-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SMQaSBXV5TYMBo6BIBSta5KmCjP5I32vN8NzoOKBluQcpLLsxYKcxy/Q+C8THPas ZHbm9aUg6XsPnxnY35N3oQ== 0000912057-96-026440.txt : 19961118 0000912057-96-026440.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SC BANCORP CENTRAL INDEX KEY: 0000351617 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953585586 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10699 FILM NUMBER: 96664959 BUSINESS ADDRESS: STREET 1: 3800 EAST LAPALMA AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 BUSINESS PHONE: 7142288200 MAIL ADDRESS: STREET 1: 3800 EAST LAPALM AVENUE CITY: ANAHEIM STATE: CA ZIP: 92807 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1996 Commission File Number 0-11046 SC BANCORP (Exact name of registrant as specified in its charter) CALIFORNIA 95-3585586 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 3800 E. LA PALMA AVE., ANAHEIM, CALIFORNIA 92807-1798 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (714) 238-3110 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. [ ] There were 7,480,355 shares of common stock for the registrant issued and outstanding as of November 1, 1996. Part I-Financial Information Item 1. Financial Statements SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Balance Sheets (Dollars in thousands) September 30, December 31, 1996 1995 - ------------------------------------------------------------------------------ (Unaudited) (Audited) ASSETS Cash and due from banks $ 28,956 $ 29,088 Federal funds sold 5,600 -- - ------------------------------------------------------------------------------ Cash and cash equivalents 34,556 29,088 - ------------------------------------------------------------------------------ Securities available-for-sale, at fair value (Notes 1 and 2) 78,171 94,030 Loans (Notes 1 and 3) 337,023 316,841 Less: Deferred fee income (718) (531) Allowance for possible loan losses (5,369) (5,734) - ------------------------------------------------------------------------------ Loans, net 330,936 310,576 - ------------------------------------------------------------------------------ Premises and equipment, net 8,105 9,734 Other real estate owned, net 1,618 2,073 Accrued interest receivable 2,653 4,297 Other assets 11,613 11,885 - ------------------------------------------------------------------------------ TOTAL ASSETS $467,652 $461,683 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ LIABILITIES Deposits: Interest-bearing $286,598 $276,433 Noninterest-bearing 123,869 130,378 - ------------------------------------------------------------------------------ Total deposits 410,467 406,811 - ------------------------------------------------------------------------------ Borrowed funds and other interest-bearing liabilities 6,498 6,407 Accrued interest payable and other liabilities 2,736 2,953 - ------------------------------------------------------------------------------ Total liabilities 419,701 416,171 - ------------------------------------------------------------------------------ SHAREHOLDERS' EQUITY Preferred stock, no par or stated value: 10,000,000 shares authorized; no shares issued or outstanding -- -- Common stock, no par or stated value: 20,000,000 shares authorized; 7,477,805 and 7,471,505 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively. 37,687 37,658 Retained earnings 11,533 8,600 Unrealized loss on available-for-sale securities, net of taxes (Note 1) (1,269) (746) - ------------------------------------------------------------------------------ Total shareholders' equity 47,951 45,512 - ------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $467,652 $461,683 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Statements of Operations (Dollars in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- INTEREST INCOME Interest and fees on loans $7,628 $ 7,090 $22,395 $18,790 Interest on investment securities 1,038 1,618 3,243 5,060 Interest on Federal funds sold 174 88 346 727 - --------------------------------------------------------------------------------------------------------------------- Total interest income 8,840 8,797 25,984 24,577 - --------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits: Interest-bearing demand 723 399 1,689 1,031 Savings 230 280 710 884 Time certificates of deposit 1,884 2,313 5,799 6,305 - --------------------------------------------------------------------------------------------------------------------- Total interest on deposits 2,837 2,992 8,198 8,220 - --------------------------------------------------------------------------------------------------------------------- Other interest expense 135 116 624 920 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 2,972 3,108 8,822 9,140 - --------------------------------------------------------------------------------------------------------------------- Net interest income 5,868 5,689 17,162 15,437 Provision for (recovery of) possible loan losses (Note 3) -- 900 (470) 1,224 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 5,868 4,789 17,632 14,213 - --------------------------------------------------------------------------------------------------------------------- NONINTEREST INCOME 1,323 759 3,856 3,732 NONINTEREST EXPENSE: Salaries and benefits 2,491 2,981 7,669 8,023 Net occupancy, furniture and equipment 946 1,534 3,134 3,876 Other operating expense 1,611 2,318 5,642 6,193 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 5,048 6,833 16,445 18,092 - --------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 2,143 (1,285) 5,043 (147) Provision for income taxes 893 (377) 2,110 (14) - --------------------------------------------------------------------------------------------------------------------- NET INCOME $1,250 $ (908) $ 2,933 $ (133) - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 7,477 7,469 7,475 7,469 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Earnings per share $ 0.17 $ (0.12) $ 0.39 $ (0.02) - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Consolidated Statements of Cash Flows (Dollars in thousands) Nine months ended September 30, (Unaudited) - ------------------------------------------------------------------------------- 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,933 $ (133) Adjustments to reconcile net income to net cash provided by operating activities: (Recovery of) provision for possible loan losses (470) 1,224 Provision for loss on other real estate owned 428 128 Loss (gain) on sale of other real estate owned 1 (46) Gain on sale of available-for-sale investment securities (14) -- Net amortization of premiums on investment securities 691 827 Net amortization of deferred fees and unearned income on loans 187 (53) Depreciation and amortization 1,387 1,104 Loss on sale of fixed assets 33 -- Net decrease (increase) in accrued interest receivable and other assets 1,913 (501) Net increase (decrease) in accrued interest payable and other liabilities 246 (979) - -------------------------------------------------------------------------------- Net cash provided by operating activities 7,335 1,571 - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available-for-sale investment securities 8,549 -- Proceeds from maturities of available-for-sale investment securities 6,569 5,000 Proceeds from maturities of held-to-maturity investment securities -- 3,197 Purchase of investment securities (832) -- Purchase of IOBC loans -- (71,576) Net increase in loans (20,776) (8,138) Proceeds from sale of fixed assets and other assets 256 -- Purchase of fixed assets (253) (940) Proceeds from sale of other real estate owned 622 1,333 - -------------------------------------------------------------------------------- Net cash used in investing activities (5,865) (71,124) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 30 -- Purchase of IOBC interest-bearing deposits -- 14,965 Purchase of IOBC noninterest-bearing deposits -- 19,762 Increase in interest-bearing deposits 10,165 55,771 Decrease in noninterest-bearing deposits (6,509) (3,399) Increase (decrease) in other borrowings 312 (7,789) - -------------------------------------------------------------------------------- Net cash (used in) provided by financing activities 3,998 79,310 - -------------------------------------------------------------------------------- Increase in cash and cash equivalents 5,468 9,757 Cash and cash equivalents, beginning of period 29,088 31,118 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 34,556 $ 40,875 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Unrealized loss on investment securities, available-for-sale, net of tax $ 524 $ 2,517 Transfers of loans to other real estate owned 699 979 Asset sales offset to restructuring reserve 91 -- Close out of capital lease accounts 118 -- - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements 3 Part I. Item 1. (continued) SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK Notes to Consolidated Financial Statements (Unaudited, except for information as of and for the year ended December 31, 1995) NOTE 1-SIGNIFICANT ACCOUNTING POLICIES SC Bancorp, a California bank holding company (the "Company"), and its subsidiary, Southern California Bank, a California state-chartered bank (the "Bank"), operates 14 branches in Southern California. The Company's primary source of revenue is providing loans to customers who are predominantly small and mid-sized businesses. The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the banking industry. See the notes to SC Bancorp's consolidated financial statements contained in the Company's annual report on Form 10-K. The interim period financial statements are unaudited. It is the opinion of Company management that all adjustments consisting of normal, recurring accruals necessary for a fair presentation of the results of operations have been reflected therein. Results for the period ending September 30, 1996 are not necessarily indicative of results that may be expected for any other interim periods or for the year as a whole. SECURITIES: At September 30, 1996, the Company's available-for-sale portfolio had a net unrealized loss of $2.2 million. The tax-effected reduction to shareholders' equity at September 30, 1996, was $1.3 million. In January 1995, the FDIC issued a final rule excluding unrealized holding gains and losses on available- for-sale debt securities from the calculation of Tier 1 capital. LOANS: The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan- Income Recognition and Disclosures-An Amendment of FASB Statement No. 114," effective January 1, 1995. The Company's recorded investment in impaired loans at September 30, 1996 was $7.2 million. The Company's allowance for possible loan losses at September 30, 1996 includes $1.5 million related to impaired loans. STOCK-BASED COMPENSATION The Company maintains a stock option plan for the benefit of its executives. In 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which encourages companies to account for stock-based compensation awards at their fair values at the date the awards are granted. This statement does not require the application of the fair value method and allows the continuance of the current accounting method, which requires accounting for stock-based compensation awards at their intrinsic values, if any, as of the grant date. The accounting and disclosure requirements of this statement are effective for financial statements at various dates beginning after December 15, 1995. The Company has elected not to adopt the fair value provisions of this statement. 4 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2-INVESTMENT SECURITIES The amortized cost and estimated fair value of investment securities as of September 30, 1996 and December 31, 1995 are as follows: (DOLLARS IN THOUSANDS) September 30, 1996 - -------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ------------ ---------- AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. government agencies $ 33,097 $ -- $ (456) $ 32,641 Mortgage-backed securities 45,208 -- (1,712) 43,496 FHLB and FRB stock 2,034 -- -- 2,034 - -------------------------------------------------------------------------------- Total $ 80,339 $ -- $(2,168) $ 78,171 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) December 31, 1995 - -------------------------------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ------------ ---------- AVAILABLE-FOR-SALE: U.S. Treasury securities and obligations of US government agencies $42,036 $ -- $ (363) $41,673 Mortgage-backed securities 52,062 -- (910) 51,152 FHLB Stock 1,205 -- -- 1,205 - -------------------------------------------------------------------------------- Total $95,303 $ -- $(1,273) $94,030 - -------------------------------------------------------------------------------- Investment securities with a carrying value of $15.7 million and $18.6 million were pledged to secure public deposits and as collateral for other borrowings at September 30, 1996 and December 31, 1995, respectively. The amortized cost and estimated fair value of debt securities at September 30, 1996 by contractual maturities are shown in the following table. Expected maturities will differ from contractual maturities, particularly with respect to mortgage-backed securities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(DOLLARS IN THOUSANDS) Maturing in - ------------------------------------------------------------------------------------------------------------------------------------ Over one Over five One year year through years through Over SEPTEMBER 30, 1996 or less five years ten years ten years Total ------------ -------------- -------------- ----------- ------------ Available-for-sale, amortized cost $ 15,453 $ 56,098 $ 8,709 $ 79 $ 80,339 Available-for-sale, estimated fair value $ 15,375 $ 54,267 $ 8,450 $ 79 $ 78,171
Proceeds from sales of investment securities during the first quarter of 1996 were $8.5 million. A gross gain of $14 thousand was realized on the sale. There were no sales of investment securities during the third quarter of 1996. 5 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - LOANS Loans by category are summarized below:
September 30, December 31, (DOLLARS IN THOUSANDS) 1996 Percent 1995 Percent - ----------------------------------------------------------------------------------------------------------------- Commercial $ 153,422 45.52% $ 147,230 46.47% Real estate, construction 5,622 1.67% 4,416 1.39% Real estate, mortgage 108,100 32.08% 107,662 33.98% Consumer 69,879 20.73% 57,533 18.16% - ----------------------------------------------------------------------------------------------------------------- Gross loans 337,023 100.00% 316,841 100.00% ---------- ---------- ---------- ---------- Deferred fee income (718) (531) Allowance for possible loan losses (5,369) (5,734) - ------------------------------------------------------------------ ------------ Loans, net $ 330,936 $ 310,576 - ------------------------------------------------------------------ ------------ - ------------------------------------------------------------------ ------------
No industry constitutes a concentration in the Company's loan portfolio. In April 1995, the Company purchased approximately $72 million of floating rate commercial, real estate and consumer loans from Independence One Bank of California, FSB ("IOBC"). The following table summarizes the balances and changes in the allowance for possible loan losses for the periods indicated:
September 30, December 31, September 30, December 31, (DOLLARS IN THOUSANDS) 1996 1995 1995 1994 - ----------------------------------------------- ---------------------------- ---------------------------- Average balance of gross loans outstanding $ 318,456 $ 261,631 $ 253,506 $ 203,760 - ----------------------------------------------- ---------------------------- ---------------------------- - ----------------------------------------------- ---------------------------- ---------------------------- Gross loan balance at end of period $ 337,023 $ 316,841 $ 278,699 $ 207,688 - ----------------------------------------------- ---------------------------- ---------------------------- - ----------------------------------------------- ---------------------------- ---------------------------- Allowance at beginning of period $ 5,734 $ 5,318 $ 5,318 $ 10,800 Charge-offs: Commercial 80 834 734 2,004 Real estate 138 1,227 1,207 3,453 Consumer 152 587 500 362 - ----------------------------------------------- ---------------------------- ---------------------------- Total charge-offs 370 2,648 2,441 5,819 Recoveries: Commercial 416 587 421 915 Real estate 22 129 64 214 Consumer 37 192 151 58 - ----------------------------------------------- ---------------------------- ---------------------------- Total recoveries 475 908 636 1,187 Net (recoveries) charge-offs (105) 1,740 1,805 4,632 Provision (recovery) charged (credited) to expense (470) 1,539 1,224 (850) Allowance on purchased loans - 617 617 0 - ----------------------------------------------- ---------------------------- ---------------------------- Allowance at end of period $ 5,369 $ 5,734 $ 5,354 $ 5,318 - ----------------------------------------------- ---------------------------- ---------------------------- - ----------------------------------------------- ---------------------------- ----------------------------
6 Part I. Item 1. (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - LOANS (CONTINUED)
