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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1993 COMMISSION FILE NUMBER: 1-9757
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GUARDIAN BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3686137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 SOUTH FIGUEROA, LOS ANGELES, 90017
CALIFORNIA
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (213) 239-0800
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, no par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 15, 1994, there were 12,514,075 shares of the registrant's
common stock, no par value, issued and outstanding and the aggregate market
value of the common stock, based on the closing price of the stock on the
American Stock Exchange, held by non-affiliates of the registrant was
approximately $24,945,000. Solely for purposes of this calculation, the share
ownership of all directors and executive officers has been excluded.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's Definitive Proxy Statement to be filed
pursuant to Regulation 14A within 120 days after the end of the last fiscal year
are incorporated herein by reference in Part III.
2. Portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1993 are incorporated herein by reference in Parts I and II.
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PART I
ITEM 1. BUSINESS.
GENERAL
GUARDIAN BANCORP
Guardian Bancorp (the "Company") is a bank holding company which was
incorporated in California on December 31, 1981 and registered under the Bank
Holding Company Act of 1956, as amended. Guardian Bancorp conducts operations
through its sole subsidiary, Guardian Bank. The Company's executive offices are
located at 800 South Figueroa Street, Los Angeles, California 90017, and its
telephone number is (213) 239-0800.
GUARDIAN BANK
Guardian Bank (the "Bank") was incorporated under the laws of the State of
California on October 22, 1982, was licensed by the California Superintendent of
Banks ("Superintendent") and commenced operations as a California
state-chartered bank in October 1983. The Bank's deposit accounts are insured by
the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits, and
the Bank is a member of the Federal Reserve System.
The Bank has three regional banking offices at the following locations: 800
South Figueroa Street, Los Angeles, California, which also serves as the Bank's
head office; 17330 Brookhurst Street, Fountain Valley, California; and 3401
Centrelake Drive, Ontario, California. Historically, the Bank concentrated on
marketing to, and servicing the needs of, the title insurance and escrow
industries, labor unions, real estate professionals, small and medium sized
businesses and high net worth individuals in the counties of Los Angeles,
Orange, Riverside, San Bernardino and Ventura, California. Furthermore, the
Bank's historical primary lending focus was on real estate-mortgage and
construction lending and, to a lesser extent, on lending to commercial and
industrial enterprises. Although the Bank also makes installment loans, it does
so primarily as an accommodation to existing customers.
Real estate-mortgage loans include individual and multi-family residential
mortgages, commercial and industrial mortgage loans and land acquisition loans.
Construction loans include individual and multi-family residential construction
loans and commercial and industrial construction loans. Commercial loans include
loans made primarily to small and medium sized businesses and professionals for
working capital and equipment acquisitions as well as trade finance. A
substantial portion of these loans are made to borrowers involved in the real
estate industry. Installment loans consist primarily of automobile loans and
loans made to finance small equipment acquisitions.
The Bank has generated a substantial portion of its deposits from large
balance depositors by offering various customer services. A significant amount
of such deposits are from Southern California-based title insurance companies
and escrow companies. Customer services consist primarily of accounting, data
processing and courier services. The Bank also offers a variety of other deposit
instruments. These include personal and business checking accounts, savings
accounts, including interest-bearing negotiable order of withdrawal accounts,
money market accounts and time certificates of deposits. The Bank also offers a
range of specialized services designed to attract and service the needs of its
customers, including wire transfer capability, telephone transfers, same day
posting and account research.
In response to a changed economic environment, the Company has recently
embarked upon a loan portfolio and deposit base diversification effort. The
Company's loan portfolio diversification efforts are focused on targeting small
and medium sized businesses in its market area and such targets include
manufacturers, wholesalers, distributors, retailers, service companies and
professionals. Efforts at changing the Company's deposit mix include introducing
a wider array of deposit products, including retirement and cash management
accounts.
GUARDIAN TRUST COMPANY
Guardian Trust Company was incorporated under the laws of the State of
California on April 16, 1991, was licensed by the Superintendent and commenced
operations as a California state-chartered trust company in July 1991. Guardian
Trust Company, a wholly-owned subsidiary of the Bank, maintains its offices at
800 South Figueroa Street, Los Angeles, California.
Guardian Trust Company offers custodial, securities servicing and cash
management services to trusts established by labor unions. Each trust has
professional investment managers that direct the investment of the trust funds
held by Guardian Trust Company, and Guardian Trust Company does not offer any
investment advice to such trusts. Guardian Trust Company, which was capitalized
at $5 million by the Bank, subleases approximately 1,500 square feet of office
space from the Company and employs eight people. Currently, the financial
condition and results of operations of Guardian Trust Company are not material
to those of the Company on a consolidated basis. At December 31, 1993, Guardian
Trust Company provided services to trust fund clients based primarily in
Southern California who control approximately $2.3 billion in assets.
PRINCIPAL MARKET AREA
The general economy in the Company's market area, and particularly the real
estate market, are suffering from the effects of a persistent recession that has
negatively impacted the ability of certain borrowers of the Company to perform
under the original terms of their obligations to the Company. According to THE
UCLA BUSINESS FORECAST FOR THE NATION AND CALIFORNIA, DECEMBER 1993 REPORT (the
"UCLA Report"), the current recession in California is expected to continue
until at least the second half of 1994, despite the presence of a moderate
national economic recovery. The UCLA Report attributes the length and depth of
the California recession, which began in 1990, to a number of negative economic
factors, including permanent cutbacks in the California defense industries and
military base closings, a cyclical downturn in California residential real
estate construction, lower rates of international trade growth as a result of
the worldwide recession and the effects on employment of an increased global
emphasis on cost controls and downsizing. The statewide unemployment rate in
November 1993 was 8.6%, compared with a national rate of 6.4%. The UCLA Report
notes that while statewide unemployment figures have improved recently, this was
due to a decline in the size of the labor force and that total California
employment has declined. Nevertheless, the UCLA Report expects a weak job
recovery to begin in California during the second half of 1994, approaching a
normal growth rate over the next four years. Based on its assessment of recent
economic reports and the current economic environment in the Company's market
areas, management believes that the California recession may continue beyond the
third quarter of 1994. It remains uncertain if the impact of the recent Southern
California earthquake and the related aftershocks will have additional negative
effect on the Southern California economy and the Company's customers.
The financial condition of the Company has been, and is expected to continue
to be, dependent upon overall general economic conditions and the real estate
market in Southern California. The future success of the Company is dependent,
in large part, upon the quality of its assets. Although management of the
Company has devoted substantial time and resources to the identification,
collection and workout of nonperforming and other potential problem assets, the
real estate market and the overall economy in Southern California are likely to
continue to significantly effect the quality of the Company's assets in future
periods and, accordingly, its financial condition and results of operations.
LOAN PORTFOLIO
The Company has historically engaged in real estate lending through
construction and term mortgage loans, all of which are secured by deeds of trust
on underlying real estate. The Company also engages in commercial lending to
businesses, and although the Company looks principally to the borrowers' cash
flow as the source of payment, many commercial loans are secured by real estate
as a secondary source of repayment. The Company's real estate and construction
loans are diversified by type of collateral and are concentrated geographically
throughout the five counties it serves in Southern California. The Company is
currently in the process of diversifying its loan portfolio to
2
include more commercial loans to businesses. In addition to the collateralized
position on its lending activities, all lending transactions are subject to the
Bank's credit evaluation, underwriting criteria and monitoring standards.
The lending activities of the Company are guided by the basic lending policy
established by the Company's Board of Directors. Each loan is evaluated based
on, among other things, character and leverage capacity of the borrower; capital
and investment in a particular property, if applicable; cash flow; collateral;
market conditions for the borrower's business or project; and prevailing
economic trends and conditions. The Company's lending policy also requires an
independent appraisal or an evaluation on each parcel of real estate which will
be taken as collateral for a loan. Loan approval is centralized, and no officer
has loan approval authority in excess of $100,000 on unsecured loans or $250,000
on secured loans.
The following table sets forth the type and amount of loans outstanding as
of the dates indicated:
December 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Real estate-mortgage............................ $ 147,039 $ 138,430 $ 151,620 $ 125,389 $ 106,173
Construction.................................... 87,829 164,194 188,978 148,605 87,898
Commercial...................................... 86,260 85,618 86,946 66,006 52,386
Installment..................................... 2,046 2,938 2,940 2,687 2,598
----------- ----------- ----------- ----------- -----------
Total loans................................... 323,174 391,180 430,484 342,687 249,055
Allowance for loan losses....................... (18,200) (13,466) (9,135) (3,473) (2,505)
Deferred loan fees.............................. (426) (345) (1,238) (1,608) (1,393)
----------- ----------- ----------- ----------- -----------
Total net loans............................... $ 304,548 $ 377,369 $ 420,111 $ 337,606 $ 245,157
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Except as otherwise disclosed herein, as of December 31, 1993, the Company
did not have any concentration of loans in any particular industry exceeding 10%
of total outstanding loans.
In light of the current economic environment and the impact it has had and
may have on the real estate sector, as well as a regulatory recommendation
regarding the size and growth of the Company's real estate related loans prior
to 1992, management remains committed to reducing the Company's real estate
concentration, particularly construction lending. At the same time, management
intends to continue diversifying the loan portfolio by increasing the level of
non-real estate credits to the extent such loans satisfy the Bank's underwriting
criteria and are available and by limiting the growth of new real estate related
loans.
REAL ESTATE-MORTGAGE LOANS. Approximately 45.5% of the Company's loan
portfolio at December 31, 1993 was comprised of medium term mortgage loans,
virtually all of which were secured by first deeds of trust. The following table
sets forth the composition of such mortgage loans by broad type of collateral as
of the dates indicated.
December 31,
--------------------------------------------------------------
1993 1992 1991
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
Residential:
1-4 family units............................................... $ 24,298 16.5% $ 21,807 15.8% $ 24,335 16.1%
Multifamily.................................................... 16,309 11.1 12,632 9.1 16,885 11.1
Commercial and industrial........................................ 79,398 54.0 70,776 51.1 67,953 44.8
Land acquisition loans........................................... 27,034 18.4 33,215 24.0 42,447 28.0
-------- ------- -------- ------- -------- -------
Total.......................................................... $147,039 100.0% $138,430 100.0% $151,620 100.0%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
3
The Company's 1-4 family residential mortgage loans, which averaged
approximately $270,000 at December 31, 1993 (with four loans over $1 million),
are typically secured by moderate or high-priced single family residences
located in the Company's principal market area. These loans generally have a
term of five years, are amortized over 20 to 30 years, provide for a balloon
payment at the end of the term and generally bear a floating rate of interest
either tied to the 11th District cost of funds or the Company's prime rate.
