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FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, effective 10/26/93
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
(Fee Required)
For the fiscal year ended DECEMBER 31, 1995
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Fee Required)
For the transition period from to
Commission File Number 1-9709
ELDORADO BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3642383
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
17752 EAST SEVENTEENTH STREET TUSTIN, CALIFORNIA 92680
(Address of principal executive offices)
Registrant's telephone number, including area code 714 798-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class which Registered
COMMON AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all report 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.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or in any amendment to this Form 10-K.
/ / Yes
As of February 29, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $44,727,300.
3,763,280 shares of Common Stock were outstanding at February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of 1995 Annual Report to Shareholders Parts II & IV
Definitive Proxy Statement dated March 29, 1996 Part III
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PART I
Item 1. BUSINESS
Eldorado Bancorp (the "Company" or "EB") is a California corporation organized
in January, 1981 and registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. EB's primary asset is the capital stock of
Eldorado Bank (the "Bank"), and the business of the Bank is carried on as a
wholly-owned subsidiary of EB.
EB has no subsidiary or affiliated business other than the Bank. EB may, in the
future, however, consider acquiring or establishing businesses engaged in
non-banking activities as permitted under Federal Reserve Board regulations. EB
has not as yet established any specific plans to enter into any of the permitted
non-banking activities and neither EB nor the Bank is involved in any
negotiations for the acquisition of any such business.
Unless otherwise indicated, all information herein is as of December 31, 1995.
The Bank
The Bank was incorporated under the laws of the State of California on February
3, 1972, and was licensed by the California State Banking Department and
commenced operations as a California state chartered bank on May 1, 1972. The
Bank's accounts are insured by the Federal Deposit Insurance Corporation
("FDIC"). The Bank is not a member of the Federal Reserve System. The Bank
currently operates a total of eleven banking offices in Southern California.
The Bank's original banking and its headquarters office is located in Tustin,
California, approximately 35 miles south of Los Angeles. The Bank also operates
one banking office in Laguna Hills, California, a residential community in
southern Orange County approximately 50 miles south of Los Angeles, one banking
office in San Bernardino, which is located approximately 59 miles east of Los
Angeles, and one banking office each in Indio and Palm Desert, which are located
approximately 115 miles east of Los Angeles. The Bank's expansion into the Indio
and Palm Desert area was accomplished through the merger of the Bank of Indio, a
California state chartered bank, with and into the Bank in April, 1982. The
Bank's expansion into San Bernardino occurred with the acquisition of American
Security Bank on August 29, 1980. On March 3, 1988 the Company acquired American
Merchant Bank, which was then merged into the Bank on May 23, 1988. This further
broadened the Bank's base in Orange County with the addition of offices in the
cities of Orange, Huntington Beach and Newport Beach. In 1992, the Bank
relocated the Newport Beach branch to a nearby office in the Orange County
Airport community in Irvine. The Bank further expanded into South Orange County
with the acquisition of Bank of San Clemente on October 4, 1991. This
acquisition included two branches in San Clemente, which is located
approximately 65 miles south of Los Angeles. On October 20, 1995, the bank
acquired all the voting shares of Mariners Bancorp. Mariners Bancorp and its
wholly-owned subsidiary, Mariners Bank, were merged with and into Eldorado Bank.
Mariners Bank was headquartered in San Clemente, California and operated its
head office in that city and two branch banking offices in San Juan Capistrano
and Monarch Beach. Eldorado Bank consolidated its two branch banking offices in
San Clemente into the former Mariners Bank branch banking offices.
Services Provided by Eldorado Bank
The Bank's organization and operations have been designed to meet the banking
needs of individuals and small to medium-sized businesses located in the areas
of Orange, San Bernardino and Riverside counties of California, in which the
Bank conducts its operations. The Bank's commitment to provide convenience
banking and a complete range of personalized services is evidenced by early
evening hours and Saturday banking hours at some locations, drive-up facilities
and automatic teller machines at its banking offices, innovative professional
programs, and departmentalized service centers.
The Bank offers a full range of commercial banking services including the
acceptance of checking and savings deposits, the making of commercial loans,
various types of consumer loans and real estate loans, and provision of safe
deposit, collection, travelers' checks, notary public and other customary
non-deposit banking services. The Bank also provides lease financing of
automobiles and other equipment. The Bank is a card issuing bank for MasterCard
and Visa and
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merchant depository for MasterCard and Visa drafts, enabling merchants to
deposit both types of drafts with the Bank. The Bank also offers special
services to senior citizens, who constitute an important segment of the
population in the Bank's service area.
Deposits of Eldorado Bank
As of December 31, 1995, the Bank had 9,192 accounts representing approximately
$99,770,000 in total demand deposits with an average balance of $10,854 and
14,241 accounts representing approximately $233,508,000 in savings and time
deposits with an average savings account balance of $7,399, an average NOW
account balance of $10,947, an average money market account balance of $30,798
and an average time account balance of $26,629. Of the total deposits at
December 31, 1995, $8,958,000 were municipal and other governmental deposits,
comprised of demand, savings and time deposits, and $32,092,000 (including
$7,500,000 of municipal and governmental deposits) were in the form of
certificates of deposit in denominations equal to or greater than $100,000.
During the twelve months ended December 31, 1995, including the deposits
acquired in the acquisition of Mariners Bancorp, total demand deposits increased
approximately $20,423,000 (25.7%) and total savings, NOW, money market and time
deposits increased approximately $41,529,000 (21.6%) representing a $11,924,000
increase in savings, NOW and money market deposits and a $29,605,000 increase in
time deposits.
The Bank is not dependent on a single or a few customers for its deposits, most
of which are obtained from individuals and small to medium-sized businesses.
This results in relatively small average deposit balances, which makes the Bank
less subject to adverse effects from the loss of a substantial depositor. At
December 31, 1995, no individual, corporate or public depositor accounted for as
much as 5.0% of the Bank's total deposits and the accounts of the five largest
depositors represented only 5.0% of total deposits.
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Distribution of Assets, Liabilities and Stockholders' Equity: Interest Rates and
Interest Differential
The following table presents, for the periods indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-bearings assets and the
resultant yields, and the dollar amounts of interest expense and average
interest-bearing liabilities, expressed in both dollars and rates. Nonaccrual
loans are included in the calculation of the average balances of loans, and
interest not accrued is excluded:
December 31
-------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------------
(Dollar in thousands, interest and rates on taxable equivalent basis) (1)
Assets
Interest-Earning Assets:
Investment securities $ 86,012 $ 5,438 6.32% $ 75,592 $ 3,774 4.99% $44,905 $ 2,737 6.10%
Federal funds sold 14,347 846 5.90 22,467 905 4.03 46,441 1,385 2.98
Other earning assets 978 122 12.48 1,754 227 12.94 2,655 309 11.64
Loans (2) 183,087 18,605 10.16 177,111 16,183 9.14 191,182 17,265 9.03
-------------------------- ---------------------------- -----------------------------
Total interest-earning assets 284,424 25,011 8.79% 276,924 21,089 7.62% 285,183 21,696 7.61%
Total non interest-earning assets 34,305 36,641 41,449
-------- -------- --------
Total assets $318,729 $313,565 $326,632
======== ======== ========
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Savings, NOW and money market $141,397 $ 2,875 2.03% $160,695 $ 3,103 1.93% $166,876 $ 3,669 2.20%
Time deposits of $100,000 or more 24,350 1,211 4.97 23,040 725 3.15 28,584 1,252 4.38
Other deposits 29,618 1,457 4.92 24,885 782 3.14 31,608 738 2.33
Short-term borrowings 5,052 280 5.54 361 16 4.43 1,056 27 2.56
-------------------------- ---------------------------- -----------------------------
Total interest-bearing
liabilities 200,418 5,823 2.91% 208,981 4,626 2.21% 228,124 5,686 2.49%
Non Interest-Bearing Liabilities and
Shareholders' Equity:
Demand deposits 83,290 73,915 68,865
Other liabilities 3,584 2,110 1,672
Shareholders' equity 31,437 28,559 27,971
-------- -------- --------
Total liabilities and
shareholders' equity $318,729 $313,565 $326,632
======== ======== ========
Net Interest Income (3) $19,188 $16,463 $16,010
======= ======= =======
Net Yield on Interest-Earning Assets 5.88% 5.41% 5.12%
Net Interest Margin 6.75% 5.94% 5.62%
===== ===== =====
(1) Total interest income includes the effects of taxable-equivalent
adjustments, using tax rates which approximate 41 percent for 1995 and
1994 and 39 percent for 1993.
(2) Net of unearned income.
(3) Net interest margin is net interest income divided by average total
interest-earning assets.