September 30, December 31, September 30, December 31, (DOLLARS IN THOUSANDS) 1996 1995 1995 1994 - ---------------------------------------------- ----------------------------- ---------------------------- Ratio of allowance for loan losses to loans outstanding at end of period 1.59% 1.81% 1.92% 2.56% Ratio of allowance for loan losses to nonaccrual loans at end of period 232.12% 414.01% 292.73% 329.90% Ratio of annualized net charge-offs to average loans -0.04% 0.67% 0.95% 2.27%
Loans on nonaccrual status were $2.3 million and $1.8 million, respectively at September 30, 1996 and 1995. Interest income that would have been collected on these loans had they performed in accordance with their original terms was approximately $149 thousand and $167 thousand, for the nine months ended September 30, 1996 and 1995, respectively. NOTE 4-COMMITMENTS AND CONTINGENCIES In the normal course of business, there are various outstanding commitments to extend credit which are not reflected in the accompanying consolidated financial statements. The Company does not anticipate losses as a result of these transactions. However, the commitments are a component of the estimate of the allowance for possible loan losses. Commercial and standby letters of credit totaled approximately $7.0 million and $4.3 million at September 30, 1996, and December 31, 1995, respectively. In addition, the Company had unfunded loan commitments of $110.6 million and $85.0 million at September 30, 1996 and December 31, 1995, respectively. The Company uses the same credit policies in making commitments and conditional obligations as it does in extending loan facilities to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. The Company has entered into two interest rate swap agreements to reduce the impact of changes in interest rates on its floating-rate loan portfolio. At September 30, 1996, the Company had outstanding one interest rate swap agreement with a commercial bank having a total notional principal amount of $50 million (Swap #1), and one interest rate swap agreement with a securities broker having a notional principal amount of $25 million (Swap #2). The agreements were intended to reduce the Company's exposure to declines in prime lending rates by artificially converting $75 million of the Company's prime-based loans to fixed rates for the duration of the agreements. Swap #1 was entered into in September 1993. The terms of the first agreement require the Company to pay interest quarterly based on three-month LIBOR and to receive interest semi-annually at a fixed rate of 4.865%. The agreement matures in September 1998. Swap #2 was entered into in January 1994. The terms of the second agreement require the Company to pay interest quarterly based on three-month LIBOR in arrears, and to receive interest semi-annually at a fixed rate of 5.04% through the January 1997 maturity date. The Company accrues monthly interest income and expense on the swaps, the net of which is included in income on loans. Net interest expense of $424 thousand and $751 thousand related to the swap agreements is included in interest income for the nine months ended September 30, 1996 and 1995, respectively. The Company is required to pledge collateral on the swaps. U.S. Agency notes having a fair value of approximately $5.3 million were pledged as collateral for the agreements as of September 30, 1996. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not anticipate nonperformance by the counterparties. 7 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion presents information about the results of operations, financial condition, liquidity and capital resources of SC Bancorp and its subsidiary, Southern California Bank (together, the "Company"). This information should be read in conjunction with the audited 1995 consolidated financial statements of the Company and the notes thereto, and the accompanying quarterly unaudited consolidated financial statements and notes thereto. RESULTS OF OPERATIONS The Company reported net income of $1.2 million for the third quarter of 1996 compared to a net loss of $908 thousand for the third quarter of 1995. Net income for the third quarter of 1996 reflects the cost savings associated with the sale of two branches and the consolidation of a third branch earlier in the year. The net loss for the third quarter of 1995 reflects $1.7 million pretax of restructuring charges associated with a restructuring plan announced during the quarter ("1995 Restructuring"), and $600 thousand pretax of additional loan loss provisions related to a few specifically identified commercial real estate loans. Net income for the first nine months of 1996 was $2.9 million compared to a loss of $133 thousand for the same period in 1995. Year-to-date net income for the current year includes a full nine months of operating revenues and expenses for the private and corporate banking business acquired from Independence One Bank of California, FSB ("IOBC") on April 30, 1995. Year-to-date net income for 1995 also includes the restructuring charges discussed above, a $408 thousand nonrecurring adjustment to interest expense related to the Company's deferred compensation plan, and a $407 thousand benefit payment received on corporate- owned life insurance. The following table summarizes key performance indicators pertaining to the Company's operating results:
Three months ended Nine months ended September 30, September 30, - --------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------- Return on average assets (1) 1.07% -0.76% 0.86% -0.04% as adjusted for restructuring charges (2) 0.08% 0.26% Return on average shareholders' equity (1) 10.61% -7.96% 8.49% -0.41% as adjusted for restructuring charges (2) 0.86% 2.66% Net income $ 1,250 $ (908) $ 2,933 $ (133) Earnings per share $ 0.17 $ (0.12) $ 0.39 $ (0.02) Total average assets $ 465,615 $ 472,612 $ 458,092 $ 455,093 - ------------------------------------------------- (1) Annualized (2) Restructuring charges: Loss on securities $ 620 $ 620 Loss on fixed assets 109 109 Noninterest expense 948 948 ------------ ------------ Total 1,677 1,677 ------------ ------------ Restructuring charges net of taxes $ 1,006 $ 1,006 ------------ ------------
NET INTEREST INCOME Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The following tables provides information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon for the periods indicated. They also provide a summary of the changes in interest income and interest expense resulting from changes in average interest rates (rate) and 8 Part I. Item 2 (continued) changes in average balances (volume). Average balances are average daily balances. Nonaccrual loans are included in total average loans outstanding.
- ----------------------------------------------------------------------------------------------------------------------------------- Three months ended 1996 and 1995 - --------------------------------------------------------------------------------------------------------- September 30, 1996 September 30, 1995 Increase (decrease) ----------------------------------------------------------------- Average Yield/ Average Yield/ due to change in Net (DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1) Rate Volume Change - ----------------------------------------------------------------------------------------------------------------------------------- Assets Loans, net of deferred fees (2) $ 324,659 $ 7,628 9.35% $ 285,502 $ 7,090 9.85% $ (373) $ 911 $ 138 Investment securities 81,786 1,038 5.05% 126,071 1,618 5.09% (13) (568) (580) Federal funds sold and other 13,219 174 3.23% 5,880 88 5.95% (12) 97 86 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest earning 419,685 8,839 8.38% 417,453 8,797 8.36% 13 29 42 assets/interest income - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest earning assets 45,930 55,159 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $465,615 $ 472,612 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' equity Interest-bearing deposits $ 287,309 $ 2,837 3.93% $ 291,075 $ 2,992 4.08% $ (115) $ (40) $ (155) Other interest-bearing liabilities 6,633 135 8.09% 5,405 116 8.51% (6) 25 19 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing 293,941 2,971 4.02% 296,481 3,108 4.18% (109) (28) (137) liabilities/interest expense - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing liabilities 124,815 130,882 Shareholders' equity 46,859 45,250 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 465,615 $ 472,612 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income/net interest margin $ 5,868 5.56% $ 5,680 5.41% $ 150 $ 29 $ 179 - -----------------------------------------------------------------------------------------------------------------------------------
(1) Annualized. The Company's net interest income was $5.9 million for the three months ended September 30, 1996, compared to $5.7 million for the three months ended September 30, 1995. The net interest margin increased to 5.56% for the third quarter of 1996, compared to 5.41% for the prior year.
- ----------------------------------------------------------------------------------------------------------------------------------- Nine months ended 1996 and 1995 - --------------------------------------------------------------------------------------------------------- September 30, 1996 September 30, 1995 Increase (decrease) ----------------------------------------------------------------- Average Yield/ Average Yield/ due to change in Net (DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1) Rate Volume Change - ----------------------------------------------------------------------------------------------------------------------------------- Assets Interest-earning assets: Loans, net of deffered fees(2) $ 317,911 $ 22,395 9.44% $ 253,164 $ 18,790 9.22% $ (443) $6,048 $3,605 Investment securities 85,059 3,243 5.11% 130,976 2,060 5.17% (18) (1,758) (1,817) Federal funds sold and other 8,702 346 5.34% 16,400 727 5.93% (67) (314) (381) - ----------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets/interest income 411,672 25,984 8.46% 400,540 24,577 8.20% 750 657 1,407 - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest earning assets 46,420 54,553 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $ 458,092 $ 455,093 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Interest-bearing deposits $ 279,489 $ 8,198 3.93% $ 277,418 $ 8,220 3.96% $ (52) $ 30 $ (22) Other interest-bearing liabilities 11,743 624 7.13% 9,439 920 13.03% (386) 90 (296) - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities/interest expense 291,232 8,822 4.06% 286,857 9,140 4.26% (380) 62 (318) - ----------------------------------------------------------------------------------------------------------------------------------- Noninterest-bearing liabilities 120,726 124,366 Shareholders' equity 46,134 43,867 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 458,092 $ 455,090 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income/net interest margin $ 17,162 5.59% $ 15,437 5.15% $ 1,302 $ 423 $1,725 - -----------------------------------------------------------------------------------------------------------------------------------
(1) Annualized. (2) Includes loans on nonaccrual status of approximately $2.3 million and $1.8 million at September 30, 1996 and 1995, respectively. The amount of interest income foregone on loans that were on nonaccrual status was approximately $149 thousand and $167 thousand for the nine months ended September 30, 1996 and 1995, respectively. Interest income on loans includes amortization of net loan fees of approximately $694 thousand and $569 thousand for the nine months ended September 30, 1996 and 1995, respectively. Additionally, net interest expense of $424 thousand and $751 thousand relating to the interest rate swap agreements was included in interest income from loans for the nine months ended September 30, 1996 and 1995, respectively. Net interest income was $17.2 million for the nine months ended September 30, 1996, compared to $15.4 million for the comparable period for the prior year. The net interest margin increased to 5.59% for the first nine months of 1996 from 5.15% for the 9 Part I. Item 2. (continued) comparable period of the prior year. The increase in the net interest margin is attibutable in part to a change in the earning asset mix that includes a higher proportion of loans to investment securities, and to a decrease in funding costs. On a year-to-date basis, average loans increased to 77% of total average earning assets for the current year from 63% of average earning assets a year ago. The increase was largely due to the $72 million of loans acquired from IOBC on April 30, 1995. The decrease in investment securities reflects the sale of $27 million of investment securities during the third quarter of 1995, and the sale of $8.5 million of U.S. agency securities during the first quarter of 1996. The decrease in funding costs compared to the prior year is due to the fact that higher rate certificates of deposit raised prior to the IOBC transaction have largely been replaced with lower cost deposits. The average rate paid on certificates of deposit decreased to 5.40% for the nine months ended September 30, 1996 from 5.85% for the nine months ended September 30, 1995. Interest expense for 1995 also included a $408 thousand nonrecurring adjustment on the Company's deferred compensation plans. The average yield on earning assets for the nine months ended September 30, 1996 increased to 8.46% from 8.20% for the comparable period of the prior year. This increase occurred despite an approximately 59 basis point decrease in the average prime rate for the first nine months of 1996 compared to the same period in 1995. The Company's overall funding costs decreased approximately 20 basis points from the prior year due to the reasons discussed above. PROVISION FOR POSSIBLE LOAN LOSSES There were no additions to the provision for possible loan losses during the third quarter of 1996. Loan charge-offs and recoveries for the quarter were $31 thousand and $73 thousand, respectively. Nonaccrual loans increased to $2.3 million at September 30, 1996 from $1.4 million at December 31, 1995. The increase is due to two loans to the same borrower that had previously been reported as restructured. The ratio of the allowance for possible loan losses to total loans decreased to 1.59% at September 30, 1996 from 1.81% at December 31, 1995. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part I, Item 1, of this Form 10-Q. The Company recorded a $470 thousand reduction to the provision for possible loan losses for the first nine months of 1996 compared to a $1.2 million provision for the comparable period of 1995. Year-to-date loan charge-offs and recoveries for the current year were $370 thousand and $475 thousand, respectively, representing a year-to-date net recovery of $105 thousand. Year- to-date charge-offs and recoveries for the same period of the prior year were $2.4 million and $636 thousand, respectively, representing a year-to-date net charge-off of $1.8 million. NONINTEREST INCOME The following tables set forth the major components of noninterest income for the periods indicated: Three Months Ended (DOLLARS IN THOUSANDS) September 30, - -------------------------------------------------------------------------------- 1996 1995 Restructuring 1995, Net Service charges on deposit accounts $ 294 $ 449 -- $ 449 Other fees and charges 796 668 -- 668 Merchant bankcard income 144 145 -- 145 Net gain (loss) on sales of securities -- (620) (620) -- Net gains on sales of loans -- 148 -- 148 Net loss on sales of fixed assets (9) (107) (109) 2 Life insurance income 32 53 -- 53 Other income 66 23 -- 23 - -------------------------------------------------------------------------------- Total noninterest income $ 1,323 $ 759 $ (729) $1,488 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Noninterest income was $1.3 million and $759 thousand for the three months ended September 30, 1996 and 1995, respectively. Noninterest income for the third quarter of 1995 includes a $620 loss on sales of investment securities incurred in conjunction with the 1995 Restructuring. 