These loans generally were underwritten with loan-to-value ratios ranging from
approximately 70% to 80%, which decreases progressively for loans in excess of
$250,000.
The Company's multifamily residential mortgage loans, which averaged
approximately $652,000 at December 31, 1993 (with four loans over $1 million),
are typically secured by small (8 to 30 unit) apartment projects for which the
Company has provided the construction financing (see "Item 1. Business -- Loan
Portfolio -- Construction Loans" below). These loans generally have a term of
five years, are amortized over 20 to 30 years and bear a floating rate of
interest tied to the Company's prime rate. The Company's underwriting standards
generally apply a maximum loan-to-value ratio of 75% to these loans.
The Company's commercial and industrial mortgage loans, which averaged
approximately $696,000 at December 31, 1993 (with 29 loans over $1 million), are
primarily secured by small office buildings and multi-use industrial buildings
that are either owner-occupied or built for rental purposes and, to a much
lesser extent, by small (20 to 50 unit) motels located in the Company's
principal market area. These loans generally have a term of three to five years,
are amortized over 20 years and bear a floating rate of interest tied to the
Company's prime rate. The Company's underwriting standards generally apply a
maximum loan-to-value ratio of 70% to these loans.
Land acquisition loans, which averaged approximately $403,000 at December
31, 1993 (with four loans over $1 million), are typically secured by raw land
acquired for residential, commercial or industrial development within a
relatively short period of time after acquisition. Of the amount outstanding at
December 31, 1993, 56.2% was for residential development, 42.1% was for
commercial projects and 1.7% was for industrial development. These loans
generally mature in three years or less, bear a floating rate of interest tied
to the Company's prime rate and are all due and payable at maturity. In
addition, these loans were generally underwritten between 45% to 60% of the
appraised value of the property on an undeveloped basis under the Company's
underwriting policy.
Although real estate-mortgage loans increased by approximately $8.6 million
at the close of 1993 from the amount outstanding at December 31, 1992, this
increase is primarily attributable to an increase in mini-permanent loans made
by the Company to existing customers. The Company's mini-permanent loans
represent loans that have a term of three to five years, are amortized over 20
to 25 years and provide for a balloon payment at the end of the term. Most of
these loans provide intermediate term financing for construction loans that were
originated by the Company. The Company expects to continue to provide
intermediate term financing of this type in the future.
CONSTRUCTION LOANS. Approximately 27.2% of the Company's loan portfolio at
December 31, 1993 was comprised of construction loans. The following table sets
forth the composition of such construction loans by broad type of project as of
the dates indicated.
December 31,
--------------------------------------------------------------
1993 1992 1991
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
Residential:
1-4 family units............................................... $ 59,349 67.6% $ 94,204 57.4% $ 78,308 41.4%
Multifamily.................................................... 8,437 9.6 16,000 9.7 59,169 31.3
Commercial and industrial........................................ 20,043 22.8 53,990 32.9 51,501 27.3
-------- ------- -------- ------- -------- -------
Total.......................................................... $ 87,829 100.0% $164,194 100.0% $188,978 100.0%
-------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- -------
4
During the last two and a half years, the Company's residential construction
loans have increased as a percentage of the Company's total construction loan
portfolio. This increase is indicative of the Company's preference for entry
level housing projects, including detached homes and condominiums, and
multifamily rental units, and the demand for such loans by its regular
construction customers. These single-family housing and condominium units built
for resale typically average approximately 1,600 square feet and sell for
$130,000 to $250,000.
The multifamily residential units financed by the Company consist of
low-rise apartment projects of between eight and 30 units, each ranging in size
from 800 square feet to 1,000 square feet, and rent for between $750 and $1,000
per month. As of December 31, 1993, four of the Company's residential
construction loans, totalling approximately $2.3 million, or 0.7% of the total
loan portfolio, were for projects located outside the State of California. The
borrowers on these out-of-state loans are customers with whom the Company has
had a long-standing relationship and who previously have demonstrated an ability
to complete similar projects successfully.
The Company's residential construction loans generally bear a floating rate
of interest and mature in one year or less. The Company's residential
construction loan underwriting standards generally limit the loan amount to
approximately 70% of the completed value of the project. Larger single-family
residential projects, including detached homes and/or condominiums, which
consist of 15 to 150 units, are usually built by the Company's customers on a
phased basis. Construction loans for these projects are generally underwritten
on a phase-by-phase basis, such that each phase must qualify for financing
separately and only after all or substantially all of the units in the prior
phase or phases have been sold.
The Company's commercial and industrial construction loans are typically
made for the construction of small office, multi-use industrial buildings and,
to a lesser extent, retail centers and had an average outstanding balance of
$2.0 million at December 31, 1993. The Company's commercial and industrial
construction loans generally bear a floating rate of interest and mature in one
year or less. The Company's commercial and industrial loan underwriting
standards generally limit the loan amount to approximately 70% of the completed
value of the project. Since inception, all of the Company's commercial
construction projects have been located in Southern California and have been
made to customers who have had long-standing relationships with the Company and
who generally have had previous success in the commercial construction industry.
The Company disburses funds under each construction loan in accordance with
a disbursement schedule that is part of the construction loan agreement and
details the budgeted project cost. Borrowers are required to submit payment
requests with cost breakdowns and invoices that are accompanied by, as
appropriate, labor releases, original material releases and payee signatures
acknowledging pending payment. Payment requests must also be supported by
project inspection reports that include, among other things, line item actual
cost amount comparisons to budgeted costs, photographs of the project and a
discussion of the project's status. Funds are disbursed only after the request
has been reviewed by the Company and a determination has been made that the
project is proceeding on budget.
Real estate mortgage and construction lending contain potential risks which
are not inherent in other types of commercial loans. These potential risks
include declines in market values of underlying real property collateral and,
with respect to construction lending, delays or cost overruns, which could
expose the Company to loss. In addition, risks in commercial real estate lending
include declines in commercial real estate values, general economic conditions
surrounding the commercial real estate properties, and vacancy rates. A decline
in the general economic conditions or real estate values within the Company's
market area have had and could have a further negative impact on the performance
of the loan portfolio or value of the collateral. During the last three years,
the Company has been adversely affected by the actualization of these risks. See
"Nonaccrual, Past Due and Modified Loans" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
5
COMMERCIAL LOANS. As of December 31, 1993, approximately 26.7% of the
Company's loan portfolio was comprised of commercial loans. Loans in this
category, which averaged approximately $131,000 at December 31, 1993, include
loans made primarily to small and medium sized businesses and professionals for
working capital and equipment acquisitions, as well as trade finance. In
addition, at December 31, 1993, the Company had made available $24.0 million in
secured warehouse lines of credit to Southern California mortgage banking
companies, of which $14.1 million was outstanding. At December 31, 1993,
approximately 70% of the Company's commercial loans were to borrowers involved
in the real estate industry, such as real estate brokers, title insurance
companies, escrow companies, mortgage banking companies and other real estate
professionals. Although the Company typically looks to the borrower's cash flow
as the principal source of repayment for such loans, approximately 34.4% of the
loans within this category at December 31, 1993 were secured by real estate as a
secondary source of repayment. Certain of the Company's commercial loans are
secured by buildings for which the Company has provided the construction
financing.
As indicated above, a significant portion of the Company's loan portfolio,
including commercial loans, is secured by real estate. The general economy in
the Company's market area, and particularly the real estate market, are
suffering from the effects of persistent recessionary conditions. Real estate
values have been negatively impacted resulting in increases in the Company's
average loan to value ratios in almost all segments of its loan portfolio. The
current recession also has negatively impacted the volume of real estate
transactions which adversely affected certain commercial borrowers involved in
the real estate industry.
INSTALLMENT LOANS. Installment loans consist primarily of automobile loans
and loans made to finance small equipment acquisitions. These loans are made
primarily as an accommodation to existing customers and are not a substantial
part of the Company's lending strategy.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth the maturity distribution of the Company's
loan portfolio (excluding installment loans) at December 31, 1993, which are
based on remaining scheduled principal repayments (dollars in thousands).
MATURING
--------------------------------------
OVER ONE
ONE YEAR OR THROUGH FIVE OVER FIVE
LESS YEARS YEARS TOTAL
----------- ------------ ----------- -----------
Real estate-mortgage......................................... $ 57,551 $ 72,315 $ 17,173 $ 147,039
Construction................................................. 83,853 3,976 - 87,829
Commercial................................................... 62,501 22,494 1,265 86,260
----------- ------------ ----------- -----------
Total...................................................... $ 203,905 $ 98,785 $ 18,438 $ 321,128
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
The following table sets forth the sensitivity of the amounts due after one
year to changes in interest rates for the Company's loan portfolio (excluding
installment loans) at December 31, 1993 (dollars in thousands).
MATURING
------------------------
OVER ONE
THROUGH OVER
FIVE YEARS FIVE YEARS TOTAL
----------- ----------- -----------
Loans:
With fixed interest rates...................................... $ 25,290 $ 5,186 $ 30,476
With variable interest rates................................... 73,495 13,252 86,747
----------- ----------- -----------
Total...................................................... $ 98,785 $ 18,438 $ 117,223
----------- ----------- -----------
----------- ----------- -----------
NONACCRUAL, PAST DUE AND MODIFIED LOANS
The performance of the Company's loan portfolio is evaluated regularly by
senior management. Interest on loans is accrued monthly as earned. When, in the
opinion of management, a reasonable
6
doubt exists as to the collection of principal or interest, such loans are
evaluated individually to determine both the collectibility and the adequacy of
collateral. Loans are generally placed on nonaccrual status when principal or
interest is past due 90 days or more, or management has reasonable doubt as to
the full collection of principal and interest, at which time the accrual of
income is discontinued and previously accrued but unpaid interest is reversed
against income. Subsequent interest payments are generally credited to income
when received, except when the ultimate collectibility of principal is
uncertain, in which case all collections are applied as principal reductions.
The following table sets forth the amount of the Company's nonperforming
loans (nonaccrual loans and loans delinquent 90 days or more) and loans with
modified terms as of the dates indicated (dollars in thousands).
