<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1998
Commission File No.: 0-25664
SGV BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 95-4524789
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
225 NORTH BARRANCA STREET, WEST COVINA, CALIFORNIA 91791
(Address of principal executive offices)
Registrant's telephone number, including area code: (626) 859-4200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive amendment to this Form 10-K.
|_|
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than the directors and executive officers of
the registrant, was $26,500,000, based upon the last sales price as quoted on
The NASDAQ Stock Market for September 22, 1998.
The number of shares of Common Stock outstanding as of September 22, 1998:
2,230,823.
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INDEX
PAGE
PART I
Item 1. Description of Business.................................. 1
Item 2. Properties............................................... 37
Item 3. Legal Proceedings........................................ 38
Item 4. Submission of Matters to a Vote of Security Holders...... 38
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 38
Item 6. Selected Financial Data.................................. 39
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 41
Item 8. Financial Statements and Supplementary Data.............. 58
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 100
PART III
Item 10. Directors and Executive Officers of the Registrant....... 100
Item 11. Executive Compensation................................... 100
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................... 100
Item 13. Certain Relationships and Related Transactions........... 100
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K.............................................. 100
Signatures ....................................................... 102
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
- --------------------------------
General
SGV Bancorp, Inc. (the "Company") completed its initial public offering of
common stock on June 28, 1995, in connection with the conversion of First
Federal Savings and Loan Association of San Gabriel Valley (the "Association")
from the mutual to stock form of ownership. The Company utilized approximately
50% of the net proceeds of the initial public offering to acquire all of the
issued and outstanding stock of the Association. The Company is headquartered in
West Covina, California and its principal business currently consists of the
operations of its wholly-owned subsidiary, First Federal Savings and Loan
Association of San Gabriel Valley. The Company's only significant assets, other
than its investment in the capital stock of the Association and a loan to the
Association's ESOP, are cash, investments and mortgage-backed securities.
Operational activity of the Savings and Loan Association will hereafter be
referred to as "Association," where applicable. The Company had no operations
prior to June 28, 1995, and accordingly, the results of operations prior to such
date reflect only those of the Association and its subsidiary. The Company, as a
savings and loan holding company, and the Association are subject to regulation
by the Office of Thrift Supervision (the "OTS"), the Federal Deposit Insurance
Corporation (the "FDIC") and the Securities and Exchange Commission (the "SEC").
The principal business of the Association is attracting retail deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans. To a lesser extent, the Association engages in
secondary market activities and invests in multi-family, commercial real estate,
construction, land and consumer loans. Loan sales come from loans held in the
Association's portfolio designated as being held for sale or originated during
the period and being so designated. The Association retains virtually all the
servicing rights of loans sold. The Association's revenues are derived
principally from interest on its mortgage loans, and to a lesser extent,
interest and dividends on its investment and mortgage-backed securities, income
from loan servicing, and fee income generated from deposit accounts. The
Association's primary sources of funds are deposits, principal and interest
payments on loans, advances from the Federal Home Loan Bank of San Francisco
(the FHLB) and, to a lesser extent, proceeds from the sale of loans.
Market Area and Competition
The Association conducts business from its administrative branch office
located in West Covina, California and its seven other offices located in
Covina, Hacienda Heights, La Verne, City of Industry, Arcadia, and Duarte, all
of which are located in the eastern part of the greater Los Angeles metropolitan
area. The Association is currently seeking to expand its market share through
the acquisition of additional branch offices in its current market area. If
successful, the Association believes it would increase total deposits by
approximately $60 million or 20%. There can be no assurance, however, the
Association will be successful. The Association has been and continues to be a
community-oriented savings institution, which primarily originates one- to
four-family residential mortgage loans within its primary market area. The
Association's
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deposit gathering is concentrated in the communities surrounding its offices in
eastern Los Angeles county. The Association makes loans secured by deeds of
trust in portions of eastern Los Angeles, western San Bernardino and Riverside,
and Orange counties.
The Los Angeles metropolitan area is a highly competitive market. The
Association faces significant competition both in making loans and in attracting
deposits. The Association's share of deposits and loan originations in the Los
Angeles metropolitan area amounts to less than one percent. The Association
faces direct competition from a significant number of financial institutions
operating in its market area, many with a statewide or regional presence and in
some cases a national presence. Many of these financial institutions are
significantly larger and have greater financial resources than the Association.
The Association's competition for loans comes principally from commercial banks,
savings and loan associations, mortgage banking companies, credit unions and
insurance companies. Its most direct competition for deposits has historically
come from savings and loan associations and commercial banks. In addition, the
Association faces increasing competition for deposits from non-bank institutions
such as brokerage firms and insurance companies in such areas as short-term
money market funds, corporate and government securities funds, mutual funds and
annuities. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.
Lending Activities
LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At June 30, 1998, the Association had total loans outstanding of
$297.6 million, of which $247.1 million were one- to four-family, owner-occupied
residential mortgage loans, or 83.1% of the Association's total loans. The
remainder of the portfolio consists of $29.5 million of multi-family mortgage
loans, or 9.9% of total loans; $11.9 million of commercial real estate loans, or
4.0% of total loans; and consumer loans of $9.0 million or 3.0% of total loans.
The Association had $391,000 in loans held for sale as of June 30, 1998. At that
same date, 78.9% of the Association's mortgage loans had adjustable interest
rates. Of the Association's adjustable-rate mortgage loans, 21.7% are indexed to
the one-year Constant Maturity Treasury ("CMT") Index and 78.0% are indexed to
the 11th District Cost of Funds Index ("COFI"). The COFI is a lagging market
index and therefore may adjust more slowly than the cost of the Association's
interest-bearing liabilities. As the determination of the COFI becomes
concentrated in fewer institutions, funding decisions by a relatively few large
institutions could potentially further reduce the correlation of COFI to changes
in general market interest rates and the Company's cost of funds.
The types of loans that the Association may originate are subject to
federal and state law and regulations. Interest rates charged by the Association
on loans are affected by the demand for such loans and the supply of money
available for lending purposes and the rates offered by competitors. These
factors are, in turn, affected by, among other things, economic conditions,
monetary policies of the federal government, including the Federal Reserve
Board, and legislative tax policies.
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
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<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
AMOUNT of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE AND OTHER:
One- to four family $247,129 83.04% $250,303 87.29% $226,660 87.81% $187,693 85.82% $177,544 85.00%
Multi-family 29,546 9.93 27,241 9.50 21,690 8.40 20,431 9.34 20,215 9.68
Commercial 11,895 4.00 8,660 3.02 9,331 3.62 9,567 4.37 9,791 4.69
Construction and land - 0.00 - 0.00 - 0.00 415 0.19 665 0.32
Consumer 9,007 3.03 533 0.19 440 0.17 602 0.28 643 0.31
-------- ------- -------- ------- ------- ------- -------- ------- -------- -------
Total loans 297,577 100.00% 286,737 100.00% 258,121 100.00% 218,708 100.00% 208,858 100.00%
======= ======= ======= ======= =======
LESS:
Unamortized yield adjustments, net (613) 121 (64) 45 101
Deferred loan fees, net 635 515 451 472 528
Allowance for estimated loan losses 1,425 1,263 1,058 792 562
-------- -------- ------- -------- --------
Total loans, net 296,130 284,838 256,676 217,399 207,667
LESS:
Loans receivable held for sale:
One- to four-family 391 230 723 - -
-------- -------- ------- -------- --------
Loans receivable held for
investment $295,739 $284,608 $255,953 $217,399 $207,667
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
LOAN MATURITY. The following table shows the contractual maturity of the
Association's gross loans at June 30, 1998. The table does not include principal
repayments. Principal repayments on total loans totaled $61.0 million for the
year ended June 30, 1998 and $33.2 million and $25.0 million for the years ended
June 30, 1997 and 1996, respectively.
AT JUNE 30, 1998
---------------------------------------------------------------------
ONE- TO TOTAL
FOUR- MULTI- CONSTRUCTION LOANS
FAMILY FAMILY COMMERCIAL AND LAND CONSUMER RECEIVABLE
-------- --------- ---------- ------------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS DUE:
One year or less $ 2,734 $ - $ 186 $ - $ 481 $ 3,401
After one year:
More than one year to three years 1,117 5,729 72 - - 6,918
More than three years to five years 6,081 5,743 2,037 - - 13,861
More than five years to 10 years 3,797 1,677 625 - - 6,099
More than 10 years to 20 years 38,233 15,977 6,986 - - 61,196
More than 20 years 195,167 420 1,989 - 8,526 206,102
-------- ------ -------- -------- ------- --------
Total due after June 30, 1999 244,395 29,546 11,709 - 8,526 294,176
-------- ------ -------- -------- ------- --------
Total amount due 247,129 29,546 11,895 - 9,007 297,577
Less:
Unamortized yield adjustments (521) 143 - - (235) (613)
Deferred loan fees 377 195 63 - - 635
Allowance for estimated loan losses 616 397 89 - 323 1,425
-------- ------ -------- -------- ------- --------
Total loans, net 246,657 28,811 11,743 - 8,919 296,130
Loans receivable held for sale 391 - - - - 391
-------- ------ -------- -------- ------- --------
Loans receivable held for investment $246,266 $28,811 $11,743 $ - $ 8,919 $295,739
======== ======= ======= ======== ======= ========
</TABLE>
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<TABLE>
<CAPTION>
The following table sets forth at June 30, 1998, the dollar amount of
gross loans receivable contractually due after June 30, 1999, and whether such
loans have fixed interest rates or adjustable interest rates.
DUE AFTER JUNE 30, 1999
------------------------------------------------
FIXED Adjustable Total
-------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family $ 51,550 $ 192,845 $ 244,395
Multi-family 4,874 24,672 29,546
Commercial real estate 2,822 8,887 11,709
Construction and land - - -
Consumer - 8,526 8,526
-------------- --------------- -------------
Total loans receivable $ 59,246 $ 234,930 $ 294,176
============== =============== =============
</TABLE>
ORIGINATION, SALE, SERVICING AND PURCHASE OF LOANS. The Association's
mortgage lending activities are conducted primarily by commissioned loan
representatives and through its eight branch offices. The Association originates
both adjustable-rate and fixed-rate mortgage loans. The Association's ability to
originate loans is dependent upon the relative customer demand for fixed-rate or
adjustable-rate mortgage loans, which is affected by the current and expected
future level of interest rates. It is the general policy of the Association to
sell the majority of the fixed-rate mortgage loans that it originates. The
Association may also sell the adjustable-rate mortgage loans that it originates.
The Association utilizes forward commitments to hedge the risks associated with
a change in interest rates between origination and sale of loans. At June 30,
1998, the Association had one forward commitment of $1.0 million. The
Association retains virtually all servicing of the loans sold. See "Loan
Servicing." The Association recognizes, at the time of sale, the cash gain or
loss on the sale of the loans sold. At June 30, 1998, there was $391,000 in
fixed-rate mortgage loans categorized as held for sale. From time to time, the
Association has purchased loans originated by other institutions based upon the
Association's investment needs and market opportunities. During the year ended
June 30, 1998, the Association purchased $29.9 million of one- to four-family
mortgage loans with adjustable interest rates indexed primarily to COFI which
are secured by principal properties located in Southern California. The
Association also purchased $10.7 million of home equity lines of credit with
adjustable interest rates indexed to COFI and LIBOR. These loans are considered
consumer loans as they were underwritten primarily based upon the credit
worthiness of the customer with a trust deed filed as an abundance of caution.
The Association has purchased loans during the past two years as a supplement to
its internal origination process in order to meet internal goals. The
Association has reviewed each loan it purchases to ensure it meets the
Association's underwriting guidelines. The loans were purchased in several
transactions consummated during the year ended June 30, 1998.
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<TABLE>
<CAPTION>
The following table sets forth the Association's loan originations, purchases,
sales and principal repayments for the periods indicated:
FOR THE YEARS ENDED JUNE 30,
----------------------------------------
1998 1997 1996
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross loans (1):
Beginning balance $ 286,101 $ 257,734 $ 218,191
Loans originated:
One- to four-family (2) 46,787 33,108 31,110
Multi-family 3,977 3,242 1,163
Commercial 3,540 160 70
------------ ------------ -------------
Total loans originated 54,304 36,510 32,343
Loans purchased:
Mortgage loans 29,941 33,320 48,297
Consumer loans 10,682 - -
------------ ------------ -------------
Total 381,028 327,564 298,831
Less:
Principal repayments 61,019 33,216 25,029
Sales of loans 19,526 5,644 13,183
Transfer to REO 2,928 2,603 2,885
------------ ------------ -------------
Total loans 297,555 286,101 257,734
Loans held for sale 391 230 723
------------ ------------ -------------
Ending balance, loans held
for investment $ 297,164 $ 285,871 $ 257,011
============ ============ =============
</TABLE>
- --------------------------------------
(1) Gross loans includes loans receivable held for investment and loans
held for sale, net of deferred loan fees, undisbursed loan funds and
unamortized premiums and discounts.
(2) Consumer loans originated are included in one- to four-family loans.
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ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Association offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences located in the Association's primary market area, with maturities up
to forty years. Substantially all of such loans are secured by property located
in the Association's primary market area. Loan originations are generally
obtained from the Association's commissioned loan representatives and their
contacts with the local real estate industry, existing or past customers, and
members of the local communities.
At June 30, 1998, the Association's total loans outstanding were $297.6
million, of which $247.1 million or 83.1% were one- to four-family residential
mortgage loans. Of the one-to four-family residential mortgage loans outstanding
at that date, 22.0% were fixed-rate loans, and 78.0% were adjustable-rate
mortgage loans. The Association's adjustable-rate mortgage loans are generally
indexed to COFI and the CMT. The Association currently offers a number of
adjustable-rate mortgage loan programs with interest rates which adjust monthly,
semi-annually, or annually. A portion of the Association's adjustable-rate
mortgage loans have introductory terms of three or five years and at the end of
such period will adjust either monthly or annually according to their terms. The
Association's adjustable-rate mortgage loans generally provide for periodic and
overall caps on the increase or decrease in interest rate at any adjustment date
and over the life of the loan. At June 30, 1998, approximately $500,000 of the
Association's one- to four-family adjustable-rate mortgage loans had interest
rates that were between 0 to 200 basis points below their lifetime caps, $52.1
million that were between 200 to 400 basis points below their lifetime caps,
with the remainder having interest rates that were more than 400 basis points
below their lifetime caps. The Association currently has $78.2 million in
mortgage loans that may be subject to negative amortization. The negative
amortization is currently capped at up to 115% of the original loan amount.
Negative amortization involves a greater risk to the Association because during
a period of high interest rates, the loan principal may increase above the
amount originally advanced. However, the Association believes that the risk of
default may be reduced by negative amortization caps, underwriting criteria and
the stability provided by payment schedules.
Of the Association's one- to four-family mortgage loans, $44.9 million, or
18.2%, were secured by non-owner-occupied residences. Loans secured by
non-owner-occupied properties are generally considered to involve a higher
degree of credit risk than loans secured by owner-occupied properties because
payment is generally dependent upon the property producing sufficient income to
cover debt service and any operating expenses.
The Association's policy is to originate one- to four-family residential
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained. The
Association currently has a limited program which is designed to promote home
ownership and allows potential borrowers the ability to receive a mortgage loan
with loan-to-values up to 100% with no private mortgage insurance. This program
is capped at $1 million in loans outstanding. Mortgage loans originated by the
Association generally include due-on-sale clauses, which provide the Association
with the contractual right to deem the loan immediately due and payable in the
event the borrower transfers ownership of the property without the Association's
consent. Due-on-sale clauses are an important means of adjusting the
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rates on the Association's fixed-rate mortgage loan portfolio and the
Association has generally exercised its rights under theseclauses.
MULTI-FAMILY LENDING. The Association originates multi-family mortgage
loans generally secured by five to thirty-six unit apartment buildings located
in the Association's primary market area. As a result of uncertain market
conditions in its primary market area, the Association currently originates
multi-family loans on a limited and highly selective basis. In reaching its
decision on whether to make a multi-family loan, the Association considers the
qualifications of the borrower as well as the underlying property. Some of the
factors to be considered are: the net operating income of the mortgaged premises
before debt service and depreciation; the debt service ratio (the ratio of net
earnings to debt service); and the ratio of loan amount to appraised value.
Pursuant to the Association's current underwriting policies, a multi-family
adjustable-rate mortgage loan may only be made in an amount up to 75% of the
appraised value of the underlying property to a maximum amount of $750,000.
Subsequent declines in the real estate values in the Association's primary
market area have resulted in some increase in the loan-to-value ratio on some
mortgage loans. In addition, the Association generally requires a minimum debt
service ratio of 115%. Properties securing a loan are appraised by an
independent appraiser and title insurance is required on all loans. The
Association's multi-family loan portfolio at June 30, 1998 totaled $29.5
million.
When evaluating the qualifications of the borrower for a multi-family
loan, the Association considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property, and
the Association's lending experience with the borrower. The Association's
underwriting policies require that the borrower be able to demonstrate strong
management skills and the ability to maintain the property from current rental
income. The borrower is required to presen evidence of the ability to repay the
mortgage and a history of making mortgage payments on a timely basis. In making
its assessment of the creditworthiness of the borrower, the Association
generally reviews the financial statements, employment and credit history of the
borrower, as well as other related documentation. The Association's largest
multi-family loan at June 30, 1998, had an outstanding balance of $1.1 million,
was current at that date and is secured by a 22-unit apartment complex.
The Association may purchase multi-family loans from other financial
institutions. As part of the review process, the loans being purchased are
appraised and must meet the same underwriting standards as loans processed
internally. During the year ended June 30, 1998, the Association purchased $1.1
million of multi-family loans from another financial institution.
Loans secured by apartment buildings and other multi-family residential
properties are generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
multi-family properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Association seeks to minimize these risks through its underwriting policies,
which require such loans to be qualified at origination on the basis of the
property's income and debt coverage ratio.
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COMMERCIAL REAL ESTATE LENDING. The Association originates commercial real
estate loans that are generally secured by properties used for business purposes
such as small office buildings or retail facilities located in the Association's
primary market area. The Association's underwriting procedures provide that
commercial real estate loans be made in amounts up to the lesser of 75% of the
appraised value of the property, or at the Association's current loans-to-one
borrower limit. These loans may be made with terms up to thirty years for
adjustable-rate loans and are indexed to CMT or COFI. The Association's
underwriting standards and procedures are similar to those applicable to its
multi-family loans, whereby the Association considers the net operating income
of the property and the borrower's expertise, credit history and profitability.
The Association has generally required that the properties securing commercial
real estate loans have debt service coverage ratios of at least 115%. The
largest commercial real estate loan in the Association's portfolio at June 30,
1998, had an outstanding balance of $1.0 million, was current at that date and
is secured by a mini-storage warehouse. At June 30, 1998, the Association's
commercial real estate loan portfolio was $11.9 million or 3.0% of total loans.
The Association currently originates commercial real estate loans on a limited
and highly selective basis in its primary market area.
Loans secured by commercial real estate properties, like multi-family
loans, are generally larger and involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Association seeks to minimize these risks through its underwriting
standards, which require such loans to be qualified on the basis of the
property's income and debt service ratio.
CONSTRUCTION AND LAND LENDING. The Association has in the past originated
loans for the acquisition and development of property to contractors and
individuals in its primary market area. The Association's construction loans
primarily have been made to finance the construction of one- to four-family,
owner-occupied residential properties. These loans were primarily
adjustable-rate loans with maturities of one year or less. The Association is
not currently originating construction and land loans but may in the future
depending on market conditions. At June 30, 1998, the Association had no
construction or land loans outstanding.
Construction and land financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Association may be confronted with a project, when completed,
having a value which is insufficient to assure full repayment.
CONSUMER LENDING. The Association originates consumer loans such as lines
of credit and loans secured by savings accounts. The total amount comprising
these two product types is less than 0.2% of the Association's loan portfolio.
In this fiscal year, the Association purchased a portfolio of home equity lines
of credit (HELOCs) from another financial institution which were primarily
approved based upon the credit worthiness of the borrower and also had a lien
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placed on the borrower's property, usually as a second lien. The loan-to-values
of this portfolio of loans generally were in excess of 100%. Loans which met the
Association's underwriting requirements were selected for purchase. The HELOCs
have interest rates indexed primarily to COFI and LIBOR, with margins of 9.95%
and adjust monthly. The maximum lines granted were generally for $25,000. The
borrower is generally allowed to draw on the line of credit for a period of ten
year to fifteen years after which time the loan is converted to fixed term loan
with no further access to the line. The Association's HELOC portfolio of $8.5
million represents approximately 2.9% of its total loan portfolio.
The Association's HELOC portfolio has a higher degree of credit risk than
loans secured by real estate property with loan-to-values less than 70% as the
payment as to interest and principal is generally dependent upon the capacity of
the borrower and not upon the collateral. For loans which have become
non-accrual, the Association would generally not initiate foreclosure
proceedings on any property which has been determined to have a current combined
loan-to-value in excess of 100%. Loans in this category would generally be
charged-off although, in certain circumstances, collection efforts may continue.
The Association has set aside general valuation allowances which management
believes reflect the risk of the portfolio. If future loss experience or other
factors change management's expectations, management will adjust the general
valuation allowance to reflect such expectations.
LOAN SERVICING. The Association also services mortgage loans for others.
All of the loans currently being serviced for others are loans which have been
sold by the Association. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, making inspections as required
of mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
making certain insurance and tax payments on behalf of the borrowers and
generally administering the loans. At June 30, 1998, the Association was
servicing $99.7 million of loans for others.
DELINQUENCIES AND CLASSIFIED ASSETS. The Board of Directors performs a
monthly review of all delinquent loans ninety days or more past due. In
addition, management reviews on an ongoing basis all loans 15 or more days
delinquent. The procedures taken by the Association with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. When a borrower fails to make a required payment on a loan, the
Association takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Association generally sends the
borrower a written notice of non-payment after the loan is first past due. In
the event payment is not then received, additional letters and phone calls
generally are made. If the loan is still not brought current and it becomes
necessary for the Association to take legal action, which typically occurs after
a loan is delinquent at least 30 days or more, the Association will commence
foreclosure proceedings against any real property that secures the loan. If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the real property securing the
loan generally is sold at foreclosure.
Federal regulations and the Association's Classification of Assets Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and
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potential problem assets. The Association has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Association
currently classifies problem and potential problem assets as "Substandard,"
"Doubtful," or "Loss" assets. An asset is considered "Substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the insured institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified "Substandard"
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that management has analyzed all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and that
management has established acceptable allowance evaluation processes that meet
the objectives set forth in the policy statement. As a result of the declines in
local and regional real estate market values and the significant losses
experienced by many financial institutions, there has been a greater level of
scrutiny by regulatory authorities of the loan portfolios of financial
institutions undertaken as part of the examination of institutions by the OTS
and the FDIC. While the Association believes that it has established an adequate
allowance for loan losses, there can be no assurance that regulators, in
reviewing the Association's loan portfolio, will not request the Association to
materially increase at that time its allowance for loan losses, thereby
negatively affecting the Association's financial condition and earnings at that
time. Although management believes that adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of specific and general loan loss
allowances may become necessary.
11
<PAGE> 14
The Association's Internal Asset Review Committee reviews and classifies
the Association's assets monthly and reports the results of its review to the
Board of Directors. The Association classifies assets in accordance with the
management guidelines described above. Real Estate Owned ("REO") is classified
as Substandard. At June 30, 1998, the Association had $3.0 million of assets
classified as Special Mention, $6.3 million of assets classified as Substandard,
with no assets classified as Doubtful or as Loss. Loans classified as Special
Mention are a result of past delinquencies or other identifiable weaknesses. At
June 30, 1998, the largest loan classified as Special Mention had a loan balance
of $843,000.
The Association generally requires appraisals on an annual basis on
foreclosed properties and, to the extent necessary, on impaired loans. The
Association conducts external inspections on foreclosed properties and certain
other properties as deemed necessary.
12
<PAGE> 15
<TABLE>
<CAPTION>
The following table sets forth delinquencies in the Association's loan
portfolio as of the dates indicated:
AT JUNE 30, 1998 AT JUNE 30, 1997
------------------------------------- --------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
------------------ ------------------ ------------------ -----------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- --------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family 1 $ 206 9 $ 1,215 3 $ 834 12 $ 1,699
Multi-family - - 1 570 - - - -
Commercial - - - - - - - -
Construction and land - - - - - - - -
Consumer loans 3 59 9 126 - - - -
-------- --------- -------- --------- -------- -------- --------- --------
Total 4 $ 265 19 $ 1,911 3 $ 834 12 $ 1,699
======== ========= ======== ========= ======== ======== ========= ========
Delinquent loans to
total gross loans 0.13% 0.09% 0.63% 0.65% 0.11% 0.29% 0.46% 0.59%
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------------------------
60-89 DAYS 90 DAYS OR MORE
------------------ --------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One- to four-family 2 $ 165 6 $ 821
Multi-family - - 2 473
Commercial - - 1 668
Construction and land - - - -
Consumer loans - - - -
-------- ---------- -------- ---------
Total 2 $ 165 9 $ 1,962
======== ========= ======== =========
Delinquent loans to
total gross loans 0.09% 0.06% 0.41% 0.76%
</TABLE>
13
<PAGE> 16
NON-ACCRUAL AND PAST-DUE LOANS. The following table sets forth information
regarding non-accrual loans, troubled-debt restructurings and REO. There were
three troubled-debt restructured loans within the meaning of SFAS 15, ACCOUNTING
BY DEBTORS AND CREDITORS FOR TROUBLED DEBT RESTRUCTURINGS, and 10 REO properties
at June 30, 1998. It is the policy of the Association to cease accruing interest
on loans 90 days or more past due. For the years ended June 30, 1998, 1997,
1996, 1995 and 1994, respectively, the amount of interest income that would have
been recognized on nonaccrual loans if such loans had continued to perform in
accordance with their contractual terms was $101,000, $77,000, $118,000,
$126,000 and $54,000, none of which was recognized. For the same periods, the
amount of interest income recognized on troubled debt restructurings was
$55,000, $55,000, $58,000, $55,000 and $16,000, respectively.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------
1998 1997 1996 1995 1994
-------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate:
One- to four-family $ 1,215 $ 1,699 $ 821 $ 1,507 $ 1,115
Multi-family 570 - 473 - -
Construction and land - - - 415 -
Commercial - - 668 - -
Consumer 126 - - - -
-------- --------- -------- -------- --------
Total 1,911 1,699 1,962 1,922 1,115
REO, net(3) 1,902 1,150 1,489 822 1,005
-------- --------- -------- -------- --------
Total non-performing assets $ 3,813 $ 2,849 $ 3,451 $ 2,744 $ 2,120
======== ========= ======== ========= ========
Restructured loans $ 761 $ 771 $ 1,130 $ 1,545 $ 470
======== ========= ======== ========= ========
Allowance for estimated loan
losses as a percent of gross
loans receivable(1) 0.48% 0.44% 0.41% 0.36% 0.27%
Allowance for estimated loan
losses as a percent of total
non-performing loans(2) 74.56% 74.34% 53.92% 41.21% 50.40%
Non-performing loans as a percent
of gross loans receivable(1)(2) 0.64% 0.59% 0.76% 0.88% 0.54%
Non-performing assets as a percent
of total Company assets(2) 0.93% 0.70% 1.03% 1.00% 0.83%
</TABLE>
- ------------------------------
(1) Gross loans includes loans receivable held for investment and loans
receivable held for sale, less undisbursed loan funds, deferred loan fees
and unamortized premiums and discounts.
(2) Non-performing assets consist of non-performing loans and REO.
Non-performing loans consist of non-accrual loans.
(3) REO balances are shown net of related loss allowances.
14
<PAGE> 17
ALLOWANCE FOR ESTIMATED LOAN LOSSES. The allowance for estimated loan
losses is established through a provision for loan losses based on management's
evaluation of the risks inherent in its loan portfolio and the general economy.
The allowance for loan losses is maintained at an amount management considers
adequate to cover estimated losses in loans receivable which are deemed probable
and estimable. The allowance is based upon a number of factors, including
current economic conditions, actual loss experience and industry trends. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Association's allowance for estimated loan
losses. Such agencies may require the Association to make additional provisions
for estimated loan losses based upon judgments different from those of
management. As of June 30, 1998, the Association's allowance for estimated loan
losses was 0.48% of gross loans as compared to 0.44% as of June 30, 1997. The
Association had non-accrual loans of $1.9 million and $1.7 million at June 30,
1998 and June 30, 1997, respectively. The Association will continue to monitor
and modify its allowances for loan losses as conditions dictate.
The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual principal and interest payments under
the terms of the loan agreement. Loans are evaluated for impairment as part of
the Company's normal internal asset review process. The Company evaluates all
loans in its portfolio on an individual basis with the exception of one- to
four-family residential mortgage loans and consumer lines of credit which are
evaluated on a collective basis. Also, loans which have delays in payments of
less than four months are not necessarily considered impaired unless other
factors apply to the loans. The accrual of interest income on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When the interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Where impairment is considered
permanent, a charge-off is recorded; where impairment is considered temporary,
an allowance is established. Impaired loans, which are performing under the
contractual terms, are reported as performing loans, and cash payments are
allocated to principal and interest in accordance with the terms of the loan.
At June 30, 1998, the Company had classified $569,000 of its loans as
impaired with $100,000 in specific reserves as determined in accordance with
SFAS No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended by
SFAS No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME
RECOGNITION AND DISCLOSURES. At June 30, 1997, the Company had classified
$530,000 of its loans as impaired with $100,000 in specific reserves. In
addition, the Company has $1.3 million and $1.7 million at June 30, 1998 and
1997, respectively, in impaired loans which were collectively evaluated for
impairment with no specific reserves set aside. The average recorded investment
in impaired loans, inclusive of those evaluated collectively, during the years
ended June 30, 1998, 1997, and 1996 was approximately $2.9 million, $1.6
million, and $2.4 million, respectively. Interest income on impaired loans of
$28,000, $28,000, and $31,000 was recognized for cash payments received in the
years ended June 30, 1998, 1997, and 1996.
15
<PAGE> 18
<TABLE>
<CAPTION>
The following table sets forth activity in the Association's allowance for
estimated loan losses for the periods set forth in the table.
AT OR FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,263 $ 1,058 $ 792 $ 562 $ 472
Provision for (recapture of)
estimated loan losses 735 557 575 483 95
Charge-offs:
Real Estate:
One- to four-family (545) (343) (299) (247) -
Multi-family - - - - -
Commercial - - - - -
Construction and land - - - - -
Consumer (28) (9) (11) (11) (10)
------- -------- -------- -------- --------
Total (573) (352) (310) (258) (10)
Recoveries - - 1 5 5
------- -------- -------- -------- --------
Balance at end of period $ 1,425 $ 1,263 $ 1,058 $ 792 $ 562
======== ======== ===-==== ======== ========
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
The following table sets forth the Association's percent of allowance for
estimated loan losses to total allowance for estimated loan losses and the
percent of loans to total loans in each of the categories listed at the dates
indicated.
AT JUNE 30,
------------------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------- ----------------------------------- -----------------------------------
Percent of Percent of Percent of
Percent of Loans in Percent of Loans in Percent of Loans in
Allowance Each Allowance Each Allowance Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
-------- ----------- ------------- -------- --------- --------------- -------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to
four-family $ 616 43.23% 85.04% $ 994 78.70% 87.29% $ 696 65.79% 87.82%
Multi-family 397 27.86 9.93 164 12.99 9.50 195 18.43 8.40
Commercial 89 6.25 4.00 95 7.52 3.02 153 14.46 3.61
Construction
and land - 0.00 0.00 - 0.00 0.00 - 0.00 0.00
Consumer 162 11.37 3.03 10 0.79 0.19 14 1.32 0.17
Unallocated 161 11.29 - - - - - - -
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total $ 1,425 100.00% 100.00% $ 1,263 100.00% 100.00% $ 1,058 100.00% 100.00%
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------------------------------------
1995 1995
---------------------------------- -----------------------------------
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Each Allowance Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
-------- ----------- ------------- -------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to
four family $ 466 58.84% 85.82% $ 359 63.88% 85.00%
Multi-family 105 13.26 9.34 88 15.66 9.68
Commercial 166 20.96 4.37 96 17.08 4.69
Construction
and land 42 5.30 0.19 7 1.25 0.32
Consumer 13 1.64 0.28 12 2.13 0.31
Unallocated - - - - - -
-------- -------- ------- -------- ------- -------
Total $ 792 100.00% 100.00% $ 562 100.00% 100.00%
======== ======== ======= ======== ======= =======
</TABLE>
17
<PAGE> 20
REAL ESTATE OWNED. At June 30, 1998, the Association had $1,902,000 of
REO, net of reserves as compared to $1,150,000 of REO, net of reserves at June
30, 1997. The $752,000 increase was due primarily to the foreclosure of higher
average balance REOs during the year ended June 30, 1998. If the Association
acquires any REO, it is initially recorded at the lower of the recorded
investment in the loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further deterioration
in value, the Association provides for a specific valuation allowance and
charges operations for the diminution in value. It is the policy of the
Association to obtain an appraisal on all real estate acquired through
foreclosure at the time of possession.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual fund whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Association must maintain minimum
levels of investments that qualify as liquid assets under OTS regulations. See
"Regulation - Federal Savings Institution Regulation - Liquidity." Historically,
the Association has maintained liquid assets above the minimum OTS requirements
and at a level considered to be adequate to meet its normal daily activities.