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The year-to-year change in interest associated with interest-earning assets and
interest-bearing liabilities are attributable to changes in volume and rate. The
increase or decrease resulting from these changes are summarized as follows:
(Fully Taxable Equivalent)
-------------------------------------------------------------------------
Year Ended December 31, 1995 Year Ended December 31, 1994
over over
Year Ended December 31, 1994 Year Ended December 31, 1993
---------------------------------- ---------------------------------
Increase (Decrease) Due to Change Increase (Decrease) Due to Change
in: in:
Volume Rate Change Volume Rate Change
--------------------------------- ---------------------------------
Interest-Earning Assets:
Investment securities $ 520 $1,144 $1,664 $ 1,870 $(833) $ 1,037
Federal funds sold (327) 268 (59) (715) 235 (480)
Other earning assets (100) (5) (105) (105) 23 (82)
Loans 546 1,876 2,422 (1,271) 189 (1,082)
--------------------------------- ---------------------------------
Total interest income $ 639 $3,283 3,922 $ (221) $(386) (607)
Interest-Bearing Liabilities:
Savings, NOW and money market (374) 146 (228) (136) (430) (566)
Time deposits of $100,000 or more 41 445 486 (243) (284) (527)
Other deposits 149 526 675 (157) 201 44
Short-term borrowings 208 56 264 (18) 7 (11)
--------------------------------- ---------------------------------
Total interest expense 24 1,173 1,197 (554) (506) (1,060)
--------------------------------- ---------------------------------
Interest differential or net interest
income $ 615 $2,110 $2,725 $ 333 $ 120 $ 453
================================= =================================
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Securities Portfolio
The following table summarizes the components of securities at December 31 of
each year indicated:
December 31,
-------------------------------------------------------------------------------
1995 1994 1993
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
-------------------------------------------------------------------------------
(In thousands)
Securities available-for-sale:
U.S. Treasury and agency $76,436 $76,892 $76,948 $76,410 $ --- $ ---
State and political subdivisions 1,195 1,202 290 295 --- ---
Corporate debt 4,327 4,431 7,389 7,281 --- ---
Mortgage-backed 3,907 4,024 2,055 2,121 --- ---
Other 31 31 --- --- --- ---
-------------------------------------------------------------------------------
Total $86,896 $86,580 $86,682 $86,107 $ --- $ ---
===============================================================================
Securities held-to-maturity:
U.S. Treasury and agency $ 5,998 $ 6,051 $ --- $ --- $44,222 $44,730
State and political subdivisions 587 645 586 562 1,195 1,222
Corporate debt 502 516 --- --- 8,380 8,757
Mortgage-backed --- --- --- --- 4,589 4,862
Other --- --- --- --- 3,515 3,509
-------------------------------------------------------------------------------
Total $ 7,087 $ 7,212 $ 586 $ 562 $61,901 $63,080
===============================================================================
The following table summarizes the maturities of securities and the weighted
average yields at December 31, 1995:
December 31, 1995
-------------------------------------------------------------------------
After One but After Five but
Within One Within Five Within Ten After Ten
Year Years Years Years
Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------
Securities available-for-sale:
U.S. Treasury and agency $61,576 6.13% $13,186 6.57% $2,130 7.64% $ --- ---%
State and political subdivisions 96 8.20 819 6.91 --- --- 287 6.54
Corporate debt 2,527 7.45 1,904 8.92 --- --- --- ---
Mortgage-backed 180 8.00 2,052 7.26 427 9.87 1,365 9.07
Other 31 --- --- --- --- --- --- ---
-------------- --------------- --------------- ---------------
Total $64,410 6.19% $17,961 6.91% $2,557 8.01% $1,652 8.63%
============== =============== =============== ===============
Securities held-to-maturity:
U.S. Treasury and agency $ --- --- $ 3,498 6.22% $2,500 7.51% $ --- ---
State and political subdivisions --- --- --- --- 587 8.00 --- ---
Corporate debt --- --- --- --- 502 8.15 --- ---
Mortgage-backed --- --- --- --- --- --- --- ---
Other --- --- --- --- --- --- --- ---
-------------- --------------- --------------- ---------------
Total $ --- --- $ 3,498 6.22% $3,589 7.68% $ --- ---
============== =============== =============== ===============
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Also included in securities available-for-sale are perpetual equity securities
totaling $31,000 with insignificant dividend yield.
Loan Portfolio
The following table summarizes the components of total gross loans outstanding
in each category at December 31 of each year indicated:
December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------
(In thousands)
Loans:
Commercial, secured and unsecured $ 94,548 $ 66,987 $ 67,723 $ 74,603 $ 83,937
Interim construction 18,219 4,789 13,039 21,595 28,770
Real estate 88,097 78,607 80,088 90,985 98,373
Installment 26,553 18,945 17,961 21,374 28,229
Credit card 1,791 1,298 1,357 1,456 1,491
Lease financing 876 1,286 2,716 3,515 3,853
Less: Unearned income (127) (38) (419) (739) (1,208)
---------------------------------------------------------
Total $229,957 $171,874 $182,465 $212,789 $243,445
=========================================================
Maturities and Sensitivity to Changes in Interest Rates
The following table shows the maturities of loans and their sensitivities to
changes in interest rates at December 31, 1995.
Maturing
---------------------------------------------------
Within One One to Five After Five
Year Years Years Total
---------------------------------------------------
(In thousands)
Loans:
Commercial, secured and unsecured $ 70,920 $16,287 $ 7,341 $ 94,548
Interim construction 13,666 3,138 1,415 18,219
Real estate 66,081 15,176 6,840 88,097
Installment 19,917 4,574 2,062 26,553
Credit card 1,791 --- --- 1,791
Lease financing 268 268 340 876
Less: Unearned income (127) --- --- (127)
---------------------------------------------------
Total $172,516 $39,443 $17,998 $229,957
===================================================
Maturing
----------------------------------
Within One After One
Year Year Total
----------------------------------
Loans with predetermined interest rates $ 26,590 $47,646 $ 74,236
Loans with floating or adjustable interest rates 145,926 9,795 155,721
----------------------------------
Total $172,516 $57,441 $229,957
==================================
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Loan Portfolio - Nonperforming Loans
December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------
(In thousands)
Nonaccrual loans $5,818 $3,161 $2,092 $2,927 $8,364
Loans more than 90 days past due 380 246 56 361 349
--------------------------------------------------
Total nonperforming loans $6,198 $3,407 $2,148 $3,288 $8,713
==================================================
Ordinarily, the accrual of interest ceases when no payment of interest or
principal has been made for 90 days or if the Bank has reason to believe that
continued payment of interest and principal is unlikely. Accrued interest, if
any, is reversed at the time such loans are placed on nonaccrual status. If
these loans had been current throughout their terms, interest and fees on loans
would have increased by approximately $172,000, $144,000, $108,000, $103,000,
and $166,000, for 1995, 1994, 1993, 1992, and 1991 respectively.
Effective January 1, 1995, the Bank adopted the provisions of the Financial
Accounting Standards Board's Statements of Financial Accounting Standards No.
114, Accounting by Creditors for Impairment of a Loan, as amended by No. 118
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures. SFAS 114 requires loans to be measured for impairment when it is
probable that all amounts, including principal and interest, will not be
collected in accordance with the contractual terms of the loan agreement.
Generally, the Bank evaluates a loan for impairment when it is placed on
nonaccrual status At December 31, 1995, total nonaccrual loans of $5.8 million
were considered impaired in accordance with SFAS 114. The following is a summary
of impaired loans and the related allowance for possible credit losses at
December 31, 1995:
Allowance
Recorded for Possible
Investment Credit Losses
---------------------------
Impaired loans requiring an allowance
for possible credit losses $5,077,000 $1,985,000
Impaired loans not requiring an allowance
for possible credit losses 741,000 ---
===========================
$5,818,000 $1,985,000
===========================
Troubled Debt Restructurings
December 31,
--------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------
(In thousands)
Troubled debt restructuring $1,531 $7,069 $1,431 $ -- $ --
Troubled debt restructurings consist primarily of loans for which the interest
rate was reduced or the payment provisions were modified because of the
inability of the borrower to service the obligation under the original terms of
the agreements. Income is accrued at the lower effective rate provided the
borrower is current under the revised terms and conditions of the agreements.
Under the original terms of the restructured loans, interest earned would have
totaled approximately $235 thousand for the year ended December 31, 1995. Under
the restructured terms, recorded interest income amounted to $187 thousand for
the year ended December 31, 1995.
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Allowance and Provision for Possible Credit Losses
For the Year Ended December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------
Allowance for possible credit losses:
Balance at beginning of period $5,564 $4,740 $3,530 $3,757 $2,656
Actual charge-offs:
Commercial 342 570 502 574 406
Interim construction --- --- 590 741 ---
Credit cards 36 36 35 66 48
Consumer 165 151 98 494 307
Real estate 763 720 1,277 142 ---
Direct lease financing 5 97 32 60 21
-----------------------------------------------------------------
Total charge-offs 1,311 1,574 2,534 2,077 782
Less recoveries:
Commercial 156 118 27 54 61
Interim construction --- --- 11 --- ---
Credit cards 9 13 21 5 8
Consumer 49 30 106 50 60
Real estate 225 --- --- --- ---
Direct lease financing --- 8 3 6 ---
-----------------------------------------------------------------
Total recoveries 439 169 168 115 129
-----------------------------------------------------------------
Net loans charged off 872 1,405 2,366 1,962 653
Provision for credit losses 756 2,006 3,576 1,735 1,159
Changes incident to acquisitions 817 223 --- --- ---
-----------------------------------------------------------------
Balance at end of period $6,265 $5,564 $4,740 $3,530 $3,757
=================================================================
Ratios:
Net loans charged off to average
loans 0.47% 0.79% 1.22% 0.84% 0.30%
Allowance for credit losses to total
gross loans 2.72% 3.24% 2.60% 1.66% 1.54%
Net loans charged off to allowance
for credit losses 13.92% 25.25% 49.92% 55.58% 17.38%
Net loans charged off to provision
for credit losses 115.34% 70.04% 66.16% 113.08% 56.34%
Allowance for credit losses to
non-performing loans 101.08% 163.31% 220.07% 107.36% 43.12%
The allowance for possible credit losses is established by a provision for
possible credit losses charged against current period income. Loans and leases
are charged against the allowance for possible credit losses when management
believes that the collectibility of principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb losses inherent in
existing loans, leases and commitments to extend credit, based on the
evaluations of the collectibility and prior loss experience of loans, leases and
commitments to extend credit. The evaluations take into consideration such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality; loan concentrations; specific problem loans, leases and commitments;
and current and anticipated economic conditions that may affect the borrowers'
ability to pay.
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Management believes that the allowance for possible credit losses is adequate.
