended December 31,
1996 as compared to $54.2 million and $61.1 million for the years ended December
31, 1995 and 1994, respectively. All of the interest income on MBS was related
to BVFB only. The decrease in interest income on MBS was primarily attributable
to lower average balances resulting from principal amortization and sale of MBS
available-for-sale in 1996 and 1995. The sale of MBS was due to management's
strategic focus on restructuring the wholesale balance sheet and reduction of
interest rate risk exposure. There were no MBS purchased in 1996 and 1995.
INTEREST AND DIVIDENDS ON INVESTMENTS
Interest and dividend income from the Company's investment portfolio was
$7.2 million for the year ended December 31, 1996 as compared to $6.4 million
and $4.4 million for the years 1995 and 1994, respectively. The interest and
dividend income from CTL was $761,000 for the period since acquisition date.
Excluding CTL, the investment income for BVFB remained essentially the same for
1996 and 1995. The increase in investment income from 1994 to 1995 was
primarily due to higher average investment balances.
30
<PAGE>
INTEREST EXPENSE
INTEREST EXPENSE ON CUSTOMER DEPOSITS
Interest expense on customer deposits was $100.2 million for the year ended
December 31, 1996 as compared to $93.4 million and $66.4 million for the years
ended December 31, 1995 and 1994, respectively. The following table summarizes
interest expense on deposits:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS) AMOUNTS YIELDS AMOUNTS YIELDS AMOUNTS YIELDS
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
BVFB $ 84,466 4.95% $93,398 5.17% $66,424 4.01%
CTL (beginning June 1, 1996) 15,759 5.94% - - - -
-------- ---- ------- ---- ------- ----
BVCC - Consolidated $100,225 5.08% $93,398 5.17% $66,424 4.01%
======== ==== ======= ==== ======= ====
</TABLE>
Bay View Federal Bank
- ---------------------
The decrease in the cost of retail deposits was primarily due to favorable
repricing of certificates of deposit and an increase in transaction accounts
which are at lower rates than certificates of deposit. As of December 31, 1996,
transaction accounts as a percentage of total deposits increased to 30.23% from
21.3% and 22.2% at December 31, 1995 and 1994, respectively. The average
balances of retail deposits decreased from $1.81 billion in 1995 to $1.71
billion in 1996. However, average transaction accounts increased from $367
million to $439 million.
The increase in interest expense from 1994 to 1995 was primarily due to
higher average rates and customer deposit balances primarily in certificates of
deposit.
California Thrift & Loan
- ------------------------
The cost of deposits for CTL remained essentially unchanged since June 1,
1996, the acquisition date. CTL redeemed the higher cost component (higher than
BVFB's incremental borrowing cost) of these deposits at face value
(approximately $267 million) at year-end 1996.
31
<PAGE>
INTEREST EXPENSE ON BORROWINGS
The following table summarizes interest expense on borrowings:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
--------------- --------------- -------- ----
(DOLLARS IN THOUSANDS) AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
BVFB $57,851 6.09% $67,149 6.40% $63,977 5.88%
CTL (beginning June 1, 1996) 74 5.57 - - - -
BVCC (Senior Debentures only) 2,623 8.91 - - - -
------- ---- ------- ---- ------- ----
BVCC - Consolidated $60,548 6.18% $67,149 6.40% $63,977 5.88%
======= ==== ======= ==== ======= ====
</TABLE>
The decrease in interest expense on borrowings for BVFB was primarily due
to lower average balances arising from lower borrowing requirements consistent
with the level of interest-earning assets maintained. Also, in the fourth
quarter of 1995 and first quarter of 1996, BVFB prepaid $190 million of high
cost borrowings and replaced them with short-term lower cost borrowings. In
conjunction with the prepayment of these borrowings, BVFB entered into interest
rate swap agreements to provide interest rate risk protection for the short-term
lower cost borrowings by matching the floating interest rate characteristics and
lengthening their maturities. The lower average balances in 1996 are consistent
with management's strategy to de-emphasize the wholesale balance sheet and
enhance the retail deposit franchise.
During May 1996, the Company issued $50 million in Senior Debentures
yielding 8.42% (all-in cost was 8.91% annualized) and $26 million of the
proceeds were used to finance the acquisition of CTL.
The following table sets forth the changes in net interest income due to
changes in the rate and volume of the Company's interest-earning assets and
interest-bearing liabilities. The variances include the impact of CTL beginning
June 1, 1996. Rate and volume changes are calculated excluding nonperforming
assets. Changes in rate and volume (changes in weighted average interest rate
multiplied by average portfolio balance), which cannot be segregated, have been
allocated proportionately to the change in rate and the change in volume.
<TABLE>
<CAPTION>
RATE VOLUME TOTAL
(DOLLARS IN THOUSANDS) VARIANCE VARIANCE VARIANCE
-------- -------- --------
YEAR ENDED DECEMBER 31, 1996 VS. 1995
<S> <C> <C> <C>
Interest income:
Loans $ 6,463 $ 30,127 $ 36,590
Mortgage-backed securities (2,039) (10,116) (12,155)
Investments 104 753 857
-------- -------- --------
4,528 20,764 25,292
-------- -------- --------
Interest expense:
Customer deposits (692) 7,519 6,827
Borrowings (2,169) (4,432) (6,601)
-------- -------- --------
(2,861) 3,087 226
-------- -------- --------
Net interest income $ 7,389 $ 17,677 $ 25,066
======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 VS. 1994
<S> <C> <C> <C>
Interest income:
Loans $ 6,095 $ 17,975 $ 24,070
Mortgage-backed securities 1,283 (8,158) (6,875)
Investments 257 1,685 1,942
-------- -------- --------
Total 7,635 11,502 19,137
-------- -------- --------
Interest expense:
Customer deposits 20,541 6,433 26,974
Borrowings 5,547 (2,375) 3,172
-------- -------- --------
Total 26,088 4,058 30,146
-------- -------- --------
Net interest income $(18,453) $ 7,444 $(11,009)
======== ======== ========
</TABLE>
32
<PAGE>
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans was $1.9 million for the year ended
December 31, 1996 as compared to $4.3 million and $2.4 million for the years
1995 and 1994, respectively. See the Allowance for Losses on Loans section
below for a more detailed discussion.
NONINTEREST INCOME
Noninterest income was $8.6 million, $6.1 million and $7.5 million for the
years 1996, 1995 and 1994 which includes losses on securities of $0.8 million
for 1996, $2.5 million for 1995, and $1.1 million for 1994. The following table
summarizes noninterest income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
BVFB $8,154 $6,142 $7,538
CTL (beginning June 1, 1996) 410 - -
------ ------ ------
BVCC - Consolidated $8,564 $6,142 $7,538
====== ====== ======
</TABLE>
Excluding the loss on securities, noninterest income for BVFB remained
relatively flat between 1996 and 1995. During 1996, total mortgage-backed
securities sold from the available-for-sale portfolio were $55.0 million and
aggregated a loss of $507,000. BVFB's interest rate risk profile has been
favorably impacted by the sale of these securities. At December 31, 1996, the
remaining balance of mortgage-backed securities available-for-sale was $84.4
million and the unrealized loss was $1.2 million or 1.5%.
In conjunction with the pending securitization of CTL's auto loan
portfolio, during the fourth quarter of 1996, CTL entered into a short sale of
Treasury securities to hedge the valuations from movements in interest rates. A
loss of $293,000 in accordance with generally accepted accounting principles was
recorded in the fourth quarter associated with this short sale of Treasury
securities.
NONINTEREST EXPENSE
GENERAL AND ADMINISTRATIVE EXPENSE
The following table is a summary of the major categories of general and
administrative expenses (including special mention items) for each of the years
indicated (including CTL effective June 1, 1996).
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994
--------------------------------------- ------- -------
(DOLLARS IN THOUSANDS) BVCC BVFB CTL TOTAL
------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Compensation and benefits $ 402 $21,298 $ 6,255 $27,955 $25,148 $25,268
Office occupancy and equipment - 9,044 821 9,865 8,658 8,436
Deposit insurance premiums - 4,911 - 4,911 4,473 4,813
Marketing - 1,381 203 1,584 1,070 1,016
Data processing service bureau - 3,671 573 4,244 1,683 1,701
Write-down of corporate office - 500 - 500 7,100 -
Other, net 833 6,743 2,320 9,896 8,884 6,053
------ ------- ------- ------- ------- -------
Total $1,235 $47,548 $10,172 $58,955 $57,016 $47,287
====== ======= ======= ======= ======= =======
</TABLE>
33
<PAGE>
Bay View Capital Corporation and Bay View Federal Bank
- ------------------------------------------------------
General and administrative expenses for BVCC in 1996 includes a higher
allocation of expenses from BVFB as compared to prior years due to an increase
in activity relating to redeployment of capital as discussed elsewhere herein.
General and administrative expenses for BVFB in 1996 included the special
mention items discussed below which totaled $6.1 million. Excluding these
special mention items and including the normalization of deposit insurance
premiums (due to impact of SAIF legislation), general and administrative
expenses for BVCC and BVFB combined for 1996 would have been approximately $40.4
million as compared to the previously indicated annualized threshold of less
than $42 million. The following is a summary of special mention items in 1996.
- - $2.8 million accrual for termination of existing data processing contracts
and a write-down for computer hardware and software relating to the
Company's new long-term information services technology agreement with
BISYS Group, Inc.
- - $1.3 million loss accrual for lease obligations in excess of related
sublease rentals resulting from unfavorable lease agreement terms.
- - $1.2 million expense accrual for long-term incentive plan awards.
- - $500,000 additional write-down due to the sale of the corporate office
complex which closed in the third quarter of 1996. The Company had
provided a write-down of $7.1 million on this property in 1995.
- - $310,000 accrual for downsizing loan operations and relocation of
administrative functions.
General and administrative expenses in 1995 included the following special
mention items which totaled $10.8 million:
- - $7.1 million write-down due to the pending sale of the corporate office
complex.
- - $2.8 million severance payment relating to workforce reductions.
- - $866,000 write-off relating to fixed asset disposals.
Excluding special mention items, general and administrative expenses for
1996 were lower than 1995 primarily due to lower compensation and benefit
expense and other cost reduction initiatives. General and administrative
expenses for 1995 (excluding special mention items) and 1994 were essentially
the same.
California Thrift & Loan
- ------------------------
General and administrative expenses for CTL have declined during the period
subsequent to acquisition due to the termination of certain employee functions,
impact of the sale of the entire leasing portfolio and the continued
implementation of cost reduction opportunities.
34
<PAGE>
The following table summarizes general and administrative expenses and
efficiency ratios exclusive of special mention items:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS) G&A EFFICIENCY G&A EFFICIENCY G&A EFFICIENCY
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
BVFB $41,414 54.52% $46,864 74.34% $46,793 61.94%
CTL (beginning June 1, 1996) 10,172 52.34% - - - -
Parent Company 1,235 NA 582 NA 494 NA
------- ----- ------- ----- ------- -----
BVCC-Consolidated $52,821 58.04% $47,446 73.46% $47,287 62.60%
======= ===== ======= ===== ======= =====
</TABLE>
SAIF RECAPITALIZATION ASSESSMENT
Federal legislation to recapitalize and fully fund the Savings Association
Insurance Fund was signed into law on September 30, 1996. Customer deposits for
BVFB are SAIF-insured, and as a result of the legislation, BVFB was required to
pay a one-time special assessment of $11.7 million pre-tax ($6.7 million after
tax or $.97 per share). The legislation had no effect on CTL, as its deposits
are insured under the Bank Insurance Fund.
Pursuant to this legislation, premiums on SAIF-insured deposits for BVFB
will be reduced in 1997 from the previously anticipated 23 basis points to 6.48
basis points which will translate into lower annual deposit costs in 1997. The
estimated annual savings associated with this lower premium will be
approximately $2.7 million based on the level of deposits for BVFB at December
31, 1996.
INCOME AND EXPENSES FROM REAL ESTATE OWNED
Income from operations of real estate owned was $4.8 million for the year
ended December 31, 1996 as compared to $1.1 million and $95,000 for the years
1995 and 1994, respectively. The increase was primarily due to gains from the
sale of and higher income received from real estate owned properties (see
discussion of special mention items included elsewhere herein). There were no
significant changes in the provision for losses on real estate owned.
The increase in income from real estate owned operations during 1995 as
compared to 1994 was primarily due to income received from one large property
foreclosed upon in April 1995. Prior to foreclosure, the income received was
reported as interest income on loans.
AMORTIZATION AND WRITE-DOWN OF INTANGIBLES
The following table summarizes the amortization and write-down of
intangibles:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
BVFB $2,025 $3,944 $2,418
CTL (beginning June 1, 1996) 581 - -
------ ------ ------
BVCC - Consolidated $2,606 $3,944 $2,418
====== ====== ======
</TABLE>
Bay View Federal Bank
- ---------------------
The amortization and write-down of intangibles in 1996 includes core
deposit intangible write-offs of $274,000 due to a decision to close one of
BVFB's branches. During the fourth quarter of 1995, core deposit premiums of
$854,000 were written-off due to an impairment in the value of core deposit
premiums attributable to higher than expected decay rates in the customer
deposits acquired. The balance of the core deposit premiums was subsequently
amortized over the remaining useful life.
35
<PAGE>
During the fourth quarter of 1995, BVFB decided to sell or exchange certain
of its acquired branches for which goodwill was recorded in 1981. Based on the
offers received and management's estimates of the undiscounted future cash
flows, the remaining unamortized goodwill was written-off because management
believes that the goodwill could no longer be assured of recovery. As a result,
goodwill of $758,000 was written-off in the fourth quarter of 1995.
California Thrift & Loan
- ------------------------
The amortization of the intangible assets of CTL was due to the
amortization of goodwill arising from the excess of the purchase price over the
fair value of net assets acquired.
INCOME TAXES
The effective tax rates for 1996, 1995 and 1994 were 43.0%, (24.8%) and
35.0%, respectively. The decrease in the effective tax rate in 1995 was due to
the net loss of BVFB partially offset by the net income of the Company and a
subsidiary of BVFB.
Income tax expense for 1994 was reduced by $2.1 million to reflect a
revision of the Company's estimated tax liabilities resulting from a tentative
agreement with the Internal Revenue Service for the taxable years 1987 through
1989. The agreement resolved certain disputed savings and loan industry tax
issues which the Company was contesting.
EXTRAORDINARY ITEM
As part of its asset/liability management strategy to reduce interest rate
risk exposure, during the fourth quarter of 1995, the Company prepaid $45.0
million of its short-term FHLBSF advances. In addition, the Company committed
to prepay an additional $145.0 million of its short-term FHLBSF advances in
February 1996. As a result, the Company incurred a prepayment charge of $2.5
million (net of applicable income taxes). In accordance with generally accepted
accounting principles, the prepayment penalties were reported as an
extraordinary charge (net of applicable income taxes). There were no prepayment
penalties in 1994. Although the amount of the charge reduced the Company's
earnings at the time the debt was extinguished, management believes that the
Company's future earnings will be enhanced by such actions. For further
discussion of the Company's asset/liability management strategies, see
"Asset/Liability Management".
36
<PAGE>
BALANCE SHEET ANALYSIS
The Company's total assets at December 31, 1996 and 1995 were $3.3 billion
and $3.0 billion, respectively. The increase in total assets was primarily due
to the acquisition of CTL which had total assets of $464 million at December 31,
1996.
The total assets of BVFB were the same at $3.0 billion at December 31, 1996
and 1995, respectively. The total assets of BVFB at year-end 1996 included a
line of credit of $163.2 million to CTL. Excluding the intercompany line of
credit, total assets of BVFB have declined from 1995 primarily due to decreases
in mortgage-backed securities resulting from sales of mortgage-backed securities
and principal paydowns. The level of assets in 1996 is consistent with BVFB's
strategic focus to enhance the retail deposit franchise and restructure
(beginning in late 1995) the wholesale (MBS/borrowings) portion of the balance
sheet.
SECURITIES
The Company's securities activities are primarily conducted by BVFB. BVFB
has historically purchased (no significant purchases in 1996 and 1995)
securities to maintain appropriate interest-earning asset levels when sufficient
high quality loan production was not available. The majority of the securities
purchased are high quality MBS, primarily issued by FHLMC, FNMA, GNMA and
Student Loan Mortgage Association ("SLMA"). Since MBS are collateralized by
mortgages, these assets qualify under the OTS regulations requiring BVFB to hold
certain levels of mortgage-related assets. The Company also invests in
investment securities such as FHLMC and FNMA notes and debentures and other
short-term securities.
The following table reflects the composition of the Company's investment
securities portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE
FHLMC and SLMA notes $ - $ 7,000 $ -
FHLMC preferred stock 1,010 1,035 980
U.S. Treasury securities 12,792
------- ------- -------
$13,802 $ 8,035 $ 980
======= ======= =======
HELD-TO-MATURITY
FHLMC/FNMA notes and debentures $10,004 $ 9,988 $21,938
FHLB callable notes - 24,940 4,923
Federal Farm Credit Bank notes 5,000 5,000 5,000
U.S. Treasury Bills 200 - -
------- ------- -------
$15,204 $39,928 $31,861
======= ======= =======
</TABLE>
37
<PAGE>
The following table reflects the composition of BVFB's MBS securities
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Available-for-sale
FHLMC, FNMA, and GNMA $ 83,154 $149,778 $108,561
Financial institutions and intermediaries - - 295
-------- -------- --------
$ 83,154 $149,778 $108,856
======== ======== ========
Held-to-maturity
FHLMC, FNMA, and GNMA $488,557 $572,822 $802,893
Financial institutions and intermediaries 5,902 6,128 6,497
Other nonrated, nonresidential - 2,650 3,434
-------- -------- --------
$494,459 $581,600 $812,824
======== ======== ========
</TABLE>
The principal balances of MBS purchased and sold for the years ended
December 31, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Purchased $ - $ - $ 400.7
Sold 57.6 103.5 -
</TABLE>
In November 1995, the Financial Accounting Standards Board ("FASB") issued
"A Guide to Implementation of Statement of Financial Accounting Standards No.
115 ("SFAS 115") on Accounting for Certain Investments in Debt and Equity
Securities - Questions and Answers" ("Special Report"). The Special Report was
issued as an aid in understanding and implementing SFAS 115. For companies that
adopted SFAS 115 in financial statements issued prior to the issuance of this
Special Report, if the effects of initially adopting this implementation
guidance resulted in reclassification of securities between categories, the
Special Report requires that such transfers be accounted for as transfers in
accordance with SFAS 115. As a result, concurrent with the initial adoption of
this implementation guidance, the Company reassessed the appropriateness of the
classifications of all securities held at that time and, in December 1995,
reclassified $147.7 million in mortgage-backed securities from held-to-maturity
to available-for-sale. The transfer of the MBS was recorded at a fair value of
$146.0 million with $981,000 of unrealized losses (net of tax) recorded as a
separate component of stockholders' equity.
The unrealized loss on securities available-for-sale included in
stockholders' equity at December 31, 1996 and 1995 was $0.7 million (net of
tax). During 1996, the Company sold $57.6 million of MBS including $2.6 million
of MBS which were scheduled to mature within three months of sale. The $2.6
million MBS was sold from the held-to-maturity portfolio and the remainder of
$55.0 million was from the available-for-sale portfolio. BVFB does not maintain
a trading portfolio.
38
<PAGE>
LOANS AND REAL ESTATE OWNED
Loan Portfolio Composition
The following table shows the composition of the Company's loan portfolio
(before deductions for net deferred loan origination fees, discounts and
allowance for loan losses) by type of loan at the dates indicated. Except as
shown below, the Company did not have any loan concentrations that exceeded 10%
of total loan as of December 31, 1996. The Company also did not have any loan
concentrations which may result in uncertainties materially impacting its future
operations.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------ ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single family $ 610,607 $ 81,479 $ 692,086 $ 731,310 $ 733,265 $ 424,095 $ 458,473
Multifamily 1,033,252 15,039 1,048,291 995,038 980,849 1,019,174 1,116,729
Commercial 367,104 14,718 381,822 333,236 337,483 336,383 364,611
---------- -------- ---------- ---------- ---------- ---------- ----------
2,010,963 111,236 2,122,199 2,059,584 2,051,597 1,779,652 1,939,813
Consumer loans:
Auto 21,703 293,736 315,439 396 1,126 5,552 2,063
Home equity and other 36,058 31,960 68,018 34,453 30,357 30,020 47,707
---------- -------- ---------- ---------- ---------- ---------- ----------
57,761 325,696 383,457 34,849 31,483 35,572 49,770
---------- -------- ---------- ---------- ---------- ---------- ----------
Total $2,068,724 $436,932 $2,505,656 $2,094,433 $2,083,080 $1,815,224 $1,989,583
========== ======== ========== ========== ========== ========== ==========
</TABLE>
39
<PAGE>
Bay View Federal Bank
- ---------------------
A major portion of the BVFB's loan portfolio consists of loans
collateralized by income-producing properties, all of which are located in
California, principally Northern California. Construction loans have been
insignificant. During 1996, BVFB de-emphasized its focus on single family
mortgage lending and discontinued its loan origination operations for this
category. The Company believes that income property lending affords an
opportunity to receive interest income at yields higher than those obtainable
from single family lending. Nevertheless, loans on income properties,
particularly nonresidential properties, generally present a higher risk than do
single family residential loans due to the sensitivity of the underlying
property to changes in economic conditions. Management takes such risks into
account when it establishes the loan rates, underwriting standards, loss
allowances and decisions regarding portfolio mix.
California Thrift & Loan
- ------------------------
The loan portfolio for CTL consists primarily of consumer loans. As
described elsewhere herein, management began implementing a significant
restructuring of CTL's balance sheet in late 1996. The entire leasing portfolio
was sold in December 1996. In addition, CTL sold $253 million of its auto loan
portfolio to BVSC in January 1997 which was subsequently securitized and sold by
BVSC. These actions are consistent with the Company's capital strategy to
increase the velocity of capital utilization, de-emphasize less profitable
activities and return the capital of subsidiaries in excess of the regulatory
"well capitalized" requirement to the Company. The following table shows the
composition of the Company's fixed and adjustable rate loan portfolios (before
deductions for net unearned loan origination fees, discounts and allowance for
loan losses):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994
------------------------------------ ---------- ----------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Fixed rate loans:
Mortgage $ 235,320 $ 94,038 $ 329,358 $ 255,897 $ 279,552
Consumer 19,541 317,271 336,812 5,372 2,825
----------------------------------------------------------------
254,861 411,309 666,170 261,269 282,377
Adjustable rate loans:
Mortgage 1,775,643 17,198 1,792,841 1,803,687 1,772,045
Consumer 38,220 8,425 46,645 29,477 28,658
----------------------------------------------------------------
1,813,863 25,623 1,839,486 1,833,164 1,800,703
----------------------------------------------------------------
Total loans $2,068,724 $436,932 $2,505,656 $2,094,433 $2,083,080
================================================================
</TABLE>
The interest rates on the Company's adjustable rate loans may periodically
rise or fall (generally based on monthly or semi-annual adjustment periods) in
accordance with an independent index. The indices most commonly used by BVFB
are the Federal Home Loan Bank's Eleventh District Cost of Funds Index, the one-
year Constant Maturity Treasury Index and the 6-month LIBOR rate.
Loan Originations, Purchases and Sales
For each of the years indicated, loans originated, purchased and sold were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1996 1995 1994
------------------------------------ ---------- ----------
(DOLLARS IN MILLIONS) BVFB CTL BVCC
---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Loans originated $256.8 $119.7 $376.5 $258.4 $564.3
Loans purchased 57.0 7.8 64.8 12.9 5.4
Loans sold - 59.8 59.8 0.1 12.0
Loans securitized and sold - - - - 10.0
</TABLE>
40
<PAGE>
Bay View Federal Bank
- ---------------------
Loans originated by BVFB in 1996 were primarily multifamily mortgages
indexed to LIBOR. Loans originated in 1995 consisted of single family and
multifamily mortgages indexed to COFI and the one-year Treasury rate. The
increase in loan purchases in 1996 as compared to 1995 and 1994 was primarily
due to management's strategy to supplement its loan production with purchases of
higher yielding loans.
California Thrift & Loan
- ------------------------
Loans originated by CTL in 1996 were primarily auto loans. As discussed
elsewhere herein, CTL sold $253 million of its auto loans in January 1997 to
BVSC which were subsequently securitized and sold by BVSC. The $59.8 million of
loans sold in 1996 consisted of CTL's entire leasing portfolio.
Delinquent, Nonaccrual and Restructured Loans
Credit quality has continued to improve as evidenced by the decline in
nonperforming assets and delinquencies. A summary of trends in credit quality
follows:
Loans Delinquent 60 Days or More
- --------------------------------
Loans delinquent 60 days or more as a percentage of gross loan portfolio by
property type were as follows:
<TABLE>
<CAPTION>
LOANS DELINQUENT 60 DAYS OR MORE AS A PERCENTAGE OF GROSS LOANS
---------------------------------------------------------------
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BVFB $19,769 0.96% $20,166 0.96% $48,465 2.33%
CTL 3,239 0.74% - - - -
------- ---- ------- ---- ------- ----
BVCC-Consolidated $23,008 0.92% $20,166 0.96% $48,465 2.33%
======= ==== ======= ==== ======= ====
</TABLE>
Nonperforming Assets, Troubled Debt Restructures and Real Estate Owned
- ----------------------------------------------------------------------
The Company defines nonperforming assets as loans 90 days or more
delinquent (excluding accruing loans delinquent 90 days or more), loans less
than 90 days delinquent designated as nonperforming when the Company determines
that the full collection of principal and/or interest is doubtful, defaulted
mortgage-backed securities, real estate owned, and other repossessed assets.
Nonperforming assets are placed on nonaccrual status.
Troubled debt restructures are real estate loans that have been modified
(due to borrower financial difficulties) to allow a stated interest rate and/or
a monthly payment rate lower than those prevailing in the market. As of
December 31, 1996 and 1995, all such restructured loans were performing in
accordance with their modified terms. The following is a summary of
nonperforming assets:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AS A PERCENTAGE OF TOTAL ASSETS
---------------------------------------------------------------
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BVFB $18,929 0.63% $38,811 1.29% $50,577 1.60%
CTL 5,381 1.16% - - - -
------- ---- ------- ---- ------- ----
BVCC-Consolidated $24,310 0.74% $38,811 1.29% $50,577 1.60%
======= ==== ======= ==== ======= ====
</TABLE>
Management actively seeks to return nonperforming assets to performing
status or expediently dispose of foreclosed assets at their fair value. During
1996, 1995 and 1994, sales of real estate owned were $26.5 million, $19.3
million and $22.9 million, respectively.
41
<PAGE>
The following table sets forth nonaccrual loans, accruing loans delinquent
90 days or more and troubled debt restructures. The Company accrues interest on
loans delinquent more than 90 days when the loans are considered to be well
secured and in the process of collection.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Mortgage $13,724 $1,864 $15,588 $10,675 $36,167 $54,136 $52,438
Consumer 309 228 537 80 154 300 264
------- ------ ------- ------- ------- ------- -------
Total $14,033 $2,092 $16,125 $10,755 $36,321 $54,436 $52,702
======= ====== ======= ======= ======= ======= =======
Percentage of total assets 0.47% 0.45% 0.49% 0.36% 1.15% 2.04% 2.04%
Accruing loans delinquent 90 days or more:
Mortgage $ 18 $ - $ 18 $ 1,403 $ 677 $ - $ -
Consumer - - - 22 - - -
------- ------ ------- ------- ------- ------- -------
Total $ 18 $ - $ 18 $ 1,425 $ 677 $ - $ -
======= ====== ======= ======= ======= ======= =======
Percentage of total assets 0.01% 0.01% 0.05% 0.02%
Troubled debt restructures:
Mortgage $ 509 $ - $ 509 $15,641 $13,948 $14,188 $20,791
======= ====== ======= ======= ======= ======= =======
Percentage of total assets 0.02% 0.02% 0.52% 0.44% 0.53% 0.80%
</TABLE>
42
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The Company conducts an ongoing review of its asset categories to assess
the adequacy of allowance for loan losses, which are maintained at levels the
Company believes are sufficient to cover potential losses. In determining the
level of allowance, the Company considers prevailing and anticipated economic
conditions, historical loss experience, the levels of classified, nonperforming
and delinquent assets, weighing by property type, loan portfolio trends and
other factors.
Management periodically reviews specific loans and other real estate
related assets on an individual basis. Such evaluation includes an analysis of
creditworthiness, cash flows, financial status of the borrower and the estimated
fair value of the underlying collateral. The Company provides for losses on
individual assets when its investment in the asset is not expected to be fully
collectible or realizable. The following is a summary of activity of the
Company's allowance on loans for the years indicated (including CTL effective
June 1, 1996):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------ ------- ------- -------- --------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance $30,014 $2,860 $32,874 $29,115 $33,790 $ 38,434 $ 27,251
Charge offs:
Mortgage (5,706) (221) (5,927) (4,727) (8,428) (11,380) (13,283)
Consumer (8) (466) (474) (152) (86) (149) (325)
------- ------ ------- ------- ------- -------- --------
(5,714) (687) (6,401) (4,879) (8,514) (11,529) (13,608)
Recoveries:
Mortgage 522 - 522 1,424 1,337 218 -
Consumer 59 61 120 70 135 135 212
------- ------ ------- ------- ------- -------- --------
581 61 642 1,494 1,472 353 212
Net charge-offs (5,133) (626) (5,759) (3,385) (7,042) (11,176) (13,396)
Provision for loan losses 1,800 98 1,898 4,284 2,367 6,532 24,579
------- ------ ------- ------- ------- -------- --------
Ending balance $26,681 $2,332 $29,013 $30,014 $29,115 $ 33,790 $ 38,434
======= ====== ======= ======= ======= ======== ========
Net charge-offs ratio to average loans 0.23% 0.31% 0.24% 0.16% 0.38% 0.58% 0.63%
Allowance for loans by category:
Mortgage $26,157 $1,812 $27,969 $29,541 $28,560 $ 33,117 $ 37,435
Consumer 524 520 1,044 473 555 673 999
------- ------ ------- ------- ------- -------- --------
Total $26,681 $2,332 $29,013 $30,014 $29,115 $ 33,790 $ 38,434
======= ====== ======= ======= ======= ======== ========
</TABLE>
The percentage of mortgage loans to total loans for each of the years in
the five-year period ended December 31, 1996 was 84.7%, 98.3%, 98.5%, 98.1% and
97.4%, respectively. The percentage of consumer loans to total loans for each
of the years in the five-year period ended December 31, 1996 was 15.3%, 1.7%,
1.5%, 1.9% and 2.6%, respectively.
43
<PAGE>
A summary of allowance for losses is as follows:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES
AS A PERCENTAGE OF NONPERFORMING ASSETS
---------------------------------------------------------
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BVFB
Assets held for investment $26,681 141% $30,944 80% $31,415 62%
------- --- ------- --- ------- --
CTL
Assets held for investment 2,332 - - - - -
Assets held for sale 7,391 - - - - -
------- --- ------- --- ------- --
Subtotal 9,723 181% - - - -
------- --- ------- --- ------- --
BVCC-Consolidated $36,404 150% $30,944 80% $31,415 62%
======= === ======= === ======= ==
Assets held for investment $29,013 119% $30,944 80% $31,415 62%
Assets held for sale 7,391 31% - - - -
------- --- ------- --- ------- --
BVCC-Consolidated $36,404 150% $30,944 80% $31,415 62%
======= === ======= === ======= ==
<CAPTION>
ALLOWANCES FOR LOSSES ON LOANS
AS A PERCENTAGE OF NONPERFORMING ASSETS
---------------------------------------------------------
(DOLLARS IN THOUSANDS) DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BVFB $26,681 190% $30,014 279% $29,115 80%
Loans held for investment
------- --- ------- --- ------- --
CTL
Loans held for investment 2,332 - - - - -
Loans held for sale 7,391 - - - - -
------- --- ------- --- ------- --
Subtotal 9,723 465% - - - -
------- --- ------- --- ------- --
BVCC-Consolidated $36,404 226% $30,014 279% $29,115 80%
======= === ======= === ======= ==
Loans held for investment $29,013 180% $30,014 279% $29,115 80%
Loans held for sale 7,391 46% - - - -
------- --- ------- --- ------- --
BVCC-Consolidated $36,404 226% $30,014 279% $29,115 80%
======= === ======= === ======= ==
</TABLE>
Note: The allowance for losses on loans held for sale has been included in the
lower of cost or market measurement of the carrying value of loans held
for sale.
Provision for loan losses
Provisions for loan losses are recorded to maintain the level of allowance
that management believes is adequate to cover estimated losses. The provision
for losses on loans was $1.9 million, $4.3 million and $2.4 million for 1996,
1995 and 1994, respectively.
44
<PAGE>
Bay View Federal Bank
- ---------------------
The provision for losses on loans was $1.8 million, $4.3 million and $2.4
million, respectively. The decrease in the provision for losses on loans in
1996 as compared to 1995 was attributable to the improvement in the credit
quality of the loan portfolio. The higher provision for loan losses in 1995 was
primarily due to a higher level of nonperforming assets and provision for losses
on one large loan classified as a troubled debt restructuring due to
management's decision to accelerate the disposal of this asset.
California Thrift & Loan
- ------------------------
The CTL allowance for loan losses included the allowance for loans held for
investment and loans held for sale. The allowance for loans held for sale
reflects management's intention to securitize auto loans which have been
classified as held for sale and recorded at estimated realizable value
consistent with purchase accounting. As a result, the allowance for losses on
loans held for sale has been included in the lower of cost or market measurement
of the carrying value of loans held for sale. The allowance for losses on loans
held for sale will be included in the carrying value as the auto loan portfolio
is sold and securitized by BVSC.
Management believes that it uses appropriate information to make loss
determinations and considers its allowances for losses at December 31, 1996 and
1995 to be adequate to cover losses from loan and real estate related assets.
However, future adjustment in the level of allowance for loan losses may be
necessary and earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making such determinations.
Management monitors the impact of the economic environment on its lending
activities on a periodic basis. If real estate markets weaken in future periods,
no assurance can be given that the Company's future loss experience will
approximate its current estimates. In addition, various regulatory agencies
review the Company's allowance for losses as an integral part of their
examination process. Such agencies may require the Company to recognize
additions to this allowance based on their judgment relating to information
available to them at the time of their examinations.
RETAIL CUSTOMER DEPOSITS
As a primary part of the Company's business, deposits are gathered for
purposes of funding loans and purchasing securities. A summary of the retail
customer deposits (excluding intercompany accounts) follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
% OF WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AVERAGE RATE
---------- ------ ------------
<S> <C> <C> <C>
BVFB (SAIF-INSURED):
Transaction accounts $ 477,777 30.3% 2.57%
Certificates of deposit 1,100,559 69.7 5.48
---------- ----- ----
$1,578,336 100.0% 4.60%
========== ===== ====
CTL (BIF-INSURED):
Money market accounts $ 16,057 8.6% 4.16%
Thrift certificates 169,837 91.4 5.55
---------- ----- ----
$ 185,894 100.0% 5.43%
========== ===== ====
BVCC:
Transaction accounts $ 493,571 27.9% 2.62%
Certificates of deposit 1,100,559 62.4 5.48
Thrift certificates 169,837 9.7 5.55
---------- ----- ----
$1,763,967 100.0% 4.69%
========== ===== ====
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------
% OF WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AVERAGE RATE
---------- ------ ------------
<S> <C> <C> <C>
Transaction accounts $ 387,610 21.3% 2.38%
Certificates of deposit 1,432,230 78.7 6.02
---------- ----- ----
$1,819,840 100.0% 5.24%
========== ===== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------
% OF WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AVERAGE RATE
---------- ------ ------------
<S> <C> <C> <C>
Transaction accounts $ 379,424 22.2% 2.01%
Certificates of deposit 1,327,952 77.8 5.25
---------- ----- ----
$1,707,376 100.0% 4.53%
========== ===== ====
</TABLE>
Bay View Federal Bank
- ---------------------
Increasing the value of its retail branch franchise is one of management's
primary objectives. BVFB believes that a gradual expansion of its retail
deposit base, particularly transaction accounts in Northern California, will
enhance its core earnings by lowering its cost of funds, increasing fee income
and expanding opportunities for cross-selling products and services. Throughout
1996, BVFB continued to emphasize the development and marketing of new products
and as a result has successfully increased its percentage of transaction
accounts in relation to total deposits which has contributed to lower cost of
funds. Transaction accounts as a percentage of total deposits increased to
30.23% at December 31, 1996 from 21.3% and 22.2% at December 31, 1995 and 1994,
respectively.
California Thrift & Loan
- ------------------------
The customer deposits are primarily comprised of thrift certificates which
are similar to certificates of deposit with the exception that they are callable
at par plus accrued interest. When thrift certificates are purchased by
customers, CTL has, as thrift certificates have been issued, reserved the right
to repurchase the certificates at any time upon thirty days notice. Utilizing
this call provision, CTL redeemed the higher cost component (higher than BVFB's
incremental borrowing cost) of these deposits at face value (approximately $267
million) at December 31, 1996.
The remainder of the CTL customer deposits (which are lower cost than
BVFB's incremental borrowing cost) will be sold to BVFB. An application for the
approval of the sale of these deposits to BVFB has been filed with the Office of
Thrift Supervision.
Customer deposits of $100,000 or more by time remaining until maturity as
of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
------------------------------- --------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
-------- ------- --------
<S> <C> <C> <C> <C>
Three months or less $171,011 $14,130 $185,141 $ 62,808
Over three through twelve months 114,094 25,146 139,240 170,416
Over twelve months 76,358 9,831 86,189 125,611
-------- ------- -------- --------
Total $361,463 $49,107 $410,570 $358,835
======== ======= ======== ========
</TABLE>
46
<PAGE>
BORROWINGS
The Company utilizes collateralized advances from the FHLBSF for purposes
of funding loans. In addition, the Company utilizes other borrowings, on a
collateralized and noncollateralized basis, such as securities sold under
agreements to repurchase (also known as reverse repurchase agreements). The
following table sets forth certain information as to the Companys borrowings as
of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Advances from FHLBSF $ 977,750 $766,790 $ 956,310
Securities sold under agreements to 210,640 166,738 255,106
repurchase
Capitalized lease 2,509 2,914 3,165
Note payable to commercial bank 4,638 5,023 5,377
Senior Debentures 50,000 - -
---------- -------- ----------
Total $1,245,537 $941,465 $1,219,958
========== ======== ==========
</TABLE>
As discussed elsewhere herein, in 1996, management redirected BVFB's
strategic focus to restructure the wholesale borrowings (beginning in late 1995)
in conjunction with the enhancement of its retail deposit franchise. The
average balances for borrowings at BVFB decreased from $1.05 billion in 1995 to
$977.7 million in 1996. In the fourth quarter of 1995 and the first quarter of
1996, BVFB prepaid $190 million of high cost borrowings and replaced them with
short-term lower cost borrowings. In conjunction with the prepayment of these
borrowings, the Company entered into interest rate swap agreements to provide
interest rate risk protection for the short-term lower cost borrowings by
matching the floating interest rate characteristics and lengthening their
maturities. The increase in borrowings at December 31, 1996 as compared to 1995
was due to borrowings from the FHLBSF used to fund the redemption of CTL's high
cost thrift certificates as discussed elsewhere herein.
BVFB is a member of the FHLBSF. As such, BVFB must purchase stock in the
FHLBSF equal to the greater of 1% of residential mortgage loans or 5% of its
borrowings. As of December 31, 1996 and 1995, the investment in FHLBSF stock
amounted to $49.6 million and $39.5 million, respectively. BVFB expects to
continue to utilize collateralized advances from the FHLBSF as a source of
funding. Advances can be fixed or variable rate, with maturities staggered in
accordance with the Company's asset/liabilities management strategies.
In May 1996, the Company issued $50 million in Senior Debentures yielding
8.42% (all-in cost was 8.91% annualized) and $26 million of the proceeds were
used to finance the acquisition of CTL. The residual proceeds of the debt
offering will be utilized for future accretive acquisitions or other business
purposes to enhance shareholder value, such as the repurchase of the Company's
common stock, if warranted. (See "Capital Redeployment Strategies")
47
<PAGE>
ASSET AND LIABILITY MANAGEMENT
GENERAL
The objective of the Company's asset/liability management activities is to
improve earnings by adjusting the type and mix of assets and liabilities to
effectively address changing conditions and risks. Through overall management of
its balance sheet and by controlling various risks, the Company seeks to
optimize its financial returns within safe and sound parameters. The Company's
operating strategies for attaining this objective include:
. Managing net interest margin through appropriate risk/return pricing of
assets and liabilities
. Utilizing interest rate swap agreements and other hedging strategies to
reduce exposure to fluctuations in interest rates
. Controlling noninterest expense and enhancing noninterest income,
utilizing improved information systems to facilitate the analysis of the
profitability of individual business units and products
. Increasing retail deposits as a percentage of interest-bearing
liabilities and reducing the Company's cost of funds
. Utilizing the Company's strong capital position to boost the earnings
power through acquisition of higher yielding assets
. Enhancing internal analysis capability for measuring, evaluating and
monitoring risk
INTEREST RATE RISK
Financial institutions are subject to interest rate risk to the degree that
interest-bearing liabilities reprice or mature on a different basis and at
different times than interest-earning assets. The Company's strategy has been
to reduce the sensitivity of its earnings to interest rate fluctuations by more
closely matching the effective maturities or repricing characteristics of its
assets and liabilities. Certain assets and liabilities, however, may react in
different degrees to changes in market interest rates. Further, interest rates
on certain types of assets and liabilities may fluctuate prior to changes in
market interest rates, while rates on other types may lag behind. Additionally,
certain assets, such as adjustable rate mortgages, have features, including
payment and rate caps, which restrict changes in their interest rates. The
Company considers the anticipated effects of these factors when implementing its
interest rate risk management objectives.