The investment policy of the Company as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk, and
complement the Company's lending activities. Specifically, the Company's
policies generally limit investments to government and federal agency-backed
securities and other non-government guaranteed securities, including corporate
debt obligations, that are investment grade. The Company's policies provide the
authority to invest in marketable equity securities meeting the Company's
guidelines and in mortgage-backed securities guaranteed by the U.S. government
and agencies thereof and other financial institutions. The Company's policies
provide that all investment purchases must be approved by two officers (either a
Senior Vice President, Executive Vice President or the President) and be
ratified by the Board of Directors. At June 30, 1998, the Company had federal
funds sold and other short-term investments, investment securities and
mortgage-backed securities in the aggregate amount of $94.7 million with a
market value of $94.9 million.
At June 30, 1998, the Company had $19.2 million in investment securities
consisting primarily of U.S. agency securities and investments in an adjustable
rate mortgage-backed mutual fund and a money market fund investing in short-term
securities. At June 30, 1998, the majority of the Company's $59.3 million of
mortgage-backed securities were insured or guaranteed by either FNMA, GNMA or
FHLMC, including $29.4 million in mortgage-backed securities available for sale.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security which
may require adjustments to the amortization of any premium or accretion of any
discount relating to
18
<PAGE> 21
such instruments thereby reducing the net yield on such securities. There is
also reinvestment risk associated with the cash flows from such securities. In
addition, the market value of such securities may be adversely affected by
changes in interest rates.
<TABLE>
<CAPTION>
The following table sets forth the composition of the Company's
mortgage-backed securities portfolio in dollar amounts and in percentages of the
portfolio at the dates indicated.
At June 30,
---------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FHLMC $ 11,163 19.16% $ 29,236 39.00% $ 15,693 36.07%
FNMA 7,118 12.22 13,449 17.94 9,004 20.69
GNMA 38,106 65.42 29,213 38.97 15,175 34.88
Other 1,863 3.20 3,061 4.09 3,636 8.36
---------- ------- --------- ------- ---------- -------
Total mortgage-backed securities 58,250 100.00% 74,959 100.00% 43,508 100.00%
======= ======= =======
Plus:
Unamortized premium, net 1,069 1,277 807
---------- --------- ---------
Total mortgage-backed securities,
net 59,319 76,236 44,315
Less:
Mortgage-backed securities available
for sale:
FHLMC 5,311 21,908 3,923
FNMA 7,965 13,445 10,592
GNMA 15,050 - -
Other 1,057 1,811 2,099
---------- --------- ---------
Mortgage-backed securities
available for sale 29,383 37,164 16,614
Mortgage-backed securities
held to maturity $ 29,936 $ 39,072 $ 27,701
========== ========= =========
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
The following table sets forth the Company's mortgage-backed securities
activities for the periods indicated:
FOR THE YEAR ENDED JUNE 30,
-------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance $ 76,236 $ 44,315 $ 19,349
Mortgage-backed securities purchased - held to-maturity - 15,451 21,116
Mortgage-backed securities purchased - available for sale 15,281 35,229 11,914
Less:
Principal repayments (15,510) (8,935) (7,647)
Sale of mortgage-backed securities available for sale (16,566) (9,866) -
Gain on sale of mortgage-backed securities 33 161 -
Amortization of premium/(discount), net (311) (209) (228)
Change in net unrealized gain (loss) on available for sale 156 90 (189)
--------- --------- ---------
Ending balance $ 59,319 $ 76,236 $ 44,315
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the carrying
and market value of the Company's mortgage-backed securities at the dates
indicated:
AT JUNE 30,
--------------------------------------------------------------------
1998 1997 1996
-------------------- --------------------- ---------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------- --------- ---------- ---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Held to maturity:
FNMA $ 106 $ 109 $ 208 $ 211 $ 287 $ 295
FHLMC 5,178 5,187 7,745 7,715 10,426 10,361
GNMA 23,829 23,973 29,842 29,575 15,420 14,903
Other 823 820 1,277 1,282 1,568 1,565
--------- --------- --------- --------- ---------- ---------
Total held to maturity 29,936 30,089 39,072 38,783 27,701 27,124
--------- --------- --------- --------- ---------- ---------
Available for sale:
FNMA 7,965 7,965 13,445 13,445 10,592 10,592
FHLMC 5,311 5,311 21,908 21,908 3,923 3,923
GNMA 15,050 15,050 - - - -
Other 1,057 1,057 1,811 1,811 2,099 2,099
--------- --------- --------- --------- ---------- ---------
Total available for sale 29,383 29,383 37,164 37,164 16,614 16,614
--------- --------- --------- --------- ---------- ---------
Total mortgage-backed
securities $ 59,319 $ 59,472 $ 76,236 $ 75,947 $ 44,315 $ 43,738
========= ========= ========= ========= ========= ==========
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the carrying
and market values of the Company's federal funds sold and other short-term
investments and investment securities at the dates indicated:
AT JUNE 30,
-----------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----------- --------- ----------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and other
short-term investments $ 16,202 $ 16,202 $ 18,600 $ 18,600 $ 4,025 $ 4,025
Investment securities:
Held to maturity:
U.S. government and federal agency
obligations - - - - - -
--------- --------- --------- --------- --------- ---------
Available for sale:
U.S. government and federal agency
obligations 8,239 8,239 9,473 9,473 5,928 5,928
Mutual and money market fundes 10,982 10,982 2,994 2,994 8,976 8,976
--------- --------- --------- --------- --------- ---------
Total available for sale 19,221 19,221 12,467 12,467 14,904 14,904
--------- --------- --------- --------- --------- ---------
Total investment securities $ 35,423 $ 35,423 $ 31,067 $ 31,067 $ 18,929 $ 18,929
========= ========= ========= ========= ========= =========
</TABLE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Company's
federal funds sold and other short-term investments, investment securities and
mortgage-backed securities as of June 30, 1998.
21
<PAGE> 24
<TABLE>
<CAPTION>
At June 30, 1998
--------------------------------------------------------------------------------------------------
More than One Year More than Five Years
One Year or Less to Five Years to Ten Years More than Ten Years Total
------------------ ------------------- -------------------- -------------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------- -------- --------- --------- -------- ---------- -------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold and
other short-term investments $ 16,202 5.69% $ - 0.00% $ - 0.00% $ - 0.00% $ 16,202 5.69%
========= ======== ========= ======== =========
Investment securities:
Held to maturity:
U.S. government and
federal agency
Obligations $ - 0.00% $ - 0.00% $ - 0.00% $ - 0.00% $ - 0.00%
========= ======== ========= ======== =========
Total held to maturity - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%
--------- -------- --------- -------- ---------
Available for sale:
Money market funds and
adjustable rate mutual
funds 10,982 5.61% - 0.00% - 0.00% - 0.00% 10,982 5.61%
U.S. government and
federal agency obligations - 0.00% 7,982 6.22% - 0.00% - 0.00% 7,982 6.22%
Other - 0.00% - 0.00% - 0.00% 257 9.75% 257 9.75%
--------- -------- --------- -------- ---------
Total available for sale 10,982 5.61% 7,982 6.22% - 0.00% 257 9.75% 19,221 5.92%
--------- -------- --------- -------- ---------
Total investment securities 10,982 5.61% 7,982 6.22% - 0.00% 257 9.75% 19,221 5.92%
========= ======== ========= ======== =========
Mortgage-backed securities:
Held to maturity:
FNMA - 0.00% 106 8.50% - 0.00% - 0.00% 106 8.50%
FHLMC - 0.00% 1,994 7.12% 1,974 5.90% 1,210 4.82% 5,178 6.12%
GNMA - 0.00% - 0.00% - 0.00% 23,829 6.73% 23,829 6.73%
Other - 0.00% - 0.00% - 0.00% 823 5.72% 823 5.72%
--------- -------- --------- -------- ---------
Total held to maturity - 0.00% 2,100 7.19% 1,974 5.90% 25,862 6.61% 29,936 6.60%
--------- -------- --------- -------- ---------
Available for sale:
FNMA 862 6.51% - 0.00% 6,150 6.23% 954 5.81% 7,966 6.21%
FHLMC 1,035 5.14% 281 6.84% 3,898 6.27% 96 8.89% 5,310 6.13%
GNMA - 0.00% - 0.00% - 0.00% 15,050 6.53% 15,050 6.53%
Other - 0.00% - 0.00% - 0.00% 1,057 7.14% 1,057 7.14%
--------- -------- --------- -------- ---------
Total available for sale 1,897 5.76% 281 6.84% 10,048 6.25% 17,157 6.54% 29,383 6.39%
--------- -------- --------- -------- ---------
Total mortgage-backed
securities $ 1,897 5.76% $2,381 7.15% $12,022 6.19% $ 43,019 6.58% $ 59,319 6.50%
========= ======== ========= ======== =========
</TABLE>
22
<PAGE> 25
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments, proceeds from sales of
loans, cash flows generated from operations and FHLB advances are primary
sources of the Association's funds for use in lending, investing and for other
general purposes.
DEPOSITS. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
passbook savings, NOW accounts, checking accounts, money market accounts and
certificates of deposit. For the year ended June 30, 1998, certificates of
deposit constituted 77.1% of total average deposits. The flow of deposits is
influenced significantly by general economic conditions, changes in money market
rates, prevailing interest rates and competition. The Association's deposits are
obtained predominantly from the areas in which its branch offices are located.
During the year ended June 30, 1997, the Association acquired $20.2 million in
deposits from another institution. The Association relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Association's ability to attract
and retain deposits. Certificate accounts in excess of $100,000 are not actively
solicited by the Association nor has the Association since 1992 used brokers to
obtain deposits.
<TABLE>
<CAPTION>
The following table presents the deposit activity of the Association for
the periods indicated:
For the Year Ended June 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net deposits (withdrawals) $ (5,429) $ 23,345 $ 20,852
Deposits acquired by branch purchase - 20,159 -
Interest credited on deposit accounts 12,371 10,796 8,923
---------- ---------- -----------
Total increase (decrease) in deposit accounts $ 6,942 $ 54,300 $ 29,775
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998, the Association had $57.3 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
Weighted
Maturity Period Amount Average Rate
- ------------------------------------ ------------ ---------------
(Dollars in thousands)
<S> <C> <C>
Three months or less $ 11,036 5.25%
Over three through six months 17,045 5.59%
Over six through 12 months 22,296 5.47%
Over 12 months 6,908 5.90%
------------ ---------------
Total $ 57,285 5.51%
============ ===============
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
The following table sets forth the distribution of the Association's
average deposit accounts for the periods indicated and the weighted average
interest rates on each category of deposits presented.
For the Year Ended June 30,
-----------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Yield Balance Deposits Yield Balance Deposits Yield
---------- ---------- -------- -------- ---------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market savings account $ 31,291 10.7% 4.37% $ 13,334 5.2% 3.70% $ 7,473 3.5% 2.21%
Passbook accounts 18,516 6.3 2.04 17,432 6.7 2.00 18,108 8.4 2.04
NOW accounts 21,171 7.3 1.46 20,249 7.8 1.38 20,299 9.4 1.68
Non interest-bearing accounts 7,879 2.7 0.00 3,998 1.6 0.00 3,905 1.8 0.00
---------- ---------- -------- -------- ---------- -------- ------- --------- --------
Total 78,857 27.0% 2.60% 55,013 21.3% 2.04% 49,785 23.1% 1.43%
---------- ---------- -------- -------- ---------- -------- ------- --------- --------
Certificate accounts:
Less than six months 9,941 3.4% 4.28% 14,487 5.6% 4.09% 15,016 7.0% 4.70%
Over six through 12 months 46,615 16.0 5.27 54,112 20.9 5.45 41,471 19.3 5.34
Over 12 through 24 months 126,606 43.4 5.54 99,151 38.3 5.49 71,393 33.1 5.67
Over 24 months 29,144 10.0 5.80 34,987 13.5 5.77 35,172 16.3 5.93
Certificates over $98,000 438 0.2 5.19 1,007 0.4 5.26 2,625 1.2 5.47
---------- ---------- -------- -------- ---------- -------- ------- --------- --------
Total certificate accounts 212,744 73.0% 5.44% 203,744 78.7% 5.44% 165,677 76.9% 5.55%
---------- ---------- -------- ---------- ------- ---------
Total average deposits $291,601 100.0% 4.67% $258,757 100.0% 4.71% $215,462 100.0% 4.60%
========== ========== ======== ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at June 30, 1998.
Period to Maturity from June 30, 1998 At June 30,
------------------------------------------------------------- --------------------------------------
Less than One to Two to Three to Four to
One Year Two years Three years Four years Five years 1998 1997 1996
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00% $ 3,946 $ - $ - $ - $ - $ 3,946 $ - $ 33
4.01 to 5.00% 34,163 49 - - - 34,212 25,557 41,779
5.01 to 6.00% 119,111 14,368 2,895 2,822 2,532 141,728 176,487 125,492
6.01 to 7.00% 12,429 4,521 423 1,358 461 19,192 19,748 16,210
7.01 to 8.00% 163 75 136 - - 374 604 2,527
8.01 to 9.00% - - - - - - - -
Over 9.01% - - - - - - - -
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
Total $ 169,812 $ 19,013 $ 3,454 $ 4,180 $ 2,993 $ 199,452 $ 222,396 $ 186,041
========== =========== =========== ========== ========== =========== =========== ==========
</TABLE>
24
<PAGE> 27
BORROWINGS
From time to time the Association has obtained advances from the FHLB as
an alternative to retail deposit funds and may do so in the future as part of
its operating strategy. FHLB advances may also be used to acquire certain other
assets as may be deemed appropriate for investment purposes. These advances are
collateralized primarily by certain of the Association's mortgage loans and
mortgage-backed securities and secondarily by the Association's investment in
capital stock of the FHLB. See " Regulation - Federal Home Loan Bank System."
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The maximum amount that
the FHLB will advance to member institutions, including the Association,
fluctuates from time to time in accordance with the policies of the OTS and the
FHLB. During the year ended June 30, 1998, the Association repaid approximately
$12.4 million in FHLB advances. At June 30, 1998, the Association had $70.5
million in outstanding advances from the FHLB.
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the
Association's borrowed funds from the FHLB at or for the periods ended on the
dates indicated:
At or For the Years Ended June 30,
-----------------------------------------------
1998 1997 1996
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding $ 72,722 $ 73,513 $ 49,419
Maximum amount outstanding at
any month-end during the period 75,876 78,172 74,115
Balance outstanding at end of period 70,543 77,907 67,509
Weighted average interest rate
during the period 6.28% 6.25% 6.50%
Weighted average interest rate at
end of period 6.21% 6.27% 6.23%
</TABLE>
As part of its funding strategy, the Company may obtain funds from
approved securities dealers through securities sold under agreements to
repurchase. The collateral used in such borrowings is normally agency securities
or mortgage-backed securities. At June 30, 1998, the Company had $6.0 million
outstanding of such borrowings. During the year ended June 30, 1998, the Company
repaid approximately $3,430,000 of such borrowings.
25
<PAGE> 28
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the
Association's borrowed funds from securities sold under agreements to repurchase
at or for the periods ended on the dates indicated:
At or For the Years Ended June 30,
-------------------------------------------
1998 1997 1996
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase
Average balance outstanding $ 6,528 $ 8,729 N/A
Maximum amount outstanding at
any month-end during the period 9,450 9,600 N/A
Balance outstanding at end of period 6,000 9,430 N/A
Weighted average interest rate during the period 6.04% 5.93% N/A
Weighted average interest rate at end of period 6.05% 5.95% N/A
</TABLE>
SUBSIDIARY ACTIVITIES
First Covina Service Company, a wholly-owned subsidiary of the
Association, acts as trustee for deeds of trust on behalf of the Association and
offers non-insured investment products such as tax-deferred annuities and mutual
funds through licensed representatives. The assets of First Covina primarily
consist of a $625,000 loan to the Association. Other than interest on the note
to the Association, First Covina Service Company earns commissions on the sale
of tax-deferred annuities and mutual funds
PERSONNEL
As of June 30, 1998, the Company had 73 full-time employees and 28
part-time employees. The employees are not represented by a collective
bargaining unit and the Company considers its relationship with its employees to
be good.
26
<PAGE> 29
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the
activities of savings institutions, such as the Association, are governed by the
HOLA and the Federal Deposit Insurance Act ("FDI Act").
The Association is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
insurer of its deposits. The Association is a member of the Federal Home Loan
Bank ("FHLB") System and its deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund ("SAIF") managed by the FDIC.
The Association must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition t obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Association's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress could have a material adverse impact on the Company, the
Association and their operations. Certain of the regulatory requirements
applicable to the Association and to the Company are referred to below or
elsewhere herein. The description of statutory provisions and regulations
applicable to savings institutions and their holding companies set forth herein
does not purport to be a complete description of such statutes and regulations
and their effects on the Association and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally will not be restricted under existing laws as to the types
of business activities in which it may engage, provided that the Association
continues to be a qualified thrift lender ("QTL"). Upon any non-supervisory
acquisition by the Company of another savings institution or savings bank that
meets the QTL test and is deemed to b a savings institution by the OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(C)(8) of the Bank Holding
Company Act ("BHC Act"), subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation and no multiple savings and loan holding
company may acquire more than 5% of the voting stock of a company engaged in
impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding
27
<PAGE> 30
companies to acquire savings institutions, the OTS must consider the financial
and managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (I) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which the permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions, as described below. The Association must notify the OTS 30
days before declaring any dividend to the Company. In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the CAMEL financial
institution rating system), and, together with the risk-based capital standard
itself, a 4% Tier I risk-based capital standard. Core capital is defined as
common stockholder's equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
purchased mortgage servicing rights and credit card relationships. The OTS
regulations also require that, in meeting the leverage ratio, tangible and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities not permissible for a national
bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset. The components of Tier I (core)
capital are equivalent to those discussed above. The components of supplementary
capital currently include cumulative preferred stock, long-term perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock and the allowance for loan and lease losses limited
to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (I.E., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts)
28
<PAGE> 31
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
institution's assets. In calculating its total capital under the risk-based
capital rule, a savings institution whose measured interest rate risk exposure
exceeds 2% must deduct an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the institution's assets. The Director of the OTS may waive or
defer a savings institution's interest rate risk component on a case-by-case
basis. A savings institution with assets of less than $300 million and
risk-based capital ratios in excess of 12% is not subject to the interest rate
risk component, unless the OTS determines otherwise. For the present time, the
OTS has deferred implementation of the interest rate risk component. At June 30,
1998, the Association met each of its capital requirements and it is anticipated
that the Association will not be subject to the interest rate risk component.
<TABLE>
<CAPTION>
Excess Capital(1)
--------------------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $ 27,930 $ 6,117 $ 21,813 6.86% 1.50%
Core (Leverage) 27,930 12,222 15,708 6.86 3.00
Risk-based 29,255 15,520 13,735 15.08 8.00
</TABLE>
- ------------------
(1) Although the OTS capital regulations require savings institutions to meet
a 1.5% tangible capital ratio and a 3% leverage (core) capital ratio, the
prompt corrective action standards discussed below also establish, in
effect, a minimum 2% tangible capital standard, a 4% leverage (core)
capital ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier I risk-based capital
standard.
29
<PAGE> 32
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
that has a ratio of total capital to risk-weighted assets of less than 8%, a
ratio of Tier I (core) capital to risk-weighted assets of less than 4% or a
ratio of core capital to total assets of less than 4% (3% or less for
institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier I risk-based capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Association are presently
insured by the SAIF. Both the SAIF and the Bank Insurance Fund ("BIF"), (the
deposit insurance fund that covers most commercial bank deposits), are
statutorily required to be recapitalized to a 1.25% of insured reserve deposits
ratio. Until recently, members of the SAIF and BIF were paying average deposit
insurance premiums of between 24 and 25 basis points. The BIF met the required
reserve in 1995, whereas the SAIF was not expected to meet or exceed the
required level until 2002 at the earliest. This situation was primarily due to
the statutory requirement that SAIF members make payments on bonds issued in the
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately
adopted a new assessment rate schedule of from 0 to 27 basis points under which
92% of BIF members paid an annual premium of only $2,000. With respect to SAIF
member institutions, the FDIC adopted a final rule retaining the previously
existing assessment rate schedule applicable to SAIF member institutions of 23
to 31 basis points. As long as the premium differential continued, it may have
had adverse consequences for SAIF members including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Association, were placed at a substantial competitive
disadvantage to BIF members with respect to pricing of loans and deposits and
the ability to achieve lower operating costs.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment of SAIF member institutions, including the Association, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996. The special assessment was recognized as an
expense in the quarter ended September 30, 1996, and is generally tax
deductible. The Association took a pre-tax charge of $1.3 million as a result of
the FDIC special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits were assessed for a FICO payment of approximately 1.3
basis points, while SAIF deposits pay approximately 6.4 basis
30
<PAGE> 33
points on the FICO bonds. Full pro rata sharing of the FICO payments between BIF
and SAIF members will occur on the earlier of January 1, 2000, or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999, provided no savings associations remain as of that
time.
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. SAIF members will also continue to make the
FICO payments described above. The FDIC also lowered the SAIF assessment
schedule for the third quarter of 1997 to 18 to 27 basis points. Management
cannot predict the level of FDIC insurance assessments on an on-going basis,
whether the savings association charter will be eliminated or whether the BIF
and SAIF will eventually be merged.
The Association's assessment rate for fiscal 1998 ranged from 6.1 to 6.4
basis points and the premium paid for this period was $180,000. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Association.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Association does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION. The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings associations as
of that date. That legislation also required that the Department of Treasury
submit a report to Congress that makes recommendations regarding a common
financial institutions charter, including whether the separate charter for
thrifts and banks should be abolished. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date under some bills, or they would automatically become
national banks. Under the same proposals, converted federal thrifts would
generally be required to conform their activities to those permitted for the
charter selected and divestiture of nonconforming assets would be required over
a two year period, subject to two possible one year extensions. State chartered
thrifts would become subject to the same federal regulation as applies to state
commercial banks. A more recent bill passed by the House Banking Committee would
not affect the federal thrift charter, but would subject unitary savings and
loan holding companies to the same activity restrictions applicable to multiple
savings and loan holding companies. Unitary savings and loan holding companies
existing on or applied for by March 31, 1998 would be grandfathered. The
Association is unable to predict whether such legislation would be enacted or
the extent to which the legislation would restrict or disrupt its operations.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At June 30, 1998,
the Association's limit on loans to one borrower was $4.2 million. At June 30,
1998, the Association's largest aggregate outstanding balance of loans to one
borrower totaled $1.5 million. All loans to this borrower were current.
31
<PAGE> 34
QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings and loan association is required to maintain at least
65% of its "portfolio assets" (total assets less (I) specified liquid assets up
to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed securities) in at least 9 months out of each 12 month
period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As of
June 30, 1998, the Association maintained 94.0% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test. Recent
legislation has expanded the extent to which education loans, credit card loans
and small business loans may be considered "qualified thrift investments."
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier I Association") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice but
without obtaining approval of the OTS, make capital distributions during a
calendar year equal to the greater of (I) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year or (ii) 75% of its net
income for the previous four quarters. Any additional capital distributions
would require prior regulatory approval. In the event the Association's capital
fell below its regulatory requirements or the OTS notified it that it was in
need of more than normal supervision, the Association's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. In December 1994, the OTS proposed
amendments to its capital distribution regulation that would generally authorize
the payment of capital distributions without OTS approval provided that the
payment does not cause the institution to be undercapitalized within the meaning
of the prompt corrective action regulation. However, institutions in a holding
company structure would still have a prior notice requirement. At March 31,
1997, the Association was a Tier I Bank.
LIQUIDITY. The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4% but may be changed from
time to time by the OTS to any amount within the range of 4% to 10% depending
upon economic conditions and the savings flows of member institutions. The OTS
has recently lowered the liquidity requirement from 5% to 4% and eliminated the
1% short term liquid asset requirement. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Association's liquidity ratio
for June 30, 1998 was 22.33%, which exceeded the then applicable requirements.
The Association has never been subject to monetary penalties for failure to meet
its liquidity requirements.
ASSESSMENTS. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessment, paid on a
semi-annual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Association's
32
<PAGE> 35
latest quarterly thrift financial report. The assessments paid by the
Association for the fiscal year ended June 30, 1998 totaled $98,000.
BRANCHING. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to engage
in transactions with related parties or "affiliates" (E.G., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and 23B
of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
covered transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution's capital and surplus. Certain transactions
with affiliates are required to be secured by collateral in an amount and of a
type described in Section 23A and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B generally provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Recent legislation created an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Association may make to such persons based, in
part, on the Association's capital position and requires certain board approval
procedures to be followed.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and an
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institutions. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit systems; credit underwriting; loan
33
<PAGE> 36
documentation; interest rate exposure; asset growth; and compensation, fees and
benefits. The agencies are expected to adopt a proposed rule that sets forth
asset quality and earnings standards which, if adopted in final, would be added
to the Guidelines. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final rule
establishes a deadline for the submission and review of such safety and
soundness compliance plans when such plans are required.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Association, as a member of the FHLB-San Francisco, is
required to acquire and hold shares of capital stock in that FHLB in an amount
at least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the FHL San Francisco, whichever is greater. The
Association was in compliance with this requirement, with an investment in
FHLB-San Francisco stock at June 30, 1998, of $4.2 million. FHLB advances must
be secured by specified types of collateral and may be obtained primarily for
the purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on
bonds issued to fund the resolution of insolvent thrifts and to contribute funds
for affordable housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members. For the years
ended June 30, 1998, 1997, and 1996, dividends from the FHLB-San Francisco to
the Association amounted to $247,000, $237,000, and $152,000, respectively. If
dividends were reduced, or interest on future FHLB advances increased, the
Association's net interest income might also be reduced.
FEDERAL RESERVE SYSTEM
The regulations of the Board of Governors of the Federal Reserve System
("Federal Reserve Board") require savings institutions to maintain non-interest
earning reserves against their transaction accounts (primarily NOW and regular
checking accounts). The Federal Reserve Board regulations generally require that
reserves be maintained against aggregate transaction accounts as follows: for
accounts aggregating $47.8 million or less (subject to adjustment by the Federal
Reserve Board) the reserve requirement is 3%; and for accounts greater than
$47.8 million, the reserve requirement is $1.29 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $47.8 million. The first $4.7 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Association is in
compliance with the foregoing requirements. The balances maintaine to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the SEC under Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to the periodic reporting requirements, proxy solicitation
rules, insider trading restrictions, tender offer rules and other requirements
under the Exchange Act.
34
<PAGE> 37
The registration under the Securities Act of 1933 (the "Securities Act")
of shares of the Common Stock that were issued in the Association's conversion
from mutual to stock form does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (I) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Shares acquired through the Company's option
plans have been registered under the Securities Act and, therefore, are not
subject to resale restrictions.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Association report their income on a fiscal
year ending June 30 using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company.
BAD DEBT RESERVE. For tax years beginning prior to January 1, 1996,
savings institutions such as the Association which met certain definitional
tests primarily related to their assets and the nature of their business
("qualified institutions") were permitted to establish a reserve for bad debts
("reserve method"). Annual additions to the reserve, within specified formula
limits, may be deducted in arriving at taxable income.
Under the reserve method, qualifying institutions were generally allowed
to use either of two alternative computations: Under the "percentage of taxable
income" method computation, qualifying institutions could claim a bad debt
deduction computed as a percentage of taxable income adjusted for certain items.
Alternatively, a qualifying institution could elect to utilize its own bad debt
loss experience to compute its annual addition to its bad debt reserves (the
"experience method").
Under Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES, savings associations were not required to provide a federal
deferred tax liability for the bad debt reserves that arose in tax years
beginning before January 1, 1988. Such reserves were, however, subject to
recapture in whole or in part upon the occurrence of certain events such as
failure to remain a qualified institution, distributions to shareholders in
excess of the association's current and accumulated earnings and profits, a
redemption of shares, or upon a partial or complete liquidation of the
association. Upon the occurrence of such events, the association would be
required to provide federal deferred taxes in their financial statements for the
recaptured portion of the tax reserve.
Legislation enacted in 1996, repealed the special bad debt rules
applicable to savings associations for taxable years beginning after December
31, 1995. Under these provisions, savings associations will follow the same
rules for purposes of computing allowable bad debt deductions as banks, which
allows an annual addition to the association's bad debt reserve under the
experience
35
<PAGE> 38
method as long as total assets do not exceed $500 million, but does not allow
for an addition based on the percentage of taxable income method.
Under the 1996 Legislation, if a savings association converts to a bank or
is merged into a bank, the association's bad debt reserve will not automatically
be subject to recapture. Recapture of the grandfathered bad debt reserve would
still occur in the event of certain distributions, redemptions or partial
liquidations, as previously discussed. As of June 30, 1998, the Association's
tax bad debt reserve grandfathered under the new law for which federal deferred
taxes have not been provided totale approximately $2.7 million. The Association
does not intend to pay dividends or enter into any other type of transaction as
noted above, that would result in the recapture of any portion of its
grandfathered bad debt reserve.
STATE AND LOCAL TAXATION
STATE OF CALIFORNIA. The California franchise tax rate applicable to the
Association equals the franchise tax rate applicable to corporations generally,
plus an "in lieu" rate approximately equal to personal property taxes and
business license taxes paid by such corporations (but not generally paid by
banks or financial corporations such as the Association); however, the total tax
rate is approximately 10.84%. Under California regulations, bad debt deductions
are available in computing California franchise taxes using a three or six year
weighted average loss experience method. The Association and its California
subsidiary file California state franchise tax returns on a combined basis.
DELAWARE TAXATION. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
36
<PAGE> 39
ITEM 2. PROPERTIES
- ------------------
The Company neither owns nor leases any real property. For the time being,
it utilizes the property and equipment of the association without payment to the
Association.
The Association conducts its business through an administrative and full
service office located in West Covina and seven other full service offices. The
Company believes that the Association's current facilities are adequate to meet
the present and immediately foreseeable needs of the Association and the
Company.
<TABLE>
<CAPTION>
Original Net Book Value
Year of Property or
Leased Leased Date of Leasehold
or or Lease Improvements at
Location Owned Acquired Expiration June 30, 1998
- ------------------------------------ ------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
ADMINISTRATIVE/BRANCH OFFICE:
225 North Barranca Street Owned 1984 - $ 1,402,000
West Covina, California 91791
BRANCH OFFICES:
COVINA:
144 North Second Avenue Owned 1952 - 117,000
Covina, California 91723
HACIENDA HEIGHTS:
2233 South Hacienda Boulevard Owned 1970 - 499,000
Hacienda Heights, California 91745
LA VERNE:
2111 Bonita Avenue Owned 1972 - 188,000
La Verne, California 91750
CITY OF INDUSTRY:
220 North Hacienda Boulevard Leased 1977 9/30/03(1) 1,000
City of Industry, California 91744
ARCADIA:
One East Foothill Boulevard Leased 1986 12/31/05 20,000
Arcadia, California 91006
NORTH LA VERNE:
1413 Foothill Boulevard Leased 1997 1/31/00 12,000
La Verne, California 91750
DUARTE:
1475 East Huntington Drive Leased 1997 6/30/05 50,000
Duarte, California 91010
</TABLE>
(1) THE ASSOCIATION HAS OPTIONS TO EXTEND THE LEASE TERM FOR FOUR CONSECUTIVE
FIVE-YEAR PERIODS.
37
<PAGE> 40
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not involved in any pending legal proceeding other than
routine proceedings occurring in the ordinary course of business, which in the
aggregate are believed by management to be immaterial to the Company's financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The Common Stock of SGV Bancorp, Inc., is traded over-the-counter on the
NASDAQ Stock Market under the symbol "SGVB." To date, the Company has not paid a
dividend to its shareholders. In the future, the Board of Directors may consider
a policy of paying cash dividends on the Common Stock. As of June 30, 1998,
there were 194 holders of record of the Common Stock of the Company (not
including the number of persons holding stock in nominee or street name through
various nominee holders), and 2,348,068 shares outstanding. The following table
sets forth for the quarters indicated the range of high and low bid price
information for the common stock of the Company as reported on the NASDAQ
National Market.