While management uses available information to recognize losses on loans and
leases, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, both Federal and state regulators, as an
integral part of their examination process, periodically review the Bank's
allowance for possible credit losses and may recommend additions based upon
their evaluation of the portfolio at the time of their examination.
The risk of nonpayment of loans is an inherent feature of the banking business.
That risk varies with the type and purpose of the loan, the collateral which is
utilized to secure payment, and ultimately, the credit worthiness of the
borrower. In order to minimize this credit risk, the Bank has established
lending limits for each of its officers having lending authority, in each case
based upon the officer's experience level and prior performance. Whenever a
proposed loan by itself, or when aggregated with outstanding extensions of
credit to the same borrower, exceeds the officer's lending limits, the loan must
be approved by the Bank's Chairman, President or Executive Vice President/Chief
Credit Officer or by the Bank's loan committee, depending upon the dollar amount
involved. The loan committee is comprised of two directors and four members of
the Bank's senior management. In addition, each loan officer has primary
responsibilities to conduct credit documentation reviews of all loans made by
that officer.
Furthermore, the Bank also maintains a program of periodic review of all
existing loans and employs a specialist who reviews loans over a certain dollar
amount and grades these loans based upon the dollar amount and credit worthiness
using a grading system. Loans are graded from "one" to "eight" depending on
credit quality, with "grade one" representing a prime loan with a definite and
reliable repayment program based upon liquid collateral with adequate margin or
supported by a strong up-to-date financial statement. Problem or substandard
loans identified in the review process are scheduled for remedial action, and
where appropriate, allowances are established for such loans. Periodically, an
outside loan review consultant further reviews loans for credit quality.
Additionally, the Bank is examined regularly by the FDIC and California State
Banking Department at which time a further review of loans is conducted.
The problem or substandard loans identified in the review process are largely
due to a decline in local real estate values during the past several years.
Management believes that it has adequately provided an allowance to cover
estimated losses in the credit portfolio. Significant further deterioration in
California real estate values could materially impact future operating results,
liquidity or capital resources.
Nonaccrual Loans
Under the Bank's guidelines, it will discontinue the accrual of interest on a
loan that is 90 days past due or if management determines that the interest will
be uncollectible.
On December 31, 1995 the Bank had loans of approximately $5.8 million on which
the accrual of interest had been discontinued. This amount was comprised of
approximately $5.6 million of real estate secured loans, $100 thousand of
commercial unsecured loans, and $100 thousand of consumer related loans.
Other Real Estate Owned
The Bank sometimes acquires real estate properties in satisfaction of loan
receivables through foreclosure or other means. The Bank accounts for these
properties pursuant to Statement of Position 92-3 Accounting for Foreclosed
Assets (SOP 92-3) which presumes that foreclosed assets are held for sale and
not for the production of income. Accordingly, the real estate properties are
carried at fair value less estimated costs to sell. The Bank determines fair
value based upon appraisals near the date of foreclosure. These appraisals are
periodically updated and subsequent write-downs of value may be recognized in
the event of declining fair values.
On December 31, 1995 the Bank had other real estate owned of approximately $2.0
million consisting of a retail center, a single family residence, two unimproved
commercial lots, and three other smaller-value properties.
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Allocation of Allowance for Possible Credit Losses
The Bank has allocated the allowance for credit losses according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the categories of loans set forth in the following table:
For the Year Ended December 31,
----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------
Commercial, Secured and
Unsecured $2,117 33.8% $2,281 39.0% $2,164 37.1% $1,715 35.1% $1,296 34.5%
Interim Construction 280 4.5% 310 2.8% 325 7.1% 440 10.1% 443 11.8%
Real estate 3,274 52.3% 2,597 45.7% 1,780 43.9% 1,091 42.8% 1,518 40.4%
Installment 500 8.0% 271 11.0% 334 9.8% 245 10.0% 428 11.4%
Credit card 64 1.0% 52 0.8% 101 0.8% 11 0.7% 23 0.6%
Lease financing 30 0.4% 53 0.7% 36 1.3% 28 1.3% 49 1.3%
----------------------------------------------------------------------------------------------------
Total $6,265 100.0% $5,564 100.0% $4,740 100.0% $3,530 100.0% $3,757 100.0%
====================================================================================================
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Deposits
The average amount of deposits is summarized below:
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
--------------------------------------------------------------------
(In thousands)
In Domestic Offices:
Interest-bearing demand $ 45,443 1.03% $ 45,813 1.01% $ 45,702 1.94%
Savings and money market 95,955 2.51 114,882 2.30 121,174 2.30
Time 53,968 4.94 47,925 3.14 60,192 3.30
--------------------------------------------------------------------
Total interest-bearing deposits 195,366 2.84 208,620 2.21 227,068 2.49
Noninterest-bearing deposits 83,290 --- 73,915 --- 68,865 ---
--------------------------------------------------------------------
Total average deposits $278,656 1.99% $282,535 1.63% $295,933 1.91%
====================================================================
Maturities of domestic time certificates of deposit of $100,000 or more are:
Three months or less............................................. $11,306
Over three months through six months............................. 5,628
Over six through twelve months................................... 11,257
Over twelve months............................................... 3,901
-------
$32,092
=======
Return on Average Equity and Average Assets
Year Ended December 31
---------------------------------
1994 1993 1992
---------------------------------
Percentage of Net Earnings (Loss) To:
Average Total Assets 1.41% 0.82% (0.53)%
Average Shareholders' Equity 14.33% 8.95% (6.17)%
Percentage of Cash Dividends Declared
to Net Earnings 21.31% 17.25% N/A
Percentage of Average Shareholders'
Equity to Average Total Assets 9.86% 9.11% 8.56 %
GAP Table
One way to measure the impact that future change in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap indicates that there would be a
net positive impact on the net interest margin of the Company for the period
measured in a declining interest rate environment since the Company's
liabilities would reprice to lower market interest rates before its assets
would. A net negative impact would result from an increasing interest rate
environment. Conversely, an asset sensitive gap indicates that there would be a
net positive impact on the net interest margin in a rising interest rate
environment since the Company's assets would reprice to higher market interest
rates before its liabilities would.
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13
The following table shows the interest sensitivity gaps for the cumulative gap
for the periods shown as of December 31, 1995:
--------------------------------------------------------
After Three After One
Months But Year But
Within Three Within One Within Five After Five
Months Year Years Years
--------------------------------------------------------
(In thousands)
Interest-Earning Assets:
Federal funds sold $ 9,700 $ -- $ -- $ --
Securities 11,975 52,435 21,459 7,798
Loans and lease financing 105,863 66,653 39,443 17,998
-------- -------- ------- -------
Total 127,538 119,088 60,902 25,796
Interest-Bearing Liabilities:
Savings, NOW and money market 157,882 -- -- --
Time deposits 26,558 39,667 9,401 --
Short-term borrowings 3,772 -- -- --
-------- -------- ------- -------
Total 188,212 39,667 9,401 --
Cumulative interest rate sensitivity gap $(60,674) $ 18,747 $70,248 $96,044
Cumulative interest rate sensitivity gap to
total assets (15.8)% 4.9% 18.3% 25.1%
======== ======== ======= =======
Competition
The Bank faces substantial competition for deposits and loans throughout its
market areas. The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings institutions, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings institutions, mortgage banking
firms, credit unions and other financial intermediaries. The Bank faces
competition for deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial intermediaries which
have opened loan production offices or which solicit deposits in its market
areas. Many of the financial intermediaries operating in the Bank's market areas
offer certain services, such as trust, investment and international banking
services, which the Bank does not offer directly. Additionally, banks with
larger capitalization and financial intermediaries not subject to bank
regulatory restrictions have larger lending limits and are thereby able to serve
the needs of larger customers.
The Bank competes principally on the basis of personalized attention and special
services which it provides its customers, principally individuals and small to
medium size businesses and by promotional activities of the Bank's officers,
directors, employees and shareholders. Most of the Bank's offices offer extended
weekday banking hours and some branches offer Saturday banking hours. The Bank
also operates drive-up banking facilities at seven of its branches and provides
a variety of personalized services. In addition, the Bank operates 24-hour
automatic teller machines (ATM) at nine of its locations and is a member of
Instant Teller network and Plus System network, which link bank ATMs nationwide.
The Bank has also increased the range of services which it provides in order to
meet the expanding banking requirements of its customers. In 1985, the Bank
established a Small Business Administration department.
For customers whose loan demands exceeds the Bank's lending limits, the Bank has
attempted in the past, and intends to continue in the future, to arrange for
such loans on a participation basis with correspondent banks. The Bank also
assists customers requiring other services, such as trust services not offered
by the Bank, by obtaining such services from trust companies and correspondent
banks.
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Supervision and Regulation
The Company
The Company, as a registered bank holding company, is subject to regulation
under the Bank Holding Company Act ("BHC Act"). The Company is required to file
with the Federal Reserve Board quarterly and annual reports and such additional
information as the Federal Reserve Board may require pursuant to the BHC Act.
The Federal Reserve Board may conduct examinations of the Company and its
subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity or
control of certain subsidiaries when the Federal Reserve Board believes the
activity or control constitutes a serious risk to the financial safety,
soundness or stability of any of its banking subsidiaries and is inconsistent
with sound banking principles or the purposes of the BHC Act or the Financial
Institutions Supervisory Act of 1966, as amended. The Federal Reserve Board also
has the authority to regulate provisions of certain bank holding company debt,
including authority to impose interest ceilings and reserve requirements on such
debt. Under certain circumstances, the Company must file written notice and
obtain approval from the Federal Reserve Board prior to purchasing or redeeming
its equity securities.
