SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: DECEMBER 31, 1996
Commission File Number: 0-27784
HUMBOLDT BANCORP
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 93-1175446
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
701 FIFTH STREET
EUREKA, CALIFORNIA
(Address of principal executive offices)
95501
(Zip Code)
(707) 445-3233
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock-No
Par Value
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 twelve months (or for such shorter period that the
registrant was required to file such reports); and 2) has been subject to such
filing requirements for the past 90 days.
X Yes No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation 5(b), and no disclosure will be contained, to the best
of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB.
Issuer's revenues for the most recent fiscal year were: $22,309,000
Aggregate Market Value of the voting stock held by non-affiliates of the
registrant as of December 31, 1996: $24,796,000
Number of shares of common stock outstanding at December 31, 1996, is:
1,410,767
Documents incorporated by reference: NONE
<PAGE>2
PART 1
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
On November 10, 1995, the shareholders of Humboldt Bank (the "Bank")
approved a Plan of Reorganization by and between the Bank, Humboldt Merger
Company and Humboldt Bancorp (the "Company") whereby the Bank became a wholly
owned subsidiary of the Company. The reorganization became effective January
2, 1996. The sole business operation of the Company is conducted through its
wholly owned subsidiary, Humboldt Bank. The following discussion, therefore,
although presented on a consolidated basis, analyzes primarily the financial
condition and results of operations of the Bank for the twelve month period
ended December 31, 1996. Previously, the Bank filed its periodic reports under
the Securities Exchange Act of 1934 with the Federal Reserve Board.
Humboldt Bank (the "Bank") was incorporated as a California state-licensed
bank on March 13, 1989, and began its operations in the Eureka/Humboldt area of
California on September 13, 1989. The Bank is a member of the Federal Reserve
System ("FRS") and its deposits are insured to the maximum amount permitted by
law by the Federal Deposit Insurance Corporation ("FDIC").
On January 22, 1993, the Board of Directors of the Bank approved the
Bank's acquisition of the Arcata and McKinleyville, California branches (the
"HomeFed Branches"), previously owned and operated by HomeFed Bank, F.A., San
Diego, California ("HomeFed"). The two branches were acquired directly from
U.S. Bank of California ("U.S. Bank") pursuant to an agreement, dated January
22, 1993, between Humboldt Bank and U.S. Bank (the "Agreement") simultaneously
with U.S. Bank's acquisition of 18 HomeFed branches from the Resolution Trust
Corporation ("RTC"). The Branches had total deposits of approximately $57
million at the time of acquisition.
Under the terms of the Agreement, Humboldt Bank agreed to acquire the
HomeFed Branches from U.S. Bank for a purchase price of $1.2 million plus any
additional amounts required to be paid under the Branch Purchase and Assumption
Agreement and a related indemnity agreement entered into between U.S. Bank and
RTC.
In connection with its approval of the acquisition of the HomeFed
Branches, the Federal Reserve Bank of San Francisco relied on the Bank's
commitment to raise at least $1 million of equity capital, $500,000 of which
was guaranteed by the Directors of the Bank.
On September 22, 1993, the Bank completed the required stock offering by
selling 186,155 shares of common stock at $13.00 per share totaling $2,420,000,
less expenses incurred in the sale of $17,000, for a net capital infusion of
$2,403,000.
On June 15, 1994, the Board of Directors of the Bank authorized management
to enter into negotiations for the acquisition of the Loleta, Willow Creek and
Weaverville, California branches (the "U.S. Bank Branches") previously owned
and operated by U.S. Bank of California ("U.S. Bank"). The Board of Directors
voted final approval of the purchase on January 18, 1995, and the three
branches were acquired on February 9, 1995, directly from U.S. Bank, pursuant
to an agreement dated August 17, 1994, between Humboldt Bank and U.S. Bank (the
<PAGE>3
"U.S. Bank Agreement"). The U.S. Bank Branches had total deposits of
approximately $26 million and total loans of approximately $1.8 million at the
time of acquisition.
Under the terms of the U.S. Bank Agreement, the Bank agreed to acquire the
U.S. Bank Branches from U.S. Bank for a negotiated deposit premium based upon
average deposits excluding all Public Fund accounts, all Jumbo accounts and
interbranch accounts for the three (3) calendar months preceding the closing
date.
On December 5, 1994, the Bank completed a stock offering by selling
185,715 shares of common stock at $14.00 per share totaling $2,600,000, less
expenses incurred in the sale of $50,000 for a net capital infusion of
$2,550,000. The funds were used to increase the Bank's capital levels and to
facilitate the U.S. Bank Branch purchase at a cost of approximately $787,000.
HUMBOLDT BANK
The Bank is locally owned and operated and its primary service area is the
communities of Northern California. The Bank's business is primarily focused
on servicing the banking needs of these communities and its marketing strategy
stresses its local ownership and commitment to serve the banking needs of
individuals living and working in the Bank's primary service areas and local
businesses, including retail, professional and real estate related enterprises
in those service areas. The Bank is not licensed by the California
Superintendent of Banks (the "Superintendent") as a trust company and,
therefore, it may not provide trust services.
The Bank offers a broad range of services to individuals and businesses
with an emphasis upon efficiency and personalized attention. The Bank provides
a full line of consumer services, and also offers specialized services to small
businesses, middle market companies, and professional firms, such as courier
services and appointment banking. The Bank offers personal and business
checking and savings accounts (including individual interest-bearing negotiable
orders of withdrawal ("NOW") accounts and/or accounts combining checking and
savings accounts with automatic transfers), IRA and Keogh accounts, time
certificates of deposit and direct deposit of social security, pension and
payroll checks. It also makes available commercial, construction, accounts
receivable, inventory, automobile, home improvement, real estate, office
equipment, leasehold improvement, lease receivable financing and other consumer
loans (including overdraft protection lines of credit), drafts and standby
letters of credit, credit card activities to both individuals and merchants,
and travelers' checks (issued by an independent entity).
The principal office of the Bank is located at 701 Fifth Street, Eureka,
California 95501, Phone (707) 445-3233. The Bank has branches at: 1360 Main
Street, Fortuna, California 95540, Phone (707) 725-7474; 1063 G Street, Arcata,
California 95521, Phone (707) 822-5165; 2095 Central Avenue, McKinleyville,
California 95519, Phone (707) 839-3281; 358 Main Street, Loleta, California
95551, Phone (707) 733-5731; 39171 Highway 299, Willow Creek, California 95573,
Phone (916) 629-2175; 409 Main Street, Weaverville, California 96093, Phone
(916) 623-5576; and a Supermarket Office at West Highway 299 & Martin Road,
Weaverville, California 96093, Phone (916) 623-6733. The Bank has a Lease,
SBA, Loan Supervision and Credit Review Department at 612 G Street, Eureka,
California 95501, Phone (707) 269-3166 and a Merchant BankCard, Credit Card
Issuing and Heritage Club Department at 605 K Street, Eureka, California 95501,
Phone (707) 269-3222. The Bank has an Administration Department and
Alternative Investment Department at 701 Fifth Street, 2nd Floor, Eureka,
California 95501, Phone (707) 445-3233 as well as a Central Services Department
<PAGE>4
in the basement at this location. The Bank also leases premises at 523 Fifth
Street, Eureka, California 95501 and has donated as a community service the use
of this office to the Redwood Coast Dixieland Jazz Festival for their
headquarters office.
SUBSEQUENT EVENTS
BANCORP SUBSIDIARY: In January 1997, an application was filed with the
regulatory agencies to establish a new subsidiary of the Bancorp, Humboldt Bank
Nevada, which is to be formed as a limited purpose bank issuing secured credit
cards nationwide. The Bank began issuing secured credit cards during 1996
until this new subsidiary is formed. These secured credit card balances
totaled $753,000 at December 31, 1996.
BRANCH PURCHASE: During December 1996, the Bank entered into an agreement
with First Nationwide Bank for the acquisition of its Garberville branch. The
acquisition is subject to approval by the regulatory agencies. If approval is
obtained, the branch will be acquired no later than May 31, 1997. The branch
had total deposits of approximately $24 million and total loans of
approximately $58,000 as of October 31, 1996. The Bank will pay to acquire the
branch a negotiated premium based upon the aggregate amount of the deposits
assumed. The Bank will also acquire fixtures and equipment with a net book
value of approximately $81,000 and will assume a lease on the bank premises.
LEASING COMPANY: The Bank, along with another bank, have formed a
California corporation, Bancorp Financial Services, for the purpose of
operating an equipment leasing company. In January 1997, the Bank contributed
capital totaling $2,000,000 for a 50% interest in this corporation.
SAVINGS AND DEPOSIT ACTIVITIES
The Bank offers customary banking services such as personal and business
checking, savings accounts, time certificates of deposit, IRA and Keogh
accounts. Most of the Bank's deposits are obtained from commercial businesses,
professionals and individuals with high income or net worth. At December 31,
1996, the Bank had a total of 21,205 accounts, consisting of demand deposit
accounts with an average balance of approximately $10,478; savings with an
average balance of approximately $1,764; time certificates of $100,000 or more
with an average balance of approximately $138,387; and other time deposits with
an average balance of approximately $19,214. The Bank has not obtained any
deposits through deposit brokers and has no present intention of using brokered
deposits as a source of funding. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Deposits."
<PAGE>5
LENDING ACTIVITIES
The Bank concentrates its lending activities in consumer loans, commercial
loans, lease receivable loans, real estate construction loans and other forms
of real estate loans made primarily to businesses and individuals; it has no
foreign loans. The net loan portfolio as of December 31, 1996, totaled $142.8
million, which represented 74.1% of total deposits and 66.5% of total assets.
The table below shows the mix of the loan portfolio.
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Commercial, Industrial & Ag 20,559 14.1% 16,284 14.1% 13,950 14.8%
Real Estate-Construction & Land Dev 21,205 14.5% 15,874 13.7% 15,273 16.2%
Real Estate-Residential 1-5 31,456 21.6% 21,156 18.3% 15,964 17.0%
Real Estate-Commercial & Ag 61,030 41.9% 54,879 47.4% 42,457 45.2%
Lease Financing 3,168 2.2% 3,974 3.4% 4,310 4.6%
Consumer Loans 4,529 3.1% 3,395 2.9% 2,007 2.1%
State and Political Loans 2,875 2.0% 0 0 0 0
Other 850 0.6% 159 0.2% 91 0.1%
Total Gross Loans 145,672 100% 115,721 100% 94,052 100%
Less Deferred Loan Fees (765) <616> <582>
Less Allowance For Loan Losses (2,146) <1,868> <1,331>
Total Net Loans 142,761 113,237 92,139
Loans Held for Sale 63 1,880 322
Total Loans and Leases 142,824 115,117 92,461
</TABLE>
COMMERCIAL LOANS
As of December 31, 1996, the Bank had outstanding commercial, industrial
and agricultural loans totaling $20.6 million, representing 14.1% of the Bank's
gross loan portfolio. The Bank lends primarily to businesses and to
professionals and other individuals located in the communities of Northern
California. The Bank offers a variety of commercial lending services,
including revolving lines of credit, working capital loans, equipment
financing, letters of credit and inventory financing. Typically, commercial
loans are floating rate obligations and are priced based on the Bank's
reference rate.
Commercial loans are typically secured by several types of collateral,
including qualifying accounts receivable, equipment, inventory, and real
estate. No single commercial account customer accounted for more than 3.2% of
total outstanding loans at December 31, 1996.
<PAGE>6
REAL ESTATE LOANS
As of December 31, 1996, the Bank had outstanding real estate secured
construction and land development loans totaling $21.2 million, representing
14.5% of the Bank's gross loan portfolio. The Bank makes loans to finance
construction of residential, commercial and industrial properties and to
finance land development. At December 31, 1996, the Bank had outstanding real
estate secured non-farm non-residential loans totaling $59.7 million and loans
secured by farmland totaling $1.3 million. The Bank makes loans to owner
occupied businesses for a variety of purposes including working capital,
refinance, purchase, etc.
REAL ESTATE BANKING OPERATIONS
The Bank is engaged in originating real estate secured loans for sale to
institutional investors in the secondary market. The Bank also generated fee
income by servicing mortgage loans.
LOAN ORIGINATION
The Bank's real estate secured loan origination activities have been
focused on one-to-four family, owner-occupied residences in California.
Underwriting criteria established by investors in adjustable and fixed rate
single-family residential loans generally include the following: Maturities of
15 to 30 years, a loan-to-value ratio no greater than 80%, the liquidity of the
borrower's other assets and the borrower's ability to service the debt out of
income. Interest rates on adjustable rate loans are adjusted annually
primarily on the basis of the One-Year Treasury Constant Maturity Index.
Except for the amount of the loan, the underwriting standards of the investors
generally conform to certain requirements established by the Federal National
Mortgage Corporation ("FNMA"). Loans sold in the secondary market are
generally secured by a first deed of trust. Real estate loans pending sale at
December 31, 1996, totaled $63 thousand. The Bank may also elect, from time to
time, to portfolio loans secured by single-family residences. The total of
portfolio real estate loans was $12.2 million at December 31, 1996.
LOAN SERVICING
The Bank may retain the servicing on loans sold to institutional
investors, thereby generating ongoing servicing revenues. The Bank's mortgage
and SBA servicing portfolio was $101.4 million at December 31, 1996. Loan
servicing includes collection and remitting loan payments, accounting for
principal and interest, holding escrow (impound) funds for payment of taxes and
insurance, making inspections as required of the mortgage premises, collecting
amounts from delinquent mortgages, supervising foreclosures in the event of
unremedied defaults and generally administering the loans for investors to whom
they have been sold. Management believes that the quality of its loan
servicing capability is a factor which permits it to retain the servicing on
loans it sells in the secondary market.
The Bank received fees for servicing mortgage loans, ranging generally
from .250% to .375% per annum on the declining principal balances of the loans.
The average service fee collected by the Bank was .250% for the year ended
December 31, 1996. Servicing fees are collected and retained by the Bank out
of monthly mortgage payments. The Bank's servicing portfolio is subject to
reduction by reason of normal amortization and prepayment or liquidation of
outstanding loans. Approximately 15.0% of the loans serviced by the Bank have
outstanding balances of greater than $150,000, and approximately 1.2% are
adjustable rate mortgages (ARMs).
<PAGE>7
The Bank accounts for revenue from the sale of loans where servicing is
retained in conformity with the requirements of Statements of Financial
Accounting Standards No. 65 and the Financial Accounting Standards Board
Emerging Issues Task Force Issue No. 88-11. Gains and losses are recognized at
the time of sale by comparing sales price with carrying value. A premium
results when the interest rate on the loan, adjusted for a normal service fee,
exceeds the pass-through yield to the buyer.
In general, the value of the Bank's loan servicing portfolio may be
adversely affected as mortgage interest rates decline and loan prepayments
increase. It is anticipated that income generated from the Bank's loan
servicing portfolio will also decline in such an environment. This negative
effect on the Bank's income may be offset somewhat by a rise in origination and
servicing income attributable to new loan originations, which historically have
increased in periods of low mortgage interest rates.
The following table sets forth the dollar amount of the Bank's mortgage
loan servicing portfolio. Although the Bank intends to continue to increase
its servicing portfolio, such increases will depend on market conditions and
the availability of capital.
DECEMBER 31, 1996
(In thousands)
Loan Servicing Portfolio:
Loans originated by the Bank and sold: $98.3 Million
Loans originated by the Bank but awaiting funding: $63.0 Thousand
The Bank also services a portfolio of SBA loans which is anticipated to
increase during 1997.
SBA Loans originated and serviced by Bank: $3.1 Million
For the most part, the SBA loans are tied to Prime and as a result they
are not as subject to early payoff as a result of declining rates as real
estate loans are.
LEASE RECEIVABLE LOANS
As of December 31, 1996, the Bank had outstanding Lease Receivable Loans
totaling $3.2 million representing 2.2% of the Bank's Gross Loan Portfolio.
The Bank makes Lease Receivable loans to finance credit card swipe machines.
The dollar amount of each Lease is usually under $2,000.00 and the term is
approximately four years. The Bank may also generate leases which may be sold
to other financial institutions on a non-recourse basis.
CONSUMER LOANS
As of December 31, 1996, Consumer loans including loans to individuals,
dealer auto loans, business customers, credit cards and related plans totaled
$4.5 million or 3.1% of the Bank's gross loan portfolio. Loans to purchase
automobiles were $1.5 million or 33.3%, dealer auto loans were $0.3 million or
6.7% and credit cards and related plans were $2.2 million or 48.9% of total
consumer loans at December 31, 1996. The remainder includes mobile home and
other personal loans totaling $0.5 million or 11.1%.
<PAGE>8
STATE AND POLITICAL LOANS
As of December 31, 1996, the Bank had outstanding State and Political
Subdivision Loans totaling $2.9 million representing 2.0% of the Bank's gross
loan portfolio. The Bank makes loans to State and Political Subdivisions to
finance equipment, water system improvements and purchase land for sewage
treatment.
OTHER LOANS
As of December 31, 1996, the Bank had outstanding other loans totaling
$0.9 million. These loans consist mainly of overdrafts of less than 30 days
duration.
BANKING SERVICES
To retain existing customers and attract new customers, the Bank offers a
broad range of services, including automated teller machines, credit card and
merchant bankcard services, ACH services and daily courier services. In
addition, the Bank maintains close relationships with its customers by
providing direct access to senior management during and after normal business
hours, rapid response to customer requests and specialized market area
knowledge of the communities in Northern California.
HUMAN RESOURCES
At December 31, 1996, the Bank employed a total of 175 full time
equivalent employees, consisting of 145 salaried persons and 30 hourly persons.
COMPETITION
The Bank actively competes for all types of deposits and loans with other
banks and financial institutions located in its service area. Increased
deregulation of financial institutions has increased competition. Many of the
Bank's competitors have greater financial resources and facilities than the
Bank and may offer certain services, such as trust services, that the Bank does
not presently offer. In addition, California legislation that became effective
on January 1, 1991 permits nationwide interstate banking on a reciprocal basis.
The Bank believes that this legislation will further increase competition as
out-of-state financial institutions enter the California market.
The Bank's strategy for meeting competition has been to maintain a sound
capital base and liquidity position, employ experienced management, and
concentrate on particular segments of the market, particularly businesses and
professionals, by offering customers a degree of personal attention that, in
the opinion of management, is not generally available through the Bank's larger
competitors.
REGULATION OF HUMBOLDT BANCORP
Humboldt Bancorp will be required to obtain the prior approval of the FRB
before it may acquire all or substantially all of the assets of any bank, or
ownership or control of voting securities of any bank if, after giving effect
to such acquisition, Humboldt Bancorp would own or control more than five
percent (5%) of the voting shares of the Bank.
<PAGE>9
Furthermore, Humboldt Bancorp will be prohibited from engaging in or
acquiring, directly or indirectly, control of more than five percent (5%) of
the voting shares of any company which is engaged in nonbanking activities.
One of the exceptions to this prohibition is the acquisition of shares of a
company the activities of which the FRB has determined to be so closely related
to banking, or managing or controlling banks, as to be a proper incident
thereof.
A bank holding company and its subsidiaries are also prohibited from
engaging in certain tie-in arrangements in connection with extensions of
certain leases, sales, or the furnishing of services. For example, a bank will
generally be prohibited from extending credit to a customer on the condition
that the customer also obtain other services furnished by the holding company,
or any of its subsidiaries, or on the condition that the customer promise not
to obtain financial services from a competitor.
Humboldt Bancorp and any subsidiaries which it may acquire or organize
after the Reorganization will be deemed affiliates of the Bank within the
meaning of the Federal Reserve Act. Pursuant thereto, loans by the Bank to
affiliates, investments by the Bank in affiliates' stock, and taking
affiliates' stock by the Bank as collateral for loans to any borrower will be
limited to ten percent (10%) of the Bank's capital, in the case of each
affiliate, and twenty percent (20%) of the Bank's capital, in the case of all
affiliates. Humboldt Bancorp and its subsidiaries will also be subject to
certain restrictions with respect to engaging in the underwriting, public sale
and distribution of securities.
The California Financial Code provides that a holding company and its
subsidiaries are subject to regular examination by and may be required to file
reports with the Superintendent. However, the Superintendent has not yet
issued or proposed any regulations in this area.
The BHC Act limits the activities which may be engaged in by Humboldt
Bancorp and its subsidiaries to certain specified activities, including those
activities which the FRB may find, by order or regulation, to be so closely
related to banking or managing or controlling banks as to be proper incident
thereto.
Although Humboldt Bancorp has no present plans, agreements or arrangements
to engage in any nonbanking activities, Humboldt Bancorp may consider in the
future engaging in one or more of the above activities, subject to the approval
of the FRB.
REGULATION OF THE BANK
The Bank is a member of the FDIC which currently insures the deposits of
each member bank to a maximum of $100,000 per depositor. For this protection,
the Bank pays a semi-annual assessment and is subject to the rules and
regulations of the FDIC pertaining to deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by
the California State Banking Department (the "Department"). In addition,
because the Bank is a member of the Federal Reserve System, it is subject to
regulation, supervision and examination by the Federal Reserve Board ("FRB").
The Company, as a bank holding company, is subject to regulation, supervision
and regular examination by the Federal Reserve Board. The regulations of these
agencies govern most aspects of the Bank's business, including the making of
periodic reports by the Bank and the Bank's activities relating to investments,
<PAGE>10
loans, borrowings, certain check-clearing activities, branching, mergers and
acquisitions, reserves against deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Banks (the
"Superintendent"), the Bank may invest in capital stock, obligations or other
securities of other corporations, provided such corporations are not insurance
companies, agents or brokers. In addition, the Bank may acquire any or all of
the securities of a company that engages in activities that the Bank may engage
in directly under California law without the prior approval of the FRB.
California state-chartered banks are also specifically authorized to provide
real estate appraisal services, and to engage in real estate development and
investment activities directly or through subsidiaries. FRB regulations
applicable to Federal Reserve member banks restrict the ability of the Bank to
engage in real estate development and investment activities.
The Bank's primary potential source of income (other than interest earned
on loans) is a service charge on services provided and certain fees earned.
The ability of the Bank to pay dividends is subject to restrictions set
forth in the California Financial Code and, under certain circumstances, is
subject to approval of the Department. The board of directors of a state-
chartered bank may declare a dividend out of so much of net profits as such
board deems appropriate, subject to California law which restricts the amount
available for cash dividends 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 that a bank has no
retained earnings or net income for the prior three fiscal years, cash
dividends may be paid out of net income for such bank's preceding fiscal year
or current fiscal year upon the prior approval of the Department.
The FRB and the Superintendent have authority to prohibit a bank from
engaging in business practices which are considered to be unsafe or unsound.
Depending upon the financial condition of the Bank and upon other factors, the
FRB or Superintendent could assert that the payment of dividends by the Bank
might be such an unsafe or unsound practice. Also, if the Bank were to
experience either significant loan losses or rapid growth in loans or deposits,
or some other event resulting in a depletion or deterioration of the Bank's
capital account were to occur, the shareholders might be compelled by federal
banking authorities to invest additional capital in the Bank necessary to
return the capital account to a satisfactory level.
IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES
The earnings and growth of the Bank are and will be affected by general
economic conditions, both domestic and international, and by the monetary and
fiscal policies of the United States Government and its agencies, particularly
the FRB. One function of the FRB is to regulate the national supply of bank
credit in order to mitigate recessionary and inflationary pressures. Among the
instruments of monetary policy used to implement these objectives are open
market transactions in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
held by depository institutions. The monetary policies of the FRB have had a
significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future. However, the effect, if
any, of such policies on the future business and earnings of the Bank cannot be
accurately predicted.
<PAGE>11
ACCOUNTING CHANGES
In 1993 the FASB issued FASB 115, "Mark to Market" accounting and
reporting of equity securities. The Bank adopted FASB 115 effective January 1,
1994.
The FASB statement addressed the accounting and reporting for investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Those investments are to be classified in
three categories and accounted for as follows:
<circle> Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost.
<circle> Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as
"trading securities" and reported at fair value, with unrealized
gains and losses included in earnings.
<circle> Debt and equity securities not classified as either held-to-
maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a
separate component of shareholder's equity.
This statement did not apply to unsecuritized loans. However, after
mortgage loans are converted to mortgage-backed securities, they are subject to
its provisions. This statement superseded FASB Statement No. 12, "Accounting
for Certain Marketable Securities", and related interpretations and amended
FASB Statement No. 65, "Accounting for Certain Mortgage Backed Activities", to
eliminate mortgage-backed securities from its scope.
This statement was effective for fiscal years beginning after December 15,
1993. It was to be initially applied as of the beginning of an enterprise's
fiscal year and could not be applied retroactively to prior year's financial
statements. However, an enterprise could elect initially to apply this
statement as of the end of an earlier fiscal year for which annual financial
statements had not previously been issued.
On November 16, 1995, a one-time change to the Bank's category allocation
was permitted and the Bank elected to categorize all investments on the books
at that time as "Available For Sale".
The Bank, at present, does not intend to classify any securities either as
"trading securities" or "held-to-maturity securities". It is anticipated that
the Bank's liquidity, loan demand and investment flexibility needs necessitate
that the investment portfolio be classified as "available for sale", thus
unrealized holding gains and losses will be excluded from earnings and reported
as a net amount in a separate component of shareholders' equity until realized.
See also "Adequate Allowance for Loan and Lease Losses (ALLL)" and "Investment
Portfolio" below.
LEGISLATION
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
<PAGE>12
the operations and taxation of banks and other financial institutions are
frequently made in Congress, in the California legislature and by various bank
regulatory agencies. No prediction can be made as to the likelihood of any
major changes or the impact such changes might have on the Bank. Certain
changes of potential significance to the Bank which have been enacted recently
or others which are currently under consideration by Congress or various
regulatory or professional agencies are discussed below.
On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), which eliminated many of the current restrictions to interstate
banking and branching. The Interstate Banking Act permits full nationwide
interstate banking to adequately capitalized and adequately managed bank
holding companies beginning September 29, 1995, without regard to whether such
transaction is expressly prohibited under the laws of the state. The
Interstate Banking Act's branching provisions permit full nationwide interstate
bank merger transactions to adequately capitalized and adequately managed banks
beginning June 1, 1997. However, states retain the right to completely opt out
of interstate bank mergers and to continue to require that out-of-state banks
comply with the states' rules governing entry.
The states that opt out must enact a law after September 29, 1994, and
before June 1, 1997, that (i) applies equally to all out-of-state banks and
(ii) expressly prohibits merger transactions with out-of-state banks. States
which opt out of allowing interstate bank merger transactions will preclude the
mergers of banks in the opting out state with banks located in other states.