The Company pursues balance sheet strategies that should, in the long run,
mitigate its exposure to rising interest rates. The Company also considers
other strategies to minimize the variability of the net interest margin
including off-balance sheet activities. The Company uses principally interest
rate swap agreements to reduce the interest rate fluctuation risk related to
certain assets and liabilities. Interest rate swaps involve the exchange of
fixed and floating rate interest payment obligations without the exchange of the
underlying notional amounts. The Company has initiated numerous actions in late
1995 and 1996 which significantly reduced the Company's exposure to fluctuations
in interest rates. These actions include:
Sale of mortgage-backed securities
- ----------------------------------
In 1996, the Company sold $55 million of fixed rate mortgage-backed
securities available-for-sale. The purpose of the sale was to reduce the
Company's exposure to interest rate increases. During the fourth quarter of 1995
the Company reclassified $148 million of its mortgage-backed securities from
held-to-maturity to available-for-sale as a result of adopting the
implementation guide to SFAS 115. This reclassification allowed the Company to
position these securities for potential sale, which assisted in the reduction of
its interest rate risk exposure without tainting its remaining held-to-maturity
portfolio.
48
<PAGE>
Interest Rate Swaps
- -------------------
As of December 31, 1996, the Company was party to interest rate swap
agreements with notional principal amounts of $421 million, which involve the
receipt of floating interest rates (based on 3-month LIBOR) and payment of fixed
interest rates on the underlying notional amounts. During the fourth quarter of
1995, the Company prepaid $45 million of its short-term high cost borrowings.
In addition, the Company committed to prepay another $145 million of its short-
term high cost borrowings in February 1996. As a result, the Company incurred a
prepayment charge of $2.5 million (net of applicable income taxes). In
conjunction with the prepayment of these borrowings, the Company entered into
interest rate swap agreements with notional principal amounts of $200 million.
The impact of these actions was a reduction of the Company's interest rate risk
exposure by prepaying its short-term high cost borrowings and replacing the
prepayments with short-term lower cost borrowings. The interest rate swap
agreements were used to provide interest rate risk protection for the short-term
borrowings by matching the floating interest rate characteristics and
lengthening their maturities.
Hedging Auto Loans Pending Securitization
- -----------------------------------------
As discussed elsewhere herein, in conjunction with the decision to sell
CTL's auto loans and their subsequent securitization by BVSC, management entered
into a short sale of Treasury securities that has materially insulated the
purchase accounting valuations from movements in interest rates. The short sale
transaction was paired-off in December 1996 with a loss of $293,000 recorded as
a loss on securities. At December 31, 1996, a Treasury rate lock transaction
with a notional principal amount of $210 million was entered into to hedge the
auto loans pending sale by CTL and securitization by BVSC.
INTEREST RATE SENSITIVITY
The Company's interest rate risk policies are established and monitored by
its Asset/Liability Committee ("ALCO"). The ALCO reviews the sensitivity of the
Company's net interest income and market value of equity to interest rate
changes. The objective of the Company's ALCO activities is to improve earnings
by adjusting the types of assets and liabilities to effectively address changing
conditions and risks. Management believes that its asset/liability activities
have improved earnings within safe and sound parameters. To measure the
Company's interest rate sensitivity, a cumulative gap measure can be used to
assess the impact of potential changes in interest rates on the net interest
income. The repricing gap represents the net position of assets and liabilities
subject to repricing in specified time periods. Assets and liabilities are
categorized according to the expected repricing time frames based on
management's judgment. A cumulative gap measure alone cannot be used to evaluate
interest rate sensitivity because interest rate changes do not affect all
categories of assets and liabilities equally or simultaneously. In measuring
interest rate sensitivity, the Company also uses simulation modeling to estimate
the potential effects of movements in interest rates. Interest rate risk
sensitivity estimated by management, as measured by the change in the net
portfolio value of equity as a percentage of the present value of assets from an
immediate 200 basis point increase/decrease in interest rates, was 1.15% and
0.79% at December 31, 1996 and 1995 as compared to 3.02% at December 31, 1994.
Interest rate sensitivity from a 200 basis point increase/decrease in interest
rates for CTL was 0.54% at December 31, 1996.
Market Value of Equity ("MVE")
- ------------------------------
The following analysis compares the market value of equity for BVFB with
and without interest rate swaps for the indicated basis points ("bp") market
shift scenarios at December 31, 1996:
<TABLE>
<CAPTION>
CHANGES IN MARKET VALUE OF EQUITY
--------------------------------------------
Projected Effect: +100 BP +200 BP +300 BP +400 BP
-------- -------- -------- --------
<S> <C> <C> <C> <C>
MVE without swaps $203,008 $165,594 $125,753 $ 84,338
MVE with swaps $216,463 $193,741 $167,862 $139,720
Benefit from swaps $ 13,455 $ 28,147 $ 42,109 $ 55,382
</TABLE>
49
<PAGE>
Bay View Federal Bank
- ---------------------
The following table sets forth information regarding asset and liability
repricing as of December 31, 1996:
<TABLE>
<CAPTION>
REPRICING PERIOD
-----------------------------------------------------------------------------
UNDER OVER OVER OVER
ONE ONE TO THREE THREE TO FIVE FIVE
(DOLLARS IN THOUSANDS) YEAR YEARS YEARS YEARS TOTAL
---------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS (1)
- ----------
Cash and investments (2) $ 319,379 $ 5,004 $ 10,000 - $ 334,383
Mortgage loans and mortgage-backed 1,821,042 219,814 138,108 $ 397,135 2,576,099
securities (2) (3)
Consumer loans (3) 27,397 17,668 12,387 57,452
---------- --------- --------- --------- ----------
Total interest rate sensitive assets $2,167,818 $ 242,486 $ 160,495 $ 397,135 $2,967,934
========== ========= ========= ========= ==========
LIABILITIES
- -----------
Deposits:
Certificates of deposit $ 878,878 $ 206,875 $ 14,806 - $1,100,559
Money market accounts 176,799 - - - 176,799
Checking accounts 113,180 - - - 113,180
Passbook accounts 189,279 - - - 189,279
Borrowings 1,060,991 118,270 40,000 - 1,219,261
---------- --------- --------- --------- ----------
Total interest rate sensitive liabilities $2,419,127 $ 325,145 $ 54,806 - $2,779,078
========== ========= ========= ========= ==========
Repricing gap-positive (negative)
before impact of interest rate swaps $ (251,309) $ (82,659) $ 105,689 $ 397,135 $ 168,856
==========
Impact of interest rate swaps 421,000 (164,500) (154,000) (102,500)
---------- --------- --------- ---------
Cumulative repricing gap-positive negative $ 169,691 $ (77,468) $(125,779) $ 168,856
========== ========= ========= =========
Cumulative repricing gap as a percentage
of interest rate sensitive assets
1996 5.72% (2.61%) (4.23%) 5.69%
1995 0.89% (5.14%) (7.43%) 5.54%
</TABLE>
(1) Net of nonperforming assets
(2) Investments and mortgage-backed securities are at amortized cost
(3) Based on assumed annual prepayment and amortization rates which approximate
the Company's historical experience
50
<PAGE>
California Thrift & Loan
- ------------------------
The following table sets forth information regarding asset and liability
repricing as of December 31, 1996:
<TABLE>
<CAPTION>
REPRICING PERIOD
-----------------------------------------------------------------------------
UNDER OVER OVER OVER
ONE ONE TO THREE THREE TO FIVE FIVE
(DOLLARS IN THOUSANDS) YEAR YEARS YEARS YEARS TOTAL
---------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and investments (1) $ 15,717 $ 15,717
Loans (2) (3) 322,933 $73,709 $28,327 $ 17,262 442,231
-------- ------- ------- -------- --------
Total interest rate sensitive assets $338,650 $73,709 $28,327 $ 17,262 $457,948
======== ======= ======= ======== ========
LIABILITIES
- -----------
Deposits:
Certificates of deposit $122,404 $42,302 $ 5,131 $169,837
Money market accounts 16,057 16,057
Borrowings 163,220 163,220
-------- ------- ------- -------- --------
Total interest rate sensitive liabilities $301,681 $42,302 $ 5,131 - $349,114
======== ======= ======= ======== ========
Repricing gap-positive (negative) $ 36,969 $31,407 $23,196 $ 17,262 $108,834
-------- ------- ------- -------- ========
Cumulative repricing gap-positive (negative) $ 36,969 $68,376 $91,572 $108,834
======== ======= ======= ========
Cumulative repricing gap as a percentage of
interest rate sensitive assets
1996 8.07% 14.93% 20.00% 23.76%
</TABLE>
(1) Investments are at amortized cost
(2) Net of nonperforming assets
(3) Based on assumed annual prepayment and amortization rates which approximate
the Company's historical experience
51
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's primary sources of funds include:
. Customer deposits
. Advances from the FHLBSF
. Reverse repurchase agreements
. Loan and mortgage-backed securities repayments
The Company uses its liquidity resources principally as follows:
. Origination and purchases of mortgage loans
. Funding the withdrawal of certificates of deposits and other deposit products
. Repayment and/or refinance of maturing FHLBSF advances and reverse repurchase
agreements
The Company expects to fund, repay and/or refinance, on a timely basis, its
commitments, short-term and long-term liabilities. During 1996, cash flows from
operating activities totaled $83 million. Cash flows from investing activities
totaled $220 million, primarily from the sale and principal repayments of MBS
and net loan repayments. Cash outflows from financing activities totaled $240
million primarily due to redemption of CTL thrift certificates and net deposit
outflows offset by borrowings from the FHLBSF and reverse repurchase agreements.
The following table sets forth the period ending balances for the Company's
short-term borrowings and the weighted average interest rates:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Advances from FHLBSF $774,480 $486,940 $439,520
Securities sold under agreement to repurchase 210,640 151,738 255,106
repurchase
-------- -------- --------
Total short-term borrowings $985,120 $638,678 $694,626
======== ======== ========
Weighted average interest rate of total
short-term borrowings at period end 5.66% 6.56% 5.54%
======== ======== ========
</TABLE>
The following table sets forth the maximum outstanding balance of each type
of short-term borrowings at any month-end during 1996, 1995 and 1994, and the
average balances and weighted average interest rates on short-term borrowings
for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Advances from FHLBSF $774,480 $510,880 $451,720
Securities sold under agreement to repurchase $220,281 $248,131 $271,486
Average amount of total short-term borrowings
outstanding during year $762,258 $622,080 $475,231
Weighted average interest rate of total
short-term borrowings during the year 5.66% 6.09% 5.66%
</TABLE>
52
<PAGE>
OTS regulations require savings institutions to maintain a specified
liquidity ratio (presently 5.00%) of cash and specified securities to total
customer deposits and borrowings due in one year or less. Historically, BVFB has
maintained its liquid assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet requirements imposed by the
OTS regulations and at a level believed adequate to meet requirements of normal
banking activities, repayment of maturing debt and potential deposit outflows.
BVFB maintained liquidity ratios of 5.39% and 5.26% for the months ended
December 31, 1996 and 1995, respectively.
CAPITAL RESOURCES
See also "Strategic Overview" discussion.
BAY VIEW FEDERAL BANK
BVFB's regulatory capital at December 31, 1996 and 1995 exceeded the
minimum requirements of each regulatory capital standard, both in effect on such
dates and on a fully phased in basis. The fully phased-in capital ratios became
effective in 1996 whereas the total amount of nonqualifying investments in
subsidiaries is required to be fully deducted in its entirety from regulatory
capital. Regulatory capital ratios of BVFB were as follows:
<TABLE>
<CAPTION>
MINIMUM
ACTUAL REQUIREMENT EXCESS
---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Tangible $165,110 5.52% $ 44,860 1.50% $120,250 4.02%
Core 168,782 5.64% 89,829 3.00% 78,953 2.64%
Total Risk-based 190,981 10.74% 142,308 8.00% 48,673 2.74%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each Federal banking agency, including the OTS, to implement
prompt corrective actions for institutions that it regulates. Under capital
guidelines enacted by FDICIA, BVFB met the criteria for the "well capitalized"
standard at December 31, 1996 as follows:
<TABLE>
<CAPTION>
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Leverage $168,782 5.64% $149,716 5.00% $19,066 0.64%
Tier I Risk-based 168,782 9.49% 106,731 6.00% 62,051 3.49%
Tier II Risk-based 190,981 10.74% 177,885 10.00% 13,096 0.74%
</TABLE>
CALIFORNIA THRIFT AND LOAN
Under capital guidelines enacted by FDICIA, CTL met the criteria for the
"well capitalized" standard at December 31, 1996 as follows:
<TABLE>
<CAPTION>
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
---------------- ---------------- -----------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Leverage $43,462 9.50% $22,885 5.00% $20,577 4.50%
Tier I Risk-based 43,462 9.97% 26,164 6.00% 17,298 3.97%
Tier II Risk-based 48,913 11.33% 43,179 10.00% 5,374 1.33%
</TABLE>
53
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 ("SFAS 125") "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
SFAS 125 establishes standards for when transfers of financial assets, including
those with continuing involvement by the transferor, should be considered a
sale. SFAS 125 also establishes standards for when a liability should be
considered extinguished. This statement was initially to be fully effective for
transactions relating to the transfers of assets and extinguishment of
liabilities occurring after December 31, 1996; however, in December 1996, the
FASB reconsidered certain provisions of SFAS 125 and issued Statement of
Financial Accounting Standards No. 127 "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" to defer, for one year, the
effective date of implementation for transactions related to repurchase
agreements, dollar-roll repurchase agreements, securities lending and similar
transactions. The financial statement impact of adopting this standard is not
expected to be material to the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time, due to the fact that almost all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than general levels of inflation. Interest rates do not necessarily
move in the same direction or magnitude as the prices of goods and services.
54
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995
----------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from depository institutions $ 22,608 $ 24,144
Interest-bearing deposits and short-term investments 84,220 18,616
---------- ----------
106,828 42,760
Loans held for sale 294,949 -
Securities available-for-sale:
Investment securities 13,802 8,035
Mortgage-backed securities 83,154 149,778
Securities held-to-maturity:
Investment securities (fair value: 1996, $15,112; 1995, $39,969) 15,204 39,928
Mortgage-backed securities (fair value: 1996, $483,461; 1995, $575,321) 494,459 581,600
Loans receivable held for investment, net of
allowance for losses; 1996 - $29,013; 1995 - $30,014 2,179,768 2,062,268
Investment in stock of FHLBSF 51,891 39,450
Real estate owned 7,387 24,476
Premises and equipment, net 6,905 16,184
Intangibles 10,197 5,835
Other assets 35,718 34,182
---------- ----------
Total Assets $3,300,262 $3,004,496
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $1,763,967 $1,819,840
Advances from FHLBSF 977,750 766,790
Securities sold under agreements to repurchase 210,640 166,738
Senior Debentures 50,000 -
Other borrowings 7,147 7,937
Other liabilities 90,696 35,214
---------- ----------
Total liabilities 3,100,200 2,796,519
---------- ----------
Commitments and contingencies (Note 19)
Stockholders' equity:
Serial preferred stock; authorized, 7,000,000 shares;
outstanding, none - -
Common stock ($.01 par value); authorized, 20,000,000 shares;
issued, 1996 - 7,502,692 shares and 1995 - 7,401,590 shares;
outstanding, 1996 - 6,674,635 and 1995 - 7,101,590 75 74
Additional paid-in capital 100,511 97,558
Retained earnings (substantially restricted) 131,324 124,487
Treasury stock at cost, 1996 - 828,057 shares and 1995 - 300,000 shares (26,497) (8,436)
Unrealized loss on securities available-for-sale, net of tax (713) (683)
Debt of Employee Stock Ownership Plan (4,638) (5,023)
---------- ----------
Total stockholders' equity 200,062 207,977
---------- ----------
Total Liabilities and Stockholders' Equity $3,300,262 $3,004,496
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Interest income:
Interest on loans receivable $192,443 $155,853 $131,783
Interest on mortgage-backed securities 42,081 54,236 61,111
Interest and dividends on investments 7,231 6,374 4,432
-------- -------- --------
241,755 216,463 197,326
Interest expense:
Interest on customer deposits 100,225 93,398 66,424
Interest on Senior Debentures 2,623 - -
Interest on borrowings 57,925 67,149 63,977
-------- -------- --------
160,773 160,547 130,401
Net interest income 80,982 55,916 66,925
Provision for losses on loans 1,898 4,284 2,367
-------- -------- --------
Net interest income after provision for loan losses 79,084 51,632 64,558
Noninterest income:
Loan fees and charges 4,930 3,691 4,537
Loss on loans and securities (1,453) (2,510) (1,081)
Rental income from premises 534 781 809
Other, net 4,553 4,180 3,273
-------- -------- --------
8,564 6,142 7,538
Noninterest expense:
General and administrative:
Compensation and employee benefits 27,956 25,148 25,268
Office occupancy and equipment 9,865 8,658 8,436
Write-down of corporate office complex 500 7,100 -
Deposit insurance premiums and regulatory fees 4,911 4,473 4,813
Data processing service bureau 4,243 1,683 1,701
Other, net 11,480 9,954 7,069
-------- -------- --------
58,955 57,016 47,287
SAIF recapitalization assessment 11,750 - -
Real estate owned operations, net (4,806) (1,081) (95)
Provision for (recovery of) losses on real estate (103) 749 145
Amortization and write-down of intangible assets 2,606 3,944 2,418
-------- -------- --------
68,402 60,628 49,755
Income (loss) before income tax expense (benefit)
and extraordinary item 19,246 (2,854) 22,341
Income tax expense (benefit) 8,277 (708) 7,828
-------- -------- --------
Income (loss) before extraordinary item 10,969 (2,146) 14,513
Extraordinary item, net of tax - (2,544) -
Net income (loss) $ 10,969 $ (4,690) $ 14,513
======== ======== ========
Primary earnings per share:
Income (loss) before extraordinary item $ 1.58 $ (0.29) $ 2.02
Extraordinary item - (0.35) -
-------- -------- --------
Net income (loss) per share $ 1.58 $ (0.64) $ 2.02
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SHARES STOCK CAPITAL EARNINGS* STOCK
--------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,055 $71 $ 90,725 $123,394 $ -
Exercise of stock options 113 1 1,905
Cash dividends declared ($0.60 per share) (4,283)
Unrealized loss, net of tax
Repayment of debt
Net income 14,513
----- --- -------- -------- --------
Balance at December 31, 1994 7,168 72 92,630 133,624 -
Repurchase of common stock (8,577)
Exercise of stock options, including tax benefits 234 2 4,928 (53) 141
Cash dividends declared ($0.60 per share) (4,394)
Unrealized gain, net of tax
Repayment of debt
Net loss (4,690)
----- --- -------- -------- --------
Balance at December 31, 1995 7,402 74 97,558 124,487 (8,436)
Repurchase of common stock (16,971)
Repurchase of common stock for retirement plan 1,090 (1,090)
Exercise of stock options 101 1 1,863
Cash dividends declared ($0.61 per share) (4,132)
Unrealized loss, net of tax
Repayment of debt
Net income 10,969
----- --- -------- -------- --------
Balance at December 31, 1996 7,503 $75 $100,511 $131,324 $(26,497)
===== === ======== ======== ========
<CAPTION>
UNREALIZED DEBT OF
GAIN (LOSS) EMPLOYEE
ON SECURITIES STOCK TOTAL
AVAILABLE-FOR-SALE OWNERSHIP STOCKHOLDERS'
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (NET OF TAX) PLAN EQUITY
------------------ ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 2,488 (5,702) $210,976
Exercise of stock options 1,906
Cash dividends declared ($0.60 per share) (4,283)
Unrealized loss, net of tax (6,122) (6,122)
Repayment of debt 325 325
Net income 14,513
------- ------ --------
Balance at December 31, 1994 (3,634) (5,377) 217,315
Repurchase of common stock (8,577)
Exercise of stock options, including tax benefits 5,018
Cash dividends declared ($0.60 per share) (4,394)
Unrealized gain, net of tax 2,951 2,951
Repayment of debt 354 354
Net loss (4,690)
------- ------ --------
Balance at December 31, 1995 (683) (5,023) 207,977
Repurchase of common stock (16,971)
Repurchase of common stock for retirement plan -
Exercise of stock options 1,864
Cash dividends declared ($0.61 per share) (4,132)
Unrealized loss, net of tax (30) (30)
Repayment of debt 385 385
Net income 10,969
------- ------ --------
Balance at December 31, 1996 $ (713) (4,638) $200,062
======= ====== ========
</TABLE>
* Substantially restricted
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,969 $ (4,690) $ 14,513
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Write-down on disposal of premises and equipment 1,767 7,100 -
Write-down and amortization of intangible assets 2,606 3,944 2,418
Loans originated for sale - - (16,401)
Proceeds from loans sold 9,668 135 11,798
Proceeds from loans securitized and sold - - 10,034
Provision for losses on loans and real estate owned 1,795 5,033 2,512
Depreciation and amortization of premises and equipment 2,210 3,079 3,128
Amortization of deferred loan (fees) costs 1,396 452 (1,558)
Decrease in capitalized excess servicing fees 411 853 1,373
Amortization of premiums, net of discounts 5,160 4,343 6,220
Loss on loans and securities 1,160 2,510 1,081
(Increase) decrease in other assets 1,866 (1,722) (715)
Increase in other liabilities 47,933 6,991 4,923
Other, net (3,558) (867) (4,282)
-------- -------- ---------
Net cash provided by operating activities 83,383 27,161 35,044
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of California Thrift & Loan, net of cash and
cash equivalents received (61,505) - -
Net (increase) decrease in loans resulting from originations
net of principal payments 70,138 (31,575) (294,592)
Purchase of loans (64,721) (12,928) (5,352)
Principal payments on mortgage-backed securities 91,748 88,580 203,255
Purchase of mortgage-backed securities - - (411,269)
Proceeds from sale of mortgage-backed securities held-to-maturity 2,602 - -
Proceeds from sale of mortgage-backed securities available-for-sale 54,458 101,242 -
Proceeds from maturities of investment securities held-to-maturity 24,493 17,000 5,000
Proceeds from maturities of investment securities available-for sale 15,000 - -
Purchase of investment securities held-to-maturity (3,041) (32,000) (31,843)
Proceeds from sale of investment securities available-for-sale - - 5,317
Proceeds from sale of real estate 32,690 20,435 23,906
Proceeds from sale of leasing portfolio held for sale 59,848 - -
Proceeds from sale of premises and equipment 10,648 - -
Additions to premises and equipment (1,577) (3,155) (5,217)
(Increase) decrease in stock of FHLBSF (10,558) 10,196 (11,509)
-------- -------- ---------
Net cash provided by (used in) investing activities 220,223 157,795 (522,304)
-------- -------- ---------
</TABLE>
58
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
----------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposit inflows (outflows) (245,268) 112,464 13,113
Redemption of CTL deposits (267,500) - -
Proceeds from advances from FHLBSF 1,644,226 480,000 519,110
Repayment of advances from FHLBSF (1,433,266) (669,520) (282,400)
Repurchase of common stock (24,359) (2,279) -
Issuance of Senior Debentures, net of issuance costs 49,406 - -
Proceeds from reverse repurchase agreements 373,272 166,738 376,960
Repayment of reverse repurchase agreements (329,370) (255,106) (122,530)
Net change in other borrowings (4,406) (605) (12,596)
Proceeds from issuance of common stock 1,864 4,294 1,906
Dividends paid to stockholders (4,137) (4,374) (4,266)
----------- --------- ---------
Net cash provided by (used in) financing activities (239,538) (168,388) 489,297
----------- --------- ---------
Net increase in cash and cash equivalents 64,068 16,568 2,037
Cash and cash equivalents at beginning of year 42,760 26,192 24,155
----------- --------- ---------
Cash and cash equivalents at end of year $ 106,828 $ 42,760 $ 26,192
=========== ========= =========
Cash paid during the year for:
Interest $ 87,422 $ 80,226 $ 58,806
Income taxes $ 4,951 $ 4,450 $ 4,584
Supplemental noncash investing and financing activities:
Loans transferred to real estate owned $ 10,065 $ 31,070 $ 19,706
Transfer of mortgage-backed securities from held-to-maturity
to available-for-sale (Note 1) $ - $ 147,661 $ -
Mortgage-backed securities acquired in exchange for
securitized loans $ - $ - $ 10,034
Loans originated to sell real estate owned $ 5,011 $ 8,905 $ 1,550
</TABLE>
The acquisition of California Thrift & Loan involved the following (see note 2):
<TABLE>
<CAPTION>
<S> <C>
Push-down of the Company's acquisition cost $ 61,819
Liabilities assumed 476,492
Fair value of assets acquired, other than cash and cash equivalents (531,029)
Goodwill (6,968)
---------
Net cash and cash equivalents received $ 314
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying financial statements include the consolidated accounts of
Bay View Capital Corporation, a holding company incorporated in Delaware (the
"Company" or "BVCC"), and its wholly owned subsidiaries: Bay View Federal Bank,
a Federal Savings Bank ("BVFB"), California Thrift & Loan, a California
industrial loan company ("CTL") and Bay View Securitization Corporation, a
Delaware corporation ("BVSC"). All significant intercompany accounts and
transactions have been eliminated. As used herein, the terms "Company" or
"BVCC" refer to the Company and its consolidated subsidiaries unless otherwise
indicated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities,
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.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid financial instruments, with
maturities of 90 days or less at the time of purchase, that are readily
convertible into cash and have insignificant interest rate risk.
Loans Receivable
Loans receivable originated or purchased by the Company are identified as
either held for sale or held for investment at, or soon after, origination or
purchase and are recorded at cost net of discounts, deferred loan origination
fees, and allowance for loan losses as applicable. Loans receivable held for
investment are carried at amortized cost and are not adjusted to the lower of
cost or market because management intends and the Company has the ability, to
hold these loans to maturity. Interest is accrued as income only to the extent
considered collectible. Generally, the Company discontinues interest accruals
on loans 90 days or more past due. Interest income on nonaccrual loans is
measured on a cash basis. Loans classified as held for sale are carried at the
lower of cost or market on an aggregate basis by property type. Market value
for these loans is based on prices for similar loans in the secondary loan
market.
The Company charges fees for originating loans at the time the loan is
granted. The Company recognizes these loan origination fees, net of certain
direct costs, as a yield adjustment over the life of the related loan using the
interest method. Amortization of net deferred loan origination fees are
discontinued on nonperforming loans. When a loan is sold or paid off, any
unamortized net loan origination fees are included in income at that time.
Statement of Accounting Standards No. 114 ("SFAS 114"), "Accounting by
Creditors for Impairment of a Loan" as amended by Statement of Financial
Accounting Standards No. 118 ("SFAS 118"), "Accounting by Creditors for
Impairment of a loan - Income Recognition and Disclosures" was effective January
1, 1995. A loan is impaired when, based on current information and events, it
is
60
<PAGE>
probable that the Company is unable to collect all amounts due according to the
contractual terms of the loan agreement. The Company considers nonperforming
loans and troubled debt restructurings as impaired loans. Nonperforming loans
are defined as loans 90 days or more delinquent (excluding accruing loans
delinquent 90 days or more) and loans less than 90 days delinquent when the
Company determines that full collection of principal and interest is doubtful.
Troubled debt restructurings are loans which have been modified based on
interest rate concessions and/or payment concessions. SFAS 114 is not
applicable to large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment. The Company considers its consumer loans
as homogeneous loans for purposes of the application of SFAS 114.
Charge-offs are recorded when the measure of the impaired loan is less than
the recorded investment in the loan. In determining charge-offs for specific
loans, management evaluates its loans on an individual basis that includes
assessing the creditworthiness and financial status of the borrower and
analyzing cash flows and current property appraisals. SFAS 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Company's impaired loans
are measured based on the fair value of the collateral because they are
collateral dependent. At December 31, 1996, there were $16.6 million of
impaired loans.
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan. The Company recognizes interest income on impaired
loans on a cash basis.
Allowance for Loan Losses
Allowances for loan losses are maintained at levels that management deems
adequate to cover estimated losses and are continually reviewed and adjusted.
The Company adheres to an internal asset review system and an established loan
loss reserve methodology. Management evaluates factors such as the prevailing
and anticipated economic conditions, historic loss experiences, composition of
the loan portfolio by property type, levels and trends of classified loans and
loan delinquencies in assessing overall valuation allowance levels to be
maintained.
While management uses currently available information to provide for losses
on loans, additions to the allowance may be necessary based on new information
and/or future economic conditions. When the property collateralizing a
delinquent mortgage loan is foreclosed on by the Company and transferred to real
estate owned, the difference between the loan balance and the fair value of the
property less estimated selling costs is charged-off against the allowance for
loan losses.
Loan Sales and Servicing
Gains or losses on the sale of loans are recognized at the time of sale.
When a participating interest in loans sold had an average contractual interest
rate, adjusted for normal servicing fees, which was different than the agreed
upon yield to the purchaser, the sales price was adjusted by the present value
of the differential for the estimated remaining life of the loans. Any
resulting net premium or discount is amortized to interest income over the
estimated remaining life of the loans based on a methodology that approximates
the effective interest yield method. The aggregate amount of unamortized
premiums arising from loan sales (capitalized excess servicing) is included as
other assets. Capitalized excess servicing fees are periodically reviewed for
impairment based on their fair values in accordance with Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights". The
fair value of the capitalized excess servicing, for the purposes of impairment,
is
61
<PAGE>
measured using a discounted cash flow analysis based on the Company's estimated
annual cost of servicing, the market prepayment rates, and the market discount
rates. At December 31, 1996, there was no impairment relating to capitalized
excess servicing fees. Amortization of capitalized excess servicing fees and
any related impairments are included in noninterest income as incurred.
Securities
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities" establishes
the classification of investments into three categories: held-to-maturity,
available-for-sale and trading. Securities classified as held-to-maturity are
recorded at amortized cost because management intends and the Company has the
ability to hold these securities to maturity. Securities classified as
available-for-sale are reported at fair value. Fair value for these securities
is obtained principally from published information or quotes by registered
securities brokers. Securities for which quotes are not readily available are
valued based on the present value of discounted estimated future cash flows.
The Company does not have a trading portfolio.
Securities are identified as either available-for-sale or held-to-maturity
at, or soon after, purchase and are accounted for accordingly. Net unrealized
gains and losses on securities available-for-sale are excluded from earnings and
reported net of applicable income taxes as a separate component of stockholders'
equity until realized. Gains and losses on sales of securities are recorded in
earnings at the time of sale and are determined by the difference between the
net sale proceeds and the amortized cost of the security, using specific
identification.
Discounts and premiums on securities are amortized using a method
approximating the interest method over the estimated life of the security,
adjusted for actual prepayments. Interest on securities is accrued as income
only to the extent considered collectible.
In November 1995, the Financial Accounting Standards Board issued "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities Questions and Answers" ("Special Report"). The Special
Report was issued as an aid in understanding and implementing SFAS 115. For
companies that adopted SFAS 115 prior to the issuance of this Special Report and
the effects of adoption resulted in reclassification of securities between
categories, the guidance stipulated that the transfers should be accounted for
in accordance with SFAS 115. As a result, concurrent with the initial adoption
of the Special Report, the Company reassessed the appropriateness of its
classifications for all securities held at that time and, in December 1995,
reclassified $147.7 million in mortgage-backed securities from held to maturity
to available-for-sale. The transfer was recorded at a fair value of $146.0
million with $981,000 of unrealized losses (net of tax) recorded as a separate
component of stockholders' equity.
Real Estate Owned
Real estate owned is comprised of property acquired through foreclosure and
is recorded at the lower of cost (i.e., net loan value) or fair value less
estimated costs to sell, as of the date of foreclosure. Thereafter, specific
valuation allowances are established for adverse changes in the fair value of
the underlying assets.
62
<PAGE>
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
basis over the estimated useful lives for each of the various asset categories.
Intangibles
Core deposit premiums arise from the acquisition of deposits and are
amortized on a straight-line basis over the estimated life of the deposit base
acquired, generally eight years. The Company continually evaluates the periods
of amortization to determine whether later events and circumstances warrant
revised estimates. In addition, the market value of core deposit premiums is
established on an annual basis to evaluate the recoverability of its carrying
value for inclusion as a component of regulatory capital.
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill is amortized to expense over a period no greater than the
estimated remaining life of the long-term interest-earning assets acquired. If
the assets acquired do not include a significant amount of long-term interest-
earning assets, goodwill is amortized over a period that does not exceed the
estimated remaining life of the existing customer deposit base. Goodwill is
amortized on a straight-line basis over a period of up to 7 years. If it
becomes probable that the estimated undiscounted future cash flows will be less
than the carrying amount of goodwill, a reduction in the carrying amount is
recognized.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles to be held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. Measurement
of an impairment loss for long-lived assets and identifiable intangibles that
management expects to hold and use are based on the fair value of the asset.
Long-lived assets and certain identifiable intangibles to be disposed of are
reported at the lower of carrying amount or fair value less cost to sell.
Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements to repurchase
(reverse repurchase agreements) which are considered financing activities. The
obligations to repurchase the securities are reflected as liabilities, and
related underlying securities for the agreements are included in the Company's
securities portfolio as recorded assets.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. The effect on deferred taxes for a change
in tax rates is recognized in income during the period of enactment.
63
<PAGE>
Derivative Financial Instruments
The Company uses certain derivative financial instruments to manage
interest rate risk, principally interest rate exchange agreements (swaps, caps
and collars). The Company does not hold any derivative financial instruments
for trading purposes. The Company uses interest rate swap agreements as part of
its overall asset/liability management in order to reduce its exposure to
interest rate fluctuation risk. The agreements involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying notional amounts. Net interest income (expense), resulting from the
differential between exchanging floating and fixed rate interest payments, is
recorded on a current basis. Notional principal amounts are often used to
express the volume of interest rate swap transactions, but the amounts
potentially subject to loss are much smaller. The Company is exposed to loss of
future interest differential payments (credit risk) in the event of
nonperformance by the counterparties to the interest rate exchange agreements.
The Company manages the credit risk of its interest rate exchange agreements by
maintaining exposure limits and adhering to a strict counterparty selection
process. The Company does not anticipate nonperformance by the other parties.
Stock Based Compensation
The Company accounts for stock based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
(APB) No. 25 "Accounting for Stock Issued to Employees".
Earnings (Loss) Per Share
Earnings per share for 1996 and 1994 were calculated using weighted average
number of common shares outstanding including common stock equivalents
(primarily outstanding stock options). Loss per share for 1995 was calculated
using the weighted average number of common shares outstanding. The average
number of shares outstanding (including common stock equivalents) for 1996 and
1994 were 6,949,919 and 7,180,880 shares, respectively. The average number of
shares outstanding for 1995 was 7,293,492. The Company's fully diluted earnings
per share does not differ materially from its primary earnings per share,
therefore, it has not been separately reported.
Reclassification
Certain reclassifications have been made to the prior year balances in
order to conform to the current year presentation.
NOTE 2. ACQUISITION OF CTL
Effective June 1, 1996, the Company acquired all the outstanding stock of
CTL Credit, Inc. and its wholly owned subsidiary California Thrift & Loan
("CTL") for cash.
CTL is an FDIC insured California industrial loan company with a specific
focus on consumer lending. The acquisition was accounted for using the purchase
method of accounting in accordance with APB No. 16, "Business Combinations".
Under this method of accounting, the acquisition purchase price of approximately
$62 million was allocated to assets acquired and liabilities assumed based on
their estimated fair values as of the effective date of acquisition.
64
<PAGE>
In conjunction with the transaction, the Company issued $50 million of
8.42% Senior Debentures in May 1996 of which a portion was used to partially
finance the acquisition.
The aggregate cost of the acquisition exceeded the estimated fair value of
net assets acquired by approximately $7 million and is being amortized on a
straight-line basis over seven years. Results of operations for the acquired
entity have been included in the Company's consolidated financial statements
commencing as of the effective date of acquisition.
Pro Forma Financial Information
The following unaudited pro forma financial information assumes the
acquisition occurred as of the beginning of 1995. The disclosed results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made as of the beginning of
1995 or of the results which may occur in the future.
The following table reflects the combined historical results of operations
for BVCC and CTL after giving effect to the amortization of fair value and other
purchase accounting adjustments recorded in connection with the acquisition of
CTL. Such adjustments include the revaluation of assets held-for-sale, the
capitalization of goodwill and other intangibles, and specific expense accruals
and reserves for acquisition-related costs and contingencies.
The following pro forma historical results for the years ended December 31,
1996, and 1995 have been adjusted to include amortization of the aforementioned
adjustments for the full periods presented which was calculated based on
appropriate methods and periods of benefit as determined by management.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(DOLLARS IN THOUSANDS) 1996 1995
------------ -------------
<S> <C> <C>
Interest income $265,298 $267,444
Interest expense 171,121 187,933
-------- --------
Net interest income 94,177 79,511
Provision for loan losses 4,981 9,432
-------- --------
Net interest income after provision for loan losses 89,196 70,079
Noninterest income 10,433 9,365
Noninterest expense 77,386 81,685
-------- --------
Income (loss) before income taxes and extraordinary item 22,243 (2,241)
Income tax provision (benefit) 9,694 (140)
Extraordinary item, net of tax - (2,544)
-------- --------
Net income (loss) $ 12,549 $ (4,645)
======== ========
Per share data:
Income (loss) before extraordinary item $ 1.81 $ (0.29)
======== ========
Net income (loss) $ 1.81 $ (0.64)
======== ========
</TABLE>
65
<PAGE>
NOTE 3. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995
----------------------------- --------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC (1)
--------- ----- ---------
<S> <C> <C> <C> <C>
Noninterest-earning deposits due from
depository institutions $ 22,405 $605 $ 22,608 $24,144
Interest-earning deposits 220 - 220 2,366
Short-term investments 84,000 - 84,000 16,250
-------- ---- -------- -------
Total $106,625 $605 $106,828 $42,760
======== ==== ======== =======
</TABLE>
(1) Intercompany depository accounts have been eliminated.
Generally, the Company's banking depositories either pay interest on
deposits or apply an imputed interest credit to deposit balances which is used
as an offset to charges for banking services rendered. The Company has no
compensating balance arrangements or lines of credit with banks. Cash balances
for BVFB required to be held at the Federal Reserve Bank totaled approximately
$5.5 million and $5.7 million at December 31, 1996 and 1995, respectively.
There were no similar cash balance reserve requirements for CTL.
NOTE 4. INVESTMENT SECURITIES
A summary of the Company's investment securities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS (LOSSES) VALUE
--------- ----- ---------- -------
<S> <C> <C> <C> <C>
Available-for-Sale
U. S. Treasury Bills $12,792 $ - $ - $12,792
Federal Home Loan Mortgage
Corporation preferred stock 1,000 10 - 1,010
------- --- ---- -------
Total $13,792 $10 $ - $13,802
======= === ==== =======
Held-to-Maturity
Federal Home Loan Mortgage Corporation
debentures $ 5,004 $ - $(27) $ 4,977
Federal Home Loan Mortgage Corporation
notes 5,000 - (19) 4,981
Federal Farm Credit Bank callable note 5,000 - (46) 4,954
U. S. Treasury Bills 200 - - 200
------- --- ---- -------
Total $15,204 $ - $(92) $15,112
======= === ==== =======
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS (LOSSES) VALUE
--------- ----- ---------- -------
<S> <C> <C> <C> <C>
Available-for-Sale
Federal Home Loan Mortgage Corporation
and Student Loan Mortgage Association
notes $ 7,000 $ - $ - $ 7,000
Federal Home Loan Mortgage Corporation
preferred stock 1,000 35 - 1,035
------- --- ---- -------
Total $ 8,000 $35 $ - $ 8,035
======= === ==== =======
Held-to-Maturity
Federal Home Loan Mortgage Corporation
debentures $ 9,988 $ - $ (4) $ 9,984
Federal Home Loan Mortgage Corporation
notes 24,940 45 - 24,985
Federal Farm Credit Bank callable note 5,000 - - 5,000
------- --- ---- -------
Total $39,928 $45 $ (4) $39,969
======= === ==== =======
</TABLE>
The weighted average yield of investment securities available-for-sale and
held-to-maturity at December 31, 1996 was 5.29% and 6.67%, respectively. The
weighted average yield of investment securities available-for-sale and held-to-
maturity at December 31, 1995 was 7.19% and 6.58%, respectively.
There were no sales of investment securities during 1996 and 1995. During
1994, proceeds from sales of investment securities available-for-sale were $5.3
million and gross gains of $171,000 were realized on those sales.
In conjunction with the pending securitization of CTL's auto loan
portfolio, during the fourth quarter of 1996, CTL entered into a short sale of
Treasury securities to hedge the valuations from movements in interest rates. A
loss of $293,000 in accordance with generally accepted principles was recorded
in the fourth quarter associated with this short sale of Treasury securities.
67
<PAGE>
The following table sets forth the contractual maturities and amortized
cost of the Company's investment securities as of December 31, 1996:
<TABLE>
<CAPTION>
ONE YEAR THROUGH
WITHIN ONE YEAR FIVE YEARS TOTAL
------------------ ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Available-for-Sale
U. S. Treasury Bills $12,792 5.29% $ - - $12,792 5.29%
======= ===== ======= ==== ======= =====
Fair value $12,792 $ - $12,792
======= ======= =======
Held-to-Maturity
Federal Home Loan Mortgage
Corporation debentures $ - $ 5,004 6.81% $ 5,004 6.81%
Federal Home Loan Bank
callable note - 5,000 6.52 5,000 6.52
Federal Farm Credit Bank
callable note - 5,000 6.75 5,000 6.75
U. S. Treasury Bills 200 4.75% - 200 4.75
------- ----- ------- ------- ------- ------
Total $ 200 4.75% $15,004 6.69% $15,204 6.67%
======= ===== ======= ==== ======= =====
Fair value $ 200 $14,912 $15,112
======= ======= =======
</TABLE>
The Company's investment in FHLMC preferred stock of $1.01 million has no
scheduled maturity and is redeemable in whole or in part after June 30, 1997 at
the option of FHLMC.