Under the BHC Act and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital. The Federal
Reserve Board's risk-based capital guidelines establish a minimum level of
qualifying total capital to risk-weighted assets of 8.00% (of which at least
4.00% should be in the form of Tier 1 Capital). The regulations set forth
minimum requirements, and the Federal Reserve Board has reserved the right to
require that companies maintain higher capital ratios. As of December 31, 1995,
the Company had a ratio of qualifying total capital to risk-weighted assets of
14.5%, of which 13.2% was in the form of Tier 1 Capital. Additionally, the
Federal Reserve Board established a minimum leverage ratio of 3%. At December
31, 1995, the Company's leverage ratio was 9.6%. For a more complete description
of the Federal Reserve Board's risk-based and leverage capital guidelines, see
"Item 1. Business - Effect of Governmental Policies and Recent Legislation -
Capital Adequacy Guidelines."
Minimum Eldorado Eldorado Bank
Regulatory Bancorp
---------------------------------------
Tier I Leverage Ratio ............... 3.00 9.60% 9.50
Tier I Risk-based Ratio ............. 4.00 13.20% 13.10
Total Risk-based Ratio .............. 8.00 14.50% 14.40
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHC Act, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company may, subject to the prior
approval of the Federal Reserve Board, engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making any such determination, the Federal Reserve
Board is required to consider whether the performance of such activities by the
Company or an affiliate can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by acquisition, in
whole or in part, of a going concern and is generally prohibited from approving
an application by a bank holding company to acquire voting shares of any
commercial bank in another state unless such acquisition is specifically
authorized by the laws of such other state.
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15
The Company is also a bank holding company within the meaning of Section 3700 of
the California Financial Code. As such the Company and its subsidiary are
subject to examination by, and may be required to file reports with, the
California State Banking Department.
Finally, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, including but not limited to,
filing annual, quarterly, and other current reports with the Securities and
Exchange Commission.
The Bank
The Bank, as a California state-chartered bank, is subject to primary
supervision, periodic examination and regulation by the California
Superintendent of Banks (the "Superintendent") and the FDIC. If, as a result of
an examination of a bank, the FDIC should determine that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, or other aspects of the Bank's operations are unsatisfactory or that
the Bank or its management is violating or has violated any law or regulation,
various remedies are available to the FDIC. Such remedies include the power to
enjoin "unsafe and unsound" practices, to require affirmative action to correct
any conditions resulting from any violation or practice, to issue an
administrative order that can be judicially enforced, to direct an increase in
capital, to restrict the growth of the bank, to assess civil monetary penalties,
to remove officers and directors and ultimately to terminate a bank's deposit
insurance, which for a California state-chartered bank would result in a
revocation of the bank's charter. The Superintendent has many of the same
remedial powers. The Bank has never been the subject of any such actions by the
FDIC or the Superintendent.
The FDIC conducted an examination of the Bank in the first quarter of 1993. As a
result of the examination, the Bank entered into a Memorandum of Understanding
(the "MOU") with the FDIC. The MOU provided that the Bank would: (a) maintain
management acceptable to the FDIC which shall include a chief executive officer
and a senior lending officer qualified to restore the Bank to a sound condition;
(b) eliminate from its books certain assets classified "loss" as identified in
the examination; (c) reduce other criticized assets to specific levels at
various dates through July 27, 1994; (d) maintain Tier 1 Capital in such an
amount as to equal or exceed 7.0% of the Bank's adjusted Part 325 total assets
(as defined in FDIC regulations); (e) revise or adopt and implement several
plans and policies including (1) a written three-year strategic plan for the
Bank; (2) a plan to control overhead and other expenses and restore the Bank's
profitability; (3) written lending and collection policies to provide effective
guidance and control over the Bank's lending function, specifically appraisal
policies and Small Business Administration-guaranteed lending policies; (4)
written liquidity and funds management policy; (5) policy for the operation of
the Bank in such a manner as to provide adequate internal routine and control
policies consistent with safe and sound banking practices; (f) review the
adequacy of the allowance for loan losses and establish a comprehensive policy
for determining the adequacy of the allowance; (g) eliminate and/or correct
specified violations of law and take all necessary steps to ensure future
compliance with all applicable laws and regulations; (h) not pay dividends in
any amount except with the prior written consent of the FDIC; (i) perform a risk
segmentation analysis to identify concentrations of credit and reduce any
segment deemed an undue concentration in relation to capital; (j) file FDIC
Consolidated Reports of Condition and Income which accurately reflect the
financial condition of the Bank; and (k) furnish quarterly written progress
reports to the FDIC and the Superintendent of Banks of the State of California
detailing the form and manner of any actions taken to secure compliance with the
MOU.
Management implemented policies and procedures and achieved the quantitative
goals which satisfied the provisions of the MOU. On May 3, 1995, the FDIC
removed the MOU based upon the results of its most recent examination.
The Bank is insured by the FDIC, which currently insures deposits of each member
bank to a maximum of $100,000 per depositor. For this protection, each bank pays
a quarterly statutory assessment and is subject to the rules and regulations of
the FDIC. See "Item 1. Business - Effect of Governmental Policies and Recent
Legislation - Federal Deposit Insurance Corporation Improvement Act of 1991 -
Deposit Insurance." Although the Bank is not a member of the Federal Reserve
System, it is nevertheless subject to certain regulations of the Federal Reserve
Board.
Various requirements and restrictions under the laws of the State of California
and the United States affect the operations of the Bank. See "Item 1. Business -
Effect of Governmental Policies and Recent Legislation." State and federal
statutes and regulations relate to many aspects of the Bank's operations,
including reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital requirements.
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16
The FDIC's statement of policy on risk-based capital requires that banks
maintain a ratio of qualifying total capital to risk-weighted assets of not less
than 8.00% (at least 4.00% of which should be in the form of Tier 1 Capital).
The regulations set forth minimum requirements, and the FDIC has reserved the
right to require that banks maintain higher capital ratios. Among other rights,
the FDIC's regulations provide that capital requirements may be enforced by the
issuance of a directive. As of December 31, 1995, the Bank had a ratio of total
qualifying capital to risk-weighted assets of 14.4%, of which 13.1% was in the
form of Tier 1 Capital. The FDIC's capital adequacy regulations also require
that banks maintain a minimum leverage standard of 3% Tier 1 Capital to total
assets for the most highly rated banks. The regulations set forth minimum
requirements, and the FDIC has reserved the right to require that banks maintain
higher ratios. As of December 31, 1995, the Bank's leverage ratio was 9.5%. For
a more complete description of the FDIC's risk-based capital regulations, see
"Item 1. Business - Effect of Governmental Policies and Recent Legislation -
Capital Adequacy Guidelines" and see "Item 1. Business - Effect of Governmental
Policies and Recent Legislation - Federal Deposit Insurance Corporation
Improvement Act of 1991 - Prompt Corrective Action."
Restrictions on Transfers of Funds to the Company by the Bank
The Company is a legal entity separate and distinct from the Bank. At present,
substantially all of the Company's revenues, and cash flow including funds
available for the payments of dividends and other operating expenses, are paid
by dividends to the Company from the Bank.
There are statutory and regulatory limitations on the amount of dividends which
may be paid to the Company by the Bank. California law restricts the amount
available for cash dividends by state-chartered banks to the lesser of retained
earnings or a bank's net income for its last three fiscal years (less any
distributions to shareholders made during such period). In the event a bank has
no retained earnings or net income for its last three fiscal years, cash
dividends may be paid in an amount not exceeding the net income for such bank's
last preceding fiscal year only after obtaining the prior approval of the
Superintendent. At December 31, 1995, the Bank had $4,026,000 legally available
for the payment of cash dividends.
Under the prompt corrective action rules of FDICIA, no depository institution,
such as the Bank, may issue a dividend or pay a management fee if it would cause
the institution to become undercapitalized. Additionally, undercapitalized
institutions are subject to restrictions on dividends and management fees, as
well as other automatic actions. Other supervisory actions may be taken against
institutions that are significantly undercapitalized, as well as
undercapitalized institutions that fail to submit an acceptable capital
restoration plan as required by law or that fail in any material respect to
implement an accepted plan.
The FDIC also has authority to prohibit the Bank from engaging in what, in the
FDIC's opinion, constitutes an unsafe or unsound practice in conducting its
business. It is possible, depending upon the financial condition of the bank in
question and other factors, that the FDIC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the FDIC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines could limit the amount of
dividends which the Bank or the Company may pay.
The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of or investment in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to the Company
or to any other affiliate are limited to 10% of the Bank's capital and surplus
(as defined by federal regulations) and such secured loans and investments are
limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined
by federal regulations). California law also imposes certain restrictions with
respect to transactions involving the Company and other controlling persons of
the Bank.
Compliance with Environmental Regulation
Management of the Company and its subsidiary is unaware of any material effect
upon the Company's and the Bank's capital expenditures, earnings or competitive
position as a result of compliance with federal, state and local provisions
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17
which have been enacted or adopted regulating the discharge of material into the
local environment or otherwise relating to the protection of the environment.
Based on current federal, state and local environmental laws and regulations,
the Company does not intend to make any material capital expenditures for
environmental control facilities for either the remainder of its current fiscal
year or its succeeding fiscal year.
Effects of Governmental Monetary Policies and Recent Legislation
Government Fiscal and Monetary Policies
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate received by the Bank on loans extended to
its customers and securities held in the Bank's portfolio comprise a major
portion of the Company's earnings. These rates are highly sensitive to many
factors that are beyond the control of the Bank. Accordingly, the earnings and
growth of the Company are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
The Federal Reserve Board implements national monetary policies (with objectives
such as curbing inflation and combating recession) by its open-market operations
in United States Government securities, by adjusting the required level of
reserves for financial institutions subject to its reserve requirements and by
varying the discount rates applicable to borrowings by depository institutions.