<TABLE>
<CAPTION>
Year Ended June 30, 1998
------------------------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
High 19 18 1/4 19 3/4 17 7/8
Low 17 1/4 16 17 1/8 13 3/4
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
------------------------------------------------------------------
4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
High 14 1/4 13 7/8 11 11/16 9 3/4
Low 11 11 1/8 9 3/8 7 3/4
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY
At June 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets $408,346 $409,340 $336,055 $273,396 $255,410
Investment securities available
for sale 19,221 12,467 14,904 1,000 4,898
Investment securities held to
maturity - - - 3,200 3,200
Mortgage-backed securities
available for sale 29,383 37,164 16,614 3,614 4,140
Mortgage-backed securities
held to maturity 29,936 39,072 27,701 15,735 19,609
Loans receivable held for sale 391 230 723 - -
Loans receivable held for
investment, net(1) 295,739 284,608 255,953 217,399 207,667
Deposit accounts 295,281 288,339 234,039 204,264 200,658
FHLB advances 70,543 77,907 67,509 33,447 37,799
Stockholders' equity, substantially
restricted 32,233 29,903 31,586 33,006 13,581
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $ 29,602 $ 26,700 $ 21,259 $ 17,855 $ 16,971
Interest expense 18,661 17,138 13,304 10,900 9,363
----------- ---------- ---------- ---------- ----------
Net interest income before
provision for estimated loan losses 10,941 9,562 7,955 6,955 7,608
Provision for estimated loan losses 735 557 575 483 95
----------- ---------- ---------- ---------- ----------
Net interest income after provision
for estimated loan losses 10,206 9,005 7,380 6,472 7,513
Other income 1,259 1,218 612 538 447
General and administrative expenses 8,934 8,958 6,966 6,705 6,775
----------- ---------- ---------- ---------- ----------
Earnings before income taxes 2,531 1,265 1,026 305 1,185
Income taxes 1,044 534 432 128 493
----------- ---------- ---------- ---------- ----------
Net earnings $ 1,487 $ 73 $ 594 $ 177 $ 692
=========== ========== ========== ========== ==========
Earnings per share - basic $ 0.63 $ 0.29 $ 0.22 N/A N/A
=========== ========== ========== ========== ==========
Earning per share - diluted $ 0.60 $ 0.29 $ 0.22 N/A N/A
=========== ========== ========== ========== ==========
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
At or for the year ended June 30,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and
Other Data(2):
Performance Ratios:
Return on average assets 0.37% 0.20% 0.20% 0.07% 0.28%
Return on average equity 4.80 2.38 1.81 1.16 5.16
Average equity to average assets 7.62 8.22 11.00 5.86 5.33
Equity to total assets at end of period 7.89 7.31 9.40 12.07 5.32
Average interest rate spread (3) 2.40 2.27 2.28 2.61 3.01
Net interest margin (4) 2.78 2.65 2.76 2.79 3.15
Average interest-earning assets to
average interest-bearing liabilities 108.22 107.98 110.37 103.97 103.81
General and administrative expenses
to average assets (5) 2.19 2.40 2.33 2.58 2.69
REGULATORY CAPITAL RATIOS:
Tangible capital 6.86% 6.34% 7.63% 9.04% 5.31%
Core capital 6.86 6.34 7.63 9.04 5.31
Risk-based capital 15.08 14.43 16.51 18.56 11.03
ASSET QUALITY RATIOS:
Non-performing loans as a percent of
gross loans receivable(6)(7) 0.64% 0.59% 0.76% 0.88% 0.54%
Non-performing assets as a percent
of total assets(7) 0.93 0.70 1.03 1.00 0.83
Allowance for estimated loan losses
as a percent of gross loans
receivable(6) 0.48 0.44 0.41 0.36 0.27
Allowance for estimated loan losses
as a percent of non-performing
loans(7) 74.56 74.34 53.92 41.21 50.40
NUMBER OF FULL-SERVICE CUSTOMER
FACILITIES 8 8 6 6 6
</TABLE>
(1) The allowance for estimated loan losses at June 30, 1998, 1997, 1996, 1995
and 1994 was $1,425,000, $1,263,000, $1,058,000, $792,000, and $562,000,
respectively.
(2) Asset quality ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(3) The average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted average
cost of interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(5) Includes the one-time special assessment to recapitalize SAIF of $1.3
million in 1997.
(6) Gross loans receivable include loans receivable held for investment and
loans held for sale, less undisbursed loan funds, deferred loan fees and
unamortized discounts/premiums.
(7) Non-performing assets consist of non-performing loans and real estate
acquired through foreclosure ("reo"). Non-performing loans consist of all
loans 90 days or more past due. It is the association's policy to cease
accruing interest on all such loans.
40
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Association's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Association's
business focus, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board approved
guidelines. Through such management, the Association seeks to reduce the
vulnerability of its operations to changes in interest rates. The Association
monitors its interest rate risk as such risk relates to its operating
strategies. The Association's Board of Directors has established an
Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets monthly and reports trends
to the Board of Directors on a monthly basis and the Association's interest rate
risk position on a quarterly basis. The extent of the movement of interest
rates, higher or lower, is a uncertainty that could have a negative impact on
the earnings of the Association.
In recent years, the Association has utilized the following strategies to
manage rate risk: (I) emphasizing the origination or purchase of adjustable-rate
one- to four-family mortgage loans for portfolio; (ii) selling to the secondary
market the majority of fixed-rate mortgage loans originated; and, (iii)
attempting to reduce the overall interest rate sensitivity of liabilities
emphasizing core and longer-term deposits and utilizing FHLB advances.
NET PORTFOLIO VALUE. The Association's interest rate sensitivity is
monitored by management through the use of an internally generated model which
estimates the change in net portfolio value ("NPV") over a range of interest
rate scenarios. NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. An NPV Ratio, in any interest rate
scenario, is defined as the NPV in that scenario divided by the market value of
assets in the same scenario. The Sensitivity Measure is the decline in the NPV
Ratio, in basis points, caused by a 2% increase or decrease in rates, whichever
produces a larger decline. The higher an institution's Sensitivity Measure is,
the greater its exposure to interest rate risk is considered to be. The OTS also
produces a similar analysis using its own model, based upon data submitted on
the Association's quarterly Thrift Financial Reports.
As of June 30, 1998, the Association's Sensitivity Measure, as measured by
the OTS, was 1.49%. At that same date, the Sensitivity Measure as measured by
the Association, was 0.96%. The differences between the two measurements is
partially attributed to differences in assigning various prepayment rates, decay
rates and discount rates. The Association compares the results from the OTS with
its internally generated results and provides the Board of Directors a
comparison to determine if there is any additional risk.
In addition to monitoring selected measures of NPV, management also
monitors effects on net interest income resulting from changes in interest
rates. These measures are used in conjunction with NPV measures to identify
potential interest rate risk. The Association projects net interest income for
the next twelve month period, based upon certain specific assumptions. For the
years ended June 30, 1998, 1997 and 1996, the forecasted net interest income in
the existing rate environment (held constant for the period) for interest rate
risk management purposes was $10.2 million, $8.1 million, and $7.3 million,
respectively, compared to the actual net interest income recorded of $10.9
million, $9.6 million, and $8.0 million, respectively.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV requires the making of
certain assumptions which may tend
41
<PAGE> 44
to oversimplify the manner in which actual yields and costs respond to changes
in market interest rates. First, the models assume that the composition of the
Association's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured. Second,
the models assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of duration to maturity or repricing
of specific assets and liabilities. Third, the model does not take into account
the Association's business or strategic plans. Accordingly, although the NPV
measurements and interest income models do provide an indication of the
Association's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provid a precise forecast of the
effect of changes in market interest rates on the Association's net interest
income and will differ from actual results.
The following table sets forth, at June 30, 1998, an analysis of the
Association's internal report of its interest rate risk measured by the
estimated changes in the NPV resulting from instantaneous and sustained parallel
shifts in the yield curve (+/-400 basis points, measured in 100 basis point
increments).
<TABLE>
<CAPTION>
Change in
Interest Rates Net Portfolio Value
In Basis Points ---------------------------------------
(Rate Shock) Change Change
Amount $ %
-------------- ------------ ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
400 $ 24,415 $ (15,696) (39.1)%
300 29,977 (10,133) (25.2)
200 35,258 (4,852) (12.1)
100 38,861 (1,250) (3.1)
-- 40,111 - -
(100) 39,419 (692) (1.7)
(200) 40,939 828 2.1
(300) 40,943 832 2.1
(400) 41,345 1,234 3.1
</TABLE>
42
<PAGE> 45
The following table provides information regarding the Company's primary
categories of assets and liabilities which are sensitive to changes in interest
rates. The information presented reflects the expected cash flows of the primary
categories by year including the related weighted average interest rate. The
cash flows for loans and mortgage-backed securities are based on maturity date
and are adjusted for expected prepayments which are based on historical and
current market information. The loans and mortgage-backed securities which have
adjustable rate features are presented in accordance with their next
interest-repricing date. Cash flow information on interest-bearing liabilities
such as passbooks, NOW accounts and money market accounts also is adjusted for
expected decay rates which are based on historical information. Also, for
purposes of cash flow presentation, premiums or discounts on purchased assets,
mark-to-market adjustments and loans on non-accrual are excluded from the amount
presented. Investment securities are presented as to maturity date as are all
certificates of deposit and borrowings.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter
--------- --------- ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED ASSETS:
Investments and Fed Funds $27,202 $ - $ - $ 8,000 $ - $ -
Average interest rate 5.66% 0.00% 0.00% 6.99% 0.00% 0.00%
Mortgage-backed securities -
fixed-rate 9,543 7,523 5,972 4,964 3,828 16,780
Average interest rate 7.52% 7.50% 7.48% 7.47% 7.45% 7.43%
Mortgage-backed securities -
adjustable rate 8,985 - - - - -
Average interest rate 6.63% 0.00% 0.00% 0.00% 0.00% 0.00%
Loans - fixed rates 14,920 10,974 8,219 15,394 3,467 9,512
Average interest rate 8.18% 8.16% 8.15% 8.39% 8.04% 8.02%
Loans - adjustable rate 226,212 6,531 542 - - -
Average interest rate 7.93% 8.31% 9.16% 0.00% 0.00% 0.00%
SELECTED LIABILITIES:
Interest-bearing NOW
passbook and MMDAs 25,476 16,827 11,638 8,153 5,793 18,282
Average interest rate 3.67% 3.61% 3.46% 3.29% 3.10% 2.32%
Certificates of deposit 169,812 19,013 3,454 4,180 2,993 -
Average interest rate 5.29% 5.60% 5.69% 5.08% 5.58% 0.00%
FHLB advances and securities
sold under agreements to
repurchase 37,733 13,200 4,276 14,252 7,082 -
Average interest rate 6.15% 6.56% 6.05% 6.14% 6.31% 0.00%
</TABLE>
The Company does not have any foreign exchange exposure nor any commodity
exposure and therefore does not have any market risk exposure for these issues.
43
<PAGE> 46
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company
for the fiscal years ended June 30, 1998, 1997 and 1996. The yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average month-end balances. Management does not believe that the use of
average monthly balances instead of average daily balances has caused any
material differences in the information presented. The yields and costs include
fees which are considered adjustments to yields.
Year Ended June 30,
-----------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- --------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- --------- ------- -------- -------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest earning deposits and
short-term investments $ 10,109 $ 609 6.02% $ 7,176 $ 389 5.42% $ 8,491 $ 522 6.15%
Investment securities, net 16,705 1,073 6.42 17,222 1,133 6.58 9,454 601 6.36
Loans receivable 301,984 23,641 7.83 273,469 20,890 7.64 233,356 17,798 7.63
Mortgage-backed securities,
net 60,413 4,032 6.67 59,733 4,051 6.78 33,944 2,186 6.44
FHLB stock 4,130 247 5.98 3,884 237 6.10 3,175 152 4.79
-------- --------- -------- -------- --------- --------
Total interest-earning assets 393,341 $29,602 7.53% 361,484 $26,700 7.39% 288,420 $21,259 7.37%
========= ======== ========
Non-interest-earning assets 13,710 11,773 10,612
-------- -------- ---------
Total assets $407,051 $373,257 $299,032
======== ======== =========
Liabilities and Equity:
Interest-bearing liabilities:
Money market savings
accounts $ 31,291 $ 1,367 4.37% $ 13,334 $ 493 3.70% $ 7,473 $ 166 2.21%
Passbook accounts 18,516 377 2.04 17,432 348 2.00 18,108 370 2.04
NOW accounts 21,171 309 1.46 20,249 280 1.38 20,299 341 1.68
Certificate accounts 212,744 11,574 5.44 203,744 11,074 5.44 165,677 9,194 5.55
--------- --------- -------- -------- --------- --------
Total savings accounts 283,722 13,627 4.80 254,759 12,195 4.79 211,557 10,071 4.76
FHLB advances 72,722 4,615 6.35 73,513 4,569 6.22 49,419 3,212 6.50
Securities sold under
agreements to repurchase 6,528 397 6.08 6,043 349 5.78 - - 0.00
Impounds & other
borrowings 485 22 4.54 443 25 5.64 346 21 6.07
--------- --------- -------- -------- --------- --------
Total interest-bearing
liabilities 363,457 $18,661 5.13% 334,758 $17,138 5.12% 261,322 $13,304 5.09%
========= ======== ========
Non-interest bearing liabilities 12,596 7,821 4,831
--------- -------- ---------
Total liabilities 376,053 342,579 266,153
Equity 30,998 30,678 32,879
--------- -------- ---------
Total liabilities and equity $407,051 $373,257 $299,032
========= ======== =========
Net interest rate spread 2.40% 2.27% 2.28%
Net interest margin 2.78% 2.65% 2.76%
Ratio of interest-earning assets
to interest-bearing liabilities 108.22% 107.98% 110.37%
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (I) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
Year Ended June 30, 1998 Year Ended June 30, 1997
Compared to Compared to
Year Ended June 30, 1997 Year Ended June 30, 1996
---------------------------- ---------------------------
Increase (decrease) due to Increase (decrease) due to
Average Average
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits and
short-term investments $ 173 $ 4 $ 220 $ (75) $ (58) $ (133)
Investment securities, net (1) (33) (27) (60) 510 22 532
Loans receivable, net (1) 2,221 530 2,751 3,069 23 3,092
Mortgage-backed securities,net (1) 44 (63) (19) 1,744 121 1,865
FHLB stock 15 (5) 10 38 47 85
-------- ------- -------- -------- ------- --------
Total interest-earning assets 2,420 482 2,902 5,286 155 5,441
-------- ------- -------- -------- ------- --------
INTEREST-BEARING LIABILITIES:
Money market savings accounts 771 103 874 176 151 327
Passbook accounts 22 7 29 (15) (7) (22)
NOW accounts 13 16 29 (1) (60) (61)
Certificate accounts 500 - 500 2,057 (177) 1,880
FHLB advances (48) 94 46 1,488 (131) 1,357
Securities sold under agreement to
repurchase 29 19 48 349 - 349
Impounds & other borrowings 2 (5) (3) 5 (1) 4
-------- ------- -------- -------- ------- --------
Total interest-bearing liabilities 1,289 234 1,523 4,059 (225) 3,834
-------- ------- -------- -------- ------- --------
Net change in net interest income 1,131 248 1,379 $ 1,227 $ 380 $ 1,607
======== ======= ======== ======== ======== ========
</TABLE>
- ---------------------------
(1) Includes assets available for sale.
45
<PAGE> 48
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30,
1997
GENERAL
The net earnings for the year ended June 30, 1998 were $1,487,000, an
increase of $756,000, or 103.4%, from the $731,000 in net earnings for the year
ended June 30, 1997. The improvement in operating results was due to the
increase in average interest-earning assets which resulted in a $1.4 million net
increase in net interest income. Although the total general and administrative
expenses were relatively unchanged over the two fiscal years, the year ended
June 30, 1998 included higher expenses related to higher staff levels primarily
related to two additional branches for a full year and higher compensation costs
related to stock compensation plans. In regards to the year ended June 30, 1997,
the Association paid a special assessment totaling $1.3 million for the
recapitalization of the insurance fund (SAIF).
INTEREST INCOME
Interest income for the year ended June 30, 1998 was $29.6 million
compared to $26.7 million for the year ended June 30, 1997, an increase of $2.9
million, or 10.9%. The increase in interest income was primarily due to the
increase in average balance of interest-earning assets to $393.3 million for the
year ended June 30, 1998 from $361.5 million for the year ended June 30, 1997.
The increase in the average balance of interest-earning assets was the result of
a continuation of the growth strategy begun in the previous fiscal year to
enhance the Company's earning ability. Key elements of the growth strategy
continued to be the purchase of mortgage loans funded primarily by the growth in
deposits.
Interest income on loans receivable increased $2.8 million to $23.6
million for the year ended June 30, 1998 from $20.9 million for the year ended
June 30, 1997. The increase in interest income was the result of the $28.5
million increase in the average balance of loans receivable for the year ended
June 30, 1998 primarily as a result of the purchase of $40.6 million of
adjustable rate loans from other financial institutions. The loans purchased
were primarily indexed to the Eleventh District Cost of Funds Index (COFI) and
were primarily seasoned, fully-indexed loans. Furthermore, the loans purchased
included $10.6 million in home equity lines of credit with yields in excess or
10%. These home equity lines of credit are considered consumer loans as they
were primarily funded based upon the credit worthiness of the borrower and,
therefore, have more credit risk. The average yield on loans receivable for the
year ended June 30, 1998 was 7.83%, which exceeded the 7.64% yield for loans
receivable fo the year ended June 30, 1997. The increase in the yield on loans
receivable was substantially enhanced with the acquisition of the home equity
lines of credit.
Interest income on mortgage-backed securities for the year ended June 30,
1998 was relatively unchanged at $4.0 million for the year ended June 30, 1998
as compared to $4.1 million for the year ended June 30, 1997. The slight
decrease in interest income was due to the decrease in the average yield to
6.67% for the year ended June 30, 1998 from 6.78% for the year ended June 30,
1997 partially offset by the increase in the average balances to $60.4 million
for the year ended June 30, 1998 from $59.7 million for the year ended June 30,
1997. The decrease in the average yield was primarily due to the increase in
prepayments on the portfolio as a result
46
<PAGE> 49
of the downward trend in interest rates resulting in a faster amortization of
related premiums on purchased securities.
Interest income on investment securities decreased $60,000 to $1.07
million for the year ended June 30, 1998 from $1.13 million for the year ended
June 30, 1997. The increase was primarily due to the $0.5 million decrease in
the average balance of investment securities to $16.7 million for the year ended
June 30, 1998 from $17.2 million for the year ended June 30, 1997 and to the
decrease in the average yield to 6.42% for the year ended June 30, 1998 from
6.58% for the year ended June 30, 1997. Th decrease in yield was primarily due
to the decrease in overall interest rate environment during the year ended June
30, 1998 as compared to June 30, 1997. Interest income on interest-earning
deposits and short-term investments increased by $220,000 to $609,000 for the
year ended June 30, 1998 from $389,000 for the year ended June 30, 1997. The
increase in interest income on interest-earning deposits and daily investments
was due to the increase in the average balance to $10.1 million for the year
ended June 30, 1998 from $7.2 million for the year ended June 30, 1997 and to
the increase in the average yield to 6.02% for the year ended June 30, 1998 from
5.42% for the year ended June 30, 1997.
INTEREST EXPENSE
Interest expense for the year ended June 30, 1998 was $18.7 million
compared to $17.1 million for the year ended June 30, 1997, an increase of $1.6
million, or 9.4%. The increase in interest expense was due to the $28.7 million
increase in the average balances of interest-bearing liabilities to $363.5
million for the year ended June 30, 1998 from $334.7 million for the year ended
June 30, 1997. The Company's overall average cost of interest-bearing
liabilities was virtually unchanged for the year ending June 30, 1998 as
compared to the year ending June 30, 1997. Interest expense on deposit accounts
increased to $13.6 million for the year ended June 30, 1998 from $12.2 million
for the year ended June 30, 1997. The increase in interest expense on deposit
accounts reflects the $28.9 million increase in the average balance of deposit
accounts to $283.7 million for the year ending June 30, 1998 from $254.8 million
for the year ending June 30, 1997 due primarily to the growth in the Company's
money market savings accounts during the current year, the growth of the
deposits in its de novo branch opened on March 31, 1997 and to the deposits from
an office purchased in February 1997 being outstanding for a full year.
The Company's use of borrowed funds, including FHLB advances and
securities sold under agreements to repurchase, was relatively unchanged for the
year ended June 30, 1998 as compared to the year ended June 30, 1997. Interest
expense on borrowings increased slightly to $5.0 million for the year ended June
30, 1998 from $4.9 million for the year ended June 30, 1997. The increase in
interest expense was primarily due to the increase in the average cost of
borrowings to 6.31% for the year ended June 30, 1998 compared to 6.18% for the
year ended June 30, 1997 as a result of the lengthening of the average
maturities of the Company's liabilities.
PROVISION FOR ESTIMATED LOAN LOSSES
The Company's provision for estimated loan losses increased to $735,000
for the year ended June 30, 1998 from $557,000 for the year ended June 30, 1997.
The current year's
47
<PAGE> 50
allowance for estimated loan losses reflects $573,000 in loan charge-offs as
compared to $352,000 for the year ended June 30, 1997. The difference between
the actual amount of charge-offs for the current year and the amount reflected
in the provision represents an allocation for the growth in the consumer loan
portfolio during the year ended June 30, 1998 and management's concerns
regarding the general market conditions. The allowance for estimated loan losses
increased to $1.4 million, or 0.48% of gross loans receivable, at June 30, 1998
from $1.3 million, or 0.44% of gross loans receivable at June 30, 1997. As a
percentage of non-performing loans, the allowance for loan losses increased to
74.56% at June 30, 1998 compared to 74.34% at June 30, 1997. The amount of the
provision and allowance for loan losses is influenced by current economic
conditions, actual loss experience, industry trends and other factors such as
adverse economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Association's allowance for estimated loan losses. Such agencies may require the
Association to recognize additions to the allowance based upon judgments which
differ from those of management. Although management uses the best information
available, future adjustment to the allowance may be necessary due to economic,
operating, regulatory and other conditions that may be beyond management's
control.
OTHER INCOME
Other income for the Company increased to $1.3 million for the year ended
June 30, 1998 compared to $1.2 million for the year ended June 30, 1997, an
increase of $41,000, or 3.4%. The increase in non-interest income was primarily
due to the improvement in the fees related to deposit accounts which increased
to $522,000 for the year ended June 30, 1998 as compared to $306,000 for the
year ended June 30, 1997. The increase in deposit related fees was primarily due
to the continued growth in core deposits (primarily non-interest bearing
checking accounts) which generate higher fee income such as non-sufficient fee
income and fees related to ATM transactions. Income from loan servicing and
related fees increased by $82,000 to $532,000 for the year ended June 30, 1998
as compared to $450,000 for the year ended June 30, 1997. Offsetting these
improvements was the recording of a net loss on real estate owned activity of
$109,000 for the year ended June 30, 1998 as compared to the net gain of
$157,000 for the year ended June 30, 1997. The net gain in the year ended June
30, 1997 was primarily the result of a $344,000 favorable litigation settlement
culminating a settlement process relating to a land development foreclosure
which occurred in 1992. The Company also posted only $45,000 in net gains in
regards to sales of investments and mortgage-backed securities during the year
ended June 30, 1998 as compared to a net gain of $148,000 for the year ended
June 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $1.3 million to $8.9
million for the year ended June 30, 1998 from $7.6 million for the year ended
June 30, 1997 (excluding the $1.3 million one-time special assessment to
recapitalize the SAIF insurance fund paid in the year ended June 30, 1997).
Compensation and other employee benefits increased by $780,000 to $4.9 million
for the year ended June 30, 1998 from $4.1 million for the year ended June 30,
1997. The increase in compensation costs was primarily attributable to the
increase in staff primarily due to the addition of two branches for a full year.
Employee benefits increased as a
48
<PAGE> 51
result of the costs related to the employee stock ownership and the stock
compensation plans which increased to $724,000 for the year ended June 30, 1998
from $472,000 for the year ended June 30, 1997. Equipment and data processing
costs increased to $1.1 million for the year ended June 30, 1998 from $932,000
for the year ended June 30, 1997 primarily related to the addition of two
branches in February and March of 1997. Also, the increase in costs was due to
the replacement of outdated equipment with data processing equipment which is
Year 2000 ready. The regular insurance assessments paid to the FDIC decreased to
$180,000 for the year ended June 30, 1998 from $313,000 for the year ended June
30, 1997 as a result of the lowering of the assessment rate as of January 1,
1997, following the recapitalization of SAIF.
INCOME TAX
Income tax expense was $1.0 million for the year ended June 30, 1998
compared to $534,000 for the year ended June 30, 1997, representing an increase
of $510,000. This increase is principally due to the increase in taxable income
in fiscal 1998 as compared to fiscal 1997. See Note 11 of the Notes to the
Consolidated Financial Statements for additional information on the Company's
income taxes.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND JUNE 30, 1997
The Company's total assets decreased slightly to $408.3 million at June
30, 1998 from $409.3 million at June 30, 1997, a decrease of $1.0 million
primarily due to decreases in the Association's mortgage-backed securities,
which were partially offset by increases in the Association's loans receivable.
During the year, the Company increased its loans receivable held for investment
by $11.1 million to $295.7 million at June 30, 1998 from $284.6 million at June
30, 1997 primarily as a result of the $40.6 million in loans purchased
throughout the year. All of the loans purchased were adjustable rate mortgage
loans primarily indexed to COFI, with $10.6 million in home equity lines of
credit which are considered consumer loans as they are underwritten primarily on
the credit worthiness of the individual. These loans have a significantly higher
yield, in excess of 10%, but also have a higher credit risk profile. The
Association recognizes this higher credit risk and has assigned a higher general
allowance loss factor to them. To date, these loans have generally performed as
expected. The properties securing all loans purchased are located primarily in
southern California, but are dispersed throughout a wider area than the
Company's normal lending area. Although the Company originated and purchased a
total of $75.1 million in loans for portfolio during the year ended June 30,
1998, the increase in prepayments from lower interest rates significantly
reduced the ability to increase the Company's loan portfolio. During the year
ended June 30, 1998, the Company experienced an 84% increase in prepayments to
$61.0 million as compared to $33.2 million for the year ended June 30, 1997.
The Company's investment in mortgage-backed securities decreased to $59.3
million at June 30, 1998 from $76.2 million at June 30, 1997. The decrease in
this portfolio was primarily the result of the increase in prepayments, to $15.5
million for the year, and the sale of approximately $16.4 million in securities
used to fund the increase in the loan portfolio. Investment securities available
for sale increased to $19.2 million at June 30, 1998 from $12.5 million at June
30, 1997 due primarily to the additional cash generated by the substantial
49
<PAGE> 52
increase in prepayments related to the Company's loan and mortgage-backed
securities portfolios.
The Company's investment in real estate acquired through foreclosure
increased to $1.9 million at June 30, 1998 from $1.2 million at June 30, 1997 as
a result of the higher foreclosures experienced during the year. The higher
foreclosures were the primary result of the depressed real estate market which
resulted in lower home values in the Company's general lending area throughout
most of the current year.
The total liabilities of the Company decreased to $376.1 million at June
30, 1998 from $379.4 million at June 30, 1997 primarily due to decreases in the
Association's FHLB advances and securities sold under agreements to repurchase,
which was partially offset by increases in the Association's deposits. Total
deposit accounts increased to $295.3 million at June 30, 1998 from $288.3
million. Core deposits (excluding certificates of deposit) increased to $95.8
million, or 32.4% of total deposits, at June 30, 1998 from $65.9 million, or
22.9% of total deposits, at June 30, 1997. The growth of core deposits is an
integral part of management's strategy to enhance net interest income and build
customer relationships. The majority of growth in the Company's core deposits
was in the growth of money market savings accounts which increased to $47.5
million at June 30, 1998 from $19.6 million at June 30, 1997. The growth in this
account was aided by direct mail solicitations which offered higher rates
although the rates offered were lower than comparative rates on certificates of
deposit. Also, the Company's noninterest-bearing checking accounts increased
significantly in the year ended June 30, 1998 to $9.7 million from $5.9 million
in the year ended June 30, 1997. The overall increase in core deposits benefits
the Company in terms of lower cost of funds, the ability to generate additional
fee income and the ability to build multiple relationships.
The Company continues to utilize borrowings as a means to enhance net interest
income and provide for longer-term financing of its asset base. As of June 30,
1998, the Company's borrowings from the FHLB totaled $70.5 million as compared
to $77.9 million at June 30, 1997. Also, the Company's borrowings through
securities sold under agreements to repurchase totaled $6.0 million at June 30,
1998 as compared to $9.4 million at June 30, 1997.
The Company's stockholders' equity was $32.2 million at June 30, 1998, a
increase of $2.3 million from the $29.9 million in stockholders' equity at June
30, 1997. The increase in stockholders' equity in fiscal 1998 was due primarily
to the net earnings of $1.5 million and the $686,000 change related to the
deferred stock compensation plans.
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED JUNE 30, 1997, AND JUNE 30,
1996
GENERAL
The net earnings for the year ended June 30, 1997 were $731,000, an
increase of $137,000, or 23.1%, from the $594,000 in net earnings for the year
ended June 30, 1996. The improvement in operating results was due to the
increase in average interest-earning assets which resulted in a $1.6 million net
increase in net interest income which was partially offset by the $2.0 million
increase in general and administrative expenses, resulting primarily from the
50
<PAGE> 53
payment of a special assessment totaling $1.3 million for the recapitalization
of the insurance fund (SAIF).
INTEREST INCOME
Interest income for the year ended June 30, 1997 was $26.7 million
compared to $21.3 million for the year ended June 30, 1996, an increase of $5.4
million, or 25.4%. The increase in interest income was primarily due to the
increase in average balance of interest-earning assets to $361.5 million for the
year ended June 30, 1997 from $288.4 million for the year ended June 30, 1996.
The increase in the average balance of interest-earning assets was the result of
a continuation of the growth strategy begun in the previous fiscal year to
enhance the Company's earning ability. Key elements of the growth strategy
continued to be the purchase of mortgage loans and mortgage-backed securities
funded primarily by the growth in deposits, including the branch purchase, and
the use of borrowings such as FHLB advances.
Interest income on loans receivable increased $3.1 million to $20.9
million for the year ended June 30, 1997 from $17.8 million for the year ended
June 30, 1996. The increase in interest income was the result of the $40.1
million increase in the average balance of loans receivable for the year ended
June 30, 1997 primarily as a result of the purchase of $33.3 million of
adjustable rate loans from other financial institutions. The loans purchased
were indexed to the Eleventh District Cost of Funds Index (COFI) and were
primarily seasoned, fully-indexed loans. Furthermore, the loans purchased were
$4.1 million of multi-family and $29.2 million of one- to four-family mortgage
loans. The average yield on loans receivable for the year ended June 30, 1997
was 7.64%, which approximated the 7.63% yield for loans receivable for the year
ended June 30, 1996.
Interest income on mortgage-backed securities increased by $1.9 million to
$4.1 million for the year ended June 30, 1997 from $2.2 million for the year
ended June 30, 1996. The increase in interest income was due to the increase in
the average balance of mortgage-backed securities to $59.7 million for the year
ended June 30, 1997 from $33.9 million for the year ended June 30, 1996 and to
the increase in the average yield to 6.78% for the year ended June 30, 1997 from
6.44% for the year ended June 30, 1996. The increase in the average balance
during the year ended June 30, 1997 was the result of the purchase of $50.7
million in mortgage-backed securities, both available for sale and held to
maturity, partially offset by the sale of $9.9 million in mortgage-backed
securities available for sale. The Company utilized acquisitions of
mortgage-backed securities during the year to increase the Company's
interest-earning assets and as a substitute for mortgage loans. The average
yield on mortgage-backe securities increased in the year ended June 30, 1997
primarily due to the higher yields on the securities purchased, which were
principally fixed rate.
Interest income on investment securities increased by $532,000 to $1.1
million for the year ended June 30, 1997 from $601,000 for the year ended June
30, 1996. The increase was primarily due to the $7.7 million increase in the
average balance of investment securities to $17.2 million for the year ended
June 30, 1997 from $9.5 million for the year ended June 30, 1996 and to the
increase in the average yield to 6.58% for the year ended June 30, 1997 from
6.36% for the year ended June 30, 1996. The increase in yield was primarily due
to the increase
51
<PAGE> 54
in U.S. agency callable securities during the year ended June 30, 1997 as
compared to June 30, 1996. Interest income on interest-earning deposits and
daily investments decreased by $48,000 to $626,000 for the year ended June 30,
1997 from $674,000 for the year ended June 30, 1996. The decrease in interest
income on interest-earning deposits and daily investments was due to the
decrease in the average balance to $7.2 million for the year ended June 30, 1997
from $8.5 million for the year ended June 30, 1996 and to the decrease in the
average yield to 5.42% for the year ended June 30, 1997 from 6.15% for the year
ended June 30, 1996.
INTEREST EXPENSE
Interest expense for the year ended June 30, 1997 was $17.1 million
compared to $13.3 million for the year ended June 30, 1996, an increase of $3.8
million, or 28.6%. The increase in interest expense was due to the $73.4 million
increase in the average balances of interest-bearing liabilities to $334.7
million for the year ended June 30, 1997 from $261.3 million for the year ended
June 30, 1996. The increase in interest expense was also due to the slight
increase in the average cost of interest-bearing liabilities to 5.12% for the
year ending June 30, 1997 from 5.09% for the year ending June 30, 1996. Interest
expense on deposit accounts increased to $12.2 million for the year ended June
30, 1997 from $10.1 million for the year ended June 30, 1996. The increase in
interest expense on deposit accounts reflects the $43.2 million increase in the
average balance of deposit accounts to $254.8 million for the year ending June
30, 1997 from $211.6 million for the year ending June 30, 1996 which was
partially the result of the purchase of $20.2 million in deposits from another
institution in February 1997 and due to the establishment of a new branch in
March 1997 which generated $5.3 million in deposits in its first three months of
operation.
The Company's use of borrowed funds, including FHLB advances and
securities sold under agreements to repurchase, increased during the year ended
June 30, 1997. The Company increased its usage of such borrowings to fund the
growth in assets to enhance net interest income and to extend the average
maturities of the liabilities of the Company. Interest expense on borrowings
increased $1.7 million to $4.9 million for the year ended June 30, 1997 from
$3.2 million for the year ended June 30, 1996. Th increase in interest expense
was primarily due to the increase in average borrowings to $79.6 million for the
year ended June 30, 1997 from $49.4 million for the year ended June 30, 1996,
partially offset by the decrease in the average cost of borrowings to 6.18% for
the year ended June 30, 1997 from 6.50% for the year ended June 30 1996.