NOTE 5. MORTGAGE-BACKED SECURITIES
A summary of the Company's mortgage-backed securities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS (LOSSES) VALUE
--------- ----- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-Sale
Federal National Mortgage Association $ 84,401 $ - $ (1,247) $ 83,154
======== ==== ======== ========
Held-to-Maturity
Federal Home Loan Mortgage Corporation $202,402 $ 77 $ (4,805) $197,674
Federal National Mortgage Association 285,495 104 (6,754) 278,845
Government National Mortgage
Association 660 22 - 682
Financial institutions and financial
intermediaries 5,902 358 - 6,260
-------- ---- -------- --------
Total $494,459 $561 $(11,559) $483,461
======== ==== ======== ========
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
(DOLLARS IN THOUSANDS) COST GAINS (LOSSES) VALUE
--------- ----- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-Sale
Federal Home Loan Mortgage Corporation $ 13,457 $ - $ (199) $ 13,258
Federal National Mortgage Association 113,543 - (1,135) 112,408
Government National Mortgage
Association 24,000 482 (370) 24,112
-------- ---- ------- --------
$151,000 $482 $(1,704) $149,778
======== ==== ======= ========
Held-to-Maturity
Federal Home Loan Mortgage Corporation $242,839 $173 $(3,224) $239,788
Federal National Mortgage Association 329,090 242 (4,035) 325,297
Government National Mortgage
Association 893 31 - 924
Financial institutions and financial
intermediaries 6,128 460 (1) 6,587
Other nonrated, nonresidential real
estate 2,650 75 2,725
-------- ---- ------- --------
$581,600 $981 $(7,260) $575,321
======== ==== ======= ========
</TABLE>
The weighted average yield of mortgage-backed securities available-for-sale
and held-to-maturity at December 31, 1996 was 6.61% and 6.44%, respectively.
The weighted average yield of mortgage-backed securities available-for-sale and
held-to-maturity at December 31, 1995 was 6.72% and 6.58%, respectively.
Adjustable rate mortgage-backed securities included above totaled $664,000
at December 31, 1996 and $725,000 at December 31, 1995. The Company uses
mortgage-backed securities as full or partial collateral for borrowings. The
total amount of pledged mortgage-backed securities at December 31, 1996 and 1995
was $560.0 million and $551.1 million, respectively.
Proceeds from sales of mortgage-backed securities ("MBS") available-for-
sale during 1996 were $54.5 million. Gross gains of $411,000 and gross losses
of $918,000 were realized on those sales. Proceeds from the sale of MBS held-
to-maturity (scheduled to mature three months from sale date) during 1996 was
$2.6 million and there was no gain or loss on this sale. Proceeds from sales of
mortgage-backed securities available-for-sale during 1995 were $101.2 million.
Gross gains of $688,000 and gross losses of $2.9 million were realized on those
sales. There were no sales of mortgage-backed securities in 1994.
69
<PAGE>
The following table sets forth the remaining contractual terms to maturity
of the Company's mortgage-backed securities portfolio as of December 31, 1996
which is held exclusively by BVFB:
<TABLE>
<CAPTION>
OVER OVER
ONE YEAR THROUGH FIVE YEARS THROUGH
WITHIN ONE YEAR FIVE YEARS TEN YEARS
----------------- ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Available-for-Sale
FNMA $ - $ - $ -
====== ======= ======
Fair Value $ - $ - $ -
====== ======= ======
Held-to-Maturity
FHLMC, FNMA
and GNMA $3,614 5.12% $27,852 5.09% $5,167 7.45%
Financial
institutions and
intermediaries - 131 8.88% -
------ ------- ------- ------ ------ ----
Total amortized
cost $3,614 5.12% $27,983 5.11% $5,167 7.45%
====== ======= ======= ====== ====== ====
Fair Value $3,590 $27,590 $5,159
====== ======= ======
<CAPTION>
OVER TEN YEARS TOTAL
------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Available-for-Sale
FNMA $ 84,401 6.61% $ 84,401 6.61%
======== ===== ======== =====
Fair Value $ 83,154 $ 83,154
======== ========
Held-to-Maturity
FHLMC, FNMA
and GNMA $451,924 6.47% $488,557 6.39%
Financial
institutions and
intermediaries 5,771 10.22% 5,902 10.19%
-------- ----- -------- -----
Total amortized
cost $457,695 6.52% $494,459 6.44%
======== ===== ======== =====
Fair Value $447,121 $483,461
======== ========
</TABLE>
70
<PAGE>
NOTE 6. LOANS RECEIVABLE
The Company originates loans for the purpose of enabling borrowers to
purchase or refinance multifamily (five or more units) and nonresidential real
estate through its wholly owned subsidiary, BVFB. During 1996, management re-
directed its business lending practices whereas it de-emphasized its focus on
single family real estate lending. As a result, the Company discontinued its
loan origination operations for those specific products. BVFB's loans
receivable are primarily secured by real property located in Northern California
with the heaviest concentration in the counties of San Mateo, San Francisco and
Santa Clara. Although BVFB has a diversified loan portfolio, the geographic
concentration of its borrowers implies a dependence on the regional economy and
local real estate markets. The loan portfolio for CTL consists primarily of
consumer loans. CTL's auto loans are classified as held-for-sale because they
are expected to be sold to BVSC for subsequent securitization. The following is
a summary of the Company's loans receivable which includes loans held-for-sale
at December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995
-------------------------------------- ----------
(DOLLARS IN THOUSANDS) BVFB CTL BVCC
---------- -------- ----------
<S> <C> <C> <C> <C>
Mortgage loans:
Residential
Single family (one to four units) $ 610,607 $ 81,479 $ 692,086 $ 731,310
Multifamily (five or more units) 1,033,252 15,039 1,048,291 995,038
Nonresidential 367,104 14,718 381,822 333,236
---------- -------- ---------- ----------
2,010,963 111,236 2,122,199 2,059,584
Consumer loans:
Auto loans 21,703 293,736 315,439 2,367
Home equity and other 36,058 31,960 68,018 32,482
---------- -------- ---------- ----------
57,761 325,696 383,457 34,849
---------- -------- ---------- ----------
Gross loans receivable 2,068,724 436,932 2,505,656 2,094,433
Advances to borrowers 1,173 - 1,173 607
Less:
Net deferred loan origination fees (2,405) - (2,405) (1,009)
Unearned discounts and premiums (694) - (694) (1,749)
Allowance for loan losses (26,681) (2,332) (29,013) (30,014)
---------- -------- ---------- ----------
(29,780) (2,332) (32,112) (32,772)
---------- -------- ---------- ----------
$2,040,117 $434,600 $2,474,717 $2,062,268
========== ======== ========== ==========
</TABLE>
BVFB has historically sold (none in 1996 and 1995) mortgage loans to the
secondary market and usually retained responsibility for servicing the loans.
At December 31, 1996, 1995 and 1994, BVFB serviced participating interests in
loans sold of $412.4 million, $466.5 million, and $541.0 million, respectively.
The Company has agreed to modifications of certain multifamily and
nonresidential mortgage loans. The modifications have taken the form of
interest rate concessions, and/or payment concessions. Such loan modifications
are considered troubled debt restructurings (see Note 1) and are entered into
with the objective of maximizing the Company's long-term recovery of the
investment in the loan when a borrower is experiencing financial difficulties.
The Company has no commitments to lend additional funds to borrowers whose loans
were so modified. In the aggregate, the Company's investment in troubled debt
restructurings (excluding troubled debt restructurings classified as nonaccrual
loans) was $509,000 and $15.6 million at December 31, 1996 and 1995,
respectively. Under their original terms, interest income with respect to these
loans would not have been significant in 1996 and would have been
71
<PAGE>
$1.1 million in 1995 and $863,000 in 1994. Actual interest recognized by the
Company on these modified loans was not significant in 1996 and was $1.1 million
in 1995 and $920,000 in 1994.
At December 31, 1996 and 1995, nonaccrual loans totaled $16.1 million and
$10.8 million, respectively. Interest on nonaccrual loans that was not recorded
in income was $735,000, $623,000 and $2.8 million for years ended December 31,
1996, 1995, and 1994, respectively. Actual interest recognized by the Company
on these nonaccrual loans was not significant in 1996 or 1995. At December 31,
1996, the Company had no commitments to lend additional funds to these
borrowers.
The average investment in impaired loans during 1996 and 1995 was $15.1
million and $38.5 million, respectively. Impaired loans recorded in accordance
with SFAS 114 consist of nonperforming loans (see Note 1) and troubled debt
restructurings as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995
---------------------------- -------
BVFB CTL BVCC
------- ------ -------
<S> <C> <C> <C> <C>
Nonperforming loans $14,033 $2,092 $16,125 $10,755
Troubled debt restructurings 509 - 509 15,641
------- ------ ------- -------
$14,542 $2,092 $16,634 $26,396
======= ====== ======= =======
</TABLE>
The following table summarizes the changes in the allowance for loan losses
for the periods indicated (including CTL effective June 1, 1996):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
------------------------------ ------- -------
BVFB CTL BVCC
------- ------ -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $30,014 $2,860 $32,874 $29,115 $33,790
Charge-offs:
Mortgage (5,706) (221) (5,927) (4,727) (8,428)
Consumer (8) (466) (474) (152) (86)
------- ------ ------- ------- -------
(5,714) (687) (6,401) (4,879) (8,514)
Recoveries:
Mortgage 522 - 522 1,424 1,337
Consumer 59 61 120 70 135
------- ------ ------- ------- -------
581 61 642 1,494 1,472
Net charge-offs (5,133) (626) (5,759) (3,385) (7,042)
Provision for loan losses 1,800 98 1,898 4,284 2,367
------- ------ ------- ------- -------
Balance at end of year $26,681 $2,332 $29,013 $30,014 $29,115
======= ====== ======= ======= =======
Allowance for loans by category:
Mortgage $26,157 $1,812 $27,969 $29,541 $28,560
Consumer 524 520 1,044 473 555
------- ------ ------- ------- -------
Total: $26,681 $2,332 $29,013 $30,014 $29,115
======= ====== ======= ======= =======
</TABLE>
Allowance for loan losses was provided for all impaired loans at December
31, 1996 and 1995. The portion of the total allowance for loan losses that was
attributable to impaired loans was $1.9 million and $5.1 million at December 31,
1996 and 1995, respectively. Provision for loan losses, charge-offs and
recoveries relating to impaired loans were $1.9 million, $6.4 million and $0.6
million for the year
72
<PAGE>
ended December 31, 1996 and $4.3 million, $4.9 million and $1.5 million for the
year ended December 31, 1995, respectively.
To facilitate the sale of real estate loans, the Company has in the past
occasionally offered a recourse guaranty on loans sold whereas the Company
agreed to repurchase or substitute loans that became 90 days delinquent. In
addition, the Company on occasion subordinated its retained participation
interest in sold loans. At December 31, 1996 and 1995, the Company had
outstanding recourse and subordination contingencies relating to principal of
$54.3 million and $56.0 million, respectively, on sold mortgage loans.
At December 31, 1996 and 1995, mortgage loans aggregating $1.13 billion and
$1.24 billion respectively, were pledged as collateral for advances from the
FHLBSF.
NOTE 7. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995
------------------------------- --------
BVFB CTL BVCC
-------- ------- --------
<S> <C> <C> <C> <C>
Land $ 214 $ - $ 214 $ 4,777
Buildings 336 - 336 10,237
Capitalized leases 3,979 - 3,979 3,979
Leasehold improvements 5,495 1,422 6,917 5,486
Furniture and equipment 10,281 4,455 14,736 12,456
Construction in progress 361 - 361 3,523
-------- ------- -------- --------
20,666 5,877 26,543 40,458
Less:
Accumulated depreciation
and amortization (14,769) (4,869) (19,638) (17,174)
Reserve for write-down on
corporate office complex - - - (7,100)
-------- ------- -------- --------
$ 5,897 $ 1,008 $ 6,905 $ 16,184
======== ======= ======== ========
</TABLE>
During the fourth quarter of 1995, the Company recorded a charge of $7.1
million to adjust the carrying amount of the land and building of its San Mateo,
California corporate office complex to its estimated fair value less costs to
sell as a result of its decision to pursue a sale of the complex. The Company
recorded additional charges of $500,000 as a result of the sale of the complex
in September 1996. During 1996, the Company wrote off $1.2 million of computer
hardware equipment as a result of new specifications relating to the Company's
long-term information services technology agreement with an outside data
processing services vendor. Depreciation and amortization expense for the years
ended December 31, 1996, 1995 and 1994 was $2.2 million, $3.1 million and $3.1
million, respectively.
73
<PAGE>
NOTE 8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995
------------------------------- --------
BVFB CTL BVCC
---------- -------- ---------
<S> <C> <C> <C> <C>
Core deposit premiums $3,810 $ - $ 3,810 $5,835
Goodwill - 6,387 6,387 -
---------- -------- --------- --------
$3,810 $6,387 $10,197 $5,835
========== ======== ========= ========
</TABLE>
Core deposit premiums of $274,000 were written off during 1996 due to a
branch closure. During the fourth quarter of 1995, core deposit premiums of
$854,000 were written-off for the year ended December 31, 1995 resulting from an
impairment in the value of core deposit premiums that was attributable to higher
than expected decay rates in the customer deposits acquired. The balance of
core deposit premiums was subsequently amortized over its remaining useful life.
There were no core deposit premiums written off during 1994. Amortization
expense for core deposit premiums was $1.8 million, $1.9 million and $2.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
During the fourth quarter of 1995, BVFB explored the sale and/or exchange
of certain of its acquired branches which had purchased goodwill dating from
1981. Based on offers received and management's estimate of undiscounted future
cash flows, it was determined that the recovery of the goodwill associated with
these branches was no longer recoverable. Correspondingly, related unamortized
goodwill of $758,000 was written off in 1995. Amortization expense for goodwill
was $581,000 for the year ended December 31, 1996 and $396,000 for each of the
years ended December 31, 1995 and 1994.
NOTE 9. CUSTOMER DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
% OF WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AVERAGE RATE
---------------- --------- ------------------
<S> <C> <C> <C>
BVFB:
Passbook accounts $ 189,279 12.0% 2.38%
Checking accounts 111,699 7.1 0.78
Money market accounts 176,799 11.2 3.90
--------------- --------- ------------------
Transaction accounts 477,777 30.3 2.57
Certificates of deposit 1,100,559 69.7 5.48
--------------- --------- ------------------
$ 1,578,336(1) 100.0% 4.60%
=============== ========= ==================
CTL:
Money market accounts $ 16,057 8.6% 4.16%
Thrift certificates 169,837 91.4 5.55
--------------- --------- ------------------
$ 185,894 100.0% 5.43%
=============== ========= ==================
BVCC:
Passbook accounts $ 189,279 10.7% 2.38%
Checking accounts 111,436 6.3 0.78
Money market accounts 192,856 10.9 3.92
--------------- --------- ------------------
Transaction accounts 493,571 27.9 2.62
Certificates of deposit 1,100,559 62.4 5.48
Thrift certificates 169,837 9.7 5.55
--------------- --------- ------------------
$ 1,763,967 (1) 100.0% 4.69%
=============== ========= ==================
</TABLE>
(1) Intercompany deposit accounts have been eliminated
74
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------
% OF WEIGHTED
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AVERAGE RATE
------------ --------- ----------------
<S> <C> <C> <C>
Passbook accounts $ 173,739 9.6% 2.93%
Checking accounts 107,595 5.9 0.80
Money market accounts 106,276 5.8 3.09
------------ --------- ----------------
Transaction accounts 387,610 21.3 2.38
Certificates of deposit 1,432,230 78.7 6.02
------------ --------- ----------------
$1,819,840 100.0% 5.24%
============ ========= ================
</TABLE>
Noninterest bearing deposits were $24.6 million and $13.3 million as of
December 31, 1996 and 1995, respectively. Customer deposits at December 31,
1996 included certificates of deposit scheduled to mature as follows:
<TABLE>
<CAPTION>
BVFB CTL BVCC
------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1997 $ 878,878 $ 122,404 $1,001,282
1998 179,045 33,949 212,994
1999 27,830 8,353 36,183
2000 11,139 3,311 14,450
2001 3,667 1,820 5,487
------------ ---------- -----------
Total $1,100,559 $ 169,837 $1,270,396
============ ========== ===========
</TABLE>
Interest expense on customer deposits by deposit type is as follows
(including CTL effective June 1, 1996):
<TABLE>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
------------------------------------- ---------- ---------
BVFB CTL BVCC
--------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Passbook accounts $ 5,335 $ - $ 5,335 $ 3,777 $ 3,673
Checking and money market accounts 5,726 393 6,095 4,468 4,625
Certificates of deposit 73,429 - 73,429 85,153 57,274
Brokered retail certificates - - - - 852
Thrift certificates - $15,366 15,366 - -
--------- --------- --------------- ---------- ---------
$84,490 $15,759 $ 100,225 (1) $93,398 $66,424
========= ========= =============== ========== =========
</TABLE>
(1) Intercompany amounts have been eliminated
75
<PAGE>
NOTE 10. ADVANCES FROM THE FEDERAL HOME LOAN BANK OF SAN FRANCISCO
At December 31, 1996 and 1995, BVFB had the following advances outstanding
with the following maturities and rates:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
PRINCIPAL AMOUNTS INTEREST RATES
----------------------- ------------------
(DOLLARS IN THOUSANDS) 1996 1995 1996 1995
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
1996 $ - $486,940 - 6.69%
1997 774,480 96,580 5.69% 5.63
1998 108,270 108,270 5.87 5.88
1999 35,000 35,000 5.84 5.84
2000 20,000 20,000 5.88 5.88
2001 40,000 20,000 7.18 8.66
--------- --------- ----- -----
$977,750 $766,790 5.78% 6.43%
========= ========= ===== =====
</TABLE>
FHLBSF advances at December 31, 1996 included $25 million of borrowings
maturing in 1997 and 1998 at interest rates that reset monthly based on the
Eleventh District Cost of Funds Index and $20 million of borrowings maturing in
2001 at interest rates that reset semi-annually based on the 6-month LIBOR rate.
The advances were collateralized by loans and mortgage-backed securities
totaling $1.70 billion and $1.61 billion at December 31, 1996 and 1995,
respectively.
BVFB is a member of the Federal Home Loan Bank System. As a member, BVFB
is required to purchase stock in the FHLBSF at an amount equal to the greater of
1% of BVFB's residential mortgage loans or 5% of outstanding FHLBSF advances.
The stock is purchased at par value ($100 per share) and shares of stock held in
excess of the minimum requirement may be sold back to the FHLBSF at par value.
BVFB records its investment in FHLBSF stock at cost (par value). At December
31, 1996, BVFB's investment was $49.6 million and its minimum required
investment was $48.9 million. The stock is pledged as collateral for advances
from the FHLBSF. The FHLBSF generally declares quarterly stock dividends. The
amount of FHLBSF dividends recorded in income during the years ended December
31, 1996, 1995 and 1994 was $2.5 million, $2.2 million, and $2.3 million,
respectively.
As part of its asset/liability management strategy to reduce interest rate
risk exposure, the Company prepaid $45 million of its advances from the FHLBSF,
and during the fourth quarter of 1995, committed to prepay $145 million of its
FHLBSF advances in February 1996. Accordingly, the Company incurred a
prepayment charge of $2.5 million (net of applicable income taxes) in connection
with the early retirement of FHLBSF advances which was reported as an
extraordinary item in 1995.
NOTE 11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are effectively borrowings
secured by mortgage-backed securities. The securities sold under the terms of
these agreements are safekept for the Company by the registered primary
securities dealers who arrange the transactions. Borrowings under reverse
repurchase agreements at December 31, 1996 and 1995 were $210.6 million and
$166.7 million, respectively. The weighted average interest rate on reverse
repurchase agreements at December 31, 1996 and 1995 were 5.53% and 6.13%,
respectively.
These borrowings have maturities of one year or less and are collateralized
by mortgage-backed securities aggregating $218.2 million and $172.2 million
respectively, at December 31, 1996 and 1995.
76
<PAGE>
The contractually required market values of the collateral may range up to 106%
of the borrowings. The market value of the mortgage-backed securities
collateralizing such borrowings at December 31, 1996 and 1995 was $218.7 million
and $174.8 million, respectively.
NOTE 12. SENIOR DEBENTURES
In May 1996, Bay View Capital Corporation issued $50 million of Senior
Debentures of which a portion was used to partially finance the acquisition of
CTL. The Senior Debentures are due June 1, 1999 and pay interest semi-annually
at a rate of 8.42%.
NOTE 13. INCOME TAXES
The Company files consolidated federal tax returns with its wholly owned
subsidiaries. Income tax expense (benefit) before extraordinary items is
summarized as follows for the years ended December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FEDERAL STATE TOTAL
---------- ---------- ---------
<S> <C> <C> <C>
1996:
Current $ 3,007 $ 352 $ 3,359
Deferred 3,046 1,872 4,918
---------- ---------- -------
$ 6,053 $ 2,224 $ 8,277
========== ========== =======
1995:
Current $(5,652) $(2,482) $(8,134)
Deferred 5,135 2,291 7,426
---------- ---------- -------
$ (517) $ (191) $ (708)
========== ========== =======
1994:
Current $ 4,237 $ 2,669 $ 6,906
Deferred 883 39 922
---------- ---------- -------
$ 5,120 $ 2,708 $ 7,828
========== ========== =======
</TABLE>
Following is a summary of current and deferred income taxes included in
other assets (liabilities):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(DOLLARS IN THOUSANDS) 1996 1995
---------- --------
<S> <C> <C>
Current receivable (payable) $ 2,735 $(6,248)
Deferred asset (liability) (4,698) 11,683
---------- --------
$(1,963) $ 5,435
======== ========
</TABLE>
77
<PAGE>
The differences between the effective tax rates and the federal statutory
rates were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Federal tax expense, computed at
statutory rate of 35% for 1996,
1995 and 1994 $6,736 $(999) $7,819
Revision of prior year estimates - - (2,100)
State tax expense, net of federal tax 2,439 (192) 1,587
benefit
Other, net (898) 483 522
--------- ---------- ----------
$8,277 $(708) $7,828
========= ========== ==========
Effective tax rate, as a percentage of
income before income tax expense
(benefit) and extraordinary items 43.0% (24.8%) 35.0%
========= ========== ==========
</TABLE>
The components of the net deferred tax assets as of December 31, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses $ 10,579 $ 12,508
Real estate joint ventures 1,130 1,090
Depreciation 1,947 1,476
State income taxes 830 235
Intangible assets 3,327 3,505
Unrealized loss on securities available-for-sale 532 504
Leases 1,347 787
Prepayment penalties - 1,815
Write-down of corporate office complex 996 2,823
Other 3,776 2,579
----------- ----------
Gross deferred tax assets 24,464 27,322
----------- ----------
Deferred tax liabilities:
Excess over base year reserves (993) (914)
Unrealized gain on loans available-for-sale (12,745) -
Loan fees (7,213) (8,411)
FHLBSF stock dividends (6,677) (5,405)
Capitalized excess servicing fees (263) (456)
Other (1,271) (453)
----------- ----------
Gross deferred tax liabilities (29,162) (15,639)
----------- ----------
Net deferred tax asset (liability) $ (4,698) $ 11,683
=========== ==========
</TABLE>
In accordance with SFAS 109, a deferred tax liability has not been
recognized for the bad debt reserves of the Company which arose in the tax years
which began prior to December 31, 1987. At December 31, 1996 and 1995, the
amount of these reserves was approximately $17.0 million.
The amount of unrecognized deferred tax liability at December 31, 1996 and
1995 was approximately $6.1 million. The deferred tax liability could be
recognized if in the future there is a change in federal tax law, certain
distributions are made with respect to the stock of the savings institution, or
the bad debt reserves are used for any purpose other than absorbing bad debt
losses.
78
<PAGE>
During 1996, the Company and the Internal Revenue Service ("IRS") reached a
final agreement to resolve certain disputed issues related to the taxable years
1987 through 1989. The principal disputed issues related to various savings and
loan industry tax issues for which the Company had previously provided deferred
taxes.
As a result of reaching a tentative agreement in 1994, the Company reduced
its 1994 income tax expense by approximately $2.1 million. The reduction in
1994 income tax expense represented an adjustment to the Company's current and
deferred tax liabilities (including the estimated effect of the IRS agreement on
the Company's California franchise tax returns).
The acquisition of CTL during 1996 increased deferred income tax
liabilities by $7.3 million.
NOTE 14. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL REQUIREMENTS
Federal legislation to recapitalize and fully fund the Savings Association
Insurance Fund ("SAIF") was signed into law on September 30, 1996. Customer
deposits for BVFB are SAIF-insured, and as a result of the legislation BVFB was
required to pay a one-time special assessment of $11.7 million pre-tax ($6.7
million after tax or $.97 per share). The legislation had no effect on CTL, as
its deposits are insured under the Bank Insurance Fund.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, BVFB and CTL must meet specific capital guidelines that
involve quantitative measures of BVFB's or CTL's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. BVFB's and CTL's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors. Failure to meet minimum capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements.
Bay View Federal Bank
- ---------------------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") provides definitions of regulatory capital (tangible capital, core
capital and risk-based capital) and methods of calculating the minimum
requirement for each type of capital. The tangible capital requirement is 1.5%
of tangible assets. The core capital requirement is 3.0% of tangible assets
plus qualifying intangibles. The risk-based capital requirement is 8.0% of
risk-weighted assets. At December 31, 1996, BVFB's fully phased-in regulatory
capital exceeds the minimum requirements of each regulatory capital standard in
effect on such date as follows:
<TABLE>
<CAPTION>
ACTUAL MINIMUM REQUIRED EXCESS
-------------------- --------------------- ------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Tangible $165,110 5.52% $ 44,860 1.50% $120,250 4.02%
Core (Leverage) $168,782 5.64% $ 89,829 3.00% $ 78,953 2.64%
Risk-based $190,981 10.74% $142,308 8.00% $ 48,673 2.74%
</TABLE>
79
<PAGE>
The following table is a reconciliation of BVFB's capital (excluding
unrealized loss on securities available-for-sale, net of tax benefit) under
Generally Accepted Accounting Principles ("GAAP") with its regulatory capital at
December 31, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) TANGIBLE CORE RISK-BASED
---------- ---------- ------------
<S> <C> <C> <C>
BVFB stockholder's equity (GAAP) $170,847 $170,847 $170,847
Increase (decrease):
Unrealized loss on securities 713 713 713
Core deposit premiums (3,810) (138) (138)
Nonincludable investments in subsidiary (2,640) (2,640) (2,640)
Nonqualifying equity investments - - (124)
Qualifying general loan loss allowances - - 22,323
---------- ---------- ------------
BVFB regulatory capital $165,110 $168,782 $190,981
========== ========== ============
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 required
each federal banking agency to implement prompt corrective actions for
institutions that it regulates. In response to this requirement, the Office of
Thrift Supervision adopted final rules, effective December 19, 1992, based on
FDICIA's five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
The regulations provide that a savings institution is well capitalized if
its Tier II risk-based capital ratio is 10% or greater, its Tier I risk-based
capital ratio is 6% or greater, its leverage ratio is 5% or greater, and the
institution is not subject to a capital directive. As used herein, Tier II
risk-based capital ratio means the ratio of Tier II risk-based capital to risk-
weighted assets, Tier I capital ratio means the ratio of core capital to risk-
weighted assets, and leverage ratio means the ratio of core capital to adjusted
total assets, in each case as calculated in accordance with current OTS capital
regulations. As of December 31, 1996 and 1995, the most recent notification
from the OTS categorized BVFB as well capitalized. There are no conditions or
events since that notification that management believes have changed BVFB's
category.
Under capital guidelines enacted by FDICIA, BVFB met the criteria for the
"well capitalized" standard at December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Leverage $168,782 5.64% $149,716 5.00% $19,066 0.64%
Tier I risk-based $168,782 9.49% $106,731 6.00% $62,051 3.49%
Tier II risk-based $190,981 10.74% $177,885 10.00% $13,096 0.74%
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
-------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- --------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Leverage $158,378 5.28% $150,030 5.00% $ 8,348 0.28%
Tier I risk-based $158,378 9.25% $102,693 6.00% $55,685 3.25%
Tier II risk-based $179,865 10.51% $171,155 10.00% $ 8,710 0.51%
</TABLE>
80
<PAGE>
Currently, the OTS has deferred implementation of the interest rate risk
component for institutions with a greater than "normal" (i.e. greater than 2%)
level of interest rate risk exposure. As of December 31, 1996, if the interest
rate risk component regulation had been implemented, BVFB would not have been
subject to an interest rate risk capital deduction for risk-based capital
purposes.
The Company is a legal entity separate and distinct from BVFB. The
Company's principal source of funds on an unconsolidated basis is expected
dividends from its wholly owned subsidiaries. Dividends declared by BVFB to the
Company were $0 in 1996, $29.4 million in 1995 and $4.4 million in 1994. There
are various statutory and regulatory limitations on the extent to which BVFB can
pay dividends to, make investments in or loans to, or otherwise supply funds to
the Company. Based on the current financial status of BVFB, the Company
believes that such limitations and restrictions will not impair the Company's
ability to continue to pay the current level of dividends.
California Thrift & Loan
- ------------------------
As of December 31, 1996, the most recent notification from the FDIC
categorized CTL as well capitalized. There are no conditions or events since
that notification that management believes have changed CTL's category. CTL's
capital ratios at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
WELL CAPITALIZED
-----------------------------------------------------------
ACTUAL REQUIREMENT EXCESS
-----------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Leverage $43,462 9.50% $22,885 5.00% $20,577 4.50%
Tier I Risk-based $43,462 9.97% $26,164 6.00% $17,298 3.97%
Tier II Risk-based $48,913 11.33% $43,179 10.00% $ 5,734 1.33%
</TABLE>
CTL declared and paid a dividend of $15 million in 1996 to return excess
capital to the Company.
NOTE 15. STOCK REPURCHASE PROGRAM
During 1995, the Company's Board of Directors authorized a stock repurchase
program enabling the Company to purchase up to 600,000 shares of the Company's
common stock which was subsequently increased in 1996 to a total of 800,000
shares authorized for repurchase. As of December 31, 1996, the Company had
completed its previously announced stock buy back of 800,000 shares (305,000
shares in 1995 and 495,000 in 1996) which were repurchased at an average cost of
$31.97.
On January 22, 1997, the Company announced that its Board of Directors has
authorized the repurchase of an additional $25 million of shares of the
Company's common stock.
81
<PAGE>
NOTE 16. STOCK OPTIONS
The Company has adopted the "Amended and Restated 1986 Stock Option and
Incentive Plan" and the "1995 Stock Option and Incentive Plan" which authorize
the issuance of up to 879,715 and 500,000 shares of common stock, respectively.
The Company has also adopted a Non-Employee Director Stock Option Plan which
authorizes the issuance of up to 275,000 additional shares of common stock. The
stock option plans were approved by the Company's stockholders.
<TABLE>
<CAPTION>
NON-EMPLOYEE
1986 STOCK 1995 STOCK DIRECTOR
OPTION PLAN OPTION PLAN OPTION PLAN TOTAL
--------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Shares reserved for issuance 879,715 500,000 275,000 1,654,715
Granted (1,024,408) (301,000) (228,000) (1,553,408)
Canceled 145,037 10,000 10,000 165,037
Expired (344) - - (344)
--------------- ------------- -------------- -----------
Total available for grant 0 209,000 57,000 266,000
=============== ============= ============== ===========
</TABLE>
At December 31, 1996, the Company had outstanding non-qualified options for
all three plans with expiration dates from 1997 to 2006, as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE AVERAGE PRICE
OPTION SHARES RANGE PER SHARE
----------------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 616,296 $13.94-23.75 $17.89
Granted 26,000 21.50-23.88 21.68
Exercised (112,711) 13.94-19.63 16.94
----------------- --------------- --------------
Outstanding at December 31, 1994 529,585 13.94-23.88 18.28
Granted 217,000 18.75-26.63 24.56
Exercised (238,616) 13.94-22.13 18.01
Canceled (19,422) 17.50-25.00 22.92
----------------- --------------- --------------
Outstanding at December 31, 1995 488,547 13.94-26.63 21.02
Granted 212,000 26.94-37.75 32.02
Exercised (101,102) 13.94-25.00 18.41
Canceled (22,000) 25.00-25.63 25.57
----------------- --------------- --------------
Outstanding at December 31, 1996 577,445 $14.56-37.75 $25.34
================= =============== ==============
Options exercisable
at December 31, 1996 378,445 $14.56-37.75 $22.38
================= =============== ==============
</TABLE>
82
<PAGE>
Statement of Financial Accounting Standard (SFAS) No. 123 Pro Forma Disclosure
The Company accounts for its stock option grants in accordance with APB
Opinion No. 25 "Accounting for Stock Issued to Employees". Had compensation
cost been recorded based on SFAS No. 123, the Company's net income (loss) and
earnings (loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995
----------- ----------
<S> <C> <C>
Net income (loss):
Actual $10,969 $(4,690)
Pro forma $10,255 $(5,239)
Primary net income (loss) per share:
Actual $ 1.58 $ (0.64)
Pro forma $ 1.47 $ (0.71)
</TABLE>
The fair value of options granted was estimated as of the date of grant
based on the Black-Scholes option pricing model given the following weighted-
average assumptions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
------------- ------------
<S> <C> <C>
Dividend yield 2.0% 2.5%
Volatility .30 .30
Risk-free interest 5.21% 7.78%
Expected term (years) 4.84 4.84
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------------- --------------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AT AVERAGE WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, REMAINING LIFE AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1996 (IN YEARS) EXERCISE PRICE 1996 EXERCISE PRICE
- ----------------- ------------------ -------------------- -------------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
$ 14.56 - 21.50 207,445 4.83 $18.68 207,445 $18.68
$ 23.75 - 31.25 276,000 8.81 $27.41 141,000 $25.54
$ 33.13 - 37.75 94,000 9.47 $33.94 30,000 $33.13
------------------ ----------------
577,445 378,445
================== ================
</TABLE>
NOTE 17. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) thrift plan under which an employee with one or
more years of service may contribute from 2% to 15% of base salary to the plan.
The Company will match an employee's contribution up to 100% of the first 6% of
the employee's base salary, depending on the employee's length of service. The
Company's contributions for the years ended December 31, 1996, 1995 and 1994
were $435,000, $483,000, and $526,000 respectively.
83
<PAGE>
Effective December 31, 1995, the Company modified its non-qualified defined
benefit retirement plan for non-employee members of its Board of Directors and
terminated its non-qualified supplemental retirement plan for executive officers
(collectively, the "Plans"). As of December 31, 1996, the Company had a $1.1
million liability to certain non-employee members of its Board of Directors
payable in 33,057 shares of the Company's common stock in satisfaction of the
retirement plan liability. Such shares were repurchased in the market and are
held in treasury and restricted as to issuance until paid out. The liability is
included in additional paid in capital. As of December 31, 1996, the Company
had a $2.0 million liability to certain retired Directors and executive officers
(relating to the remaining benefits owed pursuant to the terminated supplemental
retirement plan for executive officers).
The pension liability in the Consolidated Statements of Financial Condition
at December 31, 1995 was $4.5 million, which represented the expected payout to
participants upon termination of the Plans. The benefits were based on years of
service and the participants' compensation. The amounts charged to income for
the pension benefits, including the charges relating to the modification and
termination of these plans, during 1996, 1995 and 1994 were $42,000, $637,000,
and $860,000, respectively.
Net pension cost for these Plans included the following components for
1994:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) DECEMBER 31, 1994
---------------------
<S> <C>
Service cost-benefits earned during the year $285
Interest cost on projected benefit obligation 492
Net amortization and deferral 83
-----------
Net periodic pension cost $860
===========
</TABLE>
The Company has an ESOP covering all regular full-time and part-time
employees who have completed one year of employment. The Company borrowed $6.0
million from a financial institution which it in turn lent to the ESOP to
purchase shares of the Company's common stock in the open market. At December
31, 1996 and 1995, the ESOP held 157,095 and 176,589 shares, respectively, of
the Company's common stock. The interest rate paid by the Company on the ESOP
debt is based on 90% of the prime rate. Total interest expense incurred on the
ESOP debt was $362,000, $407,000 and $352,000, respectively, for the years ended
December 31, 1996, 1995 and 1994. The interest expense recorded by the Company
was $289,000, $254,000, and $199,000, for the years ended December 31, 1996,
1995 and 1994, respectively. The Company makes periodic contributions to the
ESOP primarily to enable the ESOP to pay interest expense and administrative
costs not covered by cash dividends received by the ESOP on its shares of the
Company's common stock. Contributions from the Company to the ESOP on a cash
basis totaled $674,000 for 1996, $609,000 for 1995, and $508,000 for 1994.
84
<PAGE>
NOTE 18. DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Exchange Agreements (Swaps)
At December 31, 1996 and 1995 the Company was party to interest rate swap
agreements with notional principal amounts of $421.0 million and $150.0 million,
respectively. The information presented below is based on interest rates at
December 31, 1996 and 1995. To the extent that rates change, variable interest
rate information will change. The following schedule represents the maturities
and weighted average interest rates for swap agreements outstanding as of
December 31, 1996:
<TABLE>
<CAPTION>
MATURITIES OF DERIVATIVES INSTRUMENTS
------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002+ TOTAL
--------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Pay fixed generic swaps
Notional amount $39,500 $100,000 $104,000 $177,500 $421,000
Weighted average receive rate (3-month LIBOR) 5.55% 5.56% 5.53% 5.53% 5.54%
Weighted average pay rate (fixed) 6.67% 6.10% 6.72% 6.41% 6.44%
</TABLE>
The following schedule represents the maturities and weighted average
interest rates for swap agreements outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
MATURITIES OF DERIVATIVES
INSTRUMENTS
-----------------------------------
(DOLLARS IN THOUSANDS) 2001 2001+ TOTAL
---------- ---------- ---------
<S> <C> <C> <C>
Pay fixed generic swaps
Notional amount $100,000 $ 50,000 $150,000
Weighted average receive rate (3-month LIBOR) 5.89% 5.68% 5.82%
Weighted average pay rate (fixed) 6.10% 6.03% 6.08%
Forward starting swap
Notional amount $ - $150,000 $150,000
Weighted average receive rate (3-month LIBOR) - 5.63% 5.63%
Weighted average pay rate (fixed) - 6.35% 6.35%
</TABLE>
The interest rate swaps at December 31, 1996 and 1995 were collateralized
by loans and mortgage-backed securities totaling $10.4 million and $14.6
million, respectively. The effect of interest rate swap agreements for the
years ended December 31, 1996, 1995 and 1994 was to increase interest expense by
$2.6 million, $40,000, and $80,000, respectively.
Treasury Rate Lock Agreement
At December 31, 1996, CTL entered into a $210 million treasury rate lock
agreement to hedge its auto loan portfolio pending sale to BVSC and subsequent
securitization and sale of asset-backed securities by BVSC. The treasury rate
lock agreement guarantees a stated interest rate for a stated period of time and
CTL will receive/pay the difference between the lock rate and the effective
treasury rate on settlement date. Gains and losses on the hedge are deferred
and recognized in income upon settlement of the hedge or sale of the underlying
assets being hedged.
85
<PAGE>
NOTE 19. COMMITMENTS AND CONTINGENCIES
Banking Center Premises
In 1980, the Company sold a building which formerly housed its headquarters
for $3.45 million, and, concurrent with the sale, leased back the entire
building under a twenty-year lease which has been accounted for as a capital
lease. The Company occupies a minor portion of this building and receives
sublease rental income from the major portion, and is responsible for all
operating and maintenance expenses associated with the building. Sublease
rentals totaled $389,000, $385,000, and $389,000 during the years ended December
31, 1996, 1995 and 1994, respectively. During the years ended December 31,
1996, 1995 and 1994, depreciation on the capital lease was $303,000 for each
year. Accumulated depreciation at December 31, 1996 and 1995 was $2.9 million
and $2.6 million, respectively.
Certain banking center locations and the Company's administrative corporate
office are leased by the Company under operating type lease arrangements
expiring at various dates through 2012. Lease rental expense for the years
ended December 31, 1996, 1995 and 1994 totaled $3.5 million, $2.4 million, and
$2.5 million, respectively.
Future minimum payments under lease obligations at December 31, 1996 are
included in the following table:
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING LEASE
(DOLLARS IN THOUSANDS) PAYMENTS PAYMENTS
------------- ---------------
<S> <C> <C>
1997 $ 872 $ 4,982
1998 924 4,634
1999 978 3,870
2000 508 3,028
2001 - 2,771
2002 and thereafter - 20,543
------ -------
3,282 $39,828
=======
Less amount representing interest (773)
------
Net capital lease obligation $2,509
======
</TABLE>
Mortgage Loans
As of DECEMBER 31, 1996 the Company had outstanding commitments to
originate $7.4 million of mortgage loans. The Company has outstanding recourse
and subordination contingencies relating to $54.3 million of sold loans at
December 31, 1996 (see Note 6).
