SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-10264
COAST SAVINGS FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4196764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Wilshire Boulevard, Los Angeles, California 90017-2457
(Address of principal executive offices) (Zip Code)
(213) 362-2000
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of May 4, 1996, the registrant had 18,583,317 shares of
common stock, $.01 par value, outstanding. The shares of common
stock represent the only class of common stock of the registrant.
<PAGE>
COAST SAVINGS FINANCIAL, INC.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statement of Financial Condition at March 31,
1996 and December 31, 1995.
Consolidated Statement of Operations for the Three Months
Ended March 31, 1996 and 1995.
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1996 and 1995.
Notes to Consolidated Financial Statements.
1
<PAGE>
<TABLE>
COAST SAVINGS FINANCIAL, INC.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<CAPTION>
March 31, December 31,
1996 1995
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 145,602 $ 119,717
Federal funds sold and other short
term investments 17,744 30,394
Investment securities held to maturity
(fair value of $70.9 million and
$73.2 million) 70,637 72,785
Loans receivable, net 5,281,049 5,245,464
Loans receivable held for sale, at the
lower of cost or fair value (fair
value of $212.3 million and
$230.0 million) 205,560 221,032
Mortgage-backed securities held to
maturity (fair value of $1.77 billion
and $1.83 billion) 1,756,165 1,817,403
Mortgage-backed securities available
for sale, at fair value 343,638 354,398
Real estate held for sale 39,999 31,696
Federal Home Loan Bank stock 86,949 85,837
Land and depreciable assets 97,571 92,920
Interest receivable and other assets 187,911 172,702
Goodwill 7,055 7,332
$8,239,880 $8,251,680
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $6,250,070 $6,123,472
Federal Home Loan Bank advances 727,000 804,250
Other borrowings 663,397 733,340
Other liabilities 105,203 104,754
Income taxes payable 13,049 12,684
Capital notes 55,801 55,746
7,814,520 7,834,246
Stockholders' Equity:
Serial preferred stock, without par
value; 50,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value;
100,000,000 shares authorized,
18,583,317 and 18,582,917 shares
issued and outstanding at March 31,
1996, and December 31, 1995,
respectively 186 186
Additional paid-in capital 265,026 265,018
Unrealized gain on securities
available for sale, net of taxes 4,970 6,554
Retained earnings 155,178 145,676
425,360 417,434
$8,239,880 $8,251,680
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
COAST SAVINGS FINANCIAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In thousands except
per share amounts)
<S> <C> <C>
Interest income:
Loans receivable $111,168 $113,441
Mortgage-backed securities 34,624 25,675
Investment securities 5,190 5,918
150,982 145,034
Interest expense:
Deposits 71,286 64,039
Borrowings 25,420 33,585
96,706 97,624
Net interest income 54,276 47,410
Provision for loan losses 10,000 10,000
Net interest income after provision for
loan losses 44,276 37,410
Noninterest income:
Loan servicing fees and charges 3,458 3,430
Other 9,574 8,162
13,032 11,592
Noninterest expense:
Compensation and benefits 16,408 19,516
Office occupancy, net 9,923 10,033
Federal deposit insurance premiums 4,421 4,297
Other general and administrative expenses 8,821 8,066
Total general and administrative
expenses 39,573 41,912
Real estate operations, net 1,622 977
Amortization of goodwill 276 316
41,471 43,205
Earnings before income tax expense 15,837 5,797
Income tax expense 6,335 2,319
Net earnings $ 9,502 $ 3,478
Net earnings per share of common stock:
Primary $0.50 $ .18
Fully diluted $0.50 $ .18
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
COAST SAVINGS FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
1996 1995
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,502 $ 3,478
Adjustments to reconcile net earnings to
net cash used by operating activities:
Proceeds from the sale of loans held
for sale 46,825 529
Provision for loan losses 10,000 10,000
Deferred income tax expense 5,937 2,319
Net increase in accounts payable 545 13,602
Net increase in accounts receivable (8,764) (4,291)
Loans originated for sale, net of
refinances and principal payments (12,920) (55,654)
Other (11,352) (12,511)
Total adjustments 30,271 (46,006)
Net cash provided (used) by
operations 39,773 (42,528)
Cash flows from investing activities:
Loans originated for investment, net of
refinances (196,518) (320,944)
Principal repayments on loans 119,063 81,509
Principal repayments on mortgage-backed
securities ("MBS") held to maturity 53,513 38,382
Principal repayments on MBS available
for sale 8,458 4,328
Net decrease in short term investment
securities 2,081 8,090
Purchase of investment securities (51) (47)
Maturities and principal repayment on
investment securities 14 13
Purchase of land and depreciable assets,
net (6,016) (3,749)
Sale of real estate held for sale 11,627 8,097
Purchase of FHLB stock - (2,450)
Net cash used by investing activities (7,829) (186,771)
Continued
<PAGE>
COAST SAVINGS FINANCIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
1996 1995
(In thousands)
Continued
Cash flows from financing activities:
Net increase in deposits 126,598 134,800
Net increase (decrease) in FHLB advances (77,250) 108,000
Net increase (decrease) in short-term
borrowings (68,063) 111,595
Common stock options exercised 6 -
Net cash provided (used) by financing
activities (18,709) 354,395
Net increase in cash and cash equivalents 13,235 125,096
Cash and cash equivalents at beginning
of year 150,111 102,021
Cash and cash equivalents at end of
period $ 163,346 $ 227,117
Supplemental disclosures of cash flow
information:
Cash payments of interest $ 37,397 $ 48,911
Cash payments (refunds) of income taxes,
net 30 (966)
Supplemental schedule of noncash investing
and financing activities:
Loans exchanged for MBS, net- 47,262
Additions to loans resulting from the
sale of real estate acquired in
settlement of loans 7,307 8,453
Additions to real estate acquired in
settlement of loans 19,147 29,994
Increase (decrease) of unrealized gain
on securities available for sale,
net of taxes (1,584) 2,289
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
COAST SAVINGS FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Coast Savings Financial, Inc. (the "Company") is the holding
company for Coast Federal Bank, Federal Savings Bank ("Coast"
or the "Bank"). The unaudited consolidated financial
statements of the Company and subsidiaries included herein
reflect all adjustments, consisting only of normal recurring
adjustments, which are in the opinion of management necessary
to present a fair statement of the results for the interim
periods indicated. Certain reclassifications have been made
to the consolidated financial statements for 1995 to conform
to the 1996 presentation. Certain information and note
disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange
Commission. The results of operations for the three months
ended March 31, 1996, are not necessarily indicative of the
results of operations to be expected for the remainder of the
year.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
2. In May 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 122,
Accounting for Mortgage Servicing Rights ("SFAS 122"), which
is an amendment to SFAS No. 65, Accounting for Certain
Mortgage Banking Activities ("SFAS 65"). SFAS 122 amends
SFAS 65 to remove the distinction of accounting for mortgage
servicing rights resulting from originated loans and those
resulting from purchased loans. Additionally, SFAS 122
requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on
the fair value of those rights. Effective January 1, 1996,
Coast adopted SFAS No. 122. There was no material effect on
the Company's financial condition as of March 31, 1996, or
results of operations for the quarter then ended, resulting
from the adoption of SFAS No. 122.
COAST SAVINGS FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Cash and cash equivalents includes:
March 31,
1996 1995
(In thousands)
Cash and due from banks $145,602 $118,286
Federal funds sold 12,000 51,000
Repurchase agreements - 55,000
Commercial paper 5,744 2,831
$163,346 $227,117
<PAGE>
COAST SAVINGS FINANCIAL, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company is the sole stockholder of Coast. Substantially
all of the Company's consolidated revenues are derived from the
operations of Coast, and Coast represented substantially all of
the Company's consolidated assets and liabilities at March 31,
1996. Coast's business is that of a financial intermediary and
consists primarily of attracting deposits from the general public
and using such deposits, together with borrowings and other
funds, to make mortgage loans secured by residential real estate
located in California. At March 31, 1996, Coast operated 89
retail banking offices in California providing consumer banking
services as well as residential real estate loans. Coast is
subject to significant competition from other financial
institutions, and is also subject to regulation by certain
federal agencies and undergoes periodic examinations by those
regulatory agencies.
Results of Operations
Net earnings for the first quarter of 1996 were $9.5 million
compared to net earnings of $3.5 million for the first quarter of
1995. The increase in net earnings from 1995 to 1996 was due
primarily to increased net interest income. For the first
quarter of 1996 and 1995, earnings per share were $.50 and $.18
respectively, on both primary and fully diluted bases.
<PAGE>
COAST SAVINGS FINANCIAL, INC.
Net interest income. The effect on net interest income of
changes in interest rates and balances of interest-earning assets
and interest-bearing liabilities is illustrated in the following
table. Information is provided on changes for the periods
indicated attributable to (i) changes in rates (changes in the
weighted average rate multiplied by the prior period average
portfolio balance), (ii) changes in volume (changes in the
average portfolio balance multiplied by the prior period weighted
average rate) and (iii) the combined effect of changes in rates
and volume (changes in the weighted average rate multiplied by
change in the average portfolio balance).
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
versus
Three Months Ended
March 31, 1995
Amount of increase
(decrease) due to change in:
Average Average Average
Rate Volume Rate/Vol. Total
(In thousands)
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 6,810 $(8,552) $(531) $(2,273)
MBS 2,369 6,036 544 8,949
Investment securities (402) (346) 20 (728)
Total interest income 8,777 (2,862) 33 5,948
Interest Expense:
Deposits 4,149 2,941 157 7,247
Borrowings (2,080) (6,516) 431 (8,165)
Total interest expense 2,069 (3,575) 588 (918)
Change in net interest
income $ 6,708 $ 713 $(555) $ 6,866
</TABLE>
Interest income for the quarter ended March 31, 1996,
increased by $5.9 million from the amount reported for the first
quarter of 1995. This increase was caused by an increase in the
rate earned on interest-earning assets of 36 basis points to
7.58%, offset in part by a decrease in the average balance of
such assets totaling approximately $64 million.