PROVISION FOR ESTIMATED LOAN LOSSES
The Company's provision for estimated loan losses decreased slightly to
$557,000 for the year ended June 30, 1997 from $575,000 for the year ended June
30, 1996. The current year's allowance for estimated loan losses reflects
$352,000 in loan charge-offs as compared to $310,000 for the year ended June 30,
1996. The difference between the actual amount of charge-offs for the current
year and the amount reflected in the provision represents an allocation for the
growth in the loan portfolio during the year ended June 30, 1997 and
management's concerns regarding the general market conditions continuing and the
overall decline in real estate activity as well as the continuation of soft real
estate values in our primary market area. The allowance
52
<PAGE> 55
for estimated loan losses increased to $1.3 million, or 0.44% of gross loans
receivable, at June 30, 1997 from $1.1 million, or 0.41% of gross loans
receivable at June 30, 1996. As a percentage of non-performing loans, the
allowance for loan losses increase to 74.34% at June 30, 1997 compared to 53.92%
at June 30, 1996. The amount of the provision and allowance for loan losses is
influenced by current economic conditions, actual loss experience, industry
trends and other factors such as adverse economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowance for estimated loan losses. Such
agencies may require the Association to recognize additions to the allowance
based upon judgments which differ from those of management. Although management
uses the best information available, future adjustments to the allowance may be
necessary due to economic, operating, regulatory and other conditions that may
be beyond management's control.
OTHER INCOME
Other income for the Company increased to $1.2 million for the year ended
June 30, 1997 compared to $612,000 for the year ended June 30, 1996, an increase
of $606,000, or 99.0%. The increase in non-interest income was primarily due to
the improvement in the activity on real estate owned and to net gains recorded
on sales of mortgage-backed securities and other investments available for sale.
The Company posted a net gain on real estate owned activity totaling $157,000
for the year ending June 30, 1997 as compared to a net loss of $271,000 for the
year ending June 30, 1996, an increase of $428,000. This improvement was
primarily the result of a $344,000 favorable litigation settlement received in
May 1997; culminating a litigation process relating to a land development real
estate owned foreclosed on by the Company in 1992. The Company posted a net gain
of $148,000 in regards to sales of investments and mortgage-backed securities
during the year ended June 30, 1997 as compared to a net loss of $12,000 for the
year ended June 30, 1996. The Company's income derived from loan servicing
operations and deposit fees were approximately the same for both the years ended
June 30, 1997 and 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $2.0 million to $9.0
million for the year ended June 30, 1997 from $7.0 million for the year ended
June 30, 1996. Included in the expenses for the year ended June 30, 1997, was
the $1.3 million one-time special assessment to recapitalize the SAIF insurance
fund. This special assessment represented 65.7 basis points of the deposits held
by the Association as of March 31, 1995. Compensation and other employee
benefits increased by $539,000 to $4.1 million for the year ended June 30, 1997
from $3.6 million for the year ended June 30, 1996. The increase in compensation
costs was primarily attributable to the increase in staff primarily due to the
addition of two branches. Employee benefits increased as a result of the costs
related to the employee stock ownership and the stock compensation plans which
increased to $472,000 for the year ended June 30, 1997 from $302,000 for the
year ended June 30, 1996. Equipment and data processing costs increased to
$932,000 for the year ended June 30, 1997 from $748,000 for the year ended June
30, 1996 primarily as a result of the completion of a conversion to a new data
processor which included approximately $100,000 in non-recurring expenses. The
increase in costs was due to the replacement of outdated equipment, to the
initial costs of the conversion and to the deconversion
53
<PAGE> 56
costs of the previous data processor. The regular insurance assessments paid to
the FDIC decreased to $313,000 for the year ended June 30, 1997 from $472,000
for the year ended June 30, 1996 as a result of the lowering of the assessment
rate as of January 1, 1997, following the recapitalization of SAIF.
INCOME TAX
Income tax expense was $534,000 for the year ended June 30, 1997 compared
to $432,000 for the year ended June 30, 1996, representing an increase of
$102,000. This increase is principally due to the increase in taxable income in
fiscal 1997 as compared to fiscal 1996. See Note 11 of the Notes to the
Consolidated Financial Statements for additional information on the Company's
income taxes.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JUNE 30, 1996
The Company's total assets increased to $409.3 million at June 30, 1997
from $336.1 million at June 30, 1996, an increase of $73.2 million. During the
year, the Company increased its loans receivable held for investment by $28.6
million to $284.6 million at June 30, 1997 from $256.0 million at June 30, 1996
primarily as a result of the $33.3 million in loans purchased throughout the
year. All of the loans purchased were adjustable rate mortgage loans indexed to
COFI, with $4.1 million being multi- family loans and the remainder
single-family mortgages. The properties securing the loans purchased are located
primarily in southern California, but are dispersed throughout a wider area than
the Company's normal lending area.
The Company's investment in mortgage-backed securities increased to a
total of $76.2 million at June 30, 1997 from $44.3 million at June 30, 1996. The
increase in this portfolio reflects the continuation of management's strategy to
increase the interest-earning assets of the Company to enhance the net interest
income of the Company. Cash and short-term bank obligations increased to $22.7
million at June 30, 1997 from $8.9 million at June 30, 1996 primarily as a
result of the increase in cash flow generated from the loans receivable
portfolio due to a slower than expected lending market and the desire of
management to maintain more additional liquid assets.
The Company's investment in premises and equipment increased to $3.9
million at June 30, 1997 from $3.0 million at June 30, 1996 due to the purchase
of new computer equipment as part of the Company's conversion to a new data
processor, and due to the improvements required as part of two additional
branches and other branch upgrades. Prepaid expenses and other assets increased
to $1.2 million at June 30, 1997 from $437,000 primarily as a result of the
premium paid on the branch acquisition of approximately $500,000.
The total liabilities of the Company increased to $379.4 million at June
30, 1997 from $304.5 million at June 30, 1996. The increase in liabilities was
in support of the strategy to enhance net interest income. Total deposit
accounts increased to $288.3 million at June 30, 1997 from $234.0 million aided
by the acquisition of $20.2 million in deposits acquired in a branch
acquisition. Core deposits (excluding certificates of deposit) increased to
$65.9 million, or 22.9% of total deposits, at June 30, 1997 from $48.0 million,
or 20.5% of total deposits, at June
54
<PAGE> 57
30, 1996. The growth of core deposits is an integral part of management's
strategy to enhance net interest income and build customer relationships. The
Company continued to utilize borrowings as a means to enhance net interest
income and provide for longer-term financing of its asset base. As of June 30,
1997, the Company increased its borrowings from the FHLB to $77.9 million from
$67.5 million at June 30, 1996. Also, the Company borrowed $9.4 million through
securities sold under agreements to repurchase.
The Company's stockholders' equity was $29.9 million at June 30, 1997, a
decrease of $1.7 million from the $31.6 million in stockholders' equity at June
30, 1996. The decrease in stockholders' equity in fiscal 1997 was due primarily
to the repurchase of 249,100 shares of stock to be held as treasury stock with a
total value of $2.9 million. The reduction of stockholders' equity caused by the
stock repurchase was partially offset by the $731,000 in net earnings and the
$273,000 in amortization of deferred stock compensation.
IMPACT OF INFLATION
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Compan are monetary in nature. As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which was
amended by SFAS No. 127, DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF
FASB STATEMENT NO. 125. These statements provide accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 125, as amended, is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996 or December 31, 1997 for certain transactions. The adoption of SFAS No.
125 did not have a material impact on the Company's financial condition and
results of operations.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly held business enterprises and disclosure of information about operating
segments in annual financial statements to a lesser extent, in interim financial
reports issued to shareholders. SFAS No. 130 and 131 are effective for fiscal
years beginning after December 15, 1997. As both SFAS No. 130 and 131 deal with
financial statement disclosure,
55
<PAGE> 58
the Company does not anticipate the adoption of these new standards will have a
material impact on the Company's financial condition and results of operations.
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued in June 1998 and establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Earlier application is encouraged, but it
is permitted only as of the beginning of iscal quarter that begins after June
1998. The adoption of the provisions of SFAS No. 133 is not expected to have a
material impact on the results of operations or the financial position of the
Company.
YEAR 2000
The Year 2000 Issue concerns the potential impact of historic computer
software code that only utilizes two digits to represent the calendar year
(e.g., "98" for "1998"). Software so developed could produce inaccurate or
unpredictable results upon January 1, 2000, when current and future dates
present a lower two digit year number than dates in the prior century. The
Company, similar to most financial services providers, is subject to the
potential impact of the Year 2000 Issue due to the nature o financial
information. Potential impacts to the Company may arise from software, hardware,
and equipment both within the Company's direct control and outside of the
Company's ownership, yet with which the Company electronically or operationally
interfaces (i.e., vendors providing or receiving service bureau information).
Financial institution regulators have recently increased their focus upon
year 2000 issues, issuing guidance concerning the responsibilities of senior
management and directors. Year 2000 testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory exams.
In order to address the year 2000 issue, the Company has developed and
implemented a five phase plan divided into the following major components:
- - awareness
- - assessment
- - renovation
- - validation
- - implementation
The Company has completed the first two phases of the plan and is
currently working internally and with external vendors on the final three
phases. Because the Company outsources its data processing and item processing
operations, a significant component of the year 2000 Plan is to work with
external vendors to test and certify their systems as year 2000 compliant. The
Company replaced its internal retail branch computer system and its back office
computer systems in 1997 with personal computers which are year 2000 ready. The
software used in these systems, both purchased and related to our external data
processing vendors, is currently being tested for year 2000 readiness. Also, the
Company is currently testing its primary data processor
56
<PAGE> 59
for year 2000 readiness. The Company has contacted its primary vendors and
others with whom it relies on to assure their systems will be year 2000 ready.
However, there can be no assurance that these systems of other vendors will be
year 2000 ready or that an such failure in readiness by such vendors would not
have an adverse effect on the Company's operations. Another important segment of
the Year 2000 Plan is to identify those loan customers whose possible lack of
year 2000 preparedness might expose the Bank to financial loss. Upon completion
of its review and testing of both internal operations and external vendors, the
Company will complete its contingency plans. It is expected that such
contingency plans will be completed by January 31, 1999.
The Company expects its year 2000 date conversion project to be completed
by March 31, 1999. During the execution of this project, the Company will incur
internal staff costs as well as consulting and other expenses related to
enhancements necessary to prepare the systems for the year 2000. Since the
Company replaced many of the internal systems with year 2000 compliant personal
computers in 1997, the expenses incurred to bring the Company to year 2000
compliance will be expensed as incurred, with the majority of such costs being
the reallocation of current staff to bring about this readiness. The future
expenses of the year 2000 project as well as the related potential effect on the
Company's earnings is not expected to have a material effect on its financial
position or results of operations.
57
<PAGE> 60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report..................................................59
Consolidated Statements of Financial Condition as of June 30, 1998 and 1997...60
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended June 30, 1998...........................................62
Consolidated Statements of Stockholders' Equity for Each of the Three
Years in the Period Ended June 30, 1998.....................................64
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended June 30, 1998.....................................65
Notes to Consolidated Financial Statements for Each of the Three
Years in the Period Ended June 30, 1998.....................................68
58
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SGV Bancorp, Inc.
West Covina, California
We have audited the accompanying consolidated statements of financial condition
of SGV Bancorp, Inc. and subsidiary as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of SGV Bancorp, Inc. and subsidiary as
of June 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles.
/S/Deloitte & Touche LLP
Costa Mesa, California
August 27, 1998
59
<PAGE> 62
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------
1998 1997
(DOLLARS IN THOUSANDS)
ASSETS
<S> <C> <C>
Cash, including short-term bank obligations of $16,202 and $18,600
at June 30, 1998 and 1997, respectively $ 20,008 $ 22,664
Investment securities available for sale, amortized cost of $19,241 and
$12,500 at June 30, 1998 and 1997, respectively (Note 3) 19,221 12,467
Mortgage-backed securities available for sale, amortized cost of $29,386
and $37,323 at June 30, 1998 and 1997, respectively (Notes 3 and 10) 29,383 37,164
Mortgage-backed securities held to maturity, estimated fair value of $30,089
and $38,783 at June 30, 1998 and 1997, respectively (Notes 4 and 10) 29,936 39,072
Loans receivable held for investment, net of allowance for estimated loan
losses of $1,425 and $1,263 at June 30, 1998 and 1997, respectively
(Notes 5 and 10) 295,739 284,608
Loans receivable held for sale (Note 5) 391 230
Accrued interest receivable (Note 6) 2,774 2,911
Stock of Federal Home Loan Bank of San Francisco, at cost (Note 10) 4,234 3,987
Real estate acquired through foreclosure, net (Note 7) 1,902 1,150
Premises and equipment, net (Note 8) 3,537 3,866
Prepaid expenses and other assets, net 1,221 1,221
--------- ---------
Total assets $ 408,346 $ 409,340
========== =========
</TABLE>
See notes to consolidated financial statements 60
<PAGE> 63
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------------------------
1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposit accounts (Note 9) $ 295,281 $ 288,339
Federal Home Loan Bank advances (Note 10) 70,543 77,907
Securities sold under agreements to repurchase (Note 10) 6,000 9,430
Accrued expenses and other liabilities (Note 11) 4,289 3,761
----------- -----------
Total liabilities 376,113 379,437
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
STOCKHOLDERS' EQUITY (Notes 1, 2, 11, 13 and 15):
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
Common stock, $.01 par value; 10,000,000 shares authorized; 2,727,656
shares issued (1998 and 1997); 2,348,068 (1998) and 2,342,176 (1997)
shares outstanding 27 27
Additional paid-in capital 21,147 20,789
Retained earnings, substantially restricted 16,688 15,201
Net unrealized loss on securities available for sale, net of taxes (13) (110)
Deferred stock compensation (1,555) (1,880)
Treasury stock, 379,588 (1998) and 385,480 (1997) shares (4,061) (4,124)
------------ ------------
Total stockholders' equity 32,233 29,903
------------ ------------
Total liabilities and stockholders' equity $ 408,346 $ 409,340
=========== ===========
</TABLE>
See notes to consolidated financial statements 61
<PAGE> 64
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998
- ----------------------------------------------------------------------------------------------
1998 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 23,641 $ 20,890 $ 17,798
Interest on investment securities 1,073 1,133 601
Interest on mortgage-backed securities 4,032 4,051 2,186
Other 856 626 674
---------` -------- --------
Total interest income 29,602 26,700 21,259
INTEREST EXPENSE:
Interest on deposit accounts (Note 9) 13,627 12,195 10,071
Interest on borrowings 5,034 4,943 3,233
--------- -------- --------
Total interest expense 18,661 17,138 13,304
--------- -------- --------
NET INTEREST INCOME BEFORE PROVISION FOR
ESTIMATED LOAN LOSSES 10,941 9,562 7,955
PROVISION FOR ESTIMATED LOAN LOSSES (Note 5) 735 557 575
--------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR
ESTIMATED LOAN LOSSES 10,206 9,005 7,380
OTHER INCOME (EXPENSE):
Loan servicing and other fees 532 450 446
Deposit account fees 522 306 194
Secondary market activity, net - (42) (56)
Gain (loss) on sale or redemption of securities
available for sale, net (Note 3) 45 148 (12)
Net gain (loss) on real estate acquired through foreclosure
(Note 7) (109) 157 (271)
Other income 269 199 311
--------- -------- --------
Total other income 1,259 1,218 612
</TABLE>
See notes to consolidated financial statments 62
<PAGE> 65
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- -------------------------------------------------------------------------------------
1998 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and other employee expenses $ 4,909 $ 4,129 $ 3,590
Office occupancy 1,064 834 789
Equipment 1,117 932 748
Advertising 157 137 121
FDIC insurance premiums 180 313 472
SAIF special assessment - 1,332 -
Other operating expenses 1,507 1,281 1,246
----------- ---------- -----------
Total general and administrative expenses 8,934 8,958 6,966
----------- ---------- -----------
EARNINGS BEFORE INCOME TAXES 2,531 1,265 1,026
INCOME TAXES (Note 11) 1,044 534 432
----------- ---------- -----------
NET EARNINGS $ 1,487 $ 731 $ 594
=========== ========== ===========
EARNINGS PER SHARE - Basic (Note 12) $ 0.63 $ 0.29 $ 0.22
=========== ========== ===========
EARNINGS PER SHARE - Diluted (Note 12) $ 0.60 $ 0.29 $ 0.22
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements 63
<PAGE> 66
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
NET UNREALIZED
ADDITIONAL LOSS ON SECURITIES DEFERRED TOTAL
PAID-IN RETAINED AVAILABLE FOR SALE STOCK TREASURY STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK CAPITAL EARNINGS NET OF TAXES COMPENSATION STOCK EQUITY
--------------- ------------- ------- -------- ------------------ ------------ -------- ------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995 - $ 2,728 $ 27 $20,666 $ 13,876 $ (35) $ ($1,528) $ - $ 33,006
Net earnings - - - - - 594 - - - 594
Common stock acquired by
stock compensation plan - - - - - - - (844) - (844)
Amortization of deferred
compensation - - - - 18 - - 219 - 237
Repurchase of stock (136,380
shares) - - - - - - - - (1,240) (1,240)
Change in net unrealized loss
on securities available for
sale, net of taxes - - - - - - (167) - - (167)
------ ------ ------- ----- -------- -------- ------ --------- ------- ---------
BALANCE, June 30, 1996 - - 2,728 27 20,684 14,470 (202) (2,153) (1,240) 31,586
Net earnings - - - - - 731 - - - 731
Amortization of deferred
compensation - - - - 105 - - 273 - 378
Repurchase of stock (249,100
shares) - - - - - - - - (2,884) (2,884)
Change in net unrealized loss
on securities available for
sale, net of taxes - - - - - - 92 - - 92
------ ------ ------- ----- -------- -------- ------ --------- ------- ---------
BALANCE, June 30, 1997 - - 2,728 27 20,789 15,201 (110) (1,880) (4,124) $ 29,903
Net earnings - - - - - 1,487 - - - 1,487
Exercise of stock options
(5,892 shares) - - - - (3) - - - 63 60
Amortization of deferred
compensation - - - - 361 - - 325 - 686
Change in net unrealized loss
on securities available for
sale, net of taxes - - - - - - 97 - - 97
------ ------ ------- ----- -------- -------- ------ --------- ------- ---------
BALANCE, June 30, 1998 - $ - 2,728 $ 27 $ 21,147 $ 16,688 $ (13) $ (1,555) $(4,061) $ 32,233
====== ====== ======= ===== ======== ======== ====== ========= ======= =========
</TABLE>
See notes to consolidated financial statements 64
<PAGE> 67
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,487 $ 731 $ 594
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 683 430 370
Loans originated for sale (19,687) (5,644) (13,906)
Proceeds from sale of loans 19,567 5,657 13,152
(Gain) loss on sale of loans, net (41) (13) 31
(Gain) loss on sale or redemption of investment
securities available for sale, net (12) 13 12
Gain on sale of mortgage-backed securities available for
sale, net (33) (161) -
Federal Home Loan Bank stock dividend (247) (237) (152)
(Increase) decrease in prepaid expenses and other assets (116) (835) 15
Amortization of deferred loan fees (111) (74) (80)
Deferred loan origination costs (344) (147) (194)
Increase (decrease) in accrued expenses and other
liabilities 641 267 (204)
Deferred income taxes (185) 266 (2)
Provision for estimated loan losses 735 557 575
Provision for estimated real estate losses 124 95 204
Premium (discount) amortization on securities, net 458 235 246
Decrease (increase) in accrued interest receivable 137 (323) (534)
Other, net (357) 164 481
---------- --------- ---------
Net cash provided by operating activities 2,699 981 608
</TABLE>
See notes to consolidated financial statements 65
<PAGE> 68
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- ---------------------------------------------------------------------------------------------------
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale $ (29,739) $ (57,451) $ (42,650)
Proceeds from sale and redemption of investment
securities available for sale 23,012 59,936 28,683
Purchase of mortgage-backed securities available (15,281) (35,229) (11,914)
Proceeds from sale of mortgage-backed securities
available for sale 16,566 9,866 -
Proceeds from call of investment securities held to
maturity - - 3,200
Purchase of mortgage-backed securities held to maturity - (15,451) (21,116)
Principal repayments on mortgage-backed securities 15,510 8,935 7,647
Loans funded, net (34,512) (30,955) (17,719)
Loans purchased, net (40,623) (33,320) (48,297)
Principal repayments on loans 61,019 33,216 25,029
Proceeds from sale of real estate 2,161 2,935 1,451
Purchase of premises and equipment (248) (1,242) (517)
Purchase of FHLB stock - (3) (730)
Other, net (114) - -
----------- ----------- ---------
Net cash used in investing activities (2,249) (58,763) (76,933)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in certificate accounts (22,944) 21,347 31,704
Net increase (decrease) in passbook, money market
savings, NOW, and noninterest-bearing accounts 29,886 12,794 (1,929)
Purchase of deposit accounts - 20,159 -
Proceeds from Federal Home Loan Bank advances 5,000 73,800 50,000
Repayment of Federal Home Loan Bank advances (12,364) (63,402) (15,938)
Proceeds from securities sold under agreements to
repurchase - 9,600 -
Repayment of securities sold under agreements to
repurchase (3,430) (170) -
Purchase of treasury stock - (2,884) (1,240)
Purchase of stock for deferred compensation plans - - (775)
Exercise of stock options 60 - -
Other, net 686 318 -
----------- ----------- --------
Net cash (used in) provided by financing activities (3,106) 71,562 61,822
----------- ----------- --------
</TABLE>
See notes to consolidated financial statements 66
<PAGE> 69
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $ (2,656) $ 13,780 $ (14,503)
CASH AND CASH EQUIVALENTS, beginning of year 22,664 8,884 23,387
CASH AND CASH EQUIVALENTS, end of year $ 20,008 $ 22,664 $ 8,884
========== ========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES-
Cash paid during the year for:
Interest $ 18,610 $ 17,214 $ 12,930
Income taxes 941 188 324
NONCASH INVESTING ACTIVITIES DURING THE YEAR:
Real estate acquired through foreclosure $ 2,928 $ 2,603 $ 2,885
Mortgage-backed securities transferred from held to
maturity to available for sale classification - - 4,775
Loans to facilitate sales of real estate acquired through
foreclosure - - 641
Change in net unrealized loss on securities available for
sale, net 97 92 (167)
</TABLE>
See notes to consolidated financial statements 67
<PAGE> 70
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS FOR PRESENTATION - SGV Bancorp, Inc. (SGV) is a savings and loan
holding company incorporated in the state of Delaware that was organized for the
purpose of acquiring all of the capital stock of First Federal Savings and Loan
Association of San Gabriel Valley (the Association) upon its conversion from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association. On June 28, 1995, SGV completed its sale of
2,727,656 shares of its common stock through subscription and community
offerings to the Association's depositors, Board of Directors, management,
employees and the public and used approximately 60% of the net proceeds from
such sales to purchase all of the Association's common stock issued in the
Association's conversion to stock form. Such business combination was accounted
for at historical cost in a manner similar to a pooling of interests.
DESCRIPTION OF BUSINESS - The business of SGV consists principally of the
business of the Association. SGV's only significant assets are cash, investments
and mortgage-backed securities, the capital stock of the Association and SGV's
loan to the Association's employee stock ownership plan (ESOP) (Notes 13 and
16). SGV has no significant liabilities.
The Association is primarily engaged in attracting deposits from the
general public in the areas in which its branches are located and investing such
deposits and other available funds primarily in mortgage loans secured by one-
to four-family residences. To a lesser extent, the Association invests in
multi-family residential mortgages, commercial real estate, consumer and other
loans. As of June 30, 1998, the Association operated eight branch offices
located in the San Gabriel Valley.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of SGV Bancorp, Inc. and its wholly-owned subsidiary, First
Federal Savings and Loan Association of San Gabriel Valley and its wholly-owned
subsidiary, First Covina Service Company (collectively, the Company). All
material intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - The Company
classifies investments in debt and equity securities into three categories: held
to maturity, trading, and available for sale. Debt securities that the Company
has the positive intent and ability to hold to maturity are classified as held
to maturity securities and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near-term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings. The Company has no
trading securities. Debt and equity securities not classified as either held to
maturity securities or trading securities are classified as available for sale
securities and reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of stockholders' equity, net
of deferred taxes.
68
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SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
The Company designates investment securities and mortgage-backed
securities as held to maturity or available for sale upon acquisition. Gains or
losses on the sales of investment securities and mortgage-backed securities
available for sale are determined on the specific identification method.
Premiums and discounts on investment securities and mortgage-backed securities
are amortized or accreted using the interest method over the expected lives of
the related securities.
LOANS RECEIVABLE - The Company originates mortgage loans for both
portfolio investment and sale in the secondary market. During the period of
origination, mortgage loans are designated as held for sale or held for
investment. Loans receivable held for sale are carried at the lower of cost or
estimated market value determined on an aggregate basis and include loan
origination costs and related fees. Any transfers of loans held for sale to the
investment portfolio are recorded at the lower of cost or estimated market value
on the transfer date.
Loans receivable held for investment are carried at amortized cost
adjusted for unamortized premiums and discounts and net of deferred loan
origination fees and allowance for estimated loan losses. Premiums and discounts
on loans are amortized or accreted using the interest method over the expected
lives of the loans. These loans are not adjusted to the lower of cost or
estimated market value because it is management's intention, and the Company has
the ability, to hold these loans to maturity.
The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual principal and interest payments under
the terms of the loan agreement. Loans are evaluated for impairment as part of
the Company's normal internal asset review process. The Company evaluates all
loans in its portfolio on an individual basis with the exception of one- to
four-family residential mortgage loans and consumer lines of credit, which are
evaluated on a collective basis. Also, loans which have delays in payments of
less than four months are not necessarily considered impaired unless other
factors apply to the loans. The accrual of interest income on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When the interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently recognized
only to the extent cash payments are received. Where impairment is considered
permanent, a charge-off is recorded; where impairment is considered temporary,
an allowance is established. Impaired loans which are performing under the
contractual terms are reported as performing loans, and cash payments are
allocated to principal and interest in accordance with the terms of the loan.
Interest on loans is credited to income as earned. Interest receivable is
accrued only if deemed collectible. Generally, interest is not accrued on loans
delinquent three payments or more. Loan origination and commitment fees and
certain incremental direct loan origination costs are deferred, and the net fees
or costs for loans held for investment are amortized into interest income over
the contractual lives of the related loans. Other loan fees and charges
69
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SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
representing service costs for the repayments of loans, delinquent payments or
miscellaneous loan services are recorded as income when collected.
The Company may hedge its interest rate exposure on loans held for sale
and commitments to originate loans by entering into forward sales contracts.
Realized and unrealized gains and losses on forward sales contracts are deferred
and recognized as adjustments to the gain or loss on sale of loans.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE - Properties acquired through
foreclosure are initially recorded at the lower of cost or fair value less
estimated costs to sell through a charge to the allowance for estimated loan
losses. Subsequent declines in value are charged to operations.
ALLOWANCES FOR ESTIMATED LOAN AND REAL ESTATE LOSSES - Valuation
allowances for estimated loan and real estate losses are provided when any
significant decline in value is deemed to have occurred. Specific loss
allowances are established for loans that are deemed impaired, if the fair value
of the loan or the collateral is estimated to be less than the gross carrying
value of the loan. In estimating losses, management considers the estimated
sales price, cost of refurbishment, payment of delinquen taxes, cost of holding
the property (if an extended period is anticipated) and cost of disposal.
Additionally, general valuation allowances for loan and real estate losses have
been established. The estimates for these allowances are normally influenced by
current economic conditions, actual loss experience, industry trends and other
factors such as the current adverse economic conditions experienced (including
declining real estate values) in the area in which the Company's lending and
real estate activities are based.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for loan
losses. Such agencies may require the Association to recognize additions to the
allowance based on judgments different from those of management.
Although management uses the best information available to make these
estimates, future adjustments to the allowances may be necessary due to
economic, operating, regulatory and other conditions that may be beyond the
Company's control.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. The Company depreciates its premises
and equipment primarily by use of the straight-line method over the estimated
useful lives as follows
<TABLE>
<CAPTION>
<S> <C> <C>
Office buildings 20 to 40 years
Furniture, fixtures and equipment 3 to 10 years
</TABLE>
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
Under this standard,
70
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SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
deferred tax assets and liabilities represent the tax effects of the temporary
differences in the bases of certain assets and liabilities for tax and financial
statement purposes, calculated at currently effective tax rates, of future
deductible or taxable amounts attributable to events that have been recognized
on a cumulative basi in the financial statements.
The Company files its tax returns on a fiscal year basis.
EARNINGS PER SHARE - In 1997, the Financial Accounting Standards Board
issued SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 replaced the calculation
of primary and diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities, unlike primary earnings per share. Diluted
earnings per share is very similar to fully diluted earnings per share under
previous guidance. All earnings-per-shar amounts for previous periods have been
restated to conform with SFAS No. 128.
RECENT ACCOUNTING DEVELOPMENTS - In June 1996, the FASB issued SFAS No.
125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES, which was amended by SFAS No. 127, DEFERRAL OF
THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF FASB STATEMENT NO. 125. These
statements provide accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No. 125,
as amended, is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 or December 31,
1997 for certain transactions. The adoption of SFAS No. 125 did not have a
material impact on the Company's financial condition and results of operations.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly held business enterprises and disclosure of information about operating
segments in annual financial statements to a lesser extent, in interim financial
reports issued to shareholders. SFAS Nos. 130 and 131 are effective for fiscal
years beginning after December 15, 1997. As both SFAS Nos. 130 and 131 deal with
financial statement disclosure, the Company does not anticipate the adoption of
these new standards will have a material impact on the Company's financial
condition and results of operations.
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued in June 1998 and establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Earlier application is encouraged, but it
is permitted only as of the beginning of any fiscal quarter that begins after
June 1998. The adoption of the provisions
71
<PAGE> 74
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
of SFAS No. 133 is not expected to have a material impact on the results of
operations or the financial position of the Company.
USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS -
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting years. Actual results could differ from those estimates.
PRESENTATION OF CASH FLOWS - All highly liquid instruments with original
maturities of three months or less are considered to be cash equivalents.
RECLASSIFICATIONS - Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform with classifications in 1998.
2. REGULATORY CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Association's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures that have been established by regulation to ensure
capital adequacy require the Association to maintain minimum capital amounts and
ratios (set forth in the following table). The Association's primary regulatory
agency, the Office of Thrift Supervision (OTS), requires that the Association
maintain minimum ratios of tangible capital (as defined in the regulations) of
1.5%, core capital (as defined) of 3%, and total risk-based capital (as defined)
of 8%. The Association is also subject to prompt corrective action capital
requirement regulations set forth by the Federal Deposit Insurance Corporation
(FDIC). The FDIC requires the Association to maintain a minimum of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier I capital (as defined) to average assets (as defined).
Management believes, that as of June 30, 1998 and 1997, the Association meets
all capital adequacy requirements to which it is subject.
72
<PAGE> 75
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
As of June 30, 1998 and June 30, 1997, the most recent notification from
the OTS categorized the Association as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Association must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Association's category.
The Association's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ----------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1998:
Total Capital
(to Risk Weighted Assets) $ 29,255 15.08% $ 15,520 8.00% $ 19,400 10.00%
Core Capital
(to Adjusted Tangible Assets) $ 27,930 6.86% $ 12,222 3.00% $ 20,369 5.00%
Tangible Capital
(to Tangible Assets) $ 27,930 6.86% $ 6,117 1.50% N/A N/A
Tier I Capital
(to Risk Weighted Assets) $ 27,930 14.40% N/A N/A $ 11,640 6.00%
AS OF JUNE 30, 1997:
Total Capital
(to Risk Weighted Assets) $ 26,963 14.43% $ 14,949 8.00% $ 18,686 10.00%
Core Capital
(to Adjusted Tangible Assets) $ 25,800 6.34% $ 12,205 3.00% $ 20,342 5.00%
Tangible Capital
(to Tangible Assets) $ 25,800 6.34% $ 6,103 1.50% N/A N/A
Tier I Capital
(to Risk Weighted Assets) $ 25,800 13.81% N/A N/A $ 11,211 6.00%
</TABLE>
The OTS issued final regulations which set forth the methodology for
calculating an interest rate risk component that is being incorporated into the
OTS regulatory capital rules. Under the new regulations, only savings
institutions with above normal interest rate risk exposure are required to
maintain additional capital. This additional capital would increase the amount
of a savings institution's otherwise required risk-based capital requirement.
The final
73
<PAGE> 76
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
rule became effective January 1, 1994 an implementation will not begin until the
Association has been notified by the OTS.
Management believes that, under current regulations, the Association will
continue to meet its minimum capital requirements in the foreseeable future.
However, events beyond the control of the Association, such as changing interest
rates or a further downturn in the economy in areas where the Association has
most of its loans, could adversely affect future earnings and, consequently, the
ability of the Association to meet its future minimum capital requirements.
At periodic intervals, both the OTS and the FDIC routinely examine the
Association's financial statements as part of their legally prescribed oversight
of the savings and loan industry. Based on these examinations, the regulators
can direct that the Association's financial statements be adjusted in accordance
with their findings.