The actions of the Federal Reserve Board in these areas influence the growth of
bank loans, investments and deposits and also affect interest rates charged on
loans and paid on deposits. The nature and impact of any future changes in
monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in the US Congress, in the California
legislature and before various bank regulatory and other professional agencies.
The likelihood of any major changes and the impact such changes might have on
the Company are impossible to predict. Certain of the potentially significant
changes which have been enacted, and proposals which have been made recently,
are discussed below.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted into law. Set forth below is a summary of certain
provisions of that law and actual and proposed enabling regulations.
Prompt Corrective Action
The prompt corrective action provisions of FDICIA provide for certain mandatory
and discretionary actions by the appropriate federal banking regulatory agency,
determined mostly by an institution's ranking within the following five capital
measures: "well capitalized," "adequately capitalized, "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." The federal
banking agencies have promulgated substantially uniform regulations implementing
these provisions of FDICIA, effective December 19, 1992. Under these
regulations, a bank would be deemed (i) "well capitalized" if it has (a) a total
risk-based capital ratio of 10% or greater, (b) a Tier 1 risk-based capital
ratio of 6% or greater, (c) a leverage ratio of 5% or greater and (d) is not
subject to any written agreement, order or capital directive to meet and
maintain a specific capital level; (ii) "adequately capitalized" if it has (a) a
total risk-based capital ratio of 8% or greater, (b) a Tier 1 risk-based capital
ratio of 4% or greater, (c) a leverage ratio of 4% or greater (or a leverage
ratio of 3% or greater for banks with a CAMEL 1 composite rating) and (d) does
not meet the definition of a well capitalized bank; (iii) "undercapitalized" if
it has (a) a total risk-based capital ratio of less than 8%, (b) a Tier 1
risk-based capital ratio of less than 4% or (c) a leverage ratio of less than 4%
(or a leverage ratio of less than 3% for banks with a CAMEL 1 composite rating);
(iv) "significantly undercapitalized" if it has (a) a total risk-based capital
ratio of less than 6%, (b) a Tier 1 risk-based capital ratio of less than 3% or
(c) a leverage ratio of less than 3%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets equal to or less than 2%. The
federal banking agencies may also, under certain circumstances, reclassify a
"well capitalized" institution as "adequately capitalized" or require an
"adequately capitalized" or "undercapitalized" institution to comply with
supervisory actions as if it were in the next lower
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category. The agencies may take such action upon a showing that an institution
is in an unsafe or unsound condition or is engaged in an unsafe or unsound
practice (including failure to correct certain unsatisfactory examination
ratings).
Insured institutions are subject to certain incremental supervisory restraints
based on their actual or imputed ranking within the five capital categories. All
institutions are prohibited from making a capital distribution or paying
management fees to controlling persons if, after such transaction, the
institution would be undercapitalized. All undercapitalized institutions,
including significantly and critically undercapitalized institutions, are
required to file a capital restoration plan with their appropriate federal
banking regulator, undergo close monitoring of the condition of the bank and are
subject to restrictions on operations, including prohibitions on asset growth,
branching, acquisitions and engaging in new lines of business, without prior
regulatory approval. Also, as of December 19, 1993, Federal Reserve Bank
advances to such institutions (and institutions with a CAMEL 5 composite rating)
for more than 60 days will be generally restricted. In order to receive
regulatory approval of the required capital restoration plan, a company
controlling such undercapitalized institution will be required to guarantee its
subsidiary's compliance with the capital restoration plan, up to an amount equal
to the lesser of 5% of the subsidiary bank's assets or the amount of the capital
deficiency when the bank first failed to comply with such plan.
Significantly or critically undercapitalized institutions and undercapitalized
institutions which fail to submit or implement an acceptable capital restoration
plan are subject to one or more of the following additional regulatory actions
(one or more of which is mandatory): (i) forced sale of shares and, where
grounds exist for conservatorship or receivership, a forced merger; (ii)
restrictions on affiliate transactions; (iii) limitations on interest rates paid
on deposits; (iv) restrictions on asset growth or required shrinkage; (v)
alteration or curtailment of activities determined by the regulators to pose
excessive risk to the institution; (vi) replacement of directors or senior
executive officers, subject to certain grandfather provisions; (vii) prohibition
on acceptance of correspondent bank deposits; (viii) restrictions on capital
distributions by the holding companies of such institutions; (ix) forced
divestiture of an institution's subsidiaries or divestiture by a bank holding
company of an institution or a financially troubled nonbanking affiliate; or (x)
other actions as determined by the regulators. Additionally, such institutions
may not pay bonuses or provide raises to senior officers without the prior
written approval of the appropriate federal regulator. The applicable federal
regulator is required to impose a forced sale of share or merger, restrictions
on affiliate transactions and restrictions on rates paid on deposits, unless it
determines that such actions would not further an institution's capital
improvement.
FDICIA and its enabling regulations provide for further restrictions applicable
solely to critically undercapitalized institutions, including at a minimum,
prohibitions on the following activities without the prior written consent of
the Federal Deposit Insurance Corporation ("FDIC"): (i) entering into material
transactions other than in the usual course of business; (ii) extending credit
for highly leveraged transactions; (iii) amending an institution's charter or
bylaws; (iv) making a material change in accounting methods; (v) engaging in
certain transactions with affiliates; (vi) paying excessive compensation or
bonuses; or (vii) paying rates on new or renewed liabilities significantly in
excess or market rates. Additionally, 60 days after becoming critically
undercapitalized, an institution may not make payment of interest or principal
on subordinated debt without the permission of the FDIC and its primary federal
regulator (this provision is waived until 1996 for certain grandfathered
subordinated debt).
FDICIA requires the appointment of a receiver or conservator no later than 90
days after an institution becomes critically undercapitalized, unless an
institution's primary regulator and the FDIC determine that another action would
result in a smaller loss to the deposit insurance fund. If such an institution
is not placed into receivership and remains critically undercapitalized, on
average, during the calendar quarter beginning 270 days after it first became
critically undercapitalized, it would generally be required to be placed into
receivership. FDICIA would not require such action only if the institution
exhibits certain specific signs of recovery and receives a certification of
viability from the head of its primary regulatory agency and the Chairperson of
the FDIC.
Limitations on Activities of Insured State Banks
FDICIA provides generally that, effective December 19, 1992, insured state banks
and their subsidiaries may only engage as principal in types of activities that
are permissible for national banks. FDICIA provides for a general exception
(other than for insurance underwriting activities) if a bank is in compliance
with applicable capital standards and the FDIC determines that an activity would
pose no significant risk to the deposit insurance fund. Proposed rules published
by the FDIC on January 29, 1993 set forth certain types of activities that the
FDIC would deem, in advance, to not represent such a risk, including certain
credit guarantee activities, activities closely related to banking, and certain
securities underwriting activities conducted through subsidiaries. Certain
exceptions expressly provided by FDICIA to the imposition of national bank
standards in the area of insurance underwriting activities include, under
certain circumstances,
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underwriting of title insurance, savings bank life insurance (for banks in
certain states) and continuation of insurance provided prior to enactment of
FDICIA if such insurance was reinsured by the Federal Crop Insurance
Corporation. Also, state banks may, under certain circumstances, continue to
offer and provide types of insurance to residents and businesses of a state if
such insurance was offered within that state prior to FDICIA.
Other rules proposed by the FDIC on January 29, 1993 would flatly prohibit
direct investment in commercial ventures (non-financial services) by state
banks. In cases where activities of state banks require the prior consent of the
FDIC, the proposed regulations provide that a bank remain adequately capitalized
after deducting from capital its investment in a subsidiary or department in
which such activities would be conducted. The FDIC's consent would be further
conditioned on conducting such activities in an independent "bona fide
subsidiary" or an independent "department," which would subject the bank to
affiliate transaction fairness rules and limits on total lending exposure to
such units.
Other provisions of FDICIA provide that, effective December 19, 1991, insured
state banks may not, directly or indirectly, acquire or retain any equity
investment (including common and preferred stock, partnership interests and most
equity interests in real estate) of a type, or in an amount, that is not
permissible for national banks. Impermissible equity investments must be
divested as quickly as prudently possible, but in no event later than December
19, 1996. Exceptions provided by FDICIA to imposition of national bank standards
include investments in majority owned subsidiaries which conduct permissible
activities and in other depository institutions (with certain parameters), and
limited investments in qualified (low income) housing projects and in insurance
companies which provide director's, officer's and trustee's liability coverage
or bankers' blanket bond group coverage for other insured depository
institutions (or companies which reinsure such policies). FDICIA also permits,
under certain circumstances, the retention by state banks of exchange-listed
stock and shares of registered investment companies held prior to enactment of
FDICIA. The Company does not believe that the application of these rules will
have a material effect on its operations or financial condition.
Standards for Safety and Soundness
FDICIA requires that each federal banking agency promulgate regulations setting
forth certain safety and soundness standards for insured depository institutions
and, in some cases, their holding companies in three main areas: (i) operations
and management (including information systems, internal controls and audits,
loan documentation, credit underwriting, interest rate risk and asset growth);
(ii) asset quality, earnings levels and stock market valuation (for public banks
or holding companies); and (iii) employee compensation, fees and benefits.
Institutions or holding companies failing to meet the prescribed standards will
be required to submit a plan to correct any deficiencies. FDICIA provides for
certain mandatory and discretionary sanctions for failing to submit or implement
such a plan, including asset growth limits, capital directives and deposit
interest rate ceilings.