In addition, banks located in states that opt out are not permitted to have
interstate branches. States can also "opt in" which means states can permit
interstate branching earlier than June 1, 1997.
The laws governing interstate banking and interstate bank mergers provide
that transactions, which result in the bank holding company or a bank
controlling or holding in excess of ten percent (10%) of the total deposits
nationwide or thirty percent (30%) of the total deposits statewide, will not be
permitted except under certain specified conditions. However, any state may
waive the thirty percent provisions for such state. In addition, a state may
impose a cap of less than thirty percent (30%) of the total amount of deposits
held by a bank holding company or bank provided such cap is not discriminatory
to out-of-state bank holding companies or banks.
California passed legislation on October 2, 1995, which opted into the
Interstate Banking Act's branch banking provision, and which adopts provisions
that are consistent with the Interstate Banking Act. Although the impact of
the legislation may result in additional competition by well capitalized out-
of-state banks, it is not known what effect, if any, the new legislation will
have on the Bank or its operations.
On September 23, 1994, the President signed into law the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "1994 Act") which
covers a wide range of topics including small business and commercial real
estate loan securitization, money laundering, flood insurance, consumer home
equity loan disclosure and protection as well as the funding of community
development projects and regulatory relief.
The major items of regulatory relief contained in the 1994 Act include an
examination schedule that has been eased for the top rated banks and will be
every 18 months for CAMEL 1 banks with less than $250 million in total assets
and CAMEL 2 banks with less than $100 million in total assets (after two years
<PAGE>13
the $100 million amount may be increased to $175 million, if the appropriate
federal banking regulatory agency so permit). The 1994 Act amends FDICIA with
respect to Section 124, the mandate to the federal banking agencies to issue
safety and soundness regulations, including regulations concerning executive
compensation allowing the federal banking regulatory agencies to issue
guidelines instead of regulations.
Further regulatory relief is provided in the 1994 Act, as each of the
federal regulatory banking agencies, including the National Credit Union
Administration Board, is required to establish an internal regulatory appeals
process for insured depository institutions within six months. In addition,
the Department of Justice 30 day waiting period for mergers and acquisitions is
reduced by the 1994 Act to 15 days for certain acquisitions and mergers.
In the area of currency transaction reports, the 1994 Act requires the
Secretary of the Treasury to allow financial institutions to file such reports
electronically. The 1994 Act also requires the Secretary of the Treasury to
publish written rulings concerning the Bank Secrecy Act, and staff commentary
on Bank Secrecy Act regulations must also be published on an annual basis.
CAPITAL ADEQUACY GUIDELINES
The FRB has adopted risk-based capital requirements for member banks which
require a minimum risk-based capital ratio of 8% (at least 4% in the form of
Tier 1 Capital). "Tier 1" capital excludes goodwill and consists of common
equity, non-cumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries. "Tier 2" capital consists of
cumulative and limited-life preferred stock, mandatory convertible securities,
subordinated debt and, included in Tier 2 capital, subject to certain
limitations, allowance for loan losses. General loan loss reserves may make up
no more than 1.25% of risk-weighted assets at year end 1992. At December 31,
1996, the Bank's general loan loss reserves were 1.33% of risk weighted assets
and thus 0.08% of the general loan loss reserve was not eligible for inclusion
in Tier 2 capital.
The requirements made regulatory capital requirements more sensitive to
the differences in risk profiles among banking institutions, took off-balance
sheet items into account when assessing capital adequacy and minimized
disincentives to holding liquid low-risk assets. In addition, the requirements
required some banking institutions to increase the level of their common
shareholders' equity. The Bank's and the Company's risk-based capital ratio at
December 31, 1996, was 12.60%.
In 1990, the FRB instituted minimum leverage ratio guidelines for state
member banks. Effective January 1, 1991, capital leverage ratio guidelines
replaced the FRB's total and primary capital guidelines for Banks which
previously required the maintenance of minimum total capital to total assets
ratio of 6% and a minimum primary capital to assets ratio of 5.5%. The
leverage ratio guidelines required maintenance of a minimum ratio of 3% Tier 1
capital to total assets for the most highly rated bank organizations.
Institutions that were less highly rated, anticipating significant growth or
subject to other significant risks were required to maintain capital levels
ranging from 1% to 2% above the 3% minimum. The Bank's leverage ratio was
8.53% and the Company's leverage ratio at December 31, 1996, was 8.58%. The
Company has not been advised by any regulatory agency that it is deficient with
respect to the Tier 1 leverage ratio.
<PAGE>14
The Company does not presently expect compliance with the risk-based
capital requirements or leverage guidelines to have a materially adverse effect
upon the business of the Company. See "Management's Discussion and Analysis -
Capital Resources."
ADEQUATE ALLOWANCE FOR LOAN AND LEASE LOSSES (ALLL)
On December 21, 1993, the Federal Reserve Bank and other Federal
regulators of banks and savings associations issued a joint policy statement
that provided comprehensive guidance on the maintenance of an adequate
allowance for loan and lease losses (ALLL) and an effective loan review system.
The policy statement, which was effective immediately, applied to all
depository institutions insured by the Federal Deposit Insurance Corporation,
except for federally insured branches and agencies of foreign banks. The
statement:
<circle> Discusses the nature and purpose of the ALLL.
<circle> Defines an adequate ALLL.
<circle> Covers the responsibilities of the board of directors, the
institution's management, and the examiner. In this regard, the
policy statement emphasizes that is the responsibility of the board
of directors and management of each institution to maintain the ALLL
at an adequate level.
<circle> Discusses the analysis of the loan and lease portfolio, factors
to consider in estimating credit losses, and the characteristics of
an effective loan review system.
In addition, in the "Examiner Responsibilities" section, the policy
statement includes quantitative guidance that should be used to identify those
institutions whose ALLL levels and related ALLL evaluation processes should be
subject to closer review by examiners. Examiners will use this review to
determine whether management's analysis is reasonable and supported by the
weight of reliable evidence, and whether all relevant factors have been
appropriately considered. The policy statement emphasizes that this
quantitative guidance is neither a "floor" nor a "safe harbor" level for an
institution's ALLL.
The policy statement reiterates the existing policy that examiners will
generally accept management's estimates in their assessment of the adequacy of
the ALLL when management has:
<circle> Maintained effective systems and controls for identifying,
monitoring and addressing asset quality problems in a timely manner;
<circle> Analyzed all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and
<circle> Established an acceptable ALLL evaluation process that meets the
objectives for an adequate ALLL.
<PAGE>15
Financial Accounting Standards Board (FASB) Statement No. 114, "Accounting
by Creditors for Impairment of a Loan" became effective for fiscal years
beginning after December 15, 1994. Statement No. 114 is applicable to all
creditors and to all loans, uncollateralized as well as collateralized, except
large groups of smaller balance homogeneous loans that are collectively
evaluated for impairment (e.g., credit card, residential mortgage, and consumer
installment loans), loans measured at fair value or at the lower of cost or
fair value, leases, and debt securities. However, Statement No. 114 does not
specify how a creditor should identify loans that are to be evaluated for
collectibility. A creditor should apply its normal loan review procedures in
making that judgment.
Under Statement No. 114, a loan is impaired when it is probable that a
creditor will be unable to collect all amounts due (including interest and
principal) according to the contractual terms of the loan agreement. When a
loan is impaired, a creditor must measure the extent of that impairment by
determining the present value of the expected future cash flows on the loan
discounted at the loan's effective interest rate or by using either the loan's
observable market price or the fair value of the loan's collateral if the loan
is collateral dependent. If the value of the impaired loan, measured in
accordance with these methods, is less than the recorded balance of the loan, a
creditor must recognize the impairment by creating a valuation allowance for
the difference and recording a corresponding bad debt expense. Banks will be
expected to adhere to the Statement No. 114 measurement methods for Call Report
purposes in most cases. However, consistent with the November 1991
"Interagency Policy Statement on the Review and Classification of Commercial
Real Estate Loans", banks must measure impaired collateral-dependent loans only
at the fair value of the collateral for Call Report purposes. This treatment
should be applied to all collateral-dependent loans regardless of the type of
collateral.
On November 18, 1994, the Federal Financial Institutions Examination
Council (the "FFIEC") announced that allowances for impaired loans established
pursuant to Statement No. 114 will be considered general in nature and will be
includable in Tier 2 capital subject to existing limits. In addition, the
FFIEC's announcement indicated that all amounts identified as losses (i.e.,
loss classifications) are excluded from the general allowance and reaffirmed
existing supervisory policies that require banks to promptly charge off
identified losses. With respect to impaired collateral-dependent loans, the
bank agencies generally classify as loss any portion of the loan balance that
exceeds the amount that is adequately secured by the fair value of the
collateral. Such losses on collateral-dependent loans will not be included in
the general allowance or Tier 2 capital.
Statement No. 114, as amended, does not address how a creditor should
recognize income on an impaired loan. This means that a creditor can use its
existing methods for recognizing interest income on an impaired loan.
The Bank has been using a similar procedure to the ALLL requirements in
the past and the Bank does not presently expect compliance with "ALLL" will
have a materially adverse effect upon the business of the Bank. See
"Management's Discussion and Analysis - Provision For Loan and Lease Losses."
<PAGE>16
ASSESSING INTEREST RATE RISK FOR RISK-BASED CAPITAL PURPOSES
On September 1, 1995, the banking agencies issued their final rules
implementing Section 305 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA 305). This section of the Act required banking
agencies to revise their risk-based capital standards to ensure that the
standards take into account, among other things, an institution's interest rate
risk ("IRR").
The final rule amends the risk-based capital standards to state explicitly
that the regulators will consider a bank's exposure to declines in the economic
value of its capital resulting from changes in interest rates when evaluating
the bank's capital adequacy. This focus on the economic value of a bank's
capital is a significant change from the way in which the regulatory agencies
have viewed interest rate risk up to now. The rule defines a bank's exposure
as the change in the present value of bank's assets, less the change in the
present value of its liabilities, plus the change in the value of its interest
rate off-balance sheet contracts. This equation is how regulators intend to
measure the change in the underlying economic value of a bank's capital.
The final rule applies to all banks regardless of size. There are no
exceptions. The final rule does not codify a measurement framework for
assessing the level of a bank's IRR exposure, but rather leaves the decision up
to the examiner in the field. The information and exposure estimates collected
through the new proposed supervisory measurement process will be one
quantitative factor examiners use to determine the adequacy of an individual
bank's capital given its IRR.
Recognizing that the burden for reporting IRR exposures would fall most
heavily on smaller institutions, the policy exempts certain smaller
institutions from additional IRR schedules on the call report if they meet all
of the following criteria:
- Have total assets of less than 300 million
- Have a composite CAMEL rating of 1 or 2
- Meet an intermediate and longer term asset test
The intermediate and longer term asset test is as follows:
1. Calculate 30 percent of loans and securities with contractual
maturity or repricing dates between one and five years.
2. Add 100 percent of loans and securities with contractual maturity or
repricing dates beyond five years.
3. Determine whether the total is less than 30 percent of the bank's
total assets.
It is not possible to predict precisely what effect the new FDICIA 305
requirement will have on the Bank, however, management feels that at present
the Bank meets all three of the above mentioned criteria and will thus be
exempt from additional IRR schedules on the Call Report.
<PAGE>17
DISCLOSURES ABOUT FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS (FASB 107)
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires annual disclosure of
estimated fair values for on- and off- balance sheet financial instruments, if
practicable to estimate, for reporting in accordance with generally accepted
accounting principles (GAAP). The methods and significant assumptions used to
estimate fair value must also be disclosed. FASB 107 is effective for years
ending after December 15, 1992, for entities with more than $150 million in
total assets and for years ending after December 15, 1995, for entities with
less than $150 million in total assets.
Fair Value - FASB 107 states that quoted market prices, if available, are
the best evidence of the fair value of financial instruments. If quoted prices
are not available, management's best estimate of fair value may be based on the
quoted market prices of financial instruments with similar characteristics or
on other valuation techniques. Examples of estimation procedures include the
present value of estimated cash flows using a discount rate commensurate with
risks involved, option pricing models, or matrix pricing models.
The Bank adopted FASB 107 effective as of December 31, 1995, and the
information is part of the 1996 Annual Report.
ITEM 2 - DESCRIPTION OF PROPERTIES
The Bank originally leased its office space at 701 Fifth Street in Eureka,
California from certain organizers, directors and persons of the Bank and
entities associated with such persons including Francis Dutra, Dorothy Dutra,
Gary Evans, John Winzler, Flora Winzler, Donald Grace, David McMurray, Barbara
McMurray, Francis Carrington, Robert Dias, Lenore Dias, Mary Schmidbauer,
Ronald Angell, Margaret Angell and Ward De Witt, M.D., A Medical Corporation
Pension and Profit Sharing Plan. The rental payment was $5,000 per month. On
December 29, 1989, the Bank exercised its option under the terms of the lease
to purchase the land and building for approximately $710,000. The purchase
price was determined by the sum of the lessor's original purchase price of
$500,000 plus out-of-pocket repair costs and other expenses incurred by the
landlord. The Bank believes that the $500,000 represented the fair market
value of the premises on the date the lessors purchased the premises and before
the improvements were made.
On March 1, 1990, the Bank acquired a one-year option to lease a 2,440
square foot, one story office building for the proposed new site of the Fortuna
Branch located at 1201 Main Street in Fortuna, California. The Bank originally
acquired the option for an option price of $3,000 which was initially paid by
the directors of the Bank who were subsequently reimbursed in full. The
original lease, which was dated May 1, 1991, was for a period of three years,
with an option to renew for an additional three years, with monthly lease
payments of $900 for the first year, $1,000 for the second year, $1,100 for the
third year. The building was previously used as a savings and loan. Under the
terms of the lease, the lessor agreed to provide $10,000 toward leasehold
improvements and would pay the taxes and insurance on the property. After
deciding not to use the lease, on November 2, 1992, the Bank executed a sub-
lease with Joseph and Lisa Barrote doing business as Bartow's Jewelry. The
sub-lease originated on November 2, 1992, with lease payments of $900 per month
from November 2, 1992, through April 30, 1993, and $1,000 per month for the
period May 1, 1993, through April 30, 1994. On May 1, 1994, the Bank executed
<PAGE>18
a modification agreement to extend the sub-lease with Joseph and Lisa Barrote
doing business as Bartow's Jewelry. The modification to the agreement included
that "the sub-lease shall commence on November 2, 1992, and shall end on the
date on which the Master Lease terminates or on April 20, 1997, whichever is
earlier" and "pursuant to Paragraph XXI of the Master Lease and Paragraph 3 of
the sub-lease, the San Francisco Consumer Price Index for January 1, 1994, was
$147.4, being an increase in the amount of 1.7% from January 1, 1993. Rent for
the period May 1, 1994, through and including April 30, 1997, shall be $1,119".
Only July 1, 1992, the Bank purchased from the RTC a bank building located
at 1360 Main Street, Fortuna, California for the sum of $310,000. The
approximately 3,600 square foot building was previously occupied as a branch of
the now defunct Imperial Savings and Loan ("ISL"). The RTC claimed the Fortuna
facility as part of its ISL regulatory settlement and then put the property up
for sale. The Bank reviewed the advantages of the "available" Fortuna facility
and placed a bid to purchase the property that was accepted by the RTC in March
1992. The Bank moved from its leased facility at 1201 Main Street, Fortuna,
California to the newly acquired property at 1360 Main Street, Fortuna,
California on September 28, 1992.
On August 2, 1993, the Bank purchased from the RTC a bank building located
at 1063 G Street, Arcata, California for the sum of $397,380. The building was
previously occupied as a branch of the now defunct HomeFed Bank. The RTC
claimed the Arcata facility as part of its HomeFed regulatory settlement and
then put the property up for sale. The Bank reviewed the advantages of the
"available" Arcata facility and placed a bid to purchase the property that was
accepted by the RTC. The purchase price of $397,380 was the negotiated sales
price with the RTC.
On August 2, 1993, the Bank purchased from the RTC a bank building located
at 2095 Central Avenue, McKinleyville, California for the sum of $181,845. The
building was previously occupied as a branch of the now defunct HomeFed Bank.
The RTC claimed the McKinleyville facility as part of its HomeFed Bank
regulatory settlement and then put the property up for sale. The Bank reviewed
the advantages of the "available" McKinleyville facility and placed a bid to
purchase the property that was accepted by the RTC. The purchase price of
$181,845 was the negotiated sales price with the RTC. In addition, as part of
the agreement with the RTC, the Bank purchased certain furniture and fixtures
for the sum of $46,495 at Arcata and $46,105 at McKinleyville. These purchase
prices of $46,495 and $46,105 respectively were the negotiated sales prices
with the RTC.
On October 25, 1993, the Bank exercised a two year option to lease a 1,239
square foot, two story office building located at 528 Fifth Street, Eureka,
California to house the Bank's Lease Department. The Lease commenced on
November 1, 1993, and was for a period of two years with monthly lease payments
of $900. The Lease also contained an option to renew the Lease for an
additional five year term. The building was previously used as a jewelry
store. The Bank elected not to exercise the option to renew and the lease
terminated on November 1, 1995.
On November 2, 1993, the Bank purchased from Jack Retzloff, an
unaffiliated party, property located at 404 H Street, Eureka, California for
the sum of $400,000. The property was previously used for office space. The
building was removed by the previous owner and the Bank obtained the necessary
permits to turn the vacant lot into an additional parking lot with a Drive-up
ATM for the Bank building located at 701 Fifth Street, Eureka, California. The
Bank reviewed the advantages of the "available" property and negotiated a price
with the previous owner.
<PAGE>19
On June 21, 1994, the Bank purchased from the RTC a bank building located
at 612 G Street, Eureka, California for the sum of $532,000 to serve as the
location of the SBA, Credit Review, Lease and Loan Supervision Departments.
The building was previously occupied as a branch of the now defunct HomeFed
Bank. The RTC claimed the Eureka facility as part of its HomeFed regulatory
settlement and then put the property up for sale. The Bank reviewed the
advantages of the "available" Eureka facility and placed a bid to purchase the
property at an auction held by the RTC and the RTC accepted the bid.
Upon the completion of the acquisition of the Loleta, Willow Creek and
Weaverville offices of U.S. Bank in early 1995, pursuant to an agreement dated
August 17, 1994, the Bank purchased the following properties from U.S. Bank:
a) 358 Main Street, Loleta, California for $183,333
b) 39171 Highway 299, Willow Creek, California for $400,000
c) 409 Main Street, Weaverville, California for $230,000
All of these properties were occupied as branches of U.S. Bank of
California which offered them for sale pursuant to the Agreement dated August
17, 1994. The Bank reviewed the advantages of the "offered" branches and
negotiated a sale price on each office which was accepted by U.S. Bank of
California. In addition, certain fixtures and equipment were purchased upon
completion of the acquisition of the three branches from U.S. Bank of
California. The following table outlines the purchase price:
a) Loleta $ 2,940
b) Willow Creek $ 49,217
c) Weaverville $ 58,832
-----------
$ 110,989
On May 15, 1996, the Bank exercised a ten year option to lease 773 square
feet in a Tops Sentry Market located at West Highway 299 and Martin Road,
Weaverville, California, to house the Weaverville Supermarket Branch. The
lease commenced on May 15, 1996, and was for a period of ten years with an
initial monthly lease payment of $1,725, to increase to $2,030 per month when
store customer count reaches 15,000. The rent at December 1, 1996, was $2,030
per month. The lease also contained an option to renew the lease for two
additional five-year terms.
On March 1, 1996, the Bank exercised a ten year option to lease an
approximately 10,000 square foot, single story office building located at 605 K
Street, Eureka, California, to house the Bank's Heritage Club Department, the
Merchant BankCard Department and the Credit Card Issuing Department. The lease
commenced on March 1, 1996, and was for a period of ten years with a monthly
lease payment of $4,500. The lease also contained an option to renew the lease
for two additional five year terms.
On July 28, 1995, the Bank exercised a three year option to lease an
approximately 1,600 square foot building located at 525 Fifth Street, Eureka,
California. The lease commenced November 1, 1995, and was for a period of
three years with a monthly lease payment of $600. The Bank has donated, as a
community service, the use of this property to the Redwood Coast Dixieland Jazz
Festival for their headquarters office.
<PAGE>20
Rental expense for all premises leases was $94,000 for the year ended
December 31, 1996, $24,000 for the year ended December 31, 1995, and $25,000
for the year ended December 31, 1994. Rental income for all leases of premises
was $69,000, $64,000 and $70,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
ITEM 3 - LEGAL PROCEEDINGS
The Bancorp is a party to claims and legal proceedings arising in the
ordinary course of business. After taking into consideration information
furnished by legal counsel to the Bancorp as to the current status of various
claims and proceedings to which the Bancorp is a party, management is of the
opinion that the ultimate aggregate liability represented thereby, if any, will
not have a material adverse effect on the financial position or results of
operations of the Bancorp.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None applicable.
<PAGE>21
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trades in Humboldt Bancorp common stock are made through Everen
Securities, Inc. as intermediary. However, no established trading market
exists for the Bancorp's common stock. The Bancorp's common stock is not
listed on any exchange nor the NASDAQ system, and the Bancorp does not
currently intend to seek such listing. In addition, the Bancorp does not
anticipate that an active market in the Bancorp's common stock will develop in
the foreseeable future. Prior to the effective date of the reorganization,
Humboldt Bank's common stock was traded as outlined above.
For the year ended December 31, 1996, the Bancorp was aware of only five
trades of the Bancorp's common stock totaling 2,342 shares of common stock.
This compared with 12 trades totaling 14,788 shares of the Bank's stock in the
year ending December 31, 1995, and 24 trades totaling 11,860 shares of the
Bank's stock in the year ending December 31, 1994. Since all of those
transactions were individually negotiated between the buyer and seller through
Everen Securities, Inc. as intermediary, the Company was not informed of the
exact purchase price for the common stock sold in each of these transactions.
The Company, however, was informed by Everen Securities, Inc. of the high and
low bid price for the common stock during the last two fiscal years as follows,
but no assurances can be given that these high and low bid prices reflected the
actual market value of the Company's or the Bank's common stock. In addition,
the prices indicated reflect inter-dealer prices, without retail mark-up, mark
down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
YEAR QUARTER NUMBER OF TRADES HIGH BID LOW BID
<S> <C> <C> <C> <C>
-1995- First Quarter 2 $13.75 $12.75
Second Quarter{(1)} 0 $14.00 $12.75
Third Quarter 0 $16.00 $14.00
Fourth Quarter 10 $16.00 $15.00
-1996- First Quarter 2 $17.00 $17.00
Second Quarter{(2)} 0 $18.50 $15.38
Third Quarter 0 $20.50 $19.50
Fourth Quarter 3 $20.75 $20.50
</TABLE>
(1) During the second quarter of 1995 the Bank declared a 10% stock dividend.
(2) During the second quarter of 1996 the Bancorp declared a 10% stock
dividend.
<PAGE>22
As of December 31, 1996, the shares of the Bancorp were held by
approximately 586 shareholders compared to 585 shareholders of the Bank as of
December 31, 1995, not including those held in street name by several brokerage
houses. As of December 31, 1996, 312,694 shares of the Bancorp's common stock
are subject to outstanding options. The Bancorp is the sole shareholder of the
one share of Bank stock.
The Bank distributed a 10% stock dividend on the common stock on June 30,
1994, and a 10% stock dividend on the common stock on April 5, 1995. The
Bancorp distributed a 10% stock dividend on the common stock on May 30, 1996.
Because there is no established trading market for the Bancorp's common stock,
the Bancorp cannot determine the effect of the stock dividends on the market
value of the stock. Neither the Bank nor the Bancorp has ever declared a cash
dividend on the common stock. Payments of future dividends will be subject to
the discretion of the Board of Directors and will depend upon the Bancorp's
earnings, financial condition, capital requirements, regulatory requirements
and such other factors as the Board of Directors deems appropriate.
<PAGE>23
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the Bank
and the Company for the years ended December 31, 1996, 1995 and 1994,
respectively, and should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations, and with the
financial statements presented herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: - 1996 - - 1995 - - 1994 -
(DOLLARS IN THOUSANDS EXCEPT COMPANY BANK ONLY BANK ONLY
PER SHARE DATA)
<S> <C> <C> <C>
Results of Operations:
Interest Income 16,562 15,241 11,162
Interest Expense 5,549 5,244 3,539
Net Interest Income: 11,013 9,997 7,623
Provision for Loan Losses 533 792 783
Other Income 5,747 3,509 1,463
Other Expense 11,325 9,149 6,240
Income Before Income Taxes 4,902 3,565 2,063
Provision for Income Taxes 1,926 1,363 762
NET INCOME: 2,976 2,202 1,301
Per Share Data{(1)}:
Net Income $1.93 $1.47 $1.04
Cash Dividend Declared n/a n/a n/a
Book Value Per Share $13.89 $11.33 $11.82
Weighted Average Shares Outstanding 1,541,567 1,494,554 1,254,298
Balance Sheet at December 31:
Assets 214,738 193,913 152,863
Loans 142,824 115,117 92,461
Deposits 192,576 174,526 137,624
Shareholders' Equity 19,600 16,935 13,570
Financial Ratios:
Return on Average Assets 1.48 1.22 0.93
Return on Average Shareholders' Equity 16.96 9.80 12.08
Average Shareholders' Equity to Average 8.80 8.37 7.69
Assets
</TABLE>
(1) All share and share data have been retroactively adjusted to reflect stock
dividends.
<PAGE>24
The following discussion, although presented on a consolidated basis,
analyzes primarily the financial condition and results of operations of the
Bank for the twelve month period ended December 31, 1996. The 1995 and
1994 financial condition and results of operations pertain only to the
Bank. All should be read in conjunction with the Company's and the Bank's
financial statements and notes presented herein.
SUMMARY OF OPERATIONS
The Company reported net income of $2,976,000 for the year ended
December 31, 1996 compared to $2,202,000 for the year ended December 31,
1995. The increase in net income is attributable to an increase of
$1,016,000 or 10.2% in net interest income, an increase in other income of
$2,238,000 or 63.8% and a decrease in provision for loan losses of $259,000
or 32.7% from 1995. These increases were offset by an increase in other
expense of $2,176,000 or 23.8% and an increase in provision for income
taxes of $563,000 or 41.3%. The increase in net interest income is
attributable to the substantial increase in earning assets somewhat offset
by a decrease in the rate of interest earned on these assets. The increase
in other interest income is attributable to increases in service charges,
fees for customer services plus substantial increases in Lease Department,
Merchant BankCard Department and Credit Card Issuing Department income and
in gains on sale of securities which was offset in part by a decrease in
gains on sale of loans. The increase in other expense is attributable to
increases in salaries and employee benefits, net occupancy and equipment
expenses, stationery & supplies, FDIC expense, travel expense, Credit Card
Department and Merchant BankCard expenses. The small decrease in provision
for loan losses is attributable to a decrease in the provision for lease
department loans based upon three years of experience of losses in this
area and the increase in provision for income taxes is attributable to an
increase in pre-tax income.