Litigation
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of business. In the opinion of management, after
consultation with counsel, the resolution of these legal actions will not have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
86
<PAGE>
NOTE 20. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined by
the Company using market information and valuation methodologies considered
appropriate. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
The fair value estimates presented herein are based on pertinent
information available to the Company as of December 31, 1996 and 1995. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------------------
BVFB CTL BVCC (2)
--------------------------- ------------------------ ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 106,623 $ 106,623 $ 605 $ 605 $ 106,828 $ 106,828
Loans held for sale 1,213 1,213 293,736 294,636 294,949 295,849
Investment securities 15,004 14,912 12,792 12,792 29,006 28,914
Mortgage-backed securities 577,613 566,615 - - 577,613 566,615
Loans receivable (1): 2,038,904 2,055,394 140,864 144,252 2,179,768 2,199,646
Investment in stock of the FHLBSF 49,571 49,571 2,320 2,320 51,891 51,891
Capitalized excess servicing 575 8,001 - - 575 8,001
Liabilities
Transaction accounts 479,258 479,258 16,057 16,057 493,571 493,571
Fixed maturity deposits 1,100,559 1,103,744 169,837 169,837 1,270,396 1,273,581
Advances from the FHLBSF 977,750 980,775 - - 977,750 980,775
Securities sold under
agreements to repurchase 210,640 211,341 - - 210,640 211,341
Senior Debentures 50,000 50,166
<CAPTION>
DECEMBER 31, 1995
----------------------
CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE
--------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 42,760 $ 42,760
Loans held for sale - -
Investment securities 47,963 48,004
Mortgage-backed securities 731,378 725,099
Loans receivable (1): 2,062,268 2,079,818
Investment in stock of the FHLBSF 39,450 39,450
Capitalized excess servicing 985 6,520
Liabilities
Transaction accounts 387,610 387,610
Fixed maturity deposits 1,432,230 1,439,214
Advances from the FHLBSF 766,790 775,567
Securities sold under
agreements to repurchase 166,738 166,854
</TABLE>
(1) Carrying amounts are net of allowance for losses
(2) Intercompany accounts have been eliminated
87
<PAGE>
<TABLE>
<CAPTION>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
-----------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
-----------------------------------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
(DOLLARS IN THOUSANDS) AMOUNT GAIN/(LOSS) AMOUNT LOSS
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
BVFB:
- ----
Interest rate swaps $549 $(3,335) $15 $(4,353)
==== ======= === =======
CTL:
- ----
Treasury rate lock $ - $ 33 $ - $ -
==== ======= === =======
</TABLE>
The Company believes the carrying amounts of cash and cash equivalents and
investment in stock of the FHLBSF are reasonable estimates of their fair values.
The fair values of investment securities and mortgage-backed securities were
based on published market prices or quotes obtained from independent registered
securities brokers.
The estimated fair value of loans receivable held for investment was
determined by discounting the projected cash flows using current interest rates
at which similar loans would be made to borrowers of similar credit risk.
Prepayment estimates were based on historical experience and published data for
similar loans. Fair values for loans available-for-sale are based on prices for
similar loans in the secondary loan market. The estimated fair value of
capitalized excess servicing represents the present value of the discounted cash
flows on the sold loans less the Company's cost to service such loans.
The fair value of transactions accounts (demand deposits, savings accounts
and money market accounts) is the amount payable on demand and is assumed to
equal the carrying amount. The fair value of fixed maturity deposits for BVFB
was estimated using the rates currently offered for certificates of deposit with
similar remaining maturities and for CTL at carrying amount due to the call
feature.
Rates currently available to the Company for debt with similar terms and
remaining maturities were used to estimate the fair value of existing debt,
including advances from the FHLBSF, securities sold under agreements to
repurchase and Senior Debentures.
The unrealized loss on interest rate swaps is the estimated amount that the
Company would receive or pay to terminate the swap agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparties. The unrealized gain on the
Treasury rate lock is the estimated amount that the Company would receive to
terminate the agreement with the counterparty.
NOTE 21. PARENT COMPANY FINANCIAL INFORMATION
The Company and its subsidiaries file consolidated Federal income tax
returns in which the taxable income or loss of the Company is combined with that
of its subsidiaries. The Company's share of income tax expense is based on the
amount which would be payable if separate returns were filed. Accordingly, the
Company's equity in the net income of its subsidiaries (distributed and
undistributed) is excluded from the computation of the provision for income
taxes for financial statement purposes.
88
<PAGE>
The Parent Company's statements of financial condition and related
statements of operations and cash flows are as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN THOUSANDS) 1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash in Bank $ 795 $ 2,047
Demand note due from BVFB (interest at
prime rate) 24,817 24,361
Investment securities 1,210 1,035
Investment in and advances to
subsidiaries 221,603 162,129
Dividend receivable from subsidiaries - 25,000
Other assets 2,899 823
-------- --------
Total Assets $251,324 $215,395
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and other liabilities $ 1,262 $ 7,418
Senior Debentures 50,000 -
Stockholders' equity 200,062 207,977
-------- --------
Total Liabilities and Stockholders'
Equity $251,324 $215,395
======== ========
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 3,029 $ 29,400 $ 4,400
Interest income 1,548 1,529 1,135
Other income - - 13
------- -------- -------
4,577 30,929 5,548
------- -------- -------
Expense:
Interest on Senior Debentures 2,623 - -
General and administrative expense 1,234 582 502
Income tax expense (benefit) (997) 383 158
------- -------- -------
2,860 965 660
------- -------- -------
Income before undistributed net income
(loss) of subsidiaries 1,717 29,964 4,888
Undistributed net income (loss) of
subsidiaries 9,252 (34,654) 9,625
------- -------- -------
Net income (loss) $10,969 $ (4,690) $14,513
======= ======== =======
</TABLE>
89
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,969 $ (4,690) $14,513
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Undistributed net (income) loss of subsidiaries (9,252) 34,654 (9,625)
Dividends received (receivable) 25,000 (25,000) -
Increase in other assets (2,076) - -
Increase in other liabilities 1,829 - -
Other (312) (48) 1,098
-------- -------- -------
Net cash provided by operating activities 26,158 4,916 5,986
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of California Thrift & Loan, net of
cash and cash equivalents received (61,505) - -
Purchase of investment securities held-to-maturity (200) - -
Net change in advances to subsidiaries 6 15 4
Return of investment from subsidiary 11,971 - -
Demand note due from BVFB (456) (1,661) (3,700)
-------- -------- -------
Net cash used in investing activities (50,184) (1,646) (3,696)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to stockholders (4,137) (4,374) (4,266)
Issuance of Senior Debentures, net of costs 49,406 - -
Repurchase of common stock (24,359) (2,279) -
Proceeds from issuance of common stock 1,864 4,294 1,906
-------- -------- -------
Net cash provided by (used in) financing
activities 22,774 (2,359) (2,360)
-------- -------- -------
Net increase (decrease) in cash (1,252) 911 (70)
Cash at beginning of year 2,047 1,136 1,206
-------- -------- -------
Cash at end of year $ 795 $ 2,047 $ 1,136
======== ======== =======
</TABLE>
90
<PAGE>
NOTE 22. SELECTED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (1)
------------------------------------------------------
(DOLLARS IN THOUSANDS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER (2) QUARTER
------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $53,409 $57,094 $66,028 $65,224
Net interest income 16,214 18,837 22,878 23,053
Provision for losses on loans 600 498 400 400
Net income (loss) 3,993 4,216 (2,108) 4,868
Primary earnings per share:
Net income (loss) 0.56 0.60 (0.30) 0.72
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
(DOLLARS IN THOUSANDS FIRST SECOND THIRD FOURTH
EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER
------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $53,480 $54,266 $54,481 $54,236
Net interest income 14,429 13,567 13,746 14,174
Provision for losses on loans 900 900 900 1,584
Income (loss) before extraordinary item 2,443 (749) 2,276 (6,116)
Extraordinary item, net of tax - - - (2,544)
Net income (loss) 2,443 (749) 2,276 (8,660)
Primary earnings per share
Income (loss) before extraordinary
item 0.34 (0.10) 0.31 (0.83)
Net income (loss) 0.34 (0.10) 0.31 (1.18)
</TABLE>
(1) Including CTL effective June 1, 1996
(2) Includes SAIF recapitalization assessment (see note 14)
NOTE 23. SIGNIFICANT FOURTH QUARTER 1995 ADJUSTMENTS
The following significant fourth quarter adjustments were recorded in the
1995 Consolidated Statement of Operations:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) AMOUNT
--------
<S> <C>
Write-down of corporate office complex (see Note 7) $ 7,100
Prepayment penalties on FHLBSF advances, pretax (see Note 10) 4,422
Severance payments related to work force reductions and pension plans 1,449
Core deposit premiums written-off (see Note 8) 854
Goodwill written-off (see Note 8) 758
-------
$14,583
=======
</TABLE>
91
<PAGE>
NOTE 24. SUBSEQUENT EVENTS
On January 21, 1997, the Company executed a definitive agreement to acquire
EXXE Data Corporation ("EXXE") and its wholly owned subsidiary Concord Growth
Corporation ("CGC"), a nationwide commercial finance company. The acquisition
will be accounted for as a purchase and is expected to be completed during March
1997. Under the terms of the definitive agreement, shareholders of EXXE capital
stock, warrants and options will receive an initial aggregate payment of $19.8
million at closing and will be entitled to potential future payments, dependent
on the future financial performance of CGC, of up to $34 million. The
transaction is subject to the approval of EXXE shareholders and all applicable
regulatory authorities.
On January 24, 1997, the Company securitized and sold $253 million of
asset-backed securities through its wholly owned subsidiary BVSC pursuant to a
previously filed shelf registration statement on Form S-3 for $500 million of
automobile receivable-backed securities. The securities consisted of 6.29%
Class A-1 Automobile Receivable Backed Certificates in aggregate principal
amount of $200,979,000, 6.59% Class A-2 Automobile Receivable Backed
Certificates in the aggregate principal amount of $52,245,989, and other
Interest Only Automobile Receivable Backed Certificates that will not receive
distributions of principal. The premium arising from the sale of the automobile
loans has been recorded as part of the purchase accounting valuations related to
the acquisition of CTL. A gain of approximately $900,000 will be realized in
the income statement due to the improvement in the fair value of the automobile
loans as a result of changes in market interest rates between June 1, 1996 and
the sale of the automobile loans on January 24, 1997. The underlying automobile
loans collaterizing the certificates will be serviced by CTL.
92
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF FINANCIAL CONDITION
- -------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
---------------------------------------------------------------------------
PARENT CO
(DOLLARS IN THOUSANDS) BVFB CTL & OTHER SUBS(1) ELIMINATIONS CONSOLIDATED
------------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 106,623 $ 605 $ 1,480 $ (1,880) $ 106,828
Loans held for sale 1,213 293,736 - - 294,949
Securities available-for-sale:
Investment securities - 12,792 1,010 - 13,802
Mortgage-backed securities 83,154 - - - 83,154
Securities held-to-maturity:
Investment securities 15,004 - 200 - 15,204
Mortgage-backed securities 494,459 - - - 494,459
Loans receivable held for investment, net 2,038,904 140,864 - - 2,179,768
Investment in stock of the FHLBSF 49,571 2,320 - - 51,891
Real estate owned 4,896 2,491 - - 7,387
Premises and equipment, net 5,897 1,008 - - 6,905
Investment in subsidiaries/due from
affiliates 163,183 - 246,420 (409,603) -
Intangibles 3,810 6,387 - - 10,197
Other assets 29,179 3,891 3,353 (705) 35,718
---------- -------- -------- --------- ----------
Total Assets $2,995,893 $464,094 $252,463 $(412,188) $3,300,262
========== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $1,579,817 $185,894 $ - $ (1,744) $1,763,967
Advances from the FHLBSF 977,750 - - - 977,750
Securities sold under agreements to
repurchase 210,640 - - - 210,640
Senior Debentures - - 50,000 - 50,000
Other borrowings 30,871 163,220 - (186,944) 7,147
Other liabilities 25,968 65,132 1,553 (1,957) 90,696
---------- -------- -------- --------- ----------
Total Liabilities 2,825,046 414,246 51,553 (190,645) 3,100,200
Stockholders' equity:
Common stock - 4,000 75 (4,000) 75
Additional paid-in capital 74,187 42,819 101,521 (118,016) 100,511
Retained earnings (substantially
restricted) 102,011 3,029 125,811 (99,527) 131,324
Treasury stock at cost - - (26,497) - (26,497)
Unrealized loss on securities
available-for-sale (net of tax) (713) - - - (713)
Debt of Employee Stock Ownership Plan (4,638) - - - (4,638)
---------- -------- -------- --------- ----------
Total Stockholders' Equity 170,847 49,848 200,910 (221,543) 200,062
---------- -------- -------- --------- ----------
Total Liabilities and
Stockholders' Equity $2,995,893 $464,094 $252,463 $(412,188) $3,300,262
========== ======== ======== ========= ==========
</TABLE>
(1) Includes Bay View Securitization Corporation and Regent Financial
Corporation, wholly owned subsidiaries of the Company, which are not
material for separate financial statement disclosure for the periods
presented.
93
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
PARENT CO.
(DOLLARS IN THOUSANDS) BVFB CTL(1) & OTHER SUBS(2) ELIMINATIONS CONSOLIDATED
------------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans receivable $161,149 $31,294 - - $192,443
Interest on mortgage-backed securities 42,081 - 42,081
Interest and dividends on investments 6,428 761 $ 1,564 $ (1,522) 7,231
-------- ------- ------- -------- --------
209,658 32,055 1,564 (1,522) 241,755
Interest expense:
Interest on customer deposits 84,490 15,759 (24) 100,225
Interest on Senior Debentures - 2,623 2,623
Interest on borrowings 59,349 74 (1,498) 57,925
-------- ------- ------- -------- --------
143,839 15,833 2,623 (1,522) 160,773
Net interest income 65,819 16,222 (1,059) - 80,982
Provision for losses on loans 1,800 98 1,898
-------- ------- ------- -------- --------
Net interest income after provision for
losses 64,019 16,124 (1,059) - 79,084
Noninterest income:
Loan fees and charges 3,858 1,072 - - 4,930
Loss on loans and securities (507) (946) - - (1,453)
Rental income from premises 534 - - - 534
Equity in earnings of subsidiaries - 12,281 (12,281) -
Other, net 4,287 284 - (18) 4,553
-------- ------- ------- -------- --------
8,172 410 12,281 (12,299) 8,564
Noninterest expense:
General and administrative expenses 47,560 10,172 1,241 (18) 58,955
SAIF recapitalization assessment 11,750 - - - 11,750
Real estate owned operations, net (5,001) 195 - - (4,806)
Recovery of losses on real estate (103) - - - (103)
Amortization and write-down of
intangible assets 2,025 581 - - 2,606
-------- ------- ------- -------- --------
56,231 10,948 1,241 (18) 68,402
Income before income taxes 15,960 5,586 9,981 (12,281) 19,246
Income tax expense (benefit) 6,717 2,557 (997) - 8,277
-------- ------- ------- -------- --------
Net income $ 9,243 $ 3,029 $10,978 $(12,281) $ 10,969
======== ======= ======= ======== ========
</TABLE>
(1) Reflects operating results beginning on June 1, 1996, the effective date of
acquisition.
(2) Includes Bay View Securitization Corporation and Regent Financial
Corporation, wholly owned subsidiaries of the Company, which are not
material for separate financial statement disclosure for the periods
presented.
94
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
PARENT CO.
(DOLLARS IN THOUSANDS) BVFB CTL(1) & OTHER SUBS(2) ELIMINATIONS CONSOLIDATED
------------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,243 $ 3,029 $ 10,978 $(12,281) $ 10,969
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed net income of subsidiaries - - (9,252) 9,252 -
Write-down on disposal of premises and equipment 1,767 - - - 1,767
Write-down and amortization of intangible assets 2,025 581 - - 2,606
Proceeds from loans sold 9,668 - - - 9,668
Provision for losses on loans and real estate owned 1,697 98 - - 1,795
Depreciation and amortization of premises and equipment 1,876 334 - - 2,210
Amortization of deferred loan costs 1,396 - - - 1,396
Decrease in capitalized excess servicing fees 411 - - - 411
Amortization of premiums, net of discounts 3,815 1,345 - - 5,160
Dividends received - - 25,000 (25,000) -
Loss on loans and securities 507 653 - - 1,160
(Increase) decrease in other assets 4,097 (78) (2,380) 227 1,866
Increase (decrease) in other liabilities (2,301) 49,602 2,120 (1,488) 47,933
Other, net (3,509) (63) 14 - (3,558)
-------- ------- -------- -------- --------
Net cash provided by operating activities 30,692 55,501 26,480 (29,290) 83,383
-------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of CTL, net of cash and cash equivalents
received - 314 (61,819) - (61,505)
Return of investment from subsidiary - - 11,971 (11,971) -
Net decrease in loans resulting from
originations net of principal payments 59,007 11,131 - - 70,138
Purchase of loans (56,909) (7,812) - - (64,721)
Principal payments on mortgage-backed securities 91,748 - - - 91,748
Purchase of mortgage-backed securities held-to-maturity 2,602 - - - 2,602
Proceeds from sale of mortgage-backed securities
available-for-sale 54,458 - - - 54,458
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF CASH FLOWS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
PARENT CO.
(DOLLARS IN THOUSANDS) BVFB CTL(1) & OTHER SUBS(2) ELIMINATIONS CONSOLIDATED
------------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES (Cont'd)
Proceeds from maturities of investment
securities held-to-maturity 24,493 - - - 24,493
Proceeds from maturities of investment
securities available-for-sale 7,000 8,000 - - 15,000
Purchase of investment securities held-to-maturity - (2,841) (200) - (3,041)
Proceeds from sale of real estate 31,435 1,255 - - 32,690
Proceeds from sale of leasing portfolio held for sale - 59,848 - - 59,848
Proceeds from sale of premises and equipment 8,054 2,594 - - 10,648
Additions to premises and equipment (1,410) (167) - - (1,577)
Increase in stock of FHLBSF (10,121) (437) - - (10,558)
Investment in subsidiaries/Due from affiliates (163,183) - (450) 163,633 -
----------- --------- -------- --------- -----------
Net cash provided by (used in) investing activities 47,174 71,885 (50,498) 151,662 220,223
----------- --------- -------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposit inflows (outflows) (242,746) (3,501) 979 (245,268)
Redemption of CTL deposits - (267,500) - - (267,500)
Proceeds from advances from FHLBSF 1,644,226 - - - 1,644,226
Repayment of advances from FHLBSF (1,433,266) - - - (1,433,266)
Repurchase of common stock - - (24,359) - (24,359)
Issuance of Senior Debentures, net of issuance costs - - 49,406 - 49,406
Proceeds from reverse repurchase agreements 373,272 - - - 373,272
Repayment of reverse repurchase agreements (329,370) - - - (329,370)
Net change in other borrowings (26,119) 159,220 - (137,507) (4,406)
Proceeds from issuance of common stock - - 1,864 - 1,864
Dividends paid to stockholders - (15,000) (4,137) 15,000 (4,137)
----------- --------- -------- --------- -----------
Net cash provided by (used in) financing activities (14,003) (126,781) 22,774 (121,528) (239,538)
----------- --------- -------- --------- -----------
Net increase (decrease) in cash and cash equivalents 63,863 605 (1,244) 844 64,068
Cash and cash equivalents at beginning of year 42,760 - 2,724 (2,724) 42,760
----------- --------- -------- --------- -----------
Cash and cash equivalents at end of year $ 106,623 $ 605 $ 1,480 $ (1,880) $ 106,828
=========== ========= ======== ========= ===========
</TABLE>
(1) Reflects cash flows beginning on June 1, 1996, the effective date of
acquisition.
(2) Includes Bay View Securitization Corporation and Regent Financial
Corporation, wholly owned subsidiaries of the Company, which are not
material for separate financial statement disclosure for the periods
presented.
96
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Bay View Capital Corporation:
We have audited the accompanying consolidated statements of financial
condition of Bay View Capital Corporation and subsidiaries (the "Company") as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Bay View Capital
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The supplemental
consolidating schedules of financial information on pages 93 - 96 are presented
for the purpose of additional analysis of the basic consolidated financial
statements rather than to present the financial position, results of operations,
and cash flows of the individual companies, and are not a required part of the
basic consolidated financial statements. These schedules are the responsibility
of the Company's management. Such schedules have been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, are fairly stated in all material respects when considered
in relation to the basic consolidated financial statements taken as a whole.
/s/ Deloitte & Touche LLP
San Francisco, California
January 24, 1997
97
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
- -----------------------------------------------------------------------------
DISCLOSURE
----------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Information concerning Executive Officers of the Company is contained under
the heading "Executive Officers of the Registrant" on page 14 herein.
Information concerning directors of the Registrant is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on May 22, 1997, a copy of which will be
filed not later than 120 days after the close of the fiscal year. The
compensation report and performance graph included in the Proxy Statement
pursuant to Items 402(k) and 402(l) of Regulation S-K are specifically not
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on May 22, 1997, a copy of which will be
filed not later than 120 days after the close of the fiscal year. The
compensation report and performance graph included in the Proxy Statement
pursuant to Items 402(k) and 402(l) of Regulation S-K are specifically not
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on
May 22, 1997, a copy of which will be filed not later than 120 days after the
close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held on May 22, 1997, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
All financial statement schedules have been omitted as the required
information is not applicable or has been included in the Notes to Consolidated
Financial Statements.
98
<PAGE>
(a) (3) Exhibits:
- ------------------
<TABLE>
<CAPTION>
Reference to prior
Regulation filing or exhibit
S-K number attached
Exhibit Number Document hereto
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Plan of acquisition, reorganization, arrangement, liquidation
or succession None
3 Articles of Incorporation 3a
Bylaws 3b
4 Instruments defining the rights of security holders, including
indentures:
Articles of Incorporation 3a
Bylaws 3b
Specimen of common stock certificate 4a
Stockholder Protections Rights Agreement, dated July 31, 1990
(the "Rights Agreement") 4b
First Amendment to the Rights Agreement, dated February 26,
1993 4c
Form of Rights Certificate and of Election to Exercise
pursuant to the Rights Agreement 4d
9 Voting trust agreement None
10 Material contracts:
Employment Contracts with Edward H. Sondker 10.1
Employment Contracts with Robert J. Flax 10.2
Employment Contracts with David A. Heaberlin 10.3
Employment Contracts with John N. Buckley 10.4
Employment Contracts with Cynthia L. Hart 10.5
Supplemental Executive Retirement Plan 10a
Senior Management Incentive Plan 10b
Senior Management Long-Term Incentive Plan 10c
1986 Stock Option and Incentive Plan 10d
Amended and Restated 1989 Non-Employee Director Stock Option
Plan 10e
Amended Outside Directors' Retirement Plan 10.6
Stock in Lieu of Cash Compensation Plan for Non-Employee
Directors 10.7
Deferred Compensation Plan 10.8
Amended and Restated 1995 Stock Option and Incentive Plan 10.9
11 Statement re computation of per share earnings Not required
12 Statements re computation of ratios Not required
13 Annual Report to security holders Not required
16 Letter re change in certifying accountant Not required
18 Letter re change in accounting principles None
21 Subsidiaries of the registrant 21
22 Published report regarding matters submitted to vote of
security holders None
23 Consent of Deloitte & Touche LLP 23
24 Power of attorney Not required
27 Financial Data Schedule 27
99 Additional Exhibits None
</TABLE>
99
<PAGE>
(References to Prior Filings)
3a Filed as exhibit 4.1 to the Registrant's Registration Statement on Form
S-8 filed July 26, 1991 (File No. 33-41924)
3b Filed as exhibit I to the Registrant's Current Report on Form 8-K filed
January 10, 1994 (File No. 0-17901)
4a Filed as exhibit 4.3 to the Registrant's Registration Statement on Form
S-8 filed July 26, 1991 (File No. 33-41924)
4b Filed as exhibit I to the Registrant's Registration Statement on Form 8
filed March 9, 1993 (the second amendment to a Form 8-A filed August 6,
1990)(File no. 0-17901)
4c Filed as exhibit 3 to the Registrant's Registration Statement on Form 8
filed March 9, 1993 (the second amendment to a Form 8-A filed August 6,
1990)(File no. 0-17901)
4d Filed as exhibit 2 to the Registrant's Registration Statement on Form 8
filed March 9, 1993 (the second amendment to a Form 8-A filed August 6,
1990)(File no. 0-17901)
10a-c Filed as exhibits 10.6 to 10.8 respectively, to the Registrant's Annual
Report on Form 10-K filed March 30, 1993 for the year ended December 31,
1992 (File No. 0-17901)
10d Filed as exhibit 4 to the Registrant's Registration Statement on Form S-8
filed August 11, 1995 (File No. 33-95724)
10e Filed as exhibit 4.4 to the Registrant's Registration Statement on Form
S-8 filed July 26, 1991 (File No. 33-41924)
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.
(b) Reports on Form 8-K:
- -------------------------
The Company did not file any Current Reports on Form 8-K during the quarter
ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: February 18, 1997 BAY VIEW CAPITAL CORPORATION
By: /s/ David A. Heaberlin
----------------------------
David A. Heaberlin
Executive Vice President and
Chief Financial Officer
100
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Edward H. Sondker By: /s/ John R. McKean
--------------------- ------------------
Edward H. Sondker, Director John R. McKean
President and Chief Executive Officer Chairman of the Board
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Paula R. Collins By:/s/ Roger K. Easley
---------------------- -------------------
Paula R. Collins, Director Roger K. Easley, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Thomas M. Foster By: /s/ Richard J. Quinlan
-------------------- -----------------------
Thomas M. Foster, Director Richard J. Quinlan, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Robert L. Witt By: /s/ Robert M. Greber
------------------ ---------------------
Robert L. Witt, Director Robert M. Greber, Director
Date: February 18, 1997 Date: February 18, 1997
By: /s/ Angelo J. Siracusa By: /s/ W. Blake Winchell
----------------------- ---------------------
Angelo J. Siracusa, Director W. Blake Winchell, Director
Date: February 18, 1997 Date: February 18, 1997
101
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of January 1997 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Edward H. Sondker (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of the Corporation, and
has approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of President and Chief Executive Officer.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of a President and Chief Executive Officer. The
Executive shall render such administrative and management services to the
Corporation as are customarily performed by persons employed in the banking and
financial services industry in a similar executive capacity. In addition, the
Executive shall perform such other duties as the Board, or its authorized
representative, may from time to time require. All duties performed by the
Executive hereunder shall be in accordance with such reasonable standards as are
established from time to time by the Board, or its authorized representative,
and performance evaluations shall be conducted by or under the direction of the
Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and
services to the Corporation, keeping normal business hours, but is authorized to
engage in such banking trade association and related activities during normal
business hours
<PAGE>
which, in his judgment, with the concurrence of his immediate supervisor, are in
the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, without first obtaining approval from the Chairman of the
Board. In no event shall such services conflict with the Executive's duty to the
Corporation or adversely affect the Executive's judgment in the performance of
his responsibilities. Executive shall remain free to engage in community,
charitable, political and personal pursuits which do not interfere with his
performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $300,000 per annum, with
the salary to be reviewed on July 1, 1997, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive may be entitled to
---------------------
participate in discretionary bonuses and incentive payments to the extent
authorized and declared by the Board or its authorized representative. For any
given calendar year, Executive shall be entitled to an annual performance bonus
in accordance with the terms of the incentive plan approved with respect to such
year by the Board or its authorized representative.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit-sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation may
adopt for all of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which may be or become applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
5. Term.
----
2.
<PAGE>
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
this Agreement shall be for a period of 12 months commencing on January 1, 1997
and ending on December 31, 1997 (the "Expiration Date"). On the Expiration Date
and on each anniversary date of the Expiration Date thereafter, the Term of this
Agreement shall be extended automatically by one additional year beyond the
then-current Expiration Date, unless either the Corporation or the Executive
gives contrary written notice to the other not less than 45 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the "Term of this Agreement" shall refer to the term as so extended. Section
9, entitled "Change in Control," shall survive the expiration of this Agreement
for a period of one (1) year so long as Executive is employed by the
Corporation.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave, or other
paid time off as specified in Corporation policy, provided that:
a. Basic Vacation. The Executive shall be entitled to an
---------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment
--------------------------
under this Agreement may be terminated, with or without cause, at any time by
the Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state
3.
<PAGE>
the effective date of such termination and whether such termination is for
"cause," as defined in Section 7a(1), or without cause pursuant to Section
7a(2). Unless the Termination Notice states that the termination is for cause
and states with reasonable particularity the cause, the termination shall be
deemed to be without cause pursuant to Section 7a(2). In the event an arbitrator
appointed pursuant to Section 13 of this Agreement determines that a purported
termination for cause was in fact without proper cause, the termination shall
nonetheless be effective, but the Executive shall be entitled to the severance
payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a conflict
of interest with the Corporation or its stockholders, or a breach of a fiduciary
duty owed by the Executive;
(b) The Executive's breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual absence from work,
failure to perform duties, or negligence in the performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of his employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, 7d, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of
4.
<PAGE>
termination but in lieu of any rights or benefits that would have accrued
following such termination, the Executive shall be entitled, upon execution of a
release acceptable to the Board, or its authorized representative, to a lump sum
severance payment of 18 months salary.
b. Termination by the Executive. This Agreement and
----------------------------
Executive's employment may be terminated by the Executive at any time upon 30
days written notice to the Corporation or upon such shorter period as may be
agreed upon between the Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
d. Suspension or Termination by Regulatory Action.
----------------------------------------------
(1) Suspension. If the Executive is suspended from office
----------
and/or temporarily prohibited from participating in the conduct of the affairs
of any insured subsidiary of the Corporation by a notice served under Section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C.(S)1818(e)(3); (g)(1), the Corporation, in its discretion, may suspend its
obligations under this Agreement as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Corporation may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of the obligations which were
suspended, but vested rights of the parties shall not be affected.
(2) Removal; Default; Supervisory Assistance or Merger.
--------------------------------------------------
The Corporation, in its discretion, may terminate all of its obligations under
this Agreement if: (A) the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the affairs of any insured
subsidiary of the Corporation by an order issued under Section 8 (e)(4) or
(g)(1) of the FDIA, 12 U.S.C.(S)1818(e)(4); (g)(1); (B) any of the Corporation's
insured subsidiaries becomes in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C.(S)1813(x)(1)); (C) the Director of the Office of Thrift
Supervision ("OTS") or his or her designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of any of the Corporation's
insured subsidiaries under the authority contained in Section 13(c) of the FDIA,
12 U.S.C.(S)1823(c); or (D) the Director of the OTS or his or her designee
approves a supervisory merger to resolve
5.
<PAGE>
problems related to operation any of the Corporation's insured subsidiaries or
when any of the Corporation's insured subsidiaries is determined by the Director
of the OTS to be in an unsafe or unsound condition; all as of the effective date
of the order, default, agreement to provide assistance or approval of the
merger, as the case may be, but vested rights of the parties shall not be
affected.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation (as
determined in accordance with applicable law), he shall be entitled to receive
disability benefits of the type provided for other employees of the Corporation.
In such event, when the Executive has been absent 90 calendar days in excess of
utilized vacation and sick leave within a 120 calendar day period after the last
day the Executive worked, any rights of the Executive to receive the salary
provided in Section 2 of this Agreement shall be suspended until the Executive
is able to resume regular performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, the Executive shall be entitled, upon execution of a Severance
Agreement and Release as provided in Exhibit A, to a severance payment in the
event the Executive's employment is terminated, other than for "cause" as set
forth in Section 7a(1) or pursuant to Sections 7b (except as provided below), 7c
or 7(d), within twenty-four (24) months after the change in control. The amount
of this payment shall equal two hundred percent (200%) of the Executive's annual
salary as of the date of termination and shall be in lieu of any severance
payment that would be due Executive under Section 7a(2). Such termination or
severance payment shall be in addition to all other amounts payable to the
Executive pursuant to this Agreement. This termination or severance payment
shall also be made in lieu of any severance payment that would be due Executive
under section 7b in the case of a termination of employment by the Executive
pursuant to Section 7b of this Agreement within twenty-four (24) months after a
change in control because during such twenty-four (24) month period there has
been a material diminution of or interference with the Executive's duties,
responsibilities and benefits as President and Chief Executive Officer of the
Corporation. By way of example and not by way of limitation, any of the
following actions, if unreasonable or materially adverse to the Executive, shall
constitute such diminution or interference unless consented to in writing by the
Executive: (i) a change in the principal workplace of the Executive to a
location more than 25 miles from the Corporation's main office; (ii) a reduction
or adverse change in the salary or benefits which had theretofore been provided
to the Executive, other than as part of an overall program
6.
<PAGE>
applied uniformly and with equitable effect to all members of senior management
of the Corporation or the Acquiror; or (iii) a change in Executive's title.
Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other amounts
and the value of benefits received or to be received by the Executive in
connection with a change in control would cause any amount to be nondeductible
by the Corporation or the Acquiror for federal income tax purposes pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended, then amounts and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to the
Executive without causing any amount to become nondeductible by the Corporation
or the Acquiror pursuant to or by reason of such Section 280G. The Executive
shall determine the allocation of such reduction among payments and benefits to
the Executive.
The term "change in control" means (1) an event with respect to the
Acquiror of a nature that would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Corporation or the
Acquiror representing 20% or more of the Corporation's or the Acquiror's
outstanding securities; or (3) a reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Corporation or the Acquiror or a
similar transaction in which the Corporation or the Acquiror is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Corporation or the Acquiror.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by
the Corporation's Bylaws and by Delaware corporate law.
7.
<PAGE>
12. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
13. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 13.
a. Agreement to Negotiate. Prior to submitting any
----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement to
arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
in which to consider the controversy, dispute or claim which is the subject of
the notice and to furnish in writing to the claimant a written statement of the
recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that to the extent allowable
by law any controversy, dispute or claim arising out of, or relating to, this
Agreement, or breach of this Agreement, including disputes concerning
termination of this Agreement as well as those based upon alleged tort or
unlawful acts including harassment or discrimination, shall be settled by
arbitration in San Mateo, California. The parties hereby waive any right to a
trial by court or jury. This agreement to arbitrate shall be specifically
enforceable. Judgment upon any award rendered by an arbitrator may be entered in
any court having jurisdiction.
8.
<PAGE>
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim, except that the demand in writing may be made at
a later date in accordance with the applicable statute of limitation for any
statutory claim which allows a later date for the presentation of the claim.
(3) There shall be one impartial arbitrator chosen by the
Corporation from a list procured from the California Mediation and Conciliation
Service.
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief, unless required by
law.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case unless otherwise required by law. Other costs
of the arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne equally by the parties, unless otherwise required by law.
14. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or
9.
<PAGE>
be construed as a waiver of any subsequent breach of the same provision or any
other provision of this Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California unless otherwise specified in this Agreement (and not
under conflict of law principles) as such laws apply to contracts made and to be
performed entirely in the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION,
10.
<PAGE>
By: /s/ Robert J. Flax
-----------------------------
Name: Robert J. Flax
Title: Executive Vice President,
General Counsel and Secretary
THE EXECUTIVE
/s/ Edward H. Sondker
--------------------------------
Edward H. Sondker
11.
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of January 1997 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Robert J. Flax (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of the Corporation, and
has approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President, General Counsel and
Secretary.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President, General Counsel
and Secretary. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and services
to the Corporation, keeping normal business hours, but is authorized to engage
in such banking trade
<PAGE>
association and related activities during normal business hours which, in his
judgment, with the concurrence of his immediate supervisor, are in the business
interests of the Corporation; and
(2) The Executive shall not render personal services to any other
person or entity for compensation, either as an Executive, consultant, director
or officer, without first obtaining approval from the Chairman of the Board. In
no event shall such services conflict with the Executive's duty to the
Corporation or adversely affect the Executive's judgment in the performance of
his responsibilities. Executive shall remain free to engage in community,
charitable, political and personal pursuits which do not interfere with his
performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $160,008 per annum, with
the salary to be reviewed on July 1, 1997, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive may be entitled to
---------------------
participate in discretionary bonuses and incentive payments to the extent
authorized and declared by the Board or its authorized representative. For any
given calendar year, Executive shall be entitled to an annual performance bonus
in accordance with the terms of the incentive plan approved with respect to such
year by the Board or its authorized representative.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit-sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation may
adopt for all of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which may be or become applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
5. Term.
----
2.
<PAGE>
a. Initial Term and Automatic Extension. The initial term of this
------------------------------------
Agreement shall be for a period of 12 months commencing on January 1, 1997 and
ending on December 31, 1997(the "Expiration Date"). On the Expiration Date and
on each anniversary date of the Expiration Date thereafter, the Term of this
Agreement shall be extended automatically by one additional year beyond the
then-current Expiration Date, unless either the Corporation or the Executive
gives contrary written notice to the other not less than 45 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the "Term of this Agreement" shall refer to the term as so extended. Section
9, entitled "Change in Control," shall survive the expiration of this Agreement
for a period of one (1) year so long as Executive is employed by the
Corporation.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave, or other
paid time off as specified in Corporation policy, provided that:
a. Basic Vacation. The Executive shall be entitled to an annual
---------------
paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment under
--------------------------
this Agreement may be terminated, with or without cause, at any time by the
Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state
3.
<PAGE>
the effective date of such termination and whether such termination is for
"cause," as defined in Section 7a(1), or without cause pursuant to Section
7a(2). Unless the Termination Notice states that the termination is for cause
and states with reasonable particularity the cause, the termination shall be
deemed to be without cause pursuant to Section 7a(2). In the event an arbitrator
appointed pursuant to Section 13 of this Agreement determines that a purported
termination for cause was in fact without proper cause, the termination shall
nonetheless be effective, but the Executive shall be entitled to the severance
payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's employment
------------------------------------
under this Agreement may be terminated at any time by the Board, or its
authorized representative, for "cause," which shall include, but not be limited
to the following:
(a) The commission by the Executive of an act of misconduct
(including, but not limited to, the violation of any law, rule, regulation or
cease and desist order applicable to the Executive or the Corporation or its
insured subsidiaries), or an act which constitutes a conflict of interest with
the Corporation or its stockholders, or a breach of a fiduciary duty owed by the
Executive;
(b) The Executive's breach of this Agreement, dishonesty,
incompetence, willful misconduct, habitual absence from work, failure to perform
duties, or negligence in the performance of stated duties;
(c) The Executive's becoming physically or mentally incapable of
performing the essential functions of his employment position, with or without
reasonable accommodation, for a period in excess of the applicable leave
entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other than for a minor
traffic violation or similar offense), whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The Executive's
----------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, without cause; provided, however, that unless the
termination of this Agreement is for "cause," as set forth in Section 7a(1), or
pursuant to Sections 7b, 7c, 7d, or 9, then, upon such termination, in addition
to any benefits that had accrued to the date of
4.
<PAGE>
termination but in lieu of any rights or benefits that would have accrued
following such termination, the Executive shall be entitled, upon execution of a
release acceptable to the Board, or its authorized representative, to a lump sum
severance payment of 18 months salary.
b. Termination by the Executive. This Agreement and Executive's
----------------------------
employment may be terminated by the Executive at any time upon 30 days written
notice to the Corporation or upon such shorter period as may be agreed upon
between the Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
d. Suspension or Termination by Regulatory Action.
----------------------------------------------
(1) Suspension. If the Executive is suspended from office and/or
----------
temporarily prohibited from participating in the conduct of the affairs of any
insured subsidiary of the Corporation by a notice served under Section 8(e)(3)
or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C.(S)1818(e)(3);
(g)(1), the Corporation, in its discretion, may suspend its obligations under
this Agreement as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Corporation may in
its discretion (i) pay the Executive all or part of the compensation withheld
while its obligations under this Agreement were suspended and (ii) reinstate in
whole or in part any of the obligations which were suspended, but vested rights
of the parties shall not be affected.
(2) Removal; Default; Supervisory Assistance or Merger. The
--------------------------------------------------
Corporation, in its discretion, may terminate all of its obligations under this
Agreement if: (A) the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the affairs of any insured
subsidiary of the Corporation by an order issued under Section 8 (e)(4) or
(g)(1) of the FDIA, 12 U.S.C.(S)1818(e)(4); (g)(1); (B) any of the Corporation's
insured subsidiaries becomes in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C.(S)1813(x)(1)); (C) the Director of the Office of Thrift
Supervision ("OTS") or his or her designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of any of the Corporation's
insured subsidiaries under the authority contained in Section 13(c) of the FDIA,
12 U.S.C.(S)1823(c); or (D) the Director of the OTS or his or her designee
approves a supervisory merger to resolve
5.
<PAGE>
problems related to operation any of the Corporation's insured subsidiaries or
when any of the Corporation's insured subsidiaries is determined by the Director
of the OTS to be in an unsafe or unsound condition; all as of the effective date
of the order, default, agreement to provide assistance or approval of the
merger, as the case may be, but vested rights of the parties shall not be
affected.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation (as
determined in accordance with applicable law), he shall be entitled to receive
disability benefits of the type provided for other employees of the Corporation.
In such event, when the Executive has been absent 90 calendar days in excess of
utilized vacation and sick leave within a 120 calendar day period after the last
day the Executive worked, any rights of the Executive to receive the salary
provided in Section 2 of this Agreement shall be suspended until the Executive
is able to resume regular performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, the Executive shall be entitled, upon execution of a Severance
Agreement and Release as provided in Exhibit A, to a severance payment in the
event the Executive's employment is terminated, other than for "cause" as set
forth in Section 7a(1) or pursuant to Sections 7b (except as provided below), 7c
or 7(d), within twenty-four (24) months after the change in control. The amount
of this payment shall equal two hundred percent (200%) of the Executive's annual
salary as of the date of termination and shall be in lieu of any severance
payment that would be due Executive under Section 7a(2). Such termination or
severance payment shall be in addition to all other amounts payable to the
Executive pursuant to this Agreement. This termination or severance payment
shall also be made in lieu of any severance payment that would be due Executive
under section 7b in the case of a termination of employment by the Executive
pursuant to Section 7b of this Agreement within twenty-four (24) months after a
change in control because during such twenty-four (24) month period there has
been a material diminution of or interference with the Executive's duties,
responsibilities and benefits as Executive Vice President, General Counsel and
Secretary of the Corporation. By way of example and not by way of limitation,
any of the following actions, if unreasonable or materially adverse to the
Executive, shall constitute such diminution or interference unless consented to
in writing by the Executive: (i) a change in the principal workplace of the
Executive to a location more than 25 miles from the Corporation's main office;
(ii) a reduction or adverse change in the salary or benefits which had
theretofore been provided to the Executive, other than as part of an overall
program
6.