Brokered Deposits
During 1992 the FDIC adopted regulations pursuant to FDICIA which, effective
June 16, 1992, govern the receipt of brokered deposits. Under the new
regulations, brokered deposits include any deposit obtained from or through a
deposit broker (as defined), and include deposits, however obtained, of
institutions that offer rates "significantly higher" than those in the market
area. An institution may only accept brokered deposits if it is (i) "well
capitalized" or (ii) "adequately capitalized" and receives a waiver from the
FDIC. "Adequately capitalized" institutions that receive waivers to accept
brokered deposits are, however, subject to certain limits on the maximum rates
which they may pay on such deposits. "Undercapitalized" institutions may not
accept brokered deposits, nor may they offer deposit instruments yielding in
excess of 75 basis points over prevailing yields offered on comparable
instruments in the relevant market area. Also, FDICIA provides that the FDIC
shall not, in most circumstances, provide deposit insurance coverage on a
"pass-through" basis for certain employee benefit plans to institutions
prohibited from accepting brokered deposits. The definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" for purposes of
the brokered deposit regulations generally conform with the definitions of those
terms adopted by the FDIC for purposes of implementing the prompt corrective
action provisions of FDICIA. See "Item 1. Business - Effect of Governmental
Policies and Recent Legislation - Federal Deposit Insurance Corporation
Improvement Act of 1991 - Prompt Corrective Action."
Real Estate Lending Standards
Pursuant to authority contained in FDICIA, the federal banking agencies have
adopted final regulations which, effective March 19,1993, require depository
institutions to establish and maintain written internal real estate lending
policies. These
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policies must be consistent with safe and sound banking practices and be
appropriate for the size and nature of the institution involved. Additionally,
they must be established by each institution only after it has considered the
Interagency Guidelines for Real Estate Lending Policies, which are made a part
of the final regulations. The regulations require that certain specific
standards be addressed relating to loan portfolio diversification standards,
prudent underwriting standards (including loan-to-value limits), loan
administration procedures, and documentation, approval and reporting
requirements. Each institution's lending policies must be reviewed and approved
by the institution's board of directors at least once a year. Finally, each
institution is expected to monitor conditions in its real estate market to
ensure that its lending policies are appropriate for current market conditions.
The regulations do not set forth specific loan-to-value limits, but the
Interagency Guidelines do provide certain limits which should not be exceeded
except under limited circumstances.
Deposit Insurance Assessments
On January 1, 1993, the FDIC began implementing a risk-related premium schedule
for all insured depository institutions which results in the assessment of
deposit insurance premiums based on certain capital and supervisory measures,
with the strongest institutions paying premiums of $0.23 for every $100 of
deposits and the weakest institutions paying up to $0.31 for every $100 of
deposits. The risk-related premium schedule was implemented during 1993; the
permanent system was implemented starting January 1, 1994.
Under the risk-related premium schedule, the FDIC, on a semiannual basis,
assigns each institution to one of three capital groups, "well capitalized,"
"adequately capitalized" or "undercapitalized," in each case generally
conforming to the definitions of these terms adopted by the FDIC for purposes of
implementing the prompt corrective action provisions of FDICIA. See "Item 1.
Business - Effect of Governmental Policies and Recent Legislation - Federal
Deposit Insurance Corporation Improvement Act of 1991 - Prompt Corrective
Action." The FDIC further assigns each institution to one of three subgroups
within a capital group corresponding to the judgment of the FDIC and state
supervisor of its strength based on supervisory evaluation, including
examination reports, statistical analysis and other information relevant to
gauging the risk posed by the institution. Institutions deemed to have the
highest risk pay up to $.31 for every $100 of deposits annually while those
deemed to have the least risk pay $0.23 for every $100 of deposits annually.
Under the risk-related premium schedule, the Bank's annual assessment rate for
the first six months of 1995 was $0.26 for every $100 of deposits.
Section 104 of the FDICIA provides for certain assessment rates for
recapitalizing the Bank Insurance Fund ("BIF Fund") by establishing target
reserve ratios for the BIF Fund to achieve reserves totaling $1.25 for every
$100 of insured deposits within a 15 year period. During 1995 the BIF Fund
reached $1.25 in reserves for every $100, and accordingly, has reduced the
deposit insurance assessment rates. Based upon the FDIC's assessment rate
schedule and the Bank's risk-related premium group assignment, the Bank's
deposit assessment rate declined from $0.26 to $0.04 for every $100 in insured
deposits for the last six months of 1995. Based upon the FDIC's new assessment
rate schedule and the Bank's risk classification of well capitalized, the Bank
will be required to pay the minimum semi-annual premium of $1,000 for 1996.
Interstate Banking
In September 1986, California adopted an interstate banking law. This law allows
California banks and bank holding companies to be acquired by banking
organizations in other states on a "reciprocal" basis (i.e. provided the
Superintendent determines that the other state's laws permit California banking
organizations to acquire banking organizations in that state on substantially
the same terms and conditions applicable to banking organizations solely within
that state). The first stage, which became effective July 1, 1987, allowed
acquisitions on a "reciprocal" basis within a region of 11 states (Alaska,
Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and
Washington). The second stage, which became effective January 1, 1991, allowed
interstate acquisitions on a national "reciprocal" basis. With regard to any
interstate banking, the Justice Department issued merger guidelines in April
1992. On the basis of the revised criteria, the Department has challenged
several proposed transactions involving institutions that compete directly in
the same market(s). In contrast to the Justice Department, the Federal Reserve
has recently shown a greater inclination to consider factors that contribute to
the safety and soundness of the banking system, or which contribute positively
to the "convenience and needs" of the affected communities. To the extent these
two Federal Agencies apply different (and at times incompatible) analysis to
assess the competitive effects of proposed bank in thrift mergers and
acquisitions, federal anti-trust objections must be considered in connection
with any interstate acquisition.
20
21
Banks contemplating acquisitions must comply with the competitive standards of
either the Bank Holding Company Act ("BHCA"), the Change in Bank Control Act
("CBA") or the Bank Merger Act ("BMA"). The crucial test under each Act is
whether the proposed acquisition will "result in a monopoly" or will
"substantially" lessen competition in the relevant geographic market. Both the
BHCA and the BMA preclude granting regulatory approval for any transaction that
will result in a monopoly or where the furtherance of a plan to create a
monopoly. However, where a proposed transaction is likely to cause a substantial
reduction in competition, or tends to create a monopoly or otherwise restrain
trade, both Acts permit the granting of regulatory approval if the applicable
regulator finds that the perceived anti-competitive effects of the proposed
transaction "are clearly outweighed in the public interest by the probable
effect of the transaction on the convenience and needs of the community to be
served."
On September 13, 1994, the Senate passed the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, which eliminated many current restrictions to
interstate banking and branching.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") was signed into law on September 29, 1994. When fully
effective, the Riegle-Neal Act will significantly relax or eliminate many of the
current restrictions on interstate banking. Effective September 29, 1995, the
Riegle-Neal Act permits a bank holding company to acquire banks in states other
than its "home state", even if applicable state law would not permit that
acquisition. Such acquisitions would continue to require Board approval and
would remain subject to certain state laws.
Effective June 1, 1997, the Riegle-Neal Act will permit interstate mergers of
banks, thereby allowing a single, merged bank to operate branches in multiple
states. The Riegle-Neal Act allows each state to adopt legislation to "opt-out"
of these interstate merger provisions. Conversely, the Riegle-Neal Act permits
states to "opt in" to the merger, provisions of Act prior to their stated
effective date, to permit interstate mergers in that state prior to June 1,
1997.
The Company has no present intent to acquire any non-California institution or
to open or establish branches outside of California. The Riegle-Neal Act may
have the effect of increasing competition by facilitating entry into the
California banking market by out of state banks and bank holding companies.
Capital Adequacy Guidelines
The Federal Reserve Board and the FDIC have issued guidelines to implement
risk-based capital requirements. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations, takes off-balance
sheet items into account in assuring capital adequacy, and minimizes
disincentives to holding liquid, low-risk assets. Under these guidelines, assets
and credit equivalent amounts of off-balance sheet items, such as letters of
credit and outstanding loan commitments are assigned to one of several risk
categories, which range from 0% for risk-free assets, such as cash and certain
US government securities, to 100% for relatively high-risk assets, such as loans
and investments in fixed assets, premises and other real estate owned. The
aggregated dollar amount of each category is then multiplied by the risk weight
associated with that category. The resulting weighted values from each of the
risk categories are then added together to determine the total risk-weighted
assets. The guidelines require a minimum ratio of qualifying total capital to
risk-weighted assets of 8.00% (of which at least 4.00% must consist of Tier 1
Capital).
Tier 1 Capital consists primarily of common stock, related surplus, retained
earnings and certain perpetual preferred stocks, less goodwill. Allowances for
loan losses qualify only as supplementary capital and then only to the extent of
1.25% of total risk-weighted assets. Other elements of supplementary capital,
which is limited overall to 100% of Tier 1 Capital, include qualifying perpetual
preferred stock, hybrid capital instruments and mandatory convertible debt
securities, and subordinated debt and intermediate-term preferred stock.
The Federal Reserve Board and the FDIC also, effective December 31, 1990,
adopted a minimum leverage ratio of Tier 1 Capital to total assets of 3% for the
highest ranked banks. The leverage ratio is only a minimum. Institutions
experiencing or anticipating significant growth or those with other than minimum
risk profiles will be expected to maintain capital well above the minimum
levels.
In view of the Company's minimal level of off-balance sheet items, the
guidelines have not had a materially adverse effect on the Company to date.