COAST SAVINGS FINANCIAL, INC.
Interest expense recorded during the first quarter of 1996
decreased by $.9 million from the amount recorded during the
corresponding quarter of 1995. This decrease resulted from a
decrease in the average balance of interest-bearing liabilities
of approximately $131 million, partially offset by an increase in
the average rate paid on such liabilities of three basis points,
to 6.06%. The decrease in the average balance of liabilities
included a decrease in the average balance of borrowings of
approximately $403 million offset in part by an increase in
average deposits of approximately $272 million.
Provision for loan losses. The provision for loan losses of
$10.0 million for the first quarters of both 1996 and 1995
reflects management's continued concern over general economic
conditions and property values in California. For a discussion
of the general valuation allowance (the "GVA"), see "Loan
Portfolio and Off-balance Sheet Risk Elements and Nonperforming
Assets" below.
Noninterest income. Noninterest income increased for the
three months ended March 31, 1996, by $1.4 million over the
amount recorded in the corresponding period of 1995 due primarily
to increased fees on deposits related to increased checking
account balances. (For further discussion of checking account
balances, see "Capital Resources and Liquidity" below.).
Noninterest expense. Noninterest expense for the quarter
ended March 31, 1996, decreased by $1.7 million from the
respective period of 1995. The reduction was due to a decrease
of $3.1 millon in compensation expense, partially offset by
increases of $.8 million in other general and administrative
expenses and $.6 million in real estate operations, net. The
decrease in compensation expense generally reflects reduced
staffing levels.
Income taxes. Income tax expense of $6.3 million and $2.3
million was recorded for the first quarter of 1996 and 1995,
respectively. These represented accruals of federal income and
California franchise taxes on adjusted pretax earnings. The
"effective income tax rate" (the ratio of income tax expense to
pretax earnings) was 40% for both quarters.
Asset/Liability Management
Substantially all of Coast's assets and liabilities are
comprised of interest-earning assets including loans, MBS and
short-term investments, and interest-bearing liabilities
including deposits and borrowings. The risks associated with
COAST SAVINGS FINANCIAL, INC.
interest-earning assets can be generally categorized as credit
risk, market risk and interest rate risk. Credit risk is,
generally, the risk that a loan or other credit-related
instrument will not be repaid in accordance with its terms, and
is discussed below in the section entitled "Loan Portfolio and
Off-balance Sheet Risk Elements and Nonperforming Assets."
Market risk is, generally, the risk that the market value of
an asset could decline in response to changes in various factors,
including prevailing rates of interest, demand for that type of
asset, and others.
Interest rate risk is generally associated with the degree to
which interest-earning assets and interest-bearing liabilities
mature or reprice at different frequencies (e.g., maturities)
and/or on different bases (e.g., indices to which specific assets
or groups of assets are tied). In order to mitigate the impact
of interest rate risk, management places a significant emphasis
on seeking to match the maturities and repricing characteristics
of Coast's interest-earning assets and interest-bearing
liabilities ("financial assets" and "financial liabilities,"
respectively).
<PAGE>
COAST SAVINGS FINANCIAL, INC.
Coast measures its exposure to interest rate risk using a
variety of techniques. One commonly used measure of such
exposure is the difference between the amounts of assets and
liabilities maturing or repricing over various periods (the
"maturity gap"). The following table illustrates the contractual
maturities, as adjusted for estimates of prepayments and for
frequency of rate changes ("Repricing Mechanisms"), of the
financial assets and financial liabilities of the Company as of
March 31, 1996. The table also reports the maturity gap between
Coast's repricing or maturing assets and liabilities. The
interest rate sensitivity of Coast's assets and liabilities
illustrated in the following table could vary substantially if
different assumptions were used or if actual experience differs
from the assumptions utilized.
<TABLE>
<CAPTION>
Over Over
One Five Over
Within to Five to Ten Ten
One Year Years Years Years Total
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash and investment
securities:
Cash and due from banks $ 146 $ - $ - $ - $ 146
Investment securities 83 1 - 4 88
Loans and MBS:
ARMs 7,148 171 - - 7,319
Fixed rate 70 117 60 20 267
FHLB stock 87 - - - 87
Total $7,534 $ 289 $ 60 $ 24 $7,907
Interest-bearing
liabilities:
Deposits:
Checking accounts $ 691 $ - $ - $ - $ 691
Money market accounts 673 - - - 673
Certificates of deposit 4,504 339 43 - 4,886
Borrowings:
FHLB advances 652 75 - - 727
Other 607 56 56 - 719
Total $7,127 $ 470 $ 99 $ - $7,696
Maturity gap $ 407 $ (181) $ (39) $ 24 $ 211
Cumulative maturity gap $ 407 $ 226 $ 187 $ 211 $ 211
Cumulative maturity gap
as a percentage of
total assets 5% 3% 2% 3% 3%
</TABLE>
COAST SAVINGS FINANCIAL, INC.
At March 31, 1996, Coast's estimated one-year gap between
maturities or repricing of financial assets and financial
liabilities was approximately a positive $407 million,
representing 5% of total assets, compared to $562 million, or 7%
of total assets, at December 31, 1995.
The Company has matched interest rate sensitivities primarily
through the origination of adjustable rate mortgage loans
("ARMs"), the sale of fixed rate mortgage loans and the
acquisition of term funding. Except for the utilization of
interest rate exchange agreements ("Swaps") from time to time,
Coast has generally not utilized derivative financial instruments
to manage interest rate or other risks. See discussion of Swaps
below. Historically, Coast's cost of funds has closely matched
the Eleventh District cost of funds index ("COFI"), with the
result that increases in Coast's cost of funds are accompanied by
increases in interest rates on its COFI-based loans and MBS.
However, because of the inherent lag in the reset mechanism of
these assets, Coast's interest rate spreads generally can be
expected to increase as COFI falls and to decrease as COFI rises.
During 1991 through 1993, Coast originated ARM products which
are tied to the London Interbank Offered Rate ("LIBOR") index.
This index is generally more responsive to changes in prevailing
market rates of interest and, as a result, interest rates on ARMs
tied to LIBOR generally respond more quickly to changes in market
interest rates than do ARMs tied to COFI. With the increase in
prevailing interest rates experienced during 1994, consumer
demand for LIBOR-based ARMs substantially declined, and as a
result, substantially all ARMs originated during 1995 and 1996
have been COFI-based products. As of March 31, 1996, Coast had
$296.4 million (5%) of loans and $232.7 million (11%) of MBS tied
to LIBOR, and $4.57 billion (82%) of loans and $1.80 billion
(86%) of MBS tied to COFI included in the loan and MBS
portfolios, which totaled $5.55 billion and $2.10 billion,
respectively. Coast originated $226.7 million and $412.3 million
of ARMs during the quarters ended March 31, 1996 and 1995,
respectively. At March 31, 1996, ARMs and adjustable rate MBS
totaled $5.31 billion and $2.07 billion, respectively, or a
combined 97% of the Company's total loans and MBS.
Coast's lending activity is focused on the origination of
single family ARM loans on properties located within California.
Coast does not currently lend or anticipate lending on other
types of properties for the foreseeable future except to finance
sales of foreclosed real estate or to facilitate loan assumptions
as permitted by the provisions of the respective mortgage notes.
COAST SAVINGS FINANCIAL, INC.
Management determines the appropriate portfolio designation
of loans receivable, MBS and investment securities at the time of
acquisition. If management has the positive intent and the
Company has the ability at the time of acquisition to hold such
assets until maturity, they are classified as held to maturity
and are carried at amortized historical cost. Assets that are to
be held for indefinite periods of time and not necessarily held
to maturity are classified as held or available for sale. Such
assets include those which management intends to use as part of
its asset/liability management strategy and which may be sold in
response to changes in interest rates, resultant prepayment risk
and other factors. MBS and investment securities identified as
being available for sale are carried at fair value, with
unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity, net of income
taxes. Loans identified as being held for sale are carried at
the lower of amortized historical cost or fair value, with any
required adjustment being reported in current operations.
Sales of mortgage assets held or available for sale function
primarily to fund new loan originations, manage interest rate
risk and add to the loan servicing portfolio. This strategy is,
however, limited, based upon other factors including the
purchasers' investment limitations, general market and
competitive conditions, mortgage loan demand and other factors.
During the quarter ended March 31, 1996, Coast sold $46.8 million
of mortgage loans from its held for sale portfolio.
Coast is a party to off-balance sheet financial instruments
containing certain types of risk, acquired in the normal course
of business, in order to meet the borrowing needs of its
customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include Swaps which
are considered derivative financial instruments held for purposes
other than trading. Swaps generally involve the exchange of fixed
and floating rate interest payment obligations without the
exchange of the underlying notional principal amounts. In that
the credit exposure of these Swaps is limited to the potential
default of the Swap counterparty, the potential credit risks
associated with such Swaps are substantially less than the
notional principal amounts of the Swaps.
At March 31, 1996, Coast had $155 million of Swaps on which
Coast paid a floating rate and received a fixed rate of interest.