DECEMBER 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- ------- -------
Nonaccrual loans.................................. $29,056 $33,316 $17,050 $ 268 $ 287
Loans delinquent 90 days or more (1).............. 5,769 1,547 11,734 2,403 2,452
-------- -------- -------- ------- -------
Total nonperforming loans (2)................... $34,825 $34,863 $28,784 $2,671 $2,739
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Loans with modified terms (1)..................... $ 9,539 $ 2,149 $ 8,124 $ - $ 103
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Nonperforming loans and loans with modified
terms........................................... $44,364 $37,012 $36,908 $2,671 $2,842
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Nonaccrual and past due loans as a percentage of
total loans..................................... 10.8% 8.9% 6.7% 0.8% 1.1%
<FN>
- ------------------------
(1) These loans were on accrual status throughout the year or, if held for
part of the year, since their origination. Included in loans delinquent 90
days or more at December 31, 1993 were $1.7 million of loans which were
pending receipt of documentation for purposes of renewal or extension
which was received shortly after the close of 1993 and, in turn, caused
such loans to return to performing status.
(2) Nonperforming loans at December 31, 1993 and 1992 are shown net of
participations sold to others of approximately $576,000 and $4.8 million,
respectively.
The following tables set forth the Company's nonperforming loans by type as
of the dates indicated (dollars in thousands):
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Nonaccrual loans:
Real estate-mortgage......................................................... $ 13,804 $ 15,578 $ 9,013
Construction................................................................. 9,214 16,416 7,361
Commercial................................................................... 6,005 1,320 659
Installment.................................................................. 33 2 17
--------- --------- ---------
Total...................................................................... $ 29,056 $ 33,316 $ 17,050
--------- --------- ---------
--------- --------- ---------
7
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Loans past due 90 days or more and still accruing interest:
Real estate-mortgage............................................................ $ 4,486 $ 70 $ 8,954
Construction.................................................................... - 1,363 2,305
Commercial...................................................................... 1,247 100 228
Installment..................................................................... 36 14 247
--------- --------- ---------
Total......................................................................... $ 5,769 $ 1,547 $ 11,734
--------- --------- ---------
--------- --------- ---------
The following tables set forth the composition of nonperforming loans by
broad collateral type as of the dates indicated (dollars in thousands):
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Nonaccrual loans:
Real estate:
Residential:
1-4 Family units......................................................... $ 13,502 $ 11,358 $ 8,017
Multifamily units........................................................ 2,815 1,316 -
Land(1).................................................................. 5,703 8,723 5,858
Commercial and industrial:
Units.................................................................... 4,415 6,965 -
Land(2).................................................................. 356 4,255 2,586
Business and consumer........................................................ 2,265 699 589
--------- --------- ---------
$ 29,056 $ 33,316 $ 17,050
--------- --------- ---------
--------- --------- ---------
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Loans past due 90 days or more and still accruing interest:
Real estate:
Residential:
1-4 Family units............................................................ $ 1,001 $ 725 $ 2,134
Multifamily units........................................................... 439 554 -
Land........................................................................ - - 150
Commercial and industrial:
Units....................................................................... 661 154 3,005
Land(3)..................................................................... 3,050 - 5,323
Business and consumer........................................................... 618 114 1,122
--------- --------- ---------
$ 5,769 $ 1,547 $ 11,734
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
(1) At December 31, 1993, nonaccrual loans secured by residential land were
comprised of approximately $3.4 million of land which was zoned and
tentatively or fully mapped for immediate use and approximately $2.3
million of land that requires additional permits, zone changes or other
efforts to be suitable for immediate use.
(2) At December 31, 1993, all such loans were secured by commercial or
industrial land that requires additional permits, zone changes and other
efforts to be suitable for immediate use.
(3) At December 31, 1993, loans past due 90 days or more and still accruing
interest secured by commercial and industrial land was zoned and
tentatively or fully mapped for immediate use.
8
The following table sets forth the Company's loans with modified terms by
type as of the dates indicated (dollars in thousands):
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Real estate-mortgage............................................................... $ 6,368 $ 2,149 $ 3,089
Construction....................................................................... 2,072 - 4,835
Commercial......................................................................... 1,099 - 200
--------- --------- ---------
Total............................................................................ $ 9,539 $ 2,149 $ 8,124
--------- --------- ---------
--------- --------- ---------
At December 31, 1993, the Company's portfolio of loans with modified terms
reflects the original principal amount as amortized by their terms, less a
$600,000 charge-off of principal taken against one credit at the time of
modification. The weighted average stated yield on these loans for the year
ended December 31, 1993 was approximately 5.5%. The Company's average cost of
interest-bearing liabilities was 3.3% for the year ended December 31, 1993.
The following table sets forth the composition of loans with modified terms
by broad collateral type as of the dates indicated (dollars in thousands):
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Real estate:
Residential:
1-4 Family units............................................................... $ - $ - $ 2,360
Multifamily units.............................................................. 1,280 - -
Commercial and industrial........................................................ 7,493 2,126 5,764
Business and consumer.............................................................. 766 23 -
--------- --------- ---------
$ 9,539 $ 2,149 $ 8,124
--------- --------- ---------
--------- --------- ---------
Since 1991, the Company has been impacted by the significant slowdown in
California's economic activity. One result of the current recessionary
environment has been the decrease of real estate values in certain sectors of
the Company's target markets which, in turn, has affected certain borrowing
customers' financial capabilities and liquidity. The significant increase in
amounts reported as nonperforming loans since 1990 is attributable to the
existing economic climate, and a substantial portion of the nonperforming loans
are real estate mortgage and construction credits. At December 31, 1993, 1992,
and 1991, the ratio of the allowance for loan losses to period end nonperforming
loans was 52.3%, 38.6% and 31.7%, respectively.
The amount of loans with modified terms has increased significantly since
1992. It is the Company's policy to consider a restructured loan a loan with
modified terms when a determination has been made that greater economic value
may be realized under new terms rather than through foreclosure, liquidation or
other disposition. In such circumstances, the Company may grant a concession to
the borrower that it would not otherwise grant, including the reduction of
interest charged, the forgiveness of certain penalties and, in certain cases,
the reduction of the principal balance on a loan.
Except for the loans included in the nonperforming and modified loan tables
above and approximately $35.3 million in additional credits, which represent
loans that have been identified by management as potential problem credits but
are not included in the tables above, the Company is not aware of any other
loans at December 31, 1993 where known information about possible credit
problems of the borrower causes management to have serious doubts as to the
ability of such borrowers to comply with their present loan repayment terms and
which may result in such loans being included in such tables at some future
date.
9
The following table sets forth the composition of potential problem credits
by broad collateral type at December 31, 1993 (dollars in thousands):
Real estate:
Residential:
1-4 Family units...................................................... $ 10,360
Multifamily units..................................................... 9,856
Land.................................................................. 1,875
Commercial and industrial:
Units................................................................. 11,101
Business and Consumer..................................................... 2,122
---------
$ 35,314
---------
---------
Management cannot predict the extent to which the current recessionary
economic environment may persist or worsen or the full impact such environment
may have on the Company's loan portfolio. However, if current economic
conditions continue for a sustained period of time or worsen, management
anticipates that the Bank's borrowers will be adversely effected and underlying
collateral values will continue to decline. Furthermore, the Bank's primary
regulators review the loan portfolio as an integral part of their periodic
examinations of the Bank, and their assessment of specific credits, based upon
information available to them at the time of their examinations, may affect the
level of the Company's nonperforming loans. Accordingly, there can be no
assurance that other loans will not be placed on nonaccrual, become 90 days or
more past due or have terms modified in the future.
ALLOWANCE FOR LOAN LOSSES
A certain degree of risk is inherent in the extension of credit. Management
has credit policies in place to monitor and attempt to control the level of loan
losses and nonperforming loans. One product of the Company's credit risk
management is the maintenance of the allowance for loan losses at a level
considered by management to be adequate to absorb estimated known and inherent
losses in the existing portfolio, including commitments and standby letters of
credit. The allowance for loan losses is established through charges to
operations in the form of provisions for loan losses.
The allowance is based upon a regular review of current economic conditions,
which might affect a borrower's ability to pay, underlying collateral values,
risks in and the composition of the loan portfolio, prior loss experience and
industry averages. In addition, the Bank's primary regulators, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses and may recommend additions to the allowance based on their
assessment of information available to them at the time of their examination.
Loans that are deemed to be uncollectible are charged-off and deducted from the
allowance. The provision for loan losses and recoveries on loans previously
charged-off are added to the allowance.
10
The following table sets forth the Company's loan loss experience and
certain information relating to its allowance for loan losses as of the dates
and for the years indicated (dollars in thousands).
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Average net loans outstanding.............................. $353,032 $420,192 $392,997 $291,741 $203,090
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Allowance for loan losses:
Balance at beginning of period........................... $ 13,466 $ 9,135 $ 3,473 $ 2,505 $ 1,713
--------- --------- --------- --------- ---------
Charge-offs:
Commercial loans....................................... (4,068) (1,863) (250) (153) (419)
Real estate-mortgage loans............................. (5,286) (705) - - -
Construction loans..................................... (4,142) (2,486) - - -
Installment loans...................................... (73) (61) (38) (42) (34)
Recoveries:
Commercial loans....................................... 44 39 2 - -
Real estate-mortgage loans............................. - - - - -
Construction loans..................................... - - - - -
Installment loans...................................... 9 12 2 3 9
--------- --------- --------- --------- ---------
Net charge-offs.......................................... (13,516) (5,064) (284) (192) (444)
--------- --------- --------- --------- ---------
Provision charged to operations.......................... 18,250 9,395 5,946 1,160 1,236
--------- --------- --------- --------- ---------
Balance at end of period................................. $ 18,200 $ 13,466 $ 9,135 $ 3,473 $ 2,505
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of allowance for loan losses to loans outstanding
at end of period........................................ 5.64% 3.45% 2.13% 1.01% 1.01%
Ratio of allowance for loan losses to nonperforming loans
at the end of the period................................ 52.26% 38.63% 31.74% 130.03% 91.46%
Ratio of net charge-offs to average loans outstanding
during the period....................................... 3.83% 1.21% 0.07% 0.07% 0.22%
The increase in net charge-offs during 1993 and in 1992 from those reported
in prior periods primarily resulted from losses recognized upon transfer of
assets to other real estate owned ("OREO"), losses taken on certain real estate
related loans due to economic conditions and other charge-offs related to loans
deemed uncollectible by the Company.
Management believes that the allowance for loan losses at December 31, 1993
was adequate to absorb the known and inherent losses in the loan portfolio at
that time. However, no assurance can be given that continuation of current
recessionary factors, future changes in economic conditions that might adversely
affect the Company's principal market area, borrowers or collateral values, and
other circumstances will not result in increased losses in the Company's loan
portfolio in the future.