<PAGE>
applied uniformly and with equitable effect to all members of senior management
of the Corporation or the Acquiror; or (iii) a change in Executive's title.
Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other amounts
and the value of benefits received or to be received by the Executive in
connection with a change in control would cause any amount to be nondeductible
by the Corporation or the Acquiror for federal income tax purposes pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended, then amounts and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to the
Executive without causing any amount to become nondeductible by the Corporation
or the Acquiror pursuant to or by reason of such Section 280G. The Executive
shall determine the allocation of such reduction among payments and benefits to
the Executive.
The term "change in control" means (1) an event with respect to the
Acquiror of a nature that would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Corporation or the
Acquiror representing 20% or more of the Corporation's or the Acquiror's
outstanding securities; or (3) a reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Corporation or the Acquiror or a
similar transaction in which the Corporation or the Acquiror is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Corporation or the Acquiror.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by
the Corporation's Bylaws and by Delaware corporate law.
7.
<PAGE>
12. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
13. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 13.
a. Agreement to Negotiate. Prior to submitting any controversy,
----------------------
dispute or claim arising out of, or relating to, this Agreement to arbitration,
the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy, dispute or
claim to arbitration (the "claimant") first shall give written notice thereof to
the other party (the "recipient") setting forth in detail the pertinent facts
and circumstances relating to such controversy, dispute or claim;
(2) The recipient shall have a period of fifteen (15) days in which to
consider the controversy, dispute or claim which is the subject of the notice
and to furnish in writing to the claimant a written statement of the recipient's
position;
(3) Within seven (7) days of claimant's receipt of recipient's written
statement, the parties shall meet in an effort to resolve amicably any
differences which may exist and, failing such resolution, either or both of the
parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that to the extent allowable by law any
controversy, dispute or claim arising out of, or relating to, this Agreement, or
breach of this Agreement, including disputes concerning termination of this
Agreement as well as those based upon alleged tort or unlawful acts including
harassment or discrimination, shall be settled by arbitration in San Mateo,
California. The parties hereby waive any right to a trial by court or jury.
This agreement to arbitrate shall be specifically enforceable. Judgment upon
any award rendered by an arbitrator may be entered in any court having
jurisdiction.
8.
<PAGE>
(2) Any demand for arbitration must be served on the other party
within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim, except that the demand in writing may be made at
a later date in accordance with the applicable statute of limitation for any
statutory claim which allows a later date for the presentation of the claim.
(3) There shall be one impartial arbitrator chosen by the Corporation
from a list procured from the California Mediation and Conciliation Service.
(4) The arbitrator shall not extend, modify or suspend any of the
terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the submission
shall be final and binding on all parties, and any right to judicial action on
any matter subject to arbitration hereunder is hereby waived (unless otherwise
provided by applicable law), except suit to enforce this arbitration award.
(6) Executive agrees that such arbitration shall be the exclusive
forum for any controversy, dispute or claim arising out of or relating to this
Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief, unless required by
law.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case unless otherwise required by law. Other costs
of the arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne equally by the parties, unless otherwise required by law.
14. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or
9.
<PAGE>
be construed as a waiver of any subsequent breach of the same provision or any
other provision of this Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement shall
----------
be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California unless otherwise specified in this Agreement (and not
under conflict of law principles) as such laws apply to contracts made and to be
performed entirely in the State of California.
10.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION,
By: /s/ Edward H. Sondker
----------------------------
Name: Edward H. Sondker
Title: President and
Chief Executive Officer
THE EXECUTIVE
/s/ Robert J. Flax
---------------------------------
Robert J. Flax
11.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of January 1997 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and David A. Heaberlin (the
"Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of the Corporation, and
has approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the
-----
Corporation shall be that of Executive Vice President and Chief Financial
Officer.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of an Executive Vice President and Chief
Financial Officer. The Executive shall render such administrative and management
services to the Corporation as are customarily performed by persons employed in
the banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and services
to the Corporation, keeping normal business hours, but is authorized to engage
in such banking trade association and related activities during normal business
hours
<PAGE>
which, in his judgment, with the concurrence of his immediate supervisor, are in
the business interests of the Corporation; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, without first obtaining approval from the Chairman of the
Board. In no event shall such services conflict with the Executive's duty to the
Corporation or adversely affect the Executive's judgment in the performance of
his responsibilities. Executive shall remain free to engage in community,
charitable, political and personal pursuits which do not interfere with his
performance under this Agreement.
2. Compensation. The Corporation agrees to pay the Executive during
------------
the Term of this Agreement a base salary as follows: $210,000 per annum, with
the salary to be reviewed on July 1, 1997, and annually on each July 1st
thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Corporation.
3. Discretionary Bonuses. The Executive may be entitled to
---------------------
participate in discretionary bonuses and incentive payments to the extent
authorized and declared by the Board or its authorized representative. For any
given calendar year, Executive shall be entitled to an annual performance bonus
in accordance with the terms of the incentive plan approved with respect to such
year by the Board or its authorized representative.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit-sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation may
adopt for all of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which may be or become applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
5. Term.
----
2.
<PAGE>
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
this Agreement shall be for a period of 12 months commencing on January 1, 1997
and ending on December 31, 1997 (the "Expiration Date"). On the Expiration Date
and on each anniversary date of the Expiration Date thereafter, the Term of this
Agreement shall be extended automatically by one additional year beyond the
then-current Expiration Date, unless either the Corporation or the Executive
gives contrary written notice to the other not less than 45 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the "Term of this Agreement" shall refer to the term as so extended. Section
9, entitled "Change in Control," shall survive the expiration of this Agreement
for a period of one (1) year so long as Executive is employed by the
Corporation.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Corporation shall be no less than
those provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave, or other
paid time off as specified in Corporation policy, provided that:
a. Basic Vacation. The Executive shall be entitled to an
--------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Corporation's needs,
except that the Executive shall take not less than ten (10) days vacation
consecutively in each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment
--------------------------
under this Agreement may be terminated, with or without cause, at any time by
the Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state
3.
<PAGE>
the effective date of such termination and whether such termination is for
"cause," as defined in Section 7a(1), or without cause pursuant to Section
7a(2). Unless the Termination Notice states that the termination is for cause
and states with reasonable particularity the cause, the termination shall be
deemed to be without cause pursuant to Section 7a(2). In the event an arbitrator
appointed pursuant to Section 13 of this Agreement determines that a purported
termination for cause was in fact without proper cause, the termination shall
nonetheless be effective, but the Executive shall be entitled to the severance
payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's employment
------------------------------------
under this Agreement may be terminated at any time by the Board, or its
authorized representative, for "cause," which shall include, but not be limited
to the following:
(a) The commission by the Executive of an act of misconduct
(including, but not limited to, the violation of any law, rule, regulation or
cease and desist order applicable to the Executive or the Corporation or its
insured subsidiaries), or an act which constitutes a conflict of interest with
the Corporation or its stockholders, or a breach of a fiduciary duty owed by the
Executive;
(b) The Executive's breach of this Agreement, dishonesty,
incompetence, willful misconduct, habitual absence from work, failure to perform
duties, or negligence in the performance of stated duties;
(c) The Executive's becoming physically or mentally incapable of
performing the essential functions of his employment position, with or without
reasonable accommodation, for a period in excess of the applicable leave
entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other than for a minor
traffic violation or similar offense), whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The Executive's
----------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, without cause; provided, however, that unless the
termination of this Agreement is for "cause," as set forth in Section 7a(1), or
pursuant to Sections 7b, 7c, 7d, or 9, then, upon such termination, in addition
to any benefits that had accrued to the date of
4.
<PAGE>
termination but in lieu of any rights or benefits that would have accrued
following such termination, the Executive shall be entitled, upon execution of a
release acceptable to the Board, or its authorized representative, to a lump sum
severance payment of 18 months salary.
b. Termination by the Executive. This Agreement and
----------------------------
Executive's employment may be terminated by the Executive at any time upon 30
days written notice to the Corporation or upon such shorter period as may be
agreed upon between the Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
d. Suspension or Termination by Regulatory Action.
----------------------------------------------
(1) Suspension. If the Executive is suspended from office
----------
and/or temporarily prohibited from participating in the conduct of the affairs
of any insured subsidiary of the Corporation by a notice served under Section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C.(S)1818(e)(3); (g)(1), the Corporation, in its discretion, may suspend its
obligations under this Agreement as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Corporation may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of the obligations which were
suspended, but vested rights of the parties shall not be affected.
(2) Removal; Default; Supervisory Assistance or Merger. The
--------------------------------------------------
Corporation, in its discretion, may terminate all of its obligations under this
Agreement if: (A) the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the affairs of any insured
subsidiary of the Corporation by an order issued under Section 8 (e)(4) or
(g)(1) of the FDIA, 12 U.S.C.(S)1818(e)(4); (g)(1); (B) any of the Corporation's
insured subsidiaries becomes in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C.(S)1813(x)(1)); (C) the Director of the Office of Thrift
Supervision ("OTS") or his or her designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of any of the Corporation's
insured subsidiaries under the authority contained in Section 13(c) of the FDIA,
12 U.S.C.(S)1823(c); or (D) the Director of the OTS or his or her designee
approves a supervisory merger to resolve
5.
<PAGE>
problems related to operation any of the Corporation's insured subsidiaries or
when any of the Corporation's insured subsidiaries is determined by the Director
of the OTS to be in an unsafe or unsound condition; all as of the effective date
of the order, default, agreement to provide assistance or approval of the
merger, as the case may be, but vested rights of the parties shall not be
affected.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation (as
determined in accordance with applicable law), he shall be entitled to receive
disability benefits of the type provided for other employees of the Corporation.
In such event, when the Executive has been absent 90 calendar days in excess of
utilized vacation and sick leave within a 120 calendar day period after the last
day the Executive worked, any rights of the Executive to receive the salary
provided in Section 2 of this Agreement shall be suspended until the Executive
is able to resume regular performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, the Executive shall be entitled, upon execution of a Severance
Agreement and Release as provided in Exhibit A, to a severance payment in the
event the Executive's employment is terminated, other than for "cause" as set
forth in Section 7a(1) or pursuant to Sections 7b (except as provided below), 7c
or 7(d), within twenty-four (24) months after the change in control. The amount
of this payment shall equal two hundred percent (200%) of the Executive's annual
salary as of the date of termination and shall be in lieu of any severance
payment that would be due Executive under Section 7a(2). Such termination or
severance payment shall be in addition to all other amounts payable to the
Executive pursuant to this Agreement. This termination or severance payment
shall also be made in lieu of any severance payment that would be due Executive
under section 7b in the case of a termination of employment by the Executive
pursuant to Section 7b of this Agreement within twenty-four (24) months after a
change in control because during such twenty-four (24) month period there has
been a material diminution of or interference with the Executive's duties,
responsibilities and benefits as Executive Vice President and Chief Financial
Officer of the Corporation. By way of example and not by way of limitation, any
of the following actions, if unreasonable or materially adverse to the
Executive, shall constitute such diminution or interference unless consented to
in writing by the Executive: (i) a change in the principal workplace of the
Executive to a location more than 25 miles from the Corporation's main office;
(ii) a reduction or adverse change in the salary or benefits which had
theretofore been
6.
<PAGE>
provided to the Executive, other than as part of an overall program applied
uniformly and with equitable effect to all members of senior management of the
Corporation or the Acquiror; or (iii) a change in Executive's title.
Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other amounts
and the value of benefits received or to be received by the Executive in
connection with a change in control would cause any amount to be nondeductible
by the Corporation or the Acquiror for federal income tax purposes pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended, then amounts and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to the
Executive without causing any amount to become nondeductible by the Corporation
or the Acquiror pursuant to or by reason of such Section 280G. The Executive
shall determine the allocation of such reduction among payments and benefits to
the Executive.
The term "change in control" means (1) an event with respect to the
Acquiror of a nature that would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Corporation or the
Acquiror representing 20% or more of the Corporation's or the Acquiror's
outstanding securities; or (3) a reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Corporation or the Acquiror or a
similar transaction in which the Corporation or the Acquiror is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Corporation or the Acquiror.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent
7.
<PAGE>
permitted by the Corporation's Bylaws and by Delaware corporate law.
12. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
13. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 13.
a. Agreement to Negotiate. Prior to submitting any
----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement to
arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
in which to consider the controversy, dispute or claim which is the subject of
the notice and to furnish in writing to the claimant a written statement of the
recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that to the extent allowable by
law any controversy, dispute or claim arising out of, or relating to, this
Agreement, or breach of this Agreement, including disputes concerning
termination of this Agreement as well as those based upon alleged tort or
unlawful acts including harassment or discrimination, shall be settled by
arbitration in San Mateo, California. The parties hereby waive any right to a
trial by court or jury. This agreement to arbitrate
8.
<PAGE>
shall be specifically enforceable. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction.
(2) Any demand for arbitration must be served on the other party
within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim, except that the demand in writing may be made at
a later date in accordance with the applicable statute of limitation for any
statutory claim which allows a later date for the presentation of the claim.
(3) There shall be one impartial arbitrator chosen by the
Corporation from a list procured from the California Mediation and Conciliation
Service.
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the exclusive
forum for any controversy, dispute or claim arising out of or relating to this
Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief, unless required by
law.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case unless otherwise required by law. Other costs
of the arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne equally by the parties, unless otherwise required by law.
14. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage
9.
<PAGE>
prepaid, addressed to the party at the last address supplied to the sending
party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California unless otherwise specified in this Agreement (and not
under conflict of law principles) as such laws apply to contracts made and to be
performed entirely in the State of California.
10.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION,
By: /s/ Edward H. Sondker
------------------------------
Name: Edward H. Sondker
Title: President and
Chief Executive Officer
THE EXECUTIVE
/s/ David A. Heaberlin
---------------------------------
David A. Heaberlin
11.
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of January 1997 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and John N. Buckley(the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of its wholly-owned
subsidiary, Bay View Federal Bank, a Federal Savings Bank ("Bank"), and has
approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the Bank
-----
shall be that of Senior Vice President, Director of Loan Administration.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of a Senior Vice President, Director of Loan
Administration. The Executive shall render such administrative and management
services to the Bank as are customarily performed by persons employed in the
banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and
services to the Bank, keeping normal business hours, but is authorized to engage
in such banking trade
<PAGE>
association and related activities during normal business hours which, in his
judgment, with the concurrence of his immediate supervisor, are in the business
interests of the Bank; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, without first obtaining approval from the Chairman of the
Board. In no event shall such services conflict with the Executive's duty to the
Bank or adversely affect the Executive's judgment in the performance of his
responsibilities. Executive shall remain free to engage in community,
charitable, political and personal pursuits which do not interfere with his
performance under this Agreement.
2. Compensation. The Corporation agrees that the Bank shall pay the
------------
Executive during the Term of this Agreement a base salary as follows: $150,000
per annum, with the salary to be reviewed on July 1, 1997, and annually on each
July 1st thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Bank.
3. Discretionary Bonuses. The Executive may be entitled to
---------------------
participate in discretionary bonuses and incentive payments to the extent
authorized and declared by the Board or its authorized representative. For any
given calendar year, Executive shall be entitled to an annual performance bonus
in accordance with the terms of the incentive plan approved with respect to such
year by the Board or its authorized representative.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit-sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation may
adopt for all of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which may be or become applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
5. Term.
----
2.
<PAGE>
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
this Agreement shall be for a period of 12 months commencing on January 1, 1997
and ending on December 31, 1997 (the "Expiration Date"). On the Expiration Date
and on each anniversary date of the Expiration Date thereafter, the Term of this
Agreement shall be extended automatically by one additional year beyond the
then-current Expiration Date, unless either the Corporation or the Executive
gives contrary written notice to the other not less than 45 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the "Term of this Agreement" shall refer to the term as so extended. Section
9, entitled "Change in Control," shall survive the expiration of this Agreement
for a period of one (1) year so long as Executive is employed by the
Corporation.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Bank shall be no less than those
provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave, or other
paid time off as specified in Corporation policy, provided that:
a. Basic Vacation. The Executive shall be entitled to an
---------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Bank's needs, except that
the Executive shall take not less than ten (10) days vacation consecutively in
each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment
--------------------------
under this Agreement may be terminated, with or without cause, at any time by
the Board, or its authorized representative, by delivery to the Executive of a
written notice (the "Termination Notice") of such termination. The Termination
Notice shall state the effective date of such termination and whether such
termination
3.
<PAGE>
is for "cause," as defined in Section 7a(1), or without cause pursuant to
Section 7a(2). Unless the Termination Notice states that the termination is for
cause and states with reasonable particularity the cause, the termination shall
be deemed to be without cause pursuant to Section 7a(2). In the event an
arbitrator appointed pursuant to Section 13 of this Agreement determines that a
purported termination for cause was in fact without proper cause, the
termination shall nonetheless be effective, but the Executive shall be entitled
to the severance payment pursuant to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, for "cause," which shall include, but not be
limited to the following:
(a) The commission by the Executive of an act of
misconduct (including, but not limited to, the violation of any law, rule,
regulation or cease and desist order applicable to the Executive or the
Corporation or its insured subsidiaries), or an act which constitutes a conflict
of interest with the Corporation or its stockholders, or a breach of a fiduciary
duty owed by the Executive;
(b) The Executive's breach of this Agreement,
dishonesty, incompetence, willful misconduct, habitual absence from work,
failure to perform duties, or negligence in the performance of stated duties;
(c) The Executive's becoming physically or mentally
incapable of performing the essential functions of his employment position, with
or without reasonable accommodation, for a period in excess of the applicable
leave entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other
than for a minor traffic violation or similar offense), whether or not in the
line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The
----------------------------------------
Executive's employment under this Agreement may be terminated at any time by the
Board, or its authorized representative, without cause; provided, however, that
unless the termination of this Agreement is for "cause," as set forth in Section
7a(1), or pursuant to Sections 7b, 7c, 7d, or 9, then, upon such termination, in
addition to any benefits that had accrued to the date of termination but in lieu
of any rights or benefits that would have
4.
<PAGE>
accrued following such termination, the Executive shall be entitled, upon
execution of a release acceptable to the Board, or its authorized
representative, to a lump sum severance payment of 12 months salary.
b. Termination by the Executive. This Agreement and
----------------------------
Executive's employment may be terminated by the Executive at any time upon 30
days written notice to the Corporation or upon such shorter period as may be
agreed upon between the Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
d. Suspension or Termination by Regulatory Action.
----------------------------------------------
(1) Suspension. If the Executive is suspended from
----------
office and/or temporarily prohibited from participating in the conduct of the
affairs of any insured subsidiary of the Corporation by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C.(S)1818(e)(3); (g)(1), the Corporation, in its discretion, may suspend its
obligations under this Agreement as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Corporation may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of the obligations which were
suspended, but vested rights of the parties shall not be affected.
(2) Removal; Default; Supervisory Assistance or Merger.
--------------------------------------------------
The Corporation, in its discretion, may terminate all of its obligations under
this Agreement if: (A) the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the affairs of any insured
subsidiary of the Corporation by an order issued under Section 8 (e)(4) or
(g)(1) of the FDIA, 12 U.S.C.(S)1818(e)(4); (g)(1); (B) any of the Corporation's
insured subsidiaries becomes in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C.(S)1813(x)(1)); (C) the Director of the Office of Thrift
Supervision ("OTS") or his or her designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of any of the Corporation's
insured subsidiaries under the authority contained in Section 13(c) of the FDIA,
12 U.S.C.(S)1823(c); or (D) the Director of the OTS or his or her designee
approves a supervisory merger to resolve problems related to operation any of
the Corporation's insured
5.
<PAGE>
subsidiaries or when any of the Corporation's insured subsidiaries is determined
by the Director of the OTS to be in an unsafe or unsound condition; all as of
the effective date of the order, default, agreement to provide assistance or
approval of the merger, as the case may be, but vested rights of the parties
shall not be affected.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation (as
determined in accordance with applicable law), he shall be entitled to receive
disability benefits of the type provided for other employees of the Corporation.
In such event, when the Executive has been absent 90 calendar days in excess of
utilized vacation and sick leave within a 120 calendar day period after the last
day the Executive worked, any rights of the Executive to receive the salary
provided in Section 2 of this Agreement shall be suspended until the Executive
is able to resume regular performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, the Executive shall be entitled, upon execution of a Severance
Agreement and Release as provided in Exhibit A, to a severance payment in the
event the Executive's employment is terminated, other than for "cause" as set
forth in Section 7a(1) or pursuant to Sections 7b (except as provided below), 7c
or 7(d), within twenty-four (24) months after the change in control. The amount
of this payment shall equal two hundred percent (200%) of the Executive's annual
salary as of the date of termination and shall be in lieu of any severance
payment that would be due Executive under Section 7a(2). Such termination or
severance payment shall be in addition to all other amounts payable to the
Executive pursuant to this Agreement. This termination or severance payment
shall also be made in lieu of any severance payment that would be due Executive
under section 7b in the case of a termination of employment by the Executive
pursuant to Section 7b of this Agreement within twenty-four (24) months after a
change in control because during such twenty-four (24) month period there has
been a material diminution of or interference with the Executive's duties,
responsibilities and benefits as Senior Vice President, Director of Loan
Administration of the Bank. By way of example and not by way of limitation, any
of the following actions, if unreasonable or materially adverse to the
Executive, shall constitute such diminution or interference unless consented to
in writing by the Executive: (i) a change in the principal workplace of the
Executive to a location more than 25 miles from the Corporation's main office;
(ii) a reduction or adverse change in the salary or benefits which had
theretofore been provided to the Executive, other than as part of an overall
program
6.
<PAGE>
applied uniformly and with equitable effect to all members of senior management
of the Corporation or the Acquiror; or (iii) a change in Executive's title.
Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other amounts
and the value of benefits received or to be received by the Executive in
connection with a change in control would cause any amount to be nondeductible
by the Corporation or the Acquiror for federal income tax purposes pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended, then amounts and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to the
Executive without causing any amount to become nondeductible by the Corporation
or the Acquiror pursuant to or by reason of such Section 280G. The Executive
shall determine the allocation of such reduction among payments and benefits to
the Executive.
The term "change in control" means (1) an event with respect to the
Acquiror of a nature that would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Corporation or the
Acquiror representing 20% or more of the Corporation's or the Acquiror's
outstanding securities; or (3) a reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Corporation or the Acquiror or a
similar transaction in which the Corporation or the Acquiror is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Corporation or the Acquiror.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by
the Corporation's Bylaws and by Delaware corporate law.
7.
<PAGE>
12. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
13. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 13.
a. Agreement to Negotiate. Prior to submitting any
----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement to
arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
in which to consider the controversy, dispute or claim which is the subject of
the notice and to furnish in writing to the claimant a written statement of the
recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that to the extent allowable by
law any controversy, dispute or claim arising out of, or relating to, this
Agreement, or breach of this Agreement, including disputes concerning
termination of this Agreement as well as those based upon alleged tort or
unlawful acts including harassment or discrimination, shall be settled by
arbitration in San Mateo, California. The parties hereby waive any right to a
trial by court or jury. This agreement to arbitrate shall be specifically
enforceable. Judgment upon any award rendered by an arbitrator may be entered in
any court having jurisdiction.
8.
<PAGE>
(2) Any demand for arbitration must be served on the other
party within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim, except that the demand in writing may be made at
a later date in accordance with the applicable statute of limitation for any
statutory claim which allows a later date for the presentation of the claim.
(3) There shall be one impartial arbitrator chosen by the
Corporation from a list procured from the California Mediation and Conciliation
Service.
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the
submission shall be final and binding on all parties, and any right to judicial
action on any matter subject to arbitration hereunder is hereby waived (unless
otherwise provided by applicable law), except suit to enforce this arbitration
award.
(6) Executive agrees that such arbitration shall be the
exclusive forum for any controversy, dispute or claim arising out of or relating
to this Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief, unless required by
law.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case unless otherwise required by law. Other costs
of the arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne equally by the parties, unless otherwise required by law.
14. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited in the United States mail,
registered or certified, postage prepaid, addressed to the party at the last
address supplied to the sending party by the addressed party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or
9.
<PAGE>
be construed as a waiver of any subsequent breach of the same provision or any
other provision of this Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California unless otherwise specified in this Agreement (and not
under conflict of law principles) as such laws apply to contracts made and to be
performed entirely in the State of California.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION,
10.
<PAGE>
By: /s/ Edward H. Sondker
-----------------------------
Name: Edward H. Sondker
Title: President and
Chief Executive Officer
THE EXECUTIVE
/s/ John F. Buckley
--------------------------------
John F. Buckley
11.
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day of January 1997 by and between Bay View Capital Corporation (the
"Corporation"), a Delaware Corporation, and Cynthia L. Hart (the "Executive").
R E C I T A L S:
A. The parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship between the Corporation and
the Executive.
B. The Board of Directors of the Corporation (or "Board") believes it is
in the best interests of the Corporation to enter into this Agreement with the
Executive in order to assure continuity of management of its wholly-owned
subsidiary, Bay View Federal Bank, a Federal Savings Bank ("Bank), and has
approved and authorized the execution by the Corporation of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises herein contained, the parties hereto agree as follows:
1. Executive's Title, Duty, Authority and Time Commitment.
------------------------------------------------------
a. Title. The Executive's position and title with the Bank
-----
shall be that of Senior Vice President, Director of Sales and Bank Operations.
b. Duties and Authority. The Executive's duties and authority
--------------------
shall be consistent with those of a Senior Vice President, Director of Sales and
Bank Operations. The Executive shall render such administrative and management
services to the Bank as are customarily performed by persons employed in the
banking and financial services industry in a similar executive capacity. In
addition, the Executive shall perform such other duties as the Board, or its
authorized representative, may from time to time require. All duties performed
by the Executive hereunder shall be in accordance with such reasonable standards
as are established from time to time by the Board, or its authorized
representative, and performance evaluations shall be conducted by or under the
direction of the Board and reviewed with the Executive annually.
c. Time Commitment. During the "Term of this Agreement", as
---------------
defined in Section 5 of this Agreement, unless the Executive has obtained the
prior written consent of the Board, or its authorized representative,
(1) The Executive shall render his full productive time and
services to the Bank, keeping normal business
<PAGE>
hours, but is authorized to engage in such banking trade association and related
activities during normal business hours which, in his judgment, with the
concurrence of his immediate supervisor, are in the business interests of the
Bank; and
(2) The Executive shall not render personal services to any
other person or entity for compensation, either as an Executive, consultant,
director or officer, without first obtaining approval from the Chairman of the
Board. In no event shall such services conflict with the Executive's duty to the
Bank or adversely affect the Executive's judgment in the performance of his
responsibilities. Executive shall remain free to engage in community,
charitable, political and personal pursuits which do not interfere with his
performance under this Agreement.
2. Compensation. The Corporation agrees that the Bank shall pay the
------------
Executive during the Term of this Agreement a base salary as follows: $150,000
per annum, with the salary to be reviewed on July 1, 1997, and annually on each
July 1st thereafter during the Term of this Agreement. Salary increases are not
guaranteed or automatic. The salary provided for in this Agreement shall be
payable semi-monthly in accordance with the practices of the Bank.
3. Discretionary Bonuses. The Executive may be entitled to
---------------------
participate in discretionary bonuses and incentive payments to the extent
authorized and declared by the Board or its authorized representative. For any
given calendar year, Executive shall be entitled to an annual performance bonus
in accordance with the terms of the incentive plan approved with respect to such
year by the Board or its authorized representative.
4. Additional Benefits.
-------------------
a. Participation in Executive Benefit Plans. The Executive
----------------------------------------
shall be entitled to participate in any plan of the Corporation, as such plan
may from time to time provide, relating to stock options, stock purchases,
pension, thrift, deferred profit-sharing, group insurance coverage, education or
retirement or other supplemental Executive benefits that the Corporation may
adopt for all of its Executives as a group.
b. Fringe Benefits. The Executive shall be entitled to
---------------
participate in any other program which may be or become applicable to the
Corporation's executives, as such program may from time to time provide
including a reasonable expense account, the payment of reasonable expenses for
attending educational seminars and annual and periodic meetings of trade
associations, and other benefits which are commensurate with the
responsibilities and functions to be performed by the Executive under this
Agreement.
2.
<PAGE>
5. Term.
----
a. Initial Term and Automatic Extension. The initial term of
------------------------------------
this Agreement shall be for a period of 12 months commencing on January 1, 1997
and ending on December 31, 1997 (the "Expiration Date"). On the Expiration Date
and on each anniversary date of the Expiration Date thereafter, the Term of this
Agreement shall be extended automatically by one additional year beyond the
then-current Expiration Date, unless either the Corporation or the Executive
gives contrary written notice to the other not less than 45 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the "Term of this Agreement" shall refer to the term as so extended. Section
9, entitled "Change in Control," shall survive the expiration of this Agreement
for a period of one (1) year so long as Executive is employed by the
Corporation.
b. Consequences of Non-Extension. If this Agreement is not
-----------------------------
extended, on the expiration of the Term of this Agreement, the Executive shall
be deemed to be employed by the Corporation for no specific term and the
Executive's rights as an Executive of the Bank shall be no less than those
provided by the laws of the State of California and the laws of the United
States; provided, however, that such post expiration employment may be
terminated at any time by the Executive or by the Board, or its authorized
representative, with or without cause by delivery to the Executive of a written
notice (the "Termination Notice") of such termination.
6. Voluntary Absences. At such reasonable times as the Board, or
------------------
its authorized representative, shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement. All such voluntary absences
shall count as holidays, vacation time, floating holidays, sick leave, or other
paid time off as specified in Corporation policy, provided that:
a. Basic Vacation. The Executive shall be entitled to an
---------------
annual paid vacation of 20 days per year.
b. Timing of Vacation. Vacations shall be scheduled in a
------------------
reasonable manner by the Executive and subject to the Bank's needs, except that
the Executive shall take not less than ten (10) days vacation consecutively in
each calendar year.
7. Termination of Employment.
-------------------------
a. Termination by Corporation. The Executive's employment
--------------------------
under this Agreement may be terminated, with or without cause, at any time by
the Board, or its authorized representative,
3.
<PAGE>
by delivery to the Executive of a written notice (the "Termination Notice") of
such termination. The Termination Notice shall state the effective date of such
termination and whether such termination is for "cause," as defined in Section
7a(1), or without cause pursuant to Section 7a(2). Unless the Termination Notice
states that the termination is for cause and states with reasonable
particularity the cause, the termination shall be deemed to be without cause
pursuant to Section 7a(2). In the event an arbitrator appointed pursuant to
Section 13 of this Agreement determines that a purported termination for cause
was in fact without proper cause, the termination shall nonetheless be
effective, but the Executive shall be entitled to the severance payment pursuant
to Section 7a(2) hereof.
(1) Termination by Corporation for Cause. The Executive's employment
------------------------------------
under this Agreement may be terminated at any time by the Board, or its
authorized representative, for "cause," which shall include, but not be limited
to the following:
(a) The commission by the Executive of an act of misconduct
(including, but not limited to, the violation of any law, rule, regulation or
cease and desist order applicable to the Executive or the Corporation or its
insured subsidiaries), or an act which constitutes a conflict of interest with
the Corporation or its stockholders, or a breach of a fiduciary duty owed by the
Executive;
(b) The Executive's breach of this Agreement, dishonesty,
incompetence, willful misconduct, habitual absence from work, failure to perform
duties, or negligence in the performance of stated duties;
(c) The Executive's becoming physically or mentally incapable of
performing the essential functions of his employment position, with or without
reasonable accommodation, for a period in excess of the applicable leave
entitlement mandated by Federal or State law; or
(d) Any criminal conviction of the Executive (other than for a minor
traffic violation or similar offense), whether or not in the line of duty.
In the event of termination for cause under this Section 7a(1), the Executive
shall have no right to receive compensation or other benefits under this
Agreement for any period after such termination.
(2) Termination by Corporation Without Cause. The Executive's
----------------------------------------
employment under this Agreement may be terminated at any time by the Board, or
its authorized representative, without cause; provided, however, that unless the
termination of this
4.
<PAGE>
Agreement is for "cause," as set forth in Section 7a(1), or pursuant to Sections
7b, 7c, 7d, or 9, then, upon such termination, in addition to any benefits that
had accrued to the date of termination but in lieu of any rights or benefits
that would have accrued following such termination, the Executive shall be
entitled, upon execution of a release acceptable to the Board, or its authorized
representative, to a lump sum severance payment of 12 months salary.
b. Termination by the Executive. This Agreement and
----------------------------
Executive's employment may be terminated by the Executive at any time upon 30
days written notice to the Corporation or upon such shorter period as may be
agreed upon between the Executive and the Board.
c. Termination by Death. In the event of the death of the
--------------------
Executive during the Term of this Agreement, the Executive's estate, or such
person as the Executive may have previously designated in writing for group
insurance purposes, shall be entitled to receive the salary due the Executive
through the last day of the calendar month in which his death shall have
occurred.
d. Suspension or Termination by Regulatory Action.
----------------------------------------------
(1) Suspension. If the Executive is suspended from office
----------
and/or temporarily prohibited from participating in the conduct of the affairs
of any insured subsidiary of the Corporation by a notice served under Section
8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C.(S)1818(e)(3); (g)(1), the Corporation, in its discretion, may suspend its
obligations under this Agreement as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Corporation may in its discretion (i) pay the Executive all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of the obligations which were
suspended, but vested rights of the parties shall not be affected.
(2) Removal; Default; Supervisory Assistance or Merger. The
--------------------------------------------------
Corporation, in its discretion, may terminate all of its obligations under this
Agreement if: (A) the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the affairs of any insured
subsidiary of the Corporation by an order issued under Section 8 (e)(4) or
(g)(1) of the FDIA, 12 U.S.C.(S)1818(e)(4); (g)(1); (B) any of the Corporation's
insured subsidiaries becomes in default (as defined in Section 3(x)(1) of the
FDIA, 12 U.S.C.(S)1813(x)(1)); (C) the Director of the Office of Thrift
Supervision ("OTS") or his or her designee at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of any of the Corporation's
5.
<PAGE>
insured subsidiaries under the authority contained in Section 13(c) of the FDIA,
12 U.S.C.(S)1823(c); or (D) the Director of the OTS or his or her designee
approves a supervisory merger to resolve problems related to operation any of
the Corporation's insured subsidiaries or when any of the Corporation's insured
subsidiaries is determined by the Director of the OTS to be in an unsafe or
unsound condition; all as of the effective date of the order, default, agreement
to provide assistance or approval of the merger, as the case may be, but vested
rights of the parties shall not be affected.
8. Disability. If the Executive shall become disabled or
----------
incapacitated to the extent that he is unable to perform the essential functions
of his employment position, with or without reasonable accommodation (as
determined in accordance with applicable law), he shall be entitled to receive
disability benefits of the type provided for other employees of the Corporation.
In such event, when the Executive has been absent 90 calendar days in excess of
utilized vacation and sick leave within a 120 calendar day period after the last
day the Executive worked, any rights of the Executive to receive the salary
provided in Section 2 of this Agreement shall be suspended until the Executive
is able to resume regular performance of his duties.
9. Change in Control. If during the Term of this Agreement, or
-----------------
within one (1) year following the expiration of this Agreement and if Executive
is employed by the Corporation, there is a "change in control," as hereinafter
defined, the Executive shall be entitled, upon execution of a Severance
Agreement and Release as provided in Exhibit A, to a severance payment in the
event the Executive's employment is terminated, other than for "cause" as set
forth in Section 7a(1) or pursuant to Sections 7b (except as provided below), 7c
or 7(d), within twenty-four (24) months after the change in control. The amount
of this payment shall equal two hundred percent (200%) of the Executive's annual
salary as of the date of termination and shall be in lieu of any severance
payment that would be due Executive under Section 7a(2). Such termination or
severance payment shall be in addition to all other amounts payable to the
Executive pursuant to this Agreement. This termination or severance payment
shall also be made in lieu of any severance payment that would be due Executive
under section 7b in the case of a termination of employment by the Executive
pursuant to Section 7b of this Agreement within twenty-four (24) months after a
change in control because during such twenty-four (24) month period there has
been a material diminution of or interference with the Executive's duties,
responsibilities and benefits as Senior Vice President, Director of Sales and
Bank Operations of the Bank. By way of example and not by way of limitation, any
of the following actions, if unreasonable or materially adverse to the
Executive, shall constitute such diminution or interference unless consented to
in writing by the Executive: (i) a change in the principal workplace of the
Executive
6.
<PAGE>
to a location more than 25 miles from the Corporation's main office; (ii) a
reduction or adverse change in the salary or benefits which had theretofore been
provided to the Executive, other than as part of an overall program applied
uniformly and with equitable effect to all members of senior management of the
Corporation or the Acquiror; or (iii) a change in Executive's title.
Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other amounts
and the value of benefits received or to be received by the Executive in
connection with a change in control would cause any amount to be nondeductible
by the Corporation or the Acquiror for federal income tax purposes pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended, then amounts and
benefits under this Agreement shall be reduced (not less than zero) to the
extent necessary so as to maximize amounts and the value of benefits to the
Executive without causing any amount to become nondeductible by the Corporation
or the Acquiror pursuant to or by reason of such Section 280G. The Executive
shall determine the allocation of such reduction among payments and benefits to
the Executive.
The term "change in control" means (1) an event with respect to the
Acquiror of a nature that would be required to be reported in response to Item 1
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
(2) any person (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Corporation or the
Acquiror representing 20% or more of the Corporation's or the Acquiror's
outstanding securities; or (3) a reorganization, merger, consolidation, sale of
all or substantially all of the assets of the Corporation or the Acquiror or a
similar transaction in which the Corporation or the Acquiror is not the
resulting entity. The term "change in control" shall not include an acquisition
of securities by an employee benefit plan of the Corporation or the Acquiror.
10. Successors and Assigns. The terms, provisions, covenants, and
----------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that the Executive may not sell, assign, pledge, hypothecate or
otherwise transfer this Agreement or any part thereof without the prior written
consent of the Corporation, which consent may be withheld by the Corporation for
any reason it deems appropriate. "Successors and assigns" shall mean, in the
case of the Corporation, any successor pursuant to a merger, consolidation or
sale or transfer of all or substantially all of the assets of the Corporation.
7.
<PAGE>
11. Indemnification. The Corporation hereby agrees that the
---------------
Corporation shall indemnify the Executive to the fullest extent permitted by
the Corporation's Bylaws and by Delaware corporate law.
12. Disclosure of Information. Executive recognizes that as an
-------------------------
executive of the Corporation, Executive occupies a position of trust with
respect to much business information of a secret or confidential nature which is
the property of the Corporation and which will be imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that Executive shall not at any time, whether in the course of his employment or
thereafter, use or disclose directly or indirectly to any person outside the
Corporation any of such information, except as required in the ordinary course
of Executive's duties under this Agreement.
13. Arbitration. The parties hereby agree that any controversy or
-----------
dispute arising out of or relating to this Agreement shall be resolved pursuant
to this Section 13.
a. Agreement to Negotiate. Prior to submitting any
----------------------
controversy, dispute or claim arising out of, or relating to, this Agreement to
arbitration, the parties hereto agree to observe the following procedures:
(1) The party desiring to submit any such controversy,
dispute or claim to arbitration (the "claimant") first shall give written notice
thereof to the other party (the "recipient") setting forth in detail the
pertinent facts and circumstances relating to such controversy, dispute or
claim;
(2) The recipient shall have a period of fifteen (15) days
in which to consider the controversy, dispute or claim which is the subject of
the notice and to furnish in writing to the claimant a written statement of the
recipient's position;
(3) Within seven (7) days of claimant's receipt of
recipient's written statement, the parties shall meet in an effort to resolve
amicably any differences which may exist and, failing such resolution, either or
both of the parties shall have the right to submit the matter to arbitration.
b. Procedure for Arbitration.
-------------------------
(1) The parties hereby agree that to the extent allowable by
law any controversy, dispute or claim arising out of, or relating to, this
Agreement, or breach of this Agreement, including disputes concerning
termination of this Agreement as well as those based upon alleged tort or
unlawful acts including harassment or discrimination, shall be settled by
8.
<PAGE>
arbitration in San Mateo, California. The parties hereby waive any right to a
trial by court or jury. This agreement to arbitrate shall be specifically
enforceable. Judgment upon any award rendered by an arbitrator may be entered in
any court having jurisdiction.
(2) Any demand for arbitration must be served on the other party
within forty-five (45) days of the act or omission giving rise to the
controversy, dispute or claim, except that the demand in writing may be made at
a later date in accordance with the applicable statute of limitation for any
statutory claim which allows a later date for the presentation of the claim.
(3) There shall be one impartial arbitrator chosen by the Corporation
from a list procured from the California Mediation and Conciliation Service.
(4) The arbitrator shall not extend, modify or suspend any
of the terms of this Agreement.
(5) The decision of the Arbitrator within the scope of the submission
shall be final and binding on all parties, and any right to judicial action on
any matter subject to arbitration hereunder is hereby waived (unless otherwise
provided by applicable law), except suit to enforce this arbitration award.