10 Part I. Item 2. (continued) NONINTEREST INCOME Nine Months Ended (DOLLARS IN THOUSANDS) September 30, - -------------------------------------------------------------------------------- 1996 1995 Restructuring 1995, Net Service charges on deposit accounts $ 1,058 $ 1,292 $ -- $ 1,292 Other fees and charges 2,061 1,968 -- 1,968 Merchant bankcard income 387 382 382 Net gain on sales of investment securities 14 (620) (620) -- Net gains on sales of loans 148 148 Net loss on sales of fixed assets (33) (107) (109) 2 Life insurance income 85 460 -- 460 Other income 284 209 -- 209 - -------------------------------------------------------------------------------- Total noninterest income $ 3,856 $ 3,732 $ (729) $ 4,461 - -------------------------------------------------------------------------------- Year-to-date noninterest income was $3.9 million in 1996 compared to $3.7 million for the same period in 1995. In addition to the loss on sales of securities, year-to-date noninterest income for 1995 included a $407 thousand benefit payment on a corporate-owned life insurance policy. Service charge income for the first nine months of 1996 was $234 thousand below the comparable period of the prior year due to competitive pricing on commercial accounts. Other fees and charges relating to deposit accounts includes NSF, stop payment and wire fees. Other income includes check printing upcharge income, sundry operating recoveries and miscellaneous income. NONINTEREST EXPENSE The following tables provide detail of the Company's noninterest expense by category for the periods indicated: 11 Part I. Item 2. (continued) Three Months Ended (DOLLARS IN THOUSANDS) September 30, - ----------------------------------------------------------------------------- 1996 1995 Restructuring 1995, Net Salaries and employee benefits $ 2,491 $ 2,981 $ 179 $ 2,802 Net occupancy, furniture and equipment 946 1,565 256 1,309 Legal 172 241 -- 241 Other real estate owned 40 142 -- 142 Professional fees 205 315 86 229 Postage and delivery 153 150 -- 150 Miscellaneous 118 78 -- 78 Advertising and promotion 93 118 -- 118 Goodwill amortization 135 552 427 125 Merchant bankcard expense 111 132 -- 132 Professional and community 46 (54) -- (54) Telecommunications 76 125 -- 125 Stationery and supplies 59 128 -- 128 Data processing 76 65 -- 65 Software 99 100 -- 100 Other operating expense 228 195 -- 195 - ----------------------------------------------------------------------------- Total noninterest expense $ 5,048 $ 6,833 $ 948 $ 5,885 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Annualized noninterest expense as a % of average earning assets 4.79% 6.49% 5.59% Noninterest expense for the third quarter of 1996 decreased to $5.0 million from $5.9 million for the third quarter of 1995 net of restructuring charges. Total noninterest expense for the third quarter of 1995 included $948 thousand of restructuring charges relating to the sale of two branches, closure of a third branch and the closure of an administrative facility in Anaheim. These transactions were finalized during the first quarter of 1996. Salary and benefits expense has been favorably impacted by the reduction in the number of full-time equivalent staff to 210 at September 30, 1996 from 235 at September 30, 1995. Net occupancy expense for the third quarter of 1996 was $946 thousand compared to $1.3 million net of restructuring charges for the same period in 1995 The reduction in ongoing occupancy expense can be attributed to the reduced number of locations following the restructuring. 12 Part I. Item 2. (continued) NONINTEREST EXPENSE Nine Months Ended (DOLLARS IN THOUSANDS) September 30, - ----------------------------------------------------------------------------- 1996 1995 Restructuring 1995, Net ---- ---- ------------- --------- Salaries and employee benefits $ 7,669 $ 8,282 $ 179 $ 8,103 Net occupancy, furniture and equipment 3,134 3,608 256 3,352 Legal 812 597 -- 597 Professional fees 566 562 86 476 Other real estate owned 522 387 -- 387 Postage and delivery 468 433 -- 433 Goodwill amortization 370 706 427 279 Miscellaneous 354 283 -- 283 Advertising and promotion 321 331 -- 331 Merchant bankcard expense 314 354 -- 354 Telecommunications 273 343 -- 343 Stationery and supplies 222 288 -- 288 Data processing 223 180 -- 180 Software 221 267 -- 267 Other operating expense 976 1,471 -- 1,471 --------- --------- -------- --------- $16,445 $18,092 $ 948 $17,144 --------- --------- -------- --------- --------- --------- -------- --------- Annualized noninterest expense as a % of average earning assets 5.34% 6.04% 5.72% Noninterest expense for the nine months ending September 30, 1996 was $16.4 million compared to $17.1 million net of restructuring charges for the comparable period of 1995. Current year noninterest expense reflects the impact of the 1995 Restructuring, and includes a full nine months of expenses associated with the two corporate banking offices and two branches added following the IOBC transaction during the second quarter of 1995. The decrease in other operating expense to $976 thousand from $1.5 million for the prior year is largely due to a $362 thousand reduction in FDIC deposit insurance premiums. Certain categories of noninterest expense increased over the prior year. The increase in legal and professional fees is due in part to fees associated with evaluating potential acquisition opportunities. Current year professional fees also include fees associated with outsourcing the Company's internal audit function. The increase in year-to-date OREO expense over the prior year is primarily due to valuation reserves taken to facilitate the disposition of one property. The sale of this property closed on October 30, 1996 resulting in a $87 thousand gain. The Company has improved its ongoing operating efficiencies on a larger earning asset base. Year-to-date noninterest expense for the first nine months of 1996 as a percentage of average earning assets has decreased to 5.34% from 5.72% net of restructuring charges for a year ago. FINANCIAL CONDITION Total assets at September 30, 1996 were $467.7 million, an increase of $6.0 million from $461.7 million at December 31, 1995. Net loan balances increased to $330.9 million at September 30, 1996 from $310.6 million at December 31, 1995. Total deposits increased to $410.5 million at September 30, 1996 from $406.8 million at December 31, 1995. The increase in deposit balances was achieved despite the sale of two branches with deposits totaling approximately $7.5 million during the first quarter of 1996. 13 Part I. Item 2. (continued) The following table provides a summary comparison of assets and liabilities in the Company's consolidated balance sheets and the percentage change in these balances for the dates indicated:
September 30, December 31, Amount Percent (DOLLARS IN THOUSANDS) 1996 1995 Change Change - ---------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 34,556 $ 29,088 $ 5,468 18.80% Securities available-for-sale, at fair value 78,171 94,030 (15,859) -16.87% Loans, net 330,936 310,576 20,360 6.56% Premises and equipment, net 8,105 9,734 (1,629) -16.74% Other real estate owned, net 1,618 2,073 (455) -21.95% Accrued interest receivable 2,653 4,297 (1,644) -38.26% Other assets 11,613 11,885 (272) -2.29% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 467,652 $ 461,683 $ 5,969 1.29% - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing deposits $ 123,869 $ 130,378 $ (6,509) -4.99% Interest-bearing demand & savings deposits 148,512 130,301 18,211 13.98% Time certificates of deposit 138,086 146,132 (8,046) -5.51% - ---------------------------------------------------------------------------------------------------- Total deposits 410,467 406,811 3,656 0.90% - ---------------------------------------------------------------------------------------------------- Borrowed funds and other interest-bearing liabilities 6,498 6,407 91 1.42% Accrued interest payable and other liabilities 2,736 2,953 (217) -7.35% Total shareholders' equity 47,951 45,512 2,439 5.36% - ---------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 467,652 $ 461,683 $ 5,969 1.29% - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand, deposits at correspondent banks and overnight investment of excess cash balances as Federal funds sold. The Company maintains balances at correspondent banks adequate to cover daily inclearings and other charges. The Company's reserve requirement with the Federal Reserve Bank was $10.0 million at September 30, 1996. Cash and cash equivalents increased $5.5 million to $34.6 million at September 30, 1996 from $29.1 million at December 31, 1995. The increase is due to a $5.6 million investment in overnight Federal funds sold. There were no Federal funds sold at December 31, 1995. INVESTMENT SECURITIES The Company's securities portfolio includes U.S. Treasury securities and U.S. government agency securities, most of which are mortgage-backed securities. The Company reclassified it entire held-to-maturity portfolio to the available-for- sale category in December, 1995 under the special one-time exemption authorized by the Financial Accounting Standards Board. 14 Part I. Item 2. (continued) The following table sets forth the maturity distribution of the Company's investment securities at their estimated fair values at September 30, 1996:
Maturing in - ----------------------------------------------------------------------------------------------------------- Over one Over five One year year through years through Over (DOLLARS IN THOUSANDS) or less five years ten years ten years Total - ----------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ 5,012 $ -- $ -- $ 79 $ 5,091 U.S. government agency securities 10,363 17,187 2,034 -- 29,584 Mortgage-backed securities -- 37,080 6,416 -- 43,496 - ----------------------------------------------------------------------------------------------------------- Total $ 15,375 $ 54,267 $ 8,450 $ 79 $ 78,171 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
LOANS The Company provides a full range of credit products designed to meet the credit needs of borrowers in its service area. The Company engages in medium-term commercial real estate loans secured by commercial properties, commercial loans, term financing, SBA loans, and consumer loans principally in the form of home equity lines of credit, vehicle loans, and loans to high net worth individuals. Additionally, the Company offers construction loan products principally for entry level housing and owner-user commercial industrial properties. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part 1. Item 1. of this Form 10-Q for a comparison of loans by category at September 30, 1996 and December 31, 1995. COMMERCIAL LOANS. Commercial loans totaled $153.4 million, or 45.5%, of total loans and $147.2 million, or 46.5%, of total loans at September 30, 1996 and December 31, 1995, respectively. Most of the Bank's commercial borrowers and customers are small to medium sized businesses and professionals. Most of the commercial loans are short term, are reviewed or renewed annually, and bear a floating rate of interest. Approximately 64% of the commercial loan portfolio is secured. Collateral for these loans consists of accounts receivable, inventories, equipment and other business assets, including real estate. At September 30, 1996, $38.1 million, or 11.3%, of total loans were secured by accounts receivable as compared to $29.5 million, or 9.3%, of loans at December 31, 1995. Commercial loans secured by real estate comprised $18.4 million, or 5.5%, of total loans at September 30, 1996, compared to $18.9 million, or 6.0%, of loans at December 31, 1995. In 1995, the Company began participating in government-insured lending programs, including SBA loans. At September 30, 1996, the Company had $20.4 million of SBA loans. REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans increased to $5.6 million, or 1.7%, of total loans at September 30, 1996 compared to $4.4 million, or 1.4%, of total loans at December 31, 1995. REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprise $108.1 million, or 32.1%, of the total loan portfolio at September 30, 1996 compared to $107.7 million, or 34.0%, of the total loans outstanding at December 31, 1995. Approximately $16.8 million of such real estate loans were purchased from IOBC. Company management continues to monitor the concentration of real estate loans in the loan portfolio. New real estate loans are made only to existing borrowers who are owner/users or to new borrowers who provide a new major banking relationship and demonstrate adequate cash flows. All new real estate borrowers must provide financial reporting that meets FDICIA standards and the loans must have conservative loan to value ratios. Approximately 80% of the Bank's real estate loans are secured by first trust deeds, and approximately 50% are to owner/users. CONSUMER LOANS. Approximately $69.9 million, or 20.7%, of the loan portfolio is consumer loans at September 30, 1996. This represents an increase from the $58 million, or 18.2%, of the loan portfolio it comprised at December 31, 1995. The consumer loan portfolio includes $28.4 million of home equity loans and home equity lines of credit representing 8.4% of total loans. Vehicle loans comprise approximately $20.0 million, or 5.9%, of total loans at September 30, 1996. The levels of consumer loans at period ends may fluctuate and may not necessarily be representative of average levels experienced during the respective periods due to the timing of advances and payments made on such loans by borrowers. 15 Part I. Item 2. (continued) MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES. The following table sets forth the maturity distribution of the Company's loan portfolio (excluding consumer and nonaccrual loans) at September 30, 1996 based on remaining scheduled principal repayments:
Maturing in - ----------------------------------------------------------------------------------- Over one One year year through Over (DOLLARS IN THOUSANDS) or less five years five years Total - ----------------------------------------------------------------------------------- Commercial $ 77,468 $ 47,846 $ 27,398 $ 152,712 Real estate, construction 2,590 795 2,237 5,622 Real estate, mortgage 23,823 58,959 23,835 106,617 - ----------------------------------------------------------------------------------- Total $ 103,881 $ 107,600 $ 53,470 $ 264,951 - -----------------------------------------------------------------------------------
The following table sets forth information on sensitivity to changes in interest rates for the Company's loan portfolio (excluding consumer and nonaccrual loans) at September 30, 1996:
Maturity or Repricing in - ----------------------------------------------------------------------------------- Over one One year year through Over (DOLLARS IN THOUSANDS) or less five years five years Total - ----------------------------------------------------------------------------------- Fixed interest rates $ 18,454 $ 39,356 $ 18,041 $ 75,851 Variable interest rates 189,064 36 -- 189,100 - ----------------------------------------------------------------------------------- Total $ 207,518 $ 39,392 $ 18,041 $ 264,951 - ----------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------
The amounts reported in the categories in the tables do not reflect loan prepayments or other factors which may cause the loans to react in different degrees and at different times to changes in market interest rates. ASSET QUALITY NONACCRUAL, PAST DUE AND MODIFIED LOANS The Company recognizes income principally on the accrual basis of accounting. In determining income from loans, the Company generally adheres to a policy of not accruing interest on loans on which a default of principal or interest has existed for a period of 90 days or more. The Company's policy is to assign nonaccrual status to a loan if either (i) principal or interest payments are past due in excess of 90 days, unless the loan is both well secured and in the process of collection; or (ii) the full collection of interest or principal becomes uncertain, regardless of the length of past due status. When a loan reaches "nonaccrual" status, any interest accrued on such a loan is reversed and charged against current income. 16 Part I. Item 2. (continued) Nonaccrual loans by category are summarized below: September 30, December 31, (DOLLARS IN THOUSANDS) 1996 1995 -------------------------------------------------------------- Commercial $ 710 $ 620 Real estate, construction -- -- Real estate, mortgage 1,483 615 Consumer 120 150 -------------------------------------------------------------- Total nonaccrual loans $ 2,313 $ 1,385 -------------------------------------------------------------- -------------------------------------------------------------- Delinquent loans (past due 30 to 89 days and still accruing interest) by category are summarized below: September 30, December 31, (DOLLARS IN THOUSANDS) 1996 1995 --------------------------------------------------------------- Commercial $ 123 $ 548 Real estate, construction -- -- Real estate, mortgage -- 503 Consumer 273 411 --------------------------------------------------------------- Total delinquent loans $ 396 $ 1,462 --------------------------------------------------------------- --------------------------------------------------------------- Percentage of total gross loans: Nonaccrual loans 0.69% 0.44% Delinquent loans, still accruing interest 0.12% 0.46% Nonaccrual and delinquent loans 0.80% 0.90% ALLOWANCE FOR POSSIBLE LOAN LOSSES A certain degree of risk is inherent in the extension of credit. Management has adopted a policy to maintain the allowance for possible loan and lease losses at a level considered by management to be adequate to absorb estimated known and inherent risks in the existing portfolio. Management performs a comprehensive analysis of the loan portfolio on a regular basis and its current allowance for loan losses to determine if loans are currently protected according to financial and collateral standards deemed acceptable. The allowance for possible loan losses represents management's recognition of the assumed risks of extending credit and the quality of the loan portfolio. The allowance is management's estimate, which is inherently uncertain and depends on the outcome of future events. The evaluation of the quality of the loan portfolio considers the borrower's management, financial condition, cash flow and repayment program, as well as the existence of collateral and guarantees. External business and economic factors beyond the borrower's control, combined with the Company's previous loan loss experience, are considered in management's evaluation of the allowance for possible loan losses. In addition, bank regulatory authorities, as an integral part of their examination process, periodically review the Company's allowance for possible loan losses and may recommend additions to the allowance based on their assessment of information available to them at the time of their examination. When it is determined that additions are required, additions to the allowance are made through charges to operations and are reflected in the statements of operations as a provision for loan losses. Loans which are deemed to be uncollectible are charged to the allowance. Subsequent recoveries, if any, are credited back to the allowance. Refer to NOTE 3-LOANS of the Company's consolidated financial statements which are included in Part I. Item 1. of this Form 10-Q for additional information concerning activity in the allowance for possible loan losses, including charge-offs and recoveries. The provision for possible loan losses is discussed above in Item 2. 