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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ____________ to
____________.
Commission File Number: 000-22797
TEHAMA BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 91-1775524
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
239 SOUTH MAIN STREET, RED BLUFF, CALIFORNIA 96080
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (530) 528-3000
------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock; No Par Value; 1,642,939 shares outstanding (March 6, 1998)
(Title of Class)
Aggregate market value of the voting stock held by non-affiliates: $21,565,794
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
DOCUMENTS INCORPORATED BY REFERENCE
ANNUAL REPORT TO SECURITY HOLDERS FOR FISCAL
YEAR ENDED DECEMBER 31, 1997 (PART II)
PROXY STATEMENT FOR 1998 ANNUAL MEETING OF SHAREHOLDERS (PART III)
The Index of Exhibits is located on page 13
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TABLE OF CONTENTS
PAGE
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . 8
ITEM (*) EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . 8
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . 9
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA . . . . . . 9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 9
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 9
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 10
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
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PART I
ITEM 1. BUSINESS
GENERAL. Tehama Bancorp (the "Company") was organized as a California
corporation in January 1997 for the purpose of reorganizing Tehama Bank (the
"Bank") as the wholly-owned subsidiary of the Company. This transaction was
approved by the shareholders of the Bank at the 1997 Annual Meeting of the Bank
held on May 6, 1997, and was made effective as of the close of business June 30,
1997. The Company is registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") as a bank holding company under the
Bank Holding Company Act of 1956, as amended, and reports annually to and is
examined by the Federal Reserve Board. The Common Stock of the Company is
registered with the Securities and Exchange Commission (the "SEC") pursuant to
section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Company files periodic reports and proxy materials with the SEC
pursuant to sections 13 and 14 of the Exchange Act.
The Bank is the Company's only subsidiary, and the Company engages in no
business other than indirectly in the business conducted by the Bank, which was
incorporated as a California banking corporation under the name Tehama County
Bank on March 15, 1984, and received its Certificate of Authority to commence
banking operations on August 30, 1984. Effective February 11, 1997, the Bank
changed its name to Tehama Bank.
OFFICES. The Bank's headquarters is located at 239 South Main Street and
its main office is located at 237 South Main Street, Red Bluff, Tehama County,
California. Branch offices are located at 7843 Highway 99E, in the
unincorporated community of Los Molinos, Tehama County; at 2025 Pillsbury Road,
Chico, Butte County; at 301 Walker Street, Orland, Glenn County; and 160 North
Butte Street, Willows, Glenn County. The Bank also maintains a Loan Production
Office at 2775 Bechelli Lane, Redding, Shasta County. The branches located in
Orland and Willows were acquired by the Bank from Wells Fargo Bank, N.A., in a
transaction which was effective February 22, 1997.
The Bank's principal office and Chico branch office maintain drive-up
windows for transactions during the hours of 8:00 A.M. through 5:30 P.M.,
Monday through Thursday, and 8:00 A.M. through 6:00 P.M. on Friday. The two
offices also maintain identical lobby hours (9:00 A.M. through 5:00 P.M., Monday
through Thursday, and 9:00 A.M. through 6:00 P.M. on Friday) and offer 24-hour
teller service through ATMs located on the premises. The Bank's Los Molinos
office maintains lobby hours between 9:00 A.M. through 4:00 P.M., Monday
through Thursday, and 9:00 A.M. through 5:00 P.M. on Friday, and has neither a
drive-up window nor an ATM. The Bank's Willows and Orland branches maintain
identical lobby hours of 9:00 A.M. to 5:00 P.M., Monday through Thursday and
9:00A.M. through 6:00 P.M. on Friday. Drive-up windows at both the Orland and
Willows branches maintain the hours of 8:00 A.M. to 5:30 P.M., Monday through
Thursday, and 8:00 A.M. to 6:00 P.M. on Friday. 24-hour ATMs also are maintained
at both branches.
SERVICES. The Bank conducts a commercial banking business including
accepting demand, savings and time deposits, issuing letters of credit, and
making commercial, real estate, and consumer loans. It also offers installment
note collection, issues cashier's checks, sells traveler's checks, acts as a
licensed merchant bankcard sales clearer, and provides the following: 24-hour
automated teller service, bank-by-mail and night depository services, safe
deposit boxes, and other customary banking services. Most of the Bank's
customers are individuals and small businesses. The Bank is a member bank of
the Federal Reserve System, and the accounts of its depositors are insured by
the Federal Deposit Insurance Corporation ("FDIC"). The Bank does not offer
trust services or international banking services and does not plan to do so in
the near future.
LEASING ACTIVITIES. During 1996, the Bank entered into a joint venture with
Humboldt Bank, Eureka, California ("Humboldt"), to organize and share equally in
a subsidiary leasing company. Bancorp Financial Services ("BFS") was organized
as a California corporation on November 25, 1996, and the Bank and Humboldt each
contributed $2 million towards its capitalization as of January 2, 1997. Both
Humboldt and the Bank extend credit to BFS and purchase (on a non-recourse
basis) leases originated by BFS, both of which types of transactions provide
additional funding for its operations. BFS' offices are located at 83 Scripps
Drive, Suite 310, in Sacramento, California; the company engages in equipment
leasing in the so-called "small ticket" segment of the industry, which includes
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leases of $100,000 or less. BFS' business plan is to acquire such leases from
independent lessors or brokers through brokerage or discount, to service them
and, at predetermined intervals, package and resell them to investors, including
Humboldt and the Bank. Income to the company is generated through spreads on
its lease portfolio, gains on sales, and ongoing fees and charges. The
company's board of directors includes BFS Chief Executive Officer Kevin D.
Cochrane, three members from the Humboldt Board of Directors and three members
from the Bank's Board of Directors.
LENDING ACTIVITIES. As of the close of business on December 31, 1997, the
Bank's loan portfolio consisted of $62.2 million in real estate loans (including
$11.1 million in real estate construction loans and $11.2 million in commercial
real estate loans), $17.8 million in commercial loans (including $2.4 million in
commercial leases), and $41.9 million in installment loans to individuals for
household, family and other personal expenditures. Comparable segments of the
loan portfolio as of December 31, 1996 were carried at values of $46.2 million,
$10.5 million, and $37.0 million, respectively.
As of December 31, 1997 and 1996, the bank had outstanding credit
commitments (including standby letters of credit) of $17.5 million and $9.9
million, respectively. The Bank expects 40 percent of its commitments to lend
as of December 31, 1997 will not be exercised within the current year.
At December 31, 1997, the Bank's loan limit to individual customers for
unsecured loans was $2.6 million and the limit for unsecured and secured loans
combined was $4.4 million For customers desiring loans in excess of the Bank's
lending limits, the Bank may loan on a participation basis, with its
correspondent banks taking the amount of the loan in excess of the Bank's
lending limits. In other cases, the Bank may refer such borrowers to larger
banks or other lending institutions. No material portion of the Bank's loans is
concentrated within a single industry or group of related industries.
DEPOSITS. Approximately 56% of the Bank's deposits are attracted from and
around the city of Red Bluff. A material portion of the Bank's deposits has not
been obtained from a single person or a few persons, the loss of any one or more
of which would have a materially adverse effect on the business of the Bank.
Furthermore, (1) the extent to which the business of the Bank is seasonal is
insignificant; (2) the importance of, and risks attendant to, foreign sources
and applications of the Bank's funds is negligible; and (3) the Bank as of
December 31, 1997 held $22,609 in United States agency deposits and $1,435,700
in local agency deposits, including, $93,068 in deposits from the city of
Tehama, California, $97,594 in deposits from the Proberta Water District,
Proberta, California, $22,464 in deposits from the Los Molinos Unified School
District, $29,382 in deposits from the Red Bluff Union High School District,
$1,025 in deposits from the Tehama County Transportation Program, Gerber,
California, $203,675 in deposits from the Butte County Housing Authority, Chico,
California, $353,778 in deposits from the City of Red Bluff, California,
$501,926 in deposits from the City of Orland, California, $10,104 in deposits
from the Tehama-Colusa Canal Authority, $6,180 in deposits from the City of
Willows Housing Rehabilitation Agency, Willows, California, $1,515 in deposits
from the Orland Joint Elementary School, Orland, California, $58,510 in deposits
from the Willows High School, Willows, California, and $56,479 in deposits from
the North Valley Schools Insurance Group.
EMPLOYEES. At March 1, 1998 the Bank employed 99 persons (26 of whom were
part-time employees), including five principal officers and a total of 37 other
officers. None of the Bank's employees is presently represented by a union or
covered under a collective bargaining agreement. Management of the Bank
believes that its employee relations are excellent.
COMPETITION. The Bank's primary service areas include Tehama, Butte,
Glenn and Shasta counties, and contain a total of 81 competitive banking
offices, of which 45 are offices of major chain banking systems and 36 are
offices of other independent banks. On June 30, 1997, amounts reported by
state and federal agencies indicated that these banking offices held
approximately $2.5 billion in total deposits, averaging approximately $30.7
million per office. The service areas also contain the offices of 11 savings
and loan associations, with approximately $185 million in total deposits as
of June 30, 1997.
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The banking business in California generally, and in the Bank's primary
service areas specifically, is highly competitive with respect to both loans and
deposits and is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide ranging advertising
campaigns and to allocate their investment assets to regions of highest yield
and demand. Such banks offer certain services such as trust services and
international banking which are not offered directly by the Bank (but are
offered indirectly through correspondent institutions) and, by virtue of their
greater total capitalization (legal lending limits to an individual customer are
limited to a percentage of a bank's total capital accounts), such banks have
substantially higher lending limits than does the Bank. Other entities, both
governmental and private, seeking to raise capital through the issuance and sale
of debt or equity securities, also provide competition for the Bank in the
acquisition of deposits.
Commercial banks also compete with other types of financial institutions
(savings associations and credit unions) and with other markets for funds. For
instance, yields on corporate and government debt securities and other
commercial paper affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for available funds with money market
instruments. In periods of high interest rates, such money market funds have
provided substantial competition to banks for deposits, and it is anticipated
they may continue to do so in the future.
In order to compete with other financial institutions in its primary
service areas, the Bank relies principally upon (a) direct personal contact by
officers, directors, employees and shareholders, (b) extended lobby hours, and
(c) specialized promotions. The Bank focuses its promotional activities on the
advantages of dealing with an independent bank.
SUPERVISION AND REGULATION. The Company and the Bank currently are
directly supervised and regulated by the California Commissioner of Financial
Institutions (the "Commissioner"), the Federal Reserve Board and the FDIC, which
govern most aspects of their business, including capital requirements, loans,
investments, mergers and acquisitions, borrowings, dividends, branch locations
and other matters.
In addition, the Bank's business is affected by general economic conditions
and by the monetary and fiscal policies of the United States. These policies
influence, for example, the Federal Reserve Board's open market operations in
U.S. government securities, the reserve requirements imposed upon commercial
banks, the discount rates applicable to borrowings from the Federal Reserve
System by member banks, and other similar matters which impact the growth of the
Bank's loans, investments and deposits and the interest rates which the Bank
charges and pays.
Proposals to change the laws and regulations governing the operations and
taxation of financial institutions are frequently made in Congress, in the
California legislature and before various regulatory and professional agencies.
The likelihood of any major changes and the impact such changes might have are
difficult to predict with accuracy. Certain significant recent laws and
regulations are discussed below.
INTERSTATE BANKING. Since 1986, California has permitted California
banks and bank holding companies to be acquired by banking organizations based
in other states on a "reciprocal" basis (i.e., provided the other state's laws
permit California banking organizations to acquire banking organizations in that
state on substantially the same terms and conditions applicable to local banking
organizations). Since October 2, 1995, California law implementing certain
provisions of prior federal law has (1) permitted interstate merger
transactions; (2) prohibited interstate branching through the acquisition of a
branch business unit located in California without acquisition of the whole
business unit of the California bank; and (3) prohibited interstate branching
through de novo establishment of California branch offices. Initial entry into
California by an out-of-state institution must be accomplished by acquisition of
or merger with an existing whole bank which has been in existence for at least
five years.
CAPITAL REQUIREMENTS. Federal regulation imposes upon all
FDIC-insured financial institutions a variable system of risk-based capital
guidelines designed to make capital requirements sensitive to differences in
risk profiles among banking organizations, to take into account off-balance
sheet exposures and to aid in making the definition of bank capital uniform
internationally. Under the Federal Reserve Board's risk-based capital
guidelines, the Company (on a consolidated basis) and the Bank are required
to maintain total risk-based capital equal to at least 8
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percent of risk-weighted assets. Assets and off-balance sheet items are
categorized by the guidelines according to risk, and certain assets
considered to present less risk than others permit maintenance of capital at
less than the 8 percent ratio. The guidelines establish two categories of
qualifying capital: Tier 1 capital comprising core capital elements, and
Tier 2 comprising supplementary capital requirements. At least one-half of
the required capital must be maintained in the form of Tier 1 capital. For
the Bank and the Company, Tier l capital includes only common stockholders'
equity and retained earnings, but qualifying perpetual preferred stock would
also be included without limit if the Company or the Bank were to issue such
stock. Tier 2 capital includes, among other items, certain types of
intermediate term and perpetual preferred stock, mandatory convertible debt
securities, subordinated debt and a limited amount of the allowance for loan
and lease losses.
The guidelines also require all insured institutions to maintain a minimum
leverage ratio of 3 percent Tier 1 capital to total average assets (the
"leverage ratio"). The Federal Reserve Board emphasizes that the leverage ratio
constitutes a minimum requirement for the most well-run banking organizations.
All other banking organizations are required to maintain a minimum leverage
ratio ranging generally from 4 to 5 percent. The Company's and the Bank's
required minimum leverage ratio is 4 percent.