11
Although the Company does not normally allocate the allowance for loan
losses to specific loan categories, an allocation has been made for purpose of
this discussion as set forth below. The allocations used in the table are based
upon the criteria considered by management in determining the amount of
additional provisions for loan losses and the aggregate level of the allowance
for loan losses (dollars in thousands).
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991
--------------------------------- --------------------------------- -----------------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
ALLOWANCE FOR CATEGORY TO ALLOWANCE FOR CATEGORY TO ALLOWANCE FOR LOAN CATEGORY TO
LOAN LOSSES TOTAL LOANS LOAN LOSSES TOTAL LOANS LOSSES TOTAL LOANS
---------------- -------------- ---------------- -------------- ------------------ --------------
Real
estate-mortgage...... $ 6,246 45.5% $ 2,823 35.0% $ 1,618 35.2%
Construction.......... 4,632 27.2 6,134 41.8 2,657 43.9
Commercial............ 4,644 26.7 1,719 22.5 966 20.2
Installment........... 75 .6 29 .7 28 .7
Unallocated........... 2,603 - 2,761 - 3,866 -
-------- ----- -------- ----- ------- -----
$18,200 100.0% $13,466 100.0% $ 9,135 100.0%
-------- ----- -------- ----- ------- -----
-------- ----- -------- ----- ------- -----
The allocation of the allowance for loan losses should not be interpreted as
an indication of future credit trends or that losses will occur in these amounts
or proportions. Furthermore, the portion allocated to each loan category is not
the total amount available for future losses that might occur within such
categories, since even on the above basis there is a substantial unallocated
portion of the allowance, and the total allowance is a general allowance
applicable to the entire portfolio.
OTHER REAL ESTATE OWNED
Real estate and other assets acquired in satisfaction of loans are recorded
at estimated fair value, less estimated costs of disposition, and any difference
between fair value and the loan amount is charged to the allowance for loan
losses. Gains and losses from the sale of such assets, any subsequent additions
to the OREO valuation allowance and net operating expenses are included in
noninterest expense.
Activity in OREO for the periods indicated is as follows (dollars in
thousands):
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---------- --------- ---------
Balance, beginning of period......................................... $ 4,359 $ 2,945 $ -
Additions............................................................ 24,209 6,071 6,245
Sales................................................................ (13,905) (4,617) (3,300)
Valuation adjustments................................................ (714) (40) -
---------- --------- ---------
Balance, end of period............................................... $ 13,949 $ 4,359 $ 2,945
---------- --------- ---------
---------- --------- ---------
The following sets forth the composition of OREO, net of valuation
adjustments, by broad type of collateral at the dates indicated (dollars in
thousands):
DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Residential:
1-4 Family units...................................................... $ 7,023 $ 1,410 $ 2,495
Land.................................................................. 3,736 50 -
Commercial and industrial:
Units................................................................. 1,540 1,782 450
Land.................................................................. 1,650 1,117 -
--------- --------- ---------
Total............................................................... $ 13,949 $ 4,359 $ 2,945
--------- --------- ---------
--------- --------- ---------
12
DEPOSITS
The Company has generated a substantial portion of its deposits from large
balance depositors by offering various customer services. A significant amount
of such deposits are from Southern California based title insurance companies
and escrow companies. Customer services consist primarily of accounting and
courier services. The Company seeks to control its customer service expense by
continuously monitoring the earnings performance of its account relationships
and, on that basis, limiting the amount of services provided. As of December 31,
1993, title insurance companies and escrow companies accounted for approximately
$287.3 million, or 89.0%, of the Company's noninterest-bearing demand deposits
which compares to $374.1 million, or 90.3% of the Company's noninterest-bearing
demand deposits at the close of 1992. The decline between the close of 1993 and
1992 principally reflects a slow down in real estate transaction activity
handled by such depositors, and to a lesser extent, the Company's reduced
reliance on such accounts as a funding source. At December 31, 1993, the
Company's five largest title insurance company customers accounted for $129.5
million, or 24.6% of total deposits; the two largest of such customers accounted
for 8.5% and 6.3% of total deposits.
Title insurance company deposits and, to a lesser extent, escrow company
deposits are subject to greater fluctuation and can be sensitive to prevailing
interest rates and other general economic factors that affect the demand for
housing and other real estate than other types of demand deposits. For example,
as real estate development and sales activity decline during periods of rising
interest rates, the Company might experience a corresponding decline in its
demand deposits from such sources. Should the Company experience a decline in
the level of such deposits, it would have to obtain funds from other sources,
and probably at higher rates, to maintain, or expand, its lending activities. An
increase in the cost of funds without a corresponding increase in the yield on
interest earning assets would likely decrease the Company's net interest income,
which is the primary component of the Company's earnings. During the first
quarter of 1994, the Board of Governors of the Federal Reserve System issued a
new interpretive release which is applicable to all member banks, such as the
Bank, and other entities, which limits the payment of customer service expense
to prescribed instances. As a result of this release, it is expected that
certain balances of accounts associated with these expenses and customer service
expense will decline in 1994.
Labor union deposits, which were $91.5 million at December 31, 1993, or
17.4% of total deposits and were $90.9 million at December 31, 1992, or 15.2% of
total deposits, generally are not transaction oriented and, thus, are less
likely to fluctuate with the general level of interest rates. At December 31,
1993, approximately 64.2% of such deposits were demand deposits. Management
believes that labor union deposits are subject to less fluctuation than title
insurance company and escrow company deposits and therefore afford a more stable
funding source for the Company's lending activities. No individual account
represented 10% or more of total deposits.
Time certificates of deposit of $100,000 or more, which were $22.2 million
at December 31, 1993, or 4.2% of total deposits and were $28.4 million, or 4.7%,
of total deposits at December 31, 1992, are generally more sensitive to changes
in interest rates than other types or amounts of deposits.
The Company's period end deposit balances traditionally reflect increases in
noninterest-bearing demand deposits from title insurance company and escrow
company customers. These deposits increase at or near each month end as the
underlying real estate transactions being handled by such deposit customers are
nearing consummation. Accordingly, management considers average deposit balances
to be more indicative of the Company's deposit base.
13
The following table sets forth the distribution of average deposits and the
rates paid thereon for the years indicated (dollars in thousands):
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------ ------------------------------
AMOUNT RATE % OF TOTAL AMOUNT RATE % OF TOTAL AMOUNT RATE % OF TOTAL
-------- ----- ----------- -------- ----- ----------- -------- ----- -----------
Noninterest-bearing demand
deposits..................... $323,661 - % 59.3% $383,580 - % 63.6% $292,079 - % 54.9%
Interest-bearing demand and
savings deposits............. 53,626 2.3 9.8 65,242 2.7 10.8 57,187 3.4 10.8
Money market deposits......... 52,327 2.5 9.6 51,813 3.2 8.6 47,701 5.2 9.0
Time certificates of deposit.. 116,603 3.9 21.3 102,210 5.0 17.0 134,621 7.0 25.3
-------- ----- ----- -------- ----- ----- -------- ----- -----
Total....................... $546,217 3.2% 100.0% $602,845 3.9% 100.0% $531,588 5.9% 100.0%
-------- ----- ----- -------- ----- ----- -------- ----- -----
-------- ----- ----- -------- ----- ----- -------- ----- -----
During the year ended December 31, 1993, the mix in the composition of
average deposits changed from the prior year as average noninterest-bearing
demand deposits decreased, and average time certificates of deposit increased,
when expressed as a percentage of average total deposits. Average
noninterest-bearing demand deposits comprised 59.3%, 63.6% and 54.9% of average
total deposits for the years ended December 31, 1993, 1992 and 1991,
respectively. Average time certificates of deposit comprised 21.3%, 17.0% and
25.3% of total average deposits for the years ended December 31, 1993, 1992 and
1991, respectively. Total average interest-bearing demand, savings and money
market deposits, when expressed as a percentage of total average deposits,
remained comparable over the three years ended December 31, 1993, and were
19.4%, 19.4% and 19.7%, respectively, during 1993, 1992 and 1991. The increase
in the Company's average time certificates of deposit during the year ended
December 31, 1993 from the prior year's average is, in management's opinion,
attributable to efforts devoted toward diversifying the Company's funding
sources. The Company's noninterest-bearing deposits declined in 1993 from levels
reached in the prior two years reflecting the decreased volume of title
insurance company and escrow company deposit activity occurring as a result of
recent declines in refinancing activity from levels in the prior two years.
During the first quarter of 1994, the Board of Governors of the Federal Reserve
System issued a new interpretive release which is applicable to all member
banks, such as the Bank, and other entities, which limits the payment of
customer service expense to certain prescribed instances. As a result of the
issuance of this interpretive release it is expected that certain
noninterest-bearing account balances of title insurance company and escrow
company depositors will decline in 1994.
The following table sets forth the maturities of the Company's time
certificates of deposit outstanding at December 31, 1993 (dollars in thousands).
$100,000
UNDER $100,000 AND OVER
-------------- ---------
Three months or less........................................................ $ 4,604 $ 5,459
Over three months through six months........................................ 20,787 6,626
Over six months through twelve months....................................... 39,613 8,789
Over twelve months.......................................................... 14,640 1,368
-------------- ---------
Total..................................................................... $ 79,644 $ 22,242
-------------- ---------
-------------- ---------
COMPETITION
The Company faces substantial competition for deposits and loans throughout
its market area. 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,
thrift and loans, 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,
14
thrift and loans, mortgage banking firms, credit unions and other financial
intermediaries. The Company 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 Company's market areas offer certain services, such as trust,
investment and international banking services, which the Company does not offer
directly (other than custodial, cash management and securities servicing
provided by Guardian Trust Company). 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 Company has three offices located in Los Angeles,
Fountain Valley and Ontario, California. Neither the deposits nor loans of any
office of the Company exceed 1% of the aggregate loans or deposits of all
financial intermediaries located in the counties in which such offices are
located.
EMPLOYEES
At December 31, 1993, the Company employed 159 people. Management believes
that its relations with its employees are satisfactory.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
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 the 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 local, domestic and
foreign economic conditions, including recession, unemployment and inflation.
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
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 intermediaries 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
intermediaries. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in 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 (the "FDIC Improvement Act") was enacted into law. Set forth below
is a brief discussion of certain portions of this law and implementing
regulations that have been adopted or proposed by the Federal Reserve Board, the
Comptroller of the Currency, the Office of Thrift Supervision and the FDIC
(collectively, the "Federal banking agencies").