17 Part I. Item 2. (continued) OTHER REAL ESTATE OWNED OREO primarily includes properties acquired through foreclosure or through full or partial satisfaction of loans. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer to OREO is reflected in the allowance for possible loan losses as a charge-off. Any subsequent declines in the fair value of the OREO property after the date of transfer are recorded through a provision for writedowns on OREO. Routine holding costs, net of any income and net gains or losses on disposal, are reported in noninterest expense. Activity in OREO for the periods indicated is as follows: Nine months Ended Year Ended September 30, December 31, (DOLLARS IN THOUSANDS) 1996 1995 ------------------------------------------------------------------ Balance, beginning of period $2,073 $ 5,837 Additions 699 1,923 Sales (673) (5,689) Valuation and senior liens (481) 2 ------------------------------------------------------------------ Balance, end of period $1,618 $ 2,073 ------------------------------------------------------------------ ------------------------------------------------------------------ At September 30, 1996, the OREO portfolio consisted of three properties. One property having a net book value of $1.1 million was sold on October 30, 1996. A gain of $87 thousand was recognized on this sale. The Company is actively marketing the remaining properties. DEPOSITS Total deposits at September 30, 1996 were $410.5 million, a $3.7 million increase from $406.8 million at December 31, 1995, 1996. The following table sets forth the distribution of average deposits and the rates paid thereon for the periods indicated:
Nine Months Ended Year Ended September 30, 1996 December 31, 1995 - --------------------------------------------------------------------------------------------------------------------- Average Average (DOLLARS IN THOUSANDS) Balance Rate (1) % of total Balance Rate % of total - --------------------------------------------------------------------------------------------------------------------- Demand deposits $ 117,459 29.58% $ 123,815 30.47% NOW/MMDA 90,307 2.50% 22.75% 81,815 1.77% 20.13% Savings 45,134 2.10% 11.37% 55,204 2.08% 13.58% TCDs 144,048 5.38% 36.30% 145,555 5.77% 35.82% - --------------------------------------------------------------------------------------------------------------------- Deposits $ 396,947 100.00% $ 406,389 100.00% - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
(1) Annualized. The decrease in average demand deposit balances to $117.5 million at September 30, 1996 from $123.8 million at December 31, 1995 can be attributed to the use of investment sweep accounts by selected business customers and to the sale of two branches during the first quarter of 1996. The reduction in the average rate paid on time certificates of deposit to 5.38% for the nine months ending September 30, 1996 from 5.77% for 1995, is due in part to the maturity of the higher rate accounts raised prior to the IOBC transaction. These accounts have largely been replaced with lower cost deposits. 18 Part I. Item 2. (continued) The following table sets forth the maturities of the Company's time certificate of deposit accounts at the dates indicated:
September 30, 1996 Maturing in - ------------------------------------------------------------------------------------------------- Over three Over six Three months months Over months through through twelve (DOLLARS IN THOUSANDS) or less six months twelve months months Total - ------------------------------------------------------------------------------------------------- Under $100,000 $ 27,602 $ 25,310 $ 22,309 $ 8,522 $ 83,743 $100,000 and over 29,194 10,687 11,095 3,367 54,343 - ------------------------------------------------------------------------------------------------- Total $ 56,796 $ 35,997 $ 33,404 $ 11,889 $ 138,086 - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- December 31, 1995 Maturing in - ------------------------------------------------------------------------------------------------- Over three Over six Three months months Over months through through twelve (DOLLARS IN THOUSANDS) or less six months twelve months months Total - ------------------------------------------------------------------------------------------------- Under $100,000 $ 32,926 $ 28,532 $ 31,492 $ 7,034 $ 99,984 $100,000 and over 20,183 13,587 9,260 3,118 46,148 - ------------------------------------------------------------------------------------------------- Total $ 53,109 $ 42,119 $ 40,752 $ 10,152 $ 146,132 - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES Borrowed funds and other interest-bearing liabilities consist of overnight Federal funds purchased, Treasury, tax and loan notes ("TT&L"), obligations under securities repurchase agreements, the principal portions of capitalized lease obligations, obligations to senior lienholders for certain OREO properties and deferred compensation liabilities. The balance of borrowed funds and other interest-bearing liabilities increased slightly to $6.5 million at September 30, 1996 from $6.4 million at December 31, 1995. ASSET/LIABILITY MANAGEMENT The objective of asset/liability management is to manage and control the Company's exposure to interest rate fluctuations while maintaining adequate levels of liquidity and capital. The Company seeks to achieve this objective by matching its interest rate-sensitive assets and liabilities, and maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. Generally, if rate-sensitive assets exceed rate-sensitive liabilities, the net interest income will be positively impacted during a rising rate environment and negatively impacted during a declining rate environment. When rate-sensitive liabilities exceed rate-sensitive assets, the net interest income will generally be positively impacted during a declining rate environment and negatively impacted during a rising rate environment. However, because interest rates for different asset and liability products offered by depository institutions respond differently to changes in the interest rate environment, the gap between rate-sensitive assets and rate- sensitive liabilities can only be used as a general indicator of interest rate sensitivity. The following gap repricing table sets forth information concerning the Company's rate-sensitive assets and rate-sensitive liabilities, including the off-balance sheet amounts for interest rate swaps, as of September 30, 1996. Such assets and liabilities are classified by the earlier of maturity or repricing date in accordance with their contractual terms. Certain shortcomings are inherent in the method of analysis presented in the following gap table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees and at different times to changes in market interest rates. Also, loan prepayments and changes in the mix or level of deposits could cause the interest sensitivities to vary from those which appear in the table. 19 Part I. Item 2. (continued)
Over three Over one Three months year months through through Over (DOLLARS IN THOUSANDS) or less twelve months five years five years Total - --------------------------------------------------------------------------------------------------------------------- Interest-earning assets Federal funds sold $ 5,600 $ -- $ -- $ -- $ 5,600 Investment securities -- 15,375 54,267 8,529 78,171 Gross Loans (1) 212,662 38,078 55,390 28,580 334,710 Interest rate swap -- 25,000 50,000 -- 75,000 - --------------------------------------------------------------------------------------------------------------------- Total interest-earning assets $218,262 $78,453 $159,657 $37,109 $493,481 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities Interest-bearing demand and savings deposits $ -- $ 26,732 $103,958 $ 17,821 $148,512 Time certificates of deposit 56,796 69,401 11,889 -- 138,086 Other borrowings and interest- bearing liabilities 5,327 1,171 -- -- 6,498 Interest rate swap 75,000 -- -- -- 75,000 - --------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $137,123 $ 97,304 $115,847 $ 17,821 $368,096 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Interest rate sensitivity gap $ 81,139 $(18,851) $ 43,810 $ 19,288 Cumulative interest rate sensitivity gap 81,139 62,288 106,098 125,385 Cumulative interest rate sensitivity gap as a percentage of total interest- earning assets 16.44% 12.62% 21.50% 25.41%
- ------------------------------------------------------- (1) Excludes nonaccrual loans of $2.3 million. At September 30, 1996, the Company's rate-sensitive balance sheet was shown to be in a positive gap position over a one-year horizon. The gap between assets and liabilities that reprice within 12 months was $62.3 million or 12.62% of assets. The table above implies that the Company is moderately asset-sensitive and that its earnings would increase in the short-term if interest rates rise. Repricing of the Company's interest-bearing demand and savings deposits generally lags repricing on the Company's variable rate loan portfolio. These core deposits tend to be fairly stable over time and exhibit a low sensitivity to changes in interest rates. In preparing the gap table, management distributes core deposit balances across the maturity ranges in accordance with regulatory guidelines in order to incorporate these characteristics of its core deposits. In addition to utilizing the repricing gap table above in managing its interest rate risk, the Company performs a quarterly income simulation analysis. This simulation analysis provides a dynamic evaluation of the Company's balance sheet and income statement under varying scenarios, providing an estimate of both the dollar amount and percentage change in net interest income under various changes in interest rates. Based on this income simulation analysis, the Company has tended to be moderately asset-sensitive. Thus, a rising rate environment would tend to lead to a moderate increase in net interest income. LIQUIDITY Liquidity management involves the Company's ability to meet the cash flow requirements of its customers who may be depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. The Company's liquid assets consist of cash and cash equivalents and investment securities, excluding those pledged as collateral. It is the Company's policy to maintain a liquidity ratio (liquid assets to liabilities) of between 20% and 40%, and to limit loans to no more than 85% of deposits. At September 30, 1996, the Company's ratios were within these guidelines: the liquidity ratio was 22.2% and the loan to deposit ratio was 82.9%. 20 Part I. Item 2. (continued) The Company maintains short-term sources of funds to meet periodic planned and unplanned increases in loan demand and deposit withdrawals and maturities. The initial source of liquidity is the excess funds sold daily to other banks in the form of Federal funds. Besides cash and cash equivalents, the Company maintains a portion of its investment securities portfolio as available-for-sale. Available-for-sale securities can be sold in response to liquidity needs or used as collateral under reverse repurchase agreements. The Company's liquid assets were $90.4 million at September 30, 1996, a decrease of $10.7 million from December 31, 1995. The decrease can be attributed to the reduction in deposits resulting from the managed reduction of the promotional certificates of deposit raised prior to the IOBC acquisition and to the sale of two branches during the first quarter of 1996. Secondary sources of liquidity include reverse repurchase arrangements to borrow cash for short to intermediate periods of time using the Company's available- for-sale securities as collateral and Federal funds lines of credit that allow the Company to temporarily borrow an aggregate of up to $30 million from three commercial banks. At September 30, 1996, the Company had approximately $62.5 million in unpledged securities that could be used to secure borrowings such as reverse repurchase agreements. During the three months ended September 30, 1996, the largest amount of funds so borrowed was $9.7 million. Federal funds arrangements with correspondent banks are subject to the terms of the individual arrangements and may be terminated at the discretion of the correspondent bank. Federal funds purchases of up to $5.0 million were borrowed during the quarter ended September 30, 1996. CAPITAL RESOURCES The Company and its bank subsidiary are subject to risk-based capital regulations adopted by the federal banking regulators in January 1990. These guidelines are used to evaluate capital adequacy, and are based on an institution's asset risk profile and off-balance sheet exposures, such as unused loan commitments and letters of credit. The regulations require that a portion of total capital be core, or Tier 1, capital consisting of common shareholders' equity and perpetual preferred stock, less goodwill and certain other deductions, with the remaining, or Tier 2, capital consisting of other elements, primarily subordinated debt, mandatory convertible debt, and grandfathered senior debt, plus the allowance for possible loan losses, subject to certain limitations. As of December 1992, the risk-based capital rules were further supplemented by a leverage ratio defined as Tier 1 capital divided by quarterly average assets after certain adjustments. The minimum leverage ratio is 3 percent for banking organizations that do not anticipate significant growth and have well-diversified risk (including no undue interest rate exposure), excellent asset quality, high liquidity and good earnings. Other banking organizations not meeting these standards are expected to have ratios of at least 4 to 5 percent, depending on their particular condition and growth plans. Higher capital ratios can be mandated by the regulators if warranted by the particular circumstances or risk profile of a banking organization. In the current regulatory environment, banking companies must stay well-capitalized, as defined in the banking regulations, in order to receive favorable regulatory treatment on acquisitions and favorable risk-based deposit insurance assessments. Management seeks to maintain capital ratios in excess of the regulatory minimums. As of September 30, 1996, the capital ratios of the Company and the Bank exceeded the well-capitalized thresholds prescribed in the rules. 21 Part I. Item 2. (continued) The following table sets forth the Company's and the Bank's leverage and risk- based capital ratios at September 30, 1996:
Company Bank - ---------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) Amount % Amount % - ---------------------------------------------------------------------------------------------------- Leverage ratio $ 45,469 9.83% $ 43,197 9.34% Regulatory minimum 18,497 4.00% (c) 18,497 4.00% (c) Excess 26,972 5.83% 24,700 5.34% Risk-based ratios Tier 1 capital $ 45,459 (a) 10.90% (b) $ 43,197 (a) 10.36% (b) Tier 1 minimum 16,678 4.00% (c) 16,678 4.00% (c) Excess 28,781 6.90% 26,519 6.36% Total capital $ 50,673 (d) 12.15% (b) $ 48,411 (d) 11.61% (b) Total capital minimum 33,356 8.00% 33,356 8.00% (c) Excess 17,317 4.15% 15,055 3.61% - ----------------------------------------------------------------------------------------------------