The federal banking agencies, effective January 1, 1998 on a mandatory
basis for all insured banks, issued uniform regulations requiring that insured
banks with significant "trading activity" adjust their risk based capital
calculations in order to maintain adequate capital against market risk exposure,
including changes in the general level of interest rates, equity prices, foreign
exchange rates or commodity prices. The level of a bank's "trading activity" is
measured by the gross sum of its "trading assets" and "trading liabilities" as
reported on the bank's most recent quarterly Consolidated Report of Condition
and Income, or "Call Report." Banks with trading assets and liabilities
exceeding 10 percent of total assets or $1 billion or more are required to
adjust for market risk. The Bank currently has no trading assets or
liabilities.
However, the Federal Financial Institution Examination Counsel ("FFIEC") on
December 13, 1996, approved an updated Uniform Financial Institutions Rating
System ("UFIRS"). In addition to the five components traditionally included in
the so-called "CAMEL" rating system which has been used by bank examiners for a
number of years to classify and evaluate the soundness of financial institutions
(including capital adequacy, asset quality, management, earnings and liquidity),
UFIRS includes for all bank regulatory examinations conducted on or after
January 1, 1997, a new rating for a sixth category identified as sensitivity to
market risk. Ratings in this category are intended to reflect the degree to
which changes in interest rates, foreign exchange rates, commodity prices or
equity prices may adversely affect an institution's earnings and capital. The
rating system has been redesignated as the "CAMELS" system.
As of December 31, 1997, the Company's and the Bank's total risk-based
capital ratios were approximately 13.9 percent and 13.8 percent, and their
leverage ratios were approximately 9.4 percent and 9.3 percent, respectively. It
is not expected that compliance with the risk-based capital guidelines or
minimum leverage requirements will have a materially adverse effect on the
business of the Company or the Bank in the reasonably foreseeable future. Nor
does the Bank expect that its sensitivity to market risk will adversely affect
its overall CAMELS rating as compared with its previous CAMEL ratings by bank
examiners.
DEPOSIT INSURANCE ASSESSMENTS. In 1995 the FDIC, pursuant to
Congressional mandate, reduced bank deposit insurance assessment rates to a
range from $0 to $0.27 per $100 of deposits, dependent upon a bank's risk. The
FDIC has since continued these reduced assessment rates, and the Bank does not
anticipate that its deposit insurance assessment for 1998 will differ materially
from its assessment for 1997 ($18,300).
PROMPT CORRECTIVE ACTION. Prompt Corrective Action Regulations (the
"PCA Regulations") of the federal bank regulatory agencies establish five
capital categories in descending order (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), assignment to which depends upon the institution's total
risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio.
Institutions classified in one of the three undercapitalized categories are
subject to certain mandatory and discretionary supervisory actions, which
include increased monitoring and review, implementation of capital
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restoration plans, asset growth restrictions, limitations upon expansion and
new business activities, requirements to augment capital, restrictions upon
deposit gathering and interest rates, replacement of senior executive
officers and directors, and requiring divestiture or sale of the institution.
The Bank has been classified as a well-capitalized bank since adoption of
the PCA Regulations.
COMMUNITY REINVESTMENT ACT. Community Reinvestment Act ("CRA")
regulations effective as of July 1, 1995 evaluate banks' lending to low and
moderate income individuals and businesses across a four-point scale from
"outstanding" to "substantial noncompliance," and are a factor in regulatory
review of applications to merge, establish new branches or form bank holding
companies. In addition, any bank rated in "substantial noncompliance" with the
CRA regulations may be subject to enforcement proceedings. The Bank has a
current rating of "satisfactory" CRA compliance.
SAFETY AND SOUNDNESS STANDARDS. Federal bank regulations establish
for insured financial institutions safety and soundness standards for (1)
internal controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation. If
an agency determines that an institution fails to meet any standard established
by the guidelines, the agency may require the financial institution to submit to
the agency an acceptable plan to achieve compliance with the standard. Agencies
may elect to initiate enforcement action in certain cases where failure to meet
one or more of the standards could threaten the safe and sound operation of the
institution. The Bank has not been and does not expect to be required to submit
a safety and soundness compliance plan because of a failure to meet any of the
safety and soundness standards.
The above description of the business of the Company and the Bank should be
read in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations (Item 7 of this report) contained in the
Company's 1997 Annual Report to Shareholders, which is incorporated here by
reference.
ITEM 2. PROPERTIES.
The Bank leases its Orland branch office and Redding loan production
office, and owns the land and buildings in which its Chico, Los Molinos and
Willows branch offices are located. The Bank owns the building in which its Red
Bluff branch office is located, subject to the ground lease described below, and
leases the building in which its Red Bluff administrative headquarters is
located adjacent to the Red Bluff branch office. The Bank's total rentals for
premises and equipment for fiscal year 1997 were approximately $111,000 and its
minimum future commitments under operating leases, as of December 31, 1997,
totaled $522,565.
The head office, a two-story commercial building with approximately 7,700
square feet of space, was formerly owned and used as a branch office by the Bank
of America. At the time the Bank acquired the property in 1988, the building
was approximately eight years old and had been vacant for approximately seven
years.
The Bank acquired the right to purchase the structure by way of an
assignment dated February 25, 1988 ("Assignment"), from two of the Bank's
directors, Orville Jacobs and John Koeberer. The building was acquired on or
about February 29, 1988 for a price of $25,000. The Assignment contains a right
of first refusal in favor of Messrs. Jacobs and Koeberer whereby they have the
right to repurchase the building from the Bank in the event that the Bank elects
to sell, vacate or sublet the building to a party other than a financial
institution. This right of first refusal has a term concurrent with the terms
of the underlying ground lease.
The ground lease, which is dated July 31, 1980, and was amended on
February 6, 1981, is between Allied Farms, Inc., as ground lessor, and the
Bank of America, as ground lessee. The ground lease provides for an initial
term of eight (8) years which terminated on December 31, 1988. It further
provides for four (4) additional options to extend the term of the ground
lease for a period of eight (8) years each, or a total of 32 years. The base
rent is to be adjusted during each extension term in accordance with the fair
market rental value of the land as of the commencement of the applicable
extension term. The current lease term, at a monthly rental of $2,310,
expires December 31, 2004.
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The Bank acquired the Willows office at a combined value (land and
building) of approximately $340,000 in connection with its acquisition of
deposits and assets on Wells Fargo Bank branches located in Willows and Orland,
California, in February 1997. The building area is approximately 6400 square
feet. The Orland office is a leased facility also acquired in connection with
the Wells Fargo Bank transaction. The Bank assumed existing leases on the
building and adjacent parking lot with the second of three five-year options
commencing August 1, 1997. Monthly payments on the building and lot leases are
$2,100 and $350, respectively.
The Redding Loan Production Office is located in an office facility which
is currently leased on a month-to-month basis at $925 per month.
See further information concerning the Bank's properties in Exhibits 10.1,
10.2 and 10.3, which are incorporated here by reference.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary,
routine litigation incidental to the Company's and the Bank's business, to which
the Company or the Bank is a party or of which any of their properties are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM (*) EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents certain information regarding the executive
officers of the Company:
NAME AGE POSITION(S) SINCE
---- --- ----------- -----
William P. Ellison 49 President, 1991
Chief Executive
Officer
Frank S. Onions 64 Senior Vice 1984
President
Wayne Shaffer 54 Senior Vice 1997
President, Chief
Credit Officer
W. Steven Gilman 42 Senior Vice 1995
President, Director
of Sales & Services
William M. Jenkins 42 Vice President, Chief 1996
Financial Officer
(*) Included pursuant to General Instruction G(3).
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PART II
Those portions of the Company's 1997 Annual Report to Shareholders which
are incorporated by reference in Items 5-8 below are filed as
Exhibit 13 to this report. Those portions not so
incorporated are not filed and are provided
for information of the
SEC only.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
See information under the caption "Market for the Company's Stock" in
the Company's 1997 Annual Report to Shareholders, which information is
incorporated here by reference.
ITEM 6. SELECTED FINANCIAL DATA.
See information under the caption "Five Year Selected Financial Data" in
the Company's 1997 Annual Report to Shareholders, which information is
incorporated here by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Company's 1997
Annual Report to Shareholders, which information is incorporated here by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
See Independent Auditor's Report, Consolidated Balance Sheet,
Consolidated Statement of Income, Consolidated Statement of Stockholders'
Equity, Consolidated Statement of Cash Flows, and Notes to Consolidated
Financial Statements, in the Company's 1997 Annual Report to Shareholders,
which report, financial statements and notes are incorporated here by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning directors required by this item is
incorporated by reference from the Company's definitive proxy statement for
the 1998 Annual Meeting of Shareholders of the Company filed with the SEC,
including, under the caption "Election of Directors of the Company," (i) the
table of directors (not including the share information included therein nor
the footnotes thereto), and (ii) the description of the business experience
of director-nominees.
The information concerning executive officers required by this item is
presented at the end of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for the 1998 Annual Meeting of
Shareholders of the Company filed with the SEC, including all information
under the caption "Compensation and Certain Transactions" except for
information under the subheadings "Indebtedness of Management" and
"Transactions with Management." See also the starred (*) exhibits in the list
of exhibits in item 14, which are incorporated here by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for the 1998 Annual Meeting of
Shareholders of the Company filed with the SEC, including information under
the caption "Principal Shareholders" and, under the caption "Election of
Directors of the Company," share information in the table of directors and
footnotes thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement for the 1998 Annual Meeting of
Shareholders filed with the SEC, including under the caption "Compensation
and Certain Transactions" all information under the subheadings "Indebtedness
of Management" and "Transactions with Management."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
The following financial statements of Tehama Bancorp included in
the Annual Report of the Company to its Shareholders for the year
ended December 31, 1997, are incorporated by reference in Item 8
of this report:
Independent Auditor's Report dated January 23, 1998 (page 1 of
Annual Report).
Consolidated Balance Sheet: December 31, 1997 and 1996 (page 2
of Annual Report).
Consolidated Statement of Income: Years Ended December 31, 1997,
1996 and 1995 (page 3 of Annual Report).
Consolidated Statement of Stockholders' Equity: Years Ended
December 31, 1997, 1996 and 1995 (page 4 of Annual Report).
Consolidated Statement of Cash Flows: Years Ended December 31,
1997, 1996 and 1995 (pages 5-6 of Annual Report).
Notes to Consolidated Financial Statements (pages 7 through 36
of Annual Report).
(a)(2) Financial Statement Schedules:
All Schedules are omitted because they are not applicable or not
required, or because the information is included in the financial
statements or the notes thereto or is not material.
(a)(3) Exhibits filed with this report are listed in the Index to Exhibits
below, which is incorporated here by reference.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
10
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TEHAMA BANCORP
By: /s/ William P. Ellison
------------------------------------
William P. Ellison
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 19, 1998 /s/ William P. Ellison
--------------------------------------------
William P. Ellison,
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 19, 1998 /s/ William M. Jenkins
--------------------------------------------
William M. Jenkins, Vice President and Chief
Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: March 19, 1998 /s/ Henry C. Arnest, III
--------------------------------------------
Henry Clay Arnest III, Director
Date: March 19, 1998 /s/ Louis J. Bossetti
--------------------------------------------
Louis J. Bossetti, Director
Date: March 19, 1998 /s/ Daniel B. Cargile
--------------------------------------------
Daniel B. Cargile, Director
Date: March 19, 1998 /s/ Harry Dudley
--------------------------------------------
Harry Dudley, Director
Date: March 19, 1998 /s/ William P. Ellison
--------------------------------------------
William P. Ellison, Director
Date: March 19, 1998 /s/ Garry D. Fish
--------------------------------------------
Garry D. Fish, Director
Date: March 19, 1998 /s/ Max M. Froome
--------------------------------------------
Max M. Froome, Director
Date: March 19, 1998 /s/ Orville K. Jacobs
--------------------------------------------
Orville K. Jacobs, Director
Date: March 19, 1998 /s/ Gary C. Katz
--------------------------------------------
Gary C. Katz, Director
11
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Date: March 19, 1998 /s/ John W. Koeberer
--------------------------------------------
John W. Koeberer, Director and
Chairman of the Board
Date: March 19, 1998 /s/ Raymond C. Lieberenz
--------------------------------------------
Raymond C. Lieberenz, Director and Secretary
of the Board
Date: March , 1998
--------------------------------------------
Gary L. Napier, Director and Vice Chairman
of the Board
Date: March 19, 1998 /s/ Gene Penne
--------------------------------------------
Gene Penne, Director
Date: March 19, 1998 /s/ Terrance Rust
--------------------------------------------
Terrance A. Rust, Director
12
<PAGE>
INDEX OF EXHIBITS
3.1+ Articles of Incorporation
3.2 Bylaws, as amended
10.1+ (A) Lease Assignment Agreement dated February 22, 1988
(B) Ground lease dated July 31, 1980
(C) Addendum to Lease dated February 6, 1981
10.2+ Assignment and Assumption of Agreement and Right of First
Refusal, dated February 25, 1988
10.3+ Purchase and Assumption Agreement dated October 15, 1996,
between the Bank and Wells Fargo Bank, N.A.
10.4+* (A) Tehama County Bank 1994 Stock Option Plan
(B) Form of Incentive Stock Option Agreement
(C) Form of Nonstatutory Stock Option Agreement
(D) Form of Director's Nonstatutory Stock Option Agreement
10.5+ (A) Merchant Services Agreement with Cardservice
International, Inc., effective July 1, 1994
(B) Lead Principal Member Agreement dated April 17, 1991
10.6+ Service Agreement with First Data Resources, Inc., dated
June 3, 1991, as amended June 29, 1992, February 8, 1993,
March 15, 1994, March 15, 1994 and March 1, 1994
10.7* + (A-C) Executive Salary Continuation Agreements dated June
17, 1993 with (a) Daniel B. Cargile, (b) Frank S. Onions
and (c) William P. Ellison
++ (D) Executive Salary Continuation Agreement dated
September 24, 1997 with W. Steven Gilman
(E) Executive Salary Continuation Agreement dated January 1,
1998, with Daryl Sutterfield;
(F) Amendment to Executive Salary Continuation Agreement with
William P. Ellison, dated January 1, 1998
10.8* Tehama Bancorp Director Emeritus Program
13 The portions of the Tehama Bancorp 1997 Annual Report to
Shareholders which have been incorporated by reference in
Items 5-8 herein are filed with the SEC. Those portions not so
incorporated are not filed and are provided for information of
the SEC only.