As of August 27, 1998, the OTS is in the process of examining the
Association. This examination and future examinations by the OTS or FDIC could
include a review of certain transactions or other amounts reported in the
Association's 1998 financial statements. Adjustments, if any, cannot presently
be determined.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the Funds Act), which, among other things, imposes a special
one-time assessment on Savings Association Insurance Fund (SAIF) member
institutions, including the Association, to recapitalize the SAIF. As required
by the Funds Act, the FDIC imposed a special assessment of 65.7 basis points on
SAIF-assessable deposits held as of March 31, 1995, payable November 27, 1996.
The special assessment was recognized as an expense in the quarter ended
September 30, 1996 and is tax deductible. The Association took a pre-tax charge
of $1,332,000 as a result of the SAIF special assessment.
The Funds Act also spreads the obligations for payment of the Financing
Corporation (FICO) bonds across all SAIF and Bank Insurance Fund (BIF) members.
Beginning on January 1, 1997, BIF deposits are assessed for FICO payments at a
rate of 20% of the rate assessed on SAIF deposits. Based on current estimates by
the FDIC, BIF deposits will be assessed a FICO payment of 0.3 basis points,
while SAIF deposits will pay an estimated 6.1 basis points on the FICO bonds.
Full pro rata sharing of the FICO payments between BIF and SAIF members will
occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
The Funds Act specifies that the BIF and SAIF will be merged on January 1, 1999
provided no savings associations remain as of that time.
As a result of the Funds Act, the FDIC lowered SAIF assessments to 0 to 27
basis points effective January 1, 1997, a range comparable to that of BIF
members. However, SAIF members will continue to make the higher FICO payments
described above. Management
74
<PAGE> 77
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
cannot predict the level of FDIC insurance assessments on an ongoing basis,
whether the savings association charter will be eliminated or whether the BIF
and SAIF will eventually be merged.
3. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
A summary of investment securities and mortgage-backed securities
available for sale at June 30 follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market funds and adjustable
interest rate mutual funds $ 11,000 $ - $ 18 $ 10,982
U.S. Government and federal
agency obligations 7,991 - 9 7,982
Other investment securities 250 7 - 257
-------- ----- ------ ---------
Total investment securities 19,241 7 27 19,221
-------- ----- ------ ---------
FHLMC mortgage-backed securities 5,320 6 15 5,311
FNMA mortgage-backed securities 7,972 10 17 7,965
GNMA mortgage-backed securities 15,025 32 7 15,050
Other mortgage-backed securitie 1,069 - 12 1,057
-------- ----- ------ ---------
Total mortgage-backed securities 29,386 48 51 29,383
-------- ----- ------ ---------
Total $ 48,627 $ 55 $ 78 $ 48,604
======== ===== ====== =========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market funds and adjustable
interest rate mutual funds $ 3,000 $ - $ 6 $ 2,994
U.S. Government and federal
agency obligations 9,500 4 31 9,473
-------- ----- ----- ---------
Total investment securities 12,500 4 37 12,467
-------- ----- ----- ---------
FHLMC mortgage-backed securities 21,987 32 111 21,908
FNMA mortgage-backed securities 13,464 60 79 13,445
Other mortgage-backed securities 1,872 - 61 1,811
-------- ----- ----- ---------
Total mortgage-backed securities 37,323 92 251 37,164
-------- ----- ----- ---------
Total $ 49,823 $ 96 $ 288 $ 49,631
======== ===== ===== =========
</TABLE>
75
<PAGE> 78
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
During the year ended June 30, 1998, the Company sold $16.4 million in
mortgage-backed securities, which resulted in a net gain totaling $33,000. Also,
the Company sold $14.0 million in investment securities resulting in a net gain
totaling $12,000 and had $9.0 million in investment securiti es called during
the year at par.
During the year ended June 30, 1997 the Company sold $9.7 million in
mortgage-backed securities which resulted in gains totaling $161,000. Also, the
Company sold $1.5 million in investment securities resulting in losses totaling
$13,000 and had $2.0 million in investment securities called du ring the year at
par.
There were no sales of investment securities and mortgage-backed
securities available for sale during the year ended June 30, 1996. Proceeds from
the redemption of the adjustable interest rate mutual fund during the year ended
June 30, 1996 were $2,000,000. A loss of $12,000 was realized on the redemption.
The weighted average interest rates on investment securities available for
sale were 5.92% and 6.69% at June 30, 1998 and 1997, respectively. The weighted
average interest rates on mortgage-backed securities available for sale were
6.87% and 7.08% at June 30, 1998 and 1997, respectively.
At June 30, 1998, $7.1 million of mortgage-backed securities available for
sale had adjustable interest rates, with the remaining $22.3 million having
fixed interest rates. The weighted average remaining years to maturity of the
mortgage-backed securities available for sale is 18.6 years at June 30, 1998.
76
<PAGE> 79
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
A summary of mortgage-backed securities held to maturity at June 30
follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC mortgage-backed securities $ 5,178 $ 40 $ 31 $ 5,187
FNMA mortgage-backed securities 106 3 - 109
GNMA mortgage-backed securities 23,829 144 - 23,973
Other mortgage-backed securities 823 - 3 820
-------- ------ ------ --------
Total mortgage-backed securities $ 29,936 $ 187 $ 34 $ 30,089
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLMC mortgage-backed securities $ 7,745 $ 11 $ 41 $ 7,715
FNMA mortgage-backed securities 208 3 - 211
GNMA mortgage-backed securities 29,842 - 267 29,575
Other mortgage-backed securities 1,277 5 - 1,282
-------- ------ ------ --------
Total mortgage-backed securities 39,072 $ 19 $ 308 $ 38,783
======== ====== ====== ========
</TABLE>
Mortgage-backed securities totaling approximately $19.7 million were
pledged at June 30, 1998 as collateral for FHLB borrowings and $7.6 million of
mortgage-backed securities were used as collateral for securities sold under
repurchase agreements.
The Company did not sell any mortgage-backed securities held to maturity
during the years ended June 30, 1998, 1997, and 1996.
The weighted average interest rate on mortgage-backed securities held to
maturity was 7.82% and 7.85% at June 30, 1998 and 1997, respectively. At June
30, 1998, $2.0 million of the Company's mortgage-backed securities held to
maturity had adjustable interest rates with the remaining $27.9 mi llion having
fixed interest rates. At June 30, 1997, $3.0 million of the
77
<PAGE> 80
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Company's mortgage-backed securities held to maturity had adjustable interest
rates with the remaining $36.1 million having fixed interes rates. The weighted
average remaining years to maturity of the mortgage-backed securities held to
maturity is 24.7 years at June 30, 1998.
5. LOANS RECEIVABLE
A summary of loans receivable at June 30 follows:
<TABLE>
<CAPTION>
1998 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Conventional trust deed loans on real estate:
Single family 1-4 units $ 247,129 $ 250,303
Multifamily 29,546 27,241
Commercial loans secured by trust deeds 11,895 8,660
Consumer 9,007 533
------------ -------------
Total 297,577 286,737
Less (plus):
Unamortized yield adjustments (613) 121
Deferred loan fees 635 515
Allowance for estimated loan losses 1,425 1,263
------------ -------------
Total 296,130 284,838
Less - Loans held for sale 391 230
------------ -------------
Loans receivable held for investment, net $ 295,739 $ 284,608
============ =============
Weighted average interest rate at end of period 8.03% 7.69%
============ =============
</TABLE>
At June 30, 1998, adjustable rate loans approximated $234.8 million. The
adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the Eleventh District Cost of Funds and the weekly one-year
Treasury constant maturity index. Future market factors may affec t the
correlation of the interest rate adjustment with the rates the Company pays on
short-term deposits that have been utilized primarily to fund these loans.
78
<PAGE> 81
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Activity in the allowance for estimated loan losses is summarized as
follows for the year ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 1,263 $ 1,058 $ 792
Provision for estimated loan losses 735 557 575
Charge-offs (573) (352) (310)
Recoveries - - 1
--------- --------- ---------
Balance, end of year $ 1,425 $ 1,263 $ 1,058
========= ========= =========
</TABLE>
At June 30, 1998, the Company had classified $569,000 of its loans as
impaired with $100,000 in specific reserves as determined in accordance with
SFAS No. 114, as amended by SFAS No. 118. At June 30, 1997, the Company had
classified $530,000 of its loans as impaired with $100,000 in specific reserves.
In addition, the Company has $1.3 million and $1.7 million at June 30, 1998 and
1997, respectively, in impaired loans, which were collectively evaluated for
impairment with no specific reserves set aside. The average recorded investment
in impaired loans, inclusive of those evaluated collectively, during the years
ended June 30, 1998, 1997, and 1996 was approximately $2.9 million, $1.6
million, and $2.4 million, respectively. Interest income on impaired loans of
$28,000, $28,000, and $31,000 was recognized for cash payments received in the
years ended June 30, 1998, 1997, and 1996.
Generally, loans delinquent three payments or more are placed on
nonaccrual status, meaning that the Company stops accruing interest on such
loans and reverses any interest previously accrued but not collected. A
nonaccrual loan may be restored to accrual status when delinquent principal and
interest payments are brought current and future monthly principal and interest
payments are expected to be collected. For the years ended June 30, 1998, 1997
and 1996, contractually due interest of approximately $101,000, $77,000 and
$118,000, respectively, was not recognized in income. At June 30, 1998, 1997 and
1996, nonaccrual loans approximated $1,911,000, $1,699,000 and $1,962,000,
respectively. At June 30, 1998, the Company had three troubled-debt restructured
loans totaling approximately $761,000.
The Company is engaged in attracting deposits from the general public and
using those deposits together with borrowings and other funds primarily to
originate permanent residential mortgage loans in its normal lending areas in
Los Angeles, San Bernardino, Riverside and Orange Counties.
At June 30, 1998, 1997 and 1996, the Company was servicing loans for
others amounting to approximately $100,000,000, $94,000,000 and $98,000,000,
respectively.
79
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SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Under FIRREA, a federally chartered savings and loan association's
aggregate commercial real estate loans may not exceed 400% of its capital as
determined under the capital standards provisions of FIRREA. FIRREA does not
require divestiture of any loan that was lawful when it was originated. At June
30, 1998, the Association estimates that, while complying with this limitation,
it may originate an additional $101.3 million of commercial real estate loans.
The Association is subject to numerous lending-related regulations. Under
FIRREA, the Association may not make real estate loans to one borrower in excess
of 15% of its unimpaired capital and surplus, plus an additional 10% for loans
secured by readily marketable collateral. This 15% limita tion results in a
dollar limitation of approximately $4,245,000 at June 30, 1998.
Transactions in loans to officers, directors and employees are as follows
for the years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 788 $ 1,010 $ 1,192
New loans to employees 966 92 -
Principal paydowns and payoffs (28) (314) (182)
----------- ------------ -------------
Balance, end of year $ 1,726 $ 788 $ 1,010
=========== ============ =============
</TABLE>
6. ACCRUED INTEREST RECEIVABLE
A summary of accrued interest receivable at June 30 follows:
<TABLE>
<CAPTION>
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Loans receivable $ 2,286 $ 2,238
Mortgage-backed securities 378 512
Investment securities and other 110 161
------------ -----------
Total $ 2,774 $ 2,911
============ ===========
</TABLE>
80
<PAGE> 83
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
7. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
A summary of real estate acquired through foreclosure at June 30 follows:
<TABLE>
<CAPTION>
1998 1997
(IN THOUSANDS)
<S> <C> <C>
One- to four-unit properties $ 1,728 $ 1,210
Multi-family 274 -
Allowance for estimated real estate losses (100) (60)
------------- -------------
Total $ 1,902 $ 1,150
============= =============
</TABLE>
Activity in the allowance for estimated real estate losses is as follows
for the years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 60 $ 557 $ 569
Provision for estimated real estate losses 124 95 204
Charge-offs (84) (592) (216)
--------- ----------- -----------
Balance, end of year $ 100 $ 60 $ 557
========= =========== ===========
</TABLE>
Net gain (loss) on real estate acquired through foreclosure is summarized
as follows for the years ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain on sales of real estate $ 153 $ 49 $ 95
Other income (expenses), net (138) 203 (162)
Provision for estimated real estate losses (124) (95) (204)
--------- -------- ----------
Net gain (loss) on real estate acquired through
foreclosure $ (109) $ 157 $ (271)
========= ======== ==========
</TABLE>
81
<PAGE> 84
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
8. PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30 follows:
<TABLE>
<CAPTION>
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Land $ 523 $ 523
Office buildings 5,055 5,052
Furniture, fixtures and equipment 3,519 3,279
----------- -----------
Total 9,097 8,854
Less accumulated depreciation and amortization (5,560) (4,988)
----------- -----------
Total $ 3,537 $ 3,866
=========== ===========
</TABLE>
9. DEPOSIT ACCOUNTS
Deposit accounts are summarized as follows at June 30:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
INTEREST INTEREST
BALANCE RATE* BALANCE RATE*
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Passbook accounts $ 17,892 2.00% $ 19,161 2.00%
Money market savings accounts 47,469 4.64% 19,620 4.01%
NOW accounts 20,808 1.23% 21,292 1.34%
Noninterest-bearing accounts 9,660 - 5,870 -
----------- -------------
Total 95,829 2.94% 65,943 2.21%
Certificates of deposit:**
Less than three months 2,637 3.97% 4,105 4.15%
Three to six months 6,490 4.42% 7,625 4.42%
Six to twelve months 29,861 4.91% 52,577 5.36%
Twelve months and greater 160,464 5.49% 158,089 5.68%
------------ -------------
Total 199,452 5.35% 222,396 5.53%
------------ -------------
Total $ 295,281 4.57% $ 288,339 4.76%
============ =============
</TABLE>
* Based on weighted average stated interest rates.
** At June 30, 1998, included in certificate accounts are 442 accounts
totaling $57,285,000, with balances of $100,000 or more.
82
<PAGE> 85
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
Certificate accounts are scheduled to mature as follows at June 30, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Within one year $ 169,812
One to two years 19,013
Two to three years 3,454
Three to four years 4,180
Four to five years 2,993
--------------
Total $ 199,452
==============
</TABLE>
Interest expense on deposit accounts is summarized as follows for the year
ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook accounts $ 377 $ 348 $ 370
NOW accounts 309 280 341
Money market savings accounts 1,367 493 166
Certificate accounts 11,574 11,074 9,194
-------- --------- ---------
Total $ 13,627 $ 12,195 $ 10,071
======== ========= ==========
</TABLE>
10. OTHER BORROWED FUNDS
Advances from the Federal Home Loan Bank (FHLB) are scheduled to mature as
follows at June 30, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending June 30:
1999 $ 31,733
2000 13,200
2001 4,276
2002 14,252
Thereafter through 2003 7,082
-----------
Total $ 70,543
===========
</TABLE>
At June 30, 1998 and 1997, the weighted average interest rate on FHLB
advances was 6.21% and 6.27%, respectively. At June 30, 1998, the advances, all
of which are fixed rate, were collateralized by certain real estate loans with
aggregate unpaid principal balances of approximately $80.7 million and by
certain mortgage-backed securities with an aggregate
83
<PAGE> 86
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
remaining principal balance of approximately $19.7 million and the Company's
investment in the capital stock of the FHLB of San Francisco.
The following summarizes activities in advances from the FHLB for the year
ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding during the period $ 72,722 $ 73,513 $ 49,419
========= ========= =========
Maximum amount outstanding at any month-end
during the period $ 75,876 $ 78,172 $ 74,115
========= ========= ========-
Weighted average interest rate during the period 6.28% 6.25% 6.50%
========= ========= =========
</TABLE>
The following summarizes activities in securities sold under agreements to
repurchase as of June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amount outstanding during the period $ 6,528 $ 8,729 N/A
========= ========= =========
Maximum amount outstanding at any month-end
during the period $ 9,450 $ 9,600 N/A
========= ========= =========
Weighted average interest rate during the period 6.04% 5.93% N/A
========= ========= =========
</TABLE>
At June 30, 1998, all $6 million of the securities sold under agreements
to repurchase mature on October 30, 1998. The market value of the
mortgage-backed securities underlying the agreements was $7.6 million as of June
30, 1998. The Company enters into these agreements only with primary go vernment
securities dealers. The lender maintains possession of the collateral securities
for these agreements.
84
<PAGE> 87
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
11. INCOME TAXES
Income taxes are summarized as follows for the year ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $ 978 $ 225 $ 354
State 251 43 80
-------- -------- --------
Total current 1,229 268 434
Deferred:
Federal (209) 173 (22)
State 24 93 20
-------- -------- --------
Total deferred (185) 266 (2)
-------- -------- --------
Total $ 1,044 $ 534 $ 432
======== ======== ========
</TABLE>
A reconciliation from the statutory federal income tax rate to the
consolidated effective income tax rate follows for the year ended June 30:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 7.2 7.1 8.0
Other, net (1.0) 0.1 (0.9)
------- ------- --------
Total 41.2% 42.2% 42.1%
======= ======= ========
</TABLE>
85
<PAGE> 88
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
At June 30, 1998 and 1997, the deferred components of the Company's total
income tax liabilities (assets), as included in the consolidated statements of
financial condition, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Federal Home Loan Bank stock dividends $ 903 $ 792
Depreciation 344 368
Loan fees 817 830
Prepaid expenses 56 79
Other - -
------- -------
Gross deferred tax liabilities 2,120 2,069
Deferred tax assets:
Bad debt reserve (538) (510)
State taxes (230) (142)
Deferred compensation (269) (189)
Capital loss carryforward (20) (20)
Unrealized losses on securities (9) (81)
Amortization of deposit premium (43) (10)
Other (31) (23)
-------- ---------
Gross deferred tax assets (1,140) (975)
Valuation allowance - -
-------- --------
Net deferred tax liability $ 980 $ 1,094
======== ========
</TABLE>
The Association's financial statement retained earnings includes tax bad
debt deductions for which no provision for federal income taxes has been made.
If distributions to shareholders are made in excess of current or accumulated
earnings and profits or if stock of the Association is partially redeemed, this
tax bad debt reserve, which approximates $2,700,000 at June 30, 1998, will be
recaptured into income at the then prevailing federal income tax rate. The
related unrecognized deferred tax liability is approximately $945,000. It is not
contemplated that the Association will make any disqualifying distributions that
would result in the recapture of these reserves.
86
<PAGE> 89
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
12. EARNINGS PER SHARE RECONCILIATION
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- -----------
JUNE 30, 1998
--------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 1,487,000 2,345,000 $ 0.63
EFFECT OF DILUTIVE SECURITIES
Incremental shares from assumed exercise
of outstanding options - 124,000 (0.03)
----------- --------- ---------
DILUTED EPS
Income available to common stockholders $ 1,487,000 2,469,000 $ 0.60
=========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 731,000 2,482,000 $ 0.29
EFFECT OF DILUTIVE SECURITIES
Incremental shares from assumed exercise
of outstanding options - 37,000 -
----------- --------- ---------
DILUTED EPS
Income available to common stockholders $ 731,000 2,519,000 $ 0.29
=========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 594,000 2,707,000 $ 0.22
EFFECT OF DILUTIVE SECURITIES
Incremental shares from assumed exercise
of outstanding options - - -
----------- --------- ---------
DILUTED EPS
Income available to common stockholders $ 594,000 2,707,000 $ 0.22
=========== ========= =========
</TABLE>
87
<PAGE> 90
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company conducts a portion of its operations from premises under
operating leases. Rental expense, net of sublease payments, was $307,000,
$206,000 and $143,000 for the years ended June 30, 1998, 1997 and 1996,
respectively. Sublease payments were $158,000, $121,000 and $107,000 for the
years ended June 30, 1998, 1997 and 1996, respectively. Minimum rental
commitments for noncancelable leases follow at June 30, 1998:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
First year $ 447
Second year 423
Third year 216
Fourth year 217
Fifth year 217
Thereafter 398
-------------
Total $ 1,918
=============
</TABLE>
The Company becomes involved in claims and litigation arising from its
normal business activities. After consultation with legal counsel, management is
of the opinion that the ultimate liability, if any, resulting from the
disposition of such claims and litigation would not be material to th e
consolidated financial statements of the Company.
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. Moreover, the total commitment
amounts do not necessarily represent future cash requirements. Collateral
generally includes residential or commercial real estate. For forward sales
contracts, the contract or notional amounts do not represent exposure to credit
loss. The Company controls the credit risk of its forward sales contracts
through limits and monitoring procedures.
At June 30, 1998 and 1997, the Company had loan funding commitments of
approximately $3.0 million and $1.4 million, respectively. At June 30, 1998 and
1997, the majority were fixed rate mortgage loans. Loan funding commitments are
generally for a period of 15 to 45 days. also, the Company had agreed to
purchase approximately $9.3 million in 1-4 unit single-family adjustable rate
mortgage loans from another financial institution scheduled to fund in July
1998.
88
<PAGE> 91
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
The Company uses forward sales contracts to hedge interest rate exposure
generally on secondary mortgage market operations. As of June 30, 1998, the
Company had $1.0 million in open forward sales contracts with no material
unrecorded gains/losses. As of June 30, 1997, the company had $250,000 in open
forward sales contracts.
The Company provides a profit-sharing plan and a 401(k) plan, which are
offered to officers and full-time employees meeting the eligibility requirements
specified in the plans. The plans provide for optional annual contributions by
the Company at the discretion of the board of directors. The 401(k) plan is a
defined contributory plan which allows employee contributions. Total
profit-sharing and 401(k) plan expenses were $79,000, $68,000 and $39,000 for
the years ended June 30, 1998, 1997 and 1996 respectively. The Company's maximum
annual contribution is 15% of the amount of eligible compensation.
The Company previously maintained a separate defined benefit plan covering
only outside Board of Director members. Such plan was terminated during the year
ended June 30, 1995. Participants currently remaining in the plan will be paid
out according to existing plan terms. No further contri butions will be made by
the Company. Pension expense was $13,000, $15,000 and $16,000 for the years
ended June 30, 1998, 1997 and 1996, respectively. The accrued pension liability
cost was approximately $161,000 at June 30, 1998.
The Association established for eligible employees an ESOP and related
trust that became effective upon the conversion of the Association from a mutual
to a stock savings and loan association (the Conversion). Full-time employees
employed with the Association as of January 1, 1995 and full-time employees of
the Company or the Association employed after such date, who have been credited
with at least 1,000 hours during a 12-month period and who have attained the age
of 21 will become participants. The ESOP purchased 7% of the common stock issued
by SGV Bancorp, Inc. (see Note 1).
The ESOP borrowed $1,528,000 from the Company in order to purchase the
common stock. The loan will be repaid principally from the Association's
contributions to the ESOP over a period of seven years, and the collateral for
the loan will be the common stock purchased by the ESOP. The interest rate for
the loan is 8%. At June 30, 1998 the outstanding balance of the loan was
$982,000 and a total of 68,190 shares of common stock has been allocated to
employee accounts.
Shares purchased by the ESOP are pledged as collateral for the loan and
will be held in a suspense account until released for allocation among
participants as the loan is repaid. the pledged shares will be released annually
from the suspense account in an amount proportional to the repayment of the ESOP
loan for each plan year. The released shares will be allocated among the
accounts of participants on the basis of the participant's compensation for the
year of allocation. Participants generally become 100% vested in their ESOP
account after six years of credited service or if their service was terminated
due to death, early retirement, permanent
89
<PAGE> 92
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
disability or a change in control. Prior to the completion of two years of
credited service, a participant who terminates employment for reasons other
than death, retirement, disability, or change of control of the Association
or Company will not receive any benefit. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contributions.
Benefits may be payable upon death, retirement, disability or separation from
service. The contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
The expense related to the ESOP for the year ended June 30, 1998 was
approximately $469,000. At June 30, 1998, unearned compensation related to the
ESOP approximated $873,000 and is shown as a reduction of stockholders' equity
in the accompanying consolidated statements of financial condition.
The Association maintains a non-qualified Supplemental Executive
Retirement Plan (SERP) to provide certain officers and highly compensated
employees with additional retirement benefits. The benefits provided under the
SERP will make up the benefits lost to the SERP participants due to application
of limitations on compensation and maximum benefits applicable to the
Association's tax-qualified 401(k) plan and the ESOP. Benefits will be provided
under the SERP at the same time and in the same form a the benefits will be
provided under the 401(k) plan and the ESOP. Included in accrued expenses at
June 30, 1998 is $23,000 of benefits related to the SERP.
The Association has implemented a Directors' Deferred Fee Stock Unit Plan
(Deferred Fee Plan) for its directors. The Deferred Fee Plan permits directors
to defer receipt of directors' fees paid by the Association until their service
with the Board of Directors terminates. The Deferred Fee Plan also permits
directors to defer receipt of the vested accrued benefit otherwise payable from
the terminated Director's Retirement Plan into the director's account under the
terms of the Deferred Fee Plan. The directors' deferred fees are credited to the
account of participating directors under the terms of the Deferred Fee Plan and
are credited with earnings based on several investment choices, including
Company stock. If a participant chooses to have deferred fees credited to a
stock unit account with the Deferred Fee Plan, the participant will receive a
benefit based on the value and appreciation in the stock of the Company.
Included in accrued expenses at June 30, 1998 is $302,000 of deferrals related
to the Deferred Fee Plan.
At the Company's Annual Meeting of Stockholders on January 17, 1996, the
stockholders approved the First Federal Savings and Loan Association of San
Gabriel Valley 1995 Master Stock Compensation Plan (the Stock Compensation
Plan). The Stock Compensation Plan, which is a non-qualified plan, was
authorized to acquire up to 81,829 shares of the Company common stock either
directly for the Company or through purchases in the open market to be used for
the granting of plan share grants and plan share allocations. The Association
contributed funds to the Stock Compensation Plan to enable the Stock
Compensation Plan trustees to acquire the necessary shares of the common stock.
The 81,829 shares were
90
<PAGE> 93
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
acquired in several transactions at an average market price of $9.469 per share.
These shares represent deferred compensation and have been accounted for as a
reduction in stockholders' equity in the accompanying consolidated statement
of financial condition. Such shares are held in trust.
The Stock Compensation Plan allocated 16,366 shares to current and future
directors with the remaining shares allocated to employees. The shares allocated
to directors are granted in equal installments over a five-year period. The
shares allocated to employees are granted over a five-year period with a
percentage considered as a base grant, and the remaining percentages granted if
the Company achieves certain performance levels. The percentages are determined
by the Company's compensation committee. The expense related to the Stock
Compensation Plan for the year ended June 30, 1998 was approximately $255,000.
At the Company's Annual Meeting of Stockholders on January 17, 1996, the
stockholders approved the SGV Bancorp, Inc. 1995 Master Stock Option Plan (the
1995 Stock Option Plan). The Stock Option Plan authorizes the granting of
options equal to 272,765 shares of common stock. All officers and other
employees of the Company and its affiliates, and directors who are not also
serving as employees of the Company or any of its affiliates are eligible to
receive awards under the Stock Option Plan.
Options granted under the 1995 Stock Option Plan will be made at an
exercisable price equal to the fair market value on the date of grant. Options
expire ten years from the date of the grant.
Awards granted to employees may include incentive stock options,
nonstatutory stock options and limited rights which are exercisable only upon a
change in control of the Company. Awards granted to nonemployee directors are
nonstatutory options. Options are exercisable in five equal annual i nstallments
of 20%, commencing one year from the date of the grant.
Also, at the Company's Annual Meeting of Stockholders on November 20,
1997, the stockholders approved the SGV Bancorp, Inc. 1997 Stock-Based Incentive
Plan (the 1997 Stock-Based Incentive Plan). This plan authorizes the granting of
options to purchase common stock, option-related awards and awards of common
stock equivalent to one percent of the adjusted average common stock outstanding
used to calculate diluted earnings per share as reported in the annual report
for the preceding year for each calendar year from 1997 to 2006. In no event
will more than 230,000 shares be granted under this plan which is available to
all officers, other employees and outside Directors.
Options granted under the 1997 Stock-Based Incentive Plan will be made at
an exercisable price equal to fair market value on the date of grant. Options
expire ten years from the date of the grant.
91
<PAGE> 94
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement establishes a fair value
based method of accounting for stock-based compensation plans. It encourages,
but does not require, entities to adopt that method in place of the provisions
of Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, for all arrangements under which employees receive shares of stock
or other equity instruments of the employer or the employer incurs liabilities
to employees in amounts based on the price of its stock. SFAS No. 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
The Company has elected to continue to apply the accounting provisions of
APB No. 25 to its stock-based compensation awards to employees. Under APB No.
25, compensation cost for stock options is measured as the excess, if any, of
the fair market value of the Company's stock at the date of gr ant over the
amount the director or employee must pay to acquire the stock. Because the plan
provides for the issuance of options at a price of no less than the fair market
value at the date of grant, no compensation cost has been recognized for the
stock option components of the plans.
Had compensation costs for the stock option components of the Plan been
determined based upon the fair value at the date of grant consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated as follow as of June 30 for the years
indicated:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported $ 1,487 $ 731 $ 594
Pro forma 1,218 469 463
Earnings per common share - Basic:
As reported $ 0.63 $ 0.29 $ 0.22
Pro forma $ 0.52 $ 0.19 $ 0.17
Shares utilized in EPS calculations 2,344,980 2,482,391 2,707,674
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of 0% for both
92
<PAGE> 95
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
years; risk-free interest rate of 5.50% for 1998, 6.50% for 1997 and 6.75% for
1996; expected life of 10 years for all years; and a volatility factor of 23.37%
for 1998 and 18.79% for 1997 and 1996.
Stock options granted, exercised or forfeited were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE FAIR VALUE OF
NUMBER OF EXERCISE PRICE OPTION SHARES
OPTION SHARES OF OPTION SHARES GRANTED
<S> <C> <C> <C>
Outstanding July 1, 1995 - - -
Granted during year 261,851 $ 9.63 $ 9.63
-------------- ----------------
Outstanding June 30, 1996 261,851 9.63
Granted during year 15,275 12.88 12.88
Forfeited during year (2,182) 9.63
-------------- ----------------
Outstanding June 30, 1997 274,944 9.81
Granted during year 20,100 17.13 17.13
Exercised during year (5,892) 9.63
Forfeited during year (1,746) 9.63
-------------- ----------------
Outstanding June 30, 1998 287,406 $ 10.33
============== ================
</TABLE>
Financial data pertaining to outstanding stock options as of June 30, 1998
were as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED WEIGHTED AVERAGE
NUMBER AVERAGE AVERAGE NUMBER OF EXERCISE PRICE
EXERCISE OF OPTION REMAINING EXERCISE PRICE EXERCISABLE OF EXERCISABLE
PRICE SHARES CONTRACTUAL LIFE OF OPTION SHARES OPTION SHARES OPTION SHARES
- ---------- ------------ ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 9.63 252,031 7.5 years $ 9.63 97,538 $ 9.63
12.88 15,275 8.6 years 12.88 3,819 12.88
17.13 20,100 9.6 years 17.13 - -
------------ ---------------- ---------------- ------------- -------------
287,406 7.7 years $ 10.33 101,357 $ 9.75
============ ================ ================ ============= =============
</TABLE>
During the year ended June 30, 1995, the Company entered into employment
agreements (Agreements) with its president/chief executive officer and its
executive vice president/chief financial officer. The Agreements provide for
three-year terms for both individuals commencing on June 28, 1995 which have
been extended through June 28, 2001. The Agreements provide that, commencing on
the first anniversary date and continuing each anniversary date thereafter, the
Board of Directors may extend the Agreements for an additional year so that the
remaining term shall be three years. The Agreements provide for the payment of
severance benefits upon termination.
93
<PAGE> 96
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value
amounts have been determined by the Company using available market infor mation
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts at
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998
------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash, including short-term bank obligations $ 20,008 $ 20,008
Investment securities available for sale 19,221 19,221
Mortgage-backed securities available for sale 29,383 29,383
Mortgage-backed securities held to maturity 29,936 30,089
Loans receivable:
Fixed 62,516 63,914
Variable 233,150 233,150
Federal Home Loan Bank stock 4,234 4,234
Liabilities:
Term deposit accounts 199,452 200,130
Other deposit accounts 95,829 95,829
Borrowings 76,543 77,232
Off-balance sheet unrealized gains (losses) -
Loan funding commitments - 6
Forward sales contracts - (2)
</TABLE>
94
<PAGE> 97
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
1997
---------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash, including short-term bank obligations $ 22,664 $ 22,664
Investment securities available for sale 12,467 12,467
Mortgage-backed securities available for sale 37,164 37,164
Mortgage-backed securities held to maturity 39,072 38,783
Loans receivable:
Fixed 63,756 64,499
Variable 221,282 221,282
Federal Home Loan Bank stock 3,987 3,987
Liabilities:
Term deposit accounts 222,396 223,055
Other deposit accounts 65,943 65,943
Borrowings 87,337 87,280
Off-balance sheet unrealized gains (losses) -
Loan funding commitments - -
Forward sales contracts - 1
</TABLE>
The estimated fair values of investment securities and mortgage-backed
securities available for sale and held to maturity are based on quoted market
prices or dealer quotes.
The fair value of loans receivable with fixed interest rates is estimated
by discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings for the same remaining
maturities.
The fair value of nonperforming loans with a carrying value of
approximately $1,911,000 and $1,699,000 at June 30, 1998 and 1997, respectively,
was not estimated because it is not practicable to reasonably assess the credit
adjustment that would be applied in the market place for such loans. These
nonperforming loans are primarily residential real estate loans.
The fair value of Federal Home Loan Bank stock is based on its redemption
value.
95
<PAGE> 98
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
The fair value of term deposit accounts is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
of other deposit accounts is the amount payable on demand at June 30, 1998 and
1997.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of borrowings.
For fixed-rate loan funding commitments, the fair value is estimated based
on the difference between current levels of interest rates and the committed
rates.