Under the so-called "prompt corrective action" provisions of FDICIA and the
regulations promulgated thereunder, the Bank will be considered "adequately
capitalized" if it has a ratio of qualifying total capital to
21
22
risk-weighted assets of 4.00%, Tier 1 Capital to risk-weighted assets of 4.00%
and a leverage ratio of 4.00% or greater. To be considered "well capitalized"
the Bank must have a ratio of qualifying total capital to risk-weighted assets
of 10.00%, Tier 1 Capital to risk-weighted assets of 6.00% and a leverage ratio
of 5.00% or greater as well as not be subject to any order or directive. Under
certain circumstances, the FDIC may require an "adequately capitalized"
institution to comply with certain mandatory or discretionary supervisory
actions as if the Bank were undercapitalized. See "Item 1. Business - Effect of
Governmental Policies and Recent Legislation - Federal Deposit Insurance
Corporation Improvement Act of 1991 - Prompt Corrective Action."
Current Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS 121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or circumstances indicate the carrying
amount of an asset may not be recoverable. However, SFAS 121 does not apply to
financial instruments, core deposit intangibles, mortgage and other servicing
rights or deferred tax assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. The Company does not expect the adoption of the
statement on January 1, 1996 to have a material impact on the financial
statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
(SFAS 122), "Accounting for Mortgage Servicing Rights", an amendment to
Statement of Financial Accounting Standards No. 65. SFAS 122 requires an
institution that purchases or originates mortgage loans and sells or securitizes
those loans with servicing rights retained to allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. In addition,
institutions are required to assess impairment of the capitalized mortgage
servicing portfolio based on the fair value of those rights on a
stratum-by-stratum basis with any impairment recognized through a valuation
allowance for each impaired stratum. Capitalized mortgage servicing rights are
to be stratified based upon one or more of the predominate risk characteristics
of the underlying loans such as loan type, size, note rate, date of origination,
term and/or geographic location. SFAS 122 is effective for fiscal years
beginning after December 15, 1995. Management believes that the adoption of SFAS
122 will not have a material impact on the Company's operation.
In November 1995 the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", (SFAS 123). This statement
establishes financial accounting standards for stock-based employee compensation
plans. SFAS 123 permits the Company to choose either a new fair value based
method or the current APB Opinion 25 intrinsic value based method of accounting
for its stock-based compensation arrangements. SFAS 123 requires proforma
disclosures of net earnings and earnings per share computed as if the fair value
based method had been applied in financial statements of companies that continue
to follow current practice in accounting for such arrangements under Opinion 25.
SFAS 123 applies to all stock-based employee compensation plans in which an
employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. SFAS 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the employer's stock, i.e., stock option plans, stock purchase plans,
restricted stock plans, and stock appreciation rights. The statement also
specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by nonemployees or to
acquire goods or services from outside suppliers or vendors. The recognition
provision of SFAS 123 for companies choosing to adopt the new fair value based
method of accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years that
begin after December 15, 1995. The disclosure provisions of SFAS 123 are
effective for fiscal years beginning after December 15, however disclosure of
the proforma net earnings and earnings per share, as if the fair value method of
accounting for stock-based compensation had been elected, is required for all
awards granted in fiscal years beginning after December 31, 1994. The Company
will continue to account for stock-based compensation under APB Opinion 25 and,
as a result, SFAS 123 will not have a material impact on the Company's
operations.
22
23
Employees
At December 31, 1995 the Bank had approximately 105 full-time and 64 part-time
employees.
Item 2. PROPERTIES
EB's offices are located at the Bank's main banking offices which is located at
Seventeenth Street and Prospect Avenue, Tustin, California. That office is in a
9,600 square foot building which was constructed to the Bank's specifications in
1974. In 1982 the Bank exercised its option to purchase the building for a cash
purchase price of $460,000.
The Bank's Laguna Hills banking and administrative office is located in Laguna
Hills, California, near the intersection of Interstate 5 and El Toro Road. The
Bank occupies approximately 10,000 square feet of the building under a
thirty-year lease which commenced on April 10, 1981. The Bank has three ten-year
renewal options under this lease. The annual rent is $280,032, subject to
adjustment every fifth year during the term of the lease and any renewal period
in proportion to the increase in the applicable Consumer Price Index occurring
subsequent to the commencement of the lease term, except that during the initial
15 years of the lease, such rental increase may not exceed 25 percent of the
rent applicable during the immediately preceding five years and 37.5 percent
thereafter.
The Bank has one office located in San Bernardino, California. This office was
acquired as part of the acquisition of American Security Bank on August 29,
1980. This office is located at 250 "G" Street in San Bernardino, California.
This is a two story, free standing building built in 1974 with approximately
11,546 square feet of space. This building is held in fee, not subject to any
deed of trust, mortgage or other substantial encumbrance.
The Bank's Indio office is located at 81-701 Highway 111 in Indio, California in
a 8,000 square foot facility which was constructed to Bank of Indio's
specifications in 1980. The Bank occupies the facility under a ground lease with
a fifteen year term and holds an option to renew the lease for an additional
fifteen year term. The annual rent in 1995 was approximately $91,000 and is
subject to annual cost of living increases.
The Bank's Palm Desert office is located at 73-301 Highway 111 in Palm Desert,
California in a 7,800 square foot building. Ownership of this building was
acquired by the Bank as part of its acquisition of Bank of Indio.
The Bank's Orange office is located near the intersection of Chapman Avenue and
Highway 55 in the City of Orange, California in a 9,804 square foot, two story,
free-standing building built in 1980. The office was acquired as part of the
acquisition of American Merchant Bank in 1988. This building is held in fee, not
subject to any deed of trust, mortgage or other substantial encumbrance.
The Bank's Huntington Beach office is located at 16902 Bolsa Chica Road in
Huntington Beach, California in a 12,246 square foot, two story building built
in 1981. The office was acquired as part of the acquisition of American Merchant
Bank in 1988 and is held in fee, not subject to any deed of trust, mortgage or
other substantial encumbrance. The second floor is leased as multi-tenant office
space.
The Bank's Newport/Irvine office is located at the intersection of Von Karman
Avenue and Campus Drive, two blocks from the John Wayne International Airport in
a modern ten story multi-tenant office building built in 1988 and known locally
as the Atrium. The Bank occupies 4,145 square feet on space under a five year
lease with three five (5) year renewal options subject to adjustment based upon
market value at renewal. The aggregate rent payments in 1995 were approximately
$72,000.
In October 1995, the Bank consolidated its San Clemente Main office, located at
300 South El Camino Real, San Clemente, and its North San Clemente office,
located at 629 Camino de los Mares, San Clemente, into the offices acquired in
the Bank's acquisition of Mariners Bank. The branch banking leases on both
branches had expired during 1995 and were extended through December 1995, at
which time they were allowed to expire without renewal.
The Bank's branch banking offices in San Clemente, San Juan Capistrano and
Monarch Beach were acquired in the acquisition of Mariners Bancorp, which was
completed on October 20, 1995.
23
24
The San Clemente office is located at 115 Calle de Industrias, San Clemente,
California, in a two-story free standing building consisting of approximately
12,000 square feet. The Bank owns the building subject to an assignment of a
ground lease that commenced August 1, 1979 for a term of 25 years with three (3)
five-year options to renew. The rental rate is approximately $70,000 per year
and is subject to increases each five years based upon the change in the CPI.
The Bank's branch banking office occupies approximately 6,000 square feet on the
ground floor.
The San Juan Capistrano branch banking office is a 2,000 square feet retail
suite at 32221 Camino Capistrano, Suite B101, San Juan Capistrano, California.
The Bank occupies the space subject to a one year lease agreement commencing
August 1, 1995 with an annual rental rate of approximately $42,000.
The Monarch Beach branch banking office is located at 24034 Camino Del Avion,
Dana Point, California in a free-standing single-story building consisting of
approximately 4,200 square feet. The Bank occupies the facility subject to a
lease dated April 2, 1990 for a period of ten years. The current annual rent is
approximately $122,000.
In October 1994, the Bank entered into a sublease agreement with WTC Financial
and World Title Company for its Administrative offices in Irvine near the Orange
County Airport. The sublease provides for approximately 12,400 square feet and
commenced on January 14, 1995 for a period of approximately nine years. On June
15, 1995, the California Department of Insurance (the "Insurance Department")
placed World Title Company into receivership. The Master Lease was frozen by
court order. The Bank suspended rental payments under its sublease agreement
(although accruals at the existing rental rate were continued). On November 27,
1995, the Master Lease was terminated by agreement between the Insurance
Department, as receiver, and the landlord and past rents receivable under the
sublease agreement were assigned to the landlord. The Bank is currently
negotiating a new lease and settlement of past rents with the landlord.
Reference is made to Note 12 to the Consolidated Financial Statements
incorporated herein for further information regarding these leases.
Item 3. LEGAL PROCEEDINGS
There are no pending legal proceedings in which EB or the Bank is a party or to
which any of their respective properties are subject other than ordinary routine
litigation incidental to the Bank's business, the outcome of which is not
expected to be material to EB or its operations or properties.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
25
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information relating to the market for and market prices of EB's Common Stock
and the number of shareholders of record of EB is set forth in the 1995 Annual
Report to Shareholders (the "Annual Report") and that information is
incorporated herein by reference.
It is EB's policy to retain most of its earnings in order to increase its equity
and thereby support continued growth and expansion, however, EB declared
dividends of $0.32 per share during 1995. EB declared its first quarterly cash
dividend on November 3, 1986. On August 15, 1990 the board of directors approved
the purchase of its own common shares from time to time in the open market
within applicable legal restrictions.