(6) Executive agrees that such arbitration shall be the exclusive
forum for any controversy, dispute or claim arising out of or relating to this
Agreement, or breach or termination of this Agreement. Executive further
expressly agrees that in arbitration his exclusive remedy shall be a money award
not to exceed the amount of wages he would have earned under this Agreement but
for the alleged violation and the Executive shall not be entitled to any other
remedy, at law or in equity, including but not limited to reinstatement, other
money damages, punitive damages and/or injunctive relief, unless required by
law.
(7) Each party shall pay such party's own attorney or other
representative, and the expenses of such party's witnesses and all other
expenses connected with his case unless otherwise required by law. Other costs
of the arbitration, including the cost of any record or transcript of the
arbitration, administrative fees, arbitrator's fees, and all other fees and
costs, shall be borne equally by the parties, unless otherwise required by law.
14. General Provisions.
------------------
a. Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be deemed to be properly given when
personally served in writing and when deposited
9.
<PAGE>
in the United States mail, registered or certified, postage prepaid, addressed
to the party at the last address supplied to the sending party by the addressed
party.
b. Waiver. The waiver by any party of a breach of any
------
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Agreement.
c. Entire Agreement. Except as provided herein, this Agreement
----------------
contains the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of the Executive by the Corporation. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other agreement,
statement or promise not contained in this Agreement shall be valid and binding.
d. Amendments. No amendments or additions to this Agreement
----------
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
e. Paragraph Headings. The paragraph headings used in this
------------------
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
f. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
g. Governing Law. Except where federal law governs, this
-------------
Agreement is to be governed by and construed under the internal substantive laws
of the State of California unless otherwise specified in this Agreement (and not
under conflict of law principles) as such laws apply to contracts made and to be
performed entirely in the State of California.
10.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first hereinabove written.
BAY VIEW CAPITAL CORPORATION,
By: /s/ Edward H. Sondker
----------------------------
Name: Edward H. Sondker
Title: President and
Chief Executive Officer
THE EXECUTIVE
/s/ Cynthia L. Hart
---------------------------------
Cynthia L. Hart
11.
<PAGE>
EXHIBIT 10.6
[LETTTERHEAD OF BAY VIEW FEDERAL BANK]
OUTSIDE DIRECTORS' RETIREMENT PLAN
----------------------------------
February 1992
<PAGE>
Article I - Name, Purposes, and Effective Date
- ----------------------------------------------
1.1 The Plan set forth in this document is designated as the BAY VIEW
FEDERAL BANK OUTSIDE DIRECTORS' RETIREMENT PLAN.
1.2 The Plan was created and will be maintained to provide retirement
income and pre-retirement death benefits to outside Directors serving on the
Board.
1.3 The Plan is a non-qualified defined benefit retirement plan, not
subject to the Employee Retirement Income Society Act of 1974 (ERISA).
1.4 The effective date of the Plan is February 27, 1987. The fiscal year
of the Plan is January 1 through December 31.
<PAGE>
Article II - Definitions
- ------------------------
2.1 "Advisory Board" means the body established by the Board as a vehicle
for recruiting, preparing and screening potential new Directors. Such Advisory
Board ceased to exist in 1983.
2.2 "Bank" means Bay View Federal Bank, A Federal Savings Bank and its
successor, if any.
2.3 "Board" means the Board of Directors of the Bank.
2.4 "Board Committee" means a formal committee of the Board.
2.5 "Director" means an outside, non-employee Director serving the Board.
2.6 "Effective Date" of the Plan means February 27, 1987.
2.7 "Normal Form of Payment" means monthly payments for the Payment
Period.
2.8 "Pay" means the Retainer in effect at the time the Director becomes a
Retiree.
2.9 "Payment Periods" means the period during which the Retiree is
entitled to receive benefits under the Plan. If the Retiree should die within
the Payment Period, payments will continue to the named beneficiary(ies) or to
the Retiree's estate. However, such payments shall not continue beyond the
original Payment Period.
2
<PAGE>
2.10 "Payment Period Limit" means the maximum number of years in which the
Director is entitled to receive benefits, based on the Director's completed
Years of Service.
2.11 "Plan" means the Outside Directors' Retirement Plan as described in
this document.
2.12 "Retainer" means the annual base amount paid to Directors as a fixed
amount, exclusive of meeting fees, consulting fees, provision for Directors'
benefits, and any special director compensation. The annual base amount shall
be the amount that is in effect at the time the Director becomes a Retiree. The
Retainer shall also include the annual fixed amount payable to the Director for
his/her position as Chairperson of the Board or a Board committee (if
applicable). The entitlement to a chair fee shall be accorded any director who
serves at least three years as the chair of one or more committees of the Board
or the Board itself, the chair fee sat at the highest level earned by the
director while acting in such capacity.
2.13 "Retiree" means a former Director entitles to benefits under the
Plan.
2.14 "Vesting Schedule" means the applicable percentage of the full
retirement benefit based on years of service.
2.15 "Year of Service" means twelve consecutive months of service as a
Director. It also includes service on the Advisory Board.
3
<PAGE>
Article III - Eligibility
- -------------------------
3.1 All non-employee Directors are eligible to participate as of the
Effective Date. Directors appointed to the Board following the Effective Date
of the Plan will be eligible commencing with the effective date of their
appointment.
Article IV - Retirement Benefit and Vesting Schedule
- ----------------------------------------------------
4.1 Directors will be entitled to benefit payments under the Plan
following completion of three (3) Years of Service, and upon the later of:
. attainment of age 65, or
. termination of service as a director
The Board in its sole discretion may elect to commence benefit payments on an
earlier date depending on the facts and circumstances at the time of resignation
or early retirement, but in no event prior to attainment of age 50.
4.2 The annual Retirement Benefit payable to a Retiree will be equal to
the Retainer in effect at the time of retirement, and will be subject to the
Vesting Schedule Applicable Percentage, specified in the following table,
multiplied by the Retainer.
4
<PAGE>
<TABLE>
<CAPTION>
Completed Vesting Schedule
--------- ----------------
Years of Service Applicable Percentage
---------------- ---------------------
<S> <C>
Under three (3) 0%
Three (3) but less than Five (5) 50%
Five (5) but less than Ten (10) 100%
Ten (10) and Over 100%
</TABLE>
4.3 The annual Retirement Benefit will be paid to the Retiree or the
designated beneficiary(ies) for the applicable Payment Period, according to the
following table:
<TABLE>
<CAPTION>
Completed
---------
Years of Service Payment Period Limit
---------------- --------------------
<S> <C>
Under three (3) 0 Years
Three (3) but less than Five (5) 5
Five (5) but less than Ten (10) 10
Ten (10) and Over 15 if on Board at
age 65 or over.
(10 years if not
age 65)
</TABLE>
5
<PAGE>
Article V - Form of Payment
- ---------------------------
5.1 The annual Retirement Benefit will be paid in monthly payments which is
the Normal Form of Payment. However, the Board may, at its sole discretion, pay
the actuarial equivalent of the Retirement Benefit in the form of a lump sum
payment. Such decision shall not be at the election of the Retiree, but rather
by the Board, based on the facts and circumstances that exist at the time of the
Director's retirement or termination from the Board. If the decision to effect a
lump sum payment is made, the Board shall also determine the timing of such
payment.
5.2 For purposes of calculating the lump sum, the interest rate
assumption used in determining the present value equivalent of the Retirement
Benefit shall be the average of the Eleventh District Cost of Funds Index for
the most current calendar quarter.
6
<PAGE>
Article VI - Beneficiary Designation
- ------------------------------------
6.1 Each Director shall designate one or more beneficiaries to receive
benefits under the Plan in the event of the director's death. Such a
designation may be changed at any time. Absent a valid designation, or if no
designated beneficiary survives the Director, benefits under the Plan shall be
distributed in the following order of priority: spouse, issue (e.g., children)
by right of representation, parents, or the estate of the Director.
6.2 Whenever the rights of Directors are stated or limited herein, such
provisions shall also apply to their beneficiaries.
Article VII - Death/Disability Benefits
- ---------------------------------------
7.1 The designated beneficiary (ies) of a Director who dies while on the
Board, or of a former Director who dies prior to becoming a Retiree under the
plan, will be entitled to monthly payments equal to one-twelfth of the annual
Retirement Benefit that the Director would have received had he/she retired on
the date of death. Such payments shall commence as soon as practical following
the death of the Director, and will be paid for the full Payment Period.
7.2 If a Director should die while a Retiree, the designated
beneficiary(ies) will be entitled to receive monthly payments for the remaining
Period of the original Payment Period.
7.3 There is no payment provision for disability benefits if the Director
should become totally and permanently disabled. In that event, the Director
would be obliged to retire or terminate his/her service.
7
<PAGE>
Article VIII - Source of Benefits and Funding
- ---------------------------------------------
8.1 The benefits earned and payable under the Plan are a direct obligation
of the Bank and will be reflected as a financial statement accrued liability.
This liability will be determined in accordance with accepted actuarial
assumptions. No specific assets will be set aside for the designated purpose of
satisfying the Bank's obligation under the terms of the Plan.
Article IX - Effect of Merger/Change in Control
- -----------------------------------------------
9.1 If, at any time prior to retirement of a Director, there is a merger,
consolidation or combination of the Bank with or into another financial
institution (other than a merger, consolidation, or combination in which the
bank is the continuing financial institution and which does not result in the
outstanding shares of Common Stock being converted into or exchanged for
different securities, cash or other property, or any combination thereof), or if
there is a change in control of the Bank, or of any company holding more than 50
percent of the outstanding Common Stock of the bank, the Director's vesting
schedule shall be accelerated to the next highest benefit level, and the annual
Retirement Benefit will be equal to the amount the Director would have received
had he/she retired on the effective date of the merger or change in control, and
the Payment Period shall commence as of the date of the merger or change in
control, notwithstanding the provisions of
8
<PAGE>
Section 4.1. Notwithstanding the foregoing, in no event shall the annual
Retirement Benefit to be paid to a Director under this Section 9.1 exceed two
hundred ninety-nine percent (299%) of the Director's "base" amount of
compensation, as defined in Section 2806(b)(3) of the Internal Revenue Code of
1986, as amended.
9.2 The term "control" shall refer to the acquisition of 25 percent or more
of the voting securities of the Bank or Holding Company by any person, or
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, or to such acquisition of a percentage between 10 percent
and 25 percent if the Board of Directors of the Bank, the Holding Company or the
Office of Thrift Supervision has made a determination that such acquisition
constitutes or will constitute control of the Bank or the Holding Company. The
term "person" refers to an individual, corporation, company or other entity.
9.3 Under the conditions of this Article, the following payment options
will be available to the Director:
a) Normal Form of Payment--monthly payments of the annual
Retirement Benefit due.
b) Lump Sum Payment as described under Article 5.1.
c) Deferral of Retirement Benefit until age 65.
9
<PAGE>
Article X - Directors' Rights
- -----------------------------
10.1 The Directors of the Bank shall have the right to receive benefits
earned and payable under the terms of the Plan. However, the Directors have no
rights beyond those of a general creditor to receive payment in respect to the
Bank's obligation as outlined herein.
The Article XI - Amendment and Termination
- ------------------------------------------
11.1 The Board reserves the right to amend or terminate the Plan at any
time it is considered desirable or necessary, by a majority vote of the
Directors. The termination, amendment, or modification of the Plan shall in no
way reduce or eliminate any participant's retirement benefit that vested prior
to such termination, amendment, or modification.
IN WITNESS WHEREOF, the parties have executed this Plan Document on the
22nd day of September, 1987.
- ---- --------- --
BAY VIEW FEDERAL BANK, a Federal Savings Bank
By: /s/ Robert E. Barnes
----------------------
Robert E. Barnes
President and Chief Executive officer
By: /s/ Bruno A. Malucchi
-----------------------
Bruno A. Malucchi
Chairman of the Board
10
<PAGE>
OUTSIDE DIRECTORS' RETIREMENT PLAN
---------------------------------
ADDITION INFORMATION
--------------------
<TABLE>
<S> <C>
Employer Sponsoring the Plan Bay View Federal Bank,
A Federal Savings Bank
2121 South El Camino Real
San Mateo, California 94403
Employer Identification Number 94-0310961
Plan Number 007
Plan Administrator Compensation/Benefits Committee
Board of Directors
Bay View Federal Bank,
A Federal Savings Bank
2121 South El Camino Real
San Mateo, California 94403
(415) 573-7300
Type of Plan This is a Non-qualified defined
benefit Retirement Plan not
subject to the Employee Retirement
Income Security Act (ERISA).
The benefits are not insured by the
Pension Benefit Guaranty Corporation,
The Employer, or by any other entity.
</TABLE>
11
<PAGE>
AMENDMENT TO THE BAY VIEW FEDERAL BANK
OUTSIDE DIRECTORS' RETIREMENT PLAN
ARTICLE I
PURPOSES AND EFFECTIVE DATE
1.1 Purposes. The purposes of this Amendment to the Bay View Federal Bank
--------
Outside Directors' Retirement Plan (the "Amendment") are (a) to eliminate any
future economic obligation of Bay View Federal Bank (the "Bank") and Bay View
Capital Corporation (the "Company") under the Bank's Outside Directors
Retirement Plan (the "Plan") other than obligations accruing through the
Effective Date (as hereinafter defined), (b) to freeze the vested accrued
benefits of Participants in the Plan as of the Effective Date, (c) to provide
for distribution to current Retirees and other former outside directors of the
Bank of their vested accrued benefits under the Plan as of the Effective Date in
accordance with the existing terms and provisions of the Plan , and (d) to
provide for the transfer by the Bank to the Grantor Trust on the Effective Date
of cash in an amount equal to the present value of the vested accrued benefits
of the current outside directors of the Bank under the Plan as of the Effective
Date with (i) the rights of such persons and their beneficiaries to benefits
under the Plan being determined under the Grantor Trust and (ii) the
entitlements of such persons being limited to their respective portion of the
funds transferred by the Bank to the Grantor Trust and the earnings, losses and
value adjustments resulting from the investment or revinvestment of such funds
from time to time by the Grantor Trust Trustee subject to the rights of
creditors of the Bank as provided in the Grantor Trust.
1.2 Effective Date. The Effective Date of this Amendment (the "Effective
--------------
Date") is the date this Amendment is approved by the shareholders of the
Company. This Amendment has been approved by the Boards of Directors of the
Company and the Bank by action taken by them on March 28, 1996, subject to
approval of this Amendment by the shareholders of the Company. If this Amendment
is not passed by the affirmative vote of a majority of the issued and
outstanding common stock of the Company present, or represented, and entitled to
vote on this Amendment at a meeting of shareholders of the Company at which a
quorum is present, then this Amendment shall have no force or effect and the
Plan will be operated and administered in its existing form without respect or
regard to this Amendment.
ARTICLE II
CERTAIN DEFINED TERMS
The following terms shall be added to the definitions contained in the
Plan:
2.1 "Change in Control" means (a) a merger, consolidation or combination
of the Company or the Bank with or into another entity (other than a transaction
in which the Company and the Bank are continuing entities with the shares of the
common stock of the Company outstanding immediately prior to the transaction
representing at least 51% of the outstanding common stock of the Company
immediately after the completion of the transaction) unless a majority of the
members of the Board of Directors of the Company immediately prior to such
transaction constitute a majority
<PAGE>
of the Board of Directors of the surviving entity and resulting bank immediately
after the transaction or (b) a change in the individuals who constitute a
majority of the Board of Directors of the Company, by resignation or non-
election of persons nominated by the Board of Directors, occurring after any
person, or group of persons acting in concert, acquires more than 10% of the
outstanding shares of the common stock of the Company.
2.2 "Grantor Trust" means that certain Trust Agreement for the Bay View
Federal Bank Outside Directors' Retirement Plan to be entered into between the
Bank and the Grantor Trust Trustee in substantially the form attached hereto as
Exhibit I and incorporated herein by reference.
2.3 "Grantor Trustee" means First Bankers Trust Co., N.A., or such other
independent third party trustee selected by the Bank, its successors in
interest.
2.4 "Participant" means each person who has a vested accrued benefit under
the Plan as of the Effective Date.
2.5 "Successor Corporation" means any entity that is the successor to all
or substantially all of the assets of the Company or the Bank; provided however,
if such entity is an affiliate of an ultimate parent entity, then the ultimate
parent entity shall, for all purposes hereof, be the Successor Corporation.
2.6 "Termination of Service" means termination, for any reason, of the
service of a Participant (but only those persons who are current outside
directors of the Bank as of the Effective Date) as a director of the Bank.
Provided however , if such Participant is also a director of the Company, then a
Termination of Service shall not occur until such Participant is no longer a
director of both the Bank and the Company (including any Successor Corporation).
ARTICLE III
FREEZE OF AND ENTITLEMENTS TO BENEFITS
3.1 Retirees. A Participant who is either a Retiree or is not a current
--------
outside director of the Bank, in either case as of the Effective Date, shall
receive his vested accrued benefit in accordance with the existing provisions of
the Plan without regard to this Amendment.
3.2 Current Outside Directors. The present value of the vested accrued
-------------------------
benefit of each current outside director of the Bank as of the Effective Date
will be fixed at the Effective Date and a corresponding cash amount will be
tendered by the Bank to the Grantor Trustee on the Effective Date for the
benefit of such person (or his or her beneficiaries) and such funds will be
invested and reinvested by the Grantor Trust Trustee for the benefit of such
person (or his or her beneficiaries) subject to the rights of creditors of the
Bank as set forth in the Grantor Trust. Upon a Termination of Service,
distribution of benefits will be made to a Participant who is a current outside
director of the Bank as of the Effective Date in ten (10) installments, with the
first installment being made
2
<PAGE>
within thirty (30) days after Termination of Service and each subsequent
distribution being made annually thereafter, in each case subject to the rights
of creditors of the Bank prior to the making of a distribution, all as more
particularly set forth in the Grantor Trust. Immediately following a Change in
Control or as soon as practicable thereafter, the Grantor Trust Trustee shall
liquidate any investments of the Grantor Trust in common stock of the Company or
securities of any Successor Corporation and reinvest the proceeds therefrom in
permitted investments as described in the Grantor Trust.
ARTICLE IV
GENERAL PROVISIONS
4.1 Revocation of Grantor Trust. Prior to the occurrence of a Change in
---------------------------
Control, the Board of Directors of the Bank may revoke the Grantor Trust and
require the Grantor Trust Trustee to return to the Bank all assets held by the
Grantor Trust. If such right is exercised, the Bank shall be bound by the terms
and provisions of the Grantor Trust that relate to investment and reinvestment
of funds and the rights and entitlements of Participants therein and thereunder
as if such terms and provisions were a part of the Plan as amended by this
Amendment.
4.2 Lump-Sum Cash Distribution. The Board of Directors of the Bank may,
--------------------------
by affirmative action taken by it prior to a Change in Control, impose a single
lump-sum cash distribution of benefits or remaining benefits (previously
undistributed amounts) immediately following a Change in Control or as soon as
practicable thereafter to those Participants who (a) are current outside
directors of the Bank as of the Effective Date and (b) experience a Termination
of Service prior to or in connection with a Change in Control. The Grantor
Trust Trustee shall be bound by any such action taken by the Board of Directors
of the Bank. Notwithstanding the foregoing, the Board of Directors of the Bank
shall not impose a single lump-sum distribution to a Participant if, as a result
thereof, the Bank or a Successor Corporation would be subject to a loss or
restriction on tax deductibility by reason of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), or the Participant would be
subject to a penalty tax under Section 4999 of the Code.
4.3 No Right to Continue as a Director. Nothing contained in this
----------------------------------
Amendment shall be deemed to confer upon any Participant any right to continue
to serve as a director of the Bank or the Company.
4.4 Limitation on Rights Conferred. No Participant shall have rights
------------------------------
beyond those of a general creditor of the Bank to receive payment of benefits
under the Plan or the Grantor Trust.
4.5 Limitation on Changes. No changes, amendments or modifications may be
---------------------
made to the Plan after the occurrence of a Change in Control.
3
<PAGE>
4.6 Specific Deletion of Plan Provisions. Articles VII and IX of the
------------------------------------
existing Plan are hereby deleted.
4.7 Inconsistencies. The provisions of this Amendment are intended to
---------------
supersede and replace any inconsistent or contrary provisions contained in the
Plan as written prior to this Amendment. In all cases of conflict between the
provisions of the Plan as in existence prior to this Amendment and the terms and
provisions of this Amendment, the terms and provisions of this Amendment shall
be controlling.
4.8 Governing Law. The validity, construction and effect of this
-------------
Amendment and all rights hereunder will be determined in accordance with the
laws of the State of California.
4.9 Binding Effect. This Amendment shall be binding upon the Company, the
--------------
Bank and each Successor Corporation. This Amendment shall inure to the benefit
of the Participants and their respective beneficiaries.
4.10 Headings. The headings of section and subsections herein are
--------
included solely for convenience of reference and shall not affect the meaning of
any of the provisions of this Amendment or the Plan.
This Amendment has been executed by the President and Secretary of the
Company and the Bank as of this 28th day of March, 1996, as the act and deed of
such corporate entities.
BAY VIEW CAPITAL CORPORATION
ATTEST:
- ------
By /s/ Edward H. Sondker
----------------------------------
President
/s/ Robert J. Flax
- ---------------------------------
Secretary
BAY VIEW FEDERAL BANK,
A FEDERAL SAVINGS BANK
ATTEST:
- ------
By /s/ Edward H. Sondker
----------------------------------
President
/s/ Robert J. Flax
- ---------------------------------
Secretary
4
<PAGE>
SUPPLEMENTAL AMENDMENT TO THE
BAYVIEW FEDERAL BANK OUTSIDE DIRECTORS' RETIREMENT PLAN
WHEREAS, the Bay View Federal Bank Outside Directors' Retirement Plan was
amended by a written instrument dated March 28, 1996 (the "Amendment"), and
WHEREAS, the purpose of this document ("Supplemental Amendment") is to
modify the Amendment.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. The second sentence of Section 4.1 of the Amendment is hereby deleted
and in lieu thereof the following is inserted:
If such right is exercised, the Board of Directors of the Bank shall be
entitled to exercise full investment and reinvestment discretion of the
funds and full administrative discretion relating thereto, including but
not limited to, the rights and entitlements of Participants therein and
thereto. However, the Bank will be subject to prudent investment standards
and the distribution of the Normal Form of Benefit, if applicable, may be
made in common stock of the Company, cash, other assets, or a combination
of the foregoing, in the same installments that common stock of the Company
would have been distributed pursuant to the Grantor Trust. In no event
will the Bank alter the Post Change in Control Form of Payment set forth in
the Grantor Trust, except as provided in Section 4.2 of the Amendment.
2. All capitalized terms herein shall have the meaning ascribed to them
in the Amendment and/or Grantor Trust.
3. The Amendment shall be and hereby is affirmed in its entirety, except
for the changes effectuated by the Supplemental Amendment.
<PAGE>
The Supplemental Amendment has been executed by the President and Secretary
of Bay View Capital Corporation and Bay View Federal Bank, A Federal Savings
Bank as of this 30th day of December, 1996, as the act and deed of such
corporate entities.
BAY VIEW CAPITAL CORPORATION
ATTEST:
- ------
By /s/ Edward H. Sondker
--------------------------------
Edward H. Sondker, President
/s/ Robert J. Flax
- --------------------------
Robert J. Flax, Secretary
BAY VIEW FEDERAL BANK,
A FEDERAL SAVINGS BANK
ATTEST:
- ------
By /s/ Edward H. Sondker
--------------------------------
Edward H. Sondker, President
/s/ Robert J. Flax
- -------------------------
Robert J. Flax, Secretary
<PAGE>
TRUST AGREEMENT
FOR THE
BAY VIEW FEDERAL BANK
OUTSIDE DIRECTORS' RETIREMENT PLAN
THIS AGREEMENT is entered into as of this 23rd day of May, 1996, by and
between Bay View Federal Bank, A Federal Savings Bank (hereinafter called the
"Bank"), whose address is 2121 South El Camino Real, San Mateo, California
94403, and First Bankers Trust Co., N.A. (hereinafter called the "Trustee"),
whose address is 1201 Broadway, Quincy, Illinois 62301.
WITNESSETH:
WHEREAS, effective as of February 27, 1987, the Bank adopted the Bay View
Federal Bank Outside Directors' Retirement Plan as revised on April 26, 1990 and
February 27, 1992 (hereinafter called the "Plan") for the benefit of non-
employee directors of the Bank; and
WHEREAS, the Plan has been amended by action of the Boards of Directors of
the Bank and Bay View Capital Corporation (hereinafter called the "Company"),
the sole stockholder of the Bank, which amendment (the "Amendment") is attached
hereto as Exhibit I and incorporated herein by reference and has been approved
by the shareholders of the Company on the date hereof; and
WHEREAS, consistent with the Amendment, the Bank does hereby establish a
trust (hereinafter called the "Trust") and shall as hereinafter provided
contribute cash assets to the Trust which shall be held, invested and reinvested
by the Trustee as provided herein, subject to the claims of the Bank's creditors
in the event of Insolvency (as hereinafter defined), until paid to the current
outside directors of the Bank (individually, a "Participant" and collectively,
the "Participants") or their beneficiaries in such manner and at such times as
specified herein; and
<PAGE>
WHEREAS, pursuant to the Amendment, the Bank shall, on the date hereof,
contribute to the Trust cash in an amount equal to the actuarially-determined
present value of the vested accrued benefits of the Participants and such cash
contribution shall, as of the date hereof, satisfy the liabilities of the Bank
under the Plan to such Participants; and
WHEREAS, it is the intention of the parties that the Trust shall constitute
a part of the Plan and shall not affect the status of the Plan as an unfunded,
non-qualified pension plan, not subject to the Employee Retirement Income
Security Act of 1974, as amended, which Plan has been maintained and is being
maintained for the purpose of providing retirement income benefits to outside
directors of the Bank or their beneficiaries; and
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
1. Definitions.
-----------
(a) "Change in Control" means (i) a merger, consolidation or
combination of the Company or the Bank with or into another entity (other than a
transaction in which the Company and the Bank are continuing entities with the
shares of the common stock of the Company (the "Shares") outstanding immediately
prior to the transaction representing at least 51% of the outstanding Shares
immediately after the completion of the transaction) unless a majority of the
members of the Board of Directors of the Company immediately prior to such
transaction constitute a majority of the Board of Directors of the surviving
entity and resulting bank immediately after the transaction or (b) a change in
the individuals who constitute a majority of the Board of Directors of the
Company, by resignation or non-election of persons nominated by the Board of
Directors, occurring after any person, or group of persons acting in concert,
acquires more than 10% of the outstanding Shares.
2
<PAGE>
(b) "Insolvency" or "Insolvent" means (i) the Bank is unable to pay
its debts as they mature, (ii) the Bank is subject to a pending proceeding as a
debtor under the federal bankruptcy laws, or (iii) the Bank is determined to be
insolvent by the Office of Thrift Supervision or other federal banking agency
with jurisdiction to make such determination.
(c) "Normal Form of Payment" means the payment to a Participant (or
his or her beneficiaries) within thirty (30) days after a Termination of Service
of 1/10th of the Shares allocated to such Participant's account in the Trust
plus any other assets contained in such Participant's account in the Trust that
are not Shares, with the remaining Shares being distributed in nine (9) equal or
substantially-equal annual installments commencing one year after the date of
the first distribution, with any other assets accumulated during each annual
period being distributed on each annual payment date. The Normal Form of
Payment shall not apply after a Change in Control.
(d) "Post Change in Control Form of Payment" means (i) in the case of
a Participant who has not experienced a Termination of Service prior to a Change
in Control, the payment of cash in the amount of 1/10th of the principal balance
of his or her account in the Trust within thirty (30) days after a Termination
of Service, with the balance of such principal being paid in nine (9) equal or
substantially-equal annual installments commencing one year from the date of the
first principal payment with earnings accumulating during each annual period
being distributed on each annual payment date; and (ii) in the case of a
Participant (or his or her beneficiaries) who has received one or more payments
prior to a Change in Control, the payment of cash in equal or substantially-
equal annual installments of principal plus accumulated annual earnings on the
same annual payment dates that such Participant (or his or her beneficiaries)
would have otherwise received payments in Shares under the Normal Form of
Payment.
3
<PAGE>
(e) "Termination of Service" means termination, for any reason, of the
service of a Participant as a director of the Bank. Provided however, if such
Participant is also a director of the Company, then a Termination of Service
shall not occur until such Participant is no longer a director of both the Bank
and the Company (including any successor in interest).
2. Establishment of Trust.
----------------------
(a) Subject to the claims of its creditors as set forth in Section 4,
the Bank hereby deposits with the Trustee in trust One Million Ninety Thousand
Two Hundred and Twenty-One Dollars ($1,090,221) allocable to each Participant as
set forth on Exhibit II hereto (a "Participant's Initial Principal"), which
funds shall become the initial principal of the Trust to be held, administered
and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be revocable until the
occurrence of a Change in Control and shall become irrevocable thereafter.
(c) The Trust is intended to be a grantor trust, of which the Bank is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code") and
shall be construed accordingly.
(d) The principal of the Trust and any earnings thereon (other than
ordinary cash dividends on Shares held by the Trust as described in Section 7
hereinbelow) shall be held separate and apart from other funds of the Bank and
shall be used exclusively for the benefit of the Participants, their
beneficiaries, and general creditors of the Bank, as herein set forth. The
Participants and their beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights created
under the Plan and this Trust Agreement shall be mere unsecured contractual
rights of the Participants and their beneficiaries against the Bank.
4
<PAGE>
Any assets held by the Trust will be subject to the claims of the Bank's general
creditors under federal and state law in the event of Insolvency.
(e) No additional contributions shall be made to the Trust by the
Bank.
3. Payments to Participants and Their Beneficiaries.
------------------------------------------------
(a) Subject to the provisions of Section 4 hereof, in the event a
Participant experiences a Termination of Service prior to a Change in Control,
such Participant (or his or her beneficiaries) shall receive the Normal Form of
Payment. Provided however, if a Change in Control occurs after the commencement
of the Normal Form of Payment, then following such Change in Control, the Post
Change in Control Form of Payment shall then apply.
(b) Subject to the provisions of Section 4 hereof, in the event a
Participant experiences a Termination of Service in connection with or after a
Change in Control, such Participant (or his or her beneficiaries) shall receive
the Post Change in Control Form of Payment.
(c) Subject to the provision of Section 4 hereof, and notwithstanding
anything contained in Sections 3(a) or (b) above or otherwise in this Trust
Agreement to the contrary, upon a determination by the Board of Directors of the
Bank prior to a Change in Control to impose a single, lump-sum cash distribution
of benefits as soon as practicable after a Change in Control pursuant to Section
4.2 of the Amendment, then payment shall be made to Participants (or their
beneficiaries) in a single, lump-sum cash payment as provided in Section 4.2 of
the Amendment.
(d) The Trustee shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld.
(e) Each Participant shall designate one or more beneficiaries to
receive benefits under this Trust Agreement in the event of such Participant's
death. Such designation may be
5
<PAGE>
changed at any time. Absent a valid designation, or if no designated beneficiary
survives a Participant, such Participant's remaining undistributed benefits
under this Trust Agreement shall be distributed in the following order of
priority: (i) spouse; (ii) surviving children (or if a child has died leaving
children surviving, then such deceased child's surviving children), all on a per
---
stirpes basis; (iii) parents; and (iv) estate. Whenever the rights of the
- -------
Participants are stated or limited herein, such provisions shall also apply to
their beneficiaries. If a Participant should die while receiving benefits
hereunder, such Participant's beneficiaries shall be entitled to receive annual
payments for the remaining term of such Participant's pay-out period.
4. Trustee Responsibility Regarding Payments to Participants and their
-------------------------------------------------------------------
Beneficiaries when Bank is Insolvent.
- ------------------------------------
(a) In the event of an Insolvency, the Trustee shall cease payment of
benefits to Participants or their beneficiaries consistent with the following
provisions.
(i) The Board of Directors and the President of the Bank shall have
the duty to inform the Trustee in writing of the Insolvency. If a person
claiming to be a creditor of the Bank alleges in writing to the Trustee that the
Bank has become Insolvent, the Trustee shall independently determine, within
thirty (30) days after receipt of such notice, whether the Bank is Insolvent
and, pending such determination, the Trustee shall discontinue payments to
Participants or their beneficiaries.
6
<PAGE>
(ii) Unless the Trustee has actual knowledge of the Insolvency, or
has received notice from the Bank or a person claiming to be a creditor alleging
Insolvency, the Trustee shall have no duty to inquire whether the Bank is
Insolvent. The Trustee may in all events rely on such evidence concerning the
Bank's solvency as may be furnished to the Trustee and that provides the Trustee
with a reasonable basis for making a determination concerning the Bank's
solvency.
(iii) If at any time the Trustee has determined that the Bank is
Insolvent, the Trustee shall discontinue payments to Participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of the
Bank's general creditors. Nothing in this Trust shall in any way diminish any
rights of any Participant or any beneficiary to pursue his or her rights as a
general creditor of the Bank with respect to benefits under this Trust Agreement
or otherwise.
(iv) The Trustee shall resume the payment of benefits to Participants
or their beneficiaries in accordance with Section 3 of this Trust Agreement only
after the Trustee has determined that the Bank is not Insolvent (or is no longer
Insolvent).
(b) Provided that there are sufficient assets, if the Trustee
discontinues payments from the Trust pursuant to Section 4(a) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments which would
have been made to a Participant (or his or her beneficiaries) in accordance with
the terms of this Trust Agreement during the period of such discontinuance.
(c) At all times during the continuance of the Trust, the principal
and income of the Trust shall be subject to claims of general creditors of the
Bank under federal and state law in the event of Insolvency.
7
<PAGE>
5. Payments to Bank. The Bank shall have the right or power prior a
----------------
Change in Control to direct the Trustee to return to the Bank the assets then
held by the Trust but subject to the terms of the Amendment and the provisions
of this Trust Agreement relating to the investment and reinvestment of the
assets of the Trust and the payment of benefits to Participants or their
beneficiaries; provided however, that such right or power shall cease upon a
Change in Control.
6. Investment of the Corpus; Separate Accounts; Adjustments to Shares.
------------------------------------------------------------------
The Trustee shall invest a Participant's Initial Principal as soon as
practicable solely in Shares. The Trustee shall maintain a separate account,
which account may be for bookkeeping purposes only, for each Participant,
reflecting the number of Shares and other assets, if any, allocated to such
Participant through the investment and reinvestment of such Participant's
Initial Principal and the earnings and proceeds therefrom. Any adjustments or
additions to, or conversion of, the Shares by virtue of any dividend (other
than an ordinary cash dividend), recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of shares, stock
split, reverse stock split or other corporate transaction including, but not
limited to, an acquisition of the Company will be appropriately allocated to
each Participant's separate account.
7. Disposition of Income. During the term of this Trust, all income
---------------------
received by the Trust, net of expenses and taxes, shall be accumulated and
reinvested and added to the corpus of the Trust. Notwithstanding the foregoing,
all ordinary cash dividends received by the Trust with respect to the Shares
shall be the sole and exclusive property of the Bank and shall be immediately
tendered by the Trustee to the Bank.
8
<PAGE>
8. Permitted Investments after a Change in Control. In the event of a
-----------------------------------------------
Change in Control, all Shares and other non-cash assets held by the Trust
(including those Shares and non-cash assets held for the benefit of a
Participant (or his or her beneficiaries) who is then receiving the Normal Form
of Payment) shall be converted to cash as soon as practicable following the
completion of the Change in Control transaction. The Trustee shall then invest
the cash proceeds in legally permissible investments that do not involve risk to
principal, with investment options being selected in a manner to permit
installment cash payments consistent with the Post Change in Control Form of
Payment; provided however, that any annual earnings thereon in excess of 120% of
the long-term, applicable federal rate ("AFR") under Section 274(d) of the Code
for the month in which the Change in Control occurs, shall revert to the Bank.
9. Accounting by Trustee. The Trustee shall keep accurate and detailed
---------------------
records of all investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be agreed upon in
writing between the Bank and the Trustee. All such accounts, books and records
shall be open to inspection and audit at all reasonable times by the Bank and
Participants (or their beneficiaries). Within sixty (60) days following the
close of each calendar year and within sixty (60) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Bank and each
Participant (or his or her beneficiaries) a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or resignation, setting
forth all investments, receipts, disbursements and other transactions effected
by it, including a description of all securities and investments purchased and
sold, with the cost or net proceeds of such purchases or sales (accrued interest
paid
9
<PAGE>
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
10. Responsibility of Trustee.
-------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to anyone for any action taken pursuant to a
direction, request, or approval given by the Bank which is in conformity with
the terms of the Plan, the Amendment and this Trust Agreement, and is given in
writing to the Trustee. In the event of a dispute between the Bank and a
Participant (or his or her beneficiaries), the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) The Trustee shall not be required to undertake or to defend any
litigation arising in connection with this Trust Agreement, unless it be first
indemnified by the Bank against its prospective costs, expenses and liability,
and the Bank hereby agrees to indemnify the Trustee for such costs, expenses,
and liability.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Bank generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisers and financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
10
<PAGE>
(e) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or under applicable law, the Trustee shall not have any power to
borrow funds or engage in any activity that could give this Trust the objective
of carrying on a business and dividing the gains therefrom within the meaning of
section 301.7701-2 of the Procedure and Administrative Regulations promulgated
pursuant to the Code.
11. Compensation and Expenses of Trustee. The Trustee shall be entitled
------------------------------------
to receive such reasonable compensation for its services as shall be agreed upon
by the Bank and the Trustee. The Trustee shall also be entitled to receive its
reasonable expenses incurred with respect to the administration of the Trust,
including fees incurred by the Trustee pursuant to Sections 10(c) and 10(d) of
this Trust Agreement. Such compensation and expenses shall be payable by the
Bank.
12. Resignation and Removal of Trustee.
----------------------------------
(a) The Trustee may resign at any time by written notice to the Bank,
which shall be effective sixty (60) days after receipt of such notice unless the
Bank and the Trustee agree otherwise.
(b) The Trustee may be removed by the Bank on sixty (60) days notice
or upon shorter notice accepted by the Trustee, except upon a Change in Control,
the Trustee may not be removed until all payments to the Participants or their
beneficiaries have been made pursuant to this Trust Agreement, unless all
Participants (or their beneficiaries) with assets remaining in the Trust shall
unanimously consent in writing to such change of Trustee.
11
<PAGE>
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within sixty (60) days after receipt
of notice of resignation, removal or transfer, unless the Bank extends the time
limit.
(d) In the event that the Trustee resigns or is removed, a successor
shall be appointed, in accordance with Section 13 hereof, by the effective date
of such resignation or removal. If no such appointment has been made, the
Trustee may apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in connection with
the proceeding shall be paid by the Bank.
13. Appointment of Successor Trustee. In the event that the Trustee
--------------------------------
resigns or is removed in accordance with Section 12(a) or (b) hereof, the Bank
may appoint any independent third party, as a successor, to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, which shall have all of the rights and powers of the
former Trustee including ownership rights in the Trust assets. The former
Trustee shall execute any instrument necessary or reasonably requested by the
Bank or the successor Trustee to evidence the transfer.
14. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended at any time and to any extent
by a written instrument executed by the Trustee and the Bank and consented to by
all Participants (or their beneficiaries).
12
<PAGE>
(b) The Trust shall not terminate until the earlier of (i) the
transfer of the assets of the Trust pursuant to a pre-Change in Control
revocation of the Trust by the Bank or (ii) the date on which no Participant or
beneficiary is entitled to any further benefits under this Agreement.
15. Severability and Alienation.
---------------------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition without invalidating the
remaining provisions hereof.
(b) Benefits payable to a Participant or his or her beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated or subject to attachment, garnishment, levy, execution or
other legal or equitable process and no benefit actually paid to a Participant
or his or her beneficiaries by the Trustee shall be subject to any claim for
repayment by the Bank or the Trustee.
16. Definitions. Unless the context of this Trust Agreement clearly
-----------
indicates otherwise, the terms defined in the Plan and the Amendment shall, when
used herein, have the same meaning in said Plan and Amendment.
17. Headings and Subheadings. The headings and subheadings in this Trust
------------------------
Agreement are inserted for the convenience of reference only and are to be
ignored in any construction of the provisions thereof.
18. Governing Law. This Trust Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California.
13
<PAGE>
IN WITNESS WHEREOF, the Bank and the Trustee have executed this Agreement
as of the date first above written.
BAY VIEW FEDERAL BANK
ATTEST:
/s/ Edward H. Sondker
-----------------------------------
Edward H. Sondker, President
/s/ Robert Flax
- ----------------------------
Robert Flax
Secretary
STATE OF CALIFORNIA )
) to wit:
COUNTY OF SAN MATEO )
I HEREBY CERTIFY that on this 8th day of May, 1996, before me, the
subscriber, a Notary Public of the State of California, in and for San Mateo
County, aforesaid, personally appeared Edward H. Sondker, President of Bay View
Federal Bank, and duly acknowledged the foregoing Trust Agreement to be the act
and deed of said corporation.
/s/Sandra H. Bruce
----------------------------------
Notary Public
My Commission Expires:
September 3, 1998
- ----------------------------
14
<PAGE>
FIRST BANKERS TRUST CO., N.A.
ATTEST:
/s/ Carmen Walch
-------------------------------------
Carmen Walch, Trust Officer
/s/ Patricia Brink
-----------------------
Patricia Brink, Cashier
STATE OF ILLINOIS )
) to wit:
COUNTY OF ADAMS )
I HEREBY CERTIFY that on this 3rd day of May, 1996, before me, the
subscriber, a Notary Public of the State of Illinois, in and for Adams County,
aforesaid, personally appeared Carmen Walch, Trust Officer of First Bankers
Trust Co., N.A. of Quincy, Illinois, and duly acknowledged the foregoing Trust
Agreement to be the act and deed of the aforesaid corporation.