15
BIF RECAPITALIZATION. The FDIC Improvement Act provides the FDIC with three
additional sources of funds to protect deposits insured by the Bank Insurance
Fund (the "BIF") administered by the FDIC. The FDIC is authorized to borrow up
to $30 billion from the U.S. Treasury; borrow from the Federal Financing Bank up
to 90% of the fair market value of assets of institutions acquired by the FDIC
as receiver; and borrow from financial intermediaries that are members of the
BIF. Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits.
IMPROVED EXAMINATIONS. All insured depository institutions must undergo a
full-scope, on-site examination by their appropriate Federal banking agency at
least once every 12 months. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate Federal
banking agency against each institution or affiliate as it deems necessary or
appropriate.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the FDIC Improvement Act,
the Federal banking agencies have issued proposed safety and soundness standards
on matters such as loan underwriting and documentation, asset quality, earnings,
internal controls and audit systems, interest rate risk exposure and
compensation and other employee benefits. The proposals, among other things,
establish the maximum ratio of classified assets to total capital at 1% and the
minimum level of earnings sufficient to absorb losses without impairing capital.
The proposals provide that a bank's earnings are sufficient to absorb losses
without impairing capital if the bank is in compliance with minimum capital
requirements and the bank would, if its net income or loss over the last four
quarters continued over the next four quarters, remain in compliance with
minimum capital requirements. Any institution which fails to comply with these
standards must submit a compliance plan. Failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. No assurance can be given as to the final form of the proposed
regulations or, if adopted, the impact of such regulations on the Company and
the Bank.
In December 1992, the Federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
PROMPT CORRECTIVE REGULATORY ACTION. The FDIC Improvement Act requires each
Federal banking agency to take prompt corrective action to resolve the problems
of insured depository institutions that fall below one or more prescribed
minimum capital ratios. The purpose of this law is to resolve the problems of
insured depository institutions at the least possible long-term cost to the
appropriate deposit insurance fund.
The law requires each Federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized (significantly exceeding the required minimum capital requirements),
adequately capitalized (meeting the required capital requirements),
undercapitalized (failing to meet one or more of the capital requirements),
significantly undercapitalized (significantly below one or more capital
requirement) and critically undercapitalized (failing to meet all capital
requirements).
In September 1992, the Federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of the FDIC
Improvement Act. Under the regulations, an insured depository institution will
be deemed to be:
-"well capitalized" if it (i) has a total risk-based capital ratio
of 10% or greater, a Tier 1 risk-based ratio capital of 6% or
greater and a leverage ratio of 5% or greater and (ii) is not
subject to an order, written agreement, capital directive or
prompt corrective action directive to meet and maintain a
specific capital level for any capital measure;
16
-"adequately capitalized" if it has a total risk-based capital
ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4%
or greater and a leverage ratio of 4% or greater (or a leverage
ratio of 3% or greater if the institution is rated composite 1
under the applicable regulatory rating system in its most recent
report of examination);
-"undercapitalized" if it has a total risk-based capital ratio
that is less than 8%, a Tier 1 risk-based capital ratio that is
less than 4% or a leverage ratio that is less than 4% (or a
leverage ratio that is less than 3% if the institution is rated
composite 1 under the applicable regulatory rating system in its
most recent report of examination);
-"significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6%, a Tier 1 risk-based capital
ratio that is less than 3% or a leverage ratio that is less than
3%; and
-"critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized may be reclassified to
the next lower capital category if the appropriate Federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and Federal banking agencies are given less flexibility in
deciding how to deal with it.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions, including dividends, if after such transaction the
institution would be undercapitalized. If an insured depository institution is
undercapitalized, it will be closely monitored by the appropriate Federal
banking agency, subjected to asset growth restrictions and required to obtain
prior regulatory approval for acquisitions, branching and engaging in new lines
of business. Any undercapitalized depository institution must submit an
acceptable capital restoration plan to the appropriate Federal banking agency 45
days after becoming undercapitalized. The appropriate Federal banking agency
cannot accept a capital plan unless, among other things, it determines that the
plan (i) specifies the steps the institution will take to become adequately
capitalized, (ii) is based on realistic assumptions and (iii) is likely to
succeed in restoring the depository institution's capital. In addition, each
company controlling an undercapitalized depository institution must guarantee
that the institution will comply with the capital plan until the depository
institution has been adequately capitalized on an average basis during each of
four consecutive calendar quarters and must otherwise provide adequate
assurances of performance. The aggregate liability of such guarantee is limited
to the lesser of (a) an amount equal to 5% of the depository institution's total
assets at the time the institution became undercapitalized or (b) the amount
which is necessary to bring the institution into compliance with all capital
standards applicable to such institution as of the time the institution fails to
comply with its capital restoration plan. Finally, the appropriate Federal
banking agency may impose on any undercapitalized depository institution any of
the additional restrictions or sanctions that it may impose on significantly
undercapitalized institutions if it determines that such action will further the
purpose of the prompt corrective action provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
17
specified activities; (vi) replacement of directors or senior executive
officers, subject to certain grandfather provisions for those elected prior to
enactment of the FDIC Improvement Act; (vii) prohibitions on the receipt of
deposits from correspondent institutions; (viii) restrictions on capital
distributions by the holding companies of such institutions; (ix) required
divestiture of subsidiaries by the institution; or (x) other restrictions as
determined by the appropriate Federal banking agency. Although the appropriate
Federal banking agency has discretion to determine which of the foregoing
restrictions or sanctions it will seek to impose, it is required to force a sale
of voting shares or merger, impose restrictions on affiliate transactions and
impose restrictions on rates paid on deposits unless it determines that such
actions would not further the purpose of the prompt corrective action
provisions. In addition, without the prior written approval of the appropriate
Federal banking agency, a significantly undercapitalized institution may not pay
any bonus to its senior executive officers or provide compensation to any of
them at a rate that exceeds such officer's average rate of base compensation
during the 12 calendar months preceding the month in which the institution
became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
As of December 31, 1993, the Bank had a total risk-based capital ratio of
8.33%, a Tier 1 risk-based capital ratio of 7.02% and a leverage ratio of 4.19%.
The Bank is subject to a written regulatory agreement that requires it to
develop a plan to maintain an adequate capital position. See "Item 1. Business
- -- Supervision and Regulation -- Potential and Existing Enforcement Actions."
Pursuant to its plan, in January 1994, the Company raised gross proceeds of
approximately $19.7 million in new equity capital in a rights offering
(offering) which, after deducting capital raising costs, provided $18.0 million
in net equity capital. The Company contributed $16.5 million of the net proceeds
to the Bank in the form of Tier 1 capital. On a proforma basis, the Bank's total
risk-based capital ratio, and Tier 1 risk-based capital ratio and leverage ratio
are 11.77%, 13.07% and 6.89%, respectively, at December 31, 1993, assuming that
the Bank had received the capital contribution and, in turn, placed the funds in
20% risk-weighted assets at year end. Under the same assumptions, the Company's
total risk-based capital ratio, Tier 1 risk-based capital ratio and leverage
ratio were 13.08%, 10.95% and 6.68%, respectively.
OTHER ITEMS. The FDIC Improvement Act also, among other things, (i) limits
the percentage of interest paid on brokered deposits and limits the unrestricted
use of such deposits to only those institutions that are well capitalized; (ii)
requires the FDIC to charge insurance premiums based on the risk profile of each
institution; (iii) eliminates "pass through" deposit insurance for certain
employee benefit accounts unless the depository institution is well capitalized
or, under certain circumstances, adequately capitalized; (iv) prohibits insured
state chartered banks from engaging as principal in any type of activity that is
not permissible for a national bank unless the FDIC permits such activity and
the bank meets all of its regulatory capital requirements; (v) directs the
appropriate Federal banking agency to determine the amount of readily marketable
purchased mortgage servicing rights that may be included in calculating such
institution's tangible, core and risk-based capital; and (vi) provides that,
subject to certain limitations, any Federal savings association may acquire or
be acquired by any insured depository institution.
18
The FDIC has adopted final regulations implementing the risk-based premium
system mandated by the FDIC Improvement Act. Under the final regulations, which
cover the assessment periods commencing on and after January 1, 1994, insured
depository institutions are required to pay insurance premiums within a range of
23 cents per $100 of deposits to 31 cents per $100 of deposits depending on
their risk classification. To determine the risk-based assessment for each
institution, the FDIC will categorize an institution as well capitalized,
adequately capitalized or undercapitalized based on its capital ratios. A well
capitalized institution is one that has at least a 10% total risk-based capital
ratio, a 6% Tier 1 risk-based capital ratio and a 5% leverage capital ratio. An
adequately capitalized institution will have at least an 8% total risk-based
capital ratio, a 4% Tier 1 risk-based capital ratio and a 4% leverage capital
ratio. The FDIC will also assign each institution to one of three subgroups
based upon reviews by the institution's primary Federal or state regulator,
statistical analyses of financial statements and other information relevant to
evaluating the risk posed by the institution. As a result, the assessment rates
within each of three capital categories will be as follows (expressed as cents
per $100 of deposits):
SUPERVISORY SUBGROUP
----------------------
A B C
---- ---- ----
Well capitalized.............. 23 26 29
Adequately capitalized........ 26 29 30
Undercapitalized.............. 29 30 31
In addition, the FDIC has issued final regulations implementing provisions
of the FDIC Improvement Act relating to powers of insured state-chartered banks.
The regulations prohibit insured state-chartered banks from making equity
investments of a type, or in an amount, that are not permissible for national
banks. In general, equity investments include equity securities, partnership
interests and equity interests in real estate. Under the final regulations,
non-permissible investments must be divested by no later than December 19, 1996.
The FDIC has also issued final regulations which prohibit, subject to
certain specified exceptions, insured state-chartered banks from engaging as
principal in any activity not permissible for a national bank, without FDIC
approval. The regulations also provide that, subject to certain specified
exceptions, subsidiaries of insured state-chartered banks may not engage as
principal in any activity that is not permissible for a subsidiary of a national
bank, without FDIC approval.
The impact of the FDIC Improvement Act on the Company and the Bank is
uncertain, especially since many of the regulations promulgated thereunder have
only been recently adopted and certain of the law's provisions still need to be
defined through future regulatory action. Certain provisions, such as the
recently adopted real estate lending standards and the limitations on
investments and powers of state-chartered banks and the rules to be adopted
governing compensation, fees and other operating policies, may affect the way in
which the Bank conducts its business, and other provisions, such as those
relating to the establishment of the risk-based premium system and the
limitations on pass-through insurance, may affect the Bank's results of
operations.
CAPITAL ADEQUACY GUIDELINES
The Federal Reserve Board and the FDIC have issued guidelines to implement
risk-based capital requirements. The guidelines are intended to 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 assessing 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
U.S. government securities, to 100% for relatively high-risk assets, such as
loans and investments in fixed assets, premises and other real estate owned. The
aggregate dollar amount of each
19
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%, of which at least 4% must consist of Tier 1 capital.