23 Consent of Perry-Smith & Co.
27 Financial Data Schedule
(*) Indicates management contract or compensatory plan or arrangement.
(+) Incorporated by reference from the Company's Registration Statement on Form
S-4 No. 333-23525, filed with the SEC on March 18, 1997.
(++) Incorporated by reference from the Company's Report on Form 10-Q for the
quarterly period ended September 30, 1997, filed with the SEC.
13
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(EXHIBIT 3.2)
BYLAWS
OF
TEHAMA BANCORP.
a California corporation
(As Amended February 19, 1998]
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office in the
State of California for the transaction of the business of the corporation
(called the principal office) shall be 239 South Main Street, Red Bluff,
California, in the County of Tehama. The Board of Directors shall have the
authority from time to time to change the principal office from one location
to another within the State by amending this Section 1 of the Bylaws.
SECTION 2. OTHER OFFICES. Other subordinate offices may at any time be
fixed and located by the Board of Directors at such place or places within
the State of California as it deems appropriate.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 3. PLACE OF MEETINGS. Meetings of the share-holders shall be
held at any place within the State of California that may be designated
either by the Board of Directors in accordance with these Bylaws, or by the
written consent of all persons entitled to vote at the meeting, given either
before or after the meeting and filed with the Secretary of the corporation.
If no such designation is made, the meetings shall be held at the principal
office of the corporation.
SECTION 4. ANNUAL MEETINGS. The annual meeting of the shareholders
shall be held on the fourth Tuesday of April in each year, if not a legal
holiday, and if a legal holiday, then on the next succeeding business day, at
the hour of 7:30 P.M., at which time the shareholders shall elect a Board of
Directors, consider reports of the affairs of the corporation, and transact
such other business as may properly be brought before the meeting.
<PAGE>
If the annual meeting of shareholders shall not be held on the date
above specified, the Board of Directors shall cause such a meeting to be held
as soon thereafter as convenient and any business transacted or election held
at such meeting shall be as valid as if transacted or held at an annual
meeting on the date above specified.
SECTION 5. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes whatsoever, may be called at any time by the Board of
Directors, Chairman of the Board of Directors, the President, or by holders
of shares entitled to cast not less than 10 percent (10%) of the votes at the
meeting.
SECTION 6. NOTICE OF SHAREHOLDERS' MEETINGS. Whenever shareholders are
required or permitted to take any action at a meeting, a written notice of
the meeting shall be given not less than 10 (or, if sent by third class mail,
30) nor more than 60 days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date and hour
of the meeting and (1) in the case of a special meeting, the general nature
of the business to be transacted, and no other business may be transacted, or
(2) in the case of the annual meeting, those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders, but subject to the provisions of Section 601(f)
of the California Corporations Code, 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 management for election.
Notice of a shareholders' meeting shall be given either personally or by
first-class mail (or, if the corporation has outstanding shares held of
record by 500 or more persons (determined as provided in Section 605 of the
California Corporations Code) on the record date for the shareholders'
meeting, notice may be sent third-class mail as provided in Sections 601(a)
and 601(b) of the California Corporations Code) or other means of written
communication, addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice; or if no such
address appears or is given, at the place where the principal office of the
corporation is located. The notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by other
means of written communication.
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 office of
the corporation for a period of one year from the date of the giving of the
notice to all other shareholders.
Upon request in writing to the Chairman of the Board of Directors,
President, Vice President or Secretary by any person entitled to call a
special meeting of shareholders, the officer forthwith shall cause notice to
be given to the shareholders entitled to vote that a meeting will be
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<PAGE>
held at a time requested by the person or persons calling the meeting, not
less than nor more than 60 days after the receipt of the request.
QUORUM. The presence at any meeting, in person or by proxy, of the
persons entitled to vote a majority of the voting shares of the corporation
shall constitute a quorum for the transaction of business. Shareholders
present at a valid meeting at which a quorum is initially present may
continue to do 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 persons voting more than 25 percent of the
voting shares.
SECTION 8. ADJOURNED MEETING. Any annual or special shareholders'
meeting may be adjourned from time to time, ever though a quorum is not
present, by vote of the holders of a majority of the voting shares present at
the meeting either in person or by proxy, provided that in the absence of a
quorum, no other business may be transacted at the meeting except as provided
in Section 7 of these Bylaws.
Notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 45
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder
of record entitled to vote at the meeting.
SECTION 9. WAIVER OR CONSENT BY SHAREHOLDERS. 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, 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 and 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 Section 6 of these
Bylaws or Section 601(f) of the California Corporations 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 thereof, except as provided in Section 601(f) of the California
Corporations Code.
SECTION 10. ACTION WITHOUT MEETING. 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, shall be signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
3
<PAGE>
take such action at a meeting at which all shares entitled to vote thereon
were present and voted, except that unanimous written consent shall be
required for election of directors to non-vacant positions.
Unless the consents of all shareholders entitled to vote have been
solicited or received in writing, notice shall be given to non-consenting
shareholders to the extent required by Section 603 (b) of the California
Corporations Code.
Any shareholder giving written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of
the shareholder or their respective proxyholders, may revoke the consent by a
writing received by 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 of the corporation, but may not do so thereafter.
Such revocation is effective upon its receipt by the Secretary of the
corporation.
SECTION 11. VOTING RIGHTS; CUMULATIVE VOTING. Only persons in whose
names shares entitled to vote stand on the stock records of the corporation
at the close of business on the record date fixed by the Board of Directors
as provided in Section 42 of these Bylaws for the determination of
shareholders of record shall be entitled to notice of and to vote at such
meeting of shareholders. If no record date is fixed, the record date for
determining shareholders entitled to notice of or to vote at the meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which notice
is given or, if notice is waived, at the close of business on the business
day next preceding the day on which the meeting is held; the record date for
determining shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board has been taken,
shall be the day on which the first written consent is given; and the record
date for determining shareholders for any other purpose shall be at the close
of business or the day on which the Board adopts the resolution relating
thereto, or the 60th day prior to the date of such other action, whichever is
later.
Except as provided in the next following sentence and except as may be
otherwise provided in the Articles of Incorporation, each shareholder
entitled to vote shall be entitled to one vote for each share held on each
matter submitted to a vote of shareholders. In the election of directors,
each such shareholder complying with the following paragraph 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 normally 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 in favor of any
candidate or candidates 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 prior to the voting of the shareholder's intention to
cumulate the shareholder's votes. If any one shareholder has given such
notice, such
4
<PAGE>
fact shall be announced to all shareholders and proxies present, who may then
cumulate their votes for candidates in nomination.
In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them, up to the number
of directors to be elected by such shares, are elected.
Voting may be by voice or ballot, provided that any election of
directors must be by ballot upon the demand of any shareholder made at the
meeting and before the voting begins.
SECTION 12. PROXIES. Every person entitled to vote shares may
authorize another person or persons to act by proxy with respect to such
shares. All proxies must be in writing and must be signed by the shareholder
confirming the proxy or his attorney-in-fact. No proxy shall be valid after
the expiration of 11 months from the date thereof unless otherwise provided
in the proxy. Every proxy continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto, except as
otherwise provided in Section 705 of the California Corporations Code. Such
revocation may be effected 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,
by attendance at such meeting and voting in person by the person executing
the proxy. The dates contained on the forms of proxy presumptively determine
the order of execution, regardless of the postmark dates on the envelopes in
which they are mailed.
SECTION 13. VOTING BY JOINT HOLDERS OR PROXIES. Shares or proxies
standing in the names of two or more persons shall be voted or represented in
accordance with the vote or consent of the majority of such persons. If only
one of such persons is present in person or by proxy, that person shall have
the right to vote all such shares, and all of the shares standing in the
names of such persons shall be deemed to be represented for the purpose of
determining a quorum. This section shall apply to the voting of shares by
two or more administrators, executors, trustees or other fiduciaries, or
joint proxyholders, unless the instrument or order of court appointing them
shall otherwise direct.
SECTION 14. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders the Board may appoint inspectors of election to act at the
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act,
the chairman of any meeting of shareholders may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election
(or persons to replace those who so fail or refuse) at the meeting. The
number of inspectors shall be either one or three. If appointed at a meeting
on the request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one or three
inspectors are to be appointed. 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.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum and the
5
<PAGE>
authenticity, validity and effect of proxies; receive votes, ballots or
consents; hear and determine all challenges and questions in any way arising
in connection with the right to vote; count and tabulate all votes or
consents; determine when the polls shall close; determine the result and do
such acts as may be proper to conduct the election or vote with fairness to
all shareholders.
ARTICLE III
DIRECTORS; MANAGEMENT
SECTION 15. POWERS. Subject to any provisions of the Articles of
Incorporation, of the Bylaws and of law limiting the powers of the Board of
Directors or reserving powers to the shareholders, the Board of Directors
shall, directly or by delegation, manage the business and affairs of the
corporation and exercise all corporate powers permitted by law.
SECTION 16. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors shall be not less than nine (9) nor more than seventeen
(17), unless and until changed by an amendment of this Section 16 adopted by
the shareholders pursuant to Section 50 of these Bylaws. The exact number of
directors within said range shall be fixed by an amendment of this Section 16
of these Bylaws adopted by the Board of Directors; and unless and until so
amended, the exact number of directors is hereby fixed at thirteen (13). A
reduction in the authorized number of directors shall not remove any director
prior to the expiration of such director's term of office. Directors need
not be shareholders of the corporation.
Nomination for election of members of the Board of Directors may be made
by the Board of Directors or by any stockholder 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 shall be made in
writing and shall be delivered or mailed to the President of the corporation
not less than 21 days nor more than 60 days prior to any meeting of
stockholders called for the election of directors; provided however, that if
less than 21 days notice of the meeting is given to shareholders, such notice
of intention to nominate shall be mailed or delivered to the President of the
corporation not later than the close of business on the tenth day following
the day on which the notice of meeting was mailed; provided further, that if
notice of such meeting is sent by third-class mail as permitted by Section 6
of these Bylaws, no notice of intention to make nominations shall be
required. 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; and (e) the number of shares of capital stock of the corporation
owned by the notifying shareholder. Nominations not made in accordance
herewith may, in the discretion of the Chairman of the meeting, be
disregarded and upon the Chairman's instructions, the inspectors of election
can disregard all votes cast for each such nominee. A copy of this paragraph
shall be set forth in a notice to shareholders of any meeting at which
Directors are to be elected.
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SECTION 17. ELECTION AND TERM OF OFFICE. The directors shall be
elected annually by the shareholders at the annual meeting of the
shareholders; provided, that if for any reason, said-annual meeting or an
adjournment thereof is not held or the directors are not elected thereat,
then the directors may be elected at any special meeting of the shareholders
called and held for that purpose. The term of office of the directors shall,
except as provided in Section 18 of these Bylaws, begin immediately after
their election and shall continue until their respective successors are
elected and qualified. No person who has attained the age of seventy (70)
years shall be elected to the board of directors, PROVIDED THAT this
prohibition shall not be effective until the election of directors occurring
at the annual meeting of shareholders for the year 2000, with respect to any
member of the board of directors as of January 1, 1998, who shall have
attained such age prior to such date.
SECTION 18. REMOVAL OF DIRECTORS. A director may be removed from
office by the Board of Directors if he is declared of unsound mind by the
order of court or convicted of a felony. Any or all of the directors may be
removed from office without cause by a vote of shareholders holding a
majority of the outstanding shares entitled to vote at an election of
directors; however, unless the entire Board of Directors is removed, an
individual director shall not be removed if the votes cast against removal,
or not consenting in writing to such removal, would be sufficient to elect
such director if voted cumulatively at an election at which the same total
number of votes were cast, or, if such 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. A director may also be removed from office by the Superior Court of
the county in which the principal office of the corporation is located, at
the suit of shareholders holding at least ten percent (10%) of the number of
outstanding shares of any class, in case of fraudulent or dishonest acts or
gross abuse of authority or discretion with reference to the corporation, in
the manner provided by law.
No reduction of the authorized number of directors shall have the effect
of removing any director before his term of office expires.
SECTION 19. VACANCIES. A vacancy or vacancies on the Board of
Directors shall exist on the death, resignation, or removal of any director,
or if the authorized number of directors is increased or the shareholders
fail to elect the full authorized number of directors.
Except for a vacancy created by the removal of a director, vacancies on
the Board of Directors may be filled by a majority of the remaining directors
although less than a quorum, or by a sole remaining director, and each
director elected in this manner shall hold office until his successor is
elected at an annual or special shareholders' meeting.
The shareholders may elect a director at any time to fill any vacancy
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
Chairman of the Board of Directors, the President, the Secretary or the Board
of Directors of the corporation,
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unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor
may be elected to take office when the resignation becomes effective.
SECTION 20. PLACE OF MEETINGS. Regular and special meetings of the
Board of Directors shall be held at any place within the State of California
that is designated by resolution of the Board or, either before or after the
meeting, consented to in writing by all the Board members. If the place of a
regular or special meeting is not fixed by resolution or written consents of
the Board, it shall be held at the corporation's principal office.
SECTION 21. ORGANIZATIONAL MEETINGS. Immediately following each annual
shareholders' meeting, the Board of Directors shall hold an organizational
meeting at a date and time adopted by the Board of Directors by resolution to
organize, elect officers, and transact other business. Notice of this
meeting shall not be required.