The Swaps were entered into during 1994 and have remaining
maturities ranging from one to three months. The Swaps are
comprised of $75 million based on LIBOR and $80 million based on
COFI. The Swaps are matched with specific certificates of
COAST SAVINGS FINANCIAL, INC.
deposit and effectively convert the matched fixed rate deposits
to floating rate liabilities that provide a discrete funding
source directly matching portions of Coast's earning asset base
(COFI- and LIBOR-based loans), and result in a fixed spread
between the interest rates paid on the Swaps and the yield on the
related portion of the loan portfolio.
The following table summarizes certain information regarding
Swaps outstanding at March 31, 1996.
<TABLE>
<CAPTION>
Notional Weighted Average
Type Amount Interest Rate Maturity Dates
(Dollars in Paid Received
thousands)
<S> <C> <C> <C> <C>
Pay floating/
receive fixed $155,000 5.18 % 5.40 % April 1996 to
June 1996
</TABLE>
As described above, these Swaps were entered into for the
purpose of converting the interest rate characteristics of
certain liabilities; therefore, these are accounted for as hedges
and there is no requirement to mark the values of the Swaps to
market under generally accepted accounting principles. The fair
values of Swaps represent the estimated amounts Coast would
receive or pay to terminate the agreements, taking into
consideration current interest rates. As of March 31, 1996, the
fair value of the Swaps approximated of $1.2 million.
The net effect of the Swaps, exclusive of interest on the
related deposits, was to record $46 thousand and $3 thousand of
interest expense during the first quarter of 1996 and 1995,
respectively, which is included in interest expense on deposits
in the accompanying consolidated statement of operations. Coast
had pledged $2.4 million of MBS at March 31, 1996, to guarantee
its performance under swap agreements.
<PAGE>
COAST SAVINGS FINANCIAL, INC.
Loan Portfolio and Off-balance Sheet Risk Elements and
Nonperforming Assets
Coast defines nonperforming assets to include (i) loans on
which it has ceased to accrue interest ("Nonaccrual Loans"), (ii)
foreclosed real estate owned, and (iii) those loans whose terms
have been modified such that the interest rates charged to the
borrowers have been reduced to levels below the original contract
rates and below market rates of interest at both the time of
modification and the reporting date ("Modified Loans").
Following is a table which sets forth the components of
nonperforming assets at the dates indicated. (There were no
Modified Loans at March 31, 1996, or December 31, 1995.)
<TABLE>
<CAPTION>
March 31, 1996 December 31,1995
(Dollars in thousands)
Percent Percent
Balance of Total Balance of Total
<S> <C> <C> <C> <C>
Nonaccrual Loans:
Single family residential $ 52,723 40% $ 43,792 39%
Multifamily residential 25,247 19 25,646 23
Commercial and other 15,318 11 11,913 10
93,288 70 81,351 72
Foreclosed real estate
owned:
Single family residential 22,503 17 15,077 13
Multifamily residential 8,951 7 6,652 6
Commercial and other 8,545 6 9,967 9
39,999 30 31,696 28
Total nonperforming
assets $133,287 100% $113,047 100%
</TABLE>
<PAGE>
COAST SAVINGS FINANCIAL, INC.
Following is a table which sets forth the components of
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
Mar 31, Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30,
1996 1995 1995 1995 1995 1994 1994
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual Loans $ 93 $ 81 $ 81 $ 90 $ 82 $ 97 $ 134
Foreclosed real
estate owned 40 32 39 39 51 44 74
Modified Loans - - 1 1 1 1 1
Total
nonperforming
assets $ 133 $ 113 $ 121 $ 130 $ 134 $ 142 $ 209
Total assets $8,240 $8,252 $8,440 $8,585 $8,540 $8,197 $8,128
Ratio of total
nonperforming
assets to
total assets 1.62% 1.37% 1.43% 1.52% 1.57% 1.73% 2.57%
</TABLE>
As of March 31, 1996, Coast's ratios of Nonaccrual Loans to
total loans and nonperforming assets to total assets increased to
1.70% and 1.62%, respectively, from 1.49% and 1.37%,
respectively, as of December 31, 1995. The increase in these
ratios is due primarily to increased delinquencies and
foreclosures of loans secured by single family residential real
estate. In that the incidence of delinquencies and foreclosures
is influenced by many variables beyond management's control,
there can be no assurance that Coast will not experience
increased levels of nonperforming assets.
Effective January 1, 1994, the Company adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS 114").
SFAS 114 does not apply to large groups of smaller-balance,
homogeneous loans that are collectively valued for impairment. A
loan is impaired when, based on current information and events, a
creditor will be unable to collect all amounts contractually due
under a loan agreement. If a loan is determined to be impaired,
a writedown is taken or an allowance is established based upon
the difference between Coast's investment in the loan and the
fair value of the loan's underlying collateral. Where impairment
is considered to be permanent, a charge-off is recorded; where
impairment may be temporary, an allowance is established.
COAST SAVINGS FINANCIAL, INC.
Subsequent to classification as impaired, the fair values of the
impaired loans are periodically reviewed. If there is additional
permanent impairment, a charge-off is recorded. If there is a
change in the fair value of a loan that may be temporary, the
allowance is adjusted accordingly. All such charge-offs,
provisions and any related recoveries are recorded as adjustments
to the general valuation allowance for loan losses.
Coast's impaired loans totaled $142.7 million at March 31,
1996. For the quarters ended March 31, 1996 and 1995, the
average investment in impaired loans was $138.9 million and $88.4
million, respectively. As of March 31, 1996, Nonaccrual Loans
included $40.6 million of impaired loans. Impaired loans at
March 31, 1996, included $85.5 million of loans for which
valuation allowances of $13.8 million had been established and
$71.0 million of loans for which no allowance was considered
necessary. Interest income on impaired loans which are
performing is recognized on the accrual basis and income on such
loans totaled $2.5 million and $.3 million for the first quarters
of 1996 and 1995, respectively.
At March 31, 1996, Coast had letters of credit outstanding
aggregating $385.9 million. The letters of credit were issued
primarily in 1984 and 1985 to enhance the rating of $394.6
million of housing revenue bonds issued to finance the
construction of multifamily residential projects. The credit
risk involved in these letters of credit is essentially the same
as that involved in making real estate loans. At March 31, 1996,
the loans payable to the housing revenue bond trustee associated
with two of the letters of credit, aggregating approximately $51
million, were in default. Coast has installed court-appointed
receivers to manage the properties. In the event the defaults
are not remedied by the borrowing entities and Coast forecloses
on the properties, they would become components of Coast's
foreclosed real estate owned and would increase nonperforming
assets by approximately $51 million.
Coast maintains a GVA to absorb credit losses related to its
assets and off-balance sheet items. The GVA is reviewed and
adjusted quarterly and based upon a number of factors, including
asset classifications, economic trends, industry experience,
industry and geographic concentrations, estimated collateral
values, management's assessment of credit risk inherent in the
portfolio, delinquency migration analysis, historical loss
experience, ratio analysis and Coast's underwriting practices.
Economic conditions, especially those affecting real estate
markets, may change, which could result in the need for an
increased GVA in future periods. In addition, regulatory
COAST SAVINGS FINANCIAL, INC.
agencies, as an integral part of their examination process,
periodically review Coast's GVA. These agencies may require
Coast to establish additional allowances based on their judgments
of the information available at the time of the examination.
At March 31, 1996, the GVA totaled $82 million and included
$65 million allocated to loans and $17 million attributable to
off-balance sheet items. The portion of the GVA attributable to
off-balance sheet items is included in other liabilities in the
accompanying consolidated statement of financial condition, and
relates to the letters of credit discussed above and to loans
sold with recourse. The following table sets forth the amount,
allocation and activity in the GVA for the three months ended
March 31, 1996.
<TABLE>
<CAPTION>
Loans
Commercial Off-
Residential Real Estate Balance
Real Estate Mortgage Sheet
Mortgage and Other Items Total
(In millions)
<S> <C> <C> <C> <C>
GVA allocation at
December 31,
1995 $ 48 $17 $17 $ 82
Additions charged
to operations 10 - - 10
Recoveries 2 - - 2
Losses charged (11) (1) - (12)
Transfers 1 (1) - -
GVA allocation at
March 31, 1996 $ 50 $15 $17 $ 82
</TABLE>
Capital Resources and Liquidity
Federal regulations currently require a savings institution
to maintain a monthly average daily balance of liquid assets
(including cash, certain time deposits, bankers' acceptances and
specified United States government, state or federal agency
obligations) equal to at least 5% of the average daily balance of
its net withdrawable accounts and short-term borrowings during
the preceding calendar month. This liquidity requirement may be
changed from time to time by the OTS to any amount within the
range of 4% to 10% of such accounts and borrowings depending upon
economic conditions and the deposit flows of member institutions.
Federal regulations also require each member institution to
COAST SAVINGS FINANCIAL, INC.
maintain a monthly average daily balance of short-term liquid
assets (generally those having maturities of 12 months or less)
equal to at least 1% of the average daily balance of its net
withdrawable accounts and short-term borrowings during the
preceding calendar month. Monetary penalties may be imposed for
failure to meet these liquidity ratio requirements. Coast's
liquidity and short-term liquidity ratios for the calculation
period ended March 31, 1996, were 5.36% and 4.59%, respectively,
which exceeded the applicable requirements.
Principal repayments on and sales of loans and MBS have been
a primary source of funds for Coast. For the three months ended
March 31, 1996 and 1995, principal repayments on loans and MBS
amounted to $185.9 million and $126.8 million, respectively, and
proceeds from loan sales totaled $46.8 million and $.5 million,
respectively, for the same periods. A primary use of funds was
the origination of loans (net of refinances of loans in Coast's
portfolios) of $214.3 million and $379.2 million for these two
periods, respectively.