The fair value of forward sales contracts is based on dealer quotes.
The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 1998 and 1997. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively reva
lued for purposes of these consolidated financial statements since that date,
and therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
15. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On June 28, 1995, the Association converted from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association. At that time, the Association established a liquidation
account in an amount equal to its equity as reflected in the latest statement of
financial condition used in the final conversion prospectus. The amount of the
liquidation account as of March 31, 1995 was $13,763,000. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their accounts at
the Association after the conversion. The liquidation account will be reduced
annually to the extent that eligible account holders and supplemental eligible
account holders have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore an eligible account holder's or
supplemental eligible account holder's interest in the liquidation account. In
the event of a complete liquidation of the Association, each eligible account
holder and supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.
Subsequent to the conversion, the Association may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.
96
<PAGE> 99
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
16. PARENT COMPANY FINANCIAL INFORMATION
The following presents the unconsolidated financial statements of the
parent company only, SGV Bancorp, Inc. (Note 1).
SGV BANCORP, INC. (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997
1998 1997
--------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,995 $ 204
Investment securities available for sale 258 1,485
Mortgage-backed securities available for sale 862 1,349
Investment in subsidiary 27,769 25,526
Receivable from subsidiary 982 1,200
Other assets 367 139
Total assets $ 32,233 $ 29,903
========= =========
TOTAL STOCKHOLDERS' EQUITY: $ 32,233 $ 29,903
========= =========
</TABLE>
SGV BANCORP, INC. (PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income $ 266 $ 360 $ 420
Other expenses (249) (212) (168)
Income taxes (7) (62) (106)
------- ------ -------
Earnings before equity in net earnings of subsidiary 10 86 146
Equity in net earnings of subsidiary 1,477 645 448
------- ------ -------
Net earnings $ 1,487 $ 731 $ 594
======= ====== =======
</TABLE>
97
<PAGE> 100
<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- ------------------------------------------------------------------------------------------------------
SGV BANCORP, INC. (PARENT COMPANY ONLY)
SUMMARY STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JUNE 30, 1998
1998 1997 1996
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 1,487 $ 731 $ 594
Adjustments to reconcile net earnings to cash
used in operating activities:
(Gain) loss on sale or redemption of investment
securities available for sale (5) 13 -
Equity in net earnings of subsidiary (1,477) (645) (448)
Premium amortization on securities 15 19 16
(Increase) decrease in other assets (228) 74 (206)
--------- -------- ---------
Net cash (used in) provided by operating activities (208) 192 (44)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for (750) - (7,000)
Proceeds from sale or redemption of investment
securities available for sale 2,005 1,487 4,000
Purchase of mortgage-backed securities
available for sale - - (2,105)
Principal repayments on mortgage-backed securities 461 363 358
Principal repayment on loan to subsidiary 218 218 110
--------- -------- ---------
Net cash provided by (used in) investing activities 1,934 2,068 (4,637)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 60 - -
Purchase of treasury stock - (2,884) (1,240)
Other, net 5 - -
Net cash provided by (used in) financing activities 65 (2,884) (1,240)
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents 1,791 (624) (5,921)
CASH AND CASH EQUIVALENTS,
beginning of year 204 828 6,749
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 1,995 $ 204 $ 828
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCASH INVESTING ACTIVITIES DURING
THE YEAR: 1998 1997 1996
Change in net unrealized gain/loss on securities
available for sale, net of taxes $ (12) $ (39) $ 80
</TABLE>
98
<PAGE> 101
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results for the years ended June
30, 1998 and 1997 (The 1997 and first quarter of 1998 earning-per-share amounts
have been restated to comply with SFAS 128, EARNINGS PER SHARE):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1998
Interest income $ 7,324 $ 7,459 $ 7,434 $ 7,385
Interest expense 4,817 4,840 4,533 4,471
Provision for estimated loan losses 75 268 115 277
Net earnings 331 234 491 431
Earnings per share - basic 0.14 0.10 0.21 0.18
Earnings per share - diluted 0.14 0.09 0.20 0.17
1997
Interest income $ 6,108 $ 6,441 $ 6,865 $ 7,286
Interest expense 3,863 4,120 4,431 4,724
Provision for estimated loan losses 188 105 194 70
Net earnings (loss) (464) 416 285 494
Earnings (loss) per share - basic (0.18) 0.16 0.12 0.21
Earnings (loss) per share - diluted (0.18) 0.16 0.12 0.21
</TABLE>
99
<PAGE> 102
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Incorporated herein by this reference is the information set forth in the
section entitled "Information with Respect to Nominees, Continuing Directors and
Executive Officers" contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders (the "1998 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Incorporated herein by this reference is the information set forth in the
section entitled "Executive Compensation" contained in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Incorporated herein by this reference is the information set forth in the
sections entitled "Security Ownership of Certain Beneficial Owners" and
"Information with Respect to Nominees, Continuing Directors and Executive
Officers" contained in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Incorporated herein by this reference is the information set forth in the
section entitled "Transactions with Certain Related Persons" contained in the
1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a)(1)Financial Statements
Description
-----------
Independent Auditors' Report
Consolidated Statements of Financial Condition as of June 30, 1998 and
1997
Consolidated Statements of Operations for Each of the Three Years in the
Period Ended June 30, 1998
Consolidated Statements of Stockholders' Equity for Each of the Three
Years in the Period Ended June 30, 1998
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period Ended June 30, 1998
Notes to Consolidated Financial Statements for Each of the Three Years in
the Period Ended June 30, 1998
100
<PAGE> 103
(a)(2) Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or
the notes thereto.
(a)(3) Exhibits
(a) The following exhibits are filed as part of this report:
3.1 Certificates of Incorporation of SGV Bancorp, Inc.*
3.2 Bylaws of SGV Bancorp, Inc.*
4.0 Stock Certificate of SGV Bancorp, Inc.*
10.1 Employment Agreement between First Federal Savings and Loan
Association of San Gabriel Valley and Barrett G. Andersen
10.2 Employment Agreement between SGV Bancorp, Inc. and Barrett G.
Andersen
10.3 Employment Agreement between First Federal Savings and Loan
Association of San Gabriel Valley and Ronald A. Ott
10.4 Employment Agreement between SGV Bancorp, Inc. and Ronald A. Ott
10.5 Form of Two-year Change in Control Agreement between First Federal
Savings and Loan Association of San Gabriel Valley and certain
executive officers
10.6 Form of Two-year Change in Control Agreement between SGV Bancorp,
Inc. and certain executive officers
10.7 Form of One-year Change in Control Agreement between First Federal
Savings and Loan Association of San Gabriel Valley and certain
officers
10.8 Form of One-year Change in Control Agreement between SGV Bancorp,
Inc. and certain officers
10.9 Form of Proposed First Federal Savings and Loan Association
of San Gabriel Valley Employee Severance Compensation Plan*
10.10 First Federal Savings and Loan Association of San Gabriel Valley
Employees' Savings & Profit Sharing Plan and Trust*
10.11 Form of First Federal Savings and Loan Association of San Gabriel
Valley 1995 Supplemental Executive Retirement Plan*
10.12 First Federal Savings and Loan Association of San Gabriel Valley
1995 Directors Deferred Stock Unit Plan**
10.13 1997 Stock-Based Incentive Plan
10.14 1995 Amended and Restated Stock-Based Incentive Plan
11.0 Computation of Earnings Per Share (filed herewith under Item 8)
21.0 Subsidiary information is incorporated herein by reference to "Part
I - Subsidiary Activities"
23.0 Consent of Independent Accountant (filed herewith)
27.0 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
None
- --------------------
* Incorporated herein by reference from the Exhibits to the Registration
Statement on Form S-1, as amended, filed on March 6, 1995, Registration
No. 33-90018.
** Incorporated herein by reference from the Definitive Proxy materia1 for the
Registrant's 1995 Annual Meeting of Stockholders, filed on December 7,
1995.
101
<PAGE> 104
CONFORMED SIGNATURES
Pursuant to the requirements of Section 13 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.
SGV BANCORP, INC.
By: /s/ Barrett G. Andersen
-----------------------
Barrett G. Andersen
DATED: September 25, 1998 President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dated indicated.
Name Title Date
---- ----- ----
/s/ Barrett G. Andersen President, Chief Executive Officer September 25, 1998
- ------------------------
Barrett G. Andersen and Director
(principal executive officer)
/s/ Ronald A. Ott Executive Vice President, Chief September 25, 1998
- ------------------------
Ronald A. Ott Financial Officer and Treasurer
(principal accounting officer)
/s/ Benjamin S. Wong Chairman of the Board September 25, 1998
- ------------------------
Benjamin S. Wong of Directors
/s/ Royce A. Stutzman Director September 25, 1998
- ------------------------
Royce A. Stutzman
/s/ Irven G. Reynolds Director September 25, 1998
- ------------------------
Irven G. Reynolds
/s/ John D. Randall Director September 25, 1998
- ------------------------
John D. Randall
/s/ Thomas A. Patronite Director September 25, 1998
- ------------------------
Thomas A. Patronite
102
<PAGE> 1
AMENDED AND RESTATED
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SAN GABRIEL VALLEY
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 28, 1995, and is
amended and restated as of July 24, 1998, by and among First Federal Savings and
Loan Association of San Gabriel Valley (the "Association"), a federally
chartered savings institution, with its principal administrative office at 225
North Barranca Street, West Covina, California, SGV Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for the
Association (the "Holding Company"), and Barrett G. Andersen ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
President and Chief Executive Officer of the Association. Executive shall render
administrative and management services to the Association such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Association.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter (the "initial
term"). Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary date thereafter, the disinterested members of the
board of directors of the Association ("Board") may extend the Agreement an
additional year such that the remaining term of the Agreement shall be three (3)
years unless the Executive elects not to extend the term of the Agreement by
giving written notice in accordance with Section 8 of this Agreement. The Board
will review the Agreement and Executive's performance annually for purposes of
determining whether to extend the Agreement and the rationale and results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended. Notwithstanding any other provisions of this
Agreement, however, in the event of a Change in Control as hereinafter defined
in Section 5, the Agreement shall be automatically renewed such that the initial
term of
1
<PAGE> 2
employment shall commence on the date the Change in Control occurs and the term
of employment shall end on the date three (3) years thereafter.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, other companies, which, in such Board's judgment, will not
present any conflict of interest with the Association, or materially affect the
performance of Executive's duties pursuant to this Agreement. Executive may also
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, community and civic organizations, which, in the
Board's judgment, will not present any conflict of interest with the Holding
Company or its Subsidiaries, or materially affect the performance of Executive's
duties pursuant to this Agreement; provided Executive notify the Board of such
activity and the Board does not take Board action to object to such activity.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Association may be terminated by the Association or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of not
less than $188,256 per year ("Base Salary"). Base Salary shall also include any
amounts of compensation deferred by Executive under any tax qualified or
unqualified plan maintained by the Association. Such Base Salary shall be
payable semi-monthly. During the period of this Agreement, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than one year from the date of this Agreement. Such review shall be
conducted by the Board or by a Committee of the Board, delegated such
responsibility by the Board. The Committee or the Board may increase Executive's
Base Salary. Any increase in Base Salary shall become the "Base Salary" for
purposes of this Agreement from the date of such increase. In addition to the
Base Salary provided in this Section 3(a), the Association shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Association.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association
2
<PAGE> 3
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans, including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock option or restricted stock award plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Association in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Executive shall be entitled to incentive compensation and bonuses
as provided in any plan of the Association in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Association shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Association's employ upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as President and Chief
Executive Officer, unless consented to by the Executive, (B) a material change
in Executive's function, duties, or responsibilities with the Association, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by Executive, (C) a relocation of
Executive's principal place of employment by more than 30 driving miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Association or Holding Company, or (F) breach of this Agreement by the
Association. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall pay Executive, or,
in the event of his subsequent death,
3
<PAGE> 4
his beneficiary or beneficiaries, or his estate, as the case may be a sum equal
to the payments due to the Executive for the remaining term of the Agreement,
including but not limited to Base Salary, bonuses and any other cash deferred
compensation paid or to be paid, to the Executive, and the amount equal to the
annual contributions that would have been made on Executive's behalf to any
employee benefit plans of the Association or the Holding Company during the
remaining term of this Agreement based on contributions or payments made (on an
annualized basis) at the Date of Termination; provided, however, that any
payments pursuant to this subsection shall not, in the aggregate, exceed three
times Executive's average annual compensation for the five most recent taxable
years that Executive has been employed by the Association or such lesser number
of years in the event that Executive shall have been employed by the Association
for less than five years. In the event the Association is not in compliance with
its minimum capital requirements or if such payments pursuant to this subsection
(b) would cause the Association's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Association or successor thereto is in capital compliance. At the
election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made in a lump sum as of the Executive's
Date of Termination. In the event that no election is made, payment to Executive
will be made on a monthly basis in approximately equal installments during the
remaining term of the Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued for the Executive and his previously covered dependents
life, medical, dental and disability coverage that the Executive agrees is
substantially equivalent to the coverage maintained by the Association or the
Holding Company for Executive and his dependents prior to his termination at no
cost to the Executive, except to the extent such coverage may be changed in its
application to all Association or Holding Company employees. Such coverage shall
cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 20% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire
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such securities except for any voting securities of the Association purchased by
the Holding Company and any voting securities purchased by any employee benefit
plan of the Association or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by a Nominating Committee solely composed of members who are
Incumbent Board Members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Association or the Holding Company or similar transaction occurs or is
effectuated in which the Association or Holding Company is not the resulting
entity; provided, however, that such an event listed above will be deemed to
have occurred or to have been effectuated upon the receipt of all required
federal regulatory approvals not including the lapse of any statutory waiting
periods, or (D) a proxy statement shall be distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Association
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Association
or the Holding Company shall be distributed; or (E) a tender offer is made and
accepted for 20% or more of the voting securities of the Association or Holding
Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation unless such termination is because of his death or Termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both a sum equal to the greater of: (1) the
payments due for the remaining term of the Agreement; or 2) three (3) times
Executive's highest annual compensation for the last 5 years. Such annual
compensation shall include Base Salary, commissions, bonuses, contributions or
accruals on behalf of Executive to any pension and profit sharing plans, any
benefits to be paid or received under any stock-based benefit plan, severance
payments, directors or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of the executive, which
election is to be made prior to a Change in Control, such payment shall be made:
(a) in a lump sum, (b) on a semi-monthly basis in approximately equal
installments over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments over
a period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment; provided however, that any payment under
this provision shall not exceed three (3) times the Executive's average annual
compensation. In the event the Association is not in compliance with its minimum
capital
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requirements or if such payments would cause the Association's capital to be
reduced below its minimum regulatory capital requirements, such payments shall
be deferred until such time as the Association or successor thereto is in
capital compliance. At the election of the Executive, which election is to be
made prior to a Change in Control, such payment shall be made in a lump sum as
of the Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments on a
monthly basis over a period of thirty-six (36) months following the Executive's
termination. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued for the Executive and his previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Association for Executive and his dependents prior to his termination at no cost
to the Executive. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against the generally prevailing standards of
professional competence for executive officers having comparable positions in
the savings institutions industry. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a Notice of Termination which shall include a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options and related limited
rights granted to Executive under any stock option plan or any unvested awards
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granted to Executive under any stock benefit plan of the Association, the
Holding Company or any subsidiary or affiliate thereof, shall become null and
void effective upon Executive's receipt of Notice of Termination for Cause
pursuant to Section 8 hereof, and shall not be exercisable by or delivered to
Executive at any time subsequent to such Termination for Cause.
8. NOTICE OF TERMINATION.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. Amounts
paid under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for three (3) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association . Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
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10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Association. The parties hereto,
recognizing that irreparable injury will result to the Association, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Association, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Association or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Association. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Association are not timely paid or provided by the Association, such amounts
and benefits shall be paid or provided by the Holding Company.
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(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated June 28, 1995, and
amended and restated as of July 24, 1998, between Executive and the Holding
Company, such compensation payments and benefits paid by the Holding Company
will be subtracted from any amounts due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the level of
activity and time expended on such activities by Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Association or
any predecessor of the Association and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
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15. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time, but
any termination by the Association, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 7
hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1); the Association 's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of the
Association under this contract shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at the
time the FDIC enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS
(or his designee) at the time the Director (or his designee) approves a
supervisory merger to resolve problems related to the operations of the
Association or when the Association is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated
thereunder.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California, but only to
the extent not superseded by federal law.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Association, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
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21. INDEMNIFICATION.
(a) The Association shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under federal law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Association (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 C.F.R.ss. 545.121 and any rules or
regulations promulgated thereunder.
22. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of San
Gabriel Valley and SGV Bancorp, Inc. have caused this amended and restated
Agreement to be executed and their seals to be affixed hereunto by their duly
authorized officers and directors, and Executive has signed this amended and
restated Agreement, on the 24th day of July, 1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SAN GABRIEL VALLEY
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
ATTEST: SGV BANCORP, INC.
(Guarantor)
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Betty Ehlenburg /s/ Barrett G. Andersen
- --------------------------- -----------------------------
Barrett G. Andersen
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AMENDED AND RESTATED
SGV BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 28, 1995, and
amended and restated as of July 24, 1998, by and between SGV Bancorp, Inc. (the
"Holding Company"), a corporation organized under the laws of the State of
Delaware, with its principal administrative office at 225 North Barranca Street,
West Covina, California and Barrett G. Andersen (the "Executive"). Any reference
to "Association" herein shall mean First Federal Savings and Loan Association of
San Gabriel Valley or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary of the Holding Company.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter (the "initial
term"). Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary date thereafter, the board of directors of the
Holding Company ("Board") may extend the Agreement an additional year such that
the remaining term of the Agreement shall be three (3) years unless the
Executive elects not to extend the term of the Agreement by giving written
notice in accordance with Section 8 of this Agreement. The Board will review the
Agreement and the Executive's performance at least annually for purposes of
determining whether to extend the Agreement and the results of such review shall
be included in the minutes of the Board's meeting. The Board shall give notice
to the Executive as soon as possible after such review as to whether the
Agreement is to be extended. Notwithstanding any other provision of the
Agreement, however, in the event of a Change in Control as hereinafter defined
in Section 5, the Agreement shall be automatically renewed, such that the
initial term of the Agreement shall
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commence on the date the Change in Control occurs and the term of employment
shall end on the date three (3) years thereafter.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its, direct or indirect,
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, other companies, which, in such Board's judgment, will not
present any conflict of interest with the Holding Company or its Subsidiaries,
or materially affect the performance of Executive's duties pursuant to this
Agreement. Executive may also serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, community and civic
organizations, which, in the Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement; provided Executive
notify the Board of such activity and the Board does not take Board action to
object to such activity.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Holding Company or its Subsidiaries shall pay Executive as
compensation a salary of not less than $188,256 per year ("Base Salary"). Base
Salary shall also include any amounts of compensation deferred by Executive
under any tax qualified or unqualified plan maintained by the Holding Company
and its Subsidiaries. Such Base Salary shall be payable semi-monthly. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board delegated such responsibility by the Board. The Committee
or the Board may increase Executive's Base Salary. Any increase in Base Salary
shall become the "Base Salary" for purposes of this Agreement from the date of
such increase. In addition to the Base Salary provided in this Section 3(a), the
Holding Company shall also provide Executive, at no premium cost to Executive,
with all such other benefits as are provided uniformly to permanent full-time
employees of the Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent,
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make any changes in such plans, arrangements or perquisites which would
adversely affect Executive's rights or benefits thereunder, except to the extent
such changes are made applicable to all Holding Company and Association
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans, including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock option or restricted stock award plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Holding Company and its Subsidiaries in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Holding Company and its Subsidiaries
in which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Holding Company's employ, upon, any (A) failure to elect or
reelect or to appoint or reappoint Executive as President and Chief Executive
Officer, unless consented to by the Executive, (B) a material change in
Executive's function, duties, or responsibilities with the Holding Company or
its Subsidiaries, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by the Executive, (C)
a relocation of Executive's principal place of employment by more than 30 miles
from its location at the effective date of this Agreement, unless consented to
by the Executive, (D) a reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Association, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D) (E) or (F), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full calendar months after the event
giving rise to said right to elect.
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall pay Executive,
or, in the event of his subsequent death, his beneficiary or beneficiaries, or
his estate, as the case may be, a sum equal to the payments due the Executive
for the remaining term of the Agreement, including Base Salary, bonuses and any
other cash or deferred compensation paid or to be paid to the Executive, and the
amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Association or the
Holding Company during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination. At the election of the Executive, which election is to be made
prior to an Event of Termination, such payments shall be made in a lump sum. In
the event that no election is made, payment to the Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued for the Executive and his previously covered
dependents life, medical, dental and disability coverage that the Executive
agrees is substantially equivalent to the coverage maintained by the Holding
Company or its Subsidiaries for Executive and his dependents prior to his
termination at no cost to the Executive. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Association shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 20% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries'; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by a Nominating Committee
solely
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composed of members who are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Association or the Holding Company or
similar transaction occurs or is effectuated in which the Association or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods; or (D) a proxy statement shall be distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Association with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Association or the Holding Company shall be distributed; or (E) a tender offer
is made and accepted for 20% or more of the voting securities of the Association
or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation, unless such termination is because of his death, or Termination for
Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's highest annual compensation in the last 5 years. Such annual
compensation shall include Base Salary, commissions, bonuses, contributions or
accruals on behalf of Executive to any pension and profit sharing plans, any
benefits to be paid or received under any stock-based benefit plan, severance
payments, directors or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of the executive, which
election is to be made prior to a Change in Control, such payment shall be made:
(a) in a lump sum, (b) on a semi-monthly basis in approximately equal
installments over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments over
a period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued for the Executive and his previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Institution for Executive and his dependents prior to his termination at no cost
to the Executive. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Date of Termination.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that the Executive is entitled to receive payments
or benefits under the provisions of the Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in Section
4999 of the Internal Revenue Code of 1986, as amended, and any successor
provision thereto, (the "Code")) exists. Such determination shall be made after
taking any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as practicable after a Change in
Control, the Initial Excess Parachute Payment shall be determined. Upon the Date
of Termination following a Change in Control, the Holding Company shall pay the
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code); and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and local and
federal income and excise taxes on the payment provided under clause (1) and on
any payments under this Clause (2). In computing such tax allowance, the payment
to be made under Clause (1) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state and local income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the payment
under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
the Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for the Executive or refunded to the Executive or for the
Executive's benefit. As soon as practicable
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after the Adjustment Amount has been so determined, the Holding Company shall
pay the Adjustment Amount to the Executive. In no event however, shall the
Executive make any payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement that results in a material loss to the Association
or the Holding Company. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options and related limited
rights granted to Executive under any stock option plan, or any unvested awards
granted to Executive under any stock benefit plan of the Holding Company or its
Subsidiaries, shall become null and void effective upon Executive's receipt of
Notice of Termination for Cause pursuant to Section 8 hereof, and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination
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shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for three (3) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the
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Holding Company or its Subsidiaries from pursuing any other remedies available
to the Holding Company or its Subsidiaries for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated June 28, 1995, and
amended and restated on July 24, 1998, between Executive and the Association,
such compensation payments and benefits paid by the Association will be
subtracted from any amount due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Association Agreement shall be allocated in proportion to the level of activity
and the time expended on such activities by the Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement
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shall be interpreted to mean that Executive is subject to receiving fewer
benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regard to principles of conflict of laws of the State of Delaware.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Association, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company, if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under Delaware law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Holding Company (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
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21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, SGV Bancorp, Inc. has caused this amended and restated
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this amended and
restated Agreement, on the 24th day of July, 1998.
ATTEST: SGV BANCORP, INC.
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Betty Ehlenburg /s/ Barrett G. Andersen
- --------------------------- -------------------------------
Barrett G. Andersen
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AMENDED AND RESTATED
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SAN GABRIEL VALLEY
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 28, 1995, and is
amended and restated as of July 24, 1998, by and among First Federal Savings and
Loan Association of San Gabriel Valley (the "Association"), a federally
chartered savings institution, with its principal administrative office at 225
North Barranca Street, West Covina, California, SGV Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for the
Association (the "Holding Company"), and Ronald A. Ott ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve
as Executive Vice President, Chief Financial Officer and Treasurer of the
Holding Company. Executive shall render administrative and management services
to the Association such as are customarily performed by persons in a similar
executive capacity. During said period, Executive also agrees to serve, if
elected, as an officer and director of the Holding Company or any subsidiary of
the Association.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter (the "initial
term"). Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary date thereafter, the disinterested members of the
board of directors of the Association ("Board") may extend the Agreement an
additional year such that the remaining term of the Agreement shall be three (3)
years unless the Executive elects not to extend the term of the Agreement by
giving written notice in accordance with Section 8 of this Agreement. The Board
will review the Agreement and Executive's performance annually for purposes of
determining whether to extend the Agreement and the rationale and results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended. Notwithstanding any other provisions of this
Agreement, however, in the event of a Change in Control as hereinafter defined
in Section 5, the Agreement shall be automatically renewed such that the initial
term of
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employment shall commence on the date the Change in Control occurs and the term
of employment shall end on the date three (3) years thereafter.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, other companies, which, in such Board's judgment, will not
present any conflict of interest with the Association, or materially affect the
performance of Executive's duties pursuant to this Agreement. Executive may also
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, community and civic organizations, which, in the
Board's judgment, will not present any conflict of interest with the Holding
Company or its Subsidiaries, or materially affect the performance of Executive's
duties pursuant to this Agreement; provided Executive notify the Board of such
activity and the Board does not take Board action to object to such activity.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Association may be terminated by the Association or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of not
less than $143,928 per year ("Base Salary"). Base Salary shall also include any
amounts of compensation deferred by Executive under any tax qualified or
unqualified plan maintained by the Association. Such Base Salary shall be
payable semi-monthly. During the period of this Agreement, Executive's Base
Salary shall be reviewed at least annually; the first such review will be made
no later than one year from the date of this Agreement. Such review shall be
conducted by the Board or by a Committee of the Board, delegated such
responsibility by the Board. The Committee or the Board may increase Executive's
Base Salary. Any increase in Base Salary shall become the "Base Salary" for
purposes of this Agreement from the date of such increase. In addition to the
Base Salary provided in this Section 3(a), the Association shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Association.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association
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employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans, including but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock option or restricted stock award plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Association in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Executive shall be entitled to incentive compensation and bonuses
as provided in any plan of the Association in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Association shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Association's employ upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as Executive Vice
President, Chief Financial Officer and Treasurer, unless consented to by the
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Association, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above, unless consented
to by Executive, (C) a relocation of Executive's principal place of employment
by more than 30 driving miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement, unless consented to by the Executive, (E) a
liquidation or dissolution of the Association or Holding Company, or (F) breach
of this Agreement by the Association. Upon the occurrence of any event described
in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right
to elect to terminate his employment under this Agreement by resignation upon
not less than sixty (60) days prior written notice given within six full
calendar months after the event giving rise to said right to elect.
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall pay Executive, or,
in the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be a sum equal to the payments due to the Executive for
the remaining term of the Agreement, including but not limited to Base Salary,
bonuses and any other cash deferred compensation paid or to be paid, to the
Executive, and the amount equal to the annual contributions that would have been
made on Executive's behalf to any employee benefit plans of the Association or
the Holding Company during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination; provided, however, that any payments pursuant to this subsection
-------- -------
shall not, in the aggregate, exceed three times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Association or such lesser number of years in the event that
Executive shall have been employed by the Association for less than five years.
In the event the Association is not in compliance with its minimum capital
requirements or if such payments pursuant to this subsection (b) would cause the
Association's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Association
or successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum as of the Executive's Date of Termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued for the Executive and his previously covered dependents
life, medical, dental and disability coverage that the Executive agrees is
substantially equivalent to the coverage maintained by the Association or the
Holding Company for Executive and his dependents prior to his termination at no
cost to the Executive, except to the extent such coverage may be changed in its
application to all Association or Holding Company employees. Such coverage shall
cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly
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or indirectly, of voting securities of the Association or the Holding Company
representing 20% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by a Nominating Committee
solely composed of members who are Incumbent Board members, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Association or the Holding Company or
similar transaction occurs or is effectuated in which the Association or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement shall be distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Association with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Association or the Holding Company shall be distributed; or (E) a tender offer
is made and accepted for 20% or more of the voting securities of the Association
or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation unless such termination is because of his death or Termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both a sum equal to the greater of: (1) the
payments due for the remaining term of the Agreement; or (2) three (3) times
Executive's highest annual compensation for the last five (5) years . Such
annual compensation shall include Base Salary, commissions bonuses,
contributions or accruals on behalf of Executive to any pension and profit
sharing plans, any benefits to be paid or received under any stock-based benefit
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
executive, which election is to be made prior to a Change in Control, such
payment shall be made: (a) in a lump sum, (b) on a semi-monthly basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment;
provided however, that
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any payment under this provision shall not exceed three (3) times the
Executive's average annual compensation. In the event the Association is not in
compliance with its minimum capital requirements or if such payments would cause
the Association's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Association
or successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum as of the Executive's Date of Termination. In the event that
no election is made, payment to the Executive will be made in approximately
equal installments on a monthly basis over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued for the Executive and his previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Association for Executive and his dependents prior to his termination at no cost
to the Executive. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be determined
by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against the generally prevailing standards of
professional competence for executive officers having comparable positions in
the savings institutions industry. Notwithstanding the foregoing, Executive
shall not be deemed to have been Terminated for Cause unless and until there
shall have been delivered to him a Notice of Termination which shall include a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive
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compensation or other benefits for any period after Termination for Cause. Any
stock options and related limited rights granted to Executive under any stock
option plan or any unvested awards granted to Executive under any stock benefit
plan of the Association, the Holding Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause pursuant to Section 8 hereof, and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE OF TERMINATION.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given.);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. Amounts
paid under this Section are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for three (3) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association . Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
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10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Association. The parties hereto,
recognizing that irreparable injury will result to the Association, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Association, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Association or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Association. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Association are not timely paid or provided by the Association, such amounts
and benefits shall be paid or provided by the Holding Company.
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(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated June 28, 1995, and
amended and restated as of July 24, 1998, between Executive and the Holding
Company, such compensation payments and benefits paid by the Holding Company
will be subtracted from any amounts due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the level of
activity and time expended on such activities by Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Association or
any predecessor of the Association and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
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15. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time, but
any termination by the Association, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 7
hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. ss.1818(e)(3) or (g)(1); the Association 's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. ss.1813(x)(1) all obligations of the
Association under this contract shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee), the FDIC or the Resolution Trust Corporation, at the
time the FDIC enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. ss.1823(c); or (ii) by the Director of the OTS
(or his designee) at the time the Director (or his designee) approves a
supervisory merger to resolve problems related to the operations of the
Association or when the Association is determined by the Director to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and 12 C.F.R. ss.545.121 and any rules and regulations promulgated
thereunder.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of California, but only to
the extent not superseded by federal law.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Association, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
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21. INDEMNIFICATION.
(a) The Association shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under federal law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Association (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 C.F.R.ss. 545.121 and any rules or
regulations promulgated thereunder.
22. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of San
Gabriel Valley and SGV Bancorp, Inc. have caused this amended and restated
Agreement to be executed and their seals to be affixed hereunto by their duly
authorized officers and directors, and Executive has signed this amended and
restated Agreement, on the 24th day of July, 1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SAN GABRIEL VALLEY
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
ATTEST: SGV BANCORP, INC.
(Guarantor)
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Betty Ehlenburg /s/ Ronald A. Ott
- --------------------------- ---------------------------------
Ronald A. Ott
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AMENDED AND RESTATED
SGV BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 28, 1995, and
amended and restated as of July 24, 1998, by and between SGV Bancorp, Inc. (the
"Holding Company"), a corporation organized under the laws of the State of
Delaware, with its principal administrative office at 225 North Barranca Street,
West Covina, California and Ronald A. Ott (the "Executive"). Any reference to
"Association" herein shall mean First Federal Savings and Loan Association of
San Gabriel Valley or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Executive Vice President, Chief Financial Officer and Treasurer of the
Holding Company. The Executive shall render administrative and management
services to the Holding Company such as are customarily performed by persons in
a similar executive capacity. During said period, Executive also agrees to
serve, if elected, as an officer and director of any subsidiary of the Holding
Company.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter (the "initial
term"). Commencing on the first anniversary date of this Agreement, and
continuing on each anniversary date thereafter, the board of directors of the
Holding Company ("Board") may extend the Agreement an additional year such that
the remaining term of the Agreement shall be three (3) years unless the
Executive elects not to extend the term of the Agreement by giving written
notice in accordance with Section 8 of this Agreement. The Board will review the
Agreement and the Executive's performance at least annually for purposes of
determining whether to extend the Agreement and the results of such review shall
be included in the minutes of the Board's meeting. The Board shall give notice
to the Executive as soon as possible after such review as to whether the
Agreement is to be extended. Notwithstanding any provision of the Agreement,
however, in the event of a Change in Control as hereinafter defined in Section
5, the Agreement shall be automatically renewed, such that the initial term of
the Agreement shall
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commence on the date the Change in Control occurs and the term of employment
shall end on the date three (3) years thereafter.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Holding Company and its, direct or indirect,
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, other companies, which, in such Board's judgment, will not
present any conflict of interest with the Holding Company or its Subsidiaries,
or materially affect the performance of Executive's duties pursuant to this
Agreement. Executive may also serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, community and civic
organizations, which, in the Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement; provided Executive
notify the Board of such activity and the Board does not take Board action to
object to such activity.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Holding Company or its Subsidiaries shall pay Executive as
compensation a salary of not less than $143,928 per year ("Base Salary"). Base
Salary shall also include any amounts of compensation deferred by Executive
under any tax qualified or unqualified plan maintained by the Holding Company
and its Subsidiaries. Such Base Salary shall be payable semi-monthly. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board delegated such responsibility by the Board. The Committee
or the Board may increase Executive's Base Salary. Any increase in Base Salary
shall become the "Base Salary" for purposes of this Agreement from the date of
such increase. In addition to the Base Salary provided in this Section 3(a), the
Holding Company shall also provide Executive, at no premium cost to Executive,
with all such other benefits as are provided uniformly to permanent full-time
employees of the Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent,
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make any changes in such plans, arrangements or perquisites which would
adversely affect Executive's rights or benefits thereunder, except to the extent
such changes are made applicable to all Holding Company and Association
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans, including, but not limited
to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock option or restricted stock award plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Holding Company and its Subsidiaries in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive shall be entitled to incentive compensation
and bonuses as provided in any plan of the Holding Company and its Subsidiaries
in which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Holding Company's employ, upon, any (A) failure to elect or
reelect or to appoint or reappoint Executive as Executive Vice President, Chief
Financial Officer and Treasurer, unless consented to by the Executive, (B) a
material change in Executive's function, duties, or responsibilities with the
Holding Company or its Subsidiaries, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above, unless consented
to by the Executive, (C) a relocation of Executive's principal place of
employment by more than 30 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) a reduction in the benefits
and perquisites to the Executive from those being provided as of the effective
date of this Agreement, unless consented to by the Executive, (E) a liquidation
or dissolution of the Holding Company or the Association, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D) (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full calendar
months after the event giving rise to said right to elect.