/s/ Deborah Yakle-Hutter
-------------------------------------
Notary Public
My Commission Expires:
7-19-99
- -----------------------------
15
<PAGE>
FIRST AMENDMENT
TO THE
TRUST AGREEMENT
FOR THE
BAY VIEW FEDERAL BANK OUTSIDE DIRECTORS' RETIREMENT PLAN
WHEREAS, Bay View Federal Bank, A Federal Savings Bank ("Bank") and First
Bankers Trust Co., N.A. ("Trustee") entered into the Trust Agreement for the Bay
View Federal Bank Outside Directors' Retirement Plan as of May 23, 1996 ("Trust
Agreement"); and
WHEREAS, the Bay View Federal Bank Outside Directors' Retirement Plan
("Plan") has been amended; and
WHEREAS, the Bank and the Trustee desire to make certain amendments to the
Trust Agreement.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. Section 1(c) of the Trust Agreement shall be and hereby is amended by the
addition of the following sentence at the conclusion thereof:
Notwithstanding the foregoing, a Participant shall be entitled within
fifteen (15) days after a Termination of Service to elect, by written
notice to the Trustee, to have his separate account reinvested and
distributed to him in the Post Change in Control Form of Payment, even
though no Change in Control shall have occurred.
2. Section 5 of the Trust Agreement shall be and hereby is amended in its
entirety to read as follows:
5. Payments to Bank. The Bank shall have the right and power prior to a
----------------
Change in Control to direct the Trustee to return to the Bank the assets
then held by the Trust, but subject to the terms of the Plan, as amended
from time to time.
3. Section 8 shall be and hereby is amended in its entirety to read as follows:
8. Permitted Investments. In the event of a Change in Control, all Shares
---------------------
and other non-cash assets held by the Trust (including but not limited to
those Shares and non-cash assets held for the benefit of a Participant (or
his or her beneficiaries) who is then receiving the Normal Form of Payment)
shall be converted to cash as soon as practicable following the completion
of the Change in Control transaction. In
<PAGE>
addition, in the event that a Participant who has incurred a Termination of
Service elects in a timely manner to have his separate account paid to him
in a Post Change of Control Form of Payment, the Trustee shall liquidate
all Shares attributable to such Participant's separate account. In either
of the foregoing events, the Trustee shall then invest the cash proceeds in
those investments that are legally permitted for trust investment under
prudent investment standards applicable to trusts under the laws of the
State of Illinois, with investment options and vehicles being selected by
the Trustee in a manner to permit installment cash payments consistent with
the Post Change in Control Form of Payment.
The Trust Agreement for the Bay View Federal Bank Outside Directors'
Retirement Plan shall be and hereby is affirmed in its entirety, except for the
changes effectuated by this First Amendment.
IN WITNESS WHEREOF the duly authorized officers of Bay View Federal Bank
and First Bankers Trust Co., N.A. have executed this First Amendment as of the
5th day of February, 1997.
BAY VIEW FEDERAL BANK
ATTEST:
By: /s/Edward H. Sondker
---------------------------
Edward Sondker, President
/s/ Robert J. Flax
- ------------------
Robert J. Flax
Secretary
<PAGE>
STATE OF CALIFORNIA )
) to wit:
COUNTY OF SAN MATEO )
I HEREBY CERTIFY that on this 5th day of February, 1997, before me, the
subscriber, a Notary Public of the State of California, in and for San Mateo
County, aforesaid, personally appeared Edward Sondker, President of Bay View
Federal Bank, and duly acknowledged the foregoing Trust Agreement to be the act
and deed of said banking institution.
____________________
Notary Public
My Commission Expires:
_____________________
<PAGE>
FIRST BANKERS TRUST CO., N.A.
ATTEST:
By:___________________________
Carmen Walch, Trust Officer
__________________________
STATE OF ILLINOIS )
) to wit:
COUNTY OF ADAMS )
I HEREBY CERTIFY that on this ____ day of ,1997, before me, the
subscriber, a Notary Public of the State of Illinois, in and for Adams County,
aforesaid, personally appeared Carmen Walch, Trust Officer of First Bankers
Trust Co., N.A. of Quincy, Illinois, and duly acknowledged the foregoing Trust
Agreement to be the act and deed of said banking institution.
____________________
Notary Public
My Commission Expires:
_____________________
<PAGE>
This First Amendment has been consented to by the Participants in the Plan on
the dates set forth under their names and signatures.
PARTICIPANTS:
____________________________
Name
Date:
____________________________
Name
Date:
<PAGE>
EXHIBIT 10.7
BAY VIEW CAPITAL CORPORATION
BAY VIEW FEDERAL BANK, A FEDERAL SAVINGS BANK
STOCK IN LIEU OF CASH
COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSES AND EFFECTIVE DATE
1.1 Purposes. The purposes of the Plan (the "Plan") are to promote the
success of Bay View Capital Corporation and Bay View Federal Bank, A Federal
Savings Bank (the "Bank"), by encouraging Directors to increase their ownership
of Company stock and thereby align their interests more closely with the
interests of the other stockholders of the Company, to encourage the highest
levels of Director performance by providing Directors with an enhanced interest
in the Company's attainment of its financial goals, and to provide a financial
incentive that will help attract and retain Directors of outstanding competence.
The Plan is designed to accomplish these purposes by providing that a portion or
all of Directors' compensation shall be deferred and paid in the form of Company
stock.
1.2 Effective Date. The effective date of the Plan (the "Effective Date")
is February 12, 1996 (60 days after the date of its adoption by the Board and by
the Board of Directors of the Bank), subject to approval of the shareholders of
the Company (if and to the extent such shareholder approval is necessary or
required for purposes of Rule 16b-3 or any other applicable federal or state law
or regulation or the rules of any stock exchange or automated quotation system
on which the Shares may then be listed or quoted) by the affirmative vote of a
majority of Shares present, or represented, and entitled to vote on the subject
matter, at the 1996 Annual Meeting of Shareholders of the Company at which a
quorum is present.
ARTICLE II
CERTAIN DEFINITIONS
The following terms shall be defined as set forth below:
2.1 "Board" means the Board of Directors of the Bank or any successor
thereto; provided that if the Company and the Bank revise their directors' fee
policy, so as to pay directors' fees at the Company level rather than at the
Bank level, "Board" shall upon the effectiveness of such revised policy mean the
Board of Directors of the Company.
2.2 "Committee" has the meaning set forth in Section 4.1.
2.3 "Company" means Bay View Capital Corporation, a Delaware corporation,
or any successor thereto.
2.4 "Director" means any member of the Board.
2.5 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act include rules thereunder and
successor provisions and rules thereto.
2.6 "Fair Market Value" means the average of the highest and lowest quoted
selling prices for the Shares on the relevant date, or (if there were no sales
on such date) the average so computed on the nearest day before or the nearest
day after the relevant date, as reported in The Wall Street Journal or a similar
source selected by the Committee.
2.7 "Fees" means all or part of any retainer and/or fees (including all
amounts payable with respect to service on a committee of the Board,
<PAGE>
or as chairman of the Board or a committee thereof, or for attendance at Board
or committee meetings) payable to a non-employee Director in his or her capacity
as a Director.
2.8 "Participant" means a Director who is eligible pursuant to Article V.
2.9 "Secretary" means the Corporate Secretary or any Assistant Corporate
Secretary of the Company.
2.10 "Shares" means shares of the common stock of Bay View Capital
Corporation, par value $0.01 per share, or of any successor corporation or other
legal entity adopting the Plan.
2.11 "Stock Units" means the credits to a Participant's Stock Unit Account
under Article VI of the Plan, each of which represents the right to receive one
Share upon settlement of the Stock Unit Account.
2.12 "Stock Unit Account" means the bookkeeping account established
pursuant to Section 6.4.
2.13 "Termination of Service" means termination, for any reason, of service
as a Director.
ARTICLE III
SHARES AVAILABLE UNDER THE PLAN
Subject to adjustment as provided in Article X, the maximum number of
Shares that may be distributed in settlement of Stock Unit Accounts under the
Plan shall not exceed 200,000. Such Shares may include authorized but unissued
Shares or Treasury Shares.
ARTICLE IV
ADMINISTRATION
4.1 The Plan shall be administered by the Board's Compensation and Benefits
Committee or such other committee or individual as may be designated by the
Board (the "Committee"). Notwithstanding the foregoing, no Director who is a
Participant under the Plan shall participate in any determination relating
solely or primarily to his or her own Shares, Stock Units or Stock Unit Account.
4.2 It shall be the duty of the Committee to administer the Plan in
accordance with its provisions and to make such recommendations of amendments or
otherwise as it deems necessary or appropriate.
4.3 The Committee shall have the authority to make all determinations it
deems necessary or advisable for administering the Plan, subject to the
limitations in Section 4.1 and other explicit provisions of the Plan. No member
of the Committee shall be liable for any act or omission by such member or by
any other member of the Committee in connection with the Plan, except for such
member's own willful misconduct or as expressly provided by statute.
2
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ARTICLE V
ELIGIBILITY
5.1 Each Director who is not an employee of the Company, the Bank or any of
their respective subsidiaries shall be eligible to defer Fees under Article VI
of the Plan.
5.2 If such Director subsequently becomes an employee of the Company, the
Bank or any of their respective subsidiaries, but does not incur a Termination
of Service, such Director shall (a) continue as a Participant with respect to
Fees previously deferred and (b) cease eligibility with respect to all future
Fees, if any, earned while such an employee.
ARTICLE VI
DEFERRED STOCK UNITS IN LIEU OF CASH PAYMENTS
6.1 General Rule. Pursuant to the Plan, 20% of each Participant's Fees
otherwise payable on or after the Effective Date shall be deferred in the form
of Stock Units in accordance with this Article VI. Alternatively, deferrals of
50% of Fees automatically may be required pursuant to Section 6.6 and deferrals
of up to 100% of Fees voluntarily may be elected pursuant to Section 6.2.
6.2 Timing of Voluntary Election. Each Participant may make an irrevocable
written election to defer more than 20% of Fees, otherwise payable on or after
the Effective Date, in the form of Stock Units in accordance with this Article
VI. Such election shall be made at least 60 days prior to the start of the
calendar year for which the Fees would otherwise be paid; provided, however,
that with respect to (a) any elections made before the Effective Date and (b)
any elections made by newly-elected or appointed Directors within 30 days of
their initial election or appointment, the following special alternative rule as
to the permitted time for making the election also shall be available: the
election may be made at least 60 days prior to the date the deferred Fees would
otherwise have been payable to the Director. An election by a Participant shall
be deemed to be continuing, and therefore applicable to Fees to be paid in
future years, unless the Participant revokes or changes such election by filing
a new election form by the due date for such form specified in this Section 6.2.
6.3 Form of Voluntary Election. An election under Section 6.2 shall be
made in a manner satisfactory to the Committee. Generally, an election shall be
made by completing and filing the specified election form with the Secretary by
the applicable date described in Section 6.2. At minimum, the form shall require
the Participant to specify the following:
(a) a percentage (greater than 20% and up to 100%) of the Fees to be
deferred under the Plan; and
(b) the manner of settlement in accordance with Section 7.2.
In the event Directors' Fees are increased or decreased during any calendar
year, a Participant's election in effect for such year will apply to the
specified percentage of Fees as increased or decreased.
6.4 Establishment of Stock Unit Account. The Company will establish a
Stock Unit Account for each Participant. All Fees deferred pursuant to this
Article VI shall be credited to the Participant's Stock Unit Account as of the
later of (a) the date the Fees would otherwise have been paid to the Participant
(the "Deferral Date") or (b) June 14, 1996
3
<PAGE>
and converted to Stock Units as follows: the number of Stock Units shall equal
the amount of deferred Fees divided by the Fair Market Value of a Share on the
later of the Deferral Date or June 14, 1996, with fractional units calculated to
at least three decimal places. However, notwithstanding the provisions of the
preceding sentence regarding the date as of which deferred Fees shall be
credited to Stock Unit Accounts, in the case of deferral elections made under
the special alternative rule specified in Section 6.2 the deferred Fees shall be
credited and converted to Stock Units on the later of (x) the Deferral Date or
(y) the date which follows by six months such deferral election.
6.5 Credit of Dividend Equivalents. As of each dividend payment date with
respect to Shares, each Participant shall have credited to his or her Stock Unit
Account an additional number of Stock Units equal to: the per-share cash
dividend payable with respect to a Share on such dividend payment date
multiplied by the number of Stock Units held in the Stock Unit Account as of the
close of business on the record date for such dividend divided by the Fair
Market Value of a Share on such dividend payment date. If dividends are paid on
Shares in a form other than cash, then such dividends shall be notionally
converted to cash, if their value is readily determinable, and credited in a
manner consistent with the foregoing and, if their value is not readily
determinable, shall be credited "in kind" to the Participant's Stock Unit
Account.
6.6 Automatic 50% Stock Election. Each Participant who (a) does not own
beneficially at least 4,000 Shares on June 30, 1996 or on June 30 of any
subsequent year and (b) does not have in effect on such date or dates (as the
case may be) a 50% or greater deferral election, automatically shall be deemed
to have elected to defer 50% of the next succeeding year's Fees in the form of
Stock Units in accordance with this Article VI. (For purposes of clause (a) of
the preceding sentence, Shares beneficially owned include Stock Units in the
Participant's Stock Unit Account but do not include Shares underlying
unexercised stock options and Shares as to which the Participant's only interest
is as a fiduciary for persons other than members of the Participant's immediate
family.)
ARTICLE VII
SETTLEMENT OF STOCK UNITS
7.1 Settlement of Account. The Company will settle a Participant's Stock
Unit Account in the manner described in this Article VII as soon as
administratively feasible following such Participant's Termination of Service.
7.2 Payment Options. Each Participant's Stock Unit Account shall be
settled by delivering to the Participant (or his or her beneficiary) the number
of Shares (subject to adjustment in number or kind in accordance with Article X)
equal to the number of whole Stock Units then credited to the Participant's
Stock Unit Account, in either (a) a lump sum or (b) substantially equal annual
installments over a period not to exceed ten years. Voluntary elections filed
pursuant to Section 6.3 shall specify the manner of payment upon settlement
(i.e., the lump sum or installment payment option). Deferrals pursuant to
Section 6.1 or Section 6.6 shall be deemed to include the specification of the
lump sum payment option, unless the installment payment option is specified by
the Participant in writing to the Secretary. The applicable manner of payment
upon settlement of the portion of the Stock Unit Account relating to a given
year's Fees shall be the manner last specified (or deemed to be specified) with
respect to such year prior to such settlement. Cash may be paid in lieu of
fractional Shares otherwise payable in any lump sum or installment distribution.
4
<PAGE>
7.3 Continuation of Dividend Equivalents. If payment of Stock Units is
deferred and paid in installments, the Participant's Stock Unit Account shall
continue to be credited with dividend equivalents as provided in Section 6.5.
7.4 In Kind Dividends. If any "in kind" dividends are credited to the
Participant's Stock Unit Account under Section 6.5, such dividends shall be
payable to the Participant in full on the date of the first distribution of
Shares under Section 7.2.
ARTICLE VIII
UNFUNDED STATUS
The interest of each Participant in any Fees deferred under the Plan (and
any Stock Units or Stock Unit Account relating thereto) shall be that of a
general creditor of the Company. Stock Unit Accounts, and Stock Units (and, if
any, "in kind" dividends) credited thereto, shall at all times be maintained by
or on behalf of the Company as bookkeeping entries evidencing unfunded and
unsecured general obligations of the Company.
ARTICLE IX
DESIGNATION OF BENEFICIARY
Each Participant may designate, on a form provided by or otherwise
satisfactory to the Committee, one or more beneficiaries to receive the Shares
described in Section 7.2 in the event of such Participant's death. The Company
may rely upon the beneficiary designation last filed with the Committee,
provided that such form was executed by the Participant or his or her legal
representative and filed with the Committee prior to the Participant's death.
ARTICLE X
ADJUSTMENT PROVISIONS
In the event any recapitalization, reorganization, merger, consolidation,
spin-off, combination, repurchase, exchange of shares or other securities of the
Company, stock split or reverse split, or similar corporate transaction or event
affects Shares such that an adjustment is determined by the Committee to be
appropriate to prevent dilution or enlargement of Participants' rights under the
Plan, then the Committee will, in a manner that is proportionate to the effect
on the Shares and is otherwise equitable, adjust the number and/or kind of
Shares (and/or substitute in place thereof cash or other consideration) to be
delivered upon settlement of Stock Unit Accounts under Article VII.
ARTICLE XI
GENERAL PROVISIONS
11.1 No Right to Continue as a Director. Nothing contained in the Plan
shall be deemed to confer upon any Participant any right to continue to serve as
a Director.
11.2 No Shareholder Rights Conferred. Nothing contained in the Plan shall
be deemed to confer upon any Participant any rights of a shareholder of the
Company unless and until Shares are in fact issued or transferred to such
Participant in accordance with Article VII.
5
<PAGE>
11.3 Changes to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of shareholders or
Participants, except that any such action will be subject to the approval of the
Company's shareholders if, when and to the extent such shareholder approval is
necessary or required for purposes of any applicable federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Shares may then be listed or quoted, or if the Board in its discretion
determines to seek such shareholder approval; provided, however, that, without
the consent of an affected Participant, no such action may materially impair the
rights of such Participant with respect to any Stock Units credited to his or
her Stock Unit Account.
11.4 Consideration. The consideration for Shares issued or delivered in
lieu of payment of Fees will be the Director's service during the period to
which the Fees paid in the form of Shares related.
11.5 Compliance with Laws and Obligations. The Company will not be
obligated to issue or deliver Shares in connection with the Plan in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, any other federal or state securities or other law or
regulation, any requirement under any listing agreement between the Company and
any national securities exchange or automated quotation system or any other
contractual obligation of the Company, until the Company is satisfied that such
laws, regulations, requirements and other obligations have been complied with in
full. Certificates representing Shares delivered under the Plan will be subject
to such stop-transfer orders and other restrictions as may be applicable under
such laws, regulations, requirements and other obligations, including any
requirement that a legend or legends be placed thereon.
11.6 Limitations on Transferability. Stock Units and any other right under
the Plan that may constitute a "derivative security" as generally defined in
Rule 16a-1(c) under the Exchange Act will not be transferable by a Participant
except by will or the laws of descent and distribution (or to a designated
beneficiary in the event of a Participant's death) or pursuant to a qualified
domestic relations order as defined in the Code or Title I of ERISA or the rules
thereunder; provided, however, that such rights may be transferred to one or
more trusts or other beneficiaries during the lifetime of the Participant in
connection with the Participant's estate planning, but only if and to the extent
then permitted under Rule 16b-3 and consistent with the registration of the
offer and sale of Shares on Form S-8 or a successor registration form of the
Securities and Exchange Commission. Stock Units and other rights under the Plan
may not be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall
not be subject to the claims of creditors.
11.7 Governing Law. The validity, construction, and effect of the Plan and
all rights hereunder will be determined in accordance with the laws of the State
of Delaware.
11.8 Plan Termination. Unless earlier terminated by action of the Board,
the Plan will remain in effect until such time as no Shares remain available for
delivery under the Plan and the Company has no further rights or obligations
under the Plan.
11.9 Headings. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
6
<PAGE>
EXHIBIT 10.8
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
EFFECTIVE JANUARY 1, 1997
COPYRIGHT (C) 1996
BY COMPENSATION RESOURCE GROUP, INC.
ALL RIGHTS RESERVED
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
TABLE OF CONTENTS
<TABLE>
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Page
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Purpose 1
ARTICLE 1 Definitions................................................................ 1
ARTICLE 2 Selection, Enrollment, Eligibility......................................... 5
2.2 Enrollment Requirements.................................................... 5
2.1 Selection by Committee..................................................... 5
2.3 Eligibility; Commencement of Participation................................. 5
2.4 Termination of Participation and/or Deferrals.............................. 5
ARTICLE 3 Deferral Commitments/Crediting/Taxes....................................... 5
3.1 Minimum Deferral........................................................... 5
3.2 Maximum Deferral........................................................... 6
3.3 Election to Defer; Effect of Election Form................................. 6
3.4 Withholding of Annual Deferral Amounts..................................... 7
3.5 Investment of Trust Assets................................................. 7
3.6 Vesting.................................................................... 7
3.7 Crediting/Debiting of Account Balances..................................... 7
3.8 FICA, Withholding and Other Taxes.......................................... 8
3.9 Distributions.............................................................. 8
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 9
4.1 Short-Term Payout.......................................................... 9
4.2 Other Benefits Take Precedence Over Short-Term Payout...................... 9
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies...... 9
4.4 Withdrawal Election........................................................ 9
ARTICLE 5 Retirement Benefit......................................................... 10
5.1 Retirement Benefit......................................................... 10
5.2 Payment of Retirement Benefit.............................................. 10
5.3 Death Prior to Completion of Retirement Benefit............................ 10
ARTICLE 6 Pre-Retirement Survivor Benefit............................................ 10
6.1 Pre-Retirement Survivor Benefit............................................ 10
6.2 Payment of Pre-Retirement Survivor Benefit................................. 10
</TABLE>
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<C> <S> <C>
ARTICLE 7 Termination Benefit................................ 11
7.1 Termination Benefit................................ 11
7.2 Payment of Termination Benefit..................... 11
ARTICLE 8 Disability Waiver and Benefit...................... 11
8.1 Disability Waiver.................................. 11
8.2 Continued Eligibility; Disability Benefit.......... 11
ARTICLE 9 Beneficiary Designation............................ 12
9.1 Beneficiary........................................ 12
9.2 Beneficiary Designation; Change; Spousal Consent... 12
9.3 Acknowledgment..................................... 12
9.4 No Beneficiary Designation......................... 12
9.5 Doubt as to Beneficiary............................ 12
9.6 Discharge of Obligations........................... 12
ARTICLE 10 Leave of Absence................................... 12
10.1 Paid Leave of Absence.............................. 12
10.2 Unpaid Leave of Absence............................ 12
ARTICLE 11 Termination, Amendment or Modification............. 13
11.1 Termination........................................ 13
11.2 Amendment.......................................... 13
11.3 Plan Agreement..................................... 14
11.4 Effect of Payment.................................. 14
ARTICLE 12 Administration..................................... 14
12.1 Committee Duties................................... 14
12.2 Agents............................................. 14
12.3 Binding Effect of Decisions........................ 14
12.4 Indemnity of Committee............................. 14
12.5 Employer Information............................... 14
ARTICLE 13 Other Benefits and Agreements...................... 14
13.1 Coordination with Other Benefits................... 14
</TABLE>
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<C> <S> <C>
ARTICLE 14 Claims Procedures...................................... 15
14.1 Presentation of Claim.................................. 15
14.2 Notification of Decision............................... 15
14.3 Review of a Denied Claim............................... 15
14.4 Decision on Review..................................... 15
14.5 Legal Action........................................... 16
ARTICLE 15 Trust.................................................. 16
15.1 Establishment of the Trust............................. 16
15.2 Interrelationship of the Plan and the Trust............ 16
15.3 Distributions From the Trust........................... 16
ARTICLE 16 Miscellaneous.......................................... 16
16.1 Status of Plan......................................... 16
16.2 Unsecured General Creditor............................. 16
16.3 Employer's Liability................................... 17
16.4 Nonassignability....................................... 17
16.5 Not a Contract of Employment........................... 17
16.6 Furnishing Information................................. 17
16.7 Terms.................................................. 17
16.8 Captions............................................... 17
16.9 Governing Law.......................................... 17
16.10 Notice................................................. 17
16.11 Successors............................................. 17
16.12 Spouse's Interest...................................... 18
16.13 Validity............................................... 18
16.14 Incompetent............................................ 18
16.15 Court Order............................................ 18
16.16 Distribution in the Event of Taxation.................. 18
16.17 Insurance.............................................. 18
16.18 Legal Fees To Enforce Rights After Change in Control... 18
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
BAY VIEW CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
Effective January 1, 1997
PURPOSE
-------
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated Employees who contribute materially to the
continued growth, development and future business success of Bay View Capital
Corporation, a Delaware corporation, and its subsidiaries, if any, that sponsor
this Plan. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the Deferral Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant,
or his or her designated Beneficiary, pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary relating to services performed during any calendar year, whether or
not paid in such calendar year or included on the Federal Income Tax Form
W-2 for such calendar year, payable to a Participant as an Employee under
any Employer's annual bonus and cash incentive plans, excluding stock
options.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and Annual Bonus that a Participant elects to have, and is
deferred, in accordance with Article 3, for any one Plan Year. In the event
of a Participant's Retirement, Disability (if deferrals cease in accordance
with Section 8.1), death or a Termination of Employment prior to the end of
a Plan Year, such year's Annual Deferral Amount shall be the actual amount
withheld prior to such event.
1.4 "Base Annual Salary" shall mean the annual cash compensation relating to
services performed during any calendar year, whether or not paid in such
calendar year or included on the Federal Income Tax Form W-2 for such
calendar year, excluding bonuses, commissions, overtime, fringe benefits,
stock options, relocation expenses, incentive payments, non-monetary
awards, directors fees and other fees, automobile and other allowances paid
to a Participant for employment services rendered (whether or not such
allowances are included in the Employee's gross income). Base Annual Salary
shall be calculated before reduction for compensation voluntarily deferred
or contributed by the Participant pursuant to all qualified or non-
qualified plans of any Employer and shall be calculated to include amounts
not otherwise included in the Participant's gross income under Code
Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the
amount would have been payable in cash to the Employee.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean the first to occur of any of the following
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial
owner (as that term is used in Section 13(d) of the Exchange Act), directly
or indirectly, of 50% or more of the Company's capital stock entitled to
vote in the election of directors;
(b) During any period of not more than two consecutive years, not including any
period prior to the adoption of this Plan, individuals who at the beginning
of such period constitute the board of directors of the Company, and any
new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (a), (c), (d) or (e) of this Section 1.8) whose election by the
board of directors or nomination for election by the Company's stockholders
was approved by a vote of at least three-fourths (3/4ths) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of the
Company, other than a consolidation or merger of the Company in which the
holders of the common stock of the Company immediately prior to the
consolidation or merger hold more than 50% of the common stock of the
surviving corporation immediately after the consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of all or
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporations" (as defined in Code Section
1563) in which the Company is a member.
1.9 "Claimant" shall have the meaning set forth in Section 14.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.11 "Committee" shall mean the committee described in Article 12.
1.12 "Company" shall mean Bay View Capital Corporation, a Delaware corporation,
and any successor to all or substantially all of the Company's assets or
business.
1.13 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid to
a Participant for a taxable year of the Employer would not be deductible by
the Employer solely by reason of the limitation under Code Section 162(m),
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
then to the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant to this Plan
prior to the Change in Control is deductible, the Employer may defer all or
any portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall continue to be credited/debited with
additional amounts in accordance with Section 3.7 below, even if such
amount is being paid out in installments. The amounts so deferred and
amounts credited thereon shall be distributed to the Participant or his or
her Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the
taxable year of the Employer during which the distribution is made will not
be limited by Section 162(m), or if earlier, the effective date of a Change
in Control. Notwithstanding anything to the contrary in this Plan, the
Deduction Limitation shall not apply to any distributions made after a
Change in Control.
1.14 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual
Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
his or her Deferral Account.
1.15 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
1.16 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.17 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.18 "Employee" shall mean a person who is an employee of any Employer.
1.19 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the
Board to participate in the Plan and have adopted the Plan as a sponsor.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.21 "First Plan Year" shall mean the period beginning January 1, 1997 and
ending December 31, 1997.
1.22 "Monthly Installment Method" shall be a monthly installment payment over
the number of months selected by the Participant in accordance with this
Plan, calculated as follows: The Account Balance of the Participant shall
be calculated as of the close of business three business days prior to the
last business day of the month. The monthly installment shall be calculated
by multiplying this balance by a fraction, the numerator of which is one,
and the denominator of which is the remaining number of monthly payments
due the Participant. By way of example, if the Participant elects a 120
month Monthly Installment Method, the first payment shall be 1/120 of the
Account Balance, calculated as described in this definition. The following
month, the payment shall be 1/119 of the Account Balance, calculated as
described in this definition. Each monthly installment shall be paid on or
as soon as practicable after the last business day of the applicable month.
1.23 "Participant" shall mean any Employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement, and an Election Form (iv) whose signed Plan Agreement and
Election Form and Beneficiary Designation Form are accepted by the
Committee, (v) who commences participation in the Plan, and
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Master Plan Document
================================================================================
(vi) whose Plan Agreement has not terminated. A spouse or former spouse of
a Participant shall not be treated as a Participant in the Plan or have an
account balance under the Plan, even if he or she has an interest in the
Participant's benefits under the Plan as a result of applicable law or
property settlements resulting from legal separation or divorce.
1.24 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be
evidenced by this instrument and by each Plan Agreement, as they may be
amended from time to time.
1.25 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Employer shall supersede all previous Plan Agreements in their entirety
and shall govern such entitlement. The terms of any Plan Agreement may be
different for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the benefits
otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant.
1.26 "Plan Year" shall mean a period beginning on January 1 of each calendar
year and continuing through December 31 of such calendar year.
1.27 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.28 "Retirement", "Retire(s)" or "Retired" shall mean severance from
employment from all Employers for any reason other than a leave of
absence, death or Disability on or after the earlier of the attainment of
(a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of
Service.
1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.30 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.31 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.32 "Termination of Employment" shall mean the severing of employment with all
Employers voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.33 "Trust" shall mean one or more trusts established pursuant to that certain
Master Trust Agreement, dated as of January 1, 1997 between the Company
and the trustee named therein, as amended from time to time.
1.34 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant or
a dependent of the Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
----------------------
select group of management and highly compensated Employees of the Employers, as
determined by the Committee in its sole discretion. From that group, the
Committee shall select, in its sole discretion, employees to participate in the
Plan.
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Deferred Compensation Plan
Master Plan Document
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2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
-----------------------
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all within
30 days after he or she is selected to participate in the Plan. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected
------------------------------------------
to participate in the Plan has met all enrollment requirements set forth in
this Plan and required by the Committee, including returning all required
documents to the Committee within the specified time period, that Employee
shall commence participation in the Plan on the first day of the month
following the month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such requirements within the
period required, in accordance with Section 2.2, that Employee shall not be
eligible to participate in the Plan until the first day of the Plan Year
following the delivery to and acceptance by the Committee of the required
documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines
---------------------------------------------
in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership
in such group is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has made
for the remainder of the Plan Year in which the Participant's membership
status changes, (ii) prevent the Participant from making future deferral
elections and/or (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the Participant's
participation in the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/CREDITING/TAXES
------------------------------------
3.1 Minimum Deferrals.
-----------------
(a) BASE ANNUAL SALARY, ANNUAL BONUS AND DIRECTOR'S FEES. For each Plan
----------------------------------------------------
Year, a Participant may elect to defer, as his or her Annual Deferral
Amount, Base Annual Salary and/or Annual Bonus s in the following
minimum amounts for each deferral elected:
<TABLE>
<CAPTION>
Minimum
Deferral Amount
-------- ------
<S> <C>
Base Annual Salary $0
Annual Bonus $0
</TABLE>
If an election is made for less than stated minimum amounts, or if no
election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant first
---------------
becomes a Participant after the first day of a Plan Year, the minimum
Base Annual Salary deferral shall be an amount equal to the minimum
set forth above, multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan Year and the
denominator of which is 12.
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Master Plan Document
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3.2 MAXIMUM DEFERRAL.
----------------
(a) Base Annual Salary, Annual Bonus and Director's Fees. For each Plan
----------------------------------------------------
Year, a Participant may elect to defer, as his or her Annual Deferral
Amount, Base Annual Salary and/or Annual Bonus in the following
maximum amounts for each deferral elected:
<TABLE>
<CAPTION>
Maximum
Deferral Amount
-------- --------
<S> <C>
Base Annual Salary 10%
Annual Bonus 100%
</TABLE>
(b) Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the maximum Annual Deferral
Amount, with respect to Base Annual Salary and Annual Bonus shall be
limited to the amount of compensation not yet earned by the
Participant as of the date the Participant submits a Plan Agreement
and Election Form to the Committee for acceptance.
3.3 Election to Defer; Effect of Election Form.
------------------------------------------
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
---------------
participation in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the
Committee deems necessary or desirable under the Plan. For these
elections to be valid, the Election Form must be completed and signed
by the Participant, timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the
Committee deems necessary or desirable under the Plan, shall be made
by timely delivering to the Committee, in accordance with its rules
and procedures, before the end of the Plan Year preceding the Plan
Year for which the election is made, a new Election Form. If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral
Amount shall be zero for that Plan Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base
--------------------------------------
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual Salary. The Annual
Bonus portion of the Annual Deferral Amount shall be withheld at the time the
Annual Bonus is or otherwise would be paid to the Participant, whether or not
this occurs during the Plan Year itself.
3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be
--------------------------
authorized, upon written instructions received from the Committee or investment
manager appointed by the Committee, to invest and reinvest the assets of the
Trust in accordance with the applicable Trust Agreement, including the
disposition of stock and reinvestment of the proceeds in one or more investment
vehicles designated by the Committee.
3.6 VESTING. A Participant shall at all times be 100% vested in his or
-------
her Deferral Account.
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Master Plan Document
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3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
--------------------------------------
to, the rules and procedures that are established from time to time by the
Committee, in its sole discretion, amounts shall be credited or debited to a
Participant's Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection
-----------------------------
with his or her initial deferral election in accordance with
Section 3.3(a) above, shall elect, on the Election Form, one or
more Measurement Fund(s) (as described in Section 3.7(c) below)
to be used to determine the additional amounts to be credited to
his or her Account Balance for the first calendar quarter or
portion thereof in which the Participant commences participation
in the Plan and continuing thereafter for each subsequent
calendar quarter in which the Participant participates in the
Plan, unless changed in accordance with the next sentence.
Commencing with the first calendar quarter that follows the
Participant's commencement of participation in the Plan and
continuing thereafter for each subsequent calendar quarter in
which the Participant participates in the Plan, no later than the
next to last business day of the calendar quarter, the
Participant may (but is not required to) elect, by submitting an
Election Form to the Committee that is accepted by the Committee,
to add or delete one or more Measurement Fund(s) to be used to
determine the additional amounts to be credited to his or her
Account Balance, or to change the portion of his or her Account
Balance allocated to each previously or newly elected Measurement
Fund. If an election is made in accordance with the previous
sentence, it shall apply to the next calendar quarter and
continue thereafter for each subsequent calendar quarter in which
the Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(b) PROPORTIONATE ALLOCATION. In making any election described in
------------------------
Section 3.7(a) above, the Participant shall specify on the
Election Form, in increments of five percentage points (5%), the
percentage of his or her Account Balance to be allocated to a
Measurement Fund (as if the Participant was making an investment
in that Measurement Fund with that portion of his or her Account
Balance).
(c) MEASUREMENT FUNDS. The Participant may elect one or more of the
-----------------
following measurement funds, based on certain mutual funds (the
"Measurement Funds"), for the purpose of crediting or debiting
amounts to his or her Account Balance:
- T. Rowe Price Equity Index Fund
- T. Rowe Price International Stock Fund
- T. Rowe Price Corporate Income Fund
As necessary, the Committee may, in its sole discretion,
discontinue, substitute or add a Measurement Fund. Each such
action will take effect as of the first day of the calendar
quarter that follows by thirty (30) days the day on which the
Committee gives Participants advance written notice of such
change.
(d) CREDITING OR DEBITING METHOD. The performance of each selected
----------------------------
Measurement Fund (either positive or negative) will be determined
by the Committee, in its sole discretion, based on the
performance of the Measurement Funds themselves. A Participant's
Account Balance shall be credited or debited on a daily basis
based on the performance of each Measurement Fund selected by the
Participant, as determined by the Committee in its sole
discretion, as though (i) a Participant's Account Balance were
invested in the Measurement Fund(s) selected by the Participant,
in the percentages applicable to such calendar quarter, as of the
close of business on the first business day of such calendar
quarter, at the closing price on such date; (ii) the portion of
the Annual Deferral Amount that was actually deferred during any
calendar quarter were invested in the Measurement
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Deferred Compensation Plan
Master Plan Document
================================================================================
Fund(s) selected by the Participant, in the percentages
applicable to such calendar quarter, no later than the close of
business on the third business day after the day on which such
amounts are actually deferred from the Participant's Base Annual
Salary through reductions in his or her payroll, at the closing
price on such date; and (iii) any distribution made to a
Participant that decreases such Participant's Account Balance
shall cease being invested in the Measurement Fund(s), in the
percentages applicable to such calendar quarter, no earlier than
three business days prior to the distribution, at the closing
price on such date.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of
--------------------
this Plan that may be interpreted to the contrary, the
Measurement Funds are to be used for measurement purposes only,
and a Participant's election of any such Measurement Fund, the
allocation to his or her Account Balance thereto, the calculation
of additional amounts and the crediting or debiting of such
amounts to a Participant's Account Balance shall not be
considered or construed in any manner as an actual investment of
his or her Account Balance in any such Measurement Fund. In the
event that the Company or the Trustee (as that term is defined in
the Trust), in its own discretion, decides to invest funds in any
or all of the Measurement Funds, no Participant shall have any
rights in or to such investments themselves. Without limiting the
foregoing, a Participant's Account Balance shall at all times be
a bookkeeping entry only and shall not represent any investment
made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of
the Company.
3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual
--------------------
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary and Bonus that is not being deferred,
in a manner determined by the Employer(s), the Participant's share of
FICA and other employment taxes on such Annual Deferral Amount. If
necessary, the Committee may reduce the Annual Deferral Amount in
order to comply with this Section 3.8.
3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the
-------------
Trust, shall withhold from any payments made to a Participant under
this Plan all federal, state and local income, employment and other
taxes required to be withheld by the Employer(s), or the trustee of
the Trust, in connection with such payments, in amounts and in a
manner to be determined in the sole discretion of the Employer(s) and
the trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
---------------------------------------------------------------------------
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an
-----------------
Annual Deferral Amount, a Participant may irrevocably elect to receive
a future "Short-Term Payout" from the Plan with respect to such Annual
Deferral Amount. Subject to the Deduction Limitation, the Short-Term
Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount plus amounts credited or debited in the manner
provided in Section 3.7 above on that amount, determined at the time
that the Short-Term Payout becomes payable (rather than the date of a
Termination of Employment). Subject to the Deduction Limitation and
the other terms and conditions of this Plan, each Short-Term Payout
elected shall be paid out during a period beginning 1 day and ending
60 days after the last day of any Plan Year designated by the
Participant that is at least five Plan Years after the Plan Year in
which the Annual Deferral Amount is actually deferred. By way of
example, if a five year Short-Term Payout is elected for Annual
Deferral Amounts that are deferred in the Plan Year commencing January
1, 1997, the five year Short-Term Payout would become payable during a
60 day period commencing January 1, 2003.
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Master Plan Document
================================================================================
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event
----------------------------------------------
occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual
Deferral Amount, plus amounts credited or debited thereon, that is
subject to a Short-Term Payout election under Section 4.1 shall not be
paid in accordance with Section 4.1 but shall be paid in accordance
with the other applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
---------------------------------------------------------
EMERGENCIES. If the Participant experiences an Unforeseeable
-----------
Financial Emergency, the Participant may petition the Committee to (i)
suspend any deferrals required to be made by a Participant and/or (ii)
receive a partial or full payout from the Plan. The payout shall not
exceed the lesser of the Participant's Account Balance, calculated as
if such Participant were receiving a Termination Benefit, or the
amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the
petition for a suspension and/or payout is approved, suspension shall
take effect upon the date of approval and any payout shall be made
within 60 days of the date of approval. Following approval of a
payout under this Section 4.3, a Participant shall not be permitted to
resume participation in the Plan for the later of 6 months following
such withdrawal or the first day of the following Plan Year. If the
Participant petitions the Committee only to suspend deferrals and the
Committee approves such suspension, the participant shall not be
permitted to resume participation in the Plan until the first day of
the following Plan Year. The payment of any amount under this Section
4.3 shall be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death,
-------------------
his or her Beneficiary) may elect, at any time, to withdraw all of his
or her Account Balance, calculated as if there had occurred a
Termination of Employment as of the day of the election, less a
withdrawal penalty equal to 10% of such amount (the net amount shall
be referred to as the "Withdrawal Amount"). This election can be made
at any time, before or after Retirement, Disability, death or
Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an
installment payment schedule. If made before Retirement, Disability
or death, a Participant's Withdrawal Amount shall be his or her
Account Balance calculated as if there had occurred a Termination of
Employment as of the day of the election. No partial withdrawals of
the Withdrawal Amount shall be allowed. The Participant (or his or
her Beneficiary) shall make this election by giving the Committee
advance written notice of the election in a form determined from time
to time by the Committee. The Participant (or his or her Beneficiary)
shall be paid the Withdrawal Amount within 60 days of his or her
election. Once the Withdrawal Amount is paid, the Participant's
participation in the Plan shall terminate and the Participant shall
not be eligible to participate in the Plan in the future. The payment
of this Withdrawal Amount shall be subject to the Deduction
Limitation.
ARTICLE 5
RETIREMENT BENEFIT
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
------------------
Participant who Retires shall receive, as a Retirement Benefit, his or
her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his
-----------------------------
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or
pursuant to a Monthly Installment Method of 60, 120 or 180 months.