At March 31, 1996, the total of approved commitments to
originate loans amounted to $212.7 million. There were no
commitments to sell loans, MBS or investment securities and there
were no commitments to purchase loans, MBS or investment
securities. At March 31, 1996, outstanding letters of credit
totaled $385.9 million. Scheduled repayments of FHLB of San
Francisco advances for the twelve months ending March 31, 1997,
totaled $652.0 million.
For the three months ended March 31, 1996 and 1995, Coast
experienced net increases in deposits of $126.6 million and
$134.8 million, respectively. These increases are primarily
attributable to Coast's focused efforts to market its transaction
accounts, which efforts resulted in increases of $59.0 million
and $54.0 million in checking account balances during the first
quarters of 1996 and 1995, respectively.
Other potential sources of funds available to Coast include
securities sold under agreements to repurchase, a line of credit
with the FHLB of San Francisco and direct access to borrowings
from the Federal Reserve System. At March 31, 1996, the amount
of additional credit available from the FHLB of San Francisco
was approximately $1.18 billion. In addition, the Company and
Coast have access to the capital markets for issuing debt or
equity securities; however, access can be limited from time to
time by various factors including market conditions, credit
ratings and general economic conditions.
COAST SAVINGS FINANCIAL, INC.
Under OTS capital regulations, Coast must meet three capital
tests. First, the tangible capital requirement mandates that
Coast's stockholder's equity less intangible assets (as defined)
be at least 1.5% of adjusted total assets as defined in the
regulation. Second, the core capital requirement currently
mandates core capital to be at least 3% of adjusted total assets
as defined in the regulation. Third, the risk-based capital
requirement currently mandates that core capital plus
supplementary capital as defined in the OTS capital regulations
be at least 8% of risk-adjusted assets as defined therein.
The following table reflects, in both dollars and ratios,
Coast's regulatory capital position as of March 31, 1996, the
minimum requirements at that date, and the amounts by which such
capital exceeded the required amounts.
<TABLE>
<CAPTION>
Minimum
Actual Requirement Excess
Amount Ratio Amount Ratio Amount Ratio
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Risk-based $576 11.10% $415 8.00% $161 3.10%
Core 457 5.58 246 3.00 211 2.58
Tangible 457 5.58 123 1.50 334 4.08
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") contains "prompt corrective action" provisions
pursuant to which insured depository institutions are to be
classified into one of five categories based primarily upon
capital adequacy, ranging from "well capitalized" to "critically
undercapitalized." The OTS regulations implementing these
provisions define the five capital categories as follows: (i) a
savings institution is "well capitalized" if it has a total risk-
based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio (Tier 1 capital to total assets) of 6% or greater,
has a core capital ratio of 5% or greater and is not subject to
any written capital order or directive to meet and maintain a
specific capital level or any capital measure; (ii) a savings
institution is "adequately capitalized" if it has a total risk-
based capital ratio of 8% or greater, has a Tier 1 risk-based
capital ratio of 4% or greater and has a core capital ratio of 4%
or greater (3% for certain highly rated institutions); (iii) a
savings institution is "undercapitalized" if it has a total risk-
based capital ratio of less than 8% or has either a Tier 1 risk-
based or a core capital ratio that is less than 4%; (iv) a
COAST SAVINGS FINANCIAL, INC.
savings institution is "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6%, or has
either a Tier 1 risk-based or a core capital ratio that is less
than 3%; and (v) a savings institution is "critically
undercapitalized" if its "tangible equity" (defined in the prompt
corrective action regulations to mean core capital plus
cumulative perpetual preferred stock) is equal to or less than
2% of its total assets. The OTS also has authority, after an
opportunity for a hearing, to downgrade a savings institution
from "well capitalized" to "adequately capitalized," or to
subject an "adequately capitalized" or "undercapitalized" savings
institution to the supervisory actions applicable to the next
lower category, for supervisory concerns. At March 31, 1996,
Coast's regulatory capital exceeded the thresholds necessary to
be considered well capitalized.
On April 10, 1987, Coast acquired substantially all of the
assets and liabilities of Central Savings and Loan Association
from the Federal Savings and Loan Insurance Corporation ("FSLIC")
in a supervisory-assisted transaction. As part of the
transaction, Coast entered into a contractual agreement with the
FSLIC under which the FSLIC made a cash contribution to Coast of
approximately $299 million which, pursuant to the agreement, was
to be reflected as a permanent addition to Coast's regulatory
capital. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") eliminated the FSLIC and
replaced it (and the Federal Home Loan Bank Board) for
supervisory and regulatory purposes with the OTS. The OTS has
taken the position that the FSLIC contribution should be
classified as supervisory goodwill, thereby excluding it from
regulatory capital. In June 1992, Coast filed an action in the
United States Court of Federal Claims seeking monetary damages
for breach of the contractual agreement with the FSLIC. No
prediction can be made as to whether this lawsuit will be
successful, or if successful, what damages might be awarded to
Coast. In three cases with similar issues the Court of Federal
Claims ruled in favor of the plaintiff thrift institutions on the
issue of liability of the federal government for breach of
contract. The Court of Appeals for the Federal Circuit, sitting
en banc, affirmed the Court of Federal Claims ruling in these
cases. The federal government was granted a review of the Court
of Appeals decision by the United States Supreme Court. The
Supreme Court heard oral arguments in April 1996 and a decision
is anticipated in the second or third quarter of 1996.
In November 1995, the FDIC reduced its deposit insurance
premiums for commercial banks and other institutions which are
members of the Bank Insurance Fund (the "BIF") to a range of from
COAST SAVINGS FINANCIAL, INC.
none to $.27 per $100 of deposits (subject to a statutory minimum
of $2,000 in annual assessments), with a historical low average
of approximately $.0043 per $100 of deposits, effective beginning
with the semiannual period commencing January 1, 1996. The FDIC
maintained the current range of deposit insurance premiums
assessable against savings institutions, such as Coast, which are
members of the Savings Association Insurance Fund (the "SAIF") at
$.23 to $.31 per $100 of deposits.
The current deposit rate premium disparity between BIF-
insured institutions and SAIF-insured institutions resulting from
the recently implemented BIF premium reduction places SAIF-
insured institutions at a competitive disadvantage due to higher
premium costs and may worsen the financial condition of the SAIF
by leading to a shrinkage in its deposit base. Legislative
efforts to assist the SAIF in attaining its required reserve
level, and thereby permit SAIF deposit insurance premiums to be
reduced to levels at or near those paid by BIF-insured
institutions, have not been successful to date. Congress
proposed, as part of the budget reconciliation bill submitted to
and vetoed by the President in late 1995, a one-time, special
assessment on all savings institutions to recapitalize the SAIF.
The proposal would have required SAIF-insured institutions to pay
a one-time special assessment (estimated to be between
approximately 80 and 90 basis points on deposits) and would
provide for a pro rata sharing by all federally insured
institutions of the obligation, now borne entirely by SAIF-
insured institutions, to pay the interest on the bonds that were
issued by a specially created federal corporation for the purpose
of funding the resolution of failed thrift institutions. If the
proposed legislation were ultimately to become law, the special
assessment would be reported in Coast's consolidated statement of
operations in the quarter during which such legislation was
finally enacted.
Provisions that would eliminate the deduction for additions
to bad debt reserves available to qualifying thrift institutions
under existing provisions of the Internal Revenue Code were
included in the budget reconciliation bill that was vetoed by
President Clinton and have also been included in subsequent
legislative proposals, including health care legislation which
has been passed in differing forms by both Houses of Congress.
While the ultimate enactment of the health care legislation is
uncertain, the provisions of the legislation relating to thrift
institution bad debt reserves are not thought to be a point of
disagreement. The bills would generally require "recapture"
(i.e. inclusion in taxable income) of the balance of such reserve
accounts as of December 31, 1995, to the extent they exceed a
COAST SAVINGS FINANCIAL, INC.
base year amount (generally the balance of reserves as of
December 31, 1987, reduced proportionately for any reduction in
an institution's loan portfolio) in ratable installments over a
six-year period. Coast's tax bad debt reserves at December 31,
1995, exceeded the base year amount by approximately $5.8 million
and the related liability for recapture has been accrued.
<PAGE>
COAST SAVINGS FINANCIAL, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 10, 1987, Coast acquired substantially all of the
assets and liabilities of Central Savings and Loan Association
from the Federal Savings and Loan Insurance Corporation ("FSLIC")
in a supervisory-assisted transaction. As part of the
transaction, Coast entered into a contractual agreement with the
FSLIC under which the FSLIC made a cash contribution to Coast of
approximately $299 million which, pursuant to the agreement, was
to be reflected as a permanent addition to Coast's regulatory
capital. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") eliminated the FSLIC and
replaced it (and the Federal Home Loan Bank Board) for
supervisory and regulatory purposes with the OTS. The OTS has
taken the position that the FSLIC contribution should be
classified as supervisory goodwill, thereby excluding it from
regulatory capital. In June 1992, Coast filed an action in the
United States Court of Federal Claims seeking monetary damages
for breach of the contractual agreement with the FSLIC. No
prediction can be made as to whether this lawsuit will be
successful, or if successful, what damages might be awarded to
Coast. In three cases with similar issues the Court of Federal
Claims ruled in favor of the plaintiff thrift institutions on the
issue of liability of the federal government for breach of
contract. The Court of Appeals for the Federal Circuit, sitting
en banc, affirmed the Court of Federal Claims ruling in these
cases. The federal government was granted a review of the Court
of Appeals decision by the United States Supreme Court. The
Supreme Court heard oral arguments in April 1996 and a decision
is anticipated in the second or third quarter of 1996.
For further information regarding legal proceedings involving
the Company, see the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Items 2 through 5 are not applicable or the answers are negative.