SECTION 22. OTHER REGULAR MEETINGs. Other regular meetings of the
Board of Directors shall be held at such time and place as the Board of
Directors by resolution shall determine, but not less than once each calendar
quarter. Notice of these regular meetings shall not be required.
SECTION 23. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called at any time by the Chairman of the
Board of Directors, or the President, or any Vice President, or the
Secretary, or any two directors.
Special meetings of the Board shall be held upon four days' notice by
mail or 48 hours notice delivered personally or by telephone or telegraph.
If notice is by telephone, it shall be complete when the person calling the
meeting believes in good faith that the notified person has heard and
acknowledged the notice. If the notice is by mail or telegraph, it shall be
complete when deposited in the United States mail or delivered to the
telegraph office at the place where the corporation's principal office is
located, charges prepaid and addressed to the notified person at such
person's address appearing on the corporate records or, if it is not on these
records or is not readily ascertainable, at the place where the regular Board
meeting is held.
SECTION 24. QUORUM. A majority of the authorized number of directors,
but in no event less than three (unless the authorized number of directors is
one), shall constitute a quorum for the transaction of business, except to
adjourn a meeting under Section 26 of these Bylaws. Every act done or
decision made by a majority of the directors present at a meeting at which a
quorum is present shall be regarded as the act of the Board of Directors,
unless the vote of a greater number is required by law, the Articles of
Incorporation, or these Bylaws. 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 a majority of the required
quorum for such meeting.
SECTION 25. CONTENTS OF NOTICE AND WAIVER OF NOTICE. Neither the
business to be transacted at, nor the purpose of, any regular or special
Board meeting need be specified in the notice or waiver of notice of the
meeting. 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
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<PAGE>
thereof, either before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to said director. All such waivers, consents, and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 26 ADJOURNMENT. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
SECTION 27. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given to absent directors if the
time and place are fixed at the meeting being adjourned, except that if the
meeting is adjourned for more than 24 hours such notice shall be given prior
to the adjourned meeting to the directors who were not present at the time of
the adjournment.
SECTION 28. TELEPHONE PARTICIPATION. Members of the Board may
participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such
meetings can hear one another. Such participation constitutes presence in
person at such meeting.
SECTION 29. ACTION WITHOUT MEETING. The Board of Directors may take
any action without a meeting that may be required or permitted to be taken by
the Board at a meeting, if all members of the Board individually or
collectively consent in writing to the action. The written consent or
consents shall be filed in the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same effect as an
unanimous vote of directors.
SECTION 30. FEES AND COMPENSATION. Directors and members of committees
shall receive neither compensation for their services nor reimbursement for
their expenses unless these payments are fixed by resolution of the Board.
ARTICLE IV
OFFICERS
SECTION 31. 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 of Directors, a Chairman and Vice
Chairman of the Board (who shall be chosen from the Board of Directors), one
or more Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Chief Financial Officers, and any other officers who may be
appointed under Section 33 of these Bylaws. Any two or more offices, except
those of President and Secretary, may be held by the same person.
Any officer of the corporation may be excluded by resolution of the
Board of Directors or by a provision of these Bylaws from participation,
other than in the capacity of a director, in major policymaking functions of
the corporation.
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Each officer and employee of the corporation shall give bond of suitable
amount with security to be approved by the Board of Directors, conditioned on
the honest and faithful discharge of his duties as such officer or employee.
At the discretion of the Board, such bonds may be schedule or blanket form
and the premiums shall be paid by the corporation. The amount of such bonds,
the form of coverage, and the name of the company providing the surety
therefor shall be reviewed annually by the Board of Directors. Action shall
be taken by the Board at that time approving the amount of the bond to be
provided by each officer and employee of the corporation for the ensuing year.
SECTION 32. ELECTION. The officers of the corporation, except those
appointed under Section 33 of these Bylaws, shall be chosen annually by the
Board of Directors, and each shall hold his office until he resigns or is
removed or otherwise disqualified to serve, or his successor is elected and
qualified.
SECTION 33. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may authorize the President to appoint, any other officers that the
business of the corporation may require, each of whom shall hold office for
the period, have the authority, and perform the duties specified in the
Bylaws or by the Board of Directors.
SECTION 34. REMOVAL AND RESIGNATION. Any officer may be removed with
or without cause either by the Board of Directors at any regular or special
directors' meeting or, except for an officer chosen by the Board, by any
officer on whom the power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Board
of Directors, the President or the Secretary of the corporation. An
officer's resignation shall take effect when it is received or at any later
time specified in the resignation. Unless the resignation specifies
otherwise, its acceptance by the corporation shall not be necessary to make
it effective.
SECTION 35. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in the Bylaws for regular appointments to the office.
SECTION 36. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may in its discretion elect a Chairman of the Board, who shall
preside at all meetings of the Board of Directors at which the Chairman is
present and shall exercise and perform any other powers and duties assigned
to the Chairman by the Board or prescribed by the Bylaws. In the absence of
the Chairman, the Vice Chairman appointed by the Board shall preside at all
shareholders' meetings and meetings of the Board of Directors.
The positions of Chairman and Vice Chairman of the Board shall be deemed
not to be executive officers of the corporation and the Chairman and Vice
Chairman shall be excluded from participation, other than in the capacity of
a director, in major policymaking functions of the corporation.
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SECTION 37. PRESIDENT. Subject to any supervisory powers that may be
given by the Board of Directors or the Bylaws to the Chairman of the Board,
the President shall be the corporation's chief executive officer and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control over the corporation's business and officers. The
President shall be ex officio a member of all the standing committees except
the Audit Committee, shall have the general powers and duties of management
usually vested in a corporation's president; shall have any other powers and
duties that are prescribed by the Board of Directors or these Bylaws; and
shall be primarily responsible for carrying out all orders and resolutions of
the Board of Directors.
SECTION 38. VICE PRESIDENTS. If the President is absent or is unable
or refuses to act, the Vice Presidents in order of their rank as fixed by the
Board of Directors or, if not ranked, the Vice President designated by the
Board of Directors, 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 on, the President. Each Vice President shall have any other
duties that are prescribed for said Vice President by the Board of Directors
or the Bylaws.
SECTION 39. SECRETARY. The Secretary shall keep or cause to be kept,
and be available at the principal office and any other place that the Board
of Directors specifies, a book of minutes of all directors' and shareholders'
meetings. The minutes of each meeting shall state the time and place that it
was held; whether it was regular or special; if a special meeting, how it was
authorized; the notice given; the names of those present or represented at
shareholders' meetings; and the proceedings of the meetings. A similar
minute book shall be kept for each committee of the Board.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the shareholders' names and addresses, the
number and classes of shares held by each, the number and date of each
certificate issued for these shares, and the number and date of cancellation
of each certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all directors'
and shareholders' meetings required to be given under these Bylaws or by law,
shall keep the corporate seal in safe-custody, and shall have any other
powers and perform any other duties that are prescribed by the Board of
Directors or these Bylaws.
The Secretary shall be deemed not to be an executive officer of the
corporation and the Secretary shall be excluded from participation, other
than in the capacity of director if the Secretary is also a director, in
major policymaking functions of the corporation.
SECTION 40. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the corporation's chief financial officer and shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the
corporation's properties and business transactions, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses,
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capital, retained earnings, and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables
in the name and to the credit of the corporation with the depositories
designated by the Board of Directors. The Chief Financial Officer shall
disburse the corporation's funds as ordered by the Board of Directors; shall
render to the President and directors, whenever they request it, an account
of all his transactions as Chief Financial Officer and of the corporation's
financial condition; and shall have any other powers and perform any other
duties that are prescribed by the Board of Directors or Bylaws.
If required by the Board of Directors, the Chief Financial Officer shall
give the corporation a bond in the amount and with the surety or sureties
specified by the Board for faithful performance of the duties of that
person's office and for restoration to the corporation of all its books,
papers, vouchers, money, and other property of every kind in that person's
possession or under that person's control on that person's death,
resignation, retirement, or removal from office.
ARTICLE V
GENERAL CORPORATE MATTERS
SECTION 41. RECORD DATE AND CLOSING OF STOCKBOOKS. The Board of
Directors may fix a time in the future as a record date for determining
shareholders entitled to notice of and to vote at any shareholders' meeting;
to receive any dividend, distribution, or allotment of rights; or to exercise
rights in respect of any other lawful action, including change, conversion,
or exchange of shares. The record date shall not, however, be more than 60
nor less than 10 days prior to the date of such meeting nor more than 60 days
prior to any other action. If a record date is fixed for a particular
meeting or event, only shareholders of record on that date are entitled to
notice and to vote and to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the adjourned meeting,
but the Board shall fix a new record date if the meeting is adjourned for
more than 45 days.
SECTION 42. CORPORATE RECORDS AND INSPECTION BY SHAREHOLDERS AND
DIRECTORS. Books and records of account and minutes of the proceedings of
the shareholders, Board, and committees of the Board shall be kept available
for inspection at the principal office of the corporation. A record of the
shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each, shall be kept available for
inspection at the principal office or at the office of the corporation's
transfer agent or registrar.
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A shareholder or shareholders holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation shall have an
absolute right to do either or both of the following: (1) 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 (2) obtain from the transfer agent for the corporation, upon
five business days prior written demand and upon the tender of its usual
charges for such a 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 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 interests as a shareholder or
holder of a voting trust certificate. Inspection and copying may be made in
person or by agent or attorney.
Every director 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 its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made
in person or by agent or attornev and includes the right to copy and make
extracts.
SECTION 43. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, and all mortgages, or
other evidences of indebtedness, issued in the name of or payable to the
corporation, and all assignments and endorsements of the foregoing, shall be
signed or endorsed bythe person or persons and in the manner specified by the
Board of Directors.
SECTION 44. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. Except
as otherwise provided in the Bylaws, officers, agents, or employees must be
authorized by the Board of Directors to enter into any contract or execute
any instrument in the corporation's name and on its behalf. This authority
may be general or confined to specific instances.
Section 45. STOCK CERTIFICATES. One or more certificates for shares of
the corporation's capital stock shall be issued to each shareholder for any
of such shareholder's shares that are fully paid. The corporate seal or its
facsimile may be fixed on certificates. All certificates shall be signed by
the Chairman of the Board, President, or a Vice President and the Secretary,
Treasurer, or an Assistant Secretary. Any or all of the signatures on the
certificate may be facsimile signatures.
SECTION 46. LOST CERTIFICATES. No new share certificate that replaces
an old one shall be issued unless the old one is surrendered and cancelled at
the same time; provided, however, that if any share certificate is lost,
stolen, mutilated, or destroyed, the Board of Directors may authorize
issuance of a new certificate replacing the old one on any terms and
conditions, including a reasonable arrangement for indemnification of the
corporation, that the Board may specify.
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SECTION 47. REPORTS TO SHAREHOLDERS. The requirement for the annual
report to shareholders referred to in Section 1501(a) of the California
Corporations Code is hereby expressly waived so long as there are less than
100 holders of record of the corporation's shares. The Board of Directors
shall cause to be sent to the shareholders such annual or other periodic
reports as they consider appropriate or as otherwise required by law. In the
event the corporation has 100 or more holders of its shares, an annual report
complying with Section 1501(a) and, when applicable, Section 1501(b) of the
California Corporations Code, shall be sent to the shareholders not later
than 120 days after the close of the fiscal year and at least 15 days prior
to the annual meeting of shareholders to be held during the next fiscal vear.
If no annual report for the last fiscal year has been sent to
shareholders, the corporation shall, upon the written request of any
shareholder made more than 120 days after the close of such fiscal year,
deliver or mail to the person making the request within 30 days thereafter
the financial statements referred to in Section 1501(a) for such year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of a corporation may make a written request
to the corporation for an income statement of the corporation for the
three-month, six-month, or nine-month period of the current fiscal year ended
more than 30 days prior to the date of the request and a balance sheet of the
corporation as of the end of such period and, in addition, if no annual
report for the last fiscal year has been sent to shareholders, the statements
referred to in Section 1501(a) of the California Corporations Code for the
last fiscal year. The statement shall be delivered or mailed to the person
making the request within 30 days thereafter. A copy of the statements shall
be kept on file in the principal office of the corporation for 12 months and
they shall be exhibited at all reasonable times to any shareholder demanding
an examination of them or a copy shall be mailed to such shareholder. The
income statements and balance sheets referred to shall be accompanied by the
report thereon, if any, of any independent accountants engaged by the
corporation or the certificate of an authorized officer of the corporation
that such financial statements were prepared without audit from the books and
records of the corporation.
SECTION 48. INDEMNITY OF OFFICERS, DIRECTORS, ETC.
A. ACTION, ETC. OTHER THAN BY RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by
or in the right of the corporation to procure a judgment in its favor)
by reason of the fact that such person is or was an Agent of the
corporation, against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of such person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith
and in a manner which the person reasonably believed to be in the best
interests of
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the corporation or that the person had reasonable cause to believe that
the person's conduct was unlawful.
B. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that such person is or was an Agent of
the corporation, against expenses actually and reasonably incurred by
such person in connection with the defense or settlement of such action
if such person acted in good faith, in a manner such person believed to
be in the best interests of the corporation and its shareholders; except
that no indemnification shall be made under this subsection 48(B) for
any of the following:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation in the
performance of such person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which
such proceeding is or was pending shall determine upon application
that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for the expenses which
such court shall determine:
(2) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
C. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under subsections 48(A) and 48(B) shall be made by the
corporation only if authorized in the specific case, upon a
determination that indemnification of the Agent is proper in the
circumstances because that Agent has met the applicable standard of
conduct set forth above in subsections 48(A) and 48(B) by any of the
following:
(1) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(3) Approval of the shareholders by the affirmative 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
shareholders as provided in Section 10, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or
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(4) The court in which such proceeding is or was pending upon
application made by the corporation or its Agent or attorney or other
person rendering services in connection with the defense, whether or
not such application by the Agent, attorney or other person is opposed
by the corporation.