(a) Includes common shareholders' equity (excluding unrealized losses on available-for-sale securities) less goodwill. The Tier 1 capital ratio is adjusted for the disallowed portion of deferred tax assets, if applicable. (b) Risk-weighted assets of $417 million were used to compute these percentages. (c) Insured institutions, such as the Bank, must maintain a leverage capital ratio of at least 4% or 5%, a Tier 1 captial ratio of at least 4% or 6%, and a Total capital ratio of at least 8% or 10% in order to be categorized adequately capitalized or well-capitalized, respectively. (d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of total risk-weighted assets. 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities Not Applicable Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Index - -------------------------------------------------------------------------------- Exhibit Description No. - -------------------------------------------------------------------------------- 3(i).1 SC Bancorp Articles of Incorporation as previously amended(a) 3(i).2 Amendment to SC Bancorp Articles of Incorporation dated May 9, 1995(b) 3(ii).1 Bylaws, as amended through March 25, 1996(b) 4.1 Specimen Common Stock Certificate(b) 4.2 SC Bancorp 1989 Stock Option Plan (February 1990)(c) 4.3.1 Amended and restated Southern California Bank Employee Retirement Plan dated January 1, 1992(d) 4.3.2 First amendment to the amended and restated Southern California Bank Employee Retirement Plan(b) 4.3.3 Second amendment to the amended and restated Southern California Bank Employee Retirement Plan(b) 4.3.4 Third amendment to the amended and restated Southern California Bank Employee Retirement Plan(b) 4.3.5 Fourth amendment to the amended and restated Southern California Bank Employee Retirement Plan(b) 4.4 SC Bancorp Executive Deferral Plan (IV) (February 1990)(c) 4.5 Southern California Bank Executive Incentive Compensation Plans for 1994 (December 1993)(e) 4.6 Southern California Bank Executive Incentive Compensation Plans for 1995(b) 10.1 First amendment to license agreement between Southern California Bank and The Vons Companies, Inc. dated December 18, 1992, for supermarket space in Anaheim Hills, California. 10.2 License agreement between Southern California Bank and The Vons Companies, Inc. dated February 22, 1996, for supermarket space in La Habra, California. 27.1 Financial Data Schedule - -------------------------------------------------------------------------------- (a) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-Q for the period ended March 31, 1995, filed with the Commission on May 15, 1995, (Commission File No. 0-11046) and incorporated herein by reference. (b) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the Commission on March 29, 1996, (Commission File No. 0-11046) and incorporated herein by reference. (c) This exhibit is contained in SC Bancorp's Proxy Statement, filed with the Commission on March 23, 1990, (Commission File No. 0-11046) and incorporated herein by reference. (d) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K for the year ended December 31, 1991, filed with the Commission on March 30, 1992, (Commission File No. 0-11046) and incorporated herein by reference. (e) This exhibit is contained in SC Bancorp's Registration Statement on Form S-2, filed with the Commission on March 9, 1994, (Commission File No. 33-76274), and incorporated herein by reference. - --------------- (b) Reports filed on Form 8-K None filed during the third quarter of 1996. 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: 8 November, 1996 SC BANCORP (Registrant) By: /S/ Bruce Roat ----------------------------- Bruce Roat E.V.P./C.F.O. (Principal Financial and Accounting Officer) 24 EX-10.1 2 EXHIBIT 10.1 LICENSE AGREEMENT BETWEEN THE VONS COMPANIES, INC. AND SOUTHERN CALIFORNIA BANK DATED FEBRUARY 22, 1996 VONS #524 2101 WEST IMPERIAL HIGHWAY LA HABRA, CALIFORNIA TABLE OF CONTENTS RECITALS 5 AGREEMENTS 5 DEFINITIONS 5 DEFINITIONS 5 GRANT OF LICENSE 6 TERM 6 USE 7 LICENSE FEE 7 EMPLOYEES 8 IMPROVEMENTS, ADDITIONS AND SIGNS 8 APPROVALS 10 MAINTENANCE AND REPAIR 10 ADVERTISING, PROMOTION AND RELATED ACTIVITIES 11 INSURANCE AND INDEMNIFICATION 12 TAXES 13 TERMINATION OF AGREEMENT BY VONS 14 TERMINATION OF AGREEMENT BY SCB 15 SURRENDER OF POSSESSION 16 DAMAGE TO PREMISES 16 CONDEMNATION 16 PEACEFUL POSSESSION 17 ASSIGNMENT 17 REMODELING OR CLOSURE OF SUPERMARKET. 17 SECURITY 19 CONFIDENTIALITY 19 NO PARTNERSHIP 19 MORTGAGE SUBORDINATION 19 HOLDING OVER 19 DISCLAIMER 20 LAWS 20 WAIVER OF SUBROGATION 20 WAIVER OF LIENS 20 ENTIRE AGREEMENT 21 CAPTIONS 21 LANGUAGE NOT CONSTRUED AGAINST EITHER PARTY 21 SEVERABILITY 22 GOVERNING LAW 22 BINDING EFFECT 22 NOTICES 22 ATTORNEY'S FEES; EXPENSES 23 NONWAIVER OF RIGHTS 23 INTEREST ON OVERDUE OBLIGATIONS 23 RETAIL CLERKS UNION 23 LICENSE AGREEMENT THIS LICENSE AGREEMENT (this "AGREEMENT") is made and entered into as of the 22nd day of February, 1996, by and between THE VONS COMPANIES, INC., a Michigan corporation ("VONS") and SOUTHERN CALIFORNIA BANK, a California corporation ("SCB"). RECITALS This Agreement is made with reference to the following facts: A. SCB operates financial service facilities throughout the State of California. VONS operates a chain of supermarkets throughout California and the State of Nevada. B. VONS is the sublessee of certain real property upon which VONS will operate a supermarket facility. SCB desires to occupy and utilize a portion of such supermarket to install, maintain, and operate a financial service facility, and VONS desires to permit such occupancy and use. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, VONS and SCB hereby agree as follows: AGREEMENTS 1. DEFINITIONS For purposes of this Agreement, the following terms shall have the following meanings: (a) "Automated Teller Machine" or "ATM" shall mean an electronic information processing device which accepts or dispenses cash in connection with a credit or deposit account, but shall not include any device used solely to facilitate check guarantees or check authorization, or used in connection with the acceptance or dispensing of cash on a person-to-person basis, such as by a store cashier. (b) "Effective Date" shall mean February 22, 1996. (c) "Financial Service Facility" or "FSF" shall mean a banking facility staffed with one (1) or more bank employees whose functions may include, without limitation, opening new deposit accounts insured by the Federal Deposit Insurance Corporation, accepting loan applications and performing customary teller transactions, such as cashing checks and taking deposits. A FSF may or may not be equipped with an ATM, safe deposit boxes, vault, cash dispensers or a night depository. A FSF may also offer such other products or services as may be permitted by applicable law and regulation, including, without limitation, insurance and investment services. (d) "License Fee" shall mean the fee set forth in Section 5 hereof with respect to the Basic Term or any of the Renewal Terms, as the case may be. (e) "Premises" shall mean that approximately five hundred (500) square foot portion of the Supermarket cross-hatched on Exhibit "A" attached hereto and incorporated herein by this reference. (f) "Premises FSF" shall mean the FSF located in the Premises and subject to this Agreement. (g) "Property" shall mean that certain real property commonly known as 2101 West Imperial Highway, La Habra, California, as depicted on Exhibit "B" attached hereto and incorporated herein by this reference. VONS subleases the Property pursuant to that certain Sublease dated as of February 22, 1996 (the "Sublease") between Smith's Food & Drug Centers, Inc., as sublessor, and The Vons Companies, Inc., as sublessee, a short form of which as recorded on February 22, 1996 as Document No. 19960084574 in the Official Records of Orange County, California. (h) "Supermarket" means the supermarket facility to be operated by VONS on the Property. 2. GRANT OF LICENSE Commencing on the Effective Date, VONS grants to SCB and SCB's employees, customers and invitees, a limited, exclusive and revocable license ("License") to use the Premises in accordance with the terms and conditions set forth herein. 3. TERM (a) BASIC TERM. The "Basic Term" of this Agreement shall commence upon the Effective Date and shall continue for a period of three (3) years immediately following commencement of the Basic Term, subject to Section 20 below. (b) Renewal Options. Unless this Agreement has been sooner terminated pursuant to the terms hereof, SCB shall have the option (each such Option being herein referred to as a "Renewal Option") of extending the Basic Term for three (3) additional periods of five (5) years each (each a "Renewal Term"), by notifying VONS in writing no earlier than one hundred twenty (120) days and no later than sixty (60) days prior to the expiration of the Basic Term or Renewal Term then in effect. Each Renewal Term shall be on the same terms and conditions as set forth herein, except for the License Fee, which shall calculated as set forth in Section 5 hereof. (c) Regulatory Compliance. Notwithstanding any other provision of this Agreement, if SCB elects not to extend the term of this Agreement or this Agreement is otherwise terminated for any reason, SCB shall take prompt action to obtain all necessary regulatory approvals for the closure or relocation of the Premises FSF and to proceed to close the Premises FSF and remove its improvements, signs and personal property from the Supermarket. Until all such regulatory approvals are obtained and the Premises FSF is closed, this Agreement shall continue on a month-to-month basis on the same terms and conditions as contained herein and at the License Fee applicable to the period immediately preceding SCB's election not to extend this Agreement or such other termination . 4. USE (a) SCB shall have the right to occupy and use the Premises for the construction, operation, maintenance, repair and servicing of a FSF but for no other use. SCB may provide or promote all financial services which are transacted or conducted by SCB in the operation of any of its other consumer and commercial banking facilities. (b) Each party shall conduct its business at the Supermarket in a first-class and proper manner. Each party agrees that it shall not unreasonably block or restrict the aisles or passageways of the other party, nor shall either party interfere with the other party's business. VONS reserves the right to approve any of SCB's merchandising or advertising displays which are placed on the exterior walls of the Premises FSF exclusive of signage permitted in accordance with Section 7(f) hereof, such approval not to be unreasonably withheld or delayed. (c) Subject to force majeure (as hereinafter defined) and the other provisions of this Agreement, following the Effective Date, the Premises FSF shall be open for business for a minimum of forty eight (48) hours a week allocated over seven (7) days; provided, however, that (i) the Premises FSF shall not be open less than four (4) hours on any given day; (ii) the hours of operation for the Premises FSF must be consistent with the operating hours of the Supermarket; and (iii) the hours of operation of active ATMs located in the Premises FSF shall not count toward this requirement. Such minimum hours of operation shall be shortened for any week during which a "Bank Holiday" (as such term is customarily understood in the banking industry) occurs and any week during which the Supermarket is not open for business, and shall be subject to force majeure. If a bank holiday is observed on a Friday or Monday with respect to a holiday occurring on a Saturday or Sunday, such adjustment may, at SCB's discretion, include either or both of such actual holiday and such bank holiday. The operating hours of the Supermarket are currently scheduled to be 6:00 a.m. to midnight, seven (7) days a week; provided, however, that, subject to Section 20 hereof, such hours of operation are subject to change at any time at VONS' sole discretion, but the Supermarket will nevertheless remain open during any minimum hours required for operation of the Premises FSF by applicable regulatory authority (such hours are currently 10:00 a.m. to 3:00 p.m. on Mondays through Fridays, bank holidays excepted). VONS shall immediately notify SCB of any change in the Supermarket's hours of operation and shall use reasonable efforts to give SCB thirty (30) days' notice prior to changing the hours of operations of the Supermarket. SCB shall not be required to operate the Premises FSF during any hours when the Supermarket is not open for business. Following the Effective Date, VONS and SCB shall implement a mutually agreeable procedure to allow SCB emergency access to the Premises during any hours when the Supermarket is not open for business. (d) SCB shall offer services in the Premises FSF generally consistent with the services offered at other SCB full-service branches taking into account limitations in service due to the size of the Premises FSF. 5. LICENSE FEE Commencing on the Effective Date and continuing throughout the term of this Agreement, SCB will pay rent ("License Fee") to VONS on or before the first day of each calendar month. The License Fee for the first year of the Basic Term will be One Thousand Seven Hundred Fifty Dollars ($1,750) per month ($21,000 per year). If the Effective Date is not the first day of a month, the License Fee will be prorated based on the number of days in that month and will be paid on the first day of the following month. If the Agreement ends on the day that is not the last day of the month, License Fee will be prorated based on the number of days in that month. The License Fee will be paid to VONS in lawful money of the United States of America at the address stated in Section 37 hereof. VONS, or any successor in interest to VONS, may elect to have the License Fee paid to another payee or mailed to any other address, provided that VONS must give SCB written notice as to the payee and/or address to which the License Fee must be sent. Effective upon February 22, 1997, the License Fee shall be adjusted in accordance with the fee structure attached hereto as Schedule "1" ("License Fee Adjustment"). The License Fee Adjustment (which shall determine the License Fee for the remainder of the Basic Term and the Renewal Terms) shall be based upon VONS' average weekly customer count for the Supermarket during the final twelve (12) full weeks of the first year of the Basic Term. 6. EMPLOYEES (a) SCB Shall be solely responsible for the hiring of its personnel and for the staffing of the Premises FSF at all times during the Basic Term and any Renewal Terms under this Agreement. All persons employed by SCB in or about, or in connection with, the operation of the Premises FSF shall be SCB's employees for all purposes under this Agreement. None of SCB's employees shall in any way be deemed to be employees, agents or representatives of VONS. (b) VONS shall be solely responsible for the hiring of its personnel and for the staffing of the Supermarket at all times during the Basic Term and any Renewal Terms under this Agreement. All persons employed by VONS in or about, or in connection with, the operation of the Supermarket shall be VONS' employees for all purposes under this Agreement. None of VONS' employees shall in any way be deemed to be employees, agents or representatives of SCB. (c) SCB and VONS shall each, at its own cost and expense, maintain workers' compensation coverage, unemployment compensation coverage and other insurance which may be required by law with respect to their respective employees. SCB and VONS shall each be solely responsible for the payment of all salaries, compensation, withholding taxes, health and welfare benefits and other similar charges associated with the employment of their respective employees. Should any such assessment be made against either party with respect to such party's employees, each party expressly agrees to indemnify the other and hold the other harmless from any such assessment or liability. Compensation and benefits payable by SCB and VONS to or on account of their respective employees shall be proved by each party in accordance with such policies and procedures as each party, in its sole discretion, shall adopt, provided that all such compensation and benefits comply with all applicable state and federal laws. (d) SCB shall comply with and abide by, and cause its employees to comply with and abide by, all reasonable rules and regulations adopted by VONS regarding safety, security, conduct and customer relations at the Supermarket, provided such rules and regulations are made available in advance to SCB and its employees at least three (3) business days in advance of the effectiveness thereof, and provided VONS' employees are also required to comply with and abide by such rules and regulations. (e) SCB's employees, whole working at the Premises FSF, shall be entitled to use all facilities in the Supermarket provided by VONS for the convenience of VONS' employees at the Supermarket including, but not limited to, toilet facilities, lunchrooms and breakrooms. (f) SCB's employees shall not park their automobiles in the primary customer parking area as designated by VONS for the Supermarket, but shall park their automobiles only in locations designated by VONS, which locations shall be the same as those designated for parking by VONS' employees. (g) SCB's employees and agents and employees of companies which manufacture or service the Premises FSF who are not SCB's employees or agents shall be granted access to the Premises for the purpose of servicing, maintaining and otherwise performing services I connection with the Premises FSF. VONS agrees to cooperate with SCB so that SCB's employees or contractors shall have access to the Premises during periods of time in which the Supermarket may not be open for business. 