The Bank reported net income of $2,202,000 for the year ended December
31, 1995, compared to $1,301,000 for the year ended December 31, 1994. The
increase in net income is attributable to an increase of $2,374,000 or
31.1% in net interest income and an increase in other income of $2,046,000
or 139.8% from 1994. These increases were offset by an increase in other
expense of $2,909,000 or 46.6%, an increase in provision for loan losses of
$9,000 or 1.1% and an increase in provision for income taxes of $601,000 or
78.9%. The increase in net interest income is attributable to the
substantial increase in earning assets and an increase in the rate of
interest earned on these assets. The increase in other interest income is
attributable to increases in service charges, fees for customer services
plus substantial increases in Lease Department and Merchant BankCard
Department income and in gains on sale of securities which was offset in
part by a small decrease in gains on sale of loans. The increase in other
expense is attributable to increases in salaries and employee benefits, net
occupancy and equipment expenses, stationery & supplies and postage
expense, intangible expense and Merchant BankCard expenses. The small
increase in provision for loan losses is attributable to the increase in
the loan portfolio and the increase in provision for income taxes is
attributable to an increase in pre-tax income.
NET INTEREST INCOME
Net interest income represents the excess of interest income and loan
fees earned by the Company on its earning assets over the interest expense
paid on its interest bearing liabilities and other borrowed money. Net
interest income as a percentage of average earning assets is referred to as
net interest margin. The level of net interest income is affected by the
levels of both interest-earning assets and interest-bearing liabilities as
well as changes in interest rates. During periods of rapidly changing
<PAGE>25
interest rates, the Company's earnings can be significantly affected, as
interest rates on the majority of its earning assets reflect changes in
interest rates immediately, while interest rates paid on liabilities, such
as time certificates of deposit, change only at the maturity of the deposit
certificate.
Net interest income for 1996 totaled $11,013,000 compared with
$9,997,000 in 1995. The increase in interest income was attributable to a
significant increase in earning assets somewhat offset by a decrease in
interest rates. The yield on loans decreased by 0.79% over the same period
in 1995, and the yield on deposits decreased 0.14%. The reference rate
used by the Company to price a significant portion of its loan products was
8.5% at December 31, 1996, and at December 31, 1995. The loan portfolio
comprised 73.1% of average earning assets in 1996 compared with 62.5% in
1995.
Net interest income for 1995 totaled $9,997,000 compared with
$7,623,000 in 1994. The increase in interest income was attributable to a
significant increase in earning assets and an increase in interest rates.
The yield on loans increased by 0.65% over the same period in 1994, while
the yield on deposits increased 0.44%. The reference rate used by the Bank
to price a significant portion of its loan products was 8.5% at December
31, 1995, and 8.25% at December 31, 1994. The loan portfolio comprised
62.5% of average earning assets in 1995 compared with 71.0% in 1994.
Loan fees included in net interest income were $802,000 at December
31, 1996, $755,000 at December 31, 1995, and $781,000 at December 31, 1994.
The Company had $2.9 million in loans, the interest on which is
considered tax exempt, at December 31, 1996. The Bank had no such loans at
December 31, 1995, or December 31, 1994. The total amount of interest
earned on these loans during 1996 was $57,000.
Interest income may be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table
sets forth an analysis of the increases and decreases in interest income
and interest expense in terms of changes in average volume and average
rates for the years ending December 31, 1995 and 1994.
<PAGE>26
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
INCREASE (DECREASE) DUE TO CHANGE IN
<TABLE>
<CAPTION>
1996 OVER 1995 1995 OVER 1994
<S> <C> <C> <C> <C> <C> <C>
INCREASE/DECREASE
IN INTEREST INCOME:
(dollars in thousands) VOLUME RATE TOTAL VOLUME RATE TOTAL
Loans 2,628 <246> 2,382 1,828 66 1,894
Securities <919> 54 <865> 1,492 385 1,877
Fed Funds Sold <201> 16 <185> 234 45 279
Fed Reserve Stock 1 0 1 7 0 7
Due From Banks Time <13> 1 <12> 21 1 22
Other Interest 0 0 0 0 0 0
TOTAL INCREASE/DECREASE 1,496 <175> 1,321 3,582 497 4,079
INCREASE/DECREASE IN
INTEREST EXPENSE:
Now & Super Now <9> 0 <9> 50 2 52
Savings 13 <1> 12 88 0 88
Money Market 74 2 76 130 4 134
Certificates of Dep 225 1 226 1,270 153 1,423
Borrowed Funds 0 0 0 12 <4> 8
Other 0 0 0 0 0 0
TOTAL INCREASE/DECREASE 303 2 305 1,550 155 1,705
TOTAL CHANGE IN NET
INTEREST INCOME 1,193 <177> 1,016 2,032 342 2,374
</TABLE>
<PAGE>27
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses which is charged to
operations is based on the quality of the loan portfolio, the amount
of net loan losses incurred and management's estimate of potential
future losses based on an ongoing evaluation of the portfolio risk
and economic conditions.
The provisions for loan and lease losses in 1996 was $533,000
compared with $792,000 in 1995 and $783,000 in 1994. The ratio of
the allowance for loan and lease losses to total gross loans and
leases equaled 1.47%, 1.61% and 1.42% at December 31, 1996, 1995 and
1994 respectively. The decrease in the provision from 1995 to 1996
is attributable to a decrease in provision for lease department
loans based upon a three year analysis of lease losses in this
department. The increase in the provision form 1994 to 1995 was due
to the increase in loans.
Net charge-offs were $255,000, $255,000 and $310,000 in 1996,
1995 and 1994 respectively. These amounts represented <0.19%>,
<0.25%> and <0.34%> of average loans outstanding.
NON-INTEREST INCOME
Non-interest income for 1996 totaled $5,747,000, an increase of
$2,238,000 or 63.8% from $3,509,000 earned in 1995. Service charges
on deposit accounts increased $132,000 or 22.9%, fees for customer
services increased $1,656,000 or 63.0%, net investment securities
gain/loss increased by $569,000 or 522.0% and gain on sale of loans
decreased by $119,000 or 61.3% from the prior year. The increases
are attributable to the activities of the lease, merchant bankcard,
credit card and alternative investment departments. The decreases
in gain on sale of loans is attributable in part to selling some
portfolio loans at a loss together with a reduction in single-family
loans sold.
NON-INTEREST EXPENSE
Non-interest expense for 1996 totaled $11,325,000, an increase
of $2,176,000 or 23.8% from 1995. Non-interest expense totaled
$9,149,000 in 1995, an increase of $2,909,000 or 46.6% from 1994.
Salaries and employee benefits represented the single largest
component of non-interest expense: $5,592,000 or 49.4% in 1996 and
$4,612,000 or 50.4% in 1995. Full time equivalent employees
numbered 175, 130 and 99 at December 31, 1996, 1995 and 1994
respectively.
Net occupancy and equipment expense increased $494,000 or 38.1%
to $1,792,000 in 1996. This increase can be in part attributable to
the purchase of an in-house computer system, a local area network
and a wide area network as well as the purchase of furniture &
fixtures and leasehold improvements at the Weaverville Supermarket
Branch and the Merchant BankCard and Credit Card Issuing departments
at 605 K Street, Eureka, California, and increased maintenance and
repairs on older equipment.
Other expenses, excluding salaries and related benefits and net
occupancy and equipment expenses, increased $702,000 or 21.7% in
1996 from 1995 and $1,238,000 or 61.9% in 1995 from 1994, primarily
due to the increased growth of the Bank, the establishment of the
Weaverville Supermarket Branch and the Credit Card Issuing
departments in 1996 and the purchase of three branches of U.S. Bank
in Loleta, Willow Creek and Weaverville in early 1995. The
following table summarizes the significant components of non-
interest expense for 1996, 1995 and 1994.
<PAGE>28
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
DOLLAR % DOLLAR %
CHANGE CHANGE CHANGE CHANGE
(DOLLARS IN THOUSANDS) 12/31/96 12/31/95 12/31/94 1996 VS 1995 1995 VS 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries & Related
Benefits 5,592 4,612 3,368 980 21.2% 1,244 36.9%
Fixed Assets 1,792 1,298 871 494 38.1% 427 49.0%
Prof. Services 693 503 342 190 37.8% 161 47.1%
Stationery, Supplies
& Postage 542 492 263 50 10.2% 229 87.1%
Intangible Expense 372 403 184 <31> <7.7%> 219 119.0%
Merchant Credit Card Program 434 384 113 50 13.0% 271 239.8%
FDIC & Other Ins. 480 348 379 132 37.9% <31> <8.2%>
Advertising & Dev. 364 314 205 50 15.9% 109 53.2%
Telephone & Travel 424 267 194 157 58.8% 73 37.6%
Data Processing/ATM Expense 199 174 99 25 14.4% 75 75.8%
Other Expense 433 354 222 79 <22.3%> 132 59.5%
TOTAL 11,325 9,149 6,240 2,176 23.8% 2,909 46.6%
</TABLE>
PROVISION FOR INCOME TAXES
The provision for income taxes totaled $1,926,000 in 1996, an increase of
$563,000 or 41.3% from 1995. The provision for income taxes in 1995 totaled
$1,363,000 an increase of $601,000 or 78.9% from 1994. The increase in the
provision for 1996 was due to an increase in pre-tax income. The 1996
effective tax rate of 39% on reported income was below the expected statutory
federal and state tax rate of 45% due to exemptions for Enterprise Zone loans
for State Tax purposes, exemptions for Municipal Obligations for Federal
purposes, Keyman Insurance and other temporary differences. The 1995 and 1994
effective tax rate on reported income varied from the expected statutory
federal rate of 34% and the state franchise tax rate of 7% (net of the federal
benefit) principally because of exemption for Enterprise Zone loans for state
tax purposes, exemptions for Municipal obligations for federal purposes and
other temporary differences.
LOANS
The Company concentrates its lending activities in commercial, real estate
construction, real estate related and consumer loans made almost exclusively to
individuals and businesses within Northern California and lease receivables and
credit cards throughout the Country. At December 31, 1996, the Company had
total gross loans outstanding of $145.7 million and loans held for sale of $63
<PAGE>29
thousand. This represented 75.7% of total deposits and 67.9% of total assets
of the Bank. At December 31, 1995, the Bank had total gross loans outstanding
of $115.7 million and loans held for sale of $1.9 million. This represented
67.4% of total deposits and 60.6% of total assets. At December 31, 1994, the
Bank had total gross loans outstanding of $94.1 million and loans held for sale
of $0.3 million. This represented 68.6% of total deposits and 61.7% of total
assets.
The Company offers a variety of commercial lending services, including
revolving lines of credit, working capital loans, equipment financing, letters
of credit and inventory financing. Typically, commercial loans are floating
rate obligations and are priced based on the Company's reference rate. The
Company makes loans to finance the construction of residential, commercial and
industrial properties and to finance land acquisition and development. The
Company's single family real estate construction loans typically have
maturities of up to nine months and are secured by deeds of trust and usually
do not exceed 80% of the appraised value of the home to be built. Land
development loans typically have maturities of twelve to twenty-four months;
have a floating rate tied to the Company's reference rate; usually do not
exceed 75% of the appraised value; are secured by a first deed of trust and, in
the case of corporations, are personally guaranteed. When the total amount of
real estate construction loan would otherwise exceed the Company's legal
lending limit, the Company seeks other financial institutions to facilitate the
extension of credit. Real estate construction and development loans as a
percentage of total gross loans outstanding were 14.5% at December 31, 1996,
compared to 13.7% at December 31, 1995, and 16.2% at December 31, 1994.
Risks associated with real estate construction and land development loans
are generally considered to be higher than risks associated with other forms of
lending in which commercial banks traditionally engage. The concentration in
the real estate construction and land development loan portfolio has been on
residential real estate construction loans. The California economy began to
exhibit signs of recovery in 1996 and sales of single-family residences
exhibited a small upturn. While the Company is continuing to fund real estate
construction and land development commitments, underwriting requirements
continue to be conservative.
Real estate residential loans as a percentage of total gross loans
outstanding were 21.6% at December 31, 1996, compared to 18.3% at December 31,
1995, and 17.0% at December 31, 1994. The increase in residential real estate
loans is attributable to a single-family residential loan promotion commenced
in the last quarter of 1995.
Real estate commercial and agricultural loans as a percentage of total
gross loans outstanding were 41.9% at December 31, 1996, compared to 47.4% at
December 31, 1995, and 45.2% at December 31, 1994. The Company has entered
into a number of SBA guaranteed loans and has loans where SBA has a second lien
position. These loans are eligible for sale on the secondary market but the
Company chose not to sell any of these loans in 1996, but could sell additional
SBA loans in 1997 if economically justified.
Consumer loans include loans to individuals, business customers, dealer
auto loans and credit card related plans. Automobile loans extended were $1.5
million or 33.3%, dealer auto loans were $0.3 million or 6.7%, other consumer
loans were $0.5 million or 11.1%, and credit cards and related plans were $2.2
million or 48.9% of total consumer loans at December 31, 1996, compared to
automobile loans of $1.4 million or 41.2%, dealer auto loans of $0.6 million or
17.6%, other consumer loans of $0.2 million or 5.9% and credit cards and
related plans of $1.2 million or 35.3% at December 31, 1995, and automobile
loans of $0.4 million or 20.0%, dealer auto loans of $1.0 million or 50.0%,
<PAGE>30
other consumer loans of $0.1 million or 5.0%, and credit cards and related
plans of $0.5 million or 25.0% at December 31, 1994. The other consumer loans
include mobile home and other personal loans.
Lease financing loans as a percentage of total gross loans outstanding
were 2.2% at December 31, 1996, compared to 3.4% at December 31, 1995, and 4.6%
at December 31, 1994. The decrease in Lease Receivable loans from 1996
compared to 1995 and 1995 compared to 1994 is due to the fact new leases
continue to be booked at a slower pace and the older portfolio is running off.
Loans held for sale totaled $63,000 at December 31, 1996, $1,880,000 at
December 31, 1995, and $322,000 at December 31, 1994, and represent single-
family residential mortgage loans originated by the Company. Loans are
classified as held for sale when the Company is waiting to sell the loan in the
secondary market to FNMA or PERS.
The following table sets forth certain trends in loans outstanding and the
composition of the loan portfolio for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Commercial, Industrial & Ag 20,559 14.1% 16,284 14.1% 13,950 14.8%
Real Estate-Const & Land Dev 21,205 14.5% 15,874 13.7% 15,273 16.2%
Real Estate-Residential 1-5 31,456 21.6% 21,156 18.3% 15,964 17.0%
Real Estate-Commercial & Ag 61,030 41.9% 54,879 47.4% 42,457 45.2%
Lease Financing 3,168 2.2% 3,974 3.4% 4,310 4.6%
Consumer Loans 4,529 3.1% 3,395 2.9% 2,007 2.1%
State & Political Loans 2,875 2.0% 0 0 0 0
Other 850 0.6% 159 0.2% 91 0.1%
Total Gross Loans 145,672 100% 115,721 100% 94,052 100%
Less Deferred Loan Fees <765> <616> <582>
Less Allowance For Loan <2,146> <1,868> <1,331>
Losses
Total Net Loans 142,761 113,237 92,139
Loans Held for Sale 63 1,880 322
Total Loans and Leases 142,824 115,117 92,461
</TABLE>
<PAGE>31
The table below summarizes the maturities of the Company's loan portfolio as of
December 31, 1996.
<TABLE>
<CAPTION>
AFTER ONE
BUT WITHIN
MATURING WITHIN ONE YEAR AFTER
(Dollars in Thousands) ONE YEAR FIVE YEARS TOTAL
<S> <C> <C> <C> <C>
Fixed Rate Loans:
Commercial 13,381 9,602 17,039 40,022
Real Estate 396 2,745 13,338 16,479
Lease Financing 633 2,535 0 3,168
Consumer Loans 730 1,670 251 2,651
Credit Card & Related 0 2,244 0 2,244
Overdrafts 850 0 0 850
Total Fixed Rate: 15,990 18,796 30,628 65,414
Variable Rate Loans:
Commercial 71,759 7,433 140 79,332
Real Estate 724 3 98 825
Consumer Loans 101 0 0 101
Total Variable Rate: 72,584 7,436 238 80,258
TOTAL LOANS: 88,574 26,232 30,866 145,672
</TABLE>
Commercial loan totals in the above table include numerous loans which are
secured by deed of trust which, for regulatory purposes, are considered as Real
Estate Loans and shown as such in the table on this page 23 dealing with "loans
outstanding and the composition of the loan portfolio" for 1996.
The Company's rollover policy is that all maturing loans are reviewed on a
case-by-case basis, new financial statements are requested from the borrower
and an in-depth credit analysis is performed after which the loan may be
extended, renewed, restructured or demand made for payment in full depending
upon the circumstances.
LOAN CONCENTRATIONS
At December 31, 1996, 1995 and 1994, the Company had no concentration of
loans which exceeded 10% of total loans.
<PAGE>32
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained at a level that
management of the Company considers to be adequate for losses that can be
reasonably anticipated. The allowance is increased by charges to operating
expenses and reduced by net charge-offs. The level of the allowance for loan
losses is based on management's evaluation of potential losses in the loan
portfolio, as well as prevailing and anticipated economic conditions.
Management employs a systematic methodology on a quarterly basis to
determine the amount of loan losses to be reported and the adequacy of the
allowance for current and future losses. Each loan is "graded" at the time of
origination, extension or renewal by the senior credit administrator. Gradings
are assigned a risk factor which is calculated to assess the adequacy of the
allowance for loan losses. Further, management considers other factors such as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, loan concentrations, trends in the level of delinquent and classified
loans, specific problem loans and commitments, and current and anticipated
economic conditions.
<PAGE>33
ANALYSIS OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
The following table summarizes the changes in the allowance for loan and
lease losses for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
(Dollars in Thousands) - 1996 - - 1995 - - 1994 -
<S> <C> <C> <C>
Balance at Beginning of Period: 1,868 1,331 858
Charge-Offs:
Commercial, Industrial & Ag <122> <11> 0
Real Estate-Commercial & Ag 0 0 0
Real Estate-Residential 1-5 <23> 0 0
Real Estate-Const & Land Dev 0 0 0
Real Estate-Non-Farm/Non-Residential <23> 0 0
Lease Financing <132> <254> <363>
Consumer <29> <23> <20>
Other <45> <30> 0
TOTAL: <374> <318> <383>
Recoveries:
Commercial, Industrial & Ag 78 9 7
Real Estate-Commercial & Ag 0 0 0
Real Estate-Residential 1-5 0 0 0
Real Estate-Const & Land Dev 0 0 0
Real Estate-Non-Farm/Non-Residential 0 0 0
Lease Financing 34 49 62
Consumer 5 4 4
Other 2 1 0
TOTAL: 119 63 73
Net Charge-Offs: <255> <255> <310>
Provision Charged to Operations 533 792 783
Balance at End of Period 2,146 1,868 1,331
Ratio of Net Charge-Offs to Avg Loans -0.19% -0.25% -0.34%
Average Loans 134,289 103,103 90,099
</TABLE>
<PAGE>34
Charge-offs for the three years ended December 31, 1996, were
$1,075,000 of which $255,000 has been recovered.
NON-PERFORMING ASSETS
The Company's policy is to recognize interest income on an accrual
basis unless the full collectibility of principal and interest is
uncertain. Loans that are delinquent 90 days or more, unless well secured
and in the process of collection, are placed on a cash basis and previously
accrued but uncollected interest is reversed against income. Thereafter,
income is recognized only as it is collected in cash. Collectibility is
determined by considering the borrower's financial condition, cash flow,
quality of management, the existence of collateral or guarantees and the
state of the local economy.
The following table provides information with respect to all non-
performing assets.
NON-PERFORMING ASSETS AT DECEMBER 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) - 1996 - - 1995 - - 1994 -
<S> <C> <C> <C>
Loans 90 days or more past due
and still accruing $122 $193 $224
Non-accrual loans $218 $619 $ 74
Restructured Loans
30 days or more past due 0 $ 75 $ 73
Lease Financing
90 days or more past due $37 $ 68 $139
Other Real Estate Owned $233 0 0
Total Non-Performing Assets $610 $955 $510
Non-Performing Assets to Total
Gross Loans Plus O.R.E.O. 0.42% 0.83% 0.54%
</TABLE>
The decrease in non-performing assets at December 31, 1996, compared
to December 31, 1995, is mainly due to a reduction in non-accrual loans, a
reduction in lease financing which were awaiting charge-off at the January
1997 Board of Directors meeting, partially offset by an increase in
O.R.E.O. The increase in non-performing assets at December 31, 1995,
compared to December 31, 1994, is due to an increase in non-accrual loans
offset in part by reductions in lease financing loans which were awaiting
charge-off at the January 1996 Board of Directors meeting.
The table below shows the gross interest income that would have been
recorded at December 31, 1996, if these loans had been current in
accordance with their original terms and had been outstanding throughout
the period or since origination if new for part of the period; and the
amount of interest that was included in net income for the period.
<PAGE>35
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
GROSS INTEREST GROSS INTEREST GROSS INTEREST
(In Dollars) INCOME EARNED INCOME EARNED INCOME EARNED
Non-Accrual Loans $22,400 0 $66,600 0 $8,300 0
90 Days Past Due Restructured 0 0 0 0 0 0
Loans
Other Real Estate Owned $27,400 0 0 0 0 0
</TABLE>
The lease financing and other loans which were past due 90 days or more
were all still accruing interest at their stated contract rate.
POTENTIAL PROBLEM LOANS
In management's opinion, other than the lease financing loans awaiting
charge-off in January 1997, there are no loans past due and still accruing
on December 31, 1996, that present significant exposure to the Company
because they are all well secured and in process of collection. Of the
$218,000 in non-accrual loans and $233,000 in O.R.E.O., management feels
confident that $451,000 will eventually be collected.
At December 31, 1996, there are no loans or other interest bearing
assets classified for regulatory purposes as loss, doubtful, substandard or
special mention that (i) represent or resulted from trends or uncertainties
which management anticipates could have a material impact on future operating
results, liquidity or capital resources, or (ii) represented material credits
or assets about which management had information that would cause serious
doubt as to the ability of the borrower to comply with the repayment terms.
INVESTMENT PORTFOLIO
The Company invests excess funds in a variety of instruments in order to
meet liquidity and profitability goals. A portion of available funds are
invested in liquid investments such as overnight federal funds. The balance
is invested in investment securities such as U.S. Treasury and Agency
securities (including CMO's), tax-exempt municipal bonds, corporate bonds and
Federal Reserve Bank, FHLB and FNMA stock, etc. See "Liquidity."
<PAGE>36
The composition of the investment portfolio is shown in the table below
at book and market value. On November 16, 1995, a one-time change to the
Bank's category allocation was permitted and the Bank elected to categorize
all investments as "Available For Sale".
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94
BOOK MARKET BOOK MARKET BOOK MARKET
(DOLLARS IN THOUSANDS) VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
US Treasury Securities-AFS 3,056 3,105 10,169 10,377 11,140 10,962
US Treasury Securities-HTM 0 0 0 0 3,038 2,954
US Govt Agencies-AFS 1,002 1,011 7,951 8,159 4,000 3,784
US Govt Agencies-HTM 0 0 0 0 4,000 3,929
Coll Mort Obligations-AFS 23,331 23,562 21,955 22,481 7,374 7,291
Coll Mort Obligations-HTM 0 0 0 0 4,297 4,248
Municipal Securities-AFS 10,172 10,499 10,775 11,214 0 0
Municipal Securities-HTM 0 0 0 0 2,415 2,377
Federal Reserve Bank Stock 446 446 445 445 395 395
Corporate Bonds 0 0 0 0 0 0
Other Securities-AFS 1,309 1,310 1,187 1,199 1,139 1,077
TOTAL 39,316 39,933 52,482 53,875 37,798 37,017
Mark to Market Analysis
Available for Sale (AFS) 39,316 39,933 52,482 53,875 24,048 23,509
Held to Maturity (HTM) 0 0 0 0 13,750 13,508
TOTAL PORTFOLIO 39,316 39,933 52,482 53,875 37,798 37,017
Unrealized Gain/Loss on
Securities:
Available for Sale (AFS) 617 1,393 <539>
Held to Maturity (HTM) 0 0 <242>
TOTAL UNREALIZED GAIN/LOSS 617 1,393 <781>
</TABLE>
<PAGE>37
The table below summarizes the maturities of the Company's investment
securities as of December 31, 1996:
<TABLE>
<CAPTION>
MATURING: AFTER ONE AFTER FIVE
(Dollars in thousands) WITHIN BUT WITHIN BUT WITHIN TEN YEARS
MARKET VALUE ONE YEAR FIVE YEARS TEN YEARS AND AFTER TOTAL
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities 1,024 2,081 0 0 3,105
U.S. Government Agencies 0 1,011 0 0 1,011
Collateralized Mortgage Obligations 2,508 11,154 8,219 1,681 23,562
Municipal Securities 454 1,068 2,976 6,001 10,499
Sub-Total 3,986 15,314 11,195 7,682 38,177
Equity Securities 528 176 0 1,052 1,756
TOTAL 4,514 15,490 11,195 8,734 39,933
Unrealized Gain/Loss On AFS
(included in figures above) 32 195 212 178 617
</TABLE>
The table below summarizes the Company's investment securities by weighted
average yield as of December 31, 1996.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN TEN YEARS
ONE YEAR FIVE YEARS TEN YEARS AND AFTER TOTAL
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities 7.24% 6.87% - - - - 7.00%
U.S. Government Agencies - - 6.53% - - - - 6.53%
Collateralized Mortgage Obligations 7.93% 5.79% 5.67% 5.79% 6.00%
Municipal Securities 7.28% 7.77% 8.29% 8.22% 8.14%
Equity Securities 11.09% 8.35% - - 6.19% 7.87%
</TABLE>
The yields shown for municipal securities and equity securities are
calculated on a taxable equivalent basis.
Municipal securities (Book Value) decreased slightly by $603,000 at
December 31, 1996, compared to December 31, 1995. They increased by $8,360,000
at December 31, 1995, compared to December 31, 1994. This increase can be
attributed to a change in investment strategy begun in late 1994 of investing
<PAGE>38
in well structured, relatively short term collateralized mortgage obligations
and longer term municipal securities, the latter of which have a tendency to
lower the Bank's tax obligations.