D. ADVANCES OF EXPENSES. Expenses (including attorneys' fees),
costs, and charges incurred in defending any proceeding shall be
advanced by the corporation prior to the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of the Agent
to repay such amount unless it shall be determined ultimately that the
Agent is entitled to be indemnified as authorized in this Section 48.
E. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Section 48, to the extent
that an Agent has been successful on the merits in a defense of any
proceeding, claim, issue or matter referred to in subsections 48(A) and
48(B), such Agent shall be indemnified against all expenses actually and
reasonably incurred by the Agent in connection therewith.
F. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification provided for in subsections
48(A), 48(B), or 48(E) shall be made no later than ninety (90) days
after the corporation is given notice of request by Agent, provided that
such request is made after final adjudication, dismissal, or settlement
unless an appeal is filed, in which case the request is made after the
appeal is resolved (hereafter referred to as "Final Disposition"). Upon
such notice, if a quorum of directors who were not parties to the
action, suit or proceeding giving rise to indemnification is obtainable,
the corporation shall within two (2) weeks call a Board of Directors'
meeting to be held within four (4) weeks of such notice, to make a
determination as to whether the Agent has met the applicable standard of
conduct. Otherwise, if a quorum consisting of directors who were not
parties in the relevant action, suit, or proceeding is not obtainable,
the corporation shall retain (at the corporation's expense) independent
legal counsel chosen either jointly by the corporation and Agent or else
by corporation counsel within two (2) weeks to make such determination.
If (1) at such Board of Directors' meeting, such a quorum is not
obtained or, if obtained, refuses to make such determination, or (2)
such legal counsel is not so retained or, if retained, does not make
such determination within four (4) weeks, then the Board of Directors
shall cause a shareholders meeting to be held within four (4) weeks to
make such a determination.
If notice of a request for payment of a claim under these Bylaws, under
any statute, under any provision of any agreement with the corporation, or
under the corporation's articles of incorporation providing for
indemnification or advance or expenses has been given to the corporation by
Agent, and such claim is not paid in full by the corporation within ninety
(90) days of the later occurring of the giving of such notice and Final
Disposition in the case of indemnification and twenty (20) days of the giving
of such notice in the case of advance of expenses, then Agent may, but need
not, at any time thereafter bring an action against the
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corporation to receive the unpaid amount of the claim or the expense advance
and, if successful, Agent shall also be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in connection with any action, suit, or proceeding in advance of its Final
Disposition) that Agent has not met the standards of conduct which make it
permissible under applicable law for the corporation to indemnify Agent for
the amount claimed, and Agent shall be entitled to receive interim payment of
expenses pursuant to subsection 48(D) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its shareholders) to have made a
determination that indemnification of Agent is proper in the circumstances
because Agent has met the applicable standard of conduct required by
applicable law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that
Agent has not met such applicable standard of conduct, shall create a
presumption that the Agent has or has not met the applicable standard of
conduct.
G. OTHER RIGHTS AND REMEDIES. The indemnification provided by
this Section 48 shall not be deemed exclusive of, and shall not affect,
any other rights to which an Agent seeking indemnification may be
entitled under any law, other provision of these Bylaws, the
corporation's articles of incorporation, agreement, vote of shareholders
or disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding
such office, and 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 a person.
H. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him or her in any
such capacity, or arising out of his or her status as such, whether or
not the corporation would have the power to indemnify such person
against such liability under the provisions of this Section 48.
I. OPTIONAL MEANS OF ASSURING PAYMENT. Upon request by an Agent
certifying that the Agent has reasonable grounds to believe the Agent
may be made a party to a proceeding for which the Agent may be entitled
to be indemnified under this Section 48, the corporation may but is not
required to create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the
payment of such sums as may become necessary to effect indemnification
as provided herein.
J. SAVINGS CLAUSE. If this Section 48 or any portion thereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify each
Agent as to expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement with respect to any action, suit, proceeding,
or investigation, whether civil, criminal or administrative, and whether
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internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Section 48 that shall not
have been invalidated, or by any other applicable law.
K. DEFINITION OF AGENT. For the purposes of this Section 48,
"Agent" means any person who is or was a director, officer, employee or
other agent of the corporation, or 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, or 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 such
predecessor corporation; "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative
or investigative; and "expenses" includes without limitation attorneys'
fees and any expenses of establishing a right to indemnification.
L. INDEMNIFICATION UNDER SECTION 204(A)(11) OF THE CALIFORNIA
CORPORATIONS CODE. Subject to the provisions of California Corporations
Code Section 204(a)(11) and any other applicable law, notwithstanding
any other provisions of these Bylaws, the following shall apply to the
indemnification of Agents under these Bylaws:
(1) The corporation shall indemnify a person pursuant to this
subsection 48(L) if the corporation would be required to indemnify
such person pursuant to subsections 48(A) or 48(B) if in subsections
48(A) and 48(B) the phrase "in a manner such persor reasonably
believed to be in the best interests of the corporation" is replaced
with the phrase "in a manner such person did not believe to be
contrary to the best interests of the corporation." If pursuant to
subsections 48(C) and 48(F) the person making the subsection 48(A)
and/or 48(B) conduct standard determination determines that such
standard has not been satisfied, such person shall also determine
whether this subsection 48(L)(l) conduct standard has been satisfied;
(2) There shall be a presumption that the Agent met the
applicable standard of conduct required to be met in subsection 48(C)
for indemnification of the Agent, rebuttable by clear and convincing
evidence the the contrary;
(3) The corporation shall have the burden of proving that the
Agent did not meet the applicable standard of conduct in
subsection 48(C);
(4) In addition to the methods provided for in subsection 48(C),
a determination that indemnification is proper in the circumstances
because that Agent met the applicable standard of conduct may also be
made by the arbitrator in any arbitration proceeding in which such
matter is or was pending;
(5) Unless otherwise agreed to in writing between an Agent and
the corporation in any specific case, indemnification may be made
under
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subsection 48(B) for amounts paid in settling or otherwise
disposing of a pending action without court approval.
ARTICLE VI
AMENDMENTS
SECTION 49. AMENDMENTS BY SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the affirmative vote or written
consent of a majority of the outstanding shares entitled to vote.
SECTION 50. AMENDMENT BY DIRECTORS. Subject to the right of
shareholders under the preceding Section 49 of these Bylaws, Bylaws other
than a Bylaw fixing or changing the authorized number of directors may be
adopted, amended, or repealed by the Board of Directors. However, if the
Articles of Incorporation, or a Bylaw adopted by the shareholders, provide
for an indefinite number of directors within specified limits, the directors
may adopt or amend a by-law fixing the exact number of directors within those
limits.
ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 51. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors shall, by resolution adopted by a majority of the authorized number
of directors, designate the following standing committees:
A. A Loan and Discount Committee, which shall have the power to
examine and approve loans and discounts, and to exercise authority
regarding loans and discounts held by the corporation or its subsidiaries;
B. An Investment Committee, which shall have the power to
discount and purchase bills, notes and other evidences of debt, and to
buy and sell bills of exchange; and
C. An Audit Committee which shall consist of at least three
members of the Board of Directors, none of whom shall be active officers
of the corporation. The duties of this committee shall be to make
suitable examinations every 12 months of the affairs of the corporation.
The result of such examination shall be reported, in writing, to the
Board of Directors stating whether the corporation is in a sound and
solvent condition, whether adequate internal audit controls and
procedures are being maintained, and recommending to the Board such
changes in the manner of doing business, etc. as shall be deemed
advisable. The Audit Committee, upon its own recommendation and with
the approval of the Board of Directors, may employ a qualified firm of
Certified Public Accountants to make a suitable examination and audit of
the corporation. If such a procedure is followed, the one annual
examination and audit of such firm of accountants
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and the presentation of its report to the Board of Directors will be
deemed sufficient to comply with the requirements of this section of
these Bylaws.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, also designate one or more additional
standing committees including, but not limited to, an Executive Committee
consisting of two or more Directors who shall be appointed by, and hold
office at, the pleasure of the Board of Directors. The Board of Directors
may, except as hereinafter limited, delegate to the Executive Committee any
of the powers and authorities of the Board of Directors.
The appointment of members or alternate members of a committee requires
the vote of a majority of the authorized number of directors.
The Board of Directors shall designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors shall have all the authority of the
Board, except with respect to:
A. The approval of any action for which shareholder approval is
also required.
B. The filling of vacancies on the Board or in any committee.
C. The fixing of compensation of the directors for serving on the
Board or on any committee.
D. The amendment or repeal of Bylaws or the adoption of new
Bylaws.
E. The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable.
F. A distribution to the shareholders of the corporation as
defined in Section 166 of the California Corporations Code, except at a
rate or in a periodic amount or within a price range determined by the
Board.
G. The appointment of other committees of the Board or the
members thereof.
The Board of Directors shall designate a chairman for each committee who
shall have the sole power to call any committee meeting other than a meeting
set by the Board. Except as otherwise established by the Board of Directors,
Article III of these Bylaws shall apply to committees of the Board and action
by such committees, MUTATIS MUTANDIS.
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EXHIBIT 10.7 (E)
EXECUTIVE SALARY CONTINUATION AGREEMENT
DARYL SUTTERFIELD
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EXECUTIVE SALARY CONTINUATION AGREEMENT
This Agreement is made and entered into this first day of January, 1998, by
and between Tehama Bank, a banking corporation organized under the laws of the
State of California, Tehama Bancorp, a California corporation (Tehama Bank and
Tehama Bancorp together, the "Employer"), and Daryl Sutterfield, an individual
residing in the State of California (hereinafter referred to as the
"Executive").
R E C I T A L S
WHEREAS, the Executive is an employee of the Employer and is serving
as its Vice President and SBA Loan Officer;
WHEREAS, the Executive's experience and knowledge of the affairs of
the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to be in the best interests of the Employer to
provide the Executive with certain salary continuation benefits, on the terms
and conditions set forth herein, in order to reasonably induce the Executive to
remain in the Employer's employment; and
WHEREAS, the Executive and the Employer wish to specify in writing the
terms and conditions upon which this additional compensatory incentive will be
provided to the Executive, or to the Executive's spouse or the Executive's
designated beneficiaries, as the case may be;
NOW, THEREFORE, in consideration of the services to be performed in
the future, as well as the mutual promises and covenants contained herein, the
Executive and the Employer agree as follows:
A G R E E M E N T
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Employer shall be the "Administrator"
and, solely for the purposes of ERISA, the "fiduciary" of this Agreement where a
fiduciary is required by ERISA.
1.2. ANNUAL BENEFIT. The term "Annual Benefit" shall mean an
annual sum of Fifty Thousand Dollars ($50,000) multiplied by the Applicable
Percentage (defined below) and then reduced to the extent: (i) required under
the other provisions of this Agreement, including, but not limited to,
Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful order of any
regulatory agency or body having jurisdiction over the Employer; and
(iii) required in order for the Employer to properly comply with any and all
applicable
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state and federal laws, including, but not limited to, income, employment and
disability income tax laws (e.g., FICA, FUTA, SDI).
1.3. APPLICABLE PERCENTAGE. The term "Applicable Percentage"
shall mean that percentage listed on Schedule "A" attached hereto which is
adjacent to the number of complete years (with a "year" being the performance
of personal services for or on behalf of the Employer for a period of 365
days) which have elapsed starting from the Effective Date of this Agreement
and ending on the earlier of: (a) the date Executive dies (except as
provided below in this Paragraph); (b) the date Executive Retires (as defined
below); (c) the date Executive ceases to be employed by Employer (other than
by reason of Disability, as defined below); or (d) in the case of Executive's
Disability (as defined below), the date Executive becomes Disabled (as
defined below). Notwithstanding the foregoing or the percentages set forth
on Schedule "A," but subject to all other terms and conditions set forth
herein, the "Applicable Percentage" shall be: (i) one hundred percent (100%)
in the event the Executive dies prior to Retirement but while employed full
time by the employer; and (ii) zero percent (0%) in the event the Executive
takes any action which prevents the Employer from collecting the proceeds of
any life insurance policy which the Employer may happen to own at the time of
the Executive's death and of which the Employer is the designated
beneficiary.
1.4. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Executive shall
designate in a valid Beneficiary Designation, a copy of which is attached
hereto as Exhibit "B," to receive the benefits provided hereunder. A
Beneficiary Designation shall be valid only if it is in the form attached
hereto and made a part hereof and is received by the Administrator prior to
the Executive's death.
1.5. CHANGE IN CONTROL. The term "Change in Control" shall
mean, with respect to the Employer: (i) a change in control of the Employer
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or in response to any other form or
report to the regulatory agencies or governmental authorities having
jurisdiction over the Employer or any stock exchange on which the Employer's
shares are listed which requires the reporting of a change in control; (ii)
any merger, consolidation or reorganization of the Employer in which the
Employer does not survive; (iii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) of any assets of the Employer having an aggregate fair market
value of fifty percent (50%) of the total value of the assets of the
Employer, reflected in the most recent balance sheet of the Employer; (iv) a
transaction whereby any "person" (as such term is used in the Exchange Act or
any individual, corporation, partnership, trust or any other entity) becomes
the beneficial owner, directly or indirectly, of securities of the Employer
representing twenty-five percent (25%) or more of the combined voting power
of the Employer's then outstanding securities; or (v) a situation where, in
any one-year period, individuals who at the beginning of such period
constitute the Board of Directors of the Employer cease for any reason to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Employer's shareholders, of each new director
is approved by a vote of at least
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three-quarters (3/4) of the directors then still in office who were directors
at the beginning of the period.
1.6. THE CODE. The "Code" shall mean the Internal Revenue Code
of 1986, as amended (the "Code").