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall pay Executive,
or, in the event of his subsequent death, his beneficiary or beneficiaries, or
his estate, as the case may be, a sum equal to the payments due the Executive
for the remaining term of the agreement, including Base Salary, bonuses and any
other cash or deferred compensation paid or to be paid to the executive, and the
amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Association or the
Holding Company during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination. At the election of the Executive, which election is to be made
prior to an Event of Termination, such payments shall be made in a lump sum. In
the event that no election is made, payment to the Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued for the Executive and his previously covered
dependents life, medical, dental and disability coverage that the Executive
agrees is substantially equivalent to the coverage maintained by the Holding
Company or its Subsidiaries for Executive and his dependents prior to his
termination at no cost to the Executive. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Association shall mean an event of a nature that; (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall substitute
its judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 20% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries'; or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by a Nominating Committee
solely
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composed of members who are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Association or the Holding Company or
similar transaction occurs or is effectuated in which the Association or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods; or (D) a proxy statement shall be distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Association with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Association or the Holding Company shall be distributed; or (E) a tender offer
is made and accepted for 20% or more of the voting securities of the Association
or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and, (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation, unless such termination is because of his death, or Termination for
Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's highest annual compensation for the last 5 years. Such annual
compensation shall include Base Salary, commissions, bonuses, contributions or
accruals on behalf of Executive to any pension and profit sharing plans, any
benefits to be paid or received under any stock-based benefit plan, severance
payments, directors or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of the executive, which
election is to be made prior to a Change in Control, such payment shall be made:
(a) in a lump sum, (b) on a semi-monthly basis in approximately equal
installments over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments over
a period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued for the Executive and his previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Institution for Executive and his dependents prior to his termination at no cost
to the Executive. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Date of Termination.
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6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that the Executive is entitled to receive payments
or benefits under the provisions of the Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in Section
4999 of the Internal Revenue Code of 1986, as amended, and any successor
provision thereto, (the "Code")) exists. Such determination shall be made after
taking any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as practicable after a Change in
Control, the Initial Excess Parachute Payment shall be determined. Upon the Date
of Termination following a Change in Control, the Holding Company shall pay the
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code); and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state and local and
federal income and excise taxes on the payment provided under clause (1) and on
any payments under this Clause (2). In computing such tax allowance, the payment
to be made under Clause (1) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state and local income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the payment
under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
the Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for the Executive or refunded to the Executive or for the
Executive's benefit. As soon as practicable
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after the Adjustment Amount has been so determined, the Holding Company shall
pay the Adjustment Amount to the Executive. In no event however, shall the
Executive make any payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement that results in a material loss to the Association
or the Holding Company. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options and related limited
rights granted to Executive under any stock option plan, or any unvested awards
granted to Executive under any stock benefit plan of the Holding Company or its
Subsidiaries, shall become null and void effective upon Executive's receipt of
Notice of Termination for Cause pursuant to Section 8 hereof, and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination
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shall be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for three (3) full years
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the
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Holding Company or its Subsidiaries from pursuing any other remedies available
to the Holding Company or its Subsidiaries for such breach or threatened breach,
including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to this Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated June 28, 1995, and
amended and restated on July 24, 1998, between Executive and the Association,
such compensation payments and benefits paid by the Association will be
subtracted from any amount due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Association Agreement shall be allocated in proportion to the level of activity
and the time expended on such activities by the Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to Executive of a kind elsewhere provided. No provision of this
Agreement
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shall be interpreted to mean that Executive is subject to receiving fewer
benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regard to principles of conflict of laws of the State of Delaware.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Association, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company, if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and his heirs, executors and administrators) to the fullest
extent permitted under Delaware law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the Holding Company (whether or not he continues to be a
director or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
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21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, SGV Bancorp, Inc. has caused this amended and restated
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this amended and
restated Agreement, on the 24th day of July, 1998.
ATTEST: SGV BANCORP, INC.
/s/ Edie J. Beachboard By: /s/ Benjamin S. Wong
- -------------------------- --------------------------------------
Secretary For the Entire Board of Directors
[SEAL]
WITNESS:
/s/ Barrett Andersen By: /s/ Ronald A. Ott
- --------------------------- ------------------------------
Ronald A. Ott
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AMENDED AND RESTATED
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SAN GABRIEL VALLEY
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of May 16, 1997, and amended and
restated as of , 1998, ("Agreement") by and among First Federal
Savings and Loan Association of San Gabriel Valley (the "Association"), a
federally chartered savings institution, with its principal administrative
office at 225 North Barranca Street, West Covina, California, ________________
("Executive"), and SGV Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware which is the holding company
of the Association.
WHEREAS, the Association recognizes the substantial contribution Executive
has made to the Association and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Association.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the First Federal Savings and Loan Association of San Gabriel
Valley Change in Control Agreement (the "Agreement") shall be deemed to have
commenced as of the date first above written and shall continue for a period of
twenty-four (24) full calendar months thereafter (the "initial term").
Commencing on the first anniversary date of this Agreement and continuing at
each anniversary date thereafter, the Board of Directors of the Association
("Board") may extend the Agreement for an additional year such that the
remaining term of the Agreement shall be twenty-four (24) calendar months. The
Board will review the Agreement and Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting. The Board shall give
notice to the Executive as soon as possible after such review as to whether the
Agreement is to be extended. Notwithstanding any other provision in this
Agreement, in the event of a Change in Control as hereinafter defined in Section
2(b), the Agreement shall be automatically renewed such that the initial term of
the Agreement shall commence on the date the Change in Control occurs and shall
end on the date twenty-four (24) full calendar months thereafter.
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2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Association or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate her employment at any time during the term of this
Agreement.
(b) For purposes of this Plan, a "Change in Control" of the Association or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Association or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated
by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in
effect on the date hereof (provided, that in applying the definition of change
in control as set forth under the rules and regulations of the OTS, the Board
shall substitute its judgment for that of the OTS); or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Association or the
Holding Company representing 20% or more of the Association's or the Holding
Company's outstanding securities except for any securities of the Association
purchased by the Holding Company in connection with the conversion of the
Association to the stock form and any securities purchased by any employee
benefit plan of the Association or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by a Nominating Committee solely composed of members who are
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Association or the Holding Company or similar transaction occurs
or is effectuated in which the Association or Holding Company is not the
resulting entity ; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods; or (D) a proxy statement shall be distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Association with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
2
<PAGE> 3
Association or the Holding Company shall be distributed; or (E) a tender offer
is made for 20% or more of the voting securities of the Association or Holding
Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against the generally prevailing standards of professional competence
for officers having comparable positions in the savings institutions industry.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to her a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the Board of Directors of the Association at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for her, together with counsel, to be heard before the Board at such
meeting and which such meeting shall be held not more than 30 days from the date
of notice during which period Executive may be suspended with pay), finding that
in the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. Any stock options and
related limited rights granted to Executive under any stock option plan of the
Association or any unvested awards granted to Executive under any stock benefit
plan of the Holding Company or its subsidiaries, shall become null and void
effective upon Executive's receipt of Notice of Termination for Cause and shall
not be exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Association and the Holding Company shall pay Executive, or in the
event of her subsequent death, her beneficiary or beneficiaries, or her estate,
as the case may be, an amount equal to two (2) times Executive's highest annual
compensation for the last 5 years; provided that Executive may not receive an
amount in excess of the Executive's average annual compensation for the five
most recent taxable years. Annual compensation shall include base salary,
commissions, bonuses, contributions or accruals on behalf of Executive to any
pension and profit sharing plan, any benefits to be paid or received under any
stock-based benefit plan, severance payments, directors or committee fees and
fringe benefits paid or to be paid to the Executive during such years. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of this Agreement.
3
<PAGE> 4
(b) Upon the occurrence of a Change in Control of the Association or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Association shall cause to be continued for the
Executive and her previously covered dependents life, medical, dental and
disability coverage that the Executive agrees is substantially equivalent to the
coverage maintained by the Association or Holding Company for Executive and her
dependents prior to her termination except to the extent coverage may be changed
in its application to all Association and Holding Company employees on a
nondiscriminatory basis, at no cost to the Executive. Such coverage and payments
shall cease upon the expiration of twenty-four (24) full calendar months from
the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Association or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
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<PAGE> 5
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Association will continue to pay Executive her full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to her current annual salary) and continue her as a participant in all
compensation, benefit and insurance plans in which she was participating when
the notice of dispute was given, until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement or (2) the expiration of the remaining
term of this Agreement as determined as of the Date of Termination. Amounts paid
under this Section 4(c) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Association. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to her without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Association or shall impose on the Association any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Association and their respective successors and assigns.
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<PAGE> 6
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 2 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss.1818(e)(3) or (g)(1)), the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(c)(4) or (g)(1)), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Association under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
6
<PAGE> 7
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director of the Office of Thrift Supervision (or his or her
designee) at the time the Director (or his or her designee) approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice of Termination.
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California but only to
the extent not preempted by Federal law.
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<PAGE> 8
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Association's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of her right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Association shall provide Executive (including her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including her legal representatives,
successors and assigns) for reasonable costs and expenses incurred by Executive
in defending or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal or otherwise, including any
appeal or other proceeding for review.
Indemnification by the Association shall be made only upon the final
judgment on the merits in the favor of Executive, in case of settlement, in case
of final judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Association determine Executive was acting in good faith within the scope
of Executive's employment or authority in accordance with 12 C.F.R.
section 545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Section 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of Directors of the
Association, if such action is brought against Executive in her capacity as a
officer or director of the Association, however, shall not extend to matters as
to which Executive is finally adjudged to be liable for willful misconduct in
the performance of her duties.
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<PAGE> 9
17. SUCCESSOR TO THE ASSOCIATION
----------------------------
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment had
taken place.
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<PAGE> 10
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of San
Gabriel Valley and SGV Bancorp, Inc. have caused this amended and restated
Agreement to be executed by their duly authorized officers, and Executive has
signed this Agreement, on the _____ day of __________, 1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SAN GABRIEL VALLEY
______________________________ By: ______________________________________
Secretary President and Chief Executive Officer
SEAL
ATTEST: SGV BANCORP, INC.
(Guarantor)
______________________________ By: ______________________________________
Secretary President and Chief Executive Officer
SEAL
WITNESS:
_______________________________ _____________________________________
Executive
10
<PAGE> 1
AMENDED AND RESTATED
SGV BANCORP, INC.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT ("Agreement") is made effective as of June 28, 1995, and
amended and restated as of ______________, 1998, by and between SGV Bancorp,
Inc. (the "Holding Company"), a corporation organized under the laws of the
State of Delaware, with its office at 225 North Barranca Street, West Covina,
California, and __________________ ("Executive"). The term "Association" refers
to First Federal Savings and Loan Association of San Gabriel Valley, the
wholly-owned subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect her position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding
Company or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter (the "initial term"). Commencing on the first
anniversary date of this Agreement, and continuing at each anniversary date
thereafter, the board of directors of the Holding Company (the "Board") may
extend the Agreement an additional year such that the remaining term of the
Agreement shall be twenty-four (24) full calendar months. The Board will review
the Agreement and Executive's performance at least annually for purposes of
determining whether to extend the Agreement and the results of such review shall
be included in the minutes of the Board's meeting. The Board shall give notice
to the Executive as soon as possible after such review as to whether the
Agreement is to be extended. Notwithstanding any other provision of the
Agreement, however, in the event of a Change in Control as hereinafter defined
in Section 2(b) of this Agreement, the Agreement shall be automatically renewed
such that the initial term of the Agreement shall commence on the date the
Change in Control occurs and the term of the Agreement shall end on the date
twenty-four (24) full calendar months thereafter.
1
<PAGE> 2
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined in Section 2(b)) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate her employment at any time during the term of this
Agreement.
(b) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1(a) of the Current Report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933 and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgment for that of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Association or the Holding Company representing 20% or more of the Association's
or the Holding Company's outstanding securities except for any securities of the
Association purchased by the Holding Company in connection with the conversion
of the Association to the stock form and any securities purchased by any
employee benefit plan of the Association, or (B) individuals who constitute the
Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by a Nominating Committee solely composed of members who are serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Association or
the Holding Company or similar transaction occurs or is effectuated in which the
Association or Holding Company is not the resulting entity, or (D) a proxy
statement is distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Association with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Association or
the Holding Company shall be distributed, or (E) a tender offer is made and
accepted for 20% or more of the voting securities of the Association or Holding
Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination
2
<PAGE> 3
because of Executive's personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease and desist order, or any material
breach of this Agreement that results in a material loss to the Association or
the Holding Company. Notwithstanding the foregoing, Executive shall not be
deemed to have been Terminated for Cause unless and until there shall have been
delivered to her a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for her, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. Any stock options and
related limited rights granted to Executive under any stock option plan, or any
unvested awards granted to Executive under any stock benefit plan of the Holding
Company or its subsidiaries, shall become null and void effective upon
Executive's receipt of Notice of Termination For Cause pursuant to Section 8
hereof, and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination For Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall pay to Executive, or in the event of her subsequent death, her
beneficiary or beneficiaries, or her estate, as the case may be, as severance
pay or liquidated damages or both, a sum equal to two (2) times Executive's
highest annual compensation for the last 5 years. Such annual compensation shall
include base salary, commissions, bonuses, contributions or accruals on behalf
of Executive to any pension and profit sharing plan, any benefits to be paid or
received under any stock-based benefit plan, severance payments, directors or
committee fees and fringe benefits paid to Executive during such years. At the
election of Executive which election is to be made prior to a Change in Control,
such payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Association or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued for the Executive and her previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Association for Executive and her dependents prior to her termination at no cost
to the Executive. Such coverage and payments shall cease upon expiration of
twenty-four (24) full calendar months following the Date of Termination.
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<PAGE> 4
(c) In each calendar year that the Executive is entitled to receive
payments or benefits under the provisions of the Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment". As soon as practicable after a Change in Control, the
Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Holding Company shall pay the
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the
Code); and
(2) such additional amount (tax allowance) as may be necessary to
compensate the Executive for the payment by the Executive of state
and local and federal income and excise taxes on the payment
provided under clause (1) and on any payments under this Clause (2).
In computing such tax allowance, the payment to be made under Clause
(1) shall be multiplied by the "gross up percentage" ("GUP"). The
GUP shall be determined as follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state and local income and
employment-related tax rates, including any applicable excise tax
rates, applicable to the Executive in the year in which the payment
under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
the Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for the Executive or refunded to the Executive or for the
Executive's benefit. As soon as practicable after the Adjustment Amount has been
so determined, the Holding Company shall pay the
4
<PAGE> 5
Adjustment Amount to the Executive. In no event however, shall the Executive
make any payment under this paragraph to the Holding Company.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive her full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to her current annual
salary) and continue her as a participant in all compensation, benefit and
insurance plans in which she was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section 4(c) are in addition to all other amounts due
under this Agreement and shall not be offset against or reduce any other amounts
due under this Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid and provided by the Holding
Company.
5
<PAGE> 6
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company and
Executive, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to her without
reference to this Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain Executive in its employ for any
period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER ASSOCIATION AGREEMENT.
-----------------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) of the Change-in-Control Agreement between Executive and the
Association dated June 28, 1995 and amended and restated as of
_________________, 1998 (the "Association Agreement") during the term of this
Agreement and a Change in Control, as defined herein, occurs the Holding Company
will assume its obligation
6
<PAGE> 7
to pay and Executive will be entitled to receive all of the termination benefits
provided for under Section 3 of the Association Agreement upon the notification
of the Holding Company of the Association's receipt of a dismissal of charges in
the Notice.
10. EFFECT OF ACTION UNDER ASSOCIATION AGREEMENT.
--------------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Association
Agreement between Executive and Association, the amount of such payments and
benefits paid by the Association will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware without regard
to principles of conflict of laws of the State of Delaware.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Holding Company, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of her
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
7
<PAGE> 8
15. PAYMENT OF LEGAL FEES.
---------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Holding Company if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Holding Company shall provide Executive (including her heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and her heirs, executors and administrators) to the fullest
extent permitted under Delaware law and (as provided in the Holding Company's
Certificate of Incorporation) against all expenses and liabilities reasonably
incurred by her in connection with or arising out of any action, suit or
proceeding in which she may be involved by reason of her having been a director
or officer of the Holding Company (whether or not she continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
8
<PAGE> 9
SIGNATURES
IN WITNESS WHEREOF, SGV Bancorp, Inc. has caused this amended and restated
Agreement to be executed by its duly authorized officer, and Executive has
signed this amended and restated Agreement, on the _____ day of
_________________, 1998.
ATTEST: SGV BANCORP, INC.
__________________________________ By: __________________________________
Secretary For the Entire Board of Directors
WITNESS:
___________________________________ ______________________________________
9
<PAGE> 1
AMENDED AND RESTATED
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SAN GABRIEL VALLEY
ONE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT ("Agreement") is made effective as of May 16, 1997, and
amended and restated as of ___________, 1998, by and among First Federal Savings
and Loan Association of San Gabriel Valley (the "Association"), a federally
chartered savings institution, with its principal administrative office at 225
North Barranca Street, West Covina, California, _________________ ("Executive"),
and SGV Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware which is the holding company of the Association.
WHEREAS, the Association recognizes the substantial contribution Executive
has made to the Association and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Association.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the First Federal Savings and Loan Association of San Gabriel
Valley Change in Control Agreement (the "Agreement") shall be deemed to have
commenced as of the date first above written and shall continue for a period of
twelve (12) full calendar months thereafter (the "initial term"). Commencing on
the first anniversary date of this Agreement and continuing at each anniversary
date thereafter, the Board of Directors of the Association ("Board") may extend
the Agreement for an additional year such that the remaining term of the
Agreement shall be twelve (12) full calendar months. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement, and the results thereof shall be included in
the minutes of the Board's meeting. The Board shall give notice to the Executive
as soon as possible after such review as to whether the Agreement is to be
extended. Notwithstanding any other provision in this Agreement, in the event of
a Change in Control as hereinafter defined in Section 2(b), the Agreement shall
be automatically renewed such that the initial term of the Agreement shall
commence on the date the Change in Control occurs and shall end on the date
twelve (12) full calendar months thereafter.
1
<PAGE> 2
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Association or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement.
(b) For purposes of this Plan, a "Change in Control" of the Association or
Holding Company shall mean an event of a nature that: (i) would be required to
be reported in response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); or (ii) results in a
Change in Control of the Association or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933 and the Rules and Regulations promulgated
by the Office of Thrift Supervision ("OTS") (or its predecessor agency), as in
effect on the date hereof (provided, that in applying the definition of change
in control as set forth under the rules and regulations of the OTS, the Board
shall substitute its judgment for that of the OTS); or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Association or the
Holding Company representing 20% or more of the Association's or the Holding
Company's outstanding securities except for any securities of the Association
purchased by the Holding Company in connection with the conversion of the
Association to the stock form and any securities purchased by any employee
benefit plan of the Association or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by a Nominating Committee solely composed of members who are
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Association or the Holding Company or similar transaction occurs
or is effectuated in which the Association or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required federal regulatory approvals not including the lapse of any statutory
waiting periods; or (D) a proxy statement shall be distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Association with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Association or the Holding Company shall be distributed; or (E) a tender offer
is made and accepted
2
<PAGE> 3
for 20% or more of the voting securities of the Association or Holding Company
then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against the generally prevailing standards of professional competence
for officers having comparable positions in the savings institutions industry.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the Board of Directors of the Association at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board at such
meeting and which such meeting shall be held not more than 30 days from the date
of notice during which period Executive may be suspended with pay), finding that
in the good faith opinion of the Board, Executive was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. Any stock options and
related limited rights granted to Executive under any stock option plan of the
Association, or any unvested awards granted to Executive under any stock benefit
plan of the Holding Company or its subsidiaries shall become null and void
effective upon Executive's receipt of Notice of Termination for Cause and shall
not be exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Association and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, an amount equal to Executive's highest annual compensation
for the last 5 years; provided that Executive may not receive an amount in
excess of the Executive's average annual compensation for the five most recent
taxable years. Annual compensation shall include base salary, commissions,
bonuses, contributions or accruals on behalf of Executive to any pension and
profit sharing plan, any benefits to be paid or received under any stock-based
benefit plan, severance payments, directors or committee fees and fringe
benefits paid or to be paid to the Executive during such years. At the election
of Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Association or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or
3
<PAGE> 4
involuntary termination of employment, other than for Termination for Cause, the
Association shall cause to be continued for the Executive and his previously
covered dependents life, medical, dental and disability coverage that the
Executive agrees is substantially equivalent to the coverage maintained by the
Association or Holding Company for Executive and his dependents prior to his
termination except to the extent coverage may be changed in its application to
all Association and Holding Company employees on a nondiscriminatory basis, at
no cost to the Executive. Such coverage and payments shall cease upon the
expiration of twelve (12) full calendar months from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Association or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of the Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, the Association will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to his current annual salary) and continue him as a participant in all
4
<PAGE> 5
compensation, benefit and insurance plans in which he was participating when the
notice of dispute was given, until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement or (2) the expiration of the remaining
term of this Agreement as determined as of the Date of Termination. Amounts paid
under this Section 4(c) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Association. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Association or shall impose on the Association any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Association and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
5
<PAGE> 6
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination for
Cause, shall not prejudice Executive's right to compensation or other benefits
under this Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined in
Section 2 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss.1818(e)(3) or (g)(1)), the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
ss.1818(c)(4) or (g)(1)), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Association under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director of the Office of Thrift Supervision (or his or her
designee) at the time the Director (or his or her designee) approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
6
<PAGE> 7
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
--------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice of Termination.
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by binding arbitration, conducted before
a panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Association's main office, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
7
<PAGE> 8
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
---------------
The Association shall provide Executive (including his or her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal representatives,
successors and assigns) for reasonable costs and expenses incurred by Executive
in defending or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal or otherwise, including any
appeal or other proceeding for review.
Indemnification by the Association shall be made only upon the final
judgment on the merits in the favor of Executive, in case of settlement, in case
of final judgment against Executive or in the case of final judgment in favor of
Executive other than on the merits, if a majority of the disinterested directors
of the Association determine Executive was acting in good faith within the scope
of Executive's employment or authority in accordance with 12 C.F.R. section
545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Section 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of Directors of the
Association, if such action is brought against Executive in his or her capacity
as a officer or director of the Association, however, shall not extend to
matters as to which Executive is finally adjudged to be liable for willful
misconduct in the performance of his or her duties.
17. SUCCESSOR TO THE ASSOCIATION.
----------------------------
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment had
taken place.
8
<PAGE> 9
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of San
Gabriel Valley and SGV Bancorp, Inc. have caused this amended and restated
Agreement to be executed by their duly authorized officers, and Executive has
signed this amended and restated Agreement, on the _____ day of __________,
1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SAN GABRIEL VALLEY
______________________________ By: ______________________________________
Secretary President and Chief Executive Officer
SEAL
ATTEST: SGV BANCORP, INC.
(Guarantor)
______________________________ By: ______________________________________
Secretary President and Chief Executive Officer
SEAL
WITNESS:
______________________________ ___________________________________________
9
<PAGE> 1
SGV BANCORP, INC. AMENDED
1997 STOCK-BASED INCENTIVE PLAN
(AS AMENDED ON JULY 24, 1998)
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "subsidiary corporation" of the Holding Company,
as such term is defined in Section 424(f) of the Code.
(b) "Association" means First Federal Savings and Loan Association of San
Gabriel Valley.
(c) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options, Limited Rights and Stock
Awards.
(d) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award granted under the Plan.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Association or
Holding Company of a nature that (i) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Sections 13 or 15(d) of the Exchange Act; (ii) results in a
"change of control" or "acquisition of control" within the meaning of the
regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency) found at 12 C.F.R. Part 574, as in effect on the date
hereof; PROVIDED, HOWEVER, that in applying the definition of change in control
as set forth under such regulations the Board of Directors shall substitute its
judgment for that of the OTS; or (iii) without limitation Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Association or the Holding Company
representing 20% or more of the Association's or the Holding Company's
outstanding securities except for any securities of the Association purchased by
the Holding Company and any securities purchased by any tax-qualified employee
benefit plan of the Association; or (B) individuals who constitute the Board of
Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by a nominating committee serving under the Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Association or the Holding Company or
similar transaction occurs in which the Association or Holding Company is not
the resulting entity; or (D) a solicitation of shareholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Association or similar
<PAGE> 2
transaction with one or more corporations, as a result of which the outstanding
shares of the class of securities then subject to the plan are exchanged for or
converted into cash or property or securities not issued by the Association or
the Holding Company; or (E) a tender offer is made and accepted for 20% or more
of the voting securities of the Association or the Holding Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors
pursuant to Section 2 to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate.
(l) "Effective Date" means July 24, 1998. The original effective date for
the Plan was July 21, 1997.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal
to the last transaction price quoted for such date by The
Nasdaq Stock Market;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite
transactions report for such date; and
2
<PAGE> 3
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means SGV BANCORP, INC.
(r) "Incentive Stock Option" means a stock option granted to a Participant
pursuant to Section 7 of the Plan that is intended to meet the requirements of
Section 422 of the Code.
(s) "Limited Right" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(t) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(u) "Option" means an Incentive Stock Option or Non-Statutory Stock
Option.
(v) "Outside Director" means a member of the Board of Directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(w) "Participant" means any person who holds an outstanding Award.
(x) "Performance Award" means an Award granted to a Participant pursuant
to Section 10 of the Plan.
(y) "Plan" means the SGV BANCORP, INC. Amended 1997 Stock-Based Incentive
Plan.
(z) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the First Federal Savings and Loan
Association of San Gabriel Valley Employees' Savings and Profit Sharing Plan if
the individual were a participant in such Profit Sharing Plan or (ii) if the
individual was not a participant in such Profit Sharing Plan, under
circumstances designated as a Retirement by the Committee. "Retirement" with
respect to an Outside Director means the termination of service from the Board
of Directors of the Holding Company and any Affiliate following written notice
to the Board of Directors of such Outside Director's intention to retire.
3
<PAGE> 4
(aa) "Stock Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
(bb) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors by a vote of the Directors in
accordance with the Holding Company's Bylaws and Delaware law or, in the case of
an Employee, unless defined differently under any employment agreement between
the Employee and the Holding Company or an Affiliate, termination of employment
caused by the Participant's intentional failure to perform stated duties,
personal dishonesty, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, as
determined by the Board of Directors. No act, or failure to act, on
Participant's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or an Affiliate.
(cc) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Plan assets for the purposes set forth herein.
(dd) "Trustee" means any person or entity approved by the Board of
Directors to hold legal title to any of the Trust assets for the purposes set
forth under the Plan.
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he satisfies (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
4
<PAGE> 5
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include such additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular, the Committee shall set forth in each
Award Agreement (i) the type of Award granted (ii) the Exercise Price of an
Option, (iii) the number of shares subject to the Award; (iv) the expiration
date of the Award, (v) the manner, time, and rate (cumulative or otherwise) of
exercise or vesting of such Award, and (vi) the restrictions, if any, placed
upon such Award, or upon shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other directors and officers as shall be
designated by the Committee is hereby authorized to execute Award Agreements on
behalf of the Company or an Affiliate and to cause them to be delivered to the
recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS AND RELATED RIGHTS.
-----------------------------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options
(b) Incentive Stock Options
(c) Limited Rights
(d) Stock Awards
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 15 hereof, for each calendar
year from and including 1997 through the year 2006, Common Stock equal to an
amount of up to one percent (1%) of the adjusted average common shares
outstanding of the Holding Company used to calculate fully diluted earnings per
share as reported in the annual report to shareholders for the preceding year,
shall become available for issuance under the Plan. In addition, (a) shares of
Common Stock available for issuance under the Plan in previous years but not
actually issued, shall be added to the aggregate number of shares of Common
Stock available for issuance in that calendar year under the Plan; and (b) any
shares of Common Stock which are exchanged by a Participant as full or partial
5
<PAGE> 6
payment to the Holding Company in connection with the exercise of a stock option
awarded under the Plan shall be added to the aggregate number of shares of
Common Stock available for issuance in the following calendar year.
However, for each calendar year from and including 1997 through the year
2006, in no event, except as subject to adjustment as provided in Section 15,
shall more than 230,000 shares of Common Stock be cumulatively available for
issuance pursuant to the exercise of Incentive Stock Options awarded under the
Plan.
Any shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional shares
may be issued under the Plan.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, the Committee, in its sole discretion,
may grant Awards to any or all Employees and Outside Directors, as well as to
consultants and advisors of the Holding Company or an Affiliate.
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-statutory Stock Options upon such terms and conditions as it
may determine, consistent with the following provisions.
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Nonstatutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine
--------------------------------------
the term during which a Participant may exercise a Non-statutory Stock Option,
but in no event may a Participant exercise a Non-statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non-statutory Stock Option
prior to each Non-statutory Stock Option becoming exercisable. The shares of
Common Stock underlying each Non-statutory Stock Option or any portion thereof
which has become exercisable may be purchased in whole or in part by the
Participant at any time during the term of such Non-statutory Stock Option.
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-
6
<PAGE> 7
statutory Stock Option. The Committee may, however, in its sole discretion,
permit transferability or assignment of a Nonstatutory Stock Option if such
transfer or assignment is, in its sole determination, for valid estate planning
purposes and such transfer or assignment is permitted under the Code and Rule
16b-3 under the Exchange Act. For purposes of this Section 6(c), a transfer for
valid estate planning purposes includes, but is not limited to: (a) a transfer
to a revocable intervivos trust as to which the Participant is both the settlor
and trustee, (b) a transfer for no consideration to: (i) any member of the
Participant's Immediate Family, (ii) any trust solely for the benefit of members
of the Participant's Immediate Family, (iii) any partnership whose only partners
are members of the Participant's Immediate Family, and (iv) any limited
liability corporation or corporate entity whose only members or equity owners
are members of the Participant's Immediate Family. For purposes of this Section
6(c), "Immediate Family" includes, but is not necessarily limited to, a
Participant's parents, grandparents, spouse, children, grandchildren, siblings
(including half bothers and sisters), and individuals who are family members by
adoption. Nothing contained in this Section 6(c) shall be construed to require
the Committee to give its approval to any transfer or assignment of any
Nonstatutory Stock Option or portion thereof, and approval to transfer or assign
any Non-statutory Stock Option or portion thereof does not mean that such
approval will be given with respect to any other Non-statutory Stock Option or
portion thereof. The transferee or assignee of any Non-statutory Stock Option
shall be subject to all of the terms and conditions applicable to such
Non-statutory Stock Option immediately prior to the transfer or assignment and
shall be subject to any other conditions proscribed by the Committee with
respect to such Non-statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee and except as otherwise provided in the Plan, upon
the termination of a Participant's employment or service for any reason other
than Retirement, Disability or death, Change in Control, or Termination for
Cause, the Participant's Non-statutory Stock Options shall be exercisable only
as to those shares that were immediately exercisable by the Participant at the
date of termination and only for a period of three (3) months following the date
of such termination.
(e) Termination of Employment or Service (Retirement). Unless otherwise
--------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, the
Participant's Non-statutory Stock Options shall be exercisable only as to those
shares that were immediately exercisable by the Participant at the date of
Retirement and shall remain exercisable for a period of one (1) year following
the date of Retirement; provided however, that upon the Participant's
Retirement, the Committee, in its discretion, may determine that all
unexercisable Non-statutory Stock Options that were not exercisable by the
Participant as of such date shall continue to become exercisable in accordance
with the Award Agreement if the Participant is immediately engaged by the
Holding Company or an Affiliate as a consultant or advisor or continues to serve
the Holding Company or an Affiliate as a director or advisory director.