COAST SAVINGS FINANCIAL, INC.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Required
Exhibit
Number Exhibit
10.1* 1996 Coast Savings Financial, Inc.
Equity Incentive Plan
11.1 Computation of Earnings Per Share
*Indicates employment or compensation agreement affecting
executive officers and directors.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
COAST SAVINGS FINANCIAL, INC.
(Registrant)
Date: May 10, 1996 /s/ Ray Martin
Ray Martin
Chairman of the Board and
Chief Executive Officer
(Authorized Officer)
Date: May 10, 1996 /s/ James F. Barritt
James F. Barritt
Senior Executive Vice
President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
COAST SAVINGS FINANCIAL, INC.
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
10.1 1996 Coast Savings Financial, Inc.
Equity Incentive Plan
11.1 Computation Of Earnings Per Share
<PAGE>
Exhibit 11.1
COAST SAVINGS FINANCIAL, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
Fully Fully
Primary Diluted Primary Diluted
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to
common stock and common
stock equivalents ("CSEs") $ 9,502 $ 9,502 $ 3,478 $ 3,478
Weighted average common
shares outstanding 18,583 18,583 18,457 18,457
Dilutive CSEs on stock options 585 601 406 450
Weighted average shares 19,168 19,184 18,863 18,907
Net earnings per share of
common stock $ .50 $ .50 $ .18 $ .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000841074
<NAME> COAST SAVINGS FINANCIAL INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 145,602
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 343,638
<INVESTMENTS-CARRYING> 1,919,495
<INVESTMENTS-MARKET> 1,930,091
<LOANS> 5,551,609
<ALLOWANCE> 65,000
<TOTAL-ASSETS> 8,239,880
<DEPOSITS> 6,250,070
<SHORT-TERM> 1,240,210
<LIABILITIES-OTHER> 118,252
<LONG-TERM> 205,988
0
0
<COMMON> 186
<OTHER-SE> 425,174
<TOTAL-LIABILITIES-AND-EQUITY> 8,239,880
<INTEREST-LOAN> 111,168
<INTEREST-INVEST> 5,190
<INTEREST-OTHER> 34,624
<INTEREST-TOTAL> 150,982
<INTEREST-DEPOSIT> 71,286
<INTEREST-EXPENSE> 96,706
<INTEREST-INCOME-NET> 54,276
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 41,471
<INCOME-PRETAX> 15,837
<INCOME-PRE-EXTRAORDINARY> 9,502
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,502
<EPS-PRIMARY> .5
<EPS-DILUTED> .5
<YIELD-ACTUAL> 2.72
<LOANS-NON> 93,288
<LOANS-PAST> 9,807
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 82,000
<CHARGE-OFFS> 12,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 82,000
<ALLOWANCE-DOMESTIC> 82,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
1996 COAST SAVINGS FINANCIAL, INC.
EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the 1996 Coast Savings
Financial, Inc. Equity Incentive Plan is to promote and
advance the interest of the Company and its shareholders by
enabling the Bank to attract, retain and reward key
employees and Non-Employee Directors and to strengthen the
mutuality of interests between such employees and Non-
Employee Directors and the Company's shareholders. The Plan
is designed to meet this intent by offering equity-based
incentive awards, thereby giving Plan participants a
proprietary interest in pursuing the long-term growth,
profitability and financial success of the Company.
2. Definitions. For purposes of the Plan, the following
terms shall have the meanings set forth below:
(a) "Award" or "Awards" means an award or grant made
to a Participant under Sections 6 through 9,
inclusive, of the Plan.
(b) "Award Agreement" means a written agreement in
such form as may from time to time be approved by
the Committee, which Award Agreement shall set
forth the terms and conditions of an Award under
the Plan, and be duly executed by the Company and
the Participant.
(c) "Bank" means Coast Federal Bank, Federal Savings
Bank, a federally chartered savings bank, or any
successor corporation.
(d) "Board" means the Board of Directors of the
Company.
(e) "Cause" for termination by the Bank means that the
Committee has determined that
(i) the Employee's refusal to follow written,
lawful directions or the Employee's material
failure to perform his or her duties, in
either case, after the Employee has been
given notice and a reasonable opportunity to
cure;
(ii) the Employee's material failure to comply
with the Bank's policies; or
(iii) the Employee's engaging in conduct which is
or may be unlawful or disreputable, to the
possible detriment of the Bank, any of its
affiliates, or the Employee's own reputation;
provided, however, that if the Employee's
written employment agreement provides for a
definition of cause or an analogous
provision, it shall govern with respect to
that Employee.
(f) "Change in Control" means the acquisition by any
person or entity of control of the Bank, or any
entity controlling the Bank, within the meaning of
Section 583.7 of the Regulations for Savings and
Loan Holding Companies of the Office of Thrift
Supervision, provided, however, that no change in
control shall be deemed to occur in the event of
any regulatory action (A) by the Director of the
Office of Thrift Supervision or his or her
designee, at the time the Federal Deposit
Insurance Corporation or Resolution Trust
Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of the
Federal Deposit Insurance Act (12 U.S.C. 1823(c));
or (B) by the Director of the Office of Thrift
Supervision or his or her designee at the time
such Director or his or her designee approves a
supervisory merger to resolve problems related to
the operation of the Bank or when the Bank is
determined by such Director to be in an unsafe and
unsound condition, or in the event of any merger,
consolidation, or corporate reorganization in
which the owners prior to said combination of the
capital stock entitled to vote in the election of
directors of the Board ("Voting Stock") of the
Bank or any organization controlling the Bank
receive 75% or more of the resulting entity's
Voting Stock. Without limitation of the
foregoing, a change in control shall be deemed
to occur if any person or entity directly or
indirectly acquires ownership, control, power to
vote, or proxies representing more than 25 percent
of the Voting Stock of the Bank or any entity
controlling the Bank, or obtains control of the
election of a majority of the directors of the
Bank or any entity controlling the Bank.
(g) "Code" means the Internal Revenue Code of 1986, as
in effect from time to time, or any successor
thereto, together with rules, regulations and
interpretations promulgated thereunder.
(h) "Committee" means the Compensation Committee of
the Board, constituted as provided in Section 3 of
the Plan, or any other committee appointed by the
Board whose members meet the requirements for
eligibility to serve set forth in Section 3 of the
Plan and which is vested by the Board with
responsibility for the administration of the Plan.
(i) "Common Stock" means the Common Stock par value
$0.01 per share of the Company or any security of
the Company issued in substitution, exchange or
lieu thereof.
(j) "Company" means Coast Savings Financial, Inc. or
any successor corporation.
(k) "Director" means a member of the Board.
(l) "Disability" means disability as determined by the
Committee in accordance with standards and
procedures similar to those under the Bank's long-
term disability plan.
(m) "Employee" means key employees (including officers
who are members of the Board) of the Bank or any
Subsidiary.
(n) "Exchange Act" means the Securities Exchange Act
of 1934, as amended and in effect from time to
time, or any successor statute.
(o) "Fair Market Value" of Common Stock means the
closing price on the New York Stock Exchange -
Composite Tape of such Common Stock on the date(s)
in question, or, if the Common Stock shall not
have been traded on any such date(s), the closing
price on the New York Stock Exchange - Composite
Tape on the first day prior thereto on which the
Common Stock was so traded or if the Common Stock
is not traded on the New York Stock Exchange, such
other amount as may be determined by the Committee
by any fair and reasonable means. Fair Market
Value determined by the Committee in good faith
shall be final, binding and conclusive on all
parties.
(p) "Incentive Stock Option" means any Stock Option
that is specifically designated by the Committee
as an "incentive stock option" within the meaning
of section 422 of the Code.
(q) "Non-Employee Director" means any Director who is
not an Employee of the Company, the Bank or any
Subsidiary.
(r) "Non-Qualified Stock Option" means any Stock
Option that is not an Incentive Stock Option.
(s) "Participant" means an Employee or Non-Employee
Director to whom an Award has been made and is
outstanding under the Plan.
(t) "Performance Objectives" means specific targets
and objectives established by the Committee using
one or more of the following eight criteria:
earnings per share of the Common Stock, return on
average stockholders' equity of the Company, total
stockholder return, return on average assets of
the Company, net earnings of the Company,
nonperforming assets ratio of the Company, general
and administrative expenses of the Company and
efficiency ratio of the Company. Performance
Objectives may be absolute or may be based on the
results of a peer group of comparable companies
established by the Committee. Satisfaction of
Performance Objectives shall be determined in
accordance with generally accepted accounting
principles, as utilized by the Company in its
reports filed under the Exchange Act.
(u) "Performance Period" means a period of not less
than one nor more than ten consecutive Bank fiscal
years for which Performance Objectives have been
established.
(v) "Plan" means this 1996 Coast Savings Financial,
Inc. Equity Incentive Plan, as set forth herein
and as it may be amended from time to time.
(w) "Restriction Period" means the period of time a
Participant must remain employed by the Bank or
any of its Subsidiaries, in order for a Restricted
Stock Award to vest.
(x) "Restricted Stock Award" means an Award of shares
of Common Stock granted pursuant to the provisions
of Section 9 of the Plan which may be subject to
restrictions which lapse over time with or without
regard to Performance Objectives, as the Committee
in its sole discretion shall determine.
(y) "Retirement" means retirement from active
employment with the Bank and its Subsidiaries at
any age at which the Employee is entitled to an
immediately commencing pension under any
retirement plan of the Bank.
(z) "Rule 16b-3" means Rule 16b-3 of the General Rules
and Regulations of the Exchange Act (or any
successor rule or regulation).
(aa) "Spread" means the amount (not less than zero) by
which the exercise price of a Stock Option exceeds
the Fair Market Value of a share of Common Stock
subject to the Stock Option.