The Participant may annually change his or her election to an
allowable alternative payout period by submitting a new Election Form
to the Committee, provided that any such Election Form shall apply
only to subsequent deferrals under the Plan. If a Participant does
not make any election with respect to the payment of the Retirement
Benefit, then such benefit shall be payable in a lump sum. The lump
sum payment shall be made, or installment payments shall commence, no
later than 60 days after the date the Participant Retires. Any
payment made shall be subject to the Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant
-----------------------------------------------
dies after Retirement but before the Retire ment Benefit is paid in
full, the Participant's unpaid Retirement Benefit payments shall
continue and shall be
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Deferred Compensation Plan
Master Plan Document
================================================================================
paid to the Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been paid to
the Participant had the Participant survived, or (b) in a lump sum, if
requested by the Beneficiary and allowed in the sole discretion of the
Committee, that is equal to the Participant's unpaid remaining Account
Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
-------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction
-------------------------------
Limitation, the Participant's Beneficiary shall receive a Pre-
Retirement Survivor Benefit equal to the Participant's Account Balance
if the Participant dies before he or she Retires, experiences a
Termination of Employment or suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in
------------------------------------------
connection with his or her commencement of participation in the Plan,
shall elect on an Election Form whether the Pre-Retirement Survivor
Benefit shall be received by his or her Beneficiary in a lump sum or
pursuant to a Monthly Installment Method of 60, 120 or 180 months.
The Participant may annually change this election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, which form must be accepted by the Committee in its sole
discretion. The Election Form most recently accepted by the Committee
prior to the Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. If a Participant does
not make any election with respect to the payment of the Pre-
Retirement Survivor Benefit, then such benefit shall be paid in a lump
sum. Despite the foregoing, if the Participant's Account Balance at
the time of his or her death is less than $25,000, payment of the Pre-
Retirement Survivor Benefit may be made, in the sole discretion of the
Committee, in a lump sum or pursuant to a Monthly Installment Method
of not more than 60 months. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the
date the Committee is provided with proof that is satisfactory to the
Committee of the Participant's death. Any payment made shall be
subject to the Deduction Limitation.
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Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 7
TERMINATION BENEFIT
-------------------
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
-------------------
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid
------------------------------
in a lump sum. The lump sum payment shall be made no later than 60
days after the date of the Participant's Termination of Employment.
Any payment made shall be subject to the Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
-----------------------------
8.1 DISABILITY WAIVER.
-----------------
(a) WAIVER OF DEFERRAL. A Participant who is determined by the
------------------
Committee to be suffering from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount commitment
that would otherwise have been withheld from a Participant's Base
Annual Salary and/or Annual Bonus for the Plan Year during which
the Participant first suffers a Disability. During the period of
Disability, the Participant shall not be allowed to make any
additional deferral elections, but will continue to be considered
a Participant for all other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
--------------
Employer, after a Disability ceases, the Participant may elect to
defer an Annual Deferral Amount for the Plan Year following his
or her return to employment or service and for every Plan Year
thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form is
delivered to and accepted by the Committee for each such election
in accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
-----------------------------------------
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits
provided for in Articles 4, 5, 6 or 7 in accordance with the
provisions of those Articles. Notwithstanding the above, the
Committee shall have the right to, in its sole and absolute discretion
and for purposes of this Plan only, and must in the case of a
Participant who is otherwise eligible to Retire, deem the Participant
to have experienced a Termination of Employment, or in the case of a
Participant who is eligible to Retire, to have Retired, at any time
(or in the case of a Participant who is eligible to Retire, as soon as
practicable) after such Participant is determined to be suffering a
Disability, in which case the Participant shall receive a Disability
Benefit equal to his or her Account Balance at the time of the
Committee's determination; provided, however, that should the
Participant otherwise have been eligible to Retire, he or she shall be
paid in accordance with Article 5. The Disability Benefit shall be
paid in a lump sum within 60 days of the Committee's exercise of such
right. Any payment made shall be subject to the Deduction Limitation.
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Master Plan Document
================================================================================
ARTICLE 9
BENEFICIARY DESIGNATION
-----------------------
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary
designated under this Plan may be the same as or different from the
Beneficiary designation under any other plan of an Employer in which
the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant
------------------------------------------------
shall designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules
and procedures, as in effect from time to time. If the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by
that Participant's spouse and returned to the Committee. Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled. The
Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the
Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
--------------
Beneficiary shall be effective until received and acknowledged in
writing by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
--------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the
Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
-----------------------
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to
cause the Participant's Employer to withhold such payments until this
matter is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to
------------------------
a Beneficiary shall fully and completely discharge all Employers and
the Committee from all further obligations under this Plan with
respect to the Participant, and that Participant's Plan Agreement
shall terminate upon such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
----------------
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
---------------------
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
-----------------------
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
considered employed by the Employer and the Participant shall be
excused from making deferrals until the earlier of the date the leave
of absence expires or the Participant returns to a paid employment
status. Upon such expiration or return, deferrals shall resume for the
remaining portion of the Plan Year in which the expiration or return
occurs, based on the deferral election, if any, made for that Plan
Year. If no election was made for that Plan Year, no deferral shall be
withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
--------------------------------------
11.1 TERMINATION. Although each Employer anticipates that it will
-----------
continue the Plan for an indefinite period of time, there is no
guarantee that any Employer will continue the Plan or will not
terminate the Plan at any time in the future. Accordingly, each
Employer reserves the right to discontinue its sponsorship of the Plan
and/or to terminate the Plan at any time with respect to any or all of
its participating Employees by action of its board of directors.
Upon the termination of the Plan with respect to any Employer, the
Plan Agreements of the affected Participants who are employed by that
Employer shall terminate and their Account Balances, determined as if
they had experienced a Termination of Employment on the date of Plan
termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that
Participant as if he or she had Retired on the date of Plan
termination, shall be paid to the Participants as follows: Prior to a
Change in Control, if the Plan is terminated with respect to all of
its Participants, an Employer shall have the right, in its sole
discretion, and notwithstanding any elections made by the Participant,
to pay such benefits in a lump sum or pursuant to a Monthly
Installment Method of up to 15 years, with amounts credited and
debited during the installment period as provided herein. If the Plan
is terminated with respect to less than all of its Participants, an
Employer shall be required to pay such benefits in a lump sum. After
a Change in Control, the Employer shall be required to pay such
benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of the date
of termination; provided however, that the Employer shall have the
right to accelerate installment payments without a premium or
prepayment penalty by paying the Account Balance in a lump sum or
pursuant to a Monthly Installment Method using fewer months.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan
---------
in whole or in part with respect to that Employer by the action of its
board of directors; provided, however, that no amendment or
modification shall be effective to decrease or restrict the value of a
Participant's Account Balance in existence at the time the amendment
or modification is made, calculated as if the Participant had
experienced a Termination of Employment as of the effective date of
the amendment or modification or, if the amendment or modification
occurs after the date upon which the Participant was eligible to
Retire, the Participant had Retired as of the effective date of the
amendment or modification. The amendment or modification of the Plan
shall not affect any Participant or Beneficiary who has become
entitled to the payment of benefits under the Plan as of the date of
the amendment or modification; provided, however, that the Employer
shall have the right to accelerate installment payments by paying the
Account Balance in a lump sum or pursuant to a Monthly Installment
Method using fewer months (provided that the present value of all
payments that will have been received by a Participant at any given
point of time under the different payment schedule shall equal or
exceed the present value of all payments that would have been received
at that point in time under the original payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2
--------------
above, if a Participant's Plan Agreement contains benefits or
limitations that are not in this Plan document, the Employer may only
amend or terminate such provisions with the consent of the
Participant.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
-----------------
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries
under this Plan and the Participant's Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
--------------
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee
----------------
which shall consist of the Board, or such committee as the Board shall
appoint. Members of the Committee may be Participants under this
Plan. The Committee shall also have the discretion and authority to
(i) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and (ii) decide or
resolve any and all questions including interpretations of this Plan,
as may arise in connection with the Plan. Any individual serving on
the Committee who is a Participant shall not vote or act on any matter
relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information
furnished by a Participant or the Company.
12.2 AGENTS. In the administration of this Plan, the Committee may, from
------
time to time, employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed
representative) and may from time to time consult with counsel who may
be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
---------------------------
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold
----------------------
harmless the members of the Committee, and any Employee to whom the
duties of the Committee may be delegated, against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of
willful misconduct by the Committee or any of its members or any such
Employee.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its
--------------------
functions, each Employer shall supply full and timely information to
the Committee on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement,
Disability, death or Termination of Employment of its Participants,
and such other pertinent information as the Committee may reasonably
require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
-----------------------------
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
--------------------------------
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer.
The Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
ARTICLE 14
CLAIMS PROCEDURES
-----------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
---------------------
Participant (such Participant or Beneficiary being referred to below
as a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
amounts distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by
the Claimant. All other claims must be made within 180 days of the
date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the
Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
------------------------
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(v) an explanation of the claim review procedure set forth in
Section 14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice
------------------------
from the Committee that a claim has been denied, in whole or in part,
a Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on
------------------
review promptly, and not later than 60 days after the filing of a
written request for review of the denial, unless a hearing is held or
other special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions
------------
of this Article 14 is a mandatory prerequisite to a Claimant's right
to commence any legal action with respect to any claim for benefits
under this Plan.
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 15
TRUST
-----
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust,
--------------------------
and each Employer shall, at each pay period, transfer over to the
Trust such cash as the Participant elected to defer under the Plan.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
-------------------------------------------
Plan and the Plan Agreement shall govern the rights of a Participant
to receive distributions pursuant to the Plan. The provisions of the
Trust shall govern the rights of the Employers, Participants and the
creditors of the Employers to the assets transferred to the Trust.
Each Employer shall at all times remain liable to carry out its
obligations under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
----------------------------
Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
--------------
qualified within the meaning of Code Section 401(a) and that
"is unfunded and is maintained by an employer primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees" within the meaning of
ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be
administered and interpreted to the extent possible in a manner
consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
--------------------------
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under
the Plan shall be merely that of an unfunded and unsecured promise to
pay money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
--------------------
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer
shall have no obligation to a Participant under the Plan except as
expressly provided in the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall
----------------
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable. No part
of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of law
in the event of a Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged
to be an "at will" employment relationship that can be terminated at
any time for any reason, or no reason, with or without cause, and with
or without notice, unless expressly provided in a written employment
agreement. Nothing in this Plan shall be
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
deemed to give a Participant the right to be retained in the service
of any Employer, either as an Employee or a Director, or to interfere
with the right of any Employer to discipline or discharge the
Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
----------------------
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and
the payments of benefits hereunder, including but not limited to
taking such physical examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they
-----
shall be construed as though they were in the feminine in all cases
where they would so apply; and whenever any words are used herein in
the singular or in the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all
cases where they would so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall
-------------
be construed and interpreted according to the internal laws of the
State of California without regard to its conflicts of laws
principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to
------
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the
address below:
Director of Human Resources
Bay View Federal Bank
2121 So. El Camino Real
San Mateo, CA 94403-1897
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
----------
benefit of the Participant's Employer and its successors and assigns
and the Participant and the Participant's designated Beneficiaries.
16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a
-----------------
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
16.13 VALIDITY. In case any provision of this Plan shall be illegal or
--------
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
16.14 INCOMPETENT. If the Committee determines in its discretion that a
-----------
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the
care and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetence, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit. Any payment
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
of a benefit shall be a payment for the account of the Participant and
the Participant's Beneficiary, as the case may be, and shall be a
complete discharge of any liability under the Plan for such payment
amount.
16.15 COURT ORDER. The Committee is authorized to make any payments
-----------
directed by court order in any action in which the Plan or the
Committee has been named as a party. In addition, if a court
determines that a spouse or former spouse of a Participant has an
interest in the Participant's benefits under the Plan in connection
with a property settlement or otherwise, the Committee, in its sole
discretion, shall have the right, notwithstanding any election made by
a Participant, to immediately distribute the spouse's or former
spouse's interest in the Participant's benefits under the Plan to that
spouse or former spouse.
16.16 DISTRIBUTION IN THE EVENT OF TAXATION.
-------------------------------------
(a) IN GENERAL. If, for any reason, all or any portion of a
----------
Participant's benefits under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the Trust
after a Change in Control, for a distribution of that portion of
his or her benefit that has become taxable. Upon the grant of
such a petition, which grant shall not be unreasonably withheld
(and, after a Change in Control, shall be granted), a
Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a
Participant's unpaid Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall affect and reduce the benefits
to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section
-----
3.6(e) of the Trust and benefits are distributed from the Trust
to a Participant in accordance with that Section, the
Participant's benefits under this Plan shall be reduced to the
extent of such distributions.
16.17 INSURANCE. The Employers, on their own behalf or on behalf of the
---------
trustee of the Trust, and, in their sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and
in such forms as they may choose. The Employers or the trustee of the
Trust, as the case may be, shall be the sole owner and beneficiary of
any such insurance. The Participant shall have no interest whatsoever
in any such policy or policies, and at the request of the Employers
shall submit to medical examinations and supply such information and
execute such documents as may be required by the insurance company or
companies to whom the Employers have applied for insurance.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The
----------------------------------------------------
Company and each Employer is aware that upon the occurrence of a
Change in Control, the Board or the board of directors of a
Participant's Employer (which might then be composed of new members)
or a shareholder of the Company or the Participant's Employer, or of
any successor corporation might then cause or attempt to cause the
Company, the Participant's Employer or such successor to refuse to
comply with its obligations under the Plan and might cause or attempt
to cause the Company or the Participant's Employer to institute, or
may institute, litigation seeking to deny Participants the benefits
intended under the Plan. In these circumstances, the purpose of the
Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, the
Participant's Employer or any successor corporation has failed to
comply with any of its obligations under the Plan or any agreement
thereunder or, if the Company, such Employer or any other person takes
any action to declare the Plan void or unenforceable or institutes any
litigation or other legal action designed to deny, diminish or to
recover from any Participant the benefits intended to be provided,
then the Company and the Participant's Employer irrevocably authorize
such Participant to retain counsel of his or her choice at the expense
of the Company and the Participant's Employer (who shall be jointly
and severally liable) to represent such Participant in connection with
the initiation or defense of any litigation or other legal action,
whether by or against the Company, the Participant's Employer or any
director, officer, shareholder or other person affiliated with the
Company, the Participant's Employer or any successor thereto in any
jurisdiction.
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
IN WITNESS WHEREOF, the Company has signed this Plan document as of
December 31, 1996.
-----------------
"Company"
Bay View Capital Corporation, a Delaware
corporation
By: /s/ Edward H. Sondker
---------------------
Title: President
----------
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<PAGE>
EXHIBIT 10.9
BAY VIEW CAPITAL CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
------------
interests of the Corporation and its stockholders by providing a means for
attracting and retaining officers and employees of the Corporation and its
Affiliates. The Plan is intended to be an incentive stock option plan within
the meaning of Section 422 of the Code but not all Options granted hereunder are
required to be Incentive Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
-----------
"Affiliate" -- means any "parent corporation" or "subsidiary
corporation" of the Corporation as such terms are defined in Section 425(e) and
(f), respectively, of the Code.
"Award" -- means the grant by the Committee of an Incentive Stock
Option, a Non-Qualified Stock Option, a Stock Appreciation Right, a Limited
Stock Appreciation Right, or of Restricted Stock, or any combination thereof, as
provided in the Plan.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee referred to in Section 3 hereof.
"Continuous Service" -- shall mean the absence of any interruption or
termination of service as an officer or employee of the Corporation or an
Affiliate, except that when used with respect to persons granted an Incentive
Stock Option means the absence of any interruption or termination of service as
an employee of the Corporation or an Affiliate. Service shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Corporation or in the case of transfers between payroll
locations of the Corporation or between the Corporation, its parent, its
subsidiaries or its successor.
"Corporation" -- means Bay View Capital Corporation, a Delaware
Corporation and any successor thereto.
"Disinterested Person" -- means any member of the Board of Directors
of the Corporation who (i) is an outside director as defined under Section
162(m) of the Code and the regulations thereunder and (ii) a director who within
the prior year has not been, and is not being, granted any awards related to the
Shares under this Plan or any other plan of the Corporation or any of its
Affiliates except for awards which (A) are calculated in accordance with a
formula as contemplated in paragraph (c)(2)(ii) of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934; (B) result from participation in an
ongoing securities acquisition plan meeting the conditions of paragraph
(d)(2)(i) of Rule 16b-3; or, (C) arise from an election by a director to receive
all or part of his Board fees in securities.
1
<PAGE>
"Early Retirement" -- means retirement from employment with the
Corporation prior to the Participant either (i) having reached the age of 55 or
(ii) having maintained Continuous Service for at least three years.
"Employee" -- means any person, including an officer, who is employed
by the Corporation or any Affiliate.
"ERISA" -- means the Employee Retirement Income Security Act of 1974,
as amended.
"Exercise Price" -- means (i) in the case of an Option, the price per
Share at which the Shares subject to such Option may be purchased upon exercise
of such Option and (ii) in the case of a Right, the price per Share (other than
the Market Value per Share on the date of exercise and the Offer Price per Share
as defined in Section 10 hereof) which, upon grant, the Committee determines
shall be utilized in calculating the aggregate value which a Participant shall
be entitled to receive pursuant to Sections 9, 10 or 13 hereof upon exercise of
such Right.
"Incentive Stock Option" -- means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is subject to the
limitations and restrictions of Section 8 hereof and is intended to qualify
under Section 422 of the Code.
"Limited Stock Appreciation Right" -- means a stock appreciation right
with respect to Shares granted by the Committee pursuant to Sections 6 and 10
hereof.
"Market Value" -- means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the Nasdaq Stock Market, or any similar
system then in use, or, if no such quotations are available, the fair market
value on such date of a Share as the Committee shall determine.
"Non-Qualified Stock Option" -- means an option to purchase Shares
granted by the Committee pursuant to Section 6 hereof, which option is not
intended to qualify under Section 422(b) of the Code.
"Normal Retirement" -- means retirement from employment with the
Corporation after the Participant has (i) reached the age of 55 and (ii)
maintained Continuous Service for at least three years.
"Option" -- means an Incentive Stock Option or a Non-Qualified Stock
Option.
2
<PAGE>
"Participant" -- means any officer or employee of the Corporation or
any Affiliate who is selected by the Committee to receive an Award.
"Plan" -- means the 1995 Stock Option and Incentive Plan of the
Corporation.
"Related" -- means (i) in the case of a Right, a Right which is
granted in connection with, and to the extent exercisable, in whole or in part,
in lieu of, an Option or another Right and (ii) in the case of an Option, an
Option with respect to which and to the extent a Right is exercisable, in whole
or in part, in lieu thereof has been granted.
"Reload Option" -- means an Option to purchase Shares that is granted
pursuant to Section 6 hereof and is subject to the limitations and restrictions
of Section 7(g) hereof.
"Restricted Period" -- means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect under
Section 11 hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" -- means Shares which have been contingently
awarded to a Participant by the Committee subject to the restrictions referred
to in Section 11 hereof, so long as such restrictions are in effect.
"Right" -- means a Limited Stock Appreciation Right or a Stock
Appreciation Right.
"Senior Officer" -- means the Corporation's president, principal
financial officer, or principal accounting officer, any vice president of the
Corporation in charge of a principal business unit, division or function (such
as sales, administration or finance), any other officer who performs a policy-
making function, or any other person who performs similar policy-making
functions for the Corporation. Officers of the Corporation's Affiliates shall
be deemed Senior Officers of the Corporation if they perform such policy-making
functions for the Corporation.
"Shares" -- means the shares of common stock of the Corporation.
"Stock Appreciation Right" -- means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" -- means the beneficial owner of more
than ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
--------------
consisting of two or more members, each of whom shall be a Disinterested Person.
The members of the Committee shall be appointed by the Board of Directors of the
Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion to (i) select
Participants and grant Awards; (ii) determine the number of Shares to be subject
to types of Awards generally, as well as to individual Awards granted under the
Plan;
3
<PAGE>
(iii) determine the terms and conditions upon which Awards shall be granted
under the Plan; (iv) prescribe the form and terms of instruments evidencing such
grants; and (v) establish from time to time regulations for the administration
of the Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation. The Committee may select from time to time
-------------
Participants in the Plan from those officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
----------------------
Section 12 hereof, the maximum number of shares with respect to which Awards may
be made under the Plan is 500,000 shares. The Shares with respect to which
Awards may be made under the Plan may be either authorized and unissued shares
or issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall
not be considered to have been made under the Plan with respect to any Option or
Right which terminates or with respect to Restricted Stock which is forfeited,
and new Awards may be granted under the Plan with respect to the number of
Shares as to which such termination or forfeiture has occurred.
6. General Terms and Conditions of Options and Rights. The Committee
--------------------------------------------------
shall have full and complete authority and discretion, except as expressly
limited by the Plan, to grant Options and/or Rights and to provide the terms and
conditions (which need not be identical among Participants) thereof. In
particular, the Committee shall prescribe the following terms and conditions:
(i) the Exercise Price of any Option or Right, which shall not be less than the
Market Value per Share at the date of grant of such Option or Right, (ii) the
number of Shares subject to, and the expiration date of, any Option or Right,
which expiration date shall not exceed ten years from the date of grant, (iii)
the manner, time and rate (cumulative or otherwise) of exercise of such Option
or Right, and (iv) the restrictions, if any, to be placed upon such Option or
Right or upon Shares which may be issued upon exercise of such Option or Right.
The Committee may, as a condition of granting any Option or Right, require that
a Participant agree not to thereafter exercise one or more Options or Rights
previously granted to such Participant. Notwithstanding the foregoing, no
individual shall be granted awards in any calendar year with respect to more
than 25% of the total shares subject to the Plan.
4
<PAGE>
7. Exercise of Options or Rights.
-----------------------------
(a) An Option or Right granted under the Plan shall be exercisable
during the lifetime of the Participant to whom such Option or Right was granted
only by such Participant, and except as provided in paragraphs (c), (d), (e) and
(f) of this Section 7, no such Option or Right may be exercised unless at the
time such Participant exercises such Option or Right, such Participant has
maintained Continuous Service since the date of grant of such Option or Right.
Cash settlements of Rights may be made only in accordance with any applicable
restrictions pursuant to Rule 16b-3(e) under the Securities Exchange Act of 1934
or any similar or successor provision.
(b) To exercise an Option or Right under the Plan, the Participant to
whom such Option or Right was granted shall give written notice to the
Corporation in form satisfactory to the Committee (and, if partial exercises
have been permitted by the Committee, by specifying the number of Shares with
respect to which such Participant elects to exercise such Option or Right)
together with full payment of the Exercise Price, if any and to the extent
required. The date of exercise shall be the date on which such notice is
received by the Corporation. Payment, if any is required, shall be made either
(i) in cash (including check, bank draft or money order) or (ii) in the case of
an Option with respect to which Reload Options are authorized pursuant to
Section 7(f) hereof (or, in the case of any other Option, if permitted by the
Committee), by delivering (A) Shares already owned by the Participant and having
a fair market value equal to the applicable exercise price, such fair market
value to be determined in such appropriate manner as may be provided by the
Committee or as may be required in order to comply with or to conform to
requirements of any applicable laws or regulations, or (B) a combination of cash
and such Shares.
(c) If a Participant to whom an Option or Right was granted shall
cease to maintain Continuous Service for any reason (including total and partial
disability and Early Retirement, but excluding Normal Retirement, death and
termination of employment by the Corporation or any Affiliate for cause), such
Participant may, but only within the period of three months immediately
succeeding such cessation of Continuous Service and in no event after the
expiration date of such Option or Right, exercise such Option or Right to the
extent that such Participant was entitled to exercise such Option or Right at
the date of such cessation, provided, however, that such right of exercise after
cessation of Continuous Service shall not be available to a Participant if the
Committee otherwise determines and so provides in the applicable instrument or
instruments evidencing the grant of such Option or Right. If the Continuous
Service of a Participant to whom an Option or Right was granted by the
Corporation is terminated for cause, all rights under any Option or Right of
such Participant shall expire immediately upon the giving to the Participant of
notice of such termination.
(d) If a Participant to whom an Option or Right was granted shall
cease to maintain Continuous Service due to Normal Retirement, such Participant
may, but only within the period of two years immediately succeeding such
cessation of Continuous Service and in no event after the expiration date of
such Option or Right, exercise such Option or Right to the extent that such
Participant was entitled to exercise such Option or Right at the date of such
cessation, provided, however, that such right of exercise after cessation of
Continuous Service
5
<PAGE>
shall not be available to a Participant if the Committee otherwise determines
and so provides in the applicable instrument or instruments evidencing the grant
of such Option or Right.
(e) In the event of the death of a Participant while in the Continuous
Service of the Corporation or an Affiliate or within the three month or two year
periods referred to in paragraphs (c) and (d), respectively, of this Section 7,
the person to whom any Option or Right held by the Participant at the time of
his death is transferred by will or the laws of descent and distribution or in
the case of an Award other than an Incentive Stock Option, pursuant to a
qualified domestic relations order, as defined in the Code or Title I of ERISA
or the rules thereunder may, but only to the extent such Participant was
entitled to exercise such Option or Right immediately prior to his death,
exercise such Option or Right at any time within a period of two years
succeeding the date of death of such Participant, but in no event later than ten
years from the date of grant of such Option or Right. Following the death of
any Participant to whom an Option was granted under the Plan, irrespective of
whether any Related Right shall have theretofore been granted to the Participant
or whether the person entitled to exercise such Related Right desires to do so,
the Committee may, as an alternative means of settlement of such Option, elect
to pay to the person to whom such Option is transferred by will or by the laws
of descent and distribution or in the case of an Option other than an Incentive
Stock Option, pursuant to a qualified domestic relations order, as defined in
the Code or Title I of ERISA or the rules thereunder, the amount by which the
Market Value per Share on the date of exercise of such Option shall exceed the
Exercise Price of such Option, multiplied by the number of shares with respect
to which such Option is properly exercised. Any such settlement of an Option
shall be considered an exercise of such Option for all purposes of the Plan.
(f) Notwithstanding the provisions of subparagraphs (c) through (e) above,
the Committee may, in its sole discretion, establish different terms and
conditions pertaining to the effect of termination to the extent permitted by
applicable federal and state law.
(g) Concurrently with the grant of any Option (an "Underlying Option"), the
Committee may authorize Reload Options permitting the grantee of the Underlying
Option to purchase for cash, Shares or a combination thereof an aggregate number
of Shares not greater than the sum of (i) the number of Mature Shares (as
defined hereinbelow) used in exercises of the Underlying Option and (ii) to the
extent authorized by the Committee, the number of Mature Shares used to satisfy
any tax withholding requirement incident to exercises of the Underlying Option.
The grant of each Reload Option so authorized by the Committee shall become
effective upon the exercise (a "Stock Exercise") of all or part of the
Underlying Option through the use of Shares held by the optionee for at least 12
months prior to such exercise ("Mature Shares"), provided, however, that no
Reload Option shall first become effective after the optionee has ceased to
maintain Continuous Service. Reload Options may be authorized with respect to
Options that are themselves granted as Reload Options. Upon each Stock Exercise
of an Underlying Option, the Exercise Price of the resulting Reload Option, the
number of Shares covered thereby, and, in the discretion of the Committee and
subject to the limitations and restrictions of Section 8 hereof, the
determination that the Reload Option is intended to qualify as an Incentive
Stock Option, shall be evidenced through an amendment to the agreement or other
instrument evidencing the Underlying Option. The Exercise Price of a Reload
Option shall be the Market Value per Share on the date the grant of the Reload
Option becomes effective.
6
<PAGE>
Each Reload Option shall become fully exercisable six months from its effective
date. The term of each Reload Option shall be equal to the remaining term of the
Underlying Option.
8. Incentive Stock Options. Any provision of the Plan to the contrary
-----------------------
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution and shall be exercisable during such Participant's lifetime only by
such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who, at the time such Incentive Stock Option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or any Affiliate unless the Exercise Price of such
Incentive Stock Option is at least 110% of the Market Value per Share at the
date of grant and such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is granted,
and (v) the aggregate Market Value (determined as of the time any Incentive
Stock Option is granted) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by a Participant in any calendar year
shall not exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
-------------------------
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto; provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated. Notwithstanding the foregoing, no
Stock Appreciation Right shall be exercisable by a director, Senior Officer or
Ten Percent Beneficial Owner of the Corporation within six months of the date of
its grant.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
---------------------------------
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and
7
<PAGE>
discretion to also grant to such Participant a Limited Stock Appreciation Right
which is related to such Option or Stock Appreciation Right; provided, however
and notwithstanding any other provision of the Plan, that if the Related Option
is an Incentive Stock Option, the Related Limited Stock Appreciation Right shall
satisfy all the restrictions and limitations of Section 8 hereof as if such
Related Limited Stock Appreciation Right were an Incentive Stock Option and as
if all other Rights which are Related to Incentive Stock Options were Incentive
Stock Options. Notwithstanding any other provision of the Plan, a Limited Stock
Appreciation Right shall be exercisable only during the period beginning on the
first day following the date of expiration of any "offer" (as such term is
hereinafter defined) and ending on the forty-fifth day following such date,
provided, however, that no Limited Stock Appreciation Right shall be exercisable
by a director or officer of the Corporation within six months of the date of its
grant.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related
Stock Appreciation Right, any Related Limited Stock Appreciation Right shall
terminate to the extent of the Shares with respect to which such Related Option
or Related Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any tender
offer or exchange offer for Shares other than one made by the Corporation,
provided that the corporation, person or other entity making the offer acquires
pursuant to such offer either (i) 25% of the Shares outstanding immediately
prior to the commencement of such offer or (ii) a number of shares which,
together with all other shares acquired in any tender offer or exchange offer
(other than one made by the Corporation) which expired within sixty days of the
expiration date of the offer in question, equals 25% of the Shares outstanding
immediately prior to the commencement of the offer in question. The term "Offer
Price per Share" as used in this Section 10 shall mean the highest price per
Share paid in any Offer which Offer is in effect any time during the period
beginning on the sixtieth day prior to the date on which a Limited Stock
Appreciation Right is exercised and ending on the date on which such Limited
Stock Appreciation Right is exercised. Any securities or property which are
part or all of the consideration paid for Shares in the Offer shall be valued in
determining the Offer Price per Share at the higher of (i) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (ii) the valuation placed on such securities or property by the
Committee.
11. Terms and Conditions of Restricted Stock. The Committee shall have
----------------------------------------
full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 11, to provide such
other terms and conditions (which need not be identical among
8
<PAGE>
Participants) in respect of such Awards, and the vesting thereof, as the
Committee shall determine and provide in the agreement referred to in paragraph
(d) of this Section 11.
(a) At the time of an award of Restricted Stock, the Committee shall
establish for each Participant a Restricted Period during which or at the
expiration of which, as the Committee shall determine and provide in the
agreement referred to in paragraph (d) of this Section 11, the shares awarded as
Restricted Stock shall vest, and subject to any such other terms and conditions
as the Committee shall provide shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered by the Participant,
except as hereinafter provided, during the Restricted Period. Except for such
restrictions, and subject to paragraphs (c), (d) and (e) of this Section 11 and
Section 12 hereof, the Participant as owner of such shares shall have all the
rights of a stockholder including but not limited to the right to receive all
dividends paid on such shares and the right to vote such shares. The Committee
shall have the authority, in its discretion, to accelerate the time at which any
or all of the restrictions shall lapse with respect to any shares of Restricted
Stock prior to the expiration of the Restricted Period with respect thereto, or
to remove any or all of such restrictions, whenever it may determine that such
action is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 14 hereof, if a Participant ceases
to maintain Continuous Service for any reason (other than death, total or
partial disability or Normal or Early Retirement) unless the Committee shall
otherwise determine and provide in the agreement referred to in paragraph (d) of
this Section 11, all shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 11 shall
upon such termination of Continuous Service be forfeited and returned to the
Corporation. Unless the Committee shall have provided in the agreement referred
to in paragraph (d) of this Section 11 for a ratable lapse of restrictions with
respect to an award of shares of Restricted Stock during the Restricted Period,
if a Participant ceases to maintain Continuous Service by reason of death, total
or partial disability or Normal or Early Retirement, such portion of such shares
of Restricted Stock awarded to such Participant which at the time of such
termination of Continuous Service are subject to the restrictions imposed by
paragraph (a) of this Section 11 as shall be equal to the portion of the
Restricted Period with respect to such shares which shall have elapsed at the
time of such termination of Continuous Service shall be free of restrictions and
shall not be forfeited.
(c) Each certificate in respect of shares of Restricted Stock awarded
under the Plan shall be registered in the name of the Participant and deposited
by the Participant, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1995 Stock Option and Incentive Plan of Bay
View Capital Corporation and an Agreement entered into between the
registered owner and Bay View Capital Corporation. Copies of such Plan and
Agreement are on file in the offices of the Secretary of Bay View Capital
Corporation, 2121 South El Camino Real, San Mateo, California 94403."
9
<PAGE>
(d) At the time of an award of shares of Restricted Stock, the
Participant shall enter into an Agreement with the Corporation in a form
specified by the Committee, agreeing to the terms and conditions of the award
and such other matters as the Committee shall in its sole discretion determine.
(e) At the time of an award of shares of Restricted Stock, the
Committee may, in its discretion, determine that the payment to the Participant
of dividends declared or paid on such shares, or a specified portion thereof, by
the Corporation shall be deferred until the earlier to occur of (i) the lapsing
of the restrictions imposed under paragraph (a) of this Section 11 or (ii) the
forfeiture of such shares under paragraph (b) of this Section 11, and shall be
held by the Corporation for the account of the Participant until such time. In
the event of such deferral, there shall be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends, together with interest accrued thereon as
aforesaid, shall be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
(f) At the expiration of the restrictions imposed by paragraph (a) of
this Section 11, the Corporation shall redeliver to the Participant (or where
the relevant provision of paragraph (b) of this Section 11 applies in the case
of a deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) and stock power deposited with it pursuant to paragraph (c) of
this Section 11 and the Shares represented by such certificate(s) shall be free
of the restrictions referred to in paragraph (a) of this Section 11.
12. Adjustments Upon Changes in Capitalization. In the event of any
------------------------------------------
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan and shall be appropriately adjusted by the Committee,
whose determination shall be conclusive. Any shares of stock or other
securities received, as a result of any of the foregoing, by a Participant with
respect to Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 11 hereof.
13. Effect of Merger on Options or Rights. In the case of any merger,
-------------------------------------
consolidation or combination of the Corporation (other than a merger,
consolidation or combination in which the Corporation is the continuing
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof), any Participant to whom an Option or Right has been
granted at least six months prior to such event shall have, in addition to the
rights of exercise pursuant to Section 7 hereof, the right (subject to the
provisions of the Plan and any limitation applicable to such Option or Right),
thereafter and during the term of each such Option or Right, to receive upon
exercise of any such Option or Right an amount equal to the excess of the fair
market value on the date of such exercise of the securities, cash or other
property, or combination thereof,
10
<PAGE>
receivable upon such merger, consolidation or combination in respect of a Share
over the Exercise Price of such Right or Option, multiplied by the number of
Shares with respect to which such Option or Right shall have been exercised.
Such amount may be payable fully in cash, fully in one or more of the kind or
kinds of property payable in such merger, consolidation or combination, or
partly in cash and partly in one or more of such kind or kinds of property, all
in the discretion of the Committee.
14. Effect of Change in Control. Each of the events specified in the
---------------------------
following clauses (i) through (iii) of this Section 14 shall be deemed a "change
of control": (i) any third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Corporation with respect to which 25% or more of the
total number of votes for the election of the Board of Directors of the
Corporation may be cast, (ii) as a result of, or in connection with, any cash
tender offer, merger or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who were directors of the
Corporation shall cease to constitute a majority of the Board of Directors of
the Corporation, or (iii) the stockholders of the Corporation shall approve an
agreement providing either for a transaction in which the Corporation will cease
to be an independent publicly-owned corporation or for a sale or other
disposition of all or substantially all the assets of the Corporation. Upon a
change in control, unless the Committee shall have otherwise provided in the
agreement referred to in paragraph (d) of Section 11 hereof, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
If a tender offer or exchange offer for Shares (other than such an offer by the
Corporation) is commenced, or if the event specified in clause (iii) above shall
occur, unless the Committee shall have otherwise provided in the instrument
evidencing the grant of an Option or Stock Appreciation Right, all Options and
Stock Appreciation Rights theretofore granted and not fully exercisable shall
become exercisable in full upon the happening of such event; provided, however,
that no Option or Stock Appreciation Right shall be exercisable by a director or
officer of the Corporation within six months of the date of grant of such Option
or Stock Appreciation Right and no Option or Stock Appreciation Right which has
previously been exercised or otherwise terminated shall become exercisable.
15. Assignments and Transfers. No Award nor any right or interest of a
-------------------------
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution, or in the case
of Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
16. Employee Rights Under the Plan. No officer or employee shall have a
------------------------------
right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no officer, employee or other person shall
have any claim or right to be granted an Award under the Plan or under any other
incentive or similar plan of the Corporation or any Affiliate. Neither the Plan
nor any action taken thereunder shall be construed as giving any employee any
right to be retained in the employ of the Corporation or any Affiliate.
11
<PAGE>
17. Delivery and Registration of Stock. The Corporation's obligation to
----------------------------------
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provision of the Securities Act of 1933 or any other federal, state or local
securities legislation. It may be provided that any representation requirement
shall become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under such Securities Act or
other securities legislation. The Corporation shall not be required to deliver
any Shares under the Plan prior to (i) the admission of such shares to listing
on any stock exchange on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation, as the committee shall determine to be
necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
18. Withholding Tax. Upon the termination of the Restricted Period with
---------------
respect to any shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in taxable
income), the Corporation shall have the right to require the Participant or
other person receiving such shares to pay the Corporation the amount of any
taxes which the Corporation is required to withhold with respect to such shares,
or, in lieu thereof, to retain or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Corporation
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Corporation is required to
withhold with respect to such dividend payments.
The Corporation shall have the right to deduct from all amounts paid in
cash with respect to the exercise of a Right under the Plan any taxes required
by law to be withheld with respect to such cash payments. Where a Participant
or other person is entitled to receive Shares pursuant to the exercise of an
Option or Right pursuant to the Plan, the Corporation shall have the right to
require the Participant or such other person to pay the Corporation the amount
of any taxes which the Corporation is required to withhold with respect to such
Shares, or, in lieu thereof, to retain, or sell without notice, a number of such
shares sufficient to cover the amount required to be withheld.
19. Amendment or Termination. The Board of Directors of the Corporation
------------------------
may amend, suspend or terminate the Plan or any portion thereof at any time, but
(except as provided in Section 12 hereof) no amendment shall be made without
approval of the stockholders of the Corporation which shall (i) materially
increase the benefits accruing to participants under the Plan; (ii) materially
increase the number of securities which may be issued under the Plan; or (iii)
materially modify the requirements as to eligibility for participation in the
Plan, provided, however, that no such amendment, suspension or termination shall
impair the rights of any Participant, without his consent, in any Award
theretofore made pursuant to the Plan.
12
<PAGE>
20. Effective Date and Term of Plan. The Plan shall become effective upon
-------------------------------
its adoption by the Board of Directors of the Corporation, subject to the
approval of the Plan by the shareholders of the Corporation. It shall continue
in effect for a term of ten years unless sooner terminated under Section 19
hereof.
13
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of
Parent Subsidiary Ownership
- ---------------------------- ----------------------- --------------------
<S> <C> <C>
Bay View Capital Corporation Bay View Federal Bank, 100%
A Federal Savings Bank
Bay View Capital Corporation Bay View Securitization 100%
Corporation
Bay View Capital Corporation Regent Financial 100%
Corporation
Bay View Federal Bank MoneyCare, Inc. 100%
Bay View Federal Bank Bay View Financial 100%
Corporation
Bay View Financial Bay View Auxiliary 100%
Corporation Corporation
Bay View Financial Bay Counties Insurance 100%
Corporation Agency, Inc.
Bay View Financial Carquinez Reserve, Inc. 100%
Corporation
</TABLE>
The financial statements of the Registrant are consolidated with those of its
subsidiaries.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statements of
Bay View Capital Corporation listed below of our report dated January 24, 1997,
appearing in this Annual Report on Form 10-K of Bay View Capital Corporation for
the year ended December 31, 1996:
Registration Statement No. 33-30602 on Form S-8
Registration Statement No. 33-30603 on Form S-8
Post-effective Amendment No. 1 to Registration Statement No. 33-35483
on Form S-3
Post-effective Amendment No. 2 to Registration Statement No. 33-32416
on Form S-3
Registration Statement No. 33-36161 on Form S-8
Registration Statement No. 33-41924 on Form S-8
Registration Statement No. 33-95724 on Form S-8
Registration Statement No. 33-95726 on Form S-8
/s/ Deloitte & Touche LLP
San Francisco, California
January 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,608
<INT-BEARING-DEPOSITS> 220
<FED-FUNDS-SOLD> 84,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 96,956
<INVESTMENTS-CARRYING> 509,663
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<LOANS> 2,474,717
<ALLOWANCE> 29,013
<TOTAL-ASSETS> 3,300,262
<DEPOSITS> 1,763,967
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<LIABILITIES-OTHER> 90,696
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0
0
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<INTEREST-TOTAL> 241,755
<INTEREST-DEPOSIT> 100,225
<INTEREST-EXPENSE> 160,773
<INTEREST-INCOME-NET> 80,982
<LOAN-LOSSES> 1,898
<SECURITIES-GAINS> (800)
<EXPENSE-OTHER> 68,402
<INCOME-PRETAX> 19,246
<INCOME-PRE-EXTRAORDINARY> 19,246
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<NET-INCOME> 10,969
<EPS-PRIMARY> 1.58
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<YIELD-ACTUAL> 2.57
<LOANS-NON> 16,125
<LOANS-PAST> 18
<LOANS-TROUBLED> 509
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<ALLOWANCE-FOREIGN> 0
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