(f) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to Disability or death, all unvested
Non-statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
7
<PAGE> 8
(g) Termination of Employment or Service (Change in Control). In the event
---------------------------------------------------------
of a Change in Control, all unvested Non-statutory Stock Options held by such
Participant shall immediately become exercisable and remain exercisable for a
period one (1) year following the Change in Control.
(h) Termination of Employment or Service (Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of a Participant's Termination for
Cause, all rights with respect to the Participant's Non-statutory Stock Options
shall expire immediately upon the effective date of such Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a
--------
Non-statutory Stock Option shall be made in the form of shares of Common Stock.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under the Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant. However,
if at the time an Incentive Stock Option is granted, the Employee owns or is
treated as owning, for purposes of Section 422 of the Code, Common Stock
representing more than 10% of the total combined voting securities of the
Holding Company ("10% Owner"), the Exercise Price shall not be less than 110% of
the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
-----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
---------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee, the Employee
is a 10% Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes
8
<PAGE> 9
exercisable and any terms or conditions a Participant must satisfy prior to the
Incentive Stock Option becoming exercisable. The shares of Common Stock
underlying each Incentive Stock Option may be purchased in whole or in part at
any time during the term of such Incentive Stock Option after such Option
becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer.
(e) Termination of Employment (General). Unless otherwise determined by
------------------------------------
the Committee and except as otherwise provided in the Plan, upon the termination
of an Employee's employment for any reason other than Retirement, Disability or
death, Change in Control or Termination for Cause, the Employee's Incentive
Stock Options shall be exercisable only as to those Incentive Stock Options that
were immediately exercisable by the Employee at the date of termination and only
for a period of three (3) months following such termination.
(f) Termination of Employment (Retirement). Unless otherwise determined by
--------------------------------------
the Committee, in the event of an Employee's Retirement, the Employee's
Incentive Stock Options shall be exercisable only as to those shares that were
immediately exercisable by the Employee at the date of Retirement and remain
exercisable for a period of one (1) year following the date of Retirement;
provided however, that upon the Employee's Retirement, the Committee, in its
discretion, may determine that all unexercisable Incentive Stock Options shall
continue to become exercisable in accordance with the Award Agreement if the
Employee is immediately engaged by the Holding Company or an Affiliate as a
consultant or advisor or continues to serve the Holding Company or an Affiliate
as a director or advisory director. Any Option originally designated as an
Incentive Stock Option shall be treated as a Non-statutory Stock Option to the
extent the Participant exercises such Option more than three (3) months
following the Participant's date of Retirement.
(g) Termination of Employment (Disability or death). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of an Employee's
service for Disability or death, all unvested Incentive Stock Options held by
such Employee shall immediately become exercisable and shall remain exercisable
for one (1) year after such termination.
(h) Termination of Employment (Change in Control). In the event of a
-------------------------------------------------
Change in Control, all unvested Incentive Stock Options held by such Employee
shall immediately become exercisable and shall remain exercisable for one (1)
year after such Change in Control, provided that any option originally
designated as an Incentive Stock Option shall be treated as a Non-statutory
Stock Option to the extent the Participant exercises such Option more than three
(3) months following the Change in Control.
(i) Termination of Employment (Cause). Unless otherwise determined by the
---------------------------------
Committee, in the event of an Employee's Termination for Cause, all rights under
such Employee's
9
<PAGE> 10
Incentive Stock Options shall expire immediately upon the effective date of such
Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Disqualifying Dispositions. Each Award Agreement with respect to an
---------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition. As of the Effective Date of this Plan, a disqualifying disposition
means any disposition of the shares of Common Stock within two years from the
date of the grant of the Incentive Stock Option to which such shares relate or
within one year of the date such shares are transferred to the Participant
pursuant to his exercise of the Incentive Stock Option.
8. LIMITED RIGHTS.
--------------
Simultaneously with the grant of any Option, the Committee may grant a
Limited Right with respect to all or some of the shares of Common Stock covered
by such Option, subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
---------------
whole or in part before the expiration of six (6) months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company that is not to be accounted for as a
pooling of interests or in the event the Holding Company's independent auditors
opine that the exercise of such Limited Rights would not adversely affect the
accounting treatment intended for the Change in Control. The Limited Right may
be exercised only when the underlying Option is eligible to be exercised, and
only when the Fair Market Value of the underlying shares on the day of exercise
is greater than the Exercise Price of the underlying Option. Upon exercise of a
Limited Right, the underlying Option shall cease to be exercisable and shall be
terminated. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Right is transferable only when the
underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
-------
receive from the Holding Company or an Affiliate an amount of cash equal to the
difference between the Exercise Price of the underlying Option and the Fair
Market Value of the Common Stock subject to such Option on the date the Limited
Right is exercised, multiplied by the number of shares with respect to which
such Limited Right is being exercised.
10
<PAGE> 11
9. STOCK AWARDS.
------------
The Committee may, subject to the limitations of the Plan, make Stock
Awards which shall consist of the grant of some number of shares of Common Stock
to a Participant subject to the following terms and conditions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
---------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee and except as otherwise provided in the Plan, upon
the termination of a Participant's employment or service for any reason other
than Retirement, Disability or death, Change in Control or Termination for
Cause, the Participant's unvested Stock Awards as of the date of termination
shall be forfeited and any rights the Participant had to such unvested Stock
Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). Unless otherwise
--------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, the
Participant's unvested Stock Awards as of the date of Retirement shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void; provided however, that upon the Participant's Retirement,
the Committee, in its discretion, may determine that all unvested Stock Awards
shall continue to vest in accordance with the Award Agreement if the Participant
is immediately engaged by the Holding Company or an Affiliate as a consultant or
advisor or continues to serve the Holding Company or an Affiliate as a director
or advisory director.
(e) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death, all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Termination of Employment or Service (Change in Control). In the event
--------------------------------------------------------
of a Change in Control, all unvested Stock Awards held by such Participant shall
immediately vest as of the date of the Change in Control.
(g) Termination of Employment or Service (Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the Participant's Termination for
Cause, all unvested Stock Awards
11
<PAGE> 12
held by such Participant as of the effective date of such Termination for Cause
shall be forfeited and any rights such Participant had to such unvested Stock
Awards shall become null and void.
(h) Issuance of Certificates. Unless otherwise held in Trust and
--------------------------
registered in the name of the Trustee, (i) reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the SGV Bancorp, Inc. Amended 1997
Stock-Based Incentive Plan and the Award Agreement entered into
between the registered owner of such shares and SGV Bancorp, Inc. or
its Affiliates. A copy of the Plan and Award Agreement is on file in
the office of the Corporate Secretary of SGV Bancorp, Inc., 225
North Barranca Street, West Covina, California 91791- 1080."
Such legend shall not be removed until such shares vest pursuant to the
terms of the Plan.
(ii) Each certificate issued pursuant to this Section 9(h), in connection
with a Stock Award, shall be held by the Holding Company or its Affiliates
unless the Committee determines otherwise.
(i) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer,
assign, pledge, or otherwise encumber shares subject to the
Stock Award until full vesting of such shares has occurred.
For purposes of this section, the separation of beneficial
ownership and legal title through the use of any "swap"
transaction is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution.
The designation of a beneficiary shall not constitute a
transfer.
12
<PAGE> 13
(iii) If a recipient of a Stock Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock
subject to such Stock Award may not, without the written
consent of the Committee (which consent may be given in the
Award Agreement), be sold or otherwise disposed of within six
(6) months following the date of grant of the Stock Award.
(j) Accrual of Dividends. Whenever shares of Common Stock underlying a
---------------------
Stock Award are distributed to a Participant or beneficiary thereof under the
Plan, such Participant or beneficiary shall also be entitled to receive, with
respect to each such share distributed, a payment equal to any cash dividends
and the number of shares of Common Stock equal to any stock dividends, declared
and paid with respect to a share of the Common Stock if the record date for
determining shareholders entitled to receive such dividends falls between the
date the relevant Stock Award was granted and the date the relevant Stock Award
or installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(k) Voting of Stock Awards. After a Stock Award has been granted but for
-----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(l) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
10. PERFORMANCE AWARDS
------------------
(a) The Committee may determine to make any Award under the Plan
contingent upon the achievement of any conditions related to the performance of
the Holding Company or its Affiliates. Each Performance Award shall be evidenced
in the Award Agreement, which shall set forth the applicable conditions of
performance applicable to the Award, the maximum amounts payable and such other
terms and conditions as are applicable to the Performance Award. Unless
otherwise determined by the Committee, each Performance Award shall be granted
and administered to comply with the requirements of Section 162(m) of the Code,
and shall be subject to the conditions set forth below in paragraphs (b) through
(f).
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any Performance criteria will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon achievement of the Performance criteria but may
reduce or eliminate the payments as provided for in the Award Agreement.
13
<PAGE> 14
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Common Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without cash
consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the attainment or
satisfaction of a condition or Performance criteria shall be distributed or
considered to be earned or vested until the Committee certifies in writing that
the conditions or Performance criteria to which the distribution, earning or
vesting of such Award is subject has been achieved.
11. DEFERRED PAYMENTS
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
12. METHOD OF EXERCISE OF OPTIONS
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms, including, without
limitation, payment by delivery of cash, Common Stock or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total Exercise Price, or by any
combination of cash, shares of Common Stock and other consideration, including
exercise by means of a cashless exercise arrangement with a qualifying
broker-dealer, as the Committee may specify in the applicable Award Agreement.
13. RIGHTS OF PARTICIPANTS
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
14
<PAGE> 15
14. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
15. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock or other securities that may underlie future Awards under the
Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock or other securities underlying Awards already made under the
Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
16. TAX WITHHOLDING.
---------------
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.
15
<PAGE> 16
(b) If any disqualifying disposition described in Section 7(k) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 17 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
17. NOTIFICATION UNDER SECTION 83(b)
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code (i.e., an
election to include in such Participant's gross income in the year of transfer
the amounts specified in Section 83(b) of the Code), such Participant shall
notify the Committee of such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under the authority of
Section 83(b) of the Code.
18. AMENDMENT OF THE PLAN AND AWARDS.
--------------------------------
(a) Except as provided in paragraph (c) of this Section 18, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders shall
be effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 18, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
16
<PAGE> 17
(i) Allowing any Option to be granted with an exercise price below
the Fair Market Value of the Common Stock on the Date of
Grant.
(ii) Except as required under Section 15 hereof, allowing the
exercise price of any Option previously granted under the Plan
to be reduced subsequent to the Date of Award without receipt
of stockholder approval.
19. EFFECTIVE DATE OF PLAN.
----------------------
The Plan originally became effective on July 21, 1997; the Amended 1997
Stock-Based Incentive Plan became effective upon approval by the Board of
Directors of SGV Bancorp, Inc. on July 24, 1998.
20. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which together with the exercise of Limited Rights
is equivalent to the maximum number of shares reserved under the Plan as set
forth in Section 4 hereof. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
21. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the state of
California and applicable federal law.
17
<PAGE> 18
IN WITNESS WHEREOF, the Holding Company has established this Plan,
as adopted by the Board of Directors of SGV Bancorp, Inc. on ______________,
1998.
ADOPTED BY SGV BANCORP, INC.
THE BOARD OF DIRECTORS:
____________________________ By: ____________________________________
Date For the Entire Board of Directors
18
<PAGE> 1
SGV BANCORP, INC.
1995 AMENDED AND RESTATED STOCK-BASED INCENTIVE PLAN
EFFECTIVE JULY 24, 1998
The Amended and Restated 1995 SGV Bancorp, Inc. Stock-Based Incentive Plan
is effective as of July 24, 1998 and amends the SGV Bancorp, Inc. 1995 Master
Stock Option Plan and reflects the Board of Directors' decision to merge the
First Federal Savings and Loan Association of San Gabriel Valley 1995 Stock
Compensation Plan with and into the SGV Bancorp, Inc. Amended and Restated
Stock-Based Incentive Plan, with certain amendments to the provisions of the
1995 Stock Compensation Plan approved by the Board of Directors.
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "subsidiary corporation" of the Holding Company,
as such term is defined in Section 424(f) of the Code.
(b) "Association" means First Federal Savings and Loan Association of San
Gabriel Valley.
(c) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options, Limited Rights and Stock
Awards.
(d) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award granted under the Plan.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" means a change in control of the Association or
Holding Company of a nature that (i) would be required to be reported in
response to Item 1 of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Sections 13 or 15(d) of the Exchange Act; (ii) results in a
"change of control" or "acquisition of control" within the meaning of the
regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency) found at 12 C.F.R. Part 574, as in effect on the date
hereof; PROVIDED, HOWEVER, that in applying the definition of change in control
as set forth under such regulations the Board of Directors shall substitute its
judgment for that of the OTS; or (iii) without limitation Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Association or the Holding Company
representing 20% or more of the Association's or the Holding Company's
outstanding securities except for any securities of the Association purchased by
the Holding Company and any securities purchased by any tax-qualified employee
benefit plan of the Association; or (B) individuals who constitute the Board of
Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the
1
<PAGE> 2
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a nominating committee serving under the Incumbent
Board, shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board; or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Association or
the Holding Company or similar transaction occurs in which the Association or
Holding Company is not the resulting entity; or (D) a solicitation of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Association or
similar transaction with one or more corporations, as a result of which the
outstanding shares of the class of securities then subject to the plan are
exchanged for or converted into cash or property or securities not issued by the
Association or the Holding Company; or (E) a tender offer is made and accepted
for 20% or more of the voting securities of the Association or the Holding
Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors
pursuant to Section 2 to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate.
(l) "Effective Date" means July 24, 1998, which is the effective date of
the Plan. The SGV Bancorp, Inc. 1995 Master Stock Option Plan and the First
Federal Savings and Loan Association of San Gabriel Valley 1995 Stock
Compensation Plan were originally effective on January 17, 1996.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
2
<PAGE> 3
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal
to the last transaction price quoted for such date by The
Nasdaq Stock Market;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite
transactions report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
--------------------------
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means SGV BANCORP, INC.
(r) "Incentive Stock Option" means a stock option granted to a Participant
pursuant to Section 7 of the Plan that is intended to meet the requirements of
Section 422 of the Code.
(s) "Limited Right" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(t) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(u) "Option" means an Incentive Stock Option or Non-Statutory Stock
Option.
(v) "Outside Director" means a member of the Board of Directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(w) "Participant" means any person who holds an outstanding Award.
(x) "Performance Award" means an Award granted to a Participant pursuant
to Section 10 of the Plan.
(y) "Plan" means the SGV BANCORP, INC. 1995 Amended and Restated
Stock-Based Incentive Plan.
3
<PAGE> 4
(z) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the First Federal Savings and Loan
Association of San Gabriel Valley Employees' Savings and Profit Sharing Plan if
the individual were a participant in such Profit Sharing Plan or (ii) if the
individual was not a participant in such Profit Sharing Plan, under
circumstances designated as a Retirement by the Committee. "Retirement" with
respect to an Outside Director means the termination of service from the Board
of Directors of the Holding Company and any Affiliate following written notice
to the Board of Directors of such Outside Director's intention to retire.
(aa) "Stock Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
(bb) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors by a vote of the Directors in
accordance with the Holding Company's Bylaws and Delaware law or, in the case of
an Employee, unless defined differently under any employment agreement between
the Employee and the Holding Company or an Affiliate, termination of employment
caused by the Participant's intentional failure to perform stated duties,
personal dishonesty, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, as
determined by the Board of Directors. No act, or failure to act, on
Participant's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or an Affiliate.
(cc) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Plan assets for the purposes set forth herein.
(dd) "Trustee" means any person or entity approved by the Board of
Directors to hold legal title to any of the Trust assets for the purposes set
forth under the Plan.
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall be
deemed to be "disinterested" only if he satisfies (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under
4
<PAGE> 5
Section 16 of the Exchange Act or for whom Awards are not intended to satisfy
the provisions of Section 162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the Committee. Each
Award Agreement shall constitute a binding contract between the Holding Company
or an Affiliate and the Participant, and every Participant, upon acceptance of
the Award Agreement, shall be bound by the terms and restrictions of the Plan
and the Award Agreement. The terms of each Award Agreement shall be in
accordance with the Plan, but each Award Agreement may include such additional
provisions and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular, the Committee shall set forth in each
Award Agreement (i) the type of Award granted (ii) the Exercise Price of an
Option, (iii) the number of shares subject to the Award; (iv) the expiration
date of the Award, (v) the manner, time, and rate (cumulative or otherwise) of
exercise or vesting of such Award, and (vi) the restrictions, if any, placed
upon such Award, or upon shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other directors and officers as shall be
designated by the Committee is hereby authorized to execute Award Agreements on
behalf of the Company or an Affiliate and to cause them to be delivered to the
recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS AND RELATED RIGHTS.
-----------------------------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options
(b) Incentive Stock Options
(c) Limited Rights
(d) Stock Awards
5
<PAGE> 6
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 15 hereof, the maximum number
of shares hereby reserved for Awards under the Plan is 354,594 shares of Common
Stock. Subject to adjustment as provided in Section 15 hereof, the maximum
number of shares of Common Stock reserved hereby for purchase pursuant to the
exercise of Options and Limited Rights granted under the Plan is 272,765 shares
of Common Stock; 213,851 shares shall be eligible to be Incentive Stock Options
and 58,914 shall be Non-statutory Stock Options. The maximum number of shares
reserved for Award as Stock Awards is 81,829. The shares of Common Stock issued
under the Plan may be either authorized but unissued shares or authorized shares
previously issued and acquired or reacquired by the Trust or the Association,
respectively. To the extent that Options and Stock Awards are granted under the
Plan, the shares underlying such Awards will be unavailable for any other use
including future grants under the Plan except that, to the extent that Stock
Awards or Options terminate, expire, or are forfeited without having vested or
without having been exercised (in the case of Limited Rights, exercised for
cash), new Awards may be made with respect to these shares.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, the Committee, in its sole discretion,
may grant Awards to any or all Employees and Outside Directors, as well as to
consultants and advisors of the Holding Company or an Affiliate.
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-statutory Stock Options upon such terms and conditions as it
may determine, consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Nonstatutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine
--------------------------------------
the term during which a Participant may exercise a Non-statutory Stock Option,
but in no event may a Participant exercise a Non-statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non-statutory Stock Option
prior to each Non-statutory Stock Option becoming exercisable. The shares of
Common Stock underlying each Non-statutory Stock Option or any portion thereof
which has become exercisable may be purchased in whole or in part by the
Participant at any time during the term of such Non-statutory Stock Option.
6
<PAGE> 7
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Nonstatutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family.
For purposes of this Section 6(c), "Immediate Family" includes, but is not
necessarily limited to, a Participant's parents, grandparents, spouse, children,
grandchildren, siblings (including half bothers and sisters), and individuals
who are family members by adoption. Nothing contained in this Section 6(c) shall
be construed to require the Committee to give its approval to any transfer or
assignment of any Nonstatutory Stock Option or portion thereof, and approval to
transfer or assign any Non-statutory Stock Option or portion thereof does not
mean that such approval will be given with respect to any other Non-statutory
Stock Option or portion thereof. The transferee or assignee of any Non-statutory
Stock Option shall be subject to all of the terms and conditions applicable to
such Non-statutory Stock Option immediately prior to the transfer or assignment
and shall be subject to any other conditions proscribed by the Committee with
respect to such Non-statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee and except as otherwise provided in the Plan, upon
the termination of a Participant's employment or service for any reason other
than Retirement, Disability or death, Change in Control, or Termination for
Cause, the Participant's Non-statutory Stock Options shall be exercisable only
as to those shares that were immediately exercisable by the Participant at the
date of termination and only for a period of three (3) months following the date
of such termination.
(e) Termination of Employment or Service (Retirement). Unless otherwise
--------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, the
Participant's Non-statutory Stock Options shall be exercisable only as to those
shares that were immediately exercisable by the Participant at the date of
Retirement and shall remain exercisable for a period of one (1) year following
the date of Retirement; provided however, that upon the Participant's
Retirement, the Committee, in its discretion, may determine that all
unexercisable Non-statutory Stock Options shall continue to become exercisable
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director or advisory director.
(f) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or
7
<PAGE> 8
service due to Disability or death, all unvested Non-statutory Stock Options
held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(g) Termination of Employment or Service (Change in Control). In the event
--------------------------------------------------------
of a Change in Control, all unvested Non-statutory Stock Options held by such
Participant shall immediately become exercisable and remain exercisable for a
period one (1) year following the Change in Control.
(h) Termination of Employment or Service (Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of a Participant's Termination for
Cause, all rights with respect to the Participant's Non-statutory Stock Options
shall expire immediately upon the effective date of such Termination for Cause.
(i) Payment. Payment due to a Participant upon the exercise of a
-------
Non-statutory Stock Option shall be made in the form of shares of Common Stock.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under the Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine consistent with the following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
---------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant. However,
if at the time an Incentive Stock Option is granted, the Employee owns or is
treated as owning, for purposes of Section 422 of the Code, Common Stock
representing more than 10% of the total combined voting securities of the
Holding Company ("10% Owner"), the Exercise Price shall not be less than 110% of
the Fair Market Value of the Common Stock on the Date of Grant. .
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
-----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
---------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of
8
<PAGE> 9
Grant; provided, however, that if at the time an Incentive Stock Option is
granted to an Employee, the Employee is a 10% Owner, the Incentive Stock Option
granted to such Employee shall not be exercisable after the expiration of five
(5) years from the Date of Grant. The Committee shall also determine the date on
which each Incentive Stock Option, or any part thereof, first becomes
exercisable and any terms or conditions a Participant must satisfy prior to the
Incentive Stock Option becoming exercisable. The shares of Common Stock
underlying each Incentive Stock Option may be purchased in whole or in part at
any time during the term of such Incentive Stock Option after such Option
becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer.
(e) Termination of Employment (General). Unless otherwise determined by
------------------------------------
the Committee and except as otherwise provided in the Plan, upon the termination
of an Employee's employment for any reason other than Retirement, Disability or
death, Change in Control or Termination for Cause, the Employee's Incentive
Stock Options shall be exercisable only as to those Incentive Stock Options that
were immediately exercisable by the Employee at the date of termination and only
for a period of three (3) months following such termination.
(f) Termination of Employment (Retirement). Unless otherwise determined by
--------------------------------------
the Committee, in the event of an Employee's Retirement, the Employee's
Incentive Stock Options shall be exercisable only as to those shares that were
immediately exercisable by the Employee at the date of Retirement and remain
exercisable for a period of one (1) year following the date of Retirement;
provided however, that upon the Employee's Retirement, the Committee, in its
discretion, may determine that all unexercisable Incentive Stock Options shall
continue to become exercisable in accordance with the Award Agreement if the
Employee is immediately engaged by the Holding Company or an Affiliate as a
consultant or advisor or continues to serve the Holding Company or an Affiliate
as a director or advisory director. Any Option originally designated as an
Incentive Stock Option shall be treated as a Non-statutory Stock Option to the
extent the Participant exercises such Option more than three (3) months
following the Participant's date of Retirement.
(g) Termination of Employment (Disability or death). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the termination of an Employee's
service for Disability or death, all unvested Incentive Stock Options held by
such Employee shall immediately become exercisable and shall remain exercisable
for one (1) year after such termination.
(h) Termination of Employment (Change in Control). In the event of a
-------------------------------------------------
Change in Control, all unvested Incentive Stock Options held by such Employee
shall immediately become exercisable and shall remain exercisable for one (1)
year after such Change in Control, provided that any option originally granted
as an Incentive Stock Option shall be treated as a Non-statutory Stock
9
<PAGE> 10
Option to the extent the Participant exercises such Option more than three (3)
months following the Change in Control.
(i) Termination of Employment (Cause). Unless otherwise determined by the
---------------------------------
Committee, in the event of an Employee's Termination for Cause, all rights under
such Employee's Incentive Stock Options shall expire immediately upon the
effective date of such Termination for Cause.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Disqualifying Dispositions. Each Award Agreement with respect to an
---------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition. As of the Effective Date of this Plan, a disqualifying disposition
means any disposition of the shares of Common Stock within two years from the
date of the grant of the Incentive Stock Option to which such shares relate or
within one year of the date such shares are transferred to the Participant
pursuant to his exercise of the Incentive Stock Option.
8. LIMITED RIGHTS.
--------------
Simultaneously with the grant of any Option, the Committee may grant a
Limited Right with respect to all or some of the shares of Common Stock covered
by such Option, subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
---------------
whole or in part before the expiration of six (6) months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company that is not to be accounted for as a
pooling of interests or in the event the Holding Company's independent auditors
opine that the exercise of such Limited Rights would not adversely affect the
accounting treatment intended for the Change in Control. The Limited Right may
be exercised only when the underlying Option is eligible to be exercised, and
only when the Fair Market Value of the underlying shares on the day of exercise
is greater than the Exercise Price of the underlying Option. Upon exercise of a
Limited Right, the underlying Option shall cease to be exercisable and shall be
terminated. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Right is transferable only when the
underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
-------
receive from the Holding Company or an Affiliate an amount of cash equal to the
difference between the Exercise Price of the underlying Option and the Fair
Market Value of the Common Stock subject to such
10
<PAGE> 11
Option on the date the Limited Right is exercised, multiplied by the number of
shares with respect to which such Limited Right is being exercised.
9. STOCK AWARDS.
------------
The Committee may, subject to the limitations of the Plan, make Stock
Awards which shall consist of the grant of some number of shares of Common Stock
to a Participant subject to the following terms and conditions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
---------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
-------------------------------------------------
determined by the Committee and except as otherwise provided in the Plan, upon
the termination of a Participant's employment or service for any reason other
than Retirement, Disability or death, Change in Control or Termination for
Cause, the Participant's unvested Stock Awards as of the date of termination
shall be forfeited and any rights the Participant had to such unvested Stock
Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). Unless otherwise
--------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, the
Participant's unvested Stock Awards as of the date of Retirement shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void; provided however, that upon the Participant's Retirement,
the Committee, in its discretion, may determine that all unvested Stock Awards
shall continue to vest in accordance with the Award Agreement if the Participant
is immediately engaged by the Holding Company or an Affiliate as a consultant or
advisor or continues to serve the Holding Company or an Affiliate as a director
or advisory director.
(e) Termination of Employment or Service (Disability or death). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death, all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Termination of Employment or Service (Change in Control). In the event
--------------------------------------------------------
of a Change in Control, all unvested Stock Awards held by such Participant shall
immediately vest as of the date of the Change in Control.
11
<PAGE> 12
(g) Termination of Employment or Service (Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of the Participant's Termination for
Cause, all unvested Stock Awards held by such Participant as of the effective
date of such Termination for Cause shall be forfeited and any rights such
Participant had to such unvested Stock Awards shall become null and void.
(h) Issuance of Certificates. Unless otherwise held in Trust and
--------------------------
registered in the name of the Trustee, (i) reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the SGV Bancorp, Inc. 1995 Amended and
Restated Stock-Based Incentive Plan and the Award Agreement entered
into between the registered owner of such shares and SGV Bancorp,
Inc. or its Affiliates. A copy of the Plan and Award Agreement is on
file in the office of the Corporate Secretary of SGV Bancorp, Inc.,
225 North Barranca Street, West Covina, California 91791- 1080."
Such legend shall not be removed until such shares vest pursuant to the
terms of the Plan.
(ii) Each certificate issued pursuant to this Section 9(h), in connection
with a Stock Award, shall be held by the Holding Company or its Affiliates
unless the Committee determines otherwise.
(i) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer,
assign, pledge, or otherwise encumber shares subject to the
Stock Award until full vesting of such shares has occurred.
For purposes of this section, the separation of beneficial
ownership and legal title through the use of any "swap"
transaction is deemed to be a prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution.
The designation of a beneficiary shall not constitute a
transfer.
12
<PAGE> 13
(iii) If a recipient of a Stock Award is subject to the provisions
of Section 16 of the Exchange Act, shares of Common Stock
subject to such Stock Award may not, without the written
consent of the Committee (which consent may be given in the
Award Agreement), be sold or otherwise disposed of within six
(6) months following the date of grant of the Stock Award.
(j) Accrual of Dividends. Whenever shares of Common Stock underlying a
---------------------
Stock Award are distributed to a Participant or beneficiary thereof under the
Plan, such Participant or beneficiary shall also be entitled to receive, with
respect to each such share distributed, a payment equal to any cash dividends
and the number of shares of Common Stock equal to any stock dividends, declared
and paid with respect to a share of the Common Stock if the record date for
determining shareholders entitled to receive such dividends falls between the
date the relevant Stock Award was granted and the date the relevant Stock Award
or installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(k) Voting of Stock Awards. After a Stock Award has been granted but for
-----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(l) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
10. PERFORMANCE AWARDS.
------------------
(a) The Committee may determine to make any Award under the Plan
contingent upon the achievement of any conditions related to the performance of
the Holding Company or its Affiliates. Each Performance Award shall be evidenced
in the Award Agreement, which shall set forth the applicable conditions of
performance applicable to the Award, the maximum amounts payable and such other
terms and conditions as are applicable to the Performance Award. Unless
otherwise determined by the Committee, each Performance Award shall be granted
and administered to comply with the requirements of Section 162(m) of the Code,
and subject to the conditions set forth below in paragraphs (b) through (f).
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any Performance criteria will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon achievement of the Performance criteria but may
reduce or eliminate the payments as provided for in the Award Agreement.
13
<PAGE> 14
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Common Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without cash
consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
(f) No Award or portion thereof that is subject to the attainment or
satisfaction of a condition or Performance criteria shall be distributed or
considered to be earned or vested until the Committee certifies in writing that
the conditions or Performance criteria to which the distribution, earning or
vesting of such Award is subject has been achieved.
11. DEFERRED PAYMENTS.
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
12. METHOD OF EXERCISE OF OPTIONS.
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms, including, without
limitation, payment by delivery of cash, Common Stock or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total Exercise Price, or by any
combination of cash, shares of Common Stock and other consideration, including
exercise by means of a cashless exercise arrangement with a qualifying
broker-dealer, as the Committee may specify in the applicable Award Agreement.
13. RIGHTS OF PARTICIPANTS.
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
14
<PAGE> 15
14. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person
or persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by and
delivered to the Holding Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
15. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock or other securities that may underlie future Awards under the
Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock or other securities underlying Awards already made under the
Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
16. TAX WITHHOLDING.
---------------
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.
15
<PAGE> 16
(b) If any disqualifying disposition described in Section 7(k) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 17 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
17. NOTIFICATION UNDER SECTION 83(b).
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code (i.e., an
election to include in such Participant's gross income in the year of transfer
the amounts specified in Section 83(b) of the Code), such Participant shall
notify the Committee of such election within 10 days of filing notice of the
election with the Internal Revenue Service, in addition to any filing and
notification required pursuant to regulations issued under the authority of
Section 83(b) of the Code.
18. AMENDMENT OF THE PLAN AND AWARDS.
--------------------------------
(a) Except as provided in paragraph (c) of this Section 18, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders shall
be effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 18, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall the
Committee amend an Award Agreement in any manner that has the effect of:
16
<PAGE> 17
(i) Allowing any Option to be granted with an exercise price below
the Fair Market Value of the Common Stock on the Date of
Grant.
(ii) Except as required under Section 15 hereof, allowing the
exercise price of any Option previously granted under the Plan
to be reduced subsequent to the Date of Award without receipt
of stockholder approval.
19. EFFECTIVE DATE OF PLAN.
----------------------
The Plan became effective on July 24, 1998. All amendments are effective
upon approval by the Board of Directors.
20. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which together with the exercise of Limited Rights
is equivalent to the maximum number of shares reserved under the Plan as set
forth in Section 4 hereof. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
21. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the state of
California and applicable federal law.
17
<PAGE> 18
IN WITNESS WHEREOF, the Holding Company has established this Plan,
as adopted by the Board of Directors of SGV Bancorp, Inc. on ______________,
1998.
ADOPTED BY SGV BANCORP, INC.
THE BOARD OF DIRECTORS:
____________________________ By: ______________________________________
Date For the Entire Board of Directors
18
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-06913 and 333-62977 of SGV Bancorp, Inc. on Form S-8 of our report dated
August 27, 1998, appearing in the Annual Report on Form 10-K of SGV Bancorp,
Inc. for the year ended June 30, 1998.
/s/ Deloitte & Touche LLP
Costa Mesa, California
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000940511
<NAME> SGV Bancorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,806,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,202,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,604,000
<INVESTMENTS-CARRYING> 29,936,000
<INVESTMENTS-MARKET> 30,089,000
<LOANS> 297,555,000
<ALLOWANCE> 1,425,000
<TOTAL-ASSETS> 408,346,000
<DEPOSITS> 295,281,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,289,000
<LONG-TERM> 76,543,000
0
0
<COMMON> 27,000
<OTHER-SE> 32,206,000
<TOTAL-LIABILITIES-AND-EQUITY> 408,346,000
<INTEREST-LOAN> 23,641,000
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<INTEREST-OTHER> 856,000
<INTEREST-TOTAL> 29,602,000
<INTEREST-DEPOSIT> 13,627,000
<INTEREST-EXPENSE> 18,661,000
<INTEREST-INCOME-NET> 10,941,000
<LOAN-LOSSES> 735,000
<SECURITIES-GAINS> 45,000
<EXPENSE-OTHER> 7,720,000
<INCOME-PRETAX> 2,531,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,487,000
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 7.53
<LOANS-NON> 1,911,000
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 1,263,000
<CHARGE-OFFS> 573,000
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<ALLOWANCE-CLOSE> 1,425,000
<ALLOWANCE-DOMESTIC> 1,425,000
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</TABLE>