Higher risk-based ratios are required for an insured depository institution to
be considered well capitalized under the prompt corrective action provisions of
the FDIC Improvement Act. See "Item 1. Business -- Effect of Governmental
Policies and Recent Legislation -- Federal Deposit Insurance Improvement Act of
1991 -- Prompt Corrective Regulatory Action."
A banking organization's qualifying total capital consists of two
components: Tier 1 capital (core capital) and Tier 2 capital (supplementary
capital). Tier 1 capital consists primarily of common stock, related surplus and
retained earnings, qualifying noncumulative perpetual preferred stock (plus, for
bank holding companies, qualifying cumulative perpetual preferred stock in an
amount up to 25% of Tier 1 capital) and minority interests in the equity
accounts of consolidated subsidiaries. Intangibles, such as goodwill, are
generally deducted from Tier 1 capital; however, purchased mortgage servicing
rights and purchase credit card relationships may be included, subject to
certain limitations. At least 50% of the banking organization's total regulatory
capital must consist of Tier 1 capital.
Tier 2 capital may consist of (i) the allowance for possible loan and lease
losses in an amount up to 1.25% of risk-weighted assets; (ii) cumulative
perpetual preferred stock and long-term preferred stock (which for bank holding
companies must have an original maturity of 20 years or more) and related
surplus; (iii) hybrid capital instruments (instruments with characteristics of
both debt and equity), perpetual debt and mandatory convertible debt securities;
and (iv) eligible term subordinated debt and intermediate-term preferred stock
with an original maturity of five years or more, including related surplus, in
an amount up to 50% of Tier 1 capital. The inclusion of the foregoing elements
of Tier 2 capital are subject to certain requirements and limitations of the
Federal banking agencies.
The Federal Reserve Board and the FDIC have also adopted a minimum leverage
ratio of Tier 1 capital to average total assets of 3% for institutions which
have been determined to be in the highest of five categories used by regulators
to rate financial institutions. This leverage ratio is only a minimum.
Institutions experiencing or anticipating significant growth or those with other
than minimum risk profiles are expected to maintain capital well above the
minimum level. All other institutions are required to maintain leverage ratios
of at least 100 to 200 basis points above the 3% minimum. Furthermore, higher
leverage ratios are required for an insured depository institution to be
considered well capitalized or adequately capitalized under the prompt
corrective action provisions of the FDIC Improvement Act. See "Item 1. Business
- -- Effect of Governmental Policies and Recent Legislation -- Federal Deposit
Insurance Corporation Improvement Act of 1991 -- Prompt Corrective Regulatory
Action."
As of December 31, 1993, the Company and the Bank had total risk-based
capital ratios of 8.15% and 8.33%, Tier 1 risk-based capital ratios of 6.00% and
7.02% and leverage ratios of 3.74% and 4.19%, respectively. See "Effect of
Governmental Policies and Recent Legislation -- Standards for Safety and
Soundness."
The Federal banking agencies have issued proposed rules, in accordance with
the FDIC Improvement Act, seeking public comment on methods for measuring
interest rate risk, and two alternative methods for determining what amount of
additional capital, if any, a bank may be required to have for interest rate
risk. The Company cannot yet determine whether such proposals will be adopted or
the impact of such regulations, if adopted, on the Company and the Bank.
The Federal banking agencies recently issued a statement advising that, for
regulatory purposes, federally supervised banks and savings associations should
report deferred tax assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," beginning in 1993.
SFAS No. 109 employs an asset and liability approach in accounting for
20
income taxes payable or refundable at the date of the financial statements as a
result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted tax law. See "Item 1. Business --
Effect of Governmental Policies and Recent Legislation." However, the Federal
banking agencies have advised limiting the amount of deferred tax assets that is
allowable in computing an institution's regulatory capital. Deferred tax assets
that can be realized from taxes paid in prior carry back years and from the
future reversal of taxable temporary differences would generally not be limited.
Deferred tax assets that can only be realized through future taxable earnings,
including the implementation of a tax planning strategy, would be limited for
regulatory capital purposes to the lesser of (i) the amount that can be realized
within one year of the quarter-end report date or (ii) 10% of Tier 1 capital.
The amount of deferred taxes in excess of this limit, if any, would be deducted
from Tier 1 capital and total assets in regulatory capital calculations.
CHANGES IN ACCOUNTING PRINCIPLES
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"). Under SFAS 114, a loan is impaired when
it is "probable" that a creditor will be unable to collect all amounts due
(i.e., both principal and interest) according to the contractual terms of the
loan agreement. The measurement of impairment may be based on (1) the present
value of the expected future cash flows of the impaired loan discounted at the
loan's original effective interest rate, (2) the observable market price of the
impaired loan or (3) the fair value of the collateral of a collateral-dependent
loan. The amount by which the recorded investment of the loan exceeds the
measure of the impaired loan is recognized by recording a valuation allowance
with a corresponding charge to provision for loan losses. Additionally, SFAS 114
eliminates the requirement that a creditor account for certain loans as
foreclosed assets until the creditor has taken possession of the collateral.
SFAS 114 is effective for financial statements issued for fiscal years beginning
after December 15, 1994. Earlier adoption is permitted. To comply with
regulatory requirements regarding SFAS No. 114 effective in 1993, in-substance
foreclosed assets are classified as loans in cases where the Company does not
have physical possession of the underlying collateral. Although the Company has
not yet adopted SFAS 114, management does not expect implementation to have a
material impact on the Company's financial position or results of operations.
In May 1993, the FASB issued Statement of Financial Standards No. 115
"Accounting For Certain Investments in Debt and Equity Securities" addressing
the accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
Those investments would be classified in three categories and accounted for as
follows: (i) debt and equity securities that the entity has the positive intent
and ability to hold to maturity would be classified as "held to maturity" and
reported at amortized cost; (ii) debt and equity securities that are held for
current resale would be classified as trading securities and reported at fair
value, with unrealized gains and losses included in operations; and (iii) debt
and equity securities not classified as either securities held to maturity or
trading securities would be classified as securities available for sale, and
reported at fair value, with unrealized gains and losses excluded from
operations and reported as a separate component of shareholders' equity. The
statement is effective for financial statements for calendar year 1994, but may
be applied to an earlier fiscal year for which annual financial statements have
not been issued. The Bank has both investment securities classified as
"available to maturity" and investment securities classified as "available for
sale". Securities classified as available for sale will be reported at their
fair value at the end of each fiscal quarter. Accordingly, the value of such
securities fluctuates based on changes in interest rates. Generally, an increase
in interest rates would result in a decline in the value of investment
securities held for sale, while a decline in interest rates would result in an
increase in the value of such securities. Therefore, the value of investment
securities available for sale and the Bank's shareholders' equity could be
subject to fluctuation based on changes in interest rates. As a consequence, the
Bank's capital levels for regulatory purposes could change based solely on
fluctuations in interest rates and fluctuations in the value of investment
securities available for sale. Such change could result in additional regulatory
21
restrictions under the prompt corrective actions provisions of the FDIC
Improvement Act of 1991 and various other laws and regulations that are based,
in part, on an institution's capital levels, including those dealing with the
risk related insurance premium system and brokered deposit restrictions. See
"Business -- Effect of Governmental Policies and Recent Legislation -- Federal
Deposit Insurance Corporation Improvement Act of 1991."
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
On August 10, 1993, President Clinton signed the Omnibus Budget
Reconciliation Act of 1993 (the "Reconciliation Act"). Some of the provisions in
the Reconciliation Act that may have an effect on the Company include the
following: (i) the corporate income tax rate was increased from 34.0% to 35.0%
for taxable income in excess of $10.0 million; (ii) mark-to-market rules for tax
purposes with regard to securities held for sale by the Company; (iii) beginning
in 1994 the amount of business meals and entertainment expenses that will be
disallowed will be increased from the current 20.0% disallowance to 50.0%
disallowance; (iv) club dues and lobbying expenses will no longer be deductible;
and (v) certain intangible assets, including goodwill, will be amortized over a
period of 15 years. Considering the Company's current tax situation, the Company
does not expect the provisions of the Reconciliation Act to have a material
effect on the Company.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law.
THE COMPANY
The Company, as a registered bank holding company, is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the "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 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 terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. 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 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. See "Item 1.
Business -- Effect of Governmental Policies and Recent Legislation -- Capital
Adequacy Guidelines."
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 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
22
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.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations or both. This doctrine has become known as the "source of strength"
doctrine. Although the United States Court of Appeals for the Fifth Circuit
found the Federal Reserve Board's source of strength doctrine invalid in 1990,
stating that the Federal Reserve Board had no authority to assert the doctrine
under the Act, the decision, which was not binding on federal courts outside the
Fifth Circuit, was recently reversed by the United States Supreme Court on
procedural grounds. The validity of the source of strength doctrine is likely to
continue to be the subject of litigation until definitively resolved by the
courts or by Congress.
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 subsidiaries
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 which is a member of the
Federal Reserve System, is subject to primary supervision, periodic examination
and regulation by the Federal Reserve Board and the Superintendent.
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, the
Bank, as is the case with all insured banks, pays a semi-annual statutory
assessment and is subject to the rules and regulations of the FDIC. See "Item 1.
Business -- Effect of Governmental Policies and Recent Legislation."
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Bank. 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
and locations of branch offices. Further, the Bank is required to maintain
certain levels of capital. See "Item 1. Business -- Effect of Governmental
Policies and Recent Legislation -- Capital Adequacy Guidelines."
RESTRICTIONS ON TRANSFERS OF FUNDS TO GUARDIAN BANCORP BY THE BANK
Guardian Bancorp is a legal entity separate and distinct from the Bank and
its subsidiary.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to Guardian Bancorp by the Bank. California law restricts the
amount available for cash dividends by
23
state-chartered banks to the lesser of retained earnings or the 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.
The Federal Reserve Board also has authority to prohibit the Bank from
engaging in what, in the Federal Reserve Board'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
Federal Reserve Board could assert that the payment of dividends or other
payments might, under some circumstances, be such an unsafe or unsound practice.
Further, the Federal Reserve Board has 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 and the restrictions that are or may be imposed under the prompt
corrective action provisions of the FDIC Improvement Act could limit the amount
of dividends which the Bank or the Company may pay. See "Item 1. Business --
Federal Deposit Insurance Corporation Improvement Act of 1991 -- Prompt
Corrective Regulatory Action and -- Capital Adequacy Guidelines" for a
discussion of these additional restrictions on capital distributions.