7. IMPROVEMENTS, ADDITIONS AND SIGNS (a) Plans and Specifications. Intentionally omitted. (b) Construction. SCB shall not engage in any substantial construction activities for the period from November 1 through January 1 with VONS' prior written consent (except for emergency repairs and required maintenance). Construction shall be completed in accordance with all applicable laws and building codes and shall be completed in a good and workmanlike manner. SCB shall not construct the Premises FSF in such a manner as to affect VONS' "Highly Protected Risk" ("HPR") insurance rating. VONS may, in its reasonable discretion, limit SCB's construction time within the Supermarket so as to minimize any safety hazards to customers and employees and any disruption of VONS' operations in the Supermarket. SCB shall schedule heavy construction prior to noon and light construction between noon and 6:00 p.m. SCB shall indemnify, defend and hold VONS harmless from and against any mechanics' liens and other liens or claims in connection with SCB's alterations and/or improvements. (c) Fixtures, Equipment and Furnishings. SCB at its sole cost and expense, shall furnish all fixtures, equipment and furnishings which it deems necessary or desirable for operation of the Premises FSF and shall pay any and all costs of modification of the Premises for the installation of such fixtures, equipment and furnishings. SCB shall not make any modification or attach any substantial fixtures or equipment without VONS' prior written approval, which shall not be unreasonably withheld or delayed. Premises which may be necessary or required by reason of any law, rule, regulation or order promulgated by any governmental authority regulating SCB or the Premises. However, if the scope of said alteration substantially alters the form and/or arrangement of the Premises FSF as provided in the Plans, either VONS or SCB may terminate this Agreements. (d) Site Preparation Costs SCB previously operated a banking facility in the Premises during the time the Property was operated as a supermarket by Smith's Food & Drug Centers, Inc. VONS and SCB acknowledge that the Premises FSF has already been constructed in the Premises and is currently being operated by SCB. SCB accepts the Premises FSF in its "as is" condition. (e) Construction Insurance. SCB shall obtain or cause its general contractor to obtain, such insurance as will protect SCB and VONS from claims for property damage or personal injury bodily injury, including death which may arise in connection with SCB's construction work. Such insurance shall be obtained from a financially responsible company which is licensed to do business as an insurance company in the State of California and shall name VONS as an additional insured. Such commercial general liability and property insurance shall be for limits of not less than One Million Dollars ($1,000,000) single limit bodily injury and property damage liability. SCB shall furnish VONS with a certificate of insurance evidencing the issuance of the required insurance prior to the commencement of SCB's construction work. (f) Signage. VONS shall permit SCB to place signs identifying its operations within the Supermarket in the vicinity of the Premises FSF, such signs being of such dimensions and such locations as shown in the Design Plans and as are consistent with any applicable governmental laws, rules and regulations. Exterior signs shall be subject to the consent of any required parties pursuant to any existing ground leases, reciprocal easements, space leases, covenants, conditions and restrictions or other agreements relating to the Property and shall comply with the requirements of any governmental authority having appropriate jurisdiction. All contractual approvals for such SCB signage shall be obtained by VONS but at no cost to VONS; all permits, variances or similar governmental entitlements necessary to allow SCB's placement of such signs shall be obtained by SCB at its sole cost and expense. All SCB signage will be fabricated, installed and maintained at SCB's sole cost and expense and shall be consistent with current SCB signage standards. Subject to any applicable governmental laws, rules or regulations, SCB may change its signage at any time with VONS' prior written consent, which shall not be unreasonably withheld or delayed; provided however, that SCB shall not need VONS' consent to change signage based upon a change in SCB's name or logo. 8. APPROVALS VONS shall take reasonable steps to obtain the consent, where necessary, of any property manager or other entity, except governmental entities, required for the operation of the Premises FSF. SCB shall procure, where necessary, any and all governmental permits, consents, licenses or other authorizations required for the operation of the Premises FSF at its sole cost and expense. VONS agrees to cooperate with and assist SCB in obtaining approvals and permits in connection with the construction, installation, operation, relocation or discontinuance of the Premises FSF. If the necessary approvals and/or permits to construct, install and operate the Premises FSF are not obtained after reasonable efforts by VONS and/or SCB, either party may terminate this Agreement. 9. MAINTENANCE AND REPAIR (a) Obligations of SCB. SCB shall, at its sole cost and expense, maintain the Premises as follows: (i) SCB shall keep and maintain the Premises in good order and repair, including all equipment installed therein and all electrical or other transmission lines used by SCB for computer data processing and transmission; (ii) SCB shall pay for telephone, data lines, or related services required for SCB's operations; (iii) SCB shall provide all necessary janitorial services for the Premises; and (iv) SCB shall maintain any glass windows which are installed by SCB as part of the Premises FSF (excluding exterior glass windows of the Supermarket). Notwithstanding the foregoing, SCB shall not be responsible for the maintenance of the Supermarket or the parking or common areas of the shopping center of which the Supermarket is a part. (b) Obligations of VONS. VONS shall, at its sole cost and expense, provide the following maintenance and services: (i) VONS shall furnish from facilities presently existing at the Supermarket, all lighting, air conditioning, heating, and other utilities for the Premises, excluding telephone lines and services. However, VONS shall not be responsible for any additional electrical, heating, cooling, lighting and/or telephone equipment that may be required by SCB for SCB's operations; (ii) If for any reason, not the fault of VONS, such utilities are suspended or discontinued, VONS shall not be liable to SCB for any interruption of its operations by reason of such suspension or discontinuance, but SCB shall be entitled to a proportionate abatement of the License Fee if the utilities servicing the Premises are suspended or discontinued for more than forty-eight (48) hours; (iii) VONS shall keep and maintain the Supermarket, including, but not limited to, exterior glass windows, and toilet facilities in good order and repair, including, without limitation, plumbing and electrical equipment (with the exception of computer data processing and transmission lines used by SCB), heating, air conditioning, doors, windows and all other structural portions of the Supermarket (with exception of those structural portions installed or revised by SCB). VONS shall also maintain, or cause to be maintained, the parking and common areas of the shopping center of which the Supermarket is a part; (iv) VONS shall maintain the Supermarket free and clear of any sales items, fixtures, barriers, signs or other obstructions that would inhibit the ingress to and egress from the Premises FSF and shall, in all events, keep Supermarket free and clear of all items within a reasonable distance from the service counters in the Premises FSF. VONS shall keep all exterior walls that are used by SCB for merchandising free and clear of all signs and fixtures; and (v) Subject to SCB's security requirements as reasonably established, and upon not less than one (1) business day's prior notice (except in the event of an emergency ) VONS and/or its agents shall have the right to enter the Premises at any reasonable hour (or, in an emergency, at any hour), to perform an inspection or accomplish any other lawful purpose. 10. ADVERTISING, PROMOTION AND RELATED ACTIVITIES (a) Both VONS and SCB recognize that it is in their mutual best interest to promote jointly the business of each other at the Supermarket. Each party and its employees agree to cooperate with and promote the goodwill and business of the other party at the Supermarket, including, without limitations, working together in good faith to coordinate joint promotions for the Premises FSF and the Supermarket. (b) Both VONS and SCB may, at their own expense, advertise the existence and location of the Premises FSF in such media and in such manner as each deems appropriate. However, the prior approval of each party shall be obtained with regard to any advertisement that is to be transmitted by or appear in any medium that refers to both parties. (c) VONS and SCB shall at all times retain prior approval of any marketing or promotional advertisement by the other party which bears the other party's name, logo or trademark or those of any of the other party's fictitious business names. (d) SCB and VONS acknowledge and agree that each party's trademarks and tradenames are solely the property of such party, respectively, and that this Agreement does not in any way grant to the other party the right to use same. Full title and all rights with respect to such trademarks and tradenames shall be and remain the property of VONS and SCB, respectively. (e) Subject to VONS' approval, which will not be unreasonably withheld or delayed, SCB may advertise or sell products or services outside the Premises FSF within the Supermarket itself. SCB shall be responsible for any clean-up of the Supermarket associated with such sale of products or services. VONS agrees that "silent radio" announcements broadcast in the Supermarket or in-store public address announcements will not promote depository institutions other than SCB. (f) SCB personnel may canvass and distribute information regarding SCB's services in the Premises FSF in the aisles of the Supermarket as long as such personnel do not interfere with or otherwise disrupt VONS' customers while such customers are making buying decisions. SCB shall be responsible for any clean-up of the Supermarket associated with such advertising or distribution of literature. (g) SCB may promote the Premises FSF in selected SCB statement stuffers or messages sent to certain of SCB's branches as mutually agreeable to VONS and SCB. (h) VONS and SCB shall develop and conduct cooperative grand opening promotional activities and offers. (i) SCB shall have access to the intercom located in the Supermarket, proved that the use of such intercom shall be coordinated by the store manager and SCB's use of the intercom shall at all times be subject to the prior approval of the store manager, which approval shall not unreasonably withheld. It is the parties' intention that the joint use of this intercom shall be to the benefit of both parties for the purpose of paging and announcing various specials being promoted by either party within the Supermarket. 11. INSURANCE AND INDEMNIFICATION (a) Personal Property Insurance. SCB and VONS shall each carry its own personal property insurance. (b) Liability Insurance. SCB shall maintain in full force and effect during the term of this Agreement commercial general liability insurance including broad form blanket contractual coverage against claims for bodily injury, death and/or property damage occurring within or upon the Premises, which insurance shall afford "single occurrence" protection to at least a limit of Two Million Dollars ($2,000,000). Such commercial general liability insurance shall name VONS as an additional insured as respects its interest in the Premises, shall provide that VONS shall receive thirty (30) days' prior written notice of any non-renewal, cancellation or material change in coverage under such policy, and shall state that the insurance coverage provided is primary and non-contributory as regards any other insurance carried by SCB. SCB shall furnish VONS with a certificate of insurance evidencing the coverage required under this paragraph. (c) Property Insurance. VONS shall maintain in full force and effect throughout the term of this Agreement all risk property insurance in an amount equal to the full replacement cost of the improvements now or hereafter located upon the Property. (d) Self-Insurance. SCB (or VONS) may elect at any time during the term of this Agreement not carry the commercial general liability insurance and all risk property insurance required by this Section 11 and to "self-insure" against such risks provided that (i) SCB (or VONS) has in effect for the benefit of its branches (or stores) a program of "self-insurance" against such risks, (ii) SCB (or VONS) has and maintains a net worth of at least Fifty Million Dollars ($50,000,000), and (iii) the failure to carry such insurance does not violate any law, statute, code, act, ordinance, order, judgment, decree, injunction, rule regulation, permit, license, authorization or other requirement which is issued by any government or governmental agency with jurisdiction over the Premises (or the Property) or which is applicable to SCB (or VONS) in the conduct of its business. (e) Compliance with Regulations. SCB and VONS shall each, at its own cost and expense, comply with all reasonable rules and orders of its insurance company or companies related to its respective operations in the Premises FSF and the Supermarket. (f) Indemnification. Subject to the provisions of Section 28, VONS and SCB hereby mutually agree to indemnify, defend and hold each other harmless from any and all claims, losses, expenses, actions or causes of action, including, but not limited to, reasonable attorneys' fees in defense thereof, arising from, or in connection with the negligence or willful misconduct of their employees, agents, representatives, contractors or any of them in performance of the terms of this Agreement. 12. TAXES SCB shall be liable for all taxes assessed by any taxing authority (including sales taxes) which are attributable to SCB's operations at the Premises FSF and shall pay all personal property taxes assessed on SCB's fixture, equipment and machinery located in the Supermarket. SCB shall also pay any license or other fee incident to the conduct of its business whether billed directly to SCB or to VONS. In the event that any unapportioned tax assessed against VONS includes SCB property, other than real estate taxes, SCB shall pay such portion of the tax as the value of such SCB property that was included in VONS' assessment at the time of the assessment bears to the total value of the property assessed in the Supermarket. Notwithstanding anything to the contrary contained in this Section 12, SCB shall not be liable for any of the following taxes and/or assessments related to VONS' occupancy or use or ownership of the property: (a) Personal property, fixture or equipment taxes assessed against VONS property; (b) Franchise Taxes assessed against VONS; (c) Taxes on VONS gross rents or profits; (d) Inheritance, state, gift, income, transfer or excess profit taxes assessed against VONS; (e) Sales taxes payable by VONS; and (f) Real property taxes and assessments, including, but not limited to, any fees, interest and penalties arising from any such tax or assessment, assessed against all or any portion of the Property and the improvements located thereon, including, but not limited to, any such taxes and assessments attributable to the Premises, the Premises FSF or any portion of either. In the event that any unapportioned property tax (other than a real property tax or assessment) is assessed against either party hereto and includes property owned by the other party hereto, VONS and SCB agree to cooperate to have the portion of such tax that relates to property owned by such other party assessed to such other party. If VONS and SCB cannot convince the assessor to so reapportion such tax, the party owing the property so taxed agrees to pay to the party being assessed the portion of such tax relating to such property. 