1.7. DISABILITY/DISABLED. The term "Disability" or "Disabled"
shall have the same meaning given such term in the principal disability
insurance policy covering the Executive, which is incorporated herein by
reference to the limited extent thereof. In the event the Executive is not
covered by a disability policy containing a definition of "Disability" or
"Disabled," these terms shall mean an illness or incapacity which, having
continued for a period of one hundred and eighty (180) consecutive days,
prevents the Executive from adequately performing the Executive's regular
employment duties, as determined by an independent physician selected by mutual
agreement of the parties. For purposes of determining the Applicable
Percentage, the Executive shall be deemed to be Disabled as of the first day on
which the Executive is treated as being Disabled under the Executive's principal
disability insurance policy or, if no such policy exists, the one hundred and
eightieth (180th) consecutive day of the Executive's illness or incapacity, as
determined above.
1.8. EFFECTIVE DATE. The term "Effective Date" shall mean the
date upon which this Agreement was entered into by the parties, as first written
above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.10. PLAN YEAR. The term "Plan Year" shall mean the
Employer's fiscal year.
1.11. RETIREMENT. The term "Retirement" or "Retires" shall
refer to the date which the Executive acknowledges in writing to Employer, after
attaining sixty-two (62) years of age, to be the last day he will provide any
significant personal services, whether as an employee or independent consultant
or contractor, to Employer and to, for, or on behalf of, any other business
entity conducting, performing or making available to any person or entity
banking or other financial services of any kind. For purposes of this
Agreement, the phrase "significant personal services" shall mean more than ten
(10) hours of personal services rendered to one or more individuals or entities
in any thirty (30) day period.
1.12. SURVIVING SPOUSE. The term "Surviving Spouse" shall mean
the person, if any, who shall be legally married to the Executive on the date
of the Executive's death.
1.13. TERMINATION FOR CAUSE. The term "Termination for Cause"
shall mean termination of the employment of the Executive by reason of any of
the following:
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(a) A termination "for cause" as this term may be defined in any
written employment agreement entered into by and between the Employer and the
Executive;
(b) The willful breach of duty by the Executive in the course of
his employment;
(c) The habitual neglect by the Executive of his employment
responsibilities and duties;
(d) The Executive's deliberate violation of any state or federal
banking or securities laws, or of the Bylaws, rules, policies or resolutions of
the Employer, or of the rules or regulations of: (i) the California Department
of Financial Institutions; (ii) the Board of Governors of the Federal Reserve
System; (iii) the Federal Deposit Insurance Corporation; or (iv) any other state
or federal regulatory agency or governmental authority having jurisdiction over
the Employer;
(e) The determination by a state or federal banking agency or
other governmental authority having jurisdiction over the Employer that the
Executive is not suitable to act in the capacity for which he is employed by the
Employer;
(f) The Executive is convicted of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act;
(g) The Executive discloses without authority any secret or
confidential information not otherwise publicly available concerning the
Employer or takes any action which the Employer's Board of Directors determines,
in its sole discretion and subject to good faith, fair dealing and
reasonableness, constitutes unfair competition with or induces any customer to
breach any contract with the Employer;
(h) Persistent substandard job performance as measured by the
system of performance review maintained by the Bank with respect to its
executive employees generally; or
(i) Action or conduct which, either by itself or as a
significant cause among other facts and circumstances, in the reasonable opinion
of management of the Bank exposes the Bank to a significant risk of financial
liability or regulatory criticism or discipline, including, without limitation,
action or conduct evidencing discrimination on the grounds of race, color, sex
(including sexual harassment and pregnancy), national origin, ancestry, age (40
and over), mental or physical disability, or any other grounds proscribed by law
or Bank policy.
2. SCOPE, PURPOSE AND EFFECT.
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2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is intended
to provide the Executive with an additional incentive to remain in the employ of
the Employer, this Agreement shall not be deemed to constitute a contract of
employment between the Executive and the Employer nor shall any provision of
this Agreement restrict or expand the right of the Employer to terminate the
Executive's employment. This Agreement shall have no impact or effect upon any
separate written Employment Agreement which the Executive may have with the
Employer, it being the parties' intention and agreement that unless this
Agreement is specifically referenced in said Employment Agreement (or any
modification thereto), this Agreement (and the Employer's obligations hereunder)
shall stand separate and apart and shall have no effect upon, nor be affected
by, the terms and provisions of said Employment Agreement.
2.2. FRINGE BENEFIT. The benefits provided by this Agreement are
granted by the Employer as a fringe benefit to the Executive and are not a part
of any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Executive has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON OR AFTER RETIREMENT.
3.1. PAYMENTS UPON RETIREMENT. If the Executive shall remain in
the continuous employment of the Employer until attaining sixty-two (62) years
of age, the Executive shall be entitled to be paid the Annual Benefit, as
defined above, in equal monthly installments, for a period of fifteen (15) years
(One Hundred Eighty (180) months), with each installment to be paid on the first
day of each month, beginning with the month following the month in which the
Executive Retires or upon such later date as may be mutually agreed upon by the
Executive and the Employer in advance of said Retirement date. At the
Employer's sole and absolute discretion, the Employer may increase the Annual
Benefit as and when the Employer determines the same to be appropriate in order
to reflect a substantial change in the cost of living. Notwithstanding anything
contained herein to the contrary, the Employer shall have no obligation
hereunder to make any such cost-of-living adjustment.
3.2. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT. The
Employer agrees that if the Executive Retires, but shall die before receiving
all of the One Hundred Eighty (180) monthly payments to which he is entitled
hereunder, the Employer will continue to make such monthly payments to the
Executive's designated beneficiary for the remaining period. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Executive under the term of this Agreement shall be paid to the Executive's
Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining
amounts due to the Executive under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Executive's estate.
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4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO RETIREMENT. In
the event the Executive should die while actively employed by the Employer at
any time after the Effective Date of this Agreement, but prior to attaining
sixty-two (62) years of age or if the Executive chooses to work after
attaining sixty-two (62) years of age, but dies before Retirement, the
Employer agrees to pay the Annual Benefit to the Executive's designated
beneficiary, in equal monthly installments, for a period of fifteen (15)
years (One Hundred Eighty (180) months). If a valid Beneficiary Designation
is not in effect, then the remaining amounts due to the Executive under the
term of this Agreement shall be paid to the Executive's Surviving Spouse. If
the Executive leaves no Surviving Spouse, the remaining amounts due to the
Executive under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the
Executive's estate. Each installment shall be paid on the first day of each
month, beginning with the month following the month in which the Executive's
death occurs.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO RETIREMENT. In
the event the Executive becomes Disabled while actively employed by the Employer
at any time after the date of this Agreement but prior to Retirement, the
Executive shall be entitled to be paid the Annual Benefit, as defined above, in
equal monthly installments, for a period of fifteen (15) years (One Hundred
Eighty (180) months), with each installment to be paid on the first day of each
month, beginning with the month following the earlier of (1) the month in which
the Executive attains sixty-two (62) years of age; or (2) the date upon which
the Executive is no longer entitled to receive Disability benefits under the
Executive's principal Disability insurance policy and is, at such time, unable
to return to and thereafter fulfil the responsibilities associated with the
employment position held with the Employer prior to becoming Disabled by reason
of such Disability continuing. Notwithstanding the foregoing, if the Executive
chooses to elect the Retirement payout option set forth in Paragraph 3 hereof,
the Executive may waive the payout provisions set forth in this subparagraph 4.2
and in lieu thereof receive the Annual Benefit which the Executive would be
entitled to receive under the terms of Paragraph 3.
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO RETIREMENT.
As indicated in Paragraph 2 above, the Employer reserves the right to terminate
the Executive's employment, with or without cause but subject to any written
employment agreement which may then exist, at any time prior to the Executive's
Retirement. In the event that the employment of the Executive shall be
terminated, other than by reason of Disability or death, prior to the
Executive's attaining sixty-two (62) years of age, then this Agreement shall
terminate upon the date of such termination of employment; provided, however,
that the Executive shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Executive's
termination:
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5.1. TERMINATION WITHOUT CAUSE. If the Executive's employment is
terminated by the Employer without cause, the Executive shall be entitled to be
paid the Annual Benefit, as defined above, in equal monthly installments for a
period of fifteen (15) years (One Hundred Eighty (180) months), with each
installment to be paid on the first day of each month, beginning with the month
following the month in which Executive is terminated without cause or upon such
later date as may be mutually agreed upon by the Executive and the Employer in
advance of the effective date of the Executive's termination.
5.2. VOLUNTARY TERMINATION BY THE EXECUTIVE. It is acknowledged
and agreed by the Executive that the purpose of this Agreement is to assure the
Executive's continued employment with the Employer and that if the Executive
voluntarily terminates his employment with the Employer (other than by reason of
death, Disability or Retirement), then the Executive shall have willingly
forfeited any and all rights and benefits he may have under the terms of this
Agreement and that, furthermore, no amounts shall be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.3. TERMINATION FOR CAUSE. The Executive agrees that if his
employment with the Employer is terminated "for cause," as defined in
subparagraph 1.13 of this Agreement, he shall forfeit any and all rights and
benefits he may have under the terms of this Agreement and shall have no right
to be paid any of the amounts which would otherwise be due or paid to the
Executive by the Employer pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE EMPLOYER ON ACCOUNT OF OR AFTER A CHANGE
IN CONTROL. In the event: (i) the Executive's employment with the Employer is
terminated by the Employer in conjunction with, or by reason of, a "change in
control" (as defined in subparagraph 1.5 above); or (ii) by reason of the
Employer's actions any adverse and material change occurs in the scope of the
Executive's position, responsibilities, duties, salary, benefits, or location of
employment after a "change in control" (as defined in subparagraph 1.5) occurs;
or (iii) the Employer causes an event to occur which reasonably constitutes or
results in a demotion, a significant diminution of responsibilities or
authority, or a constructive termination (by forcing a resignation or otherwise)
of the Executive's employment after a "change in control" (as defined in
subparagraph 1.5) occurs, then the Executive shall be entitled to be paid the
Annual Benefit, as defined above, in equal monthly installments for a period of
fifteen (15) years (One Hundred Eighty (180) months), with each installment to
be paid on the first day of each month, beginning with the month following the
month in which the Executive is terminated or the action referred to above
occurs, whichever is earlier.
6. ADDITIONAL LIMITATIONS ON THE AMOUNT OF THE ANNUAL BENEFIT. The
Executive acknowledges and agrees that the parties have entered into this
Agreement based upon the certain financial and tax accounting assumptions.
Accordingly, with full knowledge of the potential consequences the Executive
agrees that, notwithstanding anything contained herein to the contrary: (i) the
amount of the Annual Benefit shall be limited to that amount of the Annual
Benefit (determined without regard to this Paragraph 6) which will be deductible
by the Employer under the Code in the year in which payment is to be made to the
Executive; (ii) the
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Annual Benefit amount shall be deemed to be the last payment made to the
Executive and the first for which an income tax deduction, if any, has been
disallowed; and (iii) any compensatory amounts for which a deduction is
denied to the Employer shall, at the Employer's election, serve to first
reduce the Employer's obligation to make the monthly Annual Benefit payments
otherwise due and payable to the Executive under the terms of this Agreement.
The Executive recognizes that, in this regard, limitations on deductibility
may be imposed under, but not limited to, Code Section 280G. Consistent with
the foregoing, and in the event that any payment or benefit received or to be
received by the Executive, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Employer
(together with the Annual Benefit, the "Total Payments"), will not be
deductible (in whole or in part) as a result of Code Section 280G, the Annual
Benefit shall be reduced until no portion of the Total Payments is
nondeductible as a result of Section 280G of the Code (or the Annual Benefit
is reduced to zero (0)). For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in writing prior to the
date of payment of any future Annual Benefit payments, shall be taken into
account;
(b) No portion of the Total Payments shall be taken into
account, which in the opinion of the tax counsel selected by the Employer and
acceptable to the Executive, does not constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(c) Future Annual Benefit payments shall be reduced only to the
extent necessary so that the Total Payments (other than those referred to in
clauses (a) or (b) above in their entirety) constitute reasonable compensation
for services actually rendered within the meaning of Section 280G of the Code,
in the opinion of tax counsel referred to in clause (b) above; and
(d) The value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by the Employer's
independent auditors in accordance with the principles of Section 280G of the
Code.
7. RIGHT TO DETERMINE FUNDING METHODS. The Employer reserves the right
to determine, in its sole and absolute discretion, whether, to what extent and
by what method, if any, to provide for the payment of the amounts which may be
payable to the Executive, the Executive's spouse or the Executive's
beneficiaries under the terms of this Agreement. In the event that the Employer
elects to fund this Agreement, in whole or in part, through the use of life
insurance or annuities, or both, the Employer shall determine the ownership and
beneficial interests of any such policy of life insurance or annuity. The
Employer further reserves the right, in its sole and absolute discretion, to
terminate any such policy, and any other device used to fund its obligations
under this Agreement, at any time, in whole or in part. Consistent with
Paragraph 9 below, neither the Executive, the Executive's spouse nor the
Executive's beneficiaries shall have any right, title or interest in or to any
funding source or amount utilized by the Employer pursuant to this Agreement,
and any such funding source or amount shall not constitute security for the
performance of the Employer's obligations pursuant to this
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Agreement. In connection with the foregoing, the Executive agrees to execute
such documents and undergo such medical examinations or tests which the
Employer may request and which may be reasonably necessary to facilitate any
funding for this Agreement including, without limitation, the Employer's
acquisition of any policy of insurance or annuity. Furthermore, a refusal by
the Executive to consent to, participate in and undergo any such medical
examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by the Executive, the Executive's
spouse and the Executive's beneficiaries of any and all rights to payment
hereunder.