At December 31, 1993, Guardian Bancorp, on an unconsolidated parent company
only basis, had cash and cash equivalents available of approximately $402,000.
Guardian Bancorp retained approximately $1.2 million of the net proceeds
received in its rights offering completed in the first quarter of 1994 for
purposes of meeting its general corporate operating needs. Substantially all of
Guardian Bancorp's future revenues, on an unconsolidated basis, including funds
available for the payment of dividends and other operating expenses, are, and
will continue to be, primarily dividends paid by the Bank. However, the Bank has
entered into a written agreement with the Federal Reserve Bank of San Francisco
(the "Federal Reserve Bank") pursuant to which it has agreed not to pay any cash
dividends to Guardian Bancorp without the prior written approval of the Federal
Reserve Bank. See "Item 1. Business -- Supervision and Regulation -- Potential
and Existing Enforcement Actions."
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 investments 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 or in the
Company or to or in any other affiliate is 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 Guardian Bancorp and other
controlling persons of the Bank. Additional restrictions on transactions with
affiliates may be imposed on the Bank under the prompt corrective action
provisions of the FDIC Improvement Act. See "Item 1. Business -- Effect of
Governmental Policies and Recent Legislation -- Federal Deposit Insurance
Corporation Improvement Act of 1991 -- Prompt Corrective Regulatory Action."
POTENTIAL AND EXISTING ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Bank, and their
institution-affiliated parties, which include the Company, may be subject to
potential enforcement actions by the Federal Reserve Board, the Superintendent
and the FDIC for unsafe or unsound practices in conducting their businesses or
for violations of any law, rule, regulation or any condition imposed in writing
by the agency or any written agreement with the agency. Enforcement actions may
include the imposition of a conservator or receiver, the issuance of a
cease-and-desist order that can be judicially enforced, the termination of
insurance of deposits (in the case of the Bank), the imposition of civil money
penalties, the issuance of directives to increase capital, the issuance of
formal and informal agreements, the
24
issuance of removal and prohibition orders against institution-affiliated
parties and the imposition of restrictions and sanctions under the prompt
corrective action provisions of the FDIC Improvement Act. Additionally, a
holding company's inability to serve as a source of strength to its subsidiary
banking organizations could serve as an additional basis for a regulatory action
against the holding company.
On February 16, 1993, the Bank consented to the payment of $20,000 as
settlement of an assessed civil money penalty relating to alleged Call Report
filing deficiencies asserted by the Federal Reserve Board. The payment was made
solely for the purpose of settlement of the alleged deficiencies and to avoid
protracted or extended hearings, testimony or other proceedings, and it did not
constitute an admission by the Bank of any allegation made or implied by the
Federal Reserve Board. Management believes that the Federal Reserve Board does
not contemplate taking any further action in connection with this matter.
On October 14, 1992, the Federal Reserve Bank, acting under delegated
authority from the Federal Reserve Board, entered into a separate written
agreement with each of the Company and the Bank. These agreements require the
Company and the Bank to, among other things: (a) develop a plan and take steps
to monitor and decrease the level of the Bank's nonperforming or otherwise
classified assets; (b) establish policies designed to monitor the type, growth
and amounts of credit concentration; (c) develop or update, as necessary,
various operating and intercompany plans and procedures; (d) develop formalized
strategic operating and capital maintenance plans, including a plan to maintain
an adequate capital position; (e) maintain a loan loss reserve that is equal to
or greater than 1.7% of the Bank's total loans; (f) assess the duties and
remuneration of certain personnel; (g) take steps to correct or eliminate any
violations of law and to avoid them in the future; (h) refrain from declaring or
paying any cash dividends without the prior approval of the Federal Reserve
Bank; (i) refrain from incurring any debt, other than in the ordinary course of
business, at the holding company level without the prior approval of the Federal
Reserve Bank; (j) refrain from accepting or placing any brokered deposits except
in compliance with Sections 29 and 29A of the Federal Deposit Insurance Act; (k)
notify the Federal Reserve Bank at least 30 days before adding or replacing a
director or senior executive officer; (l) take steps to ensure that all reports
required to be filed accurately reflect the financial condition of the Company
or the Bank as of the date of such report; and (m) furnish quarterly written
progress reports to the Federal Reserve Bank detailing the actions taken to
comply with the terms of the agreements.
Both before and after entering into these agreements, management of the
Company and the Bank have taken various steps, including the recently completed
capital raising efforts, that are designed to facilitate compliance with the
terms thereof. However, compliance with the terms of the agreements will be
determined by the Federal Reserve Bank during subsequent examinations of the
Company and the Bank. In the event that the Federal Reserve Bank determines that
the Company or the Bank is not in compliance with any of the terms of the
agreements, it would have available to it various remedies, including taking one
or more of the enforcement actions discussed above.
ITEM 2. PROPERTIES.
All of the Company's offices are occupied under leases that expire on
various dates through March 2003, and, in the case of the Company's principal
executive and the Bank's head office, include options to renew. For the years
ended December 31, 1993, 1992 and 1991, rental expense under these leases
aggregated approximately $921,000, $1.6 million and $1.4 million, respectively.
Guardian Trust subleases its space from the Company. Management believes that
its existing facilities are adequate for its present purposes. See Note 13 to
the Company's Consolidated Financial Statements of the Registrant's Annual
Report to shareholders for the year ended December 31, 1993 (the "1993 Annual
Report") and incorporated herein for additional information relating to lease
rental expense and commitments. During the first quarter of 1993, the Company
renegotiated the lease for the Company's principal executive office and the
Bank's head office. The renegotiated lease will reduce the base rent expense for
that space over the next nine years by an aggregate amount of approximately $2.3
million.
25
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to routine litigation involving various aspects of
its business, none of which, in the opinion of management, will have a material
adverse impact on the consolidated financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is set forth under the caption "Common
Stock Price Range and Dividend Policy" at page 52 of the Registrant's 1993
Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is set forth under the caption
"Selected Financial Data" at page 8 of the Registrant's 1993 Annual Report and
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" at pages 9 through 27 of the Registrant's 1993 Annual Report and
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is set forth in the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year ("Proxy Statement") under the
captions entitled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" and incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the Registrant's Proxy
Statement under the caption entitled "Executive Compensation" and incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth in the Registrant's Proxy
Statement under the caption entitled "Beneficial Ownership of Common Stock" and
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
The information required by this item is set forth in the Registrant's Proxy
Statement under the caption entitled "Executive Compensation -- Transactions
with Management" and incorporated herein by reference.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements and Schedules
PAGE
REFERENCES TO
ANNUAL REPORT
TO
SHAREHOLDERS*
---------------
Consolidated Balance Sheet as of December 31, 1993 and 1992.................. 28
Consolidated Statement of Operations for the years ended December 31, 1993,
1992 and 1991.............................................................. 29
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991........................................... 30
Consolidated Statement of Cash Flows for the years ended December 31, 1993,
1992 and 1991.............................................................. 31
Notes to Consolidated Financial Statements................................... 32 to 50
Independent Auditors' Report................................................. 51
<FN>
--------------------------------
*The pages of the Registrant's 1993 Annual Report listed above are
incorporated herein by reference in response to Item 8 of this report.
Except for these pages and the pages referred to in Items 1, 2, 5, 6
and 7 of this report, the Registrant's 1993 Annual Report shall not be
deemed filed as a part of this report and is not filed herewith.
2. No financial statement schedules are included in this report on the
basis that they are either inapplicable or the information required to be
set forth therein is contained in the financial statements filed herewith.
3. Exhibits
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------
3.1 --Articles of Incorporation, as amended(3)
3.2 --Bylaws, as amended(3)
4.1 --Specimen Common Stock Certificate
4.2 --Guardian Bancorp 1984 Stock Incentive Plan, As Amended and Restated
(May 1988)(10)
4.2(a) --Amendment No. 1 to 1984 Stock Incentive Plan, As Amended and
Restated (May 1988)(7)
4.2(b) --Amendment No. 2 to 1984 Stock Incentive Plan, As Amended and
Restated (May 1988)(10)
4.3 --Form of Incentive Stock Option Agreement (1990) for 1984 Stock
Incentive Plan(10)
4.4 --Form of Non-Qualified Stock Option Agreement (1990) for 1984 Stock
Incentive Plan(10)
4.5 --Reserved
4.6 --Reserved
4.7 --Guardian Bancorp Employee Stock Ownership Plan(6)
4.8 --Guardian Bancorp Employee Stock Ownership Trust, dated May 25,
1988(6)
4.9 --Guardian Bancorp Deferred Compensation Plan(6)
4.10 --Guardian Bancorp Deferred Compensation Trust Agreement(6)
4.11 --Subordinated Debenture Purchase Agreement, dated December 22,
1988(6)
4.12 --Guardian Bank 11% Mandatory Convertible Subordinated Debenture due
1995(6)
4 .13 --Warrant to Purchase Common Stock, dated December 30, 1988(6)
27
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------
4.14 --Guardian Bancorp 1990 Stock Incentive Plan, As Amended and Restated
(February 1990)(9)
4.14(a) --Amendment No. 1 to 1990 Stock Incentive Plan, As Amended and
Restated (February 1990)(10)
4.15 --Form of Incentive Stock Option Agreement for 1990 Stock Incentive
Plan(8)
4.16 --Form of Non-Qualified Stock Option Agreement for 1990 Stock
Incentive Plan(8)
4.17 --Guardian Bancorp 1990 Deferred Compensation Plan (As Amended through
December 1990)(10)
4.18 --Guardian Bancorp 1990 Deferred Compensation Plan Trust Agreement(10)
4.19 --Form of Subscription Right Certificate(12)
4.20 --Warrant Agreement and Form of Warrant(12)
10.1 --Lease between Guardian Bancorp and Shuwa Investments Corporation,
dated February 23, 1993, for ground floor and office space in Los
Angeles, California(11)
10.2 --Reserved
10.3 --Reserved
10.4 --Employment Agreement between the Registrant and Paul M. Harris,
dated October 20, 1992(11)
10.5 --Settlement Agreement and Mutual General Release among the
Registrant, Guardian Bank, Guardian Trust Co. and Arthur W. Tate
dated November 12, 1993.