13. TERMINATION OF AGREEMENT BY VONS Notwithstanding any provision of this Agreement (but subject to Sections 3(c) and 27 hereof) or any implied covenant to the contrary, VONS shall have the right to terminate this Agreement upon thirty (30) days' written notice to SCB in the event of any of the following occurrences: (a) SCB's failure to make any payment of the License Fee required hereunder when the same is due, and SCB's failure to cure such default within ten (10) days following written notice thereof by VONS to SCB; (b) SCB's failure to make any payment required hereunder (other than a payment of the License Fee) when the same is due and SCB's failure to cure such default within thirty (30) days following written notice thereof by VONS to SCB except to the extent that SCB provides VONS with written notice prior to the expiration of said thirty (30) -day period that SCB disputes VONS' calculation or other determination of the amount of any such payment and thereafter proceeds in good faith to promptly resolve said dispute; (c) A non-monetary default under this Agreement which is not timely cured by SCB. SCB shall not be in default under this Section 13(c) if SCB cures such non-monetary default within a period of thirty (30) days after receipt of written notice thereof from VONS to SCB. If the default is of such a nature that the same cannot be rectified or cured within said thirty (30) days period, then such default shall be deemed to be rectified or cured if SCB shall, within the thirty (30) day period, commence to rectify and cure the same and shall thereafter complete such rectification and cure with due diligence; (d) SCB's failure, after the Effective Date, to operate the Premises as a FSF for any reason (except during a temporary closure of the Supermarket as set forth in Section 20 (a), hereof), as a result of "force majeure" (as hereinafter defined), or during a strike, boycott, lockout or other labor disturbance which, in SCB's reasonable determination, would endanger SCB's employees or customers for seven (7) consecutive days during VONS' normal operating business hours provided that the Supermarket has been operating for such seven (7) day period; (e) SCB's (i) failure to maintain, at a minimum, the following banking services at the FSF: opening new deposit accounts insured by the Federal Deposit Insurance Corporation, accepting loan applications and performing customary teller transactions, such as cashing checks and taking deposits which continues after VONS has give ten (10) days' written notice of such service deficiencies to SCB and SCB has failed to cure same or (ii) SCB's substantial modification of the consumer and commercial banking format of the Premises FSF; (f) VONS' closure of the Supermarket (subject to the provisions of Section 20 (c) below: (g) Anything in this Agreement to the contrary notwithstanding, in the event that SCB is closed, or taken over by the authority of the United States, or other government supervisory authority, VONS may terminate this Agreement only with the concurrence of such governmental authority or other supervisory authority, and any such authority shall in any event have the election either to continue to terminate this Agreement; provided, however, that in the event this Agreement is terminated in whole or in part, the maximum claim of VONS for damages or indemnity for injury, resulting from the rejection or abandonment of the remaining term of this Agreement shall in no event be in an amount exceeding the License Fee reserved hereunder for the Premises affected, without acceleration, for the year next succeeding the date of re-entry into the Premises by VONS, whichever occurs first, whether before or after the closing of the Premises FSF, plus an amount equal to the unpaid License Fee accrued without acceleration, up to such date; and (h) The termination of VONS' Sublease for the Property. 14. TERMINATION OF AGREEMENT BY SCB Default. Notwithstanding any provision of this Agreement (but subject to Sections 3(c) and 27 hereof) or any implied covenant the contrary, SCB shall have the right to terminate this Agreement upon thirty (30) days' written notice to VONS in the event of any of the following occurrences: (a) VONS failure to make any payment required hereunder when the same is due, and VONS' failure to cure such default within thirty (30) days following written notice thereof by SCB to VONS except to the extent VONS provides SCB with written notice prior to the expiration of said thirty (3)-day period that VONS disputes SCB's calculation or other determination of the amount of any such payment and thereafter proceeds in good faith to promptly resolve said dispute; (b) A non-monetary default under this Agreement which is not timely cured by VONS. VONS shall not be in default under this Section 14(b) if VONS cures such non-monetary default within a period of thirty (30) days after receipt of written notice thereof from SCB to VONS. If the default is of such a nature that that the same cannot be rectified or cured within said thirty (30)-day period, then such default shall be deemed to be rectified or cured if VONS shall, within the thirty (30)-day period, commence to rectify and cure the same and shall thereafter complete such rectification cure with due diligence; and (c) VONS' substantial modification of the retail supermarket format of the Supermarket (i.e., from a retail supermarket to a "warehouse" club format). Notwithstanding the foregoing, VONS shall have the express right to add or remove any departments, features or services as VONS deems desirable in its reasonable business judgment to operate a retail supermarket in the Supermarket. 15. SURRENDER OF POSSESSION (a) Possession. Subject to the provisions of Section 3(c) and Section 27 hereof, upon the effective date of any termination of this Agreement, SCB shall surrender peaceful possession of the Premises to Vons and shall, at its expense, remove any and all alterations, additions or improvements (with exception of major structural modifications made by SCB) which SCB has made to the Premises and restore the Premises to as good a condition as it received same, loss or damage by fire and ordinary wear and tear from reasonable use excepted. (b) Fixtures. The parties agree that all fixtures, furnishings, machinery and equipment placed in or on the Premises by or through SCB shall be the property of SCB and shall be removed by SCB at the termination of this Agreement. 16. DAMAGE TO PREMISES. If by fire or other casualty, the Premises and/or the Supermarket are destroyed or damaged to the extent that SCB is deprived of occupancy or use of the same, and if such damage or destruction can be repaired within ninety (90) days from the date of such damage or destruction, VONS shall promptly restore the Premises and the Supermarket and SCB shall restore the Premises FSF to substantially the same condition as existed before such damage or destruction. The License Fee payable by SCB hereunder shall be equitably abated to the extent that SCB is unable to occupy and use the Premises. In the event such damage or destruction cannot be repaired within ninety (90) days, VONS shall notify SCB as soon as practicable whether (i) VONS has elected to repair and rebuild the Supermarket as may be permitted pursuant to the terms of the VONS Sublease, or (ii) VONS has elected not to rebuild the Supermarket and to terminate the VONS Sublease. If VONS has elected to rebuild the Supermarket, SCB shall provide VONS with written notice no later than thirty (30) days after receipt of VONS' notice whether or not SCB desires to reopen the Premises FSF in the Supermarket. If SCB desires to reopen the Premises FSF, this Agreement shall continue in effect and the License Fee payable by SCB hereunder shall be equitably abated to the extent that SCB is unable to occupy and use the Premises. If (i) VONS elects not to rebuild the Supermarket or if (ii) SCB elects not to reopen the Premises FSF, this Agreement shall terminate effective as of the date of such damage or destruction. 17. CONDEMNATION All awards made by reason of condemnation shall be made to VONS and SCB shall assign to VONS all of its right, title and interest in and to such award. VONS shall, however, pay to SCB any portion of an award which may be allocable to permanent improvements to the Supermarket made by SCB. Also, if any award includes an amount of compensation for moving fixtures, SCB will be entitled to recover out of the award SCB's actual cost of removing its fixtures. Notwithstanding the foregoing, SCB shall be entitled to any award intended to compensate SCB for expenses of locating and moving SCB's operations to a new space. Nothing contained in this paragraph shall preclude SCB from filing a separate claim against the condemning authority for the undepreciated value of it leasehold improvements and relocation expenses, provided that any award to SCB will not result in a diminution of an award to VONS. If the Supermarket, the Premises or any portion thereof is taken or condemned by any competent authority so as to prevent SCB from conducting its operations in substantially the same manner as theretofore conducted, this Agreement shall terminate. 18 PEACEFUL POSSESSION So long as SCB performs its obligations under this Agreement, SCB shall have peaceful and uninterrupted possession of the Premises during the term of this Agreement, except by reason of force majeure. The "force majeure" as applied to a party to this Agreement shall mean acts of God, strikes, boycotts, explosions, sabotage, accidents, riots or civil commotion, acts of war, fire or other casualty, or other cause or causes beyond such party's reasonable control. 19. ASSIGNMENT The obligations of, and services to be provided by, each party hereunder are considered to by unique and have been specifically bargained for based upon subjective criteria by each party. Therefore, this Agreement and the rights and obligations set out hereunder shall not be assigned subleased, licensed, or delegated, in whole or in part, by either party without the prior written consent of the other party, which consent shall be in the party's sole and absolute discretion. Notwithstanding the foregoing, either party may, whether by assignment, or transfer by operations of law, transfer its rights, obligations, duties and benefits under this Agreement to a parent, wholly-owned subsidiary of affiliated entity of the transferring party, to a successor by merger or consolidation, or to an entity which acquires substantially all of the assets of the transferring entity in the county in which the Supermarket is located; provided, however, that the transferee agrees in writing, for the benefit of the non-transferring party, to be bound by the duties and obligations of the transferring party under this Agreement. In the event VONS sells, leases, subleases, assigns or otherwise transfers it interest in the Supermarket to an entity ("Transferee") other than a parent, subsidiary or affiliated entity of VONS (including, but not limited to, a partnership of which VONS is a majority owner), this Agreement shall terminate upon sixty (60) day's written notice by VONS to SCB, subject to Section 3(c) and Section 27 hereof. Notwithstanding the foregoing, this Agreement shall not terminate in the event of a sale/leaseback transaction with respect to the supermarket, so long as the Supermarket continues to be operated under the "VONS" name. Upon notice by VONS of termination pursuant to the foregoing paragraph, subject to Section 3(c) and section 27 hereof, SCB shall vacate the Premises in accordance with the provision of Section 15 of this Agreement, except that the Premises shall be vacated within thirty (30) days of receipt of such notice unless a longer period is required under federal or state law. In addition , all electrical lines shall be capped and labeled and not be visible to the sales area of the Supermarket. 20. REMODELING OR CLOSURE OF SUPERMARKET. (a) Remodel of Supermarket; Relocation of Premises FSF. In the event VONS, in its sole discretion, finds it desirable to remodel or enlarge the Supermarket, the Premises FSF may be moved from the Premises to a location within the Supermarket mutually satisfactory to SCB and VONS. If remodeling occurs during the Basic Term or the first Renewal Term, the relocation of the Premises FSF shall be completed at VONS' cost and expense, which cost and expense shall include, but not limited to, remodeling construction and utility hook-ups. If the remodeling occurs during the second or third Renewal Term, the relocation of the Premises FSF shall be completed at the cost and expense of the party initiating such relocation, which cost and expense shall include, but not be limited to, remodeling, construction and utility hook-ups. VONS shall use its best efforts to avoid relocating the Premises FSF from its initially approved Premises. The various options shall be reviewed by the parties prior to such relocation being undertaken. (b) Remodel or Renovation of Supermarket. Except for temporary closures which result from fire or other casualty, VONS shall give SCB at least ninety (90) days' written notice ("remodel Notice") in the event that VONS temporarily closes the Supermarket for remodeling purposes. The Remodel Notice shall describe in reasonable detail the extent of such renovation or remodeling and the estimated time schedule for completion. If the Supermarket is temporally closed, VONS shall reimburse SCB for (i) all reasonable costs incurred by SCB for (1) temporary replacement facilities in the event the Premises FSF will be closed from more than two (2) days (unless SCB can relocated into a nearby SCB branch facility) and relocation expenses incurred by SCB in connection with temporarily relocating the Premises FSF or (2) construction, and relocation expenses incurred by SCB in temporarily relocating the branch with the Supermarket (if the parties mutually agree to such relocation), as the case may be and (ii) all reasonable costs incurred by SCB for any required notification to customers or governmental authorities with respect to the temporary closure of the Premises FSF. If SCB, in its reasonable discretion, believes such renovation work will make it impractical to fully operate the Premises FSF for a period in excess of thirty (30) days (or for an aggregate of fifty (50) days over any three (3)-month period), SCB will have the right to terminate this Agreement and to treat such renovation or remodeling as a "Closure of Supermarket by VONS" in accordance with Section 20(c) below. If SCB does not elect to terminate this Agreement as provided in the immediately preceding paragraph, VONS will use it best efforts to perform such renovation or remodeling in accordance with the Remodel Notice and in a manner to minimize the disruption of SCB's operation of the Premises FSF. During any such renovation, the License Fee will be equitably abated to reflect any suspension or disruption of the Premises FSF operation. (c) Closure of Supermarket by VONS. SCB acknowledges and agrees that nothing contained in this Agreement shall obligate VONS to continue its retail operation at the Supermarket. If VONS desires to cease its retail operation at the Supermarket, VONS shall provide SCB with ninety (90) days' written notice of its intent to cease operations and the estimated date of closure of the Supermarket ("Notice of Closure"). SCB acknowledges that the Notice of Closure is confidential and proprietary to VONS. Accordingly, except for disclosure required by law (including notices to consumers) and disclosures to key employees of SCB, SCB shall keep the Notice of Closure confidential until it files an application to its regulators for relocation or closure of the Premises FSF. SCB, at a time and in a manner approved by VONS, may notify its employees and the public at large of the contemplated closure of the Supermarket. If the Supermarket is closed or is to be relocated in another building in the same trade area, SCB shall have the option of terminating this Agreement or relocating the Premises FSF in the new store under the same terms and conditions as proved under this Agreement at the time of such relocation. If SCB elects to relocate the Premises FSF, such relocation shall be at SCB's cost and expense. 21. SECURITY (a) SCB shall have the right, and VONS shall have no obligation, to provide security for the Premises. SCB shall have the right to have an unarmed security guard in the Premises FSF at all times. With VONS' prior written consent, which consent shall be unreasonably withheld or delayed, SCB may install such electronic surveillance equipment, security devices, gates and other security equipment within the Premises as SCB deems necessary. (b) VONS shall have the right, and SCB shall have no obligation, to provide security for the Supermarket and the rest of the Property excluding the Premises FSF. (c) SCB hereby releases VONS from any claims, loss or damage that SCB might sustain by reason of a robbery or attempted robbery of or theft or attempted theft from the Premises FSF or the Supermarket unless perpetrated by an employee or agent of VONS. VONS hereby releases SCB from any claims, loss or damage that VONS might sustain by reason of a robbery or attempted robbery of or theft or attempted theft from the Premises FSF or the Supermarket unless perpetrated by an employee or agent of SCB. VONS and SCB agree that any armored car companies utilized by either VONS or SCB are not agents of VONS or SCB, respectively, for the purpose of the foregoing reciprocal releases. 22. CONFIDENTIALITY Each party acknowledges that in connection with this Agreement or in the performance hereof, it has or will come into possession or knowledge of material and information which is proprietary to the other party. Each party, therefore, agrees to hold such material and information in strictest confidence, not to make use thereof except in the performance of this Agreement, and not to release or disclose it to any other party with the exception of the parties' parent companies, subsidiaries, affiliates, attorneys, auditors and except as may be required by law. The obligations of each party under this Section shall survive the termination of this Agreement. 23. NO PARTNERSHIP This Agreement does not constitute a joint venture partnership or employer-employee relationship between SCB and VONS. 24. MORTGAGE SUBORDINATION Upon written request of VONS, SCB agrees to subordinate its rights under this Agreement to the liens of any mortgages or security agreements that are presently or may hereafter be placed upon the Property and to any and all advances to be made thereunder, and all renewals, replacements and extensions thereof. 