8. CLAIMS PROCEDURE. The Employer shall, but only to the extent
necessary to comply with ERISA, be designated as the named fiduciary under this
Agreement and shall have authority to control and manage the operation and
administration of this Agreement. Consistent therewith, the Employer shall make
all determinations as to the rights to benefits under this Agreement. Any
decision by the Employer denying a claim by the Executive, the Executive's
spouse, or the Executive's beneficiary for benefits under this Agreement shall
be stated in writing and delivered or mailed, via registered or certified mail,
to the Executive, the Executive's spouse or the Executive's beneficiary, as the
case may be. Such decision shall set forth the specific reasons for the denial
of a claim. In addition, the Employer shall provide the Executive, the
Executive's spouse or the Executive's beneficiary with a reasonable opportunity
for a full and fair review of the decision denying such claim.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding anything
contained herein to the contrary: (i) neither the Executive, the Executive's
spouse nor the Executive's beneficiary shall have any legal or equitable rights,
interests or claims in or to any specific property or assets of the Employer;
(ii) none of the Employer's assets shall be held in or under any trust for the
benefit of the Executive, the Executive's spouse or the Executive's
beneficiaries or held in any way as security for the fulfillment of the
obligations of the Employer under this Agreement; (iii) all of the Employer's
assets shall be and remain the general unpledged and unrestricted assets of the
Employer; (iv) the Employer's obligation under this Agreement shall be that of
an unfunded and unsecured promise by the Employer to pay money in the future;
and (v) the Executive, the Executive's spouse and the Executive's beneficiaries
shall be unsecured general creditors with respect to any benefits which may be
payable under the terms of this Agreement.
10. MISCELLANEOUS.
10.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL. The
Executive acknowledges that he has been afforded the opportunity to consult with
independent counsel of his choosing regarding both the benefits granted to him
under the terms of this Agreement and the terms and conditions which may affect
the Executive's right to these benefits. The Executive further acknowledges
that he has read, understands and consents to all of the terms and conditions of
this Agreement, and that he enters into this Agreement with a full understanding
of its terms and conditions.
10.2. ARBITRATION OF DISPUTES. All claims, disputes and
other matters
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in question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined
by the Employer in its sole and absolute discretion, shall be resolved by
binding arbitration before a representative member, selected by the mutual
agreement of the parties, of the Judicial Arbitration and Mediation Services,
Inc. ("JAMS"), presently located at Two Embarcadero Center, Suite 1100, San
Francisco, California 94111. In the event JAMS is unable or unwilling to
conduct the arbitration provided for under the terms of this Paragraph, or
has discontinued its business, the parties agree that a representative
member, selected by the mutual agreement of the parties, of the American
Arbitration Association ("AAA"), presently located at 225 Bush Street, San
Francisco, California 94104, shall conduct the binding arbitration referred
to in this Paragraph. Notice of the demand for arbitration shall be filed in
writing with the other party to this Agreement and with JAMS (or AAA, if
necessary). In no event shall the demand for arbitration be made after the
date when institution of legal or equitable proceedings based on such claim,
dispute or other matter in question would be barred by the applicable statute
of limitations. The arbitration shall be subject to such rules of procedure
used or established by JAMS, or if there are none, the rules of procedure
used or established by AAA. Any award rendered by JAMS or AAA shall be final
and binding upon the parties, and as applicable, their respective heirs,
beneficiaries, legal representatives, agents, successors and assigns, and may
be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically
enforceable in accordance with, and shall be conducted consistently with, the
provisions of Title 9 of Part 3 of the California Code of Civil Procedure.
Any arbitration hereunder shall be conducted in Red Bluff, California, unless
otherwise agreed to by the parties.
10.3. ATTORNEYS' FEES. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the losing party reasonable expenses, attorneys' fees and costs incurred in
connection therewith or in the enforcement or collection of any judgment or
award rendered therein. The "prevailing party" means the party determined by
the arbitrator(s) or court, as the case may be, to have most nearly prevailed,
even if such party did not prevail in all matters, not necessarily the one in
whose favor a judgment is rendered.
10.4. NOTICE. Any notice required or permitted of either the
Executive or the Employer under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
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If to the Employer: Tehama Bank
239 South Main Street
Red Bluff, California 96080-0890
Attn: Chairman of the Board
If to the Executive: Daryl Sutterfield
1876 Kingswood Way
Redding, California 96003
10.5. ASSIGNMENT. Neither the Executive, the Executive's
spouse, nor any other beneficiary under this Agreement shall have any power
or right to transfer, assign, anticipate, hypothecate, modify or otherwise
encumber any part or all of the amounts payable hereunder, nor, prior to
payment in accordance with the terms of this Agreement, shall any portion of
such amounts be: (i) subject to seizure by any creditor of any such
beneficiary, by a proceeding at law or in equity, for the payment of any
debts, judgments, alimony or separate maintenance obligations which may be
owed by the Executive, the Executive's spouse, or any designated beneficiary;
or (ii) transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. Any such attempted assignment or transfer shall be
void and shall terminate this Agreement, and the Employer shall thereupon
have no further liability hereunder.
10.6. BINDING EFFECT/MERGER OR REORGANIZATION. This Agreement
shall be binding upon and inure to the benefit of the Executive and the
Employer and, as applicable, their respective heirs, beneficiaries, legal
representatives, agents, successors and assigns. Accordingly, the Employer
shall not merge or consolidate into or with another corporation, or
reorganize or sell substantially all of its assets to another corporation,
firm or person, unless and until such succeeding or continuing corporation,
firm or person agrees to assume and discharge the obligations of the Employer
under this Agreement. Upon the occurrence of such event, the term "Employer"
as used in this Agreement shall be deemed to refer to such surviving or
successor firm, person, entity or corporation.
10.7. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of
that party's right thereafter to enforce each and every term and condition of
this Agreement.
10.8. PARTIAL INVALIDITY. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall
not render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
10.9. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect
to the subject matter of
12
<PAGE>
this Agreement and contains all of the covenants and agreements between the
parties with respect thereto. Each party to this Agreement acknowledges that
no other representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not set forth herein, and that no other agreement,
statement, or promise not contained in this Agreement shall be valid or
binding on either party.
10.10. MODIFICATIONS. Any modification of this Agreement shall
be effective only if it is in writing and signed by each party or such
party's authorized representative.
10.11. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
10.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be
applied against any person.
10.13. GOVERNING LAW. The laws of the State of California,
other than those laws denominated choice of law rules, and, where applicable,
the rules and regulations of (i) the California Department of Financial
Institutions; (ii) the Board of Governors of the Federal Reserve System;
(iii) the Federal Deposit Insurance Corporation; or (iv) any other regulatory
agency or governmental authority having jurisdiction over the Employer, shall
govern the validity, interpretation, construction and effect of this
Agreement.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement on the date first above-written in the City of Red Bluff, Tehama
County, California.
THE EMPLOYER: THE EXECUTIVE:
TEHAMA BANK,
a California banking corporation
By:
----------------------------- -------------------------------
John W. Koeberer, Chairman Daryl Sutterfield
TEHAMA BANCORP,
a California corporation
By:
----------------------------- -------------------------------
John W. Koeberer, Chairman
13
<PAGE>
SCHEDULE A
NUMBER OF COMPLETE
YEARS WHICH HAVE ELAPSED APPLICABLE PERCENTAGE
------------------------ ---------------------
1....................................... 10.00%
2....................................... 20.00%
3....................................... 30.00%
4....................................... 40.00%
5....................................... 50.00%
6....................................... 60.00%
7....................................... 70.00%
8....................................... 80.00%
9....................................... 90.00%
10...................................... 100.00%
14
<PAGE>
SCHEDULE B
BENEFICIARY DESIGNATION
To the Administrator of the Tehama Bank Executive Salary Continuation
Agreement:
Pursuant to the Provisions of my Executive Salary Continuation Agreement
with Tehama Bank, permitting the designation of a beneficiary or beneficiaries
by a participant, I hereby designate the following persons and entities as
primary and secondary beneficiaries of any benefit under said Agreement payable
by reason of my death:
PRIMARY BENEFICIARY:
______________________ _____________________ __________________________
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
______________________ _____________________ __________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Executive Salary Continuation Agreement. In the
event that a named beneficiary survives me and dies prior to receiving the
entire benefit payable under said Agreement, then and in that event, the
remaining unpaid benefit payable according to the terms of my Executive Salary
Continuation Agreement shall be payable to the personal representatives of the
estate of said beneficiary who survived me but died prior to receiving the total
benefit provided by my Executive Salary Continuation Agreement.
THE EXECUTIVE:
Dated: ____________,1998 ___________________________________
Daryl Sutterfield
15
<PAGE>
CONSENT OF THE EXECUTIVE'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, ____________________________, being the spouse of Daryl Sutterfield,
after being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
foregoing Beneficiary Designation which relates to the Executive Salary
Continuation Agreement entered into by my spouse on ______________, 1998. I
understand that the above Beneficiary Designation may affect certain rights
which I may have in the benefits provided for under the terms of the Executive
Salary Continuation Agreement and in which I may have a marital property
interest.
Dated: _______________________, 1998
16
<PAGE>
EXHIBIT 10.7 (F)
AMENDMENT TO
EXECUTIVE SALARY CONTINUATION AGREEMENT
WILLIAM P. ELLISON
1
<PAGE>
AMENDMENT TO
EXECUTIVE SALARY CONTINUATION AGREEMENT
This Amendment to Executive Salary Continuation Agreement ("Amendment")
is made and entered into effective January 1, 1998, by and between Tehama
Bank, a banking corporation organized under the laws of the State of
California, Tehama Bancorp, a California corporation (Tehama Bank and Tehama
Bancorp together, the "Employer"), and William P. Ellison, an individual
residing in the State of California (hereinafter referred to as the
"Executive").
WHEREAS the Employer and Executive desire for good and sufficient
reasons to modify certain terms of that Executive Salary Continuation
Agreement, dated June 17, 1993, between Tehama Bank and the Executive (the
"Agreement").
THEREFORE Employer and Executive do agree that the Agreement shall be
amended effective as of the day set forth above as follows:
1. For purposes of the Agreement, (i) the Employer shall be deemed to be Tehama
Bank and Tehama Bancorp together and Tehama Bancorp shall be deemed to be a
party to the Agreement, and (ii) Executive serves as President and Chief
Executive Officer of Employer.
2. Section 1.2 of the Agreement shall be amended to read as follows:
ANNUAL BENEFIT. The term "Annual Benefit" shall mean an
annual sum of Seventy Five Thousand Dollars ($75,000) multiplied by the
Applicable Percentage (defined below) and then reduced to the extent: (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the
lawful order of any regulatory agency or body having jurisdiction over the
Employer; and (iii) required in order for the Employer to properly comply
with any and all applicable state and federal laws, including, but not
limited to, income, employment and disability income tax laws (e.g., FICA,
FUTA, SDI).
3. Section 10.2 of the Agreement shall be amended to read as follows:
ARBITRATION OF DISPUTES. All claims, disputes and
other matters in question arising out of or relating to this Agreement or
the breach or interpretation thereof, other than those matters which are to
be determined by the Employer in its sole and absolute discretion, shall be
resolved by binding arbitration before a representative member, selected by
the mutual agreement of the parties, of the Judicial Arbitration and
Mediation Services, Inc. ("JAMS"), presently located at Two Embarcadero
Center, Suite 1100, San Francisco, California 94111. In the event JAMS is
unable or unwilling to conduct the arbitration provided for under the terms
of this Paragraph, or has discontinued its business, the parties agree that
a representative member, selected by the mutual agreement of the
2
<PAGE>
parties, of the American Arbitration Association ("AAA"), presently located
at 225 Bush Street, San Francisco, California 94104, shall conduct the
binding arbitration referred to in this Paragraph. Notice of the demand for
arbitration shall be filed in writing with the other party to this
Agreement and with JAMS (or AAA, if necessary). In no event shall the
demand for arbitration be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statute of limitations. The
arbitration shall be subject to such rules of procedure used or established
by JAMS, or if there are none, the rules of procedure used or established
by AAA. Any award rendered by JAMS or AAA shall be final and binding upon
the parties, and as applicable, their respective heirs, beneficiaries,
legal representatives, agents, successors and assigns, and may be entered
in any court having jurisdiction thereof. The obligation of the parties to
arbitrate pursuant to this clause shall be specifically enforceable in
accordance with, and shall be conducted consistently with, the provisions
of Title 9 of Part 3 of the California Code of Civil Procedure. Any
arbitration hereunder shall be conducted in Red Bluff, California, unless
otherwise agreed to by the parties.
4. In all other respects, the terms of the Agreement shall continue and remain
the same.
IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement
as of the date first above-written in the City of Red Bluff, Tehama County,
California.
THE EMPLOYER: THE EXECUTIVE:
TEHAMA BANK,
a California banking corporation
By:
------------------------------- ---------------------------------
John W. Koeberer, Chairman William P. Ellison
TEHAMA BANCORP,
a California corporation
By:
-------------------------------
John W. Koeberer, Chairman
3
<PAGE>
CONSENT OF THE EXECUTIVE'S SPOUSE
I, Deborah A. Ellison, being the spouse of William P. Ellison, after
being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
Beneficiary Designation which relates to the Executive Salary Continuation
Agreement entered into by my spouse on June 17, 1998, as amended effective
January 1, 1998. I understand that the Beneficiary Designation may affect
certain rights which I may have in the benefits provided for under the terms
of the Executive Salary Continuation Agreement, as amended, and in which I
may have a marital property interest.
Dated: , 1998
---------------
------------------------------
Deborah A. Ellison
4
<PAGE>
EXHIBIT 10.8
DIRECTOR EMERITUS PROGRAM
<PAGE>
TEHAMA BANCORP
DIRECTOR EMERITUS PROGRAM
The Board of Directors of Tehama Bancorp, with the desire to retain for
the benefit of the corporation the knowledge and experience of its retiring
and former members, does hereby establish on the following terms and
conditions the Tehama Bancorp Director Emeritus Program (the "Program"):
1. BYLAWS. The bylaws of the corporation and of Tehama Bank (the
"Bank") provide that no person (excepting for a limited period one current
board member) shall be elected a director of the corporation or the Bank who
shall have attained seventy (70) years of age. The continuation of this
policy is an assumption of the Program.