(bb) "Stock Appreciation Right" means an Award granted
pursuant to the provisions of Section 8 of the
Plan, entitling a Participant to receive an amount
equal to (or if the Committee shall determine at
the time of grant, less than) the excess of the
Fair Market Value of a share of Common Stock on
the date of exercise over the Fair Market Value of
a share of Common Stock on the date of grant of
the Stock Appreciation Right, multiplied by the
number of shares of Common Stock with respect to
which the Stock Appreciation Right shall have been
exercised.
(cc) "Stock Option" means an Award to purchase shares
of Common Stock granted pursuant to the provisions
of Sections 6 and 7 of the Plan.
(dd) "Subsidiary" means any corporation (other than
the Company or the Bank) in an unbroken chain of
corporations beginning with the Company or the
Bank if each of the corporations other than the
last corporation in the unbroken chain owns stock
possessing fifty percent or more of the total
combined voting power of all classes of stock in
one of the other corporations in such chain.
(ee) "Ten-Percent Stockholder" means an individual who
"owns," as defined in section 424 of the Code,
stock possessing more than ten percent of the
total combined voting power of all classes of
stock of: (i) the Company, (ii) the Bank, (iii) a
Subsidiary, or (iv) a parent corporation of the
Company.
(ff) Window Period" means the period beginning on the
third business day following the date of release
of the financial data specified in paragraph
(e)(l)(ii) of Rule 16b-3 and ending on the twelfth
business day following such date.
3. Administration.
(a) The Committee. To the extent required by Rule
16b-3, the Plan shall be administered by the
Committee to be appointed from time to time by the
Board and comprised of not less than two of the
then members of the Board. To the extent required
by Rule 16b-3, each Committee member must be a
"disinterested person" as defined in Rule 16b-3.
Unless the Board determines otherwise, the
Committee shall be comprised solely of persons who
qualify as "outside" directors for purposes of
section 162(m)(4)(C)(i) of the Code. Members of
the Committee shall serve at the pleasure of the
Board and the Board may from time to time remove
members from, or add members to, the Committee. A
majority of the members of the Committee shall
have the power to act for the Committee. Action
approved in writing by a majority of the members
of the Committee then serving shall be fully as
effective as if the action had been taken by
majority vote at a duly called meeting of the
Committee, but only if each member of the
Committee was given notice of such proposed action
one day prior to such written approval.
(b) Powers of the Committee. The Committee is
authorized to construe and interpret the Plan,
to promulgate, amend and rescind rules and
regulations relating to the implementation of
the Plan and to make all other determinations
necessary or advisable for the administration of
the Plan. Subject to the provisions of the Plan,
the Committee shall have full authority, in its
discretion, to determine the Employees to whom
Awards shall be granted, the number of shares of
Common Stock to be covered by each of the Awards,
and the terms of any such Award. Any good faith
determination, decision or action of the Committee
in connection with the construction, interpreta-
tion, administration, or application of the Plan
shall be final, conclusive and binding upon all
persons participating in the Plan and any person
claiming under or through them. The Company shall
effect the granting of Awards by execution of
appropriate Award Agreements. No member of the
Committee shall be liable for any good faith act
or omission with respect to his or her service on
the Committee.
4. Shares of Common Stock Subject to the Plan.
(a) Maximum Number of Shares of Common Stock. The
maximum number of shares of Common Stock as to
which Awards may be granted under the Plan shall
be five percent (5%) of the number of shares of
Common Stock outstanding as of the first day of
the Company's 1996 fiscal year, subject to
adjustment, as provided in Section 14 of the Plan.
For the purpose of computing the total number of
shares of Common Stock available for Awards under
the Plan, counted against this limit shall be the
number of shares of Common Stock subject to
issuance upon exercise or settlement of Awards, in
each case determined as at the dates as of which
such Awards are granted. If any Awards are
forfeited, terminated or expire unexercised, the
shares of Common Stock which were theretofore
subject to such Awards shall again be available
for Awards under the Plan to the extent of such
forfeiture or expiration of such Awards. Common
Stock which may be issued under the Plan may be
either authorized and unissued shares or issued
shares which have been reacquired by the Company.
Fractional shares of Common Stock shall not be
issued under the Plan.
(b) Certain Limitations. The maximum number of shares
of Common Stock with respect to which Stock
Options and Stock Appreciation Rights may be
granted during any fiscal year to any Employee
shall not exceed 100,000 and the maximum number of
shares of Common Stock with respect to which
Restricted Stock Awards may be granted during any
fiscal year to any Employee should not exceed
100,000; however, the maximum number of shares of
Common Stock with respect to which Awards may be
granted during any fiscal year to any Employee
shall not exceed 100,000.
5. Eligibility. Awards may be granted from time to
time to and the Employees as the Committee, in its
discretion, shall determine. In making Awards, the
Committee shall take into account the duties of prospective
Awardees, their present and potential contributions to the
success of the Company, the Bank and any of their
Subsidiaries, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purposes
of the Plan. Non-Qualified Stock Options shall be granted
automatically to Non-Employee Directors, as provided in
Section 7 and constitute the only Award that may be granted
to Non-Employee Directors under this Plan.
6. Stock Options. Stock Options granted under the Plan
may be (i) Incentive Stock Options, (ii) Non-Qualified Stock
Options or (iii) a combination of the foregoing. The Award
Agreement shall designate the extent to which a Stock Option
is an Incentive Stock Option or a Non-Qualified Stock
Option. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall
contain such additional terms and conditions, not
inconsistent with the express provisions of the Plan, as the
Committee shall deem desirable:
(a) Grant. Stock Options may be granted alone, in
addition to or in tandem with other Awards under
the Plan.
(b) Stock Option Price. The exercise price per share
of Common Stock purchasable under a Stock Option
shall be determined by the Committee at the time
of grant, but in no event shall the exercise price
of a Stock Option be less than One Hundred Percent
of the Fair Market Value of a share of the Common
Stock on the date of the grant of such Stock
Option. In addition, in the case of an Employee
who is a Ten-Percent Shareholder at the time an
Incentive Stock Option is granted, the exercise
price of an Incentive Stock Option shall not be
less than One Hundred Ten Percent of the Fair
Market Value of the Common Stock on the date of
the grant of such Incentive Stock Option.
(c) Option Term. The term of each Stock Option shall
be fixed by the Committee, except that such term
shall not exceed ten years. In the case of a
grant of an Incentive Stock Option to an Employee
who is a Ten-Percent Shareholder at the time of
grant, the term of an Incentive Stock Option shall
not exceed five years.
(d) Exercisability. A Stock Option shall be
exercisable at such times and subject to such
terms and conditions as shall be determined by the
Committee at the date of grant. Except as
provided in Section 12 of the Plan or in the
relevant Award Agreement, no Stock Option may be
exercised unless the holder thereof is at the time
of such exercise in the employ of the Bank or a
Subsidiary and has been continuously so employed
since the date the Stock Option was granted.
(e) Method of Exercise. A Stock Option may be
exercised, in whole or in part, by giving written
notice of exercise to the Bank specifying the
number of shares of Common Stock to be purchased
and any other information the Committee may
prescribe. Such notice shall be accompanied by
payment in full of the purchase price in cash or,
if acceptable to the Committee in its sole
discretion (and subject to the requirements of
Rule 16b-3), in shares of Common Stock already
owned by the Participant. No shares of Common
Stock shall be issued until full payment has been
made therefor. The Committee, in its sole
discretion, may establish procedures whereby a
Participant, subject to the requirements of Rule
16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities
laws, can exercise a Stock Option or a portion
thereof without making a direct payment of the
option price to the Bank. If the Committee so
elects to establish a cashless exercise program,
the Committee shall determine, in its sole
discretion, and from time to time, such
administrative procedures and policies as it deems
appropriate and such procedures and policies shall
be binding on any Participant wishing to utilize
the cashless exercise program.
(f) Special Rules for Incentive Stock Options. To
the extent that the aggregate Fair Market Value
(determined as of the options' grant) of the
Common Stock with respect to which Incentive Stock
Options first become exercisable by the Employee
during any calendar year (under all such plans of
the Employee's employer corporation and its
parent, and Subsidiaries, if any), exceeds
$100,000, the options shall not be an Incentive
Stock Option. For purposes of the preceding
sentence, Stock Options shall be taken into
account in the order in which they were granted.
Any Stock Option granted under the Plan which is
intended to be an Incentive Stock Option, but
which is in excess of the limitation set forth in
this Section shall to that extent be a Non-
Qualified Stock Option. Incentive Stock Options
shall not be granted after the 10th anniversary of
the Plan's adoption by the Board.
7. Automatic Stock Option Grants to Non-Employee
Directors. Notwithstanding any other provision of the Plan,
each Non-Employee Director shall receive on the day of the
1996 annual meeting of shareholders of the Company, a Non-
Qualified Stock Option to purchase 5,000 shares of Common
Stock provided that the Non-Employee Director continues in
office after said annual meeting. Thereafter, during the
term of the Plan, each newly elected Non-Employee Director
will receive on the day of his or her initial election a
Non-Qualified Stock Option to purchase 5,000 shares of
Common Stock. Each such Non-Qualified Stock Option shall
have a term of ten years and shall not be exercisable until
such Non-Employee Director has completed one full year of
service as a Non-Employee Director with the Company after
the date on which the option was granted. Except as
provided in Section 12 of the Plan, no Stock Option may be
exercised by a Non-Employee Director unless the holder
thereof is at the time of such exercise a member of the
Board and has been continuously a member of the Board since
the date such Non-Qualified Stock Option was granted. The
price per share of Common Stock to be paid by the Non-
Employee Director shall equal the Fair Market Value of one
share of Common Stock on the date the Non-Qualified Option
is granted and the purchase price of the shares of Common
Stock as to which such an option is exercised shall be paid
in cash, shares of Common Stock already owned by the
Participant, or pursuant to any cashless exercise program
established pursuant to Section 6(e).