At December 31, 1996, the book value of the following issuer's securities
exceeded ten percent of the Company's capital.
ISSUER BOOK VALUE MARKET VALUE
U.S. Treasury $ 3,056,000 $ 3,105,000
FHLMC CMO's $ 6,726,000 $ 6,759,000
GNMA CMO's $ 4,573,000 $ 4,599,000
FNMA CMO's $12,032,000 $12,204,000
DEPOSITS
Deposits, including non-interest bearing demand deposits, increased $18.1
million or 10.34% in 1996 to $192.6 million from $174.5 million in 1995. The
table below sets forth certain information regarding trends in the Company's
deposits for 1996, and the Bank's deposits for 1995 and 1994.
<TABLE>
<CAPTION>
DEPOSITS: 12/31/96 12/31/95 12/31/94
(Dollars in Thousands) AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Demand 50,412 26.2% 39,878 22.9% 25,983 18.9%
Demand-Interest Bearing 41,511 21.6% 41,544 23.8% 37,514 27.3%
Time-$100,000 and over 26,432 13.7% 23,230 13.3% 18,804 13.7%
Other Time 57,951 30.1% 54,098 31.0% 44,160 32.0%
Savings 16,270 8.4% 15,776 9.00% 11,163 8.1%
Total Deposits 192,576 100% 174,526 100% 137,624 100%
</TABLE>
The table below indicates the average rates of interest paid on each
deposit category.
1996 1995 1994
Now Accounts 1.01% 1.07% 1.03%
MMDA Accounts 3.20% 2.99% 2.49%
Savings Accounts 1.98% 2.05% 2.06%
Time Certificates of Deposit 5.33% 5.31% 4.25%
<PAGE>39
Time certificates of deposit over $100,000 constituted 13.7%, 13.3% and
13.7% of total deposits for 1996, 1995 and 1994 respectively. The Bank has
never had brokered deposits and does not intend to seek such deposits. All
public time certificates of deposit are from local government agencies located
in Humboldt and Trinity Counties.
Time certificates of deposit at December 31, 1996, had the following
schedule of maturities:
(DOLLARS IN THOUSANDS) $100,000+ OTHERS
Three months or less $ 9,577 $19,597
Over three months through six months $ 8,501 $14,311
Over six months through twelve months $ 6,004 $14,757
Over twelve months $ 2,350 $ 9,286
TOTAL: $26,432 $57,951
At December 31, 1996, certificates of deposit over $100,000 totaling $24.1
million or 12.5% of total deposits were scheduled to mature within one year.
At December 31, 1995, certificates of deposit over $100,000 totaling $19.9
million or 11.4% of total deposits were scheduled to mature within one year.
At December 31, 1994, certificates of deposit over $100,000 totaling $17.4
million or 12.6% of total deposits were scheduled to mature within one year.
Although the Company has not experienced seasonal or unusual fluctuations in
this component of the deposit portfolio, management recognizes that these types
of deposits may represent a greater risk or interest rate and volume volatility
than small retail deposits. Management believes that the presumed volatility
of such deposits presents an acceptable risk and withdrawal of such
certificates of deposit would not have a material impact on the liquidity
position of the Company.
INTEREST RATE SENSITIVITY
The operating income and net income of the Company depend to a substantial
extent on "rate differentials", i.e., the difference between the income the
Company receives from loans, securities and other earning assets, and the
interest expense it pays on deposits and other liabilities.
The interest rate sensitivity of the Company is measured over time and is
based on the Company's ability to reprice its assets and liabilities. The
opportunity to reprice assets in the same dollar amounts and at the same time
as liabilities would minimize interest rate risk in any interest rate
environment. The difference between the amount of assets and liabilities
repriced at the same time is referred to as the "gap". This gap represents the
risk, or opportunity, in repricing. If more assets than liabilities are
repriced at a given time in a rising rate environment, net interest income
would improve, and in a declining rate environment, net interest income would
deteriorate. If more liabilities than assets are repriced under the same
conditions, the opposite results would prevail. The Company is asset sensitive
and its near term performance could be enhanced by rising rates and negatively
affected by falling rates in the next twelve months.
<PAGE>40
The table below sets forth the distribution of repricing of the earning
assets and interest-bearing liabilities for the respective periods at December
31, 1996.
<TABLE>
<CAPTION>
ASSETS OR LIABILITIES NEXT DAY OVER ONE
WHICH MATURE OR REPRICE: AND WITHIN BUT WITHIN OVER
(Dollars in thousands) ONE YEAR FIVE YEARS FIVE YEARS TOTAL
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Due from Bank Time 20 0 0 20
Federal Funds 6,570 0 0 6,570
Investments-Excluding Equities 3,986 15,314 18,877 38,177
Loans 88,574 26,232 30,866 145,672
TOTAL 99,150 41,546 49,743 190,439
Interest-Bearing Liabilities:
Interest-Bearing Demand 41,511 0 0 41,511
Savings and Other Time 64,935 9,156 130 74,221
Time Cert Over $100,000 24,082 2,350 0 26,432
Other Borrowed Funds 13 65 697 775
TOTAL 130,541 11,571 827 142,939
Interest Rate Sensitivity Gap <31,391> 29,975 48,916 47,500
Cumulative Interest Rate
Sensitivity Gap <31,391> <1,416> <47,500>
</TABLE>
LIQUIDITY
The Company's liquidity is primarily a reflection of its ability to
acquire funds to meet loan demand and deposit withdrawals and to service older
liabilities as they come due. To augment liquidity, the Company has a Federal
Funds borrowing arrangement with two correspondent banks totaling $10 million
and maintains a credit arrangement with the Federal Reserve Bank of San
Francisco for open window borrowings.
Additionally, the Company is a member of the Federal Home Loan Bank and
through membership has the ability to pledge qualifying collateral for short
term (up to six months) and long term (up to five years) borrowings.
Management may use this facility to fund loan advances and pledge single-family
residential mortgages as qualifying collateral.
<PAGE>41
The liquidity position of the Company may be expressed as a ratio defined
as cash, due from banks, Federal Funds sold, interest bearing deposits and
market value of available for sale securities, divided by total deposits, less
public deposits. Using this definition, at December 31, 1996, the Bank had a
liquidity ratio of 26.4% compared to 35.0% at December 31, 1995, and 26.9% at
December 31, 1994. The decrease in liquidity at December 31, 1996, compared to
December 31, 1995, is attributed to the increase in loans; the increase at
December 31, 1995, compared to December 31, 1994, was attributed to the
increase in deposits being invested in Available for Sale securities which
appreciated significantly, rather than loans.
Part of the Company's normal lending activity involves making commitments
to extend credit. One risk associated with the loan commitments is the demand
on the Company's liquidity that would result if a significant portion of the
commitments were unexpectedly funded at one time. The Company assesses the
likelihood of projected funding requirements by reviewing historical patterns,
current and forecasted economic conditions and individual client funding needs.
At December 31, 1996, the Bank had $38.5 million in undisbursed commitments.
Further, management maintains unpledged U.S. Government securities that are
available to secure additional borrowings in the form of reverse repurchase
agreements. At December 31, 1996, U.S. Government securities (at market value)
available for reverse repurchase agreements totaled approximately $1.0 million.
In addition, the Company had U.S. Government Agency CMO's (at market value) of
approximately $23.6 million which were unpledged. Management believes that
this provides the Company with the necessary liquid assets to satisfy funding
requirements in the unlikely event of substantially higher than projected
customer funding requirements.
CAPITAL RESOURCES
Shareholders' equity increased to $19.6 million at December 31, 1996, an
increase of $2.7 million or 16.0% compared with $16.9 million at December 31,
1995, which was an increase of $3.3 million or 24.3% compared with the $13.6
million at December 31, 1994. At December 31, 1995 and 1994, the Bank's risk-
based capital ratio was 12.62% and 13.78% respectively. The following table
sets forth the Company's actual regulatory capital position as of December 31,
1996.
RISK-BASED CAPITAL RATIOS
(DOLLARS IN THOUSANDS) AMOUNT RATIO
Tier 1 Capital 18,307 11.35%
Tier 1 Minimum Requirement 9,675 6.00%
Excess (Shortfall) 8,632 5.35%
Total Capital 20,324 12.60%
Total Capital Minimum Requirement 16,125 10.00%
Excess (Shortfall) 4,199 2.60%
Risk-Adjusted Assets 161,252
<PAGE>42
At December 31, 1996, the Bank's leverage ratio was 8.53% and the
Company's leverage ratio was 8.58%. At December 31, 1995 and 1994, the Bank's
leverage ratio was 7.64% and 8.55% respectively. The Company has not been
advised by any regulatory agency that it is deficient with respect to the Tier
1 leverage ratio. Management is unaware of any current recommendations by
regulatory authorities which, if implemented, would have a material adverse
impact on future operating results, liquidity of capital resources.
EFFECTS OF INFLATION
Assets and liabilities of financial institutions are principally monetary
in nature. Accordingly, interest rates, which generally move with the rate of
inflation, have a potentially significant effect on the Company's net interest
income. The Company attempts to limit inflation's impact of rates and net
income margins through a continuing asset/liability management program.
<PAGE>43
The balance sheet of the Parent Company at December 31, 1996, contained
the following items:
ASSETS: (Dollars in Thousands)
Cash on Deposit with Subsidiary $104
Investment in Subsidiary Including Unrealized
Holding Gains $19,479
Organizational Costs $17
Total Assets $19,600
CAPITAL:
Common Stock $17,179
Retained Earnings $2,060
Net Unrealized Holding Gains (Losses) $361
Total Capital $19,600
The Statement of Income and Expense of the Company
at December 31, 1996, Contained the Following Items:
INCOME:
Stock Transfer Fees $1
Dividends from Subsidiary $0
Total Income $1
EXPENSES:
Miscellaneous $5
Stationery & Supplies $6
Legal Expense $9
Taxes Paid $3
Income Before Undistributed Income of Subsidiary <$22>
Equity in Undisbursed Income of Subsidiary $2,998
Net Income $2,976
The Federal Reserve Bank regulations for bank holding companies require
that net unrealized holding gains/(losses) be included in the balance sheet for
the parent company under "Investment in Subsidiary" where as the audited
financial statements prepared by our Certified Public Accountants do not. The
amount of unrealized gains in 1996 was $361,000.
<PAGE>44
The $1,000 in stock transfer fees was for fees charged relative to the
transfer of ownership of Bancorp Stock Certificates. The miscellaneous
expenses of $5,000 relate to the filing fees and expenses incurred with the
1996 proxy solicitation. The stationery & supplies expense of $6,000 relate to
the purchase of Bancorp Stock Certificates and the write down of the stationery
& supply organizational expense. The legal expenses of $9,000 relate to legal
expenses incurred to establish the Holding Company. The tax expense of $3,000
relate to minimum Franchise Taxes payable to the State of California. For
additional information, please refer to the 1996 audited financial statements.
ITEM 7 - FINANCIAL STATEMENTS
Financial statements meeting the requirements of Item 310(a) of Regulation
S-B are attached to this report.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the three most recent fiscal years, neither the Company nor the
Bank has changed accountants and neither the Company nor the Bank has had a
disagreement with its accountants with respect to accounting principles or
practices of financial statement disclosure.
<PAGE>45
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
BOARD OF DIRECTORS - Each of the Directors has served as a director of the
Company and/or the Bank since the initial appointment of directors in September
1989 except Messrs. Francesconi and McBeth who were appointed in May 1991 and
1992 respectively, Marguerite Dalianes who was appointed in March 1992, Clayton
Janssen who was appointed in December 1993 and Mike Renner who was appointed in
November 1996.
Each of the Directors has been elected to serve for the ensuing year and
until his or her successor is elected and qualified at the annual stockholder
meeting of Humboldt Bank and Humboldt Bancorp on April 16, 1997. The
Directors, their ages and their principal occupations during the past five
years are:
MYRON T. ABRAHAMSEN, 75, Retired Insurance Agent and Broker formerly with
George Petersen & Associates.
RONALD F. ANGELL, 54, Attorney and Partner with the firm of Roberts, Hill,
Calligan, Bragg, Feeney & Angell.
MARGUERITE DALIANES, 53, President of Dalianes Travel Service.
FRANCIS A. DUTRA, 66, Retired President of Dutra Trucking Company.
GARY L. EVANS, 54, Certified Public Accountant associated with the firm of
Aalfs, Evans & Company.
LAWRENCE FRANCESCONI, 66, Retired Owner of Redwood Bootery.
CLAYTON R. JANSSEN, 71, Attorney and Partner with the firm of Janssen,
Malloy, Marchi, Needham & Morrison.
THEODORE S. MASON, 54, President and Chief Executive Officer of the
Company and/or Bank since March 1989. Prior to 1989 Mr. Mason was Manager
of the Eureka Main Office of Bank of America for approximately five years.
JOHN MCBETH, 50, President of O & M Industries.
MIKE RENNER, 44, President of L & M Renner, Inc.
JOHN R. WINZLER, 66, Consulting Engineer and President of Winzler & Kelly.
EXECUTIVE OFFICERS - The following are the names of the executive officers
of the Company and/or the Bank and certain information concerning each of them:
THEODORE S. MASON, 54, President and Chief Executive Officer of the
Company and/or the Bank since its inception in 1989.
ALAN J. SMYTH, 63, Senior Vice President, Chief Financial Officer and
Secretary of the Company and/or the Bank since its inception in 1989.
RONALD V. BARKLEY, 60, Senior Vice President and Loan Administrator of the
Company and/or the Bank since its inception in 1989.
PAUL A. ZIEGLER, 39, Vice President and Chief Administrative Officer of
the Company and/or the Bank since January 1994.
<PAGE>46
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, all
directors and officers have filed Forms 3, 4 and 5 in a timely manner, except
for Mr. Renner who inadvertently filed his initial Form 3 late.
ITEM 10 - EXECUTIVE COMPENSATION
The following tables set forth the cash and non-cash compensation paid for
all services of the Chief Executive Officer, Theodore S. Mason, the Chief
Financial Officer, Alan J. Smyth, the Senior Loan Officer, Ronald V. Barkley
and the Chief Administrative Officer, Paul A. Ziegler.
<TABLE>
<CAPTION>
OTHER
ANNUAL DEFERRED OPTIONS
NAME YEAR SALARY BONUS{(2)} COMP{(3)} COMP{(4)} GRANTED
<S> <C> <C> <C> <C> <C> <C>
Theodore S. Mason{(1)} 1996 $105,000 $70,906 $1,658 $100,000 2,000
Theodore S. Mason 1995 $105,000 $52,001 $1,464 $60,000 3,000
Theodore S. Mason 1994 $99,000 $18,803 $1,464 $60,004 1,000
Alan J. Smyth 1996 $70,000 $68,017 $2,331 $50,000 1,000
Alan J. Smyth 1995 $70,000 $55,410 $2,506 $31,668 500
Alan J. Smyth 1994 $66,333 $15,871 $1,776 $30,000 1,000
Ronald V. Barkley 1996 $70,000 $12,926 $2,250 $45,000 1,000
Ronald V. Barkley 1995 $70,000 $48,884 $1,750 $31,703 500
Ronald V. Barkley 1994 $66,333 $28,022 $1,282 $30,000 1,000
Paul A. Ziegler 1996 $70,000 $24,600 $631 0.00 1,000
Paul A. Ziegler 1995 $55,070 $14,015 $553 0.00 500
Paul A. Ziegler 1994 $52,500 $5,000 $506 0.00 2,800
</TABLE>
(1) Humboldt Bank entered into an employment agreement with Mr. Mason on May
1, 1989, whereby Mr. Mason agreed to serve as the Bank's President and
Chief Executive Officer, which Agreement has recently been extended a
third time to January 1, 2001. Under the terms of the Agreement, Mr.
Mason is entitled to receive a base salary of $125,000.00 per year and an
incentive bonus based on a percentage ranging from 4% to 2.5% of the
Bank's pre-tax profits pursuant to an incentive bonus plan. During his
term of employment, Mr. Mason may be reimbursed for travel, meals,
entertainment expenses, service to charitable organizations, and
membership in certain committees and other organizations. In addition, he
is eligible for typical employee benefits such as paid vacation, sick
leave, medical insurance and the use of an automobile owned by the Bank.
(2) Includes amounts paid to Mr. Mason, Mr. Smyth, Mr. Barkley and Mr. Ziegler
pursuant to the Bank's Incentive Bonus Plan.
(3) Includes amounts imputed to Mr. Mason, Mr. Smyth, Mr. Barkley and Mr.
Ziegler as income for tax purposes pursuant to the Bank's automobile
program and the Bank's life insurance program.
(4) Includes amounts of salary or bonus deferred by Mr. Mason, Mr. Smyth and
Mr. Barkley pursuant to the Bank's Deferred Compensation Plan. The
amounts in this column are not included in the Salary and Bonus columns.
<PAGE>47
BENEFIT PLANS
RETIREMENT PLAN: The Bank has a defined contribution retirement plan
covering substantially all of the Bank's employees. Bank contributions to the
plan are made at the discretion of the Board of Directors in an amount not to
exceed the maximum amount deductible under the profit sharing plan rules of the
Internal Revenue Service. Employees may elect to have a portion of their
compensation contributed to the plan in conformity with the requirements of
Section 401(k) of the Internal Revenue Code. Salaries and employee benefits
expense includes Bank contributions to the plan of $98,000 during 1996 and
$61,000 during 1995.
DIRECTOR FEE PLAN: The Bancorp has adopted the Humboldt Bank Director Fee
Plan (the "Fee Plan"). The Fee Plan permits each Bank director to elect to
receive his/her directors' fees in the form of Bancorp common stock, cash, or a
combination of Bancorp common stock and cash, and to elect to defer the receipt
of any of the foregoing until the end of his/her term as a Bank director. If
deferral is elected, the amount of the director's fees shall be credited to an
account on behalf of the director, however, such crediting shall constitute a
mere promise on the part of the Bank and Bancorp to pay/distribute on this
account. The account is otherwise unsecured, unfunded and subject to the
general claims of creditors of the Bank and Bancorp. The Fee Plan provides for
the issuance of up to 40,000 shares of Bancorp common stock. The amount of
such fees deferred in 1996 totaled $20,000. At December 31, 1996, the
liability for amounts due under this plan totaled $20,000, or approximately
1,000 shares of stock.
EMPLOYEE STOCK BONUS PLAN: The Bancorp has an Employee Stock Bonus Plan
which is funded annually at the sole discretion of the Board of Directors.
Funds are invested in Bancorp stock, when available, and is purchased at the
current market price on behalf of all employees except the executive officers
of the Bank. The compensation cost recognized for 1996 and 1995 was $20,000
each year.
POSTEMPLOYMENT BENEFIT PLANS AND LIFE INSURANCE POLICIES: The Bank has
purchased single premium life insurance policies in connection with the
implementation of salary continuation and deferred compensation plans for
certain key employees. The policies provide protection against the adverse
financial effects from the death of a key employee and provide income to offset
expenses associated with the plans. The specified employees are insured under
the policies, but the Bank is the owner and beneficiary. At December 31, 1996
and 1995, the cash surrender value of these policies totaled approximately
$4,583,000 and $2,150,000 respectively.
The plans are unfunded and provide for the Bank to pay the employees
specified amounts for specified periods after retirement and allow the
employees to defer a portion of current compensation in exchange for the Bank's
commitment to pay a deferred benefit at retirement. If death occurs prior to
or during retirement, the Bank will pay the employee's beneficiary or estate
the benefits set forth in the plans.
At December 31, 1996 and 1995, liabilities recorded for the estimated
present value of future salary continuation and deferred compensation benefits
totaled approximately $932,000 and $582,000, respectively. Salary continuation
benefits may be paid if termination is without cause or due to a change in
control of the Bank. Otherwise no benefits are paid upon termination.
Deferred compensation is vested as to the amounts deferred. In the event of
death or under certain other circumstances, the Bank is contingently liable to
<PAGE>48
make future payments greater than the amounts recorded as liabilities. Based
on present circumstances, the Bank does not consider it probable that such a
contingent liability will be incurred or that in the event of death, such a
liability would be material after consideration of life insurance benefits.
STOCK OPTION PLAN: The Bancorp has a stock option plan under which
incentive and nonstatutory stock options, as defined under the Internal Revenue
Code, may be granted. Options representing 87,484 shares of the Bancorp's
issued and outstanding no par value common stock may be granted under the plan
by the Board of Directors to directors, officers and key, full-time employees
at an exercise price not less than the fair market value of the shares on the
date of grant. Options representing 300,644 shares of the Bancorp's issued and
outstanding common stock may be granted under the Humboldt Bank Stock Option
Plan. Options may have an exercise period of not longer than 10 (ten) years
and the options are subject to a graded vesting schedule of 33% per year for
incentive stock options and 20% per year for nonstatutory stock options.
The following tables set forth the number of options granted to the
Company's executive officers during 1996 and the number and value of
unexercised options held by such executive officers as of the end of 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
OPTIONS GRANTED EXERCISE APPRECIATION FOR
OPTIONS TO EMPLOYEES PRICE EXPIRATION OPTION TERM
NAME GRANTED IN 1996 PER SHARE DATE 5% / 10%
<S> <C> <C> <C> <C> <C>
Theodore S. Mason 2000 17.39% $14.55 January 1, 2006 $18,300 / $46,380
Alan J. Smyth 1000 8.70% $14.55 January 1, 2006 $ 9,150 / $23,190
Ronald V. Barkley 1000 8.70% $14.55 January 1, 2006 $ 9,150 / $23,190
Paul A. Ziegler 1000 8.70% $14.55 January 1, 2006 $ 9,150 / $23,190
</TABLE>
<PAGE>49
AGGREGATED OPTION EXERCISES IN 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED UNEXERCISED
ACQUIRED ON OPTIONS AT YEAR-END IN-THE-MONEY
EXERCISE VALUE (EXERCISABLE/ (EXERCISABLE/
NAME REALIZED UNEXERCISABLE) UNEXERCISABLE)
<S> <C> <C> <C> <C>
Theodore S. Mason -0- -0- 52,628 / 5,023 $444,359 / $65,426
Alan J. Smyth -0- -0- 24,981 / 1,907 $211,792 / $25,463
Ronald V. Barkley -0- -0- 24,981 / 1,907 $211,792 / $25,463
Paul A. Ziegler -0- -0- 2,964 / 2,884 $31,486 / $35,337
</TABLE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Management of the Company knows of no person who owns, beneficially or of
record, either individually or together with associates, more than five percent
of the outstanding shares of Humboldt's Common Stock, except as set forth in
the table below. Unless otherwise indicated, the persons listed have sole
voting and investment power over the shares beneficially owned.
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 31, 1996, the number and
percentage of shares of Humboldt's outstanding Common Stock, which are
beneficially owned, directly or indirectly, by (a) each of Humboldt's directors
and nominees for director; (b) the Chief Executive Officer of Humboldt and each
of the Company's three executive officers other than the Chief Executive
Officer (the "named executive officers"); and (c) Humboldt's directors and the
named executive officers as a group. *The Company identifies as its executive
officers the Chief Executive Officer, the Chief Financial Officer, the Senior
Loan Officer and the Chief Administrative Officer of Humboldt who have a
significant impact on the overall direction of financial reporting of the
Company. The shares "beneficially owned" are determined under Securities and
Exchange Commission Rules, and do not necessarily indicate ownership for any
other purpose. In general, beneficial ownership includes shares over which the
indicated person has sole or shared voting or investment power and shares which
he/she has the right to acquire within 60 days of December 31, 1996. Unless
otherwise indicated, the persons listed have sole voting and investment power
over the shares beneficially owned. Management is not aware of any
arrangements which may, at a subsequent date, result in a change of control of
the Company.
<PAGE>50
<TABLE>
<CAPTION>
OPTIONS
SHARES EXERCISABLE
HELD BY 3/1/97 TOTAL %
<S> <C> <C> <C> <C>
Myron T. Abrahamsen 11,949 8,696 20,645 1.45
Ronald F. Angell 14,698 8,568 23,266 1.64
Marguerite Dalianes 6,035 5,511 11,546 0.82
Francis A. Dutra 68,264 10,167 78,431 5.52
Gary L. Evans 13,048 12,960 26,008 1.83
Lawrence Francesconi 12,928 8,521 21,449 1.51
Clayton R. Janssen 9,695 4,087 13,782 0.97
John McBeth 24,567 6,304 30,871 2.18
Michael Renner 5,574 200 5,774 0.41
John R. Winzler 20,212 12,960 33,172 2.33
Theodore S. Mason 5,264 53,361 58,625 4.00
Alan J. Smyth 0 25,348 25,348 1.77
Ronald V. Barkley 151 25,348 25,499 1.78
Paul A. Ziegler 0 4,389 4,389 0.31
TOTAL: 192,385 186,420 378,805 23.72
a) Director Nominees 192,234 131,335 323,569 20.98
b) Executive Officers 5,415 108,446 113,861 7.49
c) Directors & Executive Officers 192,385 186,420 378,805 23.72
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has and expects to have in the future, in the ordinary course
of business, banking transactions with certain of its directors, officers,
shareholders, and their associates, including transactions with corporations of
which such persons are directors, officers or controlling shareholders. In the
opinion of management, such transactions involving loans have been and will be
entered into with such persons in accordance with applicable laws and (1) in
the ordinary course of business, (2) on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and (3) on terms not involving more than the
normal risk of collectibility or presenting other unfavorable features. For
additional reference see Note "N" of the Company's Annual Report to
Shareholders prepared by Richardson & Company.
<PAGE>51
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits below are filed or incorporated by reference as part of this
report pursuant to Item 601 of Regulation S-B.
Exhibit Sequentially
Number Exhibits Numbered Page
2.1 Plan of Reorganization and Merger Agreement
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Copy of the Share Certificate for Common Shares
10.1 Amended Employment Agreement with Theodore S. Mason
10.2 Employment Agreement with Ronald V. Barkley*
10.3 Employment Agreement with Alan J. Smyth*
10.4 Employment Agreement with Paul A. Ziegler*
10.5 Humboldt Bancorp Stock Option Plan**
10.6 Stock Option Agreements with Theodore S. Mason***
10.7 Stock Option Agreements with Ronald V. Barkley***
10.8 Stock Option Agreements with Alan J. Smyth***
10.9 Stock Option Agreements with Paul A. Ziegler***
10.1 Humboldt Bank Director Fee Plan**
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1996.
(c) Independent Auditors Report dated January 17, 1997
* Incorporated by reference to the Bank's Form 10 Registration Statement and
amendments thereto which was previously filed with the Federal Reserve
Board on May 1, 1992.
** Incorporated by reference to the Bank's definitive Proxy Statement filed
pursuant to Regulation 14(a) within 120 days of the end of the last fiscal
year.