25. HOLDING OVER Any holding over after the expiration of the Basic Term or any Renewal Term of this Agreement with VONS consent shall be construed to be an arrangement from month to month on the same terms and conditions, which, subject to Sections 3(c) and 27 hereof, either party may terminate with a thirty (30)-day written notice. 26. DISCLAIMER This Agreement shall not constitute a deed or grant of easement, and shall not be deemed an easement by virtue of any work performed by the parties hereto. 27. LAWS SCB shall comply with all applicable laws, ordinances, regulations and recorded restrictions affecting the use or occupancy of the Premises and in the conduct of its business operations. VONS shall comply with all applicable law, ordinance, regulations and recorded restrictions affecting the use or occupancy of the Property and in the conduct of its business operations. VONS recognizes and agrees that all of SCB's covenants and obligations hereunder, including, but not limited to, the establishment, maintenance, closure, relocation and hours of operation of the Premises FSF and any ATM are at all times subject to SCB's obtaining the consent or approval of all state and federal regulatory agencies now or hereafter empowered to regulate SCB and it business operations. 28. WAIVER OF SUBROGATION Both parties wish to eliminate (i) any cause of action which either party may have against the other because of negligence, and the resulting loss to property which is required to be insured in accordance with this Agreement (whether or not self-insured) and (ii) the right of either party to assign any cause of action by way of subrogation, to any insurance company carrying fire and extended coverage polices on their respective properties. Therefore, it is agreed that: (a) Notwithstanding any other provision of this Agreement to the contrary (including, without limitation, Section 11(f) hereof), each party expressly waives every claim which arises or may arise in its favor and against the other party during the term of this Agreement for any and all loss of or damage to any of its property located within or upon the Supermarket and/or Premises, which loss or damage is required to be insured in accordance with this Agreement. The waiver contained in this Section 28 (a) shall be effective whether such loss or damage is actually insured or self-insured pursuant to the terms of this Agreement. (b) Each party agrees to give to each insurance company which has issued to it policies of fire and extended coverage insurance written notice of the terms of this mutual waiver and to have said insurance polices properly endorsed (if necessary) to prevent the invalidation of said insurance coverage by reason of said waiver (and if requested in writing) to give to the other party a certificate from its insurance company to that effect. 29. WAIVER OF LIENS (a) Waiver of Liens Against Depositor's Property. VONS hereby waives any lien for the payment of rent by SCB or the performance of any other obligation of SCB under this Agreement ("VONS Lien") with respect to any property of any depositors of SCB, any property or contents contained in safe deposit boxes and any cash deposit, securities or security instrument deposited by customers of SCB. (b) Waiver of Liens Against SCB's Property. VONS hereby subordinates any VONS Lien in its favor to any perfected security interest or lease in favor of SCB's creditors that secures or evidences financing of any furniture, fixtures or equipment of SCB located from time to time in the Premises, provided that SCB provides VONS with a copy of any such security interest or lease.' 30. BANKRUPTCY The following shall be an Event of Bankruptcy under this Agreement: (a) Either party becoming insolvent, as that term is defined in Title 11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq. (the "Bankruptcy Code"), or under the insolvency laws of any State, District, Commonwealth or Territory of the United States ("Insolvency Laws"); (b) The appointment of a receiver or custodian for a substantial portion of either party's property or assets; (c) The filing of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Law: (d) The filing of an involuntary petition against either party as the subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not dismissed within thirty (30) days of filing, or results in the issuance of an order for relief against the debtor, whichever is later; or (e) Either party making or consenting to an assignment of the benefit of creditors or common law composition of creditors; Upon occurrence of an Event of Bankruptcy, subject to Section 3(c) and 27 hereof, the party not causing the Event of Bankruptcy ("Solvent Party") shall have the right to terminate this Agreement by written notice thereof. If the Solvent Party elects to terminate this Agreement, everything contained in this Agreement to be done and performed by the Solvent Party shall cease without prejudice as of the termination date of this Agreement. 31. ENTIRE AGREEMENT The parties agree that this Agreement and any exhibits attached hereto set forth all the promises, agreements and understandings between them with respect to SCB's right to install, operate and maintain the Premises FSF at the Supermarket. It is further agreed that any amendment or modification to this Agreement shall not be binding unless such amendment or modification is reduced to writing and signed by both parties. 32. CAPTIONS The captions of the several Sections of this Agreement are not part of the context hereof and shall be ignored in construing this Agreement. They are intended only as an aid in locating various provision hereof. 33. LANGUAGE NOT CONSTRUED AGAINST EITHER PARTY The language of all the parts of this Agreement shall be construed simply and according to its fair meaning and shall not be construed either for or against either party. 34. SEVERABILITY Each provision contained in the Agreement shall be independent and severable from all other provisions contained herein, and the invalidity of any such provision shall in no way affect the enforceability of other provisions. 35. GOVERNING LAW This Agreement is deemed to have been executed in the State of California, and it is agreed that any controversy or claim arising from or related in any way to this Agreement shall be governed and controlled by the laws of the State of California. 36. BINDING EFFECT This Agreement shall be binding upon and shall inure to the benefit of VONS and SCB and their respective legal representatives, successors and permanent assigns. 37. NOTICES a) All notices required or permitted hereunder shall be in writing and signed by a duly authorized representative of the party making the same. All notices shall be deemed effective when delivered personally or to Federal Express Corporation or similar overnight delivery service or two (2) business days following deposit in the United States mail, registered or certified, return receipt requested, postage or overnight delivery charge prepaid, addressed as follows: (i) If to VONS, then to: The Vons Companies, Inc. 618 Michillinda Avenue Arcadia, California 91007-1734 Attention: Legal Department The License Fee shall be payable to: The Vons Companies, Inc. P.O. Box 12109 Los Angeles, California 90074-2109 (ii) If to SCB, then to: Southern California Bank 3800 East La Palma Avenue P.O. Box 19049 Anaheim, California 92817-9049 Attention: Mr. David A. McCoy Executive Vice President (b) The names and addresses for the purpose of this Section may be changed by giving written notice of such change in the manner herein provided for giving notice. Unless and until such written notice is actually received, the last name and address stated by written notice or provided herein, if no such written notice of changes has been received, shall be deemed to continue in effect for all purposes hereunder. 38. ATTORNEY'S FEES; EXPENSES If any legal action is instituted under this Agreement, the prevailing party shall be entitled to recover all costs incurred therein or in any ancillary proceeding or on appeal, including, but not limited to, reasonable attorneys' fees and expenses, in addition to any other relief granted. 39. NONWAIVER OF RIGHTS Unless herein expressly proved to the contrary, if either party elects to terminate this Agreement as set forth herein, such election shall not be deemed a waiver of any right which such party may have at law or in equity against the other party for any breach of this Agreement. 40. INTEREST ON OVERDUE OBLIGATIONS Any amount due hereunder which is not paid when due shall bear interest at the "Interest Rate" from the date of delinquency to and including the date of payment. The "Interest Rate" shall mean three (3) percentage points over the discount rate announced from time to time by the Federal Reserve Bank, San Francisco, California. In no event shall the rate of interest hereunder be greater than the highest rate then allowable by law. An installment of the License Fee shall be considered past due ten (10) days following notice of nonpayment thereof by VONS to SCB; any other amount required to be paid hereunder shall be considered past due thirty (30) days following notice of nonpayment thereof by the party of whom such payment is due to the other. 41. RETAIL CLERKS UNION VONS employs members of the United Food and Commercial Workers Union (the "Union") for its supermarket operations. Should (i) the Union assert that Section 6 of this Agreement violates VONS' collective bargaining agreement contract with the Union or that any SCB employees, agents, or representative are deemed to be part of VONS' collective bargaining agreement contract with the Union and such assertion is a condition to the negotiation of such collective bargaining agreement or (ii) the Supermarket or Premises FSF be subjected to handbilling, picketing, works stoppages, or other economic action which is directly related to Section 6 of this Agreement or (iii) any successor union with jurisdiction over VONS' supermarket operations make an assertion similar to that set forth in subsection (i) above, either VONS or SCB shall have the right to terminate this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. VONS: THE VONS COMPANIES, INC. a Michigan corporation By: /s/ ------------------------------- Print Name: Donald J. Howard ----------------------- Title: SR. Vice President ---------------------------- SCB: SOUTHERN CALIFORNIA BANK a California banking corporation By: /s/ ------------------------------- Print Name: David A. McCoy ----------------------- Title: EVP & COO ---------------------------- SCHEDULE "1" LICENSE FEE STRUCTURE Supermarket Banking Facility Vons #216 8010 East Santa Ana Canyon Road Anaheim Hills, California Vons's Average Customer Count During Final 12 Weeks of Each Year of Renewal Terms ANNUAL LICENSE FEE DURING RENEWAL TERMS
Years Years 1 & 2 3,4 & 5 of First of First Second Third Renewal Renewal Renewal Renewal Term Term Term Term -------- -------- ------- ------- Less than 10,000 customers per week: $15,000 $18,000 $23,000 $23,000 plus annual 4% increase 10,000 to 14,999 customers per week: $18,000 $21,000 $26,000 $26,000 plus annual 4% increase 15,000 to 19,999 customers per week: $21,000 $24,000 $29,000 $29,000 plus annual 4% increase 20,000 to 24,999 customers per week: $25,000 $28,000 $33,000 $33,000 plus annual 4% increase 25,000 or more customers per week: $30,000 $33,000 $38,000 $38,000 plus annual 4% increase
EX-10.2 3 EXHIBIT 10.2 FIRST AMENDMENT TO LICENSE AGREEMENT THIS FIRST AMENDMENT TO LICENSE AGREEMENT ("First Amendment") is made and entered into this 12th day of September, 1996, by and between the THE VONS COMPANIES, INC., a Michigan corporation ("VONS"), and SOUTHERN CALIFORNIA BANK, a California banking corporation ("SCB"). RECITALS This First Amendment is made with reference to the following facts: A. By written license agreement dated December 18, 1992 (the "Agreement"), VONS licensed to SCB certain premises containing approximately four hundred forty-one (441) square feet (the "Premises"), which Premises are a part of the supermarket building located at 8010 East Santa Ana Canyon Road, Anaheim Hills, California. B. SCB is currently operating a full-service banking facility in the Premises. C. VONS and SCB now desire to amend and modify the Agreement to adjust the License Fee payable by SCB and to confirm SCB's exercise of its first Renewal Option contained therein. All terms not otherwise defined herein shall have the meanings ascribed to them in the Agreements. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, VONS and SCB hereby amend and modify the Agreement as follows: 1. ACKNOWLEDGMENT OF SCB'S EXERCISE OF OPTION. VONS and SCB acknowledge that, upon the execution of this First Amendment by SCB and VONS, SCB shall be deemed to have exercised the first of its three five (5)-year Renewal Options set forth in the Agreement to extend the Basic Term for a period of five (5) years (the "First Renewal Term"). The First Renewal Term shall commence on June 1, 1996. 2. USE. The first sentence of Section 4(c) of the Agreement is hereby deleted in its entirety and the following substituted therefore: (c) Subject to force majeure (as hereinafter defined) and the other provisions of this Agreement, following the Effective Date, the Premises FSF shall be open for business for a minimum of forty eight (48) hours a week allocated over seven (7) days; provided, however, that (i) the Premises FSF shall not be open less than four (4) hours on any given day; (ii) the hours of operation for the Premises FSF must be consistent with the operating hours of the Supermarket; and (iii) the hours of operation of active ATMs located in the Premises FSF shall not count toward this requirement. 3. LICENSE FEE. Section 5 of the Agreement is hereby deleted in its entirety and the following substituted therefore: ANNUAL FEE. As to the Effective Date, SCB agrees to pay to VONS an annual License Fee as set forth below: Years 1, 2, and 3 of Basic Term: $27,000/yr. "On the commencement of the First Renewal Term and annually thereafter during each Renewal Term, the License Fee shall be adjusted in accordance with the fee structure attached hereto as SCHEDULE "1" ("License Fee Adjustment"). The License Fee Adjustment shall be based upon VONS' average weekly customer count for the Supermarket during the final twelve (12) full weeks of each year of the Basic Term and any Renewal Terms." 4. NOTICES. Section 37(a)(ii) is hereby deleted in its entirety and the following substituted therefore: (ii) If to SCB, then to: Southern California Bank 3800 East La Palma Avenue Box 19049 Anaheim, California 92817-9049 Attention: Mr. David A. McCoy Executive Vice President 5. MERGER. This First Amendment constitutes the final, complete and exclusive statement of the terms of the First Amendment. All preliminary negotiations and agreements of whatsoever kind or nature are merged herein, and no oral statement or representation or prior written matter not contained in this instrument shall have any force and effect. This First Amendment shall constitute a binding obligation between the parties hereto. 6. ACKNOWLEDGMENT. Except as modified by this First Amendment, VONS and SCB acknowledge that terms and conditions of the Agreement, as amended and modified, are in full force and effect. 7. COUNTERPARTS. This First Amendment may be executed in multiple counterparts, each of which shall have the force and effect of an original as of the day and date first above written. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment on the day and year first set forth above. VONS: THE VONS COMPANIES INC., a Michigan Corporation By: /s/ ----------------------------- Print Name: Donald J. Howard --------------------- Title: SR. Vice President -------------------------- SCB: SOUTHERN CALIFORNIA BANK a California banking corporation By: /s/ ----------------------------- Print Name: David A. McCoy --------------------- Title: EVP & COO -------------------------- SCHEDULE "1" LICENSE FEE STRUCTURE Supermarket Banking Facility Vons #216 8010 East Santa Ana Canyon Road Anaheim Hills, California Vons's Average Customer Count During Final 12 Weeks of Each Year of Renewal Terms ANNUAL LICENSE FEE DURING RENEWAL TERMS
Years Years 1 & 2 3,4 & 5 of First of First Second Third Renewal Renewal Renewal Renewal Term Term Term Term -------- -------- ------- ------- Less than 10,000 customers per week: $15,000 $18,000 $23,000 $23,000 plus annual 4% increase 10,000 to 14,999 customers per week: $18,000 $21,000 $26,000 $26,000 plus annual 4% increase 15,000 to 19,999 customers per week: $21,000 $24,000 $29,000 $29,000 plus annual 4% increase 20,000 to 24,999 customers per week: $25,000 $28,000 $33,000 $33,000 plus annual 4% increase 25,000 or more customers per week: $30,000 $33,000 $38,000 $38,000 plus annual 4% increase
EX-27 4 EXHIBIT 27
9 1,000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 28,956 0 5,600 0 78,171 0 0 336,305 5,369 467,652 410,467 6,498 2,736 0 0 0 37,687 10,264 467,652 22,395 3,243 346 25,984 8,198 8,822 17,162 (470) 14 16,445 5,043 5,043 0 0 2,933 .39 .39 5.59 2,313 0 0 0 5,734 370 475 5,369 0 0 0
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