8. Stock Appreciation Rights. The grant of Stock
Appreciation Rights under the Plan shall be subject to the
following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the
express terms of the Plan, as the Committee shall deem
desirable:
(a) Grant. A Stock Appreciation Right may be granted
in tandem with, in addition to or independent of a
Stock Option or any other Award under the Plan. A
Stock Appreciation Right in tandem with a Stock
Option must be granted more than six months prior
to the end of the term of the Stock Option.
(b) Exercise. A Stock Appreciation Right may be
exercised by a Participant in accordance with
procedures established by the Committee. The
Committee may also provide that a Stock Apprecia-
tion Right shall be automatically exercised on one
or more specified dates. A Stock Appreciation
Right granted in tandem with a Stock Option will
entitle the Participant, upon exercise of the
Stock Appreciation Right to surrender all or part
of the unexercised portion of that tandem Stock
Option and to receive the Spread for the number of
shares of Common Stock which could have been
acquired under the surrendered Stock Option. Each
Stock Appreciation Right granted in tandem with a
Stock Option shall be exercisable to the extent,
and only to the extent, the related Stock Option
is exercisable. Each Stock Appreciation Right
shall be for such term as the Committee may
determine, not to exceed 10 years and may expire
prior to the term of a tandem Stock Option. Each
Stock Appreciation Right granted on a stand alone
basis shall be exercisable to the extent, and for
such term, as the Committee may determine. Except
as provided in Section 12 of the Plan or in the
relevant Award Agreement, no Stock Appreciation
Right may be exercised unless the holder thereof
is at the time of such exercise in the employ of
the Bank or a Subsidiary and has been continuously
so employed since the date the Stock Appreciation
Right was granted.
(c) Form of Payment. Payment upon exercise of a Stock
Appreciation Right may be made in cash, in shares
of Common Stock or any combination thereof, as the
Committee shall determine. Any Stock Appreciation
Right exercised on or subsequent to a Change in
Control shall be paid in cash, however.
(d) Special Rules for Stock Appreciation Rights
Granted in Tandem with Incentive Stock Options.
With respect to Stock Appreciation Rights granted
in tandem with Incentive Stock Options, the
following rules shall apply:
(i) The Stock Appreciation Right shall not be
exercisable unless the Spread on the related
Incentive Stock Option is positive.
(ii) In no event shall any amounts paid per share
pursuant to the Stock Appreciation Right exceed
the Spread on the date of exercise of the related
Incentive Stock Option.
(iii) The Stock Appreciation Right must expire no
later than the last date on which the related
Incentive Stock Option can be exercised.
9. Restricted Stock Awards. Restricted Stock Awards may
be subject to restrictions which lapse over time. They may
be granted with or without regard to Performance Objectives
for a specific Performance Period. Restricted Stock Awards
shall be subject to the following terms and conditions and
may contain such additional terms and conditions, not
inconsistent with the express provisions of the Plan, as the
Committee shall deem desirable:
(a) Restricted Stock Awards. A Restricted Stock Award
is an Award of shares of Common Stock transferred
to a Participant subject to such terms and
conditions as the Committee deems appropriate,
including, without limitation, restrictions on
the sale, assignment, transfer or other disposi-
tion of such shares and the requirement that the
Participant forfeit such shares on termination
of employment for specified reasons within a
specified period of time.
(b) Grants of Awards. Restricted Stock Awards may be
granted under the Plan in such form and on such
terms and conditions as the Committee may from
time to time approve. Restricted Stock Awards may
be granted alone, in addition to or in tandem with
other Awards under the Plan. Subject to the terms
of the Plan, the Committee shall determine the
number of Restricted Stock Awards to be granted
to a Participant and the Committee may impose
different terms and conditions on any particular
Restricted Stock Award made to any Participant.
Each Participant receiving a Restricted Stock
Award shall be issued a stock certificate for
those shares of Common Stock. This certificate
shall be registered in the name of such
Participant, shall be accompanied by a stock power
duly executed by such Participant, and shall bear
an appropriate legend referring to the terms,
conditions and restrictions applicable to the
Award. This certificate shall be held in custody
by the Company until the restrictions on it have
lapsed or been removed.
(c) Performance Objectives. If the Committee
determines that a Restricted Stock Award is
intended to qualify as performance-based
compensation under section 162(m)(4)(C) of the
Code, the Restricted Stock Award shall be subject
to the attainment of Performance Objectives for a
Performance Period. Specific Performance
Objectives shall be established in writing no
later than 90 days after the commencement of
the Performance Period to which the Performance
Objectives relate, but in no event after the
first quarter of the Performance Period. In
establishing the Performance Objectives, the
Committee shall also establish a schedule setting
forth the portion of the Restricted Stock Award
which will be earned based on the degree of
achievement of the Performance Objectives, as
determined by the Committee. Except to the extent
it would cause a Restricted Stock Award intended
to qualify as performance-based compensation to
fail so to qualify, the Committee may at any time
adjust the Performance Objectives, any such
schedule, change the way Performance Objectives
are measured or shorten any Performance Period if
it determines that conditions or the occurrence of
events warrant such action. The Committee shall
not have the discretion to increase a Restricted
Stock Award which is intended to constitute
performance-based compensation under the Code.
(d) Restriction Period. In order for a Participant to
vest in a Restricted Stock Award, the Participant
must remain in the employment of the Bank or its
Subsidiaries, subject to relief for specified
reasons, for the Restriction Period set forth in
the Award Agreement. During the Restriction
Period, a Participant may not sell, assign,
transfer, pledge, encumber or otherwise dispose
of shares of Common Stock received under a
Restricted Stock Award. The Committee, in its
sole discretion, may provide for the lapse of
restrictions in installments during the
Restriction Period. Unless otherwise restricted
by the provisions of Section 9(c), upon expiration
of the applicable Restriction Period (or lapse of
restrictions during the Restriction Period if
the restrictions lapse in installments) the
Participant shall be entitled to receive his or
her Restricted Stock Award or portion thereof, as
the case may be. If the Restricted Stock Award
is intended to constitute performance-based
compensation under the Code, as soon as
practicable after the end of the applicable
measurement period as determined by the Committee,
the Committee shall determine the extent to which
the Performance Objectives, if any, have been met
and the extent to which Restricted Stock Awards
are payable.
(e) Performance Periods. The Committee may establish
Performance Periods applicable to Restricted Stock
Awards. There shall be no limitation on the
number of Performance Periods established by the
Committee and more than one Performance Period may
encompass the same fiscal year.
(f) Rights as a Shareholder. Subject to any
restrictions set forth in the applicable Award
Agreement, with respect to the shares of Common
Stock received under a Restricted Stock Award, a
Participant shall have all of the rights of a
shareholder of the Company, including the right to
vote the shares and the right to receive any cash
dividends. Subject to any restrictions set forth
in the applicable Award Agreement, stock dividends
issued with respect to the shares covered by a
Restricted Stock Award shall be treated as
additional shares under the Restricted Stock Award
and shall be subject to the same restrictions and
other terms and conditions that apply to shares
under the Restricted Stock Award with respect to
which such dividends are issued.
10. Deferral Elections. The Committee in its sole
discretion may permit a Participant to elect to defer his
or her receipt of the payment of cash or the delivery of
shares of Common Stock that would otherwise be due to such
Participant by virtue of the earn out or exercise of an
Award made under the Plan. If any such election is
permitted, the Committee shall establish rules and
procedures for such payment deferrals, including the
possible (a) payment or crediting of reasonable interest or
earnings on the deferred amounts, (b) the payment or
crediting dividend equivalents on deferrals of Common Stock
and (c) the election procedures a Participant must use.
11. Dividend Equivalents. Awards may, in the discretion of
the Committee, earn dividend equivalents. The Participant
may be credited with an amount equal to the amount of cash
or stock dividends that would have been paid on the shares
of Common Stock covered by such Award, to the extent
outstanding on a dividend record date, had such covered
shares been issued and outstanding on that dividend record
date. The Committee shall establish rules and procedures
governing the crediting of dividend equivalents, timing,
form of payment and payment contingency rules, as it deems
to be appropriate.
12. Termination of Employment. Except as otherwise
provided in an Award Agreement, upon termination of a
Participant's employment with the Bank or any of its
Subsidiaries or a Non-Employee Director's service with the
Company, the Participant (or in the case of death, the
persons to whom the Award is transferred by will or the laws
of descent and distribution) may exercise the Award during
the following periods of time (but in no event after the
normal expiration date of such Award) to the extent the
Participant was entitled to exercise the Award at the date
of termination:
(i) in the case of death, Disability or Retirement,
the Award shall remain exercisable for the term of
the Award;
(ii) in the case of termination for Cause, the Award
shall immediately terminate and shall no longer be
exercisable; and
(iii) in the case of termination for any other reason,
the Award shall remain exercisable for 90 days
after the date of termination.
To the extent the Award is not exercised within the
foregoing periods of time, the Award shall automatically
terminate at the end of the applicable period of time.
13. Non-transferability of Awards. No Award under the
Plan, and no rights or interest therein, shall be assignable
or transferable by a Participant except by will, the laws of
descent and distribution or pursuant to a qualified domestic
relations order, as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended,
or the rules thereunder. During the life of a Participant,
Stock Options and Stock Appreciation Rights are exercisable
only by, and payments in settlement of Awards will be
payable only to, the Participant or his or her legal
representative.