*** Incorporated by reference to the Bank's 1992 Form 10-K previously filed
with the Federal Reserve Board.
<PAGE>52
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HUMBOLDT BANCORP
THEODORE S. MASON
Dated: March 10, 1997 By:___________________________________
Theodore S. Mason
President & Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
THEODORE S. MASON ALAN J. SMYTH
___________________________________ _____________________________________
Theodore S. Mason, President, Chief Alan J. Smyth, Senior Vice President &
Executive Officer & Director Board Secretary
(Principal Executive Officer) (Principal Financial & Accounting
Officer)
MYRON T. ABRAHAMSEN RONALD F. ANGELL
___________________________________ _____________________________________
Myron T. Abrahamsen, Director Ronald F. Angell, Chairman of the Board
MARGUERITE DALIANES FRANCIS A. DUTRA
___________________________________ _____________________________________
Marguerite Dalianes, Director Francis A. Dutra, Director
GARY L. EVANS LAWRENCE FRANCESCONI
___________________________________ _____________________________________
Gary L. Evans, Director Lawrence Francesconi, Director
CLAYTON R. JANSSEN JOHN M. MCBETH
___________________________________ _____________________________________
Clayton R. Janssen, Director John M. McBeth, Director
MICHAEL RENNER JOHN R. WINZLER
___________________________________ _____________________________________
Michael Renner, Director John R. Winzler, Director
<PAGE>F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Humboldt Bancorp and Subsidiary
Eureka, California
We have audited the accompanying consolidated balance sheets of Humboldt
Bancorp (Bancorp) and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Bancorp's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Humboldt Bancorp
and Subsidiary at December 31, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
January 17, 1997 RICHARDSON & COMPANY
<PAGE>F-2
HUMBOLDT BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(dollars in thousands)
1996 1995
ASSETS
Cash and due from banks $ 10,247 $ 7,281
Interest-bearing deposits in other banks 20 1,120
Federal funds sold 6,570 5,470
Investment securities, at fair value 39,933 53,875
Loans and leases held for sale 63 1,880
Loans and lease financing receivables, net 142,761 113,237
Premises and equipment, net 6,064 5,011
Accrued interest receivable and other assets 9,080 6,039
-------- --------
TOTAL ASSETS $ 214,738 $ 193,913
========= =========
LIABILITIES
Deposits
Noninterest-bearing demand $ 50,412 $ 39,878
Interest-bearing 142,164 134,648
-------- --------
Total Deposits 192,576 174,526
Accrued interest payable and other liabilities 1,787 1,665
Long-term debt 775 787
-------- --------
TOTAL LIABILITIES 195,138 176,978
Commitments and contingencies
(see accompanying notes)
STOCKHOLDERS' EQUITY
Common stock, no par value; 20,000,000 shares
authorized, 1,410,767 shares in 1996 and
1,266,509 shares in 1995 issued and outstanding 17,179 14,852
Retained earnings 2,060 1,268
Unrealized gains on securities available for sale,
net of applicable deferred income taxes 361 815
-------- --------
TOTAL STOCKHOLDERS' EQUITY 19,600 16,935
TOTAL LIABILITIES AND -------- --------
STOCKHOLDERS' EQUITY $ 214,738 $ 193,913
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>F-3
HUMBOLDT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 13,773 $ 11,391 $ 9,497
Interest and dividends on investment securities
Taxable 1,687 2,773 1,206
Exempt from Federal income tax 577 366 63
Dividends 102 91 77
Interest on federal funds sold 374 559 280
Interest on deposits in other banks 49 61 39
-------- -------- --------
Total Interest Income 16,562 15,241 11,162
INTEREST EXPENSE
Interest on deposits 5,501 5,195 3,498
Interest on long-term debt 48 49 41
-------- -------- --------
Total Interest Expense 5,549 5,244 3,539
-------- -------- --------
NET INTEREST INCOME 11,013 9,997 7,623
Provision for loan and lease losses 533 792 783
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND
LEASE LOSSES 10,480 9,205 6,840
OTHER INCOME
Fees and other income 4,285 2,629 1,123
Service charges on deposit accounts 709 577 386
Net gain on sale of loans 75 194 201
Net investment securities gains (losses) 678 109 (247)
-------- -------- --------
Total Other Income 5,747 3,509 1,463
OTHER EXPENSES
Salaries and employee benefits 5,592 4,612 3,368
Net occupancy and equipment expense 1,792 1,298 871
Other expenses 3,941 3,239 2,001
-------- -------- --------
Total Other Expenses 11,325 9,149 6,240
-------- -------- --------
Income Before Income Taxes 4,902 3,565 2,063
Provision for income taxes 1,926 1,363 762
-------- -------- --------
NET INCOME $ 2,976 $ 2,202 $ 1,301
========= ========= ========
NET INCOME PER SHARE $1.93 $1.47 $1.04
===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 1,541,567 1,494,554 1,254,298
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-4
HUMBOLDT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
(Losses)
Gains On
Common Stock Retained Investment
Shares Amount Earnings Securities Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 872,665 $ 9,526 $ 487 $ 10,103
Sale of stock at $14 per share,
less offering costs 185,715 2,550 2,550
10% stock dividend 87,252 1,069 (1,069)
Fractional shares purchased (2) (2)
Stock options exercised 2,309 24 24
Net income 1,301 1,301
Net change in unrealized holding
losses $ (316) (316)
-------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1994 1,147,941 13,169 717 (316) 13,570
10% stock dividend 114,606 1,648 (1,648)
Fractional shares purchased (3) (3)
Stock options exercised 3,962 35 35
Net income 2,202 2,202
Net change in unrealized holding
gains (losses) 1,131 1,131
-------- -------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995 1,266,509 14,852 1,268 815 16,935
10% stock dividend 126,346 2,179 (2,179)
Fractional shares purchased (5) (5)
Stock options exercised 17,912 148 148
Net income 2,976 2,976
Net change in unrealized holding
gains (losses) (454) (454)
--------- ------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1996 1,410,767 $ 17,179 $ 2,060 $ 361 $ 19,600
========= ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-5
HUMBOLDT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,976 $ 2,202 $ 1,301
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan and lease losses 533 792 783
Depreciation 1,041 762 516
(Gain) loss on sale of investments (678) (109) 247
Amortization and other 916 563 354
Decrease (increase) in loans and leases held for sale 1,817 (1,558) 1,352
Increase in interest receivable and other assets (520) (1,256) (308)
Increase in interest payable and other liabilities 122 794 110
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,207 2,190 4,355
INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing deposits with banks 1,100 107 (127)
Net (increase) decrease in federal funds sold (1,100) 1,520 (3,190)
Proceeds from maturities and sales of investment
securities available-for-sale 33,235 13,933 17,866
Proceeds from maturities and sales of investment
securities held-to-maturity 6,175 5,807
Purchases of investment securities available-for-sale (19,935) (24,385) (14,801)
Purchases of investment securities held-to-maturity (10,457) (14,587)
Net increase in loans and leases (30,289) (21,890) (9,467)
Purchases of premises and equipment (2,096) (682) (1,432)
Purchases of life insurance policies (2,337)
--------------- --------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (21,422) (35,679) (19,931)
FINANCING ACTIVITIES
Net increase in deposit accounts 18,050 35,023 13,793
Net proceeds from long-term debt and notes payable 22 798
Payments on long-term debt and notes payable (34) (11)
Proceeds from issuance of common stock 148 35 2,574
Fractional shares purchased (5) (3) (2)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,181 35,044 17,163
--------------- -------------- ---------------
NET INCREASE IN CASH AND DUE FROM BANKS 2,966 1,555 1,587
Cash and due from banks at beginning of year 7,281 5,726 4,139
--------------- -------------- ---------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 10,247 $ 7,281 $ 5,726
===== ===== =====
</TABLE>
(Continued)
<PAGE>F-6
HUMBOLDT BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the years ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $ 5,535 $ 5,163 $ 3,489
Income taxes $ 2,666 $ 1,859 $ 1,129
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Stock dividend $ 2,179 $ 1,647 $ 1,069
Net change in unrealized holding gains and losses on securities $ (777) $ 1,934 $ (540)
Net change in deferred income taxes on unrealized
holding gains and losses on securities $ 323 $ (803) $ 224
Deposit liabilities assumed in exchange for assets
acquired in connection with purchase of branches $ 1,879
Loans transferred to OREO $ 233
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>F-7
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: During 1995, the shareholders of Humboldt Bank (the Bank) approved a
Plan of Reorganization and Merger Agreement, which provided for the formation
of Humboldt Bancorp (a bank holding company) and the conversion of each share
of outstanding Bank common stock into one share of no par value Bancorp common
stock. Effective January 2, 1996, the Bancorp issued 1,266,509 shares of its
common stock for all of the outstanding common stock of the Bank through a
merger which has been accounted for similar to a pooling of interests in that
the historical cost basis of the Bank has been carried forward. As a result of
the merger, the Bank became the wholly owned subsidiary of the Bancorp.
The Bank was incorporated on March 13, 1989, and opened for business on
September 13, 1989. The Bank operates under a California state charter, is a
member of the Federal Reserve System and is subject to regulation, supervision
and regular examination by the State Banking Department and Federal Reserve
Board. The regulations of these agencies govern most aspects of the Bank's
business. The accounting and reporting policies of the Bank conform with
generally accepted accounting principles and general practices within the
banking industry.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Bancorp and its wholly - owned subsidiary, the Bank. All
material intercompany accounts and transactions have been eliminated.
NATURE OF OPERATIONS: The Bank is locally owned and operated and its primary
service area is the communities of Northern California. The Bank's business is
primarily focused on servicing the banking needs of individuals living and
working in the Bank's primary service areas and local businesses, including
retail, professional and real estate related enterprises in those service
areas. The Bank offers a broad range of services to individuals and businesses
with an emphasis upon efficiency and personalized attention. The Bank provides
a full line of consumer services, and also offers specialized services to small
businesses, middle market companies, and professional firms, such as courier
services and appointment banking. The Bank offers personal and business
checking and savings accounts (including individual interest-bearing negotiable
orders of withdrawal ("NOW") accounts and/or accounts combining checking and
savings accounts with automatic transfers), IRA and Keogh accounts, time
certificates of deposit and direct deposit of social security, pension and
payroll checks. It also makes available commercial, construction, accounts
receivable, inventory, automobile, home improvement, real estate, office
equipment, leasehold improvement, lease receivable financing and other consumer
loans (including overdraft protection lines of credit), drafts and standby
letters of credit, credit card activities to both individuals (including both
secured and unsecured credit cards) and merchants and travelers' checks (issued
by an independent entity).
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
<PAGE>F-8
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENT SECURITIES: Securities are classified as held-to-maturity if the
Bank has both the intent and ability to hold those debt securities to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the interest
method over their contractual lives.
Securities are classified as available-for-sale if the Bank intends to hold
those debt securities for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Bank's assets and liabilities,
liquidity needs, regulatory capital considerations and other similar factors.
Securities available-for-sale are carried at fair value. Unrealized holding
gains or losses are reported as increases or decreases in stockholders' equity,
net of the related deferred tax effect. Realized gains or losses, determined
on the basis of the cost of specific securities sold, are included in earnings.
LOANS AND LEASES HELD FOR SALE: The Bank sells mortgage loans, the guaranteed
portion of Small Business Administration (SBA)-guaranteed loans, loan
participation and portfolios of lease financing receivables (with servicing
retained) for cash proceeds equal to the principal amount of loans,
participation or leases with yield rates to the investor based upon the current
market rate. The Bank recognizes a gain or loss on the sale measured by the
present value of the difference between the effective interest rate to the Bank
and the net yield to the investor, excluding an estimated normal servicing fee
to be earned over the estimated remaining lives of the loans and leases sold.
A premium over the adjusted carrying value is received upon the sale of the
guaranteed portion of an SBA loan. The Bank's investment in an SBA loan is
allocated among the sold and retained portions of the loan based on the
relative fair value of each portion at the time of loan origination, adjusted
for payments and other activities. Because the portion retained does not carry
an SBA guarantee, part of the gain recognized on the sold portion of the loan
may be deferred and amortized as a yield enhancement on the retained portion in
order to obtain a market equivalent yield.
Statement of Financial Accounting Standards (SFAS) No. 122, ACCOUNTING FOR
MORTGAGE SERVICING RIGHTS, which became effective January 1, 1996, requires
that the costs associated with originating mortgage loans that the Bank has a
definitive plan to sell or securitize and retain the servicing rights be
allocated to the mortgage servicing rights and the loan based on their relative
fair values if it is practicable to estimate those fair values. The Bank has
determined that it is not practicable to estimate the fair values of the
mortgage servicing rights due to the relative immateriality of these costs and,
therefore, has allocated all of the costs to the mortgage loan as was done
before SFAS No. 122 became effective.
Loans and leases held for sale are recorded at the lower of cost or market
determined on an aggregate basis.
<PAGE>F-9
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND LEASE FINANCING RECEIVABLES: Loans and leases are stated at the
amount of unpaid principal, less the allowance for losses, net deferred loan
fees and costs and unearned income. Interest on loans is accrued and credited
to income based on the principal amount outstanding. Unearned income on
installment loans is recognized as income over the term of the loans using a
method that approximates the interest method.
The Bank's leasing operations consist principally of the leasing of point-of-
sale terminals, printers for credit card vouchers and related equipment. All
of the Bank's leases are classified and accounted for as direct financing
leases. Under the direct financing method of accounting for leases, the total
net rentals receivable under the lease contracts, net of unearned income, are
recorded as a net investment in direct financing leases, and the unearned
income is recognized each month as it is earned so as to produce a constant
periodic rate of return on the unrecovered investment.
Loan origination fees and certain direct origination and acquisition costs are
capitalized and recognized as an adjustment of the yield on the related loan or
lease. Amortization is discontinued when the loan or lease is placed on
nonaccrual status.
ALLOWANCE FOR LOAN AND LEASE LOSSES: The Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF
A LOAN, on January 1, 1995. Under this standard, a loan is considered
impaired, based on current information and events, if it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of Statement No. 114
did not have a significant impact on the allowance for loan and lease losses at
January 1, 1995.
The allowance is maintained at a level which, in the opinion of management, is
adequate to absorb probable losses inherent in the loan and lease portfolio.
Credit losses related to off-balance-sheet instruments are included in the
allowance for loan and lease losses except if the loss meets the criteria for
accrual under SFAS No. 5, in which case the amount is accrued and reported
separately as a liability. Management determines the adequacy of the allowance
based upon reviews of individual loans, recent loss experience, current
economic conditions, the risk characteristics of the various categories of
loans and leases and other pertinent factors. The allowance is based on
estimates, and ultimate losses may vary from the current estimates. These
estimates are reviewed quarterly and, as adjustments become necessary, they are
reported in earnings in the periods in which they become known. Loans and
leases deemed uncollectible are charged to the allowance. Provisions for
losses and recoveries on loans and leases previously charged off are added to
the allowance.
<PAGE>F-10
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS AND LEASES: Loans and
leases, including impaired loans and leases, are generally classified as
nonaccrual if they are past due as to maturity or payment of principal or
interest for a period of more than 90 days, unless such loans and leases are
well-secured and in the process of collection. If a loan or lease or a portion
of a loan or lease is classified as doubtful or is partially charged off, the
loan or lease is classified as nonaccrual. Loans that are on a current payment
status or past due less than 90 days may also be classified as nonaccrual if
repayment in full of principal and/or interest is in doubt.
Loans and leases may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are reasonably
assured of repayment within an acceptable period of time, and there is a
sustained period of repayment performance by the borrower, in accordance with
the contractual terms of interest and principal.
While a loan or lease is classified as nonaccrual and the future collectibility
of the recorded balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan or lease had
been partially charged off, recognition of interest on a cash basis is limited
to that which would have been recognized on the recorded balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan and lease losses until prior
charge-offs have been fully recovered.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the
straight-line method over the estimated useful lives of the related assets.
FORECLOSED REAL ESTATE: Foreclosed real estate includes both formally
foreclosed property and in-substance foreclosed property. In-substance
foreclosed properties are those properties for which the Bank has taken
physical possession, regardless of whether formal foreclosure proceedings have
taken place. At the time of foreclosure, foreclosed real estate is recorded at
the lower of the carrying amount or fair value less cost to sell, which becomes
the property's new basis. Any write-downs based on the asset's fair value at
date of acquisition are charged to the allowance for loan losses. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of their new cost basis or fair value minus
estimated costs to sell. Revenue and expenses from operations and subsequent
adjustments to the carrying amount of the property are included in income
(loss) on foreclosed real estate.
INTANGIBLE ASSETS: The $1.2 million premium paid to acquire the deposits of
the McKinleyville and Arcata branch offices of HomeFed Bank, F.A. and the
$797,063 premium paid to acquire the deposits of the Weaverville, Willow Creek
and Loleta branches of U.S. Bank were allocated to core deposit intangibles
based on the results of valuation studies performed to determine the fair value
of the deposit base acquired. Core deposit intangibles are being amortized
over the estimated remaining life of the related deposits.
<PAGE>F-11
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES: Provisions for income taxes are based on amounts reported in the
statements of operations (after exclusion of non-taxable income such as
interest on state and municipal loans and securities) and include deferred
taxes on temporary differences in the recognition of income and expense for tax
and financial statement purposes. Deferred taxes are computed using the asset
and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Deferred tax assets are
recognized for deductible temporary differences and tax credit carryforwards,
and then a valuation allowance is established to reduce that deferred tax asset
if it is "more likely than not" that the related tax benefits will not be
realized.
NET INCOME PER SHARE: Net income per share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during the period, after giving retroactive effect to stock
dividends and including the dilutive effect of stock options computed under the
treasury method.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: In the ordinary course of business
the Bank has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit, commitments under credit card arrangements and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
CASH AND CASH EQUIVALENTS: For the purpose of presentation in the Statement of
Cash Flows, cash and cash equivalents are defined as those amounts included in
the balance sheet caption "Cash and due from banks."
NOTE B--RESTRICTIONS ON CASH AND DUE FROM BANKS AND INTEREST-BEARING DEPOSITS
IN OTHER BANKS
Cash and due from banks include amounts the Bank is required to maintain to
meet certain average reserve and compensating balance requirements of the
Federal Reserve. The total requirements at December 31, 1996 and 1995 were
$4,711,000 and $3,211,000, respectively.
Interest-bearing deposits in other banks totaling $1,000,000 were pledged to
MasterCard International as of December 31, 1995 to secure the full performance
of all of the Bank's payment obligations to MasterCard in connection with the
Bank's MasterCard membership.
<PAGE>F-12
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE C--INVESTMENT SECURITIES
The amortized cost of investment securities and their approximate market values
at December 31 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1996:
Available-for-Sale
U.S. Government and agency securities $ 4,058 $ 58 $ 4,116
Municipal securities 10,172 333 $ 6 10,499
Collateralized mortgage obligations issued
by U.S. government agencies 23,331 234 3 23,562
Equity securities 1,755 1 1,756
------------ ------------ ------------ ------------
Total available-for-sale 39,316 626 9 39,933
December 31, 1995:
Available-for-Sale
U.S. Government and agency securities $ 18,120 $ 422 $ 6 $ 18,536
Municipal securities 10,775 440 1 11,214
Collateralized mortgage obligations issued
by U.S. government agencies 21,955 526 22,481
Equity securities 1,632 12 1,644
------------ ------------ ------------ ------------
Total available-for-sale $ 52,482 $ 1,400 $ 7 $ 53,875
===== ===== ===== =====
</TABLE>
The maturities of investment securities at December 31, 1996 were as follows
(dollars in thousands):
Amortized Market
Cost Value
Amounts maturing in:
One year or less $ 3,955 $ 3,986
After one year through five years 15,120 15,314
After five years through ten years 10,983 11,195
After ten years 7,503 7,682
Equity securities 1,755 1,756
-------- --------
$ 39,316 $ 39,933
======== ========
The amortized cost and fair value of collateralized mortgage obligations are
presented by expected maturity in the preceding table. Expected maturities
differ from contractual maturities because borrowers may have the right to call
or prepay obligations without call or prepayment penalties.
<PAGE>F-13
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE C--INVESTMENT SECURITIES (Continued)
Proceeds from sales of investment securities available-for-sale during 1996,
1995 and 1994 were $27,766,000, $4,914,000 and $10,193,000, respectively.
Gross gains and losses on those sales were $683,000 and $5,000 in 1996,
$154,000 and $45,000 in 1995 and $38,000 and $92,000 in 1994, respectively.
In 1995, debt securities with an amortized cost of $15,545,000 were transferred
from held-to-maturity to available-for-sale as a result of the Financial
Accounting Standards Board allowing a one-time reassessment of the
classification of securities under Statement of Financial Accounting Standards
No. 115. The securities had an unrealized gain of approximately $436,000.
In 1994, debt securities with an amortized cost of $4,999,000 were sold from
the held-to-maturity portfolio because of the continued increase in the credit
risk of the securities and changes in regulatory requirements modifying what
constitutes permissible investments. The realized loss on the sale of these
securities was $193,000.
Investment securities with an amortized cost of approximately $2,045,000 and
$2,076,000 and an approximate market value of $2,080,000 and $2,152,000 at
December 31, 1996 and 1995, respectively, were pledged to meet the requirements
of the Federal Reserve and the U. S. Department of Justice. In addition,
investment securities with an amortized cost of approximately $1,011,000 and
$1,024,000 and an approximate market value of $1,025,000 and $1,059,000 at
December 31, 1996 and 1995, respectively, were pledged to secure public funds.
NOTE D--LOANS AND LEASE FINANCING RECEIVABLES
The components of loans and lease financing receivables in the balance sheets
were as follows at December 31 (dollars in thousands):
1996 1995
Real estate-construction and land development $ 21,205 $ 15,874
Real estate-commercial and agricultural 61,030 54,879
Real estate-family and multifamily residential 31,456 21,156
Commercial, industrial and agricultural 20,559 16,284
Lease financing receivables, including unamortized
purchase premiums of $33,000 in 1995 less unearned
income of $806,000 and $1,040,000 in 1996 and
1995, respectively 3,168 3,974
Consumer loans, net of unearned income of $15,000 in
1996 and $55,000 in 1995 4,529 3,395
State and political subdivisions 2,875
Other 850 159
-------- --------
145,672 115,721
Deferred loan fees (765) (616)
Allowance for loan and lease losses (2,146) (1,868)
-------- --------
$ 142,761 $ 113,237
========= =========
<PAGE>F-14
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE D--LOANS AND LEASE FINANCING RECEIVABLES (Continued)
The maturity and repricing distribution of the loan and lease portfolio at
December 31, 1996 and 1995, follows (dollars in thousands):
1996 1995
Fixed rate loan maturities
Three months or less $ 5,959 $ 4,051
Over three months to twelve months 10,031 3,940
Over one year to five years 18,796 13,370
Over five years 30,628 14,138
Floating rate loans repricing frequency
Quarterly or more frequently 64,291 67,220
Quarterly to annually 8,293 4,288
Annually to every five years 7,436 7,825
Over five years 20 270
--------- ---------
145,454 115,102
Nonaccrual loans 218 619
--------- ---------
$ 145,672 $ 115,721
========= =========
At December 31, 1996, the recorded investment in loans for which impairment has
been recognized in accordance with Statement No. 114 totaled $22,000, with a
corresponding valuation allowance of $11,000. For the year ended December 31,
1996, the average recorded investment in impaired loans was approximately
$247,000. In 1996, the Bank recognized $2,000 of interest on impaired loans
(during the portion of the year that they were impaired), all of which was
recognized on the cash basis.
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with Statement No. 114 totaled $301,000, with a
corresponding valuation allowance of $193,000. For the year ended December 31,
1995, the average recorded investment in impaired loans was approximately
$267,000. In 1995, the Bank recognized $47,000 of interest on impaired loans
(during the portion of the year that they were impaired), of which $43,000
related to impaired loans for which interest income was recognized on the cash
basis.
In addition, at December 31, 1996 and 1995, the Bank had other nonaccrual loans
of approximately $218,000 and $490,000, for which impairment had not been
recognized. Loans on nonaccrual basis totaled $74,000 at December 31, 1994.
If interest on these loans had been recognized at the original interest rates,
interest income would have increased approximately $12,000 in 1996 and 1995 and
$1,000 in 1994.
<PAGE>F-15
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE D--LOANS AND LEASE FINANCING RECEIVABLES (Continued)
The Bank has no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans.
The Bank receives fees for servicing retained on loans and leases sold and,
during 1995, entered into an agreement to service for another bank a lease
portfolio originated and owned by that bank. Loans and leases being serviced
by the Bank for others were as follows at December 31 (dollars in thousands):
1996 1995 1994
Loans $ 101,355 $ 93,230 $ 86,028
Lease financing receivables 3,078 5,636 9,548
---------- ---------- ----------
$ 104,433 $ 98,866 $ 95,576
========== ========== ==========
An analysis of the changes in the allowance for loan and lease losses is as
follows for the years ended December 31 (dollars in thousands):
1996 1995 1994
Beginning balance $ 1,868 $ 1,331 $ 858
Provision for loan and lease losses 533 792 783
Leases charged off (132) (254) (363)
Loans charged off (242) (64) (20)
Lease recoveries 34 49 62
Loan recoveries 85 14 11
-------- -------- --------
Ending balance $ 2,146 $ 1,868 $ 1,331
======== ======= =======
<PAGE>F-16
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE E--LOANS AND LEASE FINANCING RECEIVABLES
Components of premises and equipment included the following at December 31
(dollars in thousands):
1996 1995
Land $ 1,042 $ 1,042
Buildings and improvements 3,211 3,140
Furniture, fixtures and equipment 3,803 2,094
Leasehold improvements 82
--------- ---------
8,138 6,276
Accumulated depreciation (2,074) (1,266)
--------- ---------
$ 6,064 $ 5,010
========= =========
NOTE F--INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following at December 31 (dollars in
thousands):
1996 1995
Negotiable order of withdrawal (NOW) $ 16,476 $ 17,292
Savings and money market 41,305 40,027
Time, $100,000 and over 26,432 23,230
Other time 57,951 54,099
---------- ----------
$ 142,164 $ 134,648
========== ==========
Interest expense on these deposits for the years ended December 31 is as
follows (dollars in thousands):
1996 1995 1994
NOW $ 162 $ 171 $ 119
Savings and money markets 1,082 994 772
Time, $100,000 and over 1,245 1,162 732
Other time 3,012 2,868 1,875
-------- -------- -------
$ 5,501 $ 5,195 $ 3,498
======== ======== ========
<PAGE>F-17
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE F--INTEREST-BEARING DEPOSITS (Continued)
The maturities of time deposits at December 31, 1996 are as follows (dollars in
thousands):
1997 $ 72,839
1998 8,643
1999 1,736
2000 584
2001 581
----------
$ 84,383
==========
NOTE G--LINE OF CREDIT
The Bank has uncommitted federal funds lines of credit agreements with two
financial institutions. The maximum borrowings available under the lines
totaled $10,000,000. Availability of this line is subject to federal funds
balances available for loan and continued borrower eligibility. The line is
intended to support short-term liquidity, and cannot be used for more than ten
consecutive business days or more than twelve times during a given thirty day
period. At December 31, 1996 there were no borrowings outstanding under the
agreements.