Item 6. SELECTED FINANCIAL DATA
The information under the caption "Financial Highlights" contained on page 1 in
the 1995 Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages 5 to 8 within
the 1995 Annual Report to Shareholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of EB and the Independent Auditors' Report
thereon are contained on pages 9 to 24. The quarterly financial data follows:
QUARTERLY FINANCIAL DATA (Unaudited)
Three months ended
March 31 June 30 Sept. 30 Dec. 31
----------------------------------------------
(In thousands, except per share amounts)
1995
Total Interest income $5,644 $5,923 6,043 $7,365
Net interest income 4,405 4,557 4,601 5,589
Provision for possible credit losses 302 301 152 1
Earnings before income taxes 1,497 1,767 2,038 2,363
Net earnings 882 1,035 1,196 1,391
Net earnings per common share 0.29 0.34 0.36 0.37
1994
Total interest income 5,041 5,015 5,436 5,534
Net interest income 3,876 3,880 4,291 4,353
Provision for possible credit losses 652 751 302 301
Earnings before income taxes 843 858 1,297 1,316
Net earnings 503 511 768 774
Net earnings per common share 0.17 0.17 0.25 0.25
25
26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item. 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the directors of EB, see "Election of Directors"
contained within EB's definitive proxy statement dated March 29, 1996 ("Proxy
Statement"), which information is incorporated herein by reference. Information
regarding the executive officers of EB follows.
Executive Officers of Registrant
Name Age Position
---- --- --------
J. B. Crowell 62 President, Chief Executive Officer and Director
Raymond E. Dellerba 48 Executive Vice President
David R. Brown 36 Executive Vice President and Chief Financial Officer
Set forth below is certain information regarding the Company's executive
officers.
J. B. Crowell Mr. Crowell is, and for more than the past five years
has been, President and Chief Executive Officer of
the Company. Mr. Crowell also has been Chief
Executive Officer of the Bank since its inception in
1972. In addition, Mr. Crowell was President of the
Bank from 1972 to February 16, 1993, when he was
appointed Chairman of the Bank.
Raymond E. Dellerba Mr. Dellerba is, and since February 1993 has been,
the President and Chief Operating Officer of the
Bank. In April 1993 Mr. Dellerba was appointed
Executive Vice President of the Company. From
December 1990 until his employment by the Bank, Mr.
Dellerba was President of CommerceBank, and became
President of its parent, CommerceBancorp, beginning
in January 1992. Mr. Dellerba also served as a
director of CommerceBank and CommerceBancorp,
beginning in March 1989. In August 1994,
approximately 18 months after Mr. Dellerba terminated
his employment with CommerceBank, CommerceBancorp
filed a petition in bankruptcy following the closing
of CommerceBank by the FDIC in July 1994.
David R. Brown Mr. Brown is an Executive Vice President and the
Chief Financial Officer of the Company and has been
since 1987. Mr. Brown has held these same positions
with the Company's wholly-owned subsidiary, Eldorado
Bank. Mr. Brown previously was the Vice President and
Controller for the Bank, joining in 1986.
Item 11. MANAGEMENT REMUNERATION
For information concerning management remuneration, see "Executive Compensation"
within the Proxy Statement, which information is incorporated herein by
reference.
26
27
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning security ownership of certain beneficial owners and
management, see "Voting Securities and Principal Shareholders" and "Election of
Directors" within EB's Proxy Statement, which information is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning related party transactions, see "Certain
Transactions" within the Proxy Statement, which information is incorporated
herein by reference.
27
28
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The financial statements of EB and subsidiary and the Independent Auditors'
Report thereon included in the 1995 Annual Report to Shareholders are
incorporated herein by reference. Page number references follow.
Annual Report
Page 10-K Page
---- ---------
Eldorado Bancorp and Subsidiary:
Independent Auditors' Report 9 48
Consolidated Balance Sheets at December 31, 1995 and 1994 10 49
Consolidated Statements of Operations for each of the Years
in the Three-Year Period Ended December 31, 1995 11 50
Consolidated Statements of Shareholders' Equity for each of the Years
in the Three-Year Period Ended December 31, 1995 12 51
Consolidated Statements of Cash Flows for each of the Years
in the Three-Year Period Ended December 31, 1995 13-14 52-53
Notes to Consolidated Financial Statements 15-24 54-71
Schedules
All schedules are omitted as the information is not required, is not material or
is otherwise furnished.
Exhibits
See Index to Exhibits at Page 31 of this Form 10-K.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last quarter of the
year ended December 31, 1995.
28
29
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes any one of J. B.
Crowell and George H. Wells, individually, as attorney-in-fact, to sign in his
behalf and in each capacity stated below, and to file, all amendments and/or
supplements to the Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 29th day of March,
1996.
ELDORADO BANCORP
(Registrant)
/s/ J. B. Crowell
--------------------------------
J. B. Crowell, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 29, 1996.
Signature Title
--------- -----
/s/ J. B. Crowell Director
- -------------------------------------
J. B. Crowell
/s/ George H. Wells Chairman of the Board and Director
- -------------------------------------
George H. Wells
/s/ Raymond E. Dellerba Director
- -------------------------------------
Raymond E. Dellerba
/s/ Lynne Pierson Doti Director
- -------------------------------------
Lynne Pierson Doti
29
30
Signature Title
--------- -----
/s/ Rolf J. Engen Director
- -------------------------------------
Rolf J. Engen
/s/ Warren Finley Director
- -------------------------------------
Warren Finley
/s/ Michael B. Burns Director
- -------------------------------------
Michael B. Burns
/s/ Donald E. Sodaro Director
- -------------------------------------
Donald E. Sodaro
/s/ Warren Fix Director
- -------------------------------------
Warren Fix
/s/ Julia Di Giovanni Director
- -------------------------------------
Julia Di Giovanni
/s/ Richard Korsgaard Director
- -------------------------------------
Richard Korsgaard
/s/ David R. Brown Executive Vice President and
- ------------------------------------- Chief Financial Officer
David R. Brown
30
31
INDEX TO EXHIBITS
Document Page
- -------- ----
Number
- ------
03.1 Articles of Incorporation of Registrant and Certificate of
Amendment (R-1)
03.2 Bylaws of Registrant (R-1)
04.1 Specimen Common Stock Certificate for Registrant (R-1)
04.2 Eldorado Bank Subordinated Capital Note Agreement and Letter of
Consent to Noteholder as to Dividends (R-1)
10.1 Eldorado Bank's Qualified Stock Option Plan (R-1)
10.2 Eldorado Bank - 1980 Stock Option Plan (R-1)
10.3 Eldorado Bank - Stock Bonus Plan As Amended (R-6)
10.4 Eldorado Bank - Stock Purchase Plan and Trust As Amended (R-1)
10.5 Eldorado Bank - Tustin Branch Office Lease (R-1)
10.7 Eldorado Bank - Laguna Hills Branch Office Lease (R-1)
10.9 Amendment to 1980 Stock Option Plan (R-2)
10.10 Eldorado Bancorp - Nonqualified Stock Option Plan - 1982 (R-3)
10.11 Eldorado Bank - Indio Branch Office Lease (R-4)
10.13 Eldorado Bank Pre-Tax Savings and Profit Sharing Trust (R-5)
10.14 Eldorado Bank - North San Bernardino Branch Office Sublease (R-7)
10.16 Eldorado Bank - Corona Lease (R-8)
10.17 Eldorado Bancorp - 1989 Stock Option Plan (R-8)
10.18 Eldorado Bank - Escrow Office Lease (R-9)
10.19 Eldorado Bank - San Clemente Main Office Lease (R-10)
10.20 Eldorado Bank - North San Clemente Office Lease (R-10)
10.21 Eldorado Bank - Administrative Office Lease (R-10)
13 Eldorado Bancorp's 1995 Annual Report to Shareholders
21 Subsidiary of Registrant - Eldorado Bank, a California banking
corporation, all of the capital stock of which is owned by
Registrant, is the only subsidiary of the Registrant.
23 Consent of Independent Auditors 74
27 Financial Data Schedule 75
99 Definitive Proxy Statement of Eldorado Bancorp dated March 29,
1996 (R-11)
31
32
(R-1) Filed as an Exhibit to the Registrant's Registration Statement (File
No. 2-71499) filed on March 31, 1981, which exhibit is incorporated
herein by this reference.
(R-2) Filed as Exhibit 1.3 to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-8 (File No. 2-73352)
which exhibit is incorporated herein by this reference.
(R-3) Filed as Exhibit 10.10 to the Registrant's Report on Form 10-K for the
year ended December 31, 1982, which exhibit is incorporated herein by
this reference.
(R-4) Filed as an Exhibit to the Registrant's Report on Form 10-K for the
year ended December 31, 1983, which exhibit is incorporated herein by
this reference.
(R-5) Filed as Exhibit 10.13 to the Registrant's Report on Form 10-K for the
year ended December 31, 1984, which exhibit is incorporated herein by
this reference.
(R-6) Filed as Exhibit 10.3 to the Registrant's Report on Form 10-K for the
year ended December 31, 1985, which exhibit is incorporated herein by
this reference.
(R-7) Filed as Exhibit 10.14 to the Registrant's Report on Form 10-K for the
year ended December 31, 1986, which exhibit is incorporated herein by
this reference.
(R-8) Filed as Exhibit 10.16 and 10.17 to the Registrant's Report on Form
10-K for the year ended December 31,1989, which exhibit is incorporated
herein by this reference.
(R-9) Filed as Exhibit 10.18 to the Registrant's Report on Form 10-K for the
year ended December 31, 1990, which exhibit is incorporated herein by
this reference.
(R-10) Filed as Exhibit 10.19 and 10.20 to the Registrant's Report on Form
10-K for the year ended December 31, 1991, which exhibits are
incorporated herein by this reference.
(R-11) Filed as Definitive Proxy Statement on Schedule 14A on April 1, 1996.
(1) Portions of the Company's 1995 Annual Report to Shareholders have been
incorporated herein by reference. Except for those portions expressly
incorporated herein by reference, the Company's 1995 Annual Report to
Shareholders shall not be deemed to be "filed" with the Commission or
otherwise subject to the liability of Section 18 of the Securities
Exchange Act of 1934, as amended.
32