10.6 --Employment Agreement between the Registrant and Vincent A. Bell,
dated October 20, 1988(11)
10.7 --Settlement Agreement and Mutual General Release among the
Registrant, Guardian Bank and Ronald W. Holloway dated November 26,
1993
10.8 --Form of Indemnification Agreement entered into with each Executive
Officer and Director of the Registrant Company(6)
10.9 --Form of Indemnification Agreement entered into with each director
and executive officer of Guardian Bank(6)
10.10 --Lease between Centrelake Plaza Associates and Guardian Bancorp,
dated as of October 11, 1989, for office space in Ontario,
California(8)
10.11 --Form of Dealer Manager Agreement(12)
10.12 --Form of Soliciting Dealer Agreement(12)
10.13 --Form of Standby Stock Purchase Agreement(12)
10.14 --Form of Information Agent Agreement(12)
10.15 --Form of Subscription Agent Agreement(12)
10.16 --Form of Commitment(12)
10.17 --Form of Agreement Not to Sell(12)
13.1 --Annual Report to Shareholders for the year ended December 31, 1993
(parts not specifically incorporated by reference are filed for
informational purposes and are not filed herewith)
21.1 --Subsidiaries of the Registrant
23.1 --Accountants' Consent
<FN>
----------------------------
1. Reserved.
2. Reserved
3. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, filed with the Commission
on March 27, 1992 (Commission File No. 1-9757), and incorporated
herein by reference.
4. Reserved.
5. Reserved.
28
6. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1988, filed with the Commission
on March 29, 1989 (Commission File No. 1-9757), and incorporated
herein by reference.
7. Reserved.
8. This exhibit is contained in the Registrant's Registration Statement
on Form S-2 filed with the Commission on December 18, 1989 and amended
January 26, 1990 (Commission File No. 33-32611), and incorporated
herein by reference.
9. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989, filed with the Commission
on March 16, 1990 (Commission File No. 1-9757), and incorporated
herein by reference.
10. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, filed with the Commission
on March 29, 1991 (Commission File No. 1-9757), and incorporated
herein by this reference.
11. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992, filed with the Commission
on March 27, 1993 (Commission File No. 1-9757) and incorporated herein
by reference.
12. This exhibit is contained in the Registrant's Registration Statement
on Form S-2 filed with the Commission on October 6, 1993 and amended
on November 22, 1993, December 10, 1993 and December 16, 1993 (File
No. 33-70032) and incorporated herein by reference.
Executive Compensation Plans and Arrangements
The following compensation plans and arrangements are filed as
exhibits to this Annual Report on Form 10-K: Guardian Bancorp 1984 Stock
Option Plan, as amended and restated and further amended, and the Form of
Stock Option Agreements thereunder, Exhibits 4.2, 4.2(a), 4.2(b), 4.3 and
4.4; Guardian Bancorp Employee Stock Ownership Plan, Exhibit 4.7;
Guardian Bancorp Employee Stock Ownership Trust, dated May 25, 1988,
Exhibit 4.8; Guardian Bancorp Deferred Compensation Plan, Exhibit 4.9;
Guardian Bancorp Deferred Compensation Trust Agreement, Exhibit 4.10;
Guardian Bancorp 1990 Stock Incentive Plan, as amended and restated and
further amended, and the Form of Stock Option Agreements thereunder,
Exhibits 4.14, 4.14(a), 4.15 and 4.16; Guardian Bancorp 1990 Deferred
Compensation Plan, Exhibit 4.17; Guardian Bancorp 1990 Deferred
Compensation Plan Trust Agreement, Exhibit 4.18; Employment Agreement
between the Registrant and Paul M. Harris, dated October 20, 1992,
Exhibit 10.4; Settlement Agreement and Mutual General Release among the
Registrant, Guardian Bank, Guardian Trust Co. and Arthur W. Tate dated
November 12, 1993, Exhibit 10.5; Employment Agreement between the
Registrant and Vincent A. Bell, dated October 20, 1988, Exhibit 10.6;
Settlement Agreement and Mutual General Release among the Registrant,
Guardian Bank and Ronald W. Holloway dated November 26, 1993, Exhibit
10.7.
(b) Reports on Form 8-K
Inapplicable
(c) Exhibits Required by Item 601 of Regulation S-K
See Item 14(a)(3) above.
(d) Additional Financial Statements
Inapplicable
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as
29
follows, which undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8, Commission File Nos. 2-96894 (filed April
5, 1985 and amended by post-effective amendment dated May 24, 1988), 33-22371
(filed June 8, 1988) and 33-35012 (filed May 30, 1990):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
30
SIGNATURES
Pursuant to the requirement 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.
GUARDIAN BANCORP
Date: March 29, 1994 By: /s/ PAUL M. HARRIS
--------------------------------------
Paul M. Harris
CHIEF EXECUTIVE OFFICER
By: /s/ JON D. VAN DEUREN
--------------------------------------
Jon D. Van Deuren
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
------------------------------------------- Director March , 1994
Donald J. Bohana
/s/ MARILYN M. COHEN
------------------------------------------- Director March 29, 1994
Marilyn M. Cohen
/s/ HOWARD C. FLETCHER III Director
------------------------------------------- and President March 29, 1994
Howard C. Fletcher III
/s/ ROBERT D. FRANDZEL
------------------------------------------- Director March 29, 1994
Robert D. Frandzel
/s/ PAUL M. HARRIS Director and
------------------------------------------- Chief Executive Officer March 29, 1994
Paul M. Harris
/s/ JAMES F. LEWIN
------------------------------------------- Director March 29, 1994
James F. Lewin
/s/ SAUL SOCOLOSKE
------------------------------------------- Director March 29, 1994
Saul Socoloske
31
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
--------- -------------------------------------------------------
3.1 --Articles of Incorporation, as amended(3)
3.2 --Bylaws, as amended(3)
4.1 --Specimen Common Stock Certificate
4.2 --Guardian Bancorp 1984 Stock Incentive Plan, As
Amended and Restated (May 1988)(10)
4.2(a) --Amendment No. 1 to 1984 Stock Incentive Plan, As
Amended and Restated (May 1988)(7)
4.2(b) --Amendment No. 2 to 1984 Stock Incentive Plan, As
Amended and Restated (May 1988)(10)
4.3 --Form of Incentive Stock Option Agreement (1990) for
1984 Stock Incentive Plan(10)
4.4 --Form of Non-Qualified Stock Option Agreement (1990)
for 1984 Stock Incentive Plan(10)
4.5 --Reserved
4.6 --Reserved
4.7 --Guardian Bancorp Employee Stock Ownership Plan(6)
4.8 --Guardian Bancorp Employee Stock Ownership Trust,
dated May 25, 1988(6)
4.9 --Guardian Bancorp Deferred Compensation Plan(6)
4.10 --Guardian Bancorp Deferred Compensation Trust
Agreement(6)
4.11 --Subordinated Debenture Purchase Agreement, dated
December 22, 1988(6)
4.12 --Guardian Bank 11% Mandatory Convertible Subordinated
Debenture due 1995(6)
4.13 --Warrant to Purchase Common Stock, dated December 30,
1988(6)
4.14 --Guardian Bancorp 1990 Stock Incentive Plan, As
Amended and Restated (February 1990)(9)
4.14(a) --Amendment No. 1 to 1990 Stock Incentive Plan, As
Amended and Restated (February 1990)(10)
4.15 --Form of Incentive Stock Option Agreement for 1990
Stock Incentive Plan(8)
4.16 --Form of Non-Qualified Stock Option Agreement for 1990
Stock Incentive Plan(8)
4.17 --Guardian Bancorp 1990 Deferred Compensation Plan (As
Amended through December 1990)(10)
4.18 --Guardian Bancorp 1990 Deferred Compensation Plan
Trust Agreement(10)
4.19 --Form of Subscription Right Certificate(12)
4.20 --Warrant Agreement and Form of Warrant(12)
10.1 --Lease between Guardian Bancorp and Shuwa Investments
Corporation, dated February 23, 1993, for ground floor
and office space in Los Angeles, California(11)
10.2 --Reserved
10.3 --Reserved
10.4 --Employment Agreement between the Registrant and Paul
M. Harris, dated October 20, 1992(11)
10.5 --Settlement Agreement and Mutual General Release among
the Registrant, Guardian Bank, Guardian Trust Co. and
Arthur W. Tate, dated November 12, 1993
10.6 --Employment Agreement between the Registrant and
Vincent A. Bell, dated October 20, 1988(11)
10.7 --Settlement Agreement and Mutual General Release among
the Registrant, Guardian Bank and Ronald W. Holloway,
dated November 26, 1993
10.8 --Form of Indemnification Agreement entered into with
each Executive Officer and Director of the Registrant
Company(6)
10.9 --Form of Indemnification Agreement entered into with
each director and executive officer of Guardian Bank(6)
10 .10 --Lease between Centrelake Plaza Associates and
Guardian Bancorp, dated as of October 11, 1989, for
office space in Ontario, California(8)
EXHIBIT
NO. DESCRIPTION
--------- -------------------------------------------------------
10.11 --Form of Dealer Manager Agreement(12)
10.12 --Form of Soliciting Dealer Agreement(12)
10.13 --Form of Standby Stock Purchase Agreement(12)
10.14 --Form of Information Agent Agreement(12)
10.15 --Form of Subscription Agent Agreement(12)
10.16 --Form of Commitment(12)
10.17 --Form of Agreement Not to Sell(12)
13.1 --Annual Report to Shareholders for the year ended
December 31, 1993 (parts not specifically incorporated
by reference are filed for informational purposes and
are not filed herewith)
21.1 --Subsidiaries of the Registrant
23.1 --Accountants' Consent
<FN>
----------------------------
1. Reserved.
2. Reserved.
3. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, filed with the Commission
on March 27, 1992 (Commission File No. 1-9757), and incorporated
herein by reference.
4. Reserved.
5. Reserved.
6. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1988, filed with the Commission
on March 29, 1989 (Commission File No. 1-9757), and incorporated
herein by reference.
7. Reserved.
8. This exhibit is contained in the Registrant's Registration Statement
on Form S-2 filed with the Commission on December 18, 1989 and amended
January 26, 1990 (Commission File No. 33-32611), and incorporated
herein by reference.
9. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989, filed with the Commission
on March 16, 1990 (Commission File No. 1-9757), and incorporated
herein by reference.
10. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, filed with the Commission
on March 29, 1991 (Commission File No. 1-9757), and incorporated
herein by this reference.
11. This exhibit is contained in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992, filed with the Commission
on March 27, 1993 (Commission File No. 1-9757) and incorporated herein
by reference.
12. This exhibit is contained in the Registrant's Registration Statement
on Form S-2 filed with the Commission on October 6, 1993 and amended
on November 22, 1993, December 10, 1993 and December 16, 1993 (File
No. 33-70032) and incorporated herein by reference.