NOTE H--LONG-TERM DEBT
The Bank has an advance totaling $775,000 from the Federal Home Loan Bank at
December 31, 1996. The advance is due in monthly installments of principal and
interest, at 6.19%, of approximately $5,000 through February 15, 2004.
Specific mortgage loans, with a balance of approximately $10,333,000 at
December 31, 1996, were held as collateral for this advance.
Scheduled principal repayments of long-term debt, assuming no changes in their
terms, for the five years ending December 31, 2001 are as follows (dollars in
thousands):
1997 $13
1998 14
1999 16
2000 17
2001 18
<PAGE>F-18
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE I--FEES AND OTHER INCOME
Fees and other income consisted of the following for the years ended December
31 (dollars in thousands):
1996 1995 1994
Merchant credit card processing fees $ 2,508 $ 1,560 $ 541
Loan and lease servicing fees 370 369 279
Fees for customer services 287 224 152
Credit card program fees 169 4
Earnings on life insurance 142 127 130
Lease residuals 752 341 19
Other 57 4 2
--------- -------- --------
$ 4,285 $ 2,629 $ 1,123
========= ======== ========
NOTE J--OTHER EXPENSES
Other expenses consisted of the following for the years ended December 31
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Professional and other outside services $ 693 $ 503 $ 342
Stationery, supplies and postage 542 492 263
Amortization of core deposit intangible 372 403 184
Merchant credit card program 434 384 113
FDIC and other insurance 480 348 379
Advertising and development 364 314 205
Telephone and travel 424 267 194
Data processing and ATM fees 199 174 99
Other (none exceeding 1% of revenues) 433 354 222
---------- ---------- ---------
$ 3,941 $ 3,239 $ 2,001
========== ========== =========
</TABLE>
<PAGE>F-19
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE K--INCOME TAXES
The components of income tax expense included in the statements of operations
were as follows for the years ended December 31 (dollars in thousands):
1996 1995 1994
Currently payable
Federal $ 1,786 $ 1,419 $ 870
State 609 422 239
--------- --------- --------
2,395 1,841 1,109
Deferred tax benefit
Federal (353) (391) (265)
State (116) (87) (82)
--------- --------- --------
(469) (478) (347)
--------- --------- --------
Net provision for income taxes $ 1,926 $ 1,363 $ 762
========== ========= ========
A reconciliation of income taxes computed at the federal statutory rate of 34%
and the provision for income taxes for the years ended December 31 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income tax at Federal statutory rate $ 1,667 $ 1,212 $ 701
State franchise tax, less federal income
tax benefit 366 266 156
Interest on municipal obligations exempt
from Federal tax (193) (111) (18)
Non statutory stock option expense (96) (9)
Interest on enterprise zone loans exempt
from State tax (69) (59) (49)
Life insurance earnings and expenses (20) (24) (32)
Deferred tax asset valuation allowance
change 263 82 8
Other differences 8 6 (4)
--------- --------- ---------
Provision for income taxes $ 1,926 $ 1,363 $ 762
========= ========= =========
</TABLE>
<PAGE>F-20
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE K--INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to the components of
the net deferred tax asset recorded as an other asset as of December 31 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses $ 802 $ 674 $ 415
Nonqualified benefit plans 436 296 162
Deferred loan fees 319 255 242
State franchise taxes 206 144 81
Depreciation 155 118 73
Unrealized securities holding losses 224
Merchant Bankcard program 182 83
Core deposit intangible amortization 107 26
Other 41 31 21
--------------- --------------- ---------------
Total deferred assets 2,248 1,627 1,218
Valuation allowance for deferred tax
assets (429) (166) (84)
--------------- --------------- ---------------
eferred tax assets recognized 1,819 1,461 1,134
Deferred tax liabilities:
Unrealized securities holding gains 257 579
Market discount accretion 104
Core deposit intangible amortization 55
Other 36 44 20
--------------- --------------- ---------------
Total deferred tax liabilities 293 727 75
--------------- --------------- ---------------
Net deferred tax asset $ 1,526 $ 734 $ 1,059
===== ===== =====
</TABLE>
Amounts presented for the tax effects of temporary differences are based upon
estimates and assumptions and could vary from amounts ultimately reflected on
the Bank's tax returns. Accordingly, the variances from amounts reported for
prior years are primarily the result of adjustments to conform to the tax
returns as filed. A valuation allowance has been established to reduce
deferred tax assets to the amount that is more likely than not to be realized.
<PAGE>F-21
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE K--INCOME TAXES (Continued)
Income taxes receivable were $290,000 and $19,000 at December 31, 1996 and
1995, respectively. The income tax expense (benefit) related to net investment
securities gains (losses) was $281,000, $45,000 and $(103,000) during 1996,
1995 and 1994, respectively.
NOTE L--BENEFIT PLANS
RETIREMENT PLAN: The Bank has a defined contribution retirement plan covering
substantially all of the Bank's employees. Bank contributions to the plan are
made at the discretion of the Board of Directors in an amount not to exceed the
maximum amount deductible under the profit sharing plan rules of the Internal
Revenue Service. Employees may elect to have a portion of their compensation
contributed to the plan in conformity with the requirements of Section 401(k)
of the Internal Revenue Code. Salaries and employee benefits expense includes
Bank contributions to the plan of $98,000 during 1996 and $61,000 during 1995.
DIRECTOR FEE PLAN: The Bancorp has adopted the Humboldt Bank Director Fee Plan
(the "Fee Plan"). The Fee Plan permits each Bank director to elect to receive
his/her directors' fees in the form of Bancorp common stock, cash, or a
combination of Bancorp common stock and cash, and to elect to defer the receipt
of any of the foregoing until the end of his/her term as a Bank director. If
deferral is elected, the amount of the director's fees shall be credited to an
account on behalf of the director, however, such crediting shall constitute a
mere promise on the part of the Bank and Bancorp to pay/distribute on this
account. The account is otherwise unsecured, unfunded and subject to the
general claims of creditors of the Bank and Bancorp. The Fee Plan provides for
the issuance of up to 40,000 shares of Bancorp common stock. The amount of
such fees deferred in 1996 totaled $20,000. At December 31, 1996, the
liability for amounts due under this plan totaled $20,000, or approximately
1,000 shares of stock.
EMPLOYEE STOCK BONUS PLAN: The Bancorp has an Employee Stock Bonus Plan which
is funded annually at the sole discretion of the Board of Directors. Funds are
invested in Bancorp stock, when available, and is purchased at the current
market price on behalf of all employees except the executive officers of the
Bank. The compensation cost recognized for 1996 and 1995 was $20,000 each
year.
NOTE M--STOCK OPTION PLAN
At December 31, 1996, the Bancorp has a stock-based compensation plan
consisting of a fixed stock option plan which is described below. The Bancorp
applies Accounting Principles Board Opinion No. 25 and related Interpretations
in accounting for its plan. Accordingly, no compensation cost has been
recognized for its stock option plan. Had compensation cost for the Bancorp's
stock option plan been determined based on the fair value at the grant dates
for awards under this plan consistent with the method of SFAS 123, the
Bancorp's net income would have been reduced to the pro forma amounts indicated
below and net income per share would have remained the same (dollars in
thousands):
<PAGE>F-22
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE M--STOCK OPTION PLAN (Continued)
1996 1995
Net income
As reported $ 2,976 $ 2,202
Pro forma 2,946 2,189
Net income per share
As reported 1.93 1.47
Pro forma 1.93 1.47
The Bancorp has a stock option plan under which incentive and nonstatutory
stock options, as defined under the Internal Revenue Code, may be granted.
Options representing 87,484 shares of the Bancorp's issued and outstanding no
par value common stock may be granted under the plan by the Board of Directors
to directors, officers and key, full-time employees at an exercise price not
less than the fair market value of the shares on the date of grant. Options
representing 300,644 shares of the Bancorp's issued and outstanding common
stock may be granted under the Humboldt Bank Stock Option Plan. Options may
have an exercise period of not longer than 10 years and the options are subject
to a graded vesting schedule of 33% per year for incentive stock options and
20% per year for nonstatutory stock options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively; dividend yield of
zero for both years; expected volatility of 9.40 percent for both years; risk-
free interest rates of 6.58 percent for 1995 and 5.54 percent and 6.29 percent
for 1996 for the incentive options and 6.95 percent for 1995 and 5.85 percent
and 6.65 percent for 1996 for the nonstatutory options; and expected lives of
10 years for the incentive options and 5 years for the nonstatutory options.
A summary of stock option activity, adjusted to give effect to stock dividends
follows:
<PAGE>F-23
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE M--STOCK OPTION PLAN (Continued)
<TABLE>
<CAPTION>
Incentive Stock Options
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Shares Shares Shares
Shares under option at
beginning of year $ 8.82 163,610 $ 8.71 158,195 $ 7.84 116,800
Options granted 14.55 12,651 11.88 5,415 11.42 41,395
Options expired 11.57 (243)
-------- -------- -------
Shares under option at
end of year 9.23 176,018 8.82 163,610 8.71 158,195
==== ==== ====
Options exercisable at
end of year 153,515 140,837 120,047
Weighted-average fair
value of options granted
during the year
$ 7.05 $ 7.13
</TABLE>
<PAGE>F-24
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE M--STOCK OPTION PLAN (Continued)
<TABLE>
<CAPTION>
Nonstatutory Stock Options
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Weighted-Average Weighted-Average Weighted-Average
Exercise Price Exercise Price Exercise Price
Shares Shares Shares
Shares under option at
beginning of year $ 9.81 134,698 $ 9.17 110,818 $ 8.04 79,776
Options granted 17.66 19,890 11.88 32,652 11.57 33,836
Options exercised 8.30 (17,912) 8.13 (4,358) 7.60 (2,794)
Options expired 16.53 (4,414)
---------- -------- -------
Shares under option at
end of year 11.20 136,676 9.81 134,698 9.17 110,818
======= ======= =======
Options exercisable at
end of year 93,141 79,541 56,368
Weighted-average fair
value of options granted
during the year
$ 4.84 $ 4.04
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<PAGE>F-25
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE M--STOCK OPTION PLAN (Continued)
<TABLE>
<CAPTION>
Options Outstanding
<S> <C> <C> <C>
Weighted-Average Remaining
Range of Number Contractual Life Weighted-Average Exercise
Exercise Prices Outstanding Price
$6.50 to $9.95 179,078 3.6 years $ 8.06
$10.14 to $14.55 123,616 4.8 years 12.16
$20.75 10,000 5.0 years 20.75
---------------
$6.50 to $20.75 312,694 4.23 years 17.21
=======
Options Exercisable
Range of Weighted-Average Exercise
Exercise Prices Number Exercisable Price
$6.50 to $9.95 175,539 $ 8.03
$10.14 to $14.55 69,117 11.67
$20.75 2,000 20.75
--------------- ---------------
$6.50 to $20.75 246,656 9.15
</TABLE>
NOTE N-- RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, executive officers
and their affiliates (related parties). Such transactions were made in the
ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers, and did not, in the opinion
of management, involve more than normal credit risk or present other
unfavorable features. The following is a summary of the aggregate activity
involving related party borrowers at December 31, 1996 and 1995 (dollars in
thousands):
<PAGE>F-26
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE N-- RELATED PARTY TRANSACTIONS (Continued)
1996 1995
Loans outstanding at beginning of year $ 3,851 $ 2,698
Loan disbursements 1,178 2,271
Loan repayments (1,405) (1,118)
------------ ------------
Loans outstanding at end of year $ 3,624 $ 3,851
========= =========
At December 31, 1996 and 1995, commitments to related parties of approximately
$677,000 and $1,075,000 were undisbursed.
Deposits received from directors and officers totaled $2,114,000 and $2,572,000
at December 31, 1996 and 1995, respectively.
Payments under contracts with directors' companies for premises remodeling,
repair and engineering services totaled $17,000 in 1996 and $5,000 in 1995.
The Bank purchased computer equipment from a business owned by a member of an
executive officer's immediate family totaling $5,700 in 1996 and $35,000 in
1995. The Bank paid fees for payroll services totaling $7,000 in 1996 and
$4,500 in 1995 to a business with which a director is associated.
NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES
POSTEMPLOYMENT BENEFIT PLANS AND LIFE INSURANCE POLICIES: The Bank has
purchased single premium life insurance policies in connection with the
implementation of salary continuation and deferred compensation plans for
certain key employees. The policies provide protection against the adverse
financial effects from the death of a key employee and provide income to offset
expenses associated with the plans. The specified employees are insured under
the policies, but the Bank is the owner and beneficiary. At December 31, 1996
and 1995, the cash surrender value of these policies totaled approximately
$4,583,000 and $2,150,000, respectively.
The plans are unfunded and provide for the Bank to pay the employees specified
amounts for specified periods after retirement and allow the employees to defer
a portion of current compensation in exchange for the Bank's commitment to pay
a deferred benefit at retirement. If death occurs prior to or during
retirement, the Bank will pay the employee's beneficiary or estate the benefits
set forth in the plans.
<PAGE>F-27
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
At December 31, 1996 and 1995, liabilities recorded for the estimated present
value of future salary continuation and deferred compensation benefits totaled
approximately $932,000 and $582,000, respectively. Salary continuation
benefits may be paid if termination is without cause or due to a change in
control of the Bank. Otherwise no benefits are paid upon termination.
Deferred compensation is vested as to the amounts deferred. In the event of
death or under certain other circumstances, the Bank is contingently liable to
make future payments greater than the amounts recorded as liabilities. Based
on present circumstances, the Bank does not consider it probable that such a
contingent liability will be incurred or that in the event of death, such a
liability would be material after consideration of life insurance benefits.
LEASE COMMITMENTS: The Bank leases three sites under noncancelable operating
leases expiring in April 1997, February 2006 and May 2006. The lease expiring
in April 1997 is renewable for two additional three year periods with the
future lease payments being subject to adjustment for changing price indices.
The lease expiring in February 2006 requires adjustments to the base rent after
two years for changing price indices with a maximum annual increase of five
percent and includes an option to renew for two consecutive five-year terms.
The lease expiring in May 2006 for a supermarket branch office has contingent
monthly rental payments based on a customer count up to a maximum of $2,030 per
month and 15,000 customers and is not subject to future decreases once this
maximum is reached. The Bank has reached this maximum as of December 31, 1996.
This lease also contains an option to renew for two consecutive five-year
terms.
As of December 31, 1996, future minimum lease payments under noncancelable
operating leases and sublease income are as follows (dollars in thousands):
Lease Sublease Net Lease
Commitment Income Commitment
Year ended December 31:
1997 $ 82 $ 4 $ 78
1998 78 0 78
1999 78 0 78
2000 79 0 79
2001 79 0 79
Thereafter 325 0 325
-------- ------- --------
Total minimum lease commitments $ 721 $ 4 $ 717
Rent expense for the years ended December 31, 1996, 1995 and 1994 totaled
$94,000, $24,000 and $25,000, respectively. Sublease rental income was $14,000
in 1996, 1995 and 1994.
<PAGE>F-28
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Bank's financial
statements do not reflect various commitments and contingent liabilities which
arise in the normal course of business and which involve elements of credit
risk, interest rate risk and liquidity risk. These commitments and contingent
liabilities are commitments to extend credit, credit card arrangements and
standby letters of credit. A summary of the Bank's commitments and contingent
liabilities at December 31, is as follows (dollar in thousands):
Contractual Amounts
1996 1995
Commitments to extend credit $ 30,068 $ 20,365
Credit card arrangements 5,033 2,872
Standby letters of credit 3,399 1,104
Commitments to extend credit, credit card arrangements and standby letters of
credit all include exposure to some credit loss in the event of nonperformance
of the customer. The Bank's credit policies and procedures for credit
commitments and financial guarantees are the same as those for extension of
credit that are recorded on the balance sheet. Because these instruments have
fixed maturity dates, and because many of them expire without being drawn upon,
they do not generally present any significant liquidity risk to the Bank.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customer. Collateral held varies but may include
accounts receivable, inventory, property, plant, and equipment, certificates of
deposits and income-producing commercial properties. A portion of the
undisbursed credit card arrangements were secured by deposit accounts at
December 31, 1996.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. All
letters of credit are short-term guarantees with no guarantees extending more
than two years. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending facilities to customers.
The Bank holds assigned deposit accounts as collateral supporting those
commitments for which collateral is deemed necessary. The extent of collateral
held for those commitments at December 31, 1996 and 1995 varies from zero to
100%; the average amount collateralized is approximately 44% in 1996 and 68% in
1995. None of these letters of credit were utilized during 1996 or 1995.
<PAGE>F-29
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Bank has not incurred any losses on its commitments in 1996, 1995 or 1994.
LEGAL PROCEEDINGS: The Bancorp is a party to claims and legal proceedings
arising in the ordinary course of business. After taking into consideration
information furnished by legal counsel to the Bancorp as to the current status
of various claims and proceedings to which the Bancorp is a party, management
is of the opinion that the ultimate aggregate liability represented thereby, if
any, will not have a material adverse effect on the financial position or
results of operations of the Bancorp.
NOTE P--CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within the State
of California, primarily in Northern California. The economy of the Bank's
primary service area is heavily dependent on the area's major industries which
are timber, commercial fishing, agriculture and tourism. General economic
conditions or natural disasters affecting the primary service area or its major
industries could affect the ability of customers to repay loans and the value
of real property used as collateral.
In addition to the concentrations of credit by type of loan as set forth in
Note D, the Bank also has concentrations in out-of-area participation loans,
motel loans and mini-storage unit loans. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers. The Bank, as
a matter of policy, does not extend credit to any single borrower or group of
related borrowers on a secured basis in excess of 25% of its unimpaired capital
(shareholders' equity plus the allowance for loan and lease losses) and on an
unsecured basis in excess of 15% of its unimpaired capital.
The Bank places its cash investments primarily in financial instruments backed
by the U.S. Government and its agencies or by high quality financial
institutions or corporations. At December 31, 1996 and 1995, approximately
34% and 32%, respectively, of the Bank's net worth was invested in federal
funds sold to a Chicago bank. In addition, at December 31, 1995 the Bank had a
required deposit in a federally insured bank in excess of federally insured
limits by $900,000.
NOTE Q--REGULATORY MATTERS
Banking regulations limit the amount of cash dividends that may be paid without
prior approval of the Bank's regulatory agency. Cash dividends are limited to
the lesser of retained earnings, if any, or net income for the last three
years, net of the amount of any other distributions made to shareholders during
such periods. As of December 31, 1996, $2,060,000 was available for cash
dividend distribution without prior approval.
<PAGE>F-30
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE Q--REGULATORY MATTERS (Continued)
The Bank is also required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At December 31, 1996,
the Bank is required to have minimum Tier 1 and total capital ratios of 6% and
10%, respectively. The Bank's actual ratios at that date were 11.35% and
12.60%, respectively. The Bank's leverage ratio at December 31, 1996 was
8.53%.
NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
A condensed balance sheet as of December 31, 1996 and the related condensed
statement of operations and cash flows for the year then ended for Humboldt
Bancorp (parent company only) are presented as follows (there was no parent
company activity during 1995 and 1994):
Condensed Balance Sheet
December 31, 1996
Assets
Cash $ 104
Other assets 17
Investment in subsidiary 19,118
---------
$ 19,118
=========
Stockholders' equity
Common stock $ 17,179
Retained earnings 2,060
---------
$ 19,239
=========
Condensed Statement of Operations
Year ended December 31, 1996
Income $ 1
Expenses 23
----------
Loss before equity in income of subsidiary (22)
Equity in undistributed income of subsidiary 2,998
----------
Net income $ 2,976
==========
<PAGE>F-31
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)
Condensed Statement of Cash Flows
Year ended December 31, 1996
Operating activities:
Net income $ 2,976
Adjustments to reconcile net incme to
net cash used by operating activities:
Equity in undistributed income of subsidiary (2,998)
Amortization 4
Increase in other assets (21)
-----------
Net cash used by operating activities (39)
Financing activities:
Proceeds from note payable 22
Payments on note payable (22)
Cash paid for fractional shares (5)
Issuance of common stock 148
---------
Net cash provided by financing activities 143
---------
Net increase in cash and cash at end of year $ 104
=========
NOTE S--SUBSEQUENT EVENTS
BANCORP SUBSIDIARY: In January 1997, an application was filed with the
regulatory agencies to establish a new subsidiary of the Bancorp, Humboldt Bank
Nevada, which is to be formed as a limited purpose bank issuing secured credit
cards nationwide. The Bank began issuing secured credit cards during 1996
until this new subsidiary is formed. These secured credit card balances
totaled $753,000 at December 31, 1996.
BRANCH PURCHASE: During December 1996, the Bank entered into an agreement with
First Nationwide Bank for the acquisition of its Garberville branch. The
acquisition is subject to approval by the regulatory agencies. If approval is
obtained, the branch will be acquired no later than May 31, 1997. The branch
had total deposits of approximately $24 million and total loans of
approximately $58,000 as of October 31, 1996. The Bank will pay to acquire the
branch a negotiated premium based upon the aggregate amount of the deposits
assumed. The Bank will also acquire fixtures and equipment with a net book
value of approximately $81,000 and will assume a lease on the bank premises.
<PAGE>F-32
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE S--SUBSEQUENT EVENTS (Continued)
LEASING COMPANY: The Bank, along with another bank, have formed a California
corporation, Bancorp Financial Services, for the purpose of operating an
equipment leasing company. In January 1997, the Bank contributed capital
totaling $2,000,000 for a 50% interest in this corporation.
NOTE T--FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bancorp as
a whole.
The estimated fair values of the Bancorp's financial instruments are as follows
at December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C> <C> <C>
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and due from banks $ 10,247 $ 10,247 $ 7,281 $ 7,281
Interest-bearing deposits in other banks 20 20 1,120 1,120
Federal funds sold 6,570 6,570 5,470 5,470
Investment securities 39,933 39,933 53,875 53,875
Loans and leases held for sale 63 63 1,880 1,897
Loans and lease financing receivables, net 142,761 141,891 113,237 113,292
Accrued interest receivable 1,271 1,271 1,498 1,498
Cash surrender value of life insurance 4,583 4,583 2,150 2,150
Financial liabilities:
Deposits 192,576 192,849 174,526 174,963
Accrued interest payable 236 236 222 222
Long-term debt 775 775 787 787
</TABLE>
<PAGE>F-33
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE T--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts in the preceding table are included in the balance sheet
under the applicable captions.
The following methods and assumptions were used by the Bancorp in estimating
its fair value disclosures for financial instruments:
Cash and due from banks, interest-bearing deposits in other banks and
federal funds sold: The carrying amount is a reasonable estimate of fair
value.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of
comparable instruments. The carrying amount of accrued interest
receivable approximates its fair value.
Loans and leases held for sale: Fair values for loans and leases held
for sale are based on quoted market prices or dealer quotes. If a quoted
price is not available, fair value is estimated using quoted market
prices for similar loans or leases.
Loans and lease financing receivables, net: For variable-rate loans that
reprice frequently and fixed rate loans that mature in the near future,
with no significant change in credit risk, fair values are based on
carrying amounts. The fair values for other fixed rate loans are
estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality. The Bank's lease portfolio has relatively high
fixed rates that usually do not fluctuate with market changes and,
therefore, the carrying amount is a reasonable estimate of the fair
value. Loan and lease fair value estimates include judgments regarding
future expected loss experience and risk characteristics and are adjusted
for the allowance for loan and lease losses. The carrying amount of
accrued interest receivable approximates its fair value.
Cash surrender value of life insurance: The carrying amount approximates
its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits. The
carrying amount of accrued interest payable approximates fair value.
Long-term debt: The fair value of long-term debt is estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on similar debt instruments.
<PAGE>F-34
HUMBOLDT BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1996, 1995 and 1994
NOTE T--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Off-balance sheet instruments: Off-balance sheet commitments consist of
commitments to extend credit, credit card arrangements and standby
letters of credit. The contract or notional amounts of the Bank's
financial instruments with off-balance-sheet risk are disclosed in Note
O. Estimating the fair value of these financial instruments is not
considered practicable due to the immateriality of the amounts of fees
collected, which are used as a basis for calculating the fair value, on
such instruments.
Exhibit 2.1
PLAN OF REORGANIZATION AND MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement ("Agreement") is made and
entered into as of this 26th day of April, 1995, by and between Humboldt Bank
(the "Bank") and Humboldt Merger Company ("Subsidiary"), to which Humboldt
Bancorp (the "Holding Company") is a party.
RECITALS AND UNDERTAKINGS
A. The Bank is a California banking corporation with its head banking office
in Eureka, County of Humboldt, State of California. Subsidiary and the Holding
Company are each corporations duly organized and existing under the laws of the
State of California with their principal offices in Eureka, County of Humboldt,
State of California.
B. As of the date hereof, the Bank has 3,000,000 shares of no par value common
stock authorized and 1,147,941 shares outstanding. It is anticipated that prior
to the Effective Date (see Section 1.2 herein), the Bank will have no more than
1,370,265 shares outstanding, reflecting the number of shares of common shares
outstanding as of the date of this Agreement (1,147,941) plus the possible
exercise of all stock options presently granted but unexercised (222,324).
C. As of the date hereof, Subsidiary has an authorized maximum number of
shares of capital stock of 1,000 shares, and at the Effective Date of the
merger 100 of such shares will be issued and outstanding, all of which shares
will be owned by the Holding Company.
D. As of the date hereof, the Holding Company has an authorized maximum number
of shares of capital stock consisting of 20,000,000 shares of no par value
common stock, 100 of which will be outstanding at the time of the merger
referred to herein.
E. The Boards of Directors of the Bank and Subsidiary have, respectively,
approved this Agreement and authorized its execution, and the Board of
Directors of the Holding Company has approved this Agreement, undertaken that
the Holding Company shall join in and be bound by it, and authorized the
undertakings hereinafter made by the Holding Company.
F. The parties intend by this Agreement to set forth the terms and conditions
of a "reorganization" under Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements of the parties
contained herein, the parties hereby agree as follows:
Section 1. General
1.1 The Merger. On the Effective Date, Subsidiary shall be merged into the
Bank, and the Bank shall be the surviving corporation (the "Surviving
Corporation") and a subsidiary of the Holding Company, and its name shall
continue to be "Humboldt Bank."