14. Changes in Capitalization.
(a) No Effect on Power to Make Changes in
Capitalization. The existence of the Plan and
the Awards granted hereunder shall not affect or
restrict the right of the Board or the share-
holders of the Company to make any adjustment,
recapitalization, reorganization or other change
in the Company's capital structure or its
business, to merge or consolidate the Company with
another entity, issue bonds, debentures or
preferred or prior preference stocks ahead of or
affecting the Company's capital stock, to dissolve
or liquidate the Company or to sell or transfer
any part of its assets or business, or to engage
in any other corporate act or proceeding.
(b) Adjustments. Except with respect to Stock Options
granted to Non-Employee Directors pursuant to
Section 7 which shall be automatically adjusted
pursuant to the second paragraph of this Section,
in the event of changes in all of the outstanding
shares of Common Stock by reason of stock
dividends, stock splits, recapitalization,
mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations,
liquidations or similar events, or in the event
extraordinary cash or non-cash dividends are
declared with respect to outstanding shares of
Common Stock or other similar transactions, the
number and class of shares of Common Stock
available under the Plan in the aggregate, the
number and class of shares of Common Stock subject
to Awards theretofore granted, the number of Stock
Appreciation Rights theretofore granted, applic-
able purchase prices, applicable Performance
Objectives for the Performance Periods not yet
completed and performance levels related thereto,
and all other applicable provisions, shall be
equitably adjusted by the Committee, as determined
by the Committee in its sole discretion.
With respect to Stock Options granted to Non-
Employee Directors pursuant to Section 7, the
number of shares of Common Stock covered by the
Plan, the number of shares of Common Stock covered
by each outstanding Stock Option held by a Non-
Employee Director and the exercise price of such
Stock Option shall be automatically
proportionately adjusted for any increase or
decrease in the number of issued shares of Common
Stock resulting from a subdivision or
consolidation of shares of Common Stock or the
payment of a stock dividend (but only of Common
Stock) or any other increase or decrease in the
number of issued shares of Common Stock effected
without receipt of consideration by the Company.
Any adjustments made pursuant to this Section may
provide for the elimination of any fractional
share of Common Stock which might otherwise become
subject to an Award.
15. Change in Control.
(a) Special Treatment. In the event of a Change in
Control (i) all Stock Options or Stock
Appreciation Rights then outstanding shall become
fully exercisable as of the date of the Change in
Control, whether or not then exercisable and
(ii) all restrictions and conditions of all
Restricted Stock Awards then outstanding shall be
deemed satisfied as of the date of the Change in
Control. Moreover, the Committee, in its sole
discretion, may at any time, and subject to the
terms and conditions as it may impose: (a) grant
Awards that become exercisable only in the event
of a Change in Control, (b) provide for Awards to
be exercised automatically and only for cash in
the event of a Change in Control, and (c) provide
in advance or at the time of a Change in Control
for cash to be paid in settlement of any Award in
the event of a Change in Control.
(b) Restrictions on Benefits. Notwithstanding the
provisions of Section 15(a), the aggregate present
value of all parachute payments payable to or for
the benefit of a Participant, whether payable
pursuant to the Plan (or otherwise) (excluding
those payments made pursuant to an agreement with
the Bank that specifically provides otherwise),
shall be limited to three times the Participant's
base amount less one dollar and, to the extent
necessary, the special treatment described in
clauses (i) and (ii) of Section 15(a) shall be
reduced or eliminated by the Committee in order
that this limitation not be exceeded; provided,
however, that this provision shall not apply if
the Employee's written employment agreement
contains a comprehensive parachute provision with
conflicting terms. For purposes of this Section,
the terms "parachute payment," "base amount" and
"present value" shall have the meanings assigned
thereto under Code section 280G. It is the
intention of this Section to avoid excise taxes on
the Participant under Code section 4999 or the
disallowance of a deduction to the Company or the
Bank pursuant to Code section 280G. Acceptance of
an Award constitutes the Employee's agreement to
this Section of the Plan.
16. Amendment and Termination. The Board may amend or
terminate the Plan at any time, but no amendment shall be
made without the approval of the stockholders of the Company
if stockholder approval under section 422 of the Code or
Rule 16b-3 would be required or if it would change the
material terms of performance goals that were previously
approved by the Company's stockholders, within the meaning
of Treasury Regulation Section 1.162-27(e)(4)(vi) or a
successor provision (unless the Board determines that such
approval is not necessary to avoid loss of a deduction under
section 162(m) of the Code, such approval will not avoid
such a loss of deduction or such approval is not advisable).
The provisions set forth in Section 7 of this Plan (and any
other Sections of this Plan that affect the formula award
terms required to be specified in this Plan by Rule 16b-3)
shall not be amended more than once every six months, except
that the Plan may be amended to comport with changes in the
Code, the Employee Retirement Income Security Act, or the
rules thereunder. No amendment of the Plan or any Award
granted under the Plan shall impair any Participant's
rights, without his or her consent, under any Award
theretofore granted under the Plan.
17. Miscellaneous.
(a) Tax Withholding. The Bank shall have the right to
deduct or withhold any taxes, including transfer
taxes, of any kind required by law to be withheld
with respect to such payments under the Plan or to
take such other action as may be necessary in the
opinion of the Bank to satisfy all obligations for
the payment of such taxes, including requiring the
Participant or his beneficiary or estate to pay
any amount required to be withheld. If Common
Stock is used to satisfy tax withholding, such
Stock shall be valued based on the Fair Market
Value when the tax withholding is required to be
made. If the Employee disposes of shares of
Common Stock acquired pursuant to an Incentive
Stock Option in any transaction considered to be a
disqualifying transaction under sections 421 and
422 of the Code, the Employee must give the Bank
written notice of such transfer and the Bank shall
have the right to deduct any taxes required by law
to be withheld from any amounts otherwise payable
to the Employee. The Committee may permit an
Employee who is subject to Section 16(b) of the
Exchange Act to satisfy his or her tax liability
with respect to the exercise, vesting or
settlement of an Award, by having the Bank
withhold shares of Common Stock otherwise issuable
upon the exercise, vesting or settlement of the
Award if such Employee makes an irrevocable
election, by way of a written statement in a form
acceptable to the Committee, at least six (6)
months before the date the Employee recognizes
federal taxable income with respect to the receipt
of such shares of Common Stock or during any
Window Period.
(b) No Right to Employment. Neither the adoption of
the Plan nor the granting of any Award shall
confer upon any employee of the Bank or any
Subsidiary any right to continued employment with
the Bank or any Subsidiary nor shall it interfere
in any way with the right of the Bank or a
Subsidiary to terminate the employment of any of
its employees at any time, with or without Cause
even if Awards will be forfeited as a result of
employment termination.
(c) Unfunded Plan. Except as provided in Section
17(d), the Plan shall be unfunded and neither the
Company nor the Bank shall be required to
segregate any assets that may at any time be
represented by Awards under the Plan. No
obligation of the Company or the Bank under the
Plan or any Award shall be deemed to be secured by
any pledge of, or other encumbrance on, any
property of the Company or the Bank.
(d) Payments to Trust. The Committee is authorized to
cause to be established a trust agreement or
several trust agreements or other funding vehicles
whereunder the Committee may make payments of
amounts due or to become due to Participants in
the Plan.
(e) Other Bank Benefit and Compensation Programs.
Payments and other benefits received by a
Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of
the termination, indemnity or severance pay law of
any country and shall not be included in, nor have
any effect on, the determination of benefits under
any other employee benefit plan or similar
arrangement provided by the Company, the Bank or a
Subsidiary unless expressly so provided by such
other plan or arrangements, or except where the
Committee expressly determines that inclusion of
an Award or portion of an Award should be included
to accurately reflect competitive compensation
practices or to recognize that an award has been
made in lieu of a portion of competitive annual
cash compensation. Awards under the Plan may be
made in combination with or in tandem with, or as
alternatives to, grants, awards or payments under
any other Company, Bank or Subsidiary plans. The
Company, the Bank or any Subsidiary may adopt such
other compensation programs and additional
compensation arrangements as it deems necessary to
attract, retain and reward employees for their
service.
(f) Securities Law Restrictions. No shares of Common
Stock shall be issued under the Plan unless
counsel for the Company shall be satisfied that
such issuance will be in compliance with
applicable Federal and state securities laws.
Certificates for shares of Common Stock delivered
under the Plan may be subject to such stock-
transfer orders and other restrictions as the
Committee may deem advisable under the rules,
regulations, and other requirements of the
Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then
listed, and any applicable Federal or state
securities law. The Committee may cause a legend
or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(g) Award Agreement. Each Participant receiving an
Award under the Plan shall enter into an Award
Agreement with the Company in a form specified by
the Committee agreeing to the terms and conditions
of the Award and such related matters as the
Committee shall, in its sole discretion,
determine.
(h) Costs of Plan. The costs and expenses of
administering the Plan shall be borne by the Bank.
(i) Section 16. With respect to persons subject to
Section 16 of the Exchange Act, transactions under
this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent
any provision under the Plan or action by the
Committee fails to so comply, it shall be deemed
null and void to the extent permitted by law and
deemed advisable by the Committee.
(j) Governing Law. The Plan and all actions taken
thereunder shall be governed by and construed in
accordance with the laws of the State of
California without regard to the principles of the
conflict of laws thereof.
(k) Effective Date And Termination Date. The Plan
shall be effective upon Board approval and
adoption, subject to approval by the Company's
shareholders at the 1996 annual meeting of
shareholders and shall terminate ten years after
the effective date.
(l) Severability. In the event any provision or
provisions of the Plan are held to be invalid,
illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions
shall not in any way be effected or impaired.
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