<PAGE>2
1.2 Effective Date. This Agreement shall become effective at the close of
business on the day on which this Agreement shall have been filed with the
Secretary of State of the State of California in accordance with Section 1103
of the California General Corporation Law (the "Effective Date").
1.3 Articles of Incorporation and Bylaws. On the Effective Date, the Articles
of Incorporation of the Bank, as in effect immediately prior to the Effective
Date, shall be and remain the Articles of Incorporation of the Surviving
Corporation; the Bylaws of the Bank shall be and remain the Bylaws of the
Surviving Corporation until altered, amended or repealed; the certificate of
authority of the Bank issued by the Superintendent of Banks of the State of
California shall be and remain the certificate of authority of the Surviving
Corporation; and the Bank's insurance of deposits coverage by the Federal
Deposit Insurance Corporation shall be and remain the deposit insurance of the
Surviving Corporation.
1.4 Directors and Officers of the Surviving Corporation. On the Effective
Date, the directors and officers of the Bank immediately prior to the Effective
Date shall be and remain the directors and officers of the Surviving
Corporation. Directors of the Surviving Corporation shall serve until the next
Annual Meeting of Shareholders of the Surviving Corporation or until such time
as their successors are elected and have qualified.
1.5 Effect of the Merger.
a. Assets and Rights. Upon the merger becoming effective, all rights,
privileges, franchises and property of Subsidiary, and all debts and
liabilities due or to become due to Subsidiary, including things in action and
every interest or asset of conceivable value or benefit, shall be deemed fully
and finally and without any right of reversion transferred to and vested in the
Surviving Corporation without further act or deed, and the Surviving
Corporation shall have and hold the same in its own right as fully as the same
was possessed and held by Subsidiary.
b. Liabilities. Upon the merger becoming effective, all debts, liabilities,
and obligations due or to become due of, and all claims or demands for any
cause existing against Subsidiary shall be and become the debts, liabilities,
obligations of, and the claims and demands against, the Surviving Corporation
in the same manner as if the Surviving Corporation had itself incurred or
become liable for them.
c. Creditors' Rights and Liens. Upon the merger becoming effective, all
rights of creditors of Subsidiary, and all liens upon the property of
Subsidiary, shall be preserved unimpaired, limited in lien to the property
affected by the liens immediately prior to the time of the merger.
d. Pending Actions. Upon the merger becoming effective, any action or
proceeding pending by or against Subsidiary shall not be deemed to have abated
or been discontinued, but may be prosecuted to judgment, with the right to
appeal or review as in other cases, as if the merger had not taken place or the
Surviving Corporation may be substituted for Subsidiary.
1.6 Further Assurances. The Bank and Subsidiary each agree that at any time,
or from time to time, as and when requested by the Surviving Corporation, or by
its successors and assigns, it will execute and deliver, or cause to be
executed and delivered in its name by its last acting officers, or by the
corresponding officers of the Surviving Corporation, all such conveyances,
assignments, transfers, deeds or other instruments, and will take or cause to
<PAGE>3
be taken such further or other action as the Surviving Corporation, its
successors or assigns may deem necessary or desirable, in order to evidence the
transfer, vesting or devolution of any property right, privilege or franchise
or to vest or perfect in or confirm to the Surviving Corporation, its
successors and assigns, title to and possession of all the property, rights,
privileges, powers, immunities, franchises and interests referred to in this
Section 1 and otherwise to carry out the intent and purposes hereof.
Section 2. Capital Stock of the Surviving Corporation
2.1 Stock of Subsidiary. Upon the merger becoming effective, the shares of
capital stock of Subsidiary issued and outstanding immediately prior to the
Effective Date shall thereupon be converted into and exchanged by the Holding
Company for 100 shares of fully paid and assessable common stock of the Bank as
the Surviving Corporation.
2.2 Stock of the Bank. Upon the merger becoming effective, each and every
share of common stock of the Bank issued and outstanding shall, by virtue of
the merger and without any action on the part of the holders thereof, be
exchanged for and converted into one share of fully paid and nonassessable
common stock of the Holding Company, without par value.
2.3 Exchange of Stock. Upon the merger becoming effective:
a. at the time the merger becomes effective, the shareholders of record of the
Bank shall be entitled to receive and shall be allocated one share of common
stock of the Holding Company for each share of common stock of the Bank;
b. the Holding Company shall issue the shares of its common stock which the
shareholders of the Bank shall be entitled to receive; and
c. each holder of a certificate representing shares of common stock of the
Bank shall, upon presentation of such certificate for surrender to the Holding
Company, be entitled to receive in exchange thereof, a certificate or
certificates representing the number of shares of common stock of the Holding
Company to which such holder shall be entitled. Until so surrendered, each
outstanding certificate which prior to the merger represented shares of common
stock of the Bank shall be deemed, for all corporate purposes, to evidence
ownership of an equal number of shares of common stock of the Holding Company.
On and after the Effective Date, each issued and outstanding share of common
stock of the Bank shall represent one (1) share of common stock of the Holding
Company. Such certificates may, but need not be, surrendered and exchanged by
the holders thereof after the Effective Date, for new certificates representing
the number of shares of common stock of the Holding Company to which the
shareholders are entitled as set forth in this Agreement. Certificates
evidencing ownership of shares of common stock of the Holding Company shall be
issued to the holders of lost or destroyed shares of common stock of the Bank
upon presentation to the Holding Company of such evidence of ownership and
agreement of indemnity as the Holding Company may reasonably require.
2.4 Other Rights to Stock. Upon and by reason of the merger becoming
effective:
a. the options to purchase shares of common stock of the Bank which have been
granted by the Bank pursuant to the Humboldt Bank 1990 Amended Stock Option
Plan shall be deemed to be options granted by the Holding Company and the
<PAGE>4
obligations of the Bank with respect thereto shall be assumed by the Holding
Company with the same terms and conditions, and each option to acquire one
share of common stock of the Bank which is not exercised prior to the Effective
Date, shall be deemed to be an option to acquire one share of common stock of
the Holding Company. The Holding Company shall issue shares of its common
stock so that appropriate adjustments to reflect this merger may be made to (i)
the class and number of option shares outstanding under the Humboldt Bank 1990
Amended Stock Option Plan, and (ii) the class and number of shares and the
price per share of common stock subject to options outstanding under the
Humboldt Bank 1990 Amended Stock Option Plan; and
b. from time to time as, and when required by the provisions of any agreement
to which the Bank or the Holding Company shall become a party after the date
hereof providing for the issuance of shares of common stock or other equity
securities of the Bank or the Holding Company in connection with a merger into
the Bank of any other banking institution or other corporation or the
acquisition of the assets of any other banking institution, the Holding Company
will issue, in accordance with the terms of any such agreement, shares of its
common stock or other equity securities as required by such agreement or in
substitution for the shares of common stock or other equity securities of the
Bank required to be issued by such agreement, as the case may be, which the
shareholders of any other such banking institution or other corporation shall
be entitled to receive by virtue of any such agreement.
Section 3. Approvals
3.1 Shareholder Approval. This Agreement shall be submitted to the
shareholders of the Bank, Subsidiary and the Holding Company for ratification
and approval in accordance with the applicable provisions of law.
3.2 Regulatory Approvals. The parties shall obtain the waivers, consents and
approvals of all regulatory authorities as required for consummation of the
merger and plan of reorganization on the terms herein provided, including,
without being limited to, those consents and approvals referred to in Paragraph
4.1b.
Section 4. Conditions Precedent, Termination and Payment of Expenses
4.1 Conditions Precedent to the Merger. Consummation of the merger is
conditioned upon:
a. ratification and approval of this Agreement by the shareholders of the
Bank, Subsidiary and the Holding Company, as required by law;
b. obtaining all other consents and approvals, and satisfaction of all other
requirements prescribed by law which are necessary for consummation of the
merger, including, but not limited to, approval of the Federal Deposit
Insurance Corporation, approval of the Superintendent of Banks of the State of
California, approval of the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended, approval from the
California Commissioner of Corporations under the California Corporate
Securities Law of 1968 with respect to the securities of the Holding Company
issuable upon consummation of the merger, and any required action under the
Securities Act of 1933 with respect to the securities of the Holding Company
issuable upon consummation of the merger;
<PAGE>5
c. obtaining all consents or approvals, governmental or otherwise, which are
or, in the opinion of counsel for the Bank may be, necessary to permit or
enable the Surviving Corporation, upon and after the merger, to conduct all or
any part of the business and activities of the Bank up to the time of the
merger, in the manner in which such activities and business are then conducted;
d. the Bank's obtaining for the Holding Company, prior to the Closing Date, a
letter, in form and substance satisfactory to the Holding Company's legal
counsel, signed by each person who is an "affiliate" of the Bank for purposes
of Rule 145 of the Securities and Exchange Commission to the effect that (i)
such person will not dispose of any shares of common stock of the Holding
Company to be received pursuant to the reorganization and merger, in violation
of the Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission promulgated thereunder, or in any event prior to such
time as financial results covering at least 30 days of post-merger combined
operations have been published, and (ii) such person consents to the placing of
a legend on the certificate(s) evidencing such shares referring to the issuance
of such shares in a transaction to which Rule 145 is applicable and to the
giving of stop-transfer instructions to the Holding Company's transfer agent
with respect to such certificate(s);
e. for the benefit of the Bank and unless waived, the Holding Company shall
have received a letter ruling from the Internal Revenue Service, or an opinion
of counsel, in form and substance satisfactory to both the Bank and the Holding
Company, to the effect that: the merger of Subsidiary with and into the Bank
and the exchange of shares of common stock of the Bank for shares of common
stock of the Holding Company, as provided for herein, will be considered a
reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended; no gain or loss will be recognized by the
Bank pursuant to consummation of the merger; and no gain or loss will be
recognized by the shareholders of the Bank upon the exchange of their shares of
common stock of the Bank for shares of common stock of the Holding Company, as
provided for herein; and
f. performance by each party hereto of all of its obligations hereunder to be
performed prior to the merger becoming effective.
4.2 Termination of the Merger. If any condition in Paragraph 4.1 has not been
fulfilled, or, if in the opinion of a majority of the Board of Directors of any
of the parties:
a. any action, suit, proceeding or claim has been instituted, made or
threatened relating to the proposed merger which makes consummation of the
merger inadvisable; or
b. for any other reason consummation of the merger is inadvisable;
then this Agreement may be terminated at any time before the merger becomes
effective. Upon termination, this Agreement shall be void and of no further
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of the parties or their respective directors,
officers, employees, agents or shareholders, except as provided in Section 4.3
hereof.
4.3 Expenses of the Merger. Subject to applicable federal laws and
regulations, all expenses of this merger, including filing fees, printing
costs, mailing costs, accountants' fees and legal fees shall be borne by the
Surviving Corporation. In the event the merger is abandoned for any reason,
the expenses shall be paid by the Bank.
<PAGE>6
Section 5. Miscellaneous
5.1 Assignment. Neither party shall have the right to assign its rights or
obligations under this Agreement.
5.2 Execution. This Agreement may be executed in counterparts, each of which
when so executed shall be deemed an original and such counterparts shall
together constitute one and the same instrument.
5.3 Governing Law. This Agreement is made and entered into in the State of
California, and the laws of said State shall govern the validity and
interpretation hereof.
5.4 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the plan of reorganization and merger and
supersedes all prior arrangements or understandings with respect thereto.
<PAGE>7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
HUMBOLDT BANK
(Corporate Seal)
By:_____________________________
Its: President
By:_____________________________
Its: Secretary
HUMBOLDT MERGER COMPANY
(Corporate Seal)
By:_____________________________
Its: President and Secretary
HUMBOLDT BANCORP
(Corporate Seal)
By:_____________________________
Its: President
By:_____________________________
Its: Secretary
<PAGE>8
OFFICERS' CERTIFICATE
OF
PLAN OF REORGANIZATION AND MERGER AGREEMENT
HUMBOLDT BANK, A CALIFORNIA CORPORATION
Theodore S. Mason and Alan J. Smyth certify that:
1. They are the duly elected and acting President and Secretary, respectively,
of Humboldt Bank (the "Bank"), a California corporation.
2. This certificate is attached to the Plan of Reorganization and Merger
Agreement dated as of April 26, 1995, providing for the merger of the Bank with
Humboldt Merger Company, a California corporation.
3. The Plan of Reorganization and Merger Agreement in the form attached hereto
was approved by the Bank's Board of Directors.
4. The principal terms of the Plan of Reorganization and Merger Agreement in
the form attached hereto were approved by the Bank's shareholders pursuant to a
Written Consent Solicitation of all the Bank's shareholders in accordance with
its Articles of Incorporation, Bylaws and the California Corporations Code, by
the vote of a number of shares of each class which exceeded the vote required.
The classes entitled to vote, the total number of outstanding shares of each
class entitled to vote on the merger, the percentage vote required of each
class and total number of shares of each class voting in favor being as
follows:
Name Total Number of Percentage Total Number of
of Outstanding Shares Vote Shares Voting
Class Entitled to Vote Required in Favor
Common 1,266,509 51% 846,150
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated: _____________, 1995
________________________________
Theodore S. Mason
President
________________________________
Alan J. Smyth
Secretary
<PAGE>9
OFFICERS' CERTIFICATE
OF
PLAN OF REORGANIZATION AND MERGER AGREEMENT
HUMBOLDT MERGER COMPANY, A CALIFORNIA CORPORATION
Theodore S. Mason certifies that:
1. He is the duly elected and acting President and Secretary of Humboldt
Merger Company (the "Company"), a California corporation.
2. This certificate is attached to the Plan of Reorganization and Merger
Agreement dated as of __________, 1995, providing for the merger of the Company
with Humboldt Bank, a California corporation.
3. The Plan of Reorganization and Merger Agreement in the form attached hereto
was duly approved by the Company's Board of Directors and shareholders, and the
required vote of the shareholders of the Company's parent, Humboldt Bancorp,
approving such Plan of Reorganization and Merger Agreement was obtained.
4. The shareholder approval was by the holder of 100% of the outstanding
shares of the corporation.
5. There is only one class of shares and the number of shares outstanding is
100.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Dated: _____________, 1995
________________________________
Theodore S. Mason
President and Secretary
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
HUMBOLDT BANCORP
ONE: NAME
The name of the corporation is:
Humboldt Bancorp
TWO: PURPOSE
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporations Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: AUTHORIZED STOCK
The corporation is authorized to issue only one class of shares of stock,
designated "Common Stock," and the total number of shares which the corporation
is authorized to issue is 20,000,000.
FOUR: DIRECTOR LIABILITY
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
FIVE: INDEMNIFICATION
The corporation is authorized to indemnify its agents (as defined from
time to time in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law. Any amendment, repeal or modification
of the provisions of this Article shall not adversely affect any right or
protection of an agent of the corporation existing at the time of such
amendment, repeal or modification.
SIX: AGENT FOR SERVICE OF PROCESS
The name and address in this State of this corporation's initial agent for
service of process is:
Gary Steven Findley
1470 North Hundley Street
Anaheim, California 92806
<PAGE>2
IN WITNESS WHEREOF, for the purpose of forming this corporation under the
laws of the State of California, the undersigned, constituting the incorporator
of this corporation, has executed these Articles of Incorporation.
Dated: January 23, 1995
___________________________
Gary Steven Findley
I hereby declare that I am the person who executed the foregoing Articles
of Incorporation, which execution is my act and deed.
__________________________
Gary Steven Findley
BYLAWS
OF
HUMBOLDT BANCORP
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The principal executive office of the
corporation is hereby located at such place as the board of directors (the
"board") shall determine. The board is hereby granted full power and authority
to change said principal executive office from one location to another.
SECTION 1.2. OTHER OFFICES. Other business offices may, at any time, be
established by the board at such other places as it deems appropriate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1. PLACE OF MEETINGS. Meetings of shareholders may be held at such
place within or outside the state of California designated by the board. In
the absence of any such designation, shareholders' meetings shall be held at
the principal executive office of the corporation.
SECTION 2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held
for the election of directors on a date and at a time designated by the board.
The date so designated shall be within fifteen (15) months after the last
annual meeting. At such meeting, directors shall be elected, and any other
proper business within the power of the shareholders may be transacted.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the board, the chairperson of the board, the president,
or by the holders of shares entitled to cast not less than ten percent (10%) of
the votes at such meeting. If a special meeting is called by any person or
persons other than the board, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or by registered mail to the
chairperson of the board, the president, any vice president or the secretary of
the corporation. The officer receiving the request shall cause notice to be
promptly given to the shareholders entitled to vote that a meeting will be held
at a time requested by the person or persons calling the meeting, not less than
35 nor more than 60 days after receipt of the request. If the notice is not
given within 20 days after receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing in this paragraph shall be
construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board may be held.
SECTION 2.4. NOTICE OF MEETINGS. Written notice, in accordance with Section
2.5 of this Article II, of each annual or special meeting of shareholders shall
be given not less than 10 nor more than 60 days before the date of the meeting
<PAGE>2
to each shareholder entitled to vote thereat. Such notice shall state the
place, date and hour of the meeting and (a) in the case of a special meeting,
the general nature of the business to be transacted, and no other business may
be transacted, or (b) in the case of the annual meeting, those matters which
the board, at the time of the mailing of the notice, intends to present for
action by the shareholders, but, subject to the provisions of applicable law,
any proper matter may be presented at the meeting for such action. The notice
of any meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by the board for
election.
If action is proposed to be taken at any meeting for approval of (a) a contract
or transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the California Corporations Code, as amended (the
"Code"), (b) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (c) a reorganization of the corporation, pursuant to Section
1201 of the Code, (d) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (e) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall also state the general nature of that
proposal.
SECTION 2.5. MANNER OF GIVING NOTICE. Notice of a shareholders' meeting shall
be given either personally or by first-class mail or telegraphic or other
written communication, charges prepaid, addressed to the shareholder at the
address of that shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, notice shall be deemed
to have been given if sent to that shareholder by first-class mail or
telegraphic or other written communication to the corporation's principal
executive office or if published at least once in a newspaper of general
circulation in the county in which the principal executive office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication. An affidavit of mailing or other means of giving any notice in
accordance with the above provisions, executed by the secretary, assistant
secretary or any transfer agent, shall be prima facie evidence of the giving of
the notice.
If any notice addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at such address, all
future notices shall be deemed to have been duly given without further mailing
if the same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period
of one year from the date of the giving of the notice to all other
shareholders.
SECTION 2.6. QUORUM. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at any meeting of
shareholders. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
SECTION 2.7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares
<PAGE>3
represented either in person or by proxy at the meeting, but in the absence of
a quorum (except as provided in Section 2.6 of this Article II) no other
business may be transacted at such meeting.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, when any shareholders' meeting is adjourned for more than 45 days from
the date set for the original meeting, or, if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given to each shareholder of record entitled to vote at the meeting. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
SECTION 2.8. VOTING. The shareholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in
accordance with Section 2.9 of this Article II.
Voting of shares of the corporation shall in all cases be subject to the
provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders' vote may be by voice or ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than election of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal (other than
the election of directors), but, if the shareholder fails to specify the number
of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares that the shareholder is entitled to vote. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on any matter (other than the election of directors) shall
be the act of the shareholders, unless the vote of a greater number or voting
by classes is required by the Code or by the articles of incorporation.
Subject to the following sentence and the provisions of Section 708 of the
Code, every shareholder entitled to vote at any election of directors may
cumulate such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
votes to which the shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among as many candidates as the
shareholder thinks fit. No shareholder shall be entitled to cumulate votes for
any candidate or candidates pursuant to the preceding sentence unless such
candidate's or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice at the meeting and prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any one shareholder has given such notice, all shareholders may cumulate their
votes for candidates in nomination.
In any election of directors, the candidates receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of directors to be elected, shall be elected. Votes against the director and
votes withheld shall have no legal effect.
SECTION 2.9. RECORD DATE. The board may fix, in advance, a record date for
the determination of the shareholders entitled to notice of any meeting or to
vote or to receive payment of any dividend or other distribution, or allotment
of any rights, or to exercise any rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 days nor less than
<PAGE>4
10 days prior to the date of the meeting nor more than 60 days prior to any
other action. When a record date is so fixed, only shareholders of record on
that date are entitled to notice of and to vote at the meeting or to receive
the dividend, distribution, or allotment of rights, or to exercise rights, as
the case may be, notwithstanding any transfer of shares on the books of the
corporation after the record date. A record date for a meeting of shareholders
shall apply to any adjournment of the meeting unless the board fixes a new
record date for the adjourned meeting. The board shall fix a new record date
if the meeting is adjourned for more than 45 days.
If no record date is fixed by the board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day next preceding the day on
which notice of the meeting is given or, if notice is waived, the close of
business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders for any purpose other than
as set forth in this Section 2.9 or Section 2.11 of this Article II shall be at
the close of business on the day on which the board adopts the resolution
relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.
SECTION 2.10. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, who was not present in person or
by proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by the Code to be included in the notice but
not so included, if such objection is expressly made at the meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of shareholders need be specified in any written waiver of notice,
consent to the holding of the meeting or approval of the minutes of the
meeting, except that if action is taken or proposed to be taken for approval of
any of those matters specified in the second paragraph of Section 2.4 of this
Article II, the waiver of notice, consent or approval shall state the general
nature of the proposal.
SECTION 2.11. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Subject to Section
603 of the Code, any action which may be taken at any annual or special meeting
of shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, is signed by the holders
of the outstanding shares, or their proxies, having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
All such consents shall be filed with the secretary of the corporation and
shall be maintained in the corporate records; provided, however, that (1)
unless the consents of all shareholders entitled to vote have been solicited in
writing, notice of any shareholder approval without a meeting by less than
unanimous consent shall be given, as provided by Section 603(b) of the Code,
and (2) in the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for
the election of directors; provided, however, that subject to applicable law, a
director may be elected at any time to fill a vacancy on the board that has not
been filled by the directors, by the written consent of the holders of a
<PAGE>5
majority of the outstanding shares entitled to vote for the election of
directors. Any written consent may be revoked by a writing received by the
secretary of the corporation prior to the time that written consents of the
number of shares required to authorize the proposed action have been filed with
the secretary.
Unless a record date for voting purposes be fixed as provided in Section 2.9 of
this Article II, the record date for determining shareholders entitled to give
consent pursuant to this Section 2.11, when no prior action by the board has
been taken, shall be the day on which the first written consent is given.
SECTION 2.12. PROXIES. Every person entitled to vote shares or execute
written consents has the right to do so either in person or by one or more
persons authorized by a written proxy executed and dated by such shareholder
and filed with the secretary of the corporation prior to the convening of any
meeting of the shareholders at which any such proxy is to be used or prior to
the use of such written consent. A validly executed proxy which does not state
that it is irrevocable continues in full force and effect unless: (1) revoked
by the person executing it prior to the vote pursuant thereto, by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or as to any meeting of shareholders, by attendance at such
meeting and voting in person by the person executing the proxy; or (2) written
notice of the death or incapacity of the maker of the proxy is received by the
corporation before the vote pursuant thereto is counted; provided, however,
that no proxy shall be valid after the expiration of 11 months from the date of
its execution unless otherwise provided in the proxy.
SECTION 2.13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting and any adjournment thereof.
If no inspectors of election are so appointed, or if any persons so appointed
fail to appear or refuse to act, the chairperson of any such meeting may, and
on the request of any shareholder or shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be
either one (1) or three (3). If inspectors are appointed at a meeting on the
request of one or more shareholders or proxies, the holders of a majority of
shares or their proxies present shall determine whether one (1) or three (3)
inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b) of the
Code and shall include: determining the number of shares outstanding and the
voting power of each; determining the shares represented at the meeting;
determining the existence of a quorum; determining the authenticity, validity
and the effect of proxies; receiving votes, ballots or consents; hearing and
determining all challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or consents; determining
when the polls shall close; determining the result; and doing such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
If there are three inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all.
SECTION 2.14. CONDUCT OF MEETINGS. The president shall preside at all
meetings of the shareholders and shall conduct each such meeting in a
businesslike and fair manner, but shall not be obligated to follow any
technical, formal or parliamentary rules or principles of procedure. The
presiding officer's rulings on procedural matters shall be conclusive and
binding on all shareholders, unless at the time of ruling a request for a vote
<PAGE>6
is made to the shareholders entitled to vote and represented in person or by
proxy at the meeting, in which case the decision of a majority of such shares
shall be conclusive and binding on all shareholders. Without limiting the
generality of the foregoing, the presiding officer shall have all the powers
usually vested in the presiding officer of a meeting of shareholders.
ARTICLE III
DIRECTORS
SECTION 3.1. POWERS. Subject to the provisions of the Code and any
limitations in the articles of incorporation and these bylaws relating to
actions required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board.
The board may delegate the management of the day-to-day operations of the
business of the corporation to a management company or other person provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the board.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the board shall have the following powers
in addition to the other powers enumerated in these bylaws:
(a) to select and remove all the other officers, agents and employees of the
corporation, prescribe any qualifications, powers and duties for them that
are consistent with law, the articles of incorporation or these bylaws,
fix their compensation, and require from them security for faithful
service;
(b) to conduct, manage and control the affairs and business of the corporation
and to make such rules and regulations therefor not inconsistent with law,
the articles of incorporation or these bylaws, as they may deem best;
(c) to adopt, make and use a corporate seal, to prescribe the forms of
certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgment they may deem best;
(d) to authorize the issuance of shares of stock of the corporation from time
to time, upon such terms and for such consideration as may be lawful;
(e) to borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory and capital notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other evidences of debt and
securities therefor and any agreements pertaining thereto;
(f) to prescribe the manner in which and the person or persons by whom any or
all of the checks, drafts, notes, contracts and other corporate
instruments shall be executed;
(g) to appoint and designate, by resolution adopted by a majority of the
authorized number of directors, one or more committees, each consisting of
two or more directors, including the appointment of alternate members of
any committee who may replace any absent member at any meeting of the
committee; and
<PAGE>7
(h) generally, to do and perform every act or thing whatever that may pertain
to or be authorized by the board of directors of a corporation
incorporated under the laws of this state.
SECTION 3.2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of
directors of the corporation shall not be less than eight (8) nor more than
fifteen (15) until changed by an amendment of the articles of incorporation or
by a bylaw amending this Section 3.2 duly adopted by the vote or written
consent of holders of a majority of the outstanding shares entitled to vote.
The exact number of directors shall be fixed from time to time, within the
range specified in the articles of incorporation or in this Section 3.2: (i) by
a resolution duly adopted by the board; (ii) by a bylaw or amendment thereof
duly adopted by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of the holders of a majority of the outstanding shares entitled
to vote; or (iii) by approval of the shareholders (as defined in Section 153 of
the Code.
SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election of members of
the board may be made by the board or by any holder of any outstanding class of
capital stock of the corporation entitled to vote for the election of
directors. Notice of intention to make any nominations (other than for persons
named in the notice of the meeting called for the election of directors) shall
be made in writing and shall be delivered or mailed to the president of the
corporation by the later of: (i) the close of business twenty-one (21) days
prior to any meeting of shareholders called for the election of directors; or
(ii) ten (10) days after the date of mailing of notice of the meeting to
shareholders. Such notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c)
the number of shares of capital stock of the corporation owned by each proposed
nominee; (d) the name and residence address of the notifying shareholder; (e)
the number of shares of capital stock of the corporation owned by the notifying
shareholder; (f) the number of shares of capital stock of any bank, bank
holding company, savings and loan association or other depository institution
owned beneficially by the nominee or by the notifying shareholder and the
identities and locations of any such institutions; and (g) whether the proposed
nominee has ever been convicted of or pleaded nolo contendere to any criminal
offense involving dishonesty or breach of trust, filed a petition in bankruptcy
or been adjudged bankrupt. The notification shall be signed by the nominating
shareholder and by each nominee, and shall be accompanied by a written consent
to be named as a nominee for election as a director from each proposed nominee.
Nominations not made in accordance with these procedures shall be disregarded
by the chairperson of the meeting, and upon his or her instructions, the
inspectors of election shall disregard all votes cast for each such nominee.
The foregoing requirements do not apply to the nomination of a person to
replace a proposed nominee who has become unable to serve as a director between
the last day for giving notice in accordance with this paragraph and the date
of election of directors if the procedure called for in this paragraph was
followed with respect to the nomination of the proposed nominee.
A copy of the preceding paragraph shall be set forth in the notice to
shareholders of any meeting at which directors are to be elected.
SECTION 3.4. ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of shareholders, but if any annual meeting is not held or
the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. Each director shall
hold office until the next annual meeting and until a successor has been
elected and qualified.
<PAGE>8
SECTION 3.5. VACANCIES. Vacancies on the board, except for a vacancy created
by the removal of a director, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each
director so elected shall hold office until the next annual meeting and until
such director's successor has been elected and qualified. A vacancy on the
board created by the removal of a director may only be filled by the vote of a
majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of all of
the outstanding shares.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal requires the consent of
a majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the chairperson
of the board, the president, secretary, or the board, unless the notice
specifies a later time for the effectiveness of such resignation. If the board
accepts the resignation of a director tendered to take effect at a future time,
the board or the shareholders shall have power to elect a successor to take
office when the resignation is to become effective.
A vacancy or vacancies on the board shall be deemed to exist in case of the
death, resignation or removal of any director, or if the authorized number of
directors is increased, or if the shareholders fail, at any annual or special
meeting of shareholders at which any director or directors are elected, to
elect the full authorized number of directors to be voted for at that meeting.
The board may declare vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
SECTION 3.6. PLACE OF MEETINGS. Regular or special meetings of the board
shall be held at any place within or outside the state of California which has
been designated in the notice of meeting or if there is no notice, at the
principal executive office of the corporation, or at a place designated by
resolution of the board or by the written consent of the board. Any regular or
special meeting is valid wherever held if held upon written consent of all
members of the board given either before or after the meeting and filed with
the secretary of the corporation.
SECTION 3.7. REGULAR MEETINGS. Immediately following each annual meeting of
shareholders, the board shall hold a regular meeting for the purpose of
organization, any desired election of officers and the transaction of other
business. Notice of this meeting shall not be required.
Other regular meetings of the board shall be held without notice on the third
Wednesday of each month at the hour of 3:30 p.m., or at such different date and
time as the board may from time to time fix by resolution; provided, however,
should said day fall upon a legal holiday observed by the corporation at its
principal executive office, then said meeting shall be held at the same time
and place on the next succeeding full business day of the corporation. Call
and notice of all regular meetings of the board are hereby dispensed with.
<PAGE>9
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the board for any purpose
or purposes may be called at any time by the chairperson of the board, the
president, any vice president, the secretary or by any two directors.
Special meetings of the board shall be held upon four days' written notice by
mail or 48 hours' notice delivered personally or by telephone, telegraph, telex
or other similar means of communication. Any such notice shall be addressed or
delivered to each director at the director's address as shown upon the records
of the corporation or as given to the corporation by the director for purposes
of notice or, if such address is not shown on such records or is not readily
ascertainable, at the place in which the meetings of the directors are
regularly held. Such notice may, but need not, specify the purpose of the
meeting, or the place if the meeting is to be held at the principal executive
office of the corporation.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mails, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means or by facsimile transmission, to the recipient. Oral notice
shall be deemed to have been given at the time it is communicated, in person or
by telephone or wireless, to the recipient or to a person at the office of the
recipient whom the person giving the notice has reason to believe will promptly
communicate it to the recipient.
SECTION 3.9. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the board, unless a greater number be
required by the articles of incorporation and subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest) and Section
317(e) of the Code (as to indemnification of directors). A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
SECTION 3.10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the board may participate in a meeting through use of a conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant to this
Section 3.10 constitutes presence in person at such meeting.
SECTION 3.11. WAIVER OF NOTICE. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes of the meeting, whether before or after the meeting, or
who attends the meeting without protesting, before the meeting or at its
commencement, the lack of notice to such director. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
SECTION 3.12. ADJOURNMENT. A majority of the directors present, whether or
not a quorum is present, may adjourn any directors' meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not
be given, unless the meeting is adjourned for more than twenty-four hours, in
which case notice of the time and place shall be given before the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
<PAGE>10
SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the board may be taken without a meeting if all members of the board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the board. Such action by written consent shall have the same effect as a
unanimous vote of the board.
SECTION 3.14. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the board. This Section 3.14
shall not be construed to preclude any director from serving the corporation in
any other capacity as an officer, agent, employee or otherwise, and receiving
compensation for those services.
SECTION 3.15. RIGHTS OF INSPECTION. Every director of the corporation shall
have the absolute right at any reasonable time to inspect and copy all books,
records and documents of every kind and to inspect the physical properties of
the corporation and also of its subsidiary corporations, domestic or foreign.
Such inspection by a director may be made in person or by agent or attorney,
and the right of inspection includes the right to copy and make extracts.
SECTION 3.16. REMOVAL OF DIRECTOR WITHOUT CAUSE. Any or all of the directors
of the corporation may be removed without cause if the removal is approved by
the outstanding shares, subject to the following:
(a) Except if the corporation has a classified board, no director may be
removed (unless the entire board is removed) when the votes cast against
removal, or not consenting in writing to the removal, would be sufficient
to elect the director if voted cumulatively at an election at which the
same total number of votes were cast (or, if the action is taken by
written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
(b) When by the provisions of the articles the holders of the shares of any
class or series, voting as a class or series, are entitled to elect one or
more directors, any director so elected may be removed only by the
applicable vote of the holders of the shares of that class or series.
(c) When the corporation has a classified board, a director may not be removed
if the votes cast against removal of the director, or not consenting in
writing to the removal, would be sufficient to elect the director if voted
cumulatively (without regard to whether shares may otherwise be voted
cumulatively) at an election at which the same total number of votes were
cast (or, if the action is taken by written consent, all shares entitled
to vote were voted) and either the number of directors elected at the most
recent annual meeting of shareholders, or if greater, the number of
directors for whom removal is being sought, were then being elected.
SECTION 3.17. REMOVAL OF DIRECTORS BY SHAREHOLDER'S SUIT. The superior court
of the proper county may, at the suit of the shareholders holding at least 10
percent of the number of outstanding shares of any class, remove from office
any director in case of fraudulent or dishonest acts or gross abuse of
authority or discretion with reference to the corporation and may bar from
reelection any director so removed for a period prescribed by the court. The
corporation shall be made a party to such action.
<PAGE>11
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. The officers of the corporation shall be a president,
a secretary and a chief financial officer. The corporation may also have, at
the discretion of the board, a chairperson of the board, a vice chairperson of
the board, one or more vice presidents, one or more assistant secretaries, one
or more assistant financial officers and such other officers as may be elected
or appointed in accordance with the provisions of Section 4.3 of this Article
IV. One person may hold two or more offices, except those of president and
secretary.
SECTION 4.2. APPOINTMENT. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.3
or Section 4.5 of this Article IV, shall be chosen by, and shall serve at the
pleasure of, the board, and shall hold their respective offices until their
resignation, removal or other disqualification from service, or until their
respective successors shall be appointed, subject to the rights, if any, of an
officer under any contract of employment.
SECTION 4.3. SUBORDINATE OFFICERS. The board may appoint, or may empower the
president to appoint, such other officers as the business of the corporation
may require, each to hold office for such period, have such authority and
perform such duties as are provided in these bylaws or as the board may from
time to time determine.
SECTION 4.4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an
officer under any contract of employment, any officer may be removed, either
with or without cause, by the board at any time, or, except in the case of an
officer chosen by the board, by any officer upon whom such power of removal may
be conferred by the board.
Any officer may resign at any time by giving written notice to the corporation
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 4.5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these bylaws for regular appointment to such office.
SECTION 4.6. CHAIRPERSON. The chairperson of the board, if there shall be
such an officer, shall, if present, preside at all meetings of the board and
exercise and perform such other powers and duties as may be assigned from time
to time by the board.
SECTION 4.7. VICE CHAIRPERSON. The vice chairperson of the board, if there
shall be such an officer, shall, in the absence of the chairperson of the
board, preside at all meetings of the board and exercise and perform such other
powers and duties as may be assigned from time to time by the board.
SECTION 4.8. PRESIDENT. Subject to such powers, if any, as may be given by
the board to the chairperson of the board, if there shall be such an officer,
the president is the general manager and chief executive officer of the
corporation and has, subject to the control of the board, general supervision,
<PAGE>12
direction and control of the business and affairs of the corporation. The
president shall preside at all meetings of the shareholders and in the absence
of both the chairperson of the board and the vice chairperson, or if there be
none, at all meetings of the board. The president has the general powers and
duties of management usually vested in the office of president and chief
executive officer of a corporation and such other powers and duties as may be
prescribed by the board.
SECTION 4.9. VICE PRESIDENT. In the absence or disability of the president,
the vice presidents in order of their rank as fixed by the board or, if not
ranked, the vice president designated by the board, shall perform all the
duties of the president and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the bylaws, the board, the president
or the chairperson of the board.
SECTION 4.10. SECRETARY. The secretary shall keep or cause to be kept, at the
principal executive office or such other place as the board may order, a book
of minutes of all meetings of shareholders, the board and its committees, with
the time and place of holding, whether regular or special, and, if special, how
authorized, the notice or waivers of notice thereof given, the names of those
present at the board and committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, a copy of the bylaws of the
corporation at the principal executive office or business office in accordance
with Section 213 of the Code. The secretary shall keep, or cause to be kept,
at the principal executive office or at the office of the corporation's
transfer agent or registrar, if one is appointed, a record of its shareholders,
or a duplicate record of its shareholders, giving the names and addresses of
all shareholders and the number and class of shares held by each.
The secretary shall give, or cause to be given, notice of all the meetings of
the shareholders, of the board and of any committees thereof required by these
bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the board.
SECTION 4.11. ASSISTANT SECRETARY. The assistant secretary or the assistant
secretaries, in the order of their seniority, shall, in the absence or
disability of the secretary, or in the event of such officer's refusal to act,
perform the duties and exercise the powers of the secretary and shall have such
additional powers and discharge such duties as may be assigned from time to
time by the president or by the board.
SECTION 4.12. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books
and records of the properties and financial and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares, and shall
send or cause to be sent to the shareholders of the corporation such financial
statements and reports that by law or these bylaws are required to be sent to
them. The books of account shall at all times be open to inspection by any
director of the corporation.
The chief financial officer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
<PAGE>12
designated by the board. The chief financial officer shall disburse the funds
of the corporation as may be ordered by the board, shall render to the
president and directors, whenever they request it, an account of all
transactions engaged in as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board.
SECTION 4.13. ASSISTANT FINANCIAL OFFICER. The assistant financial officer or
the assistant financial officers, in the order of their seniority, shall, in
the absence or disability of the chief financial officer, or in the event of
such officer's refusal to act, perform the duties and exercise the powers of
the chief financial officer, and shall have such additional powers and
discharge such duties as may be assigned from time to time by the president or
by the board.
SECTION 4.14. SALARIES. The salaries of the officers shall be fixed from time
to time by the board and no officer shall be prevented from receiving such
salary by reason of the fact that such officer is also a director of the
corporation.
SECTION 4.15. OFFICERS HOLDING MORE THAN ONE OFFICE. Any two or more offices,
except those of president and secretary, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity.
SECTION 4.16. INABILITY TO ACT. In the case of absence or inability to act of
any officer of the corporation and of any person herein authorized to act in
his or her place, the board may from time to time delegate the powers or duties
of such officer to any other officer, or any director or other person whom it
may select.
ARTICLE V
INDEMNIFICATION
SECTION 5.1. DEFINITIONS. For use in this Article V, certain terms are
defined as follows:
(a) "Agent": A director, officer, employee or agent of the corporation or a
person who is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise
(including service with respect to employee benefit plans and service on
creditors' committees with respect to any proceeding under the Bankruptcy
Code, assignment for the benefit of creditors or other liquidation of
assets of a debtor of the corporation), or a person who was a director,
officer, employee or agent of a foreign or domestic corporation which was
a predecessor corporation of the corporation or of another enterprise at
the request of the predecessor corporation.
(b) "Loss": All expenses, liabilities, and losses including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties, amounts paid or to be
paid in settlement, any interest, assessments, or other charges imposed
thereon, and any federal, state, local, or foreign taxes imposed on any
Agent as a result of the actual or deemed receipt of any payments under
this Article.
(c) "Proceeding": Any threatened, pending or completed action, suit or
proceeding including any and all appeals, whether civil, criminal,
administrative or investigative.
<PAGE>14
SECTION 5.2. RIGHT TO INDEMNIFICATION. Each person who was or is a party or
is threatened to be made a party to or is involved (as a party, witness or
otherwise) in any Proceeding, by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was an Agent, is entitled
to indemnification. Agent shall be indemnified and held harmless by the
corporation to the fullest extent authorized by law. The right to
indemnification conferred in this Article V shall be a contract right. It is
the corporation's intention that these bylaws provide indemnification in excess
of that expressly permitted by Section 317 of the Code, as authorized by the
corporation's articles of incorporation.
SECTION 5.3. AUTHORITY TO ADVANCE EXPENSES. The right to indemnification
provided in Section 5.2 of these bylaws shall include the right to be paid, in
advance of a Proceeding's final disposition, expenses incurred in defending
that Proceeding, PROVIDED, HOWEVER, that if required by the California General
Corporation Law, as amended, the payment of expenses in advance of the final
disposition of the Proceeding shall be made only upon delivery to the
corporation of an undertaking by or on behalf of the Agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized under this Article V or otherwise.
The Agent's obligation to reimburse the corporation for advances shall be
unsecured and no interest shall be charged thereon.
SECTION 5.4. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 5.2 or
5.3 of these bylaws is not paid in full by the corporation within thirty (30)
days after a written claim has been received by the corporation, the claimant
may at any time there-after bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expenses (including attorneys' fees) of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending a
Proceeding in advance of its final disposition) that the claimant has not met
the standards of conduct that make it permissible under the California General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its board of directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that the indemnification of the
claimant is proper under the circumstances because he or she has met the
applicable standard of conduct set forth in the California General Corporation
Law, nor an actual determination by the corporation (including its board of
directors, independent legal counsel, or its shareholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not already met the applicable
standard of conduct.
SECTION 5.5. PROVISIONS NONEXCLUSIVE. The rights conferred on any person by
this Article V shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the articles of
incorporation, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office. To the extent that any provision
of the articles of incorporation, agreement, or vote of the shareholders or
disinterested directors is inconsistent with these bylaws, the provision,
agreement, or vote shall take precedence.
SECTION 5.6. AUTHORITY TO INSURE. The corporation may purchase and maintain
insurance to protect itself and any Agent against any Loss asserted against or
incurred by such person, whether or not the corporation would have the power to
<PAGE>15
indemnify the Agent against such Loss under applicable law or the provisions of
this Article V. If the corporation owns all or a portion of the shares of the
company issuing the insurance policy, the company and/or the policy must meet
one of the two sets of conditions set forth in Section 317 of the Code.
SECTION 5.7. SURVIVAL OF RIGHTS. The rights provided by this Article V shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
SECTION 5.8. SETTLEMENT OF CLAIMS. The corporation shall not be liable to
indemnify any Agent under this Article V: (a) for any amounts paid in
settlement of any action or claim effected without the corporation's written
consent, which consent shall not be unreasonably withheld; or (b) for any
judicial award, if the corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
SECTION 5.9. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
this Article V shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal or modification.
SECTION 5.10. SUBROGATION. Upon payment under this Article V, the corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Agent, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the corporation effectively to bring suit
to enforce such rights.
SECTION 5.11. NO DUPLICATION OF PAYMENTS. The corporation shall not be liable
under this Article V to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE VI
OTHER PROVISIONS
SECTION 6.1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of the outstanding
voting shares and have filed a Schedule 14B with the United States
Securities and Exchange Commission relating to the election of directors
of the corporation shall have an absolute right to do either or both of
the following:
(i) inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five business days'
prior written demand upon the corporation; or
(ii) obtain from the transfer agent, if any, for the corporation, upon
written demand and upon the tender of its usual charges for such a
<PAGE>16
list (the amount of which charges shall be stated to the shareholder
by the transfer agent upon request), a list of the shareholders'
names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date
for which it has been compiled, or as of a date specified by the
shareholder subsequent to the date of demand. The corporation shall
have a responsibility to cause the transfer agent to comply with
this Section 6.1;
(b) The record of shareholders shall also be open to inspection and copying by
any shareholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to such holder's interest as a shareholder or holder of
a voting trust certificate. A written demand for such inspection shall be
accompanied by a statement in reasonable detail of the purpose of the
inspection.
(c) The accounting books and records and minutes of proceedings of the
shareholders and the board and committees of the board shall be open to
inspection upon written demand on the corporation by any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interest
as a shareholder or as a holder of such voting trust certificate. The
right of inspection created by this Section 6.1(c) shall extend to the
records of each subsidiary of the corporation. A written demand for such
inspection shall be accompanied by a statement in reasonable detail of the
purpose of the inspection.
(d) Any inspection and copying under this Section 6.1 may be made in person or
by agent or attorney.
SECTION 6.2. INSPECTION OF BYLAWS. The corporation shall keep at its
principal executive office in California the original or a copy of these bylaws
as amended to date, which shall be open to inspection by shareholders at all
reasonable times during office hours.
SECTION 6.3. EXECUTION OF DOCUMENTS, CONTRACTS. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, initial transaction statement or written statement, conveyance or
other instrument in writing and any assignment or endorsement thereof executed
or entered into between the corporation and any other person, when signed by
the chairperson of the board, the president or any vice president and the
secretary, any assistant secretary, the chief financial officer or any
assistant financial officer of the corporation, or when stamped with a
facsimile signature of such appropriate officers in the case of share
certificates, shall be valid and binding upon the corporation in the absence of
actual knowledge on the part of the other person that the signing officers did
not have authority to execute the same. Any such instruments may be signed by
any other person or persons and in such manner as from time to time shall be
determined by the board, and unless so authorized by the board, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or amount.
SECTION 6.4. CERTIFICATES OF STOCK. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation
by the chairperson or the vice chairperson of the board or the president or a
vice president and by the secretary or an assistant secretary or the chief
financial officer or an assistant financial officer, certifying the number of
shares and the class or series of shares owned by the shareholder. The
signatures on the certificates may be facsimile signatures. If any officer,
<PAGE>17
transfer agent or registrar who has signed a certificate or whose facsimile
signature has been placed upon the certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Except as provided in this Section 6.4, no new certificate for shares shall be
issued in lieu of an old certificate unless the latter is surrendered and
cancelled at the same time. The board may, however, in case any certificate
for shares is alleged to have been lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation may require
that the corporation be given a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it (including any
expense or liability) on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Prior to the due presentment for registration of transfer in the stock transfer
book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to
exercise all the rights and powers of an owner, except as expressly provided
otherwise by the laws of the state of California.
SECTION 6.5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or
any other officer or officers authorized by the board or the president are each
authorized to vote, represent and exercise on behalf of the corporation all
rights incident to any and all shares or other securities of any other
corporation or corporations standing in the name of the corporation. The
authority herein granted may be exercised either by any such officer in person
or by any other person authorized to do so by proxy or power of attorney duly
executed by said officer.
SECTION 6.6. SEAL. The corporate seal of the corporation shall consist of two
concentric circles, between which shall be the name of the corporation, and in
the center shall be inscribed the word "Incorporated" and the date of its
incorporation.
SECTION 6.7. FISCAL YEAR. The fiscal year of the corporation shall begin on
the first day of January and end on the 31st day of December of each year.
SECTION 6.8. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the Code and the California General Corporation Law shall govern
the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
SECTION 6.9. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF
LAW. Any article, section, subsection, subdivision, sentence, clause or phrase
of these bylaws which, upon being construed in the manner provided in this
Section 6.9, shall be contrary to or inconsistent with any applicable provision
of the Code or other applicable laws of the state of California or of the
United States shall not apply so long as said provisions of law shall remain in
effect, but such result shall not affect the validity or applicability of any
other portions of these bylaws, it being hereby declared that these bylaws
would have been adopted and each article, section, subsection, subdivision,
sentence, clause or phrase thereof, irrespective of the fact that any one or
more articles, sections, subsections, subdivisions, sentences, clauses or
phrases is or are illegal.
<PAGE>18
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of
a majority of the outstanding shares entitled to vote; provided, however, that
if the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation and provided
also that a bylaw reducing the fixed number or the minimum number of directors
to a number less than five cannot be adopted if the votes cast against adoption
at a meeting, or the shares not consenting in the case of action by written
consent, are equal to more than 16 2/3 percent of the outstanding shares
entitled to vote.
SECTION 7.2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 7.1 of this Article VII, bylaws, other than
a bylaw specifying or changing a fixed number of directors or the maximum or
minimum number or changing from a fixed to a variable board or vice versa, may
be adopted, amended or repealed by the board.
<PAGE>19
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Humboldt Bancorp, a
California corporation; and
2. That the foregoing Bylaws, comprising 22 pages, constitute the Bylaws of
Humboldt Bancorp as duly adopted by action of the board of directors of
Humboldt Bancorp duly taken on, February __, 1995.
_____________________________________
Alan J. Smyth, Secretary
Exhibit 4.1
FORM OF CERTIFICATE
HUMBOLDT BANCORP
Incorporated under the laws of the State of California
This certifies that _________________________________________ is the
owner of __________________ Shares of the Common Stock of Humboldt Bancorp
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated:
_________________________ (CORPORATE SEAL) _____________________
Secretary President
<PAGE> Reverse side
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
accordingly to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joints tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ___________ Custodian __________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value received, _____________________________ hereby sell, assign and
Please insert Social Security or other
identifying number of assignee
_________________________
/ /
- -------------------------
transfer unto _____________________________________________________________
(please print or typewrite name and address, including
zip code of assignee)
____________________________________________________________________________
_________________ Shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint _______________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated: ______________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
Signature(s) guaranteed: ________________________________________________
The signature(s) should be guaranteed by an
eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions)
with membership in an approved signature guarantee
medallion program, pursuant to S.E.C. Rule 17Ad-15.
Exhibit 10.1
REDACTED MINUTES OF PERSONNEL COMMITTEE MEETING
FOR HUMBOLDT BANCORP DATED DECEMBER 10, 1996
After review of various documents that have been made available to the
Committee during the past year relative to Ted's existing Employment
Agreement and overall method of compensation, and after due and extensive
discussion of the matter, Larry Francesconi moved, seconded by Myron
Abrahamsen, that the Committee recommend the following action to the Board
of Directors of Humboldt Bank:
a) The Employment Agreement shall be amended to extend Ted Mason's
employment to January 1, 2001.
b) Ted Mason's salary shall be set at $125,000 per annum, during the term
of the Agreement.
c) The Incentive Compensation terms of the Agreement shall be modified as
follows: "Of the profit available for the executive incentive
compensation program, the following percentages shall be paid to
Employee (i.e., Mason)":
Bank's Pre-Tax Incentive Compensation
Net Profits Percentages
$0 - $2,000,000 4%
$2,000,000 - $4,000,000 3%
Over $4,000,000 2.5%
A condition of the motion is that Ted Mason waive the requirement of the
120 written notices before March 16, 1997, relative to the automatic
renewal for a successive one-year term of his existing agreement.
The motion pass on unanimous vote of all Committee members present.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
INTERNALLY GENERATED REPORTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 10,247 7,281
<INT-BEARING-DEPOSITS> 20 1,120
<FED-FUNDS-SOLD> 6,570 5,470
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 39,933 53,875
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 144,907 115,105
<ALLOWANCE> (2,146) (1,868)
<TOTAL-ASSETS> 214,738 193,913
<DEPOSITS> 192,576 174,526
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,787 1,665
<LONG-TERM> 775 787
0 0
0 0
<COMMON> 17,179 14,852
<OTHER-SE> 2,421 2,083
<TOTAL-LIABILITIES-AND-EQUITY> 214,738 193,913
<INTEREST-LOAN> 13,773 11,391
<INTEREST-INVEST> 2,366 3,230
<INTEREST-OTHER> 423 620
<INTEREST-TOTAL> 16,562 15,241
<INTEREST-DEPOSIT> 0 0
<INTEREST-EXPENSE> 5,549 5,244
<INTEREST-INCOME-NET> 11,013 9,997
<LOAN-LOSSES> 533 792
<SECURITIES-GAINS> 678 109
<EXPENSE-OTHER> 11,325 9,149
<INCOME-PRETAX> 4,902 3,565
<INCOME-PRE-EXTRAORDINARY> 4,902 3,565
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,976 2,202
<EPS-PRIMARY> $1.93 $1.47
<EPS-DILUTED> $1.93 $1.47
<YIELD-ACTUAL> 6.08 5.93
<LOANS-NON> 218 619
<LOANS-PAST> 122 193
<LOANS-TROUBLED> 108 268
<LOANS-PROBLEM> 0 0
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<CHARGE-OFFS> (374) (318)
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<ALLOWANCE-CLOSE> 2,146 1,868
<ALLOWANCE-DOMESTIC> 637 646
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<ALLOWANCE-UNALLOCATED> 1,509 1,222
</TABLE>