2. ELIGIBILITY. The following categories of directors shall be
eligible to participate in the Program: (a) any director of the corporation
who shall have served continuously for at least ten years as a director of
the corporation and/or the Bank prior to retirement pursuant to Section 1 of
this Program, provided that the Board of Directors may waive this condition
in any case; and (b) any former director of the Bank whom the Board of
Directors shall approve. No director or former director shall become a
Director Emeritus except by approval of the Board of Directors in its
discretion.
3. DUTIES. A Director Emeritus shall (a) represent and promote the
goodwill of the corporation and the Bank in his or her community, (b) promote
the continued profitability of the corporation and the Bank by endeavoring,
among other things, to make monthly promotional calls on customers and
prospective customers of the Bank, (c) maintain communication with management
by meeting twice annually with the President and Chairman of the Board of the
corporation at their invitation, (d) provide industry consultation in his or
her field of expertise, business or profession, and (e) comply with all
written policies of the corporation or the Bank applicable to his or her
activities as a Director Emeritus or otherwise. A director Emeritus shall
not participate in establishing or administering policy of the corporation or
the Bank.
4. ACCESS TO INFORMATION. The Board of Directors authorizes management
to provide to each Director Emeritus sufficient information to assure that he
or she will be reasonably informed in order to carry out the duties of a
Director Emeritus described in this Program, provided that a Director
Emeritus shall not have the status of a director of a corporation under
California law and shall not be entitled generally to request or obtain such
confidential information regarding the corporation and the Bank and their
business, financial condition and operations as is customarily and in the
ordinary course of business provided to directors of the corporation or the
Bank. A Director Emeritus shall not be entitled to attend meetings of the
board of directors or committees of the corporation or the Bank, except by
invitation approved by the full board of directors.
5. COMPENSATION. In its discretion, and subject to Section 7 below,
the Board of Directors may approve at the commencement of each year of the
term of a Director Emeritus annual compensation (payable in monthly
installments) not to exceed ten times the monthly fee (exclusive of fees paid
for committee membership or attendance) paid to the Director Emeritus
<PAGE>
Tehama Bancorp
Director Emeritus Program
Page 3
during his or her last full year of service as a director, provided that, (a)
the annual compensation paid to a Director Emeritus may not exceed ten times
the current monthly fee (exclusive of fees paid for committee membership or
attendance) paid to active directors of the corporation; (b) in its
discretion the Board of Directors may elect to compensate a Director Emeritus
who is a former director annually an amount not to exceed ten times the
current monthly fee (exclusive of fees paid for committee membership or
attendance) paid to active directors of the corporation; and (c) no fees for
service as a Director Emeritus shall be paid to any director who is
compensated pursuant to a Salary Continuation Agreement with the corporation
or the Bank.
6. TERM. Subject to acknowledgement and acceptance of this Program by the
Director Emeritus, his or her term shall commence with the effective date of
his or her approval as a Director Emeritus by the Board of Directors and
shall extend initially for one year from such date. The Board of Directors
shall annually review the status of each Director Emeritus prior to
expiration of his or her current term of service and, in its discretion, may
terminate or extend the term of service of any Director Emeritus for
successive one-year periods. The maximum term of service of a Director
Emeritus shall not exceed five (5) years.
7. AUTHORITY OF BOARD OF DIRECTORS. The Board of Directors retains full
authority to modify or terminate this Program at any time and in any manner
at its will.
Accepted and acknowledged:
- ------------------------------------ ----------------------------------
Director Emeritus Date
- ------------------------------------ ----------------------------------
Chairman of the Board Date
<PAGE>
MESSAGE TO SHAREHOLDERS, CUSTOMERS AND FRIENDS:
We are pleased to report that 1997 was a year of outstanding growth and
expansion for TEHAMA BANCORP, the parent company of TEHAMA BANK. Community
banking continues to gain widespread acceptance in the wake of mega-mergers and
consolidations. Taking advantage of this trend, we are pleased to inform you
that our market share has increased in each community we serve -- proof that
community banking has a bright future in the days and years ahead.
More specifically, since December 31, 1996, we have experienced significant
growth in assets, loans and deposits. Assets increased 22.9% to $169,401,551,
loans increased 29.5% to $118,731,801 and deposits increased 25.6% to
$152,671,057.
TEHAMA BANK's geographic service area expanded this past year with the
purchase of two branches located in Willows and Orland. The acquisition provides
TEHAMA BANK with a solid entry into Glenn County and greater opportunities for
agriculture based lending. TEHAMA BANK now serves Tehama, Butte, Glenn and
Shasta counties with full service branches in Red Bluff, Los Molinos, Chico,
Willows and Orland. A loan office is located in Redding.
This was also the year to introduce new products and services. OnLine
Banking, OnLine Bill Pay, and 24 Hour Telephone Customer Service were developed
in response to customer demand. Additionally, new checking accounts and equity
loan products were introduced.
The increased opportunities for growth and expansion were successfully
achieved due to the efforts of many dedicated employees who are committed to
making TEHAMA BANK a strong, service oriented company. While consolidated
earnings of $1.3 million in 1997 represent a decrease over last year, the
long-term value of what was accomplished this year should enhance shareholder
value in ensuing years. The short-term decline in earnings is attributed to:
the costs associated with the purchase of the Orland and Willows branches and
the need to adequately staff those branches, increased allocations to loan loss
reserves due to rapid loan growth and losses booked during the year, one-time
costs associated with the start-up of Bancorp Financial Services--a successful
specialty leasing company, the formation of TEHAMA BANCORP--the bank's holding
company, and the creation of a more efficient operation through centralization
of "back room" processes.
Much was accomplished this year in building a strong foundation for future
growth. We are confident that TEHAMA BANCORP is strongly positioned to take
advantage of the many opportunities we believe exist in the northern California
marketplace. Thank you for your continued confidence and support as we continue
to provide "Personal Banking at its VERY Best!"
WILLIAM P. ELLISON JOHN KOEBERER
President and Chief Executive Officer Chairman of the Board
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
AND
INDEPENDENT AUDITOR'S REPORT
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
and Stockholders
Tehama Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of
Tehama Bancorp and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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
audits 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Tehama Bancorp and subsidiary as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Perry-Smith & Co.
Certified Public Accountants
Sacramento, California
January 23, 1998
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 5,927,578 $ 4,388,685
Federal funds sold 7,000,000 5,000,000
Investment securities (market value of $28,723,500
in 1997 and $31,760,800 in 1996) (Note 2) 28,426,765 31,590,388
Loans, less allowance for loan and lease losses of
$1,705,200 in 1997 and $896,733 in 1996 (Note 3) 118,731,801 91,687,370
Bank premises and equipment, net (Note 4) 1,955,630 1,200,464
Investment in leasing company (Note 5) 2,035,256
Other real estate 338,957 470,000
Accrued interest receivable and other assets 5,306,041 3,785,339
--------------- ---------------
$ 169,722,028 $ 138,122,246
--------------- ---------------
--------------- ---------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 34,810,231 $ 22,938,555
Interest bearing (Note 6) 117,860,826 98,664,151
--------------- --------------
Total deposits 152,671,057 121,602,706
Accrued interest payable and other liabilities 1,141,293 1,406,364
--------------- --------------
Total liabilities 153,812,350 123,009,070
--------------- --------------
Commitments and contingencies (Note 9)
Stockholders' equity (Note 10):
Preferred stock - no par value; 2,000,000
shares authorized; none issued
Common stock - no par value; 4,000,000
shares authorized; 1,628,291 and 1,610,940
shares issued and outstanding in 1997 and
1996, respectively 12,337,764 12,225,722
Retained earnings 3,562,034 2,905,644
Unrealized gain (loss) on available-for-sale
investment securities, net of taxes (Note 2) 9,880 (18,190)
-------------- --------------
Total stockholders' equity 15,909,678 15,113,176
-------------- --------------
$ 169,722,028 $ 138,122,246
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- -----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 10,135,028 $ 8,144,669 $ 7,775,753
Interest on Federal funds sold 626,727 716,204 724,748
Interest on investment securities:
Taxable 1,269,062 876,606 386,425
Exempt from Federal income
taxes 583,198 536,484 536,955
------------------ ----------------- -----------------
Total interest income 12,614,015 10,273,963 9,423,881
Interest expense on deposits (Note 6) 5,224,556 4,356,668 3,878,670
------------------ ----------------- -----------------
Net interest income 7,389,459 5,917,295 5,545,211
Provision for loan and lease losses
(Note 3) 1,705,000 570,000 330,000
------------------ ----------------- -----------------
Net interest income after
provision for loan and lease
losses 5,684,459 5,347,295 5,215,211
------------------ ----------------- -----------------
Non-interest income:
Service charges 549,488 372,800 319,304
Merchant processing fees 1,322,564 1,229,003 1,185,210
Loan servicing fees 74,133 77,511 82,100
Gain on sale of loans 49,199 23,001 37,479
Undistributed income of investment
in leasing company 35,256
Other income 159,909 157,507 151,043
------------------ ----------------- -----------------
Total non-interest income 2,190,549 1,859,822 1,775,136
------------------ ----------------- -----------------
Other expenses:
Salaries and employee benefits
(Notes 3 and 12) 2,660,463 2,108,086 2,011,842
Occupancy 831,656 498,637 432,628
Other (Note 11) 2,469,123 1,701,933 1,658,198
------------------ ----------------- -----------------
Total other expenses 5,961,242 4,308,656 4,102,668
------------------ ----------------- -----------------
Income before income taxes 1,913,766 2,898,461 2,887,679
Income taxes (Note 7) 613,000 959,000 1,039,000
------------------ ----------------- -----------------
Net income $ 1,300,766 $ 1,939,461 $ 1,848,679
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Basic earnings per share (Note 10) $ .81 $ 1.21 $ 1.17
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Diluted earnings per share (Note 10) $ .78 $ 1.18 $ 1.12
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN
ON AVAILABLE-
COMMON STOCK FOR-SALE
------------------------------- RETAINED INVESTMENT
SHARES AMOUNT EARNINGS SECURITIES TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 1,283,396 $ 8,105,964 $ 2,779,634 $ (127,582) $ 10,758,016
Stock options exercised and
related tax benefit 36,392 310,839 310,839
10% stock dividend 130,833 1,700,829 (1,703,790) (2,961)
Net income 1,848,679 1,848,679
Net change in unrealized loss
on available-for-sale invest-
ment securities, net of taxes 171,290 171,290
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1995 1,450,621 10,117,632 2,924,523 43,708 13,085,863
Stock options exercised and
related tax benefit 15,468 152,601 152,601
10% stock dividend 144,851 1,955,489 (1,958,340) (2,851)
Net income 1,939,461 1,939,461
Net change in unrealized gain
on available-for-sale invest-
ment securities, net of taxes (61,898) (61,898)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1996 1,610,940 12,225,722 2,905,644 (18,190) 15,113,176
Stock options exercised and
related tax benefit 17,351 112,042 112,042
Cash dividend - $.40 per
share (644,376) (644,376)
Net income 1,300,766 1,300,766
Net change in unrealized loss
on available-for-sale invest-
ment securities, net of taxes
(Note 2) 28,070 28,070
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1997 1,628,291 $ 12,337,764 $ 3,562,034 $ 9,880 $ 15,909,678
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,300,766 $ 1,939,461 $ 1,848,679
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan and lease losses 1,705,000 570,000 330,000
Depreciation and amortization 263,929 160,486 141,194
Amortization (accretion) of investment
security premiums (discounts), net 27,823 786 (53,175)
Deferred loan origination costs and fees, net (91,971) (35,569) (62,132)
Gain on sale of available-for-sale
investment securities (138) (1,847)
Provision for losses on other real estate 60,000
(Gain) loss on sale of other real estate (23,959) 18,876 443
(Increase) decrease in loans held for sale (229,428) (75,000) 262,750
Gain on investment in leasing company (35,256)
Increase in accrued interest receivable and
other assets (108,309) (382,432) (22,357)
(Decrease) increase in accrued interest
payable and other liabilities (312,331) 252,495 167,460
Deferred taxes (219,000) (73,000) (94,000)
--------------- --------------- ---------------
Net cash provided by operating activities 2,337,402 2,376,103 2,517,015
--------------- --------------- ---------------
Cash flows from investing activities:
Cash acquired in the purchase of selected assets
and liabilities of another bank 17,031,577
Proceeds from the sale and call of available-for-
sale investment securities 8,240,000 2,771,739 500,000
Proceeds from called held-to-maturity investment
securities 80,000 405,000
Proceeds from matured available-for-sale invest-
ment securities 1,095,000 3,435,000 2,340,000
Purchases of available-for-sale investment
securities (6,059,041) (13,203,912) (7,067,800)
Purchases of held-to-maturity investment
securities (225,000) (2,792,045) (1,195,000)
Principal payments received from available-
for-sale investment securities 53,201 53,092 44,174
Net increase in loans (28,593,443) (11,848,173) (7,618,227)
Purchases of premises and equipment (508,258) (223,035) (96,251)
Proceeds from sale of other real estate 49,618 225,664 15,792
Investment in leasing company (2,000,000)
Purchase of life insurance policies (355,000)
--------------- --------------- ---------------
Net cash used in investing activities (11,191,346) (21,176,670) (13,077,312)
--------------- --------------- ---------------
</TABLE>
(Continued)
5
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits,
interest-bearing and savings accounts $ 6,908,625 $ 13,747 $ 4,823,413
Net increase in time deposits 6,018,014 8,002,232 14,117,510
Payments for fractional shares (2,851) (2,961)
Proceeds from exercise of stock options 98,942 134,216 218,527
Payment of cash dividends (644,376)
------------ ------------- -------------
Net cash provided by financing activities 12,381,205 8,147,344 19,156,489
------------ ------------- -------------
Increase (decrease) in cash and cash
equivalents 3,538,893 (10,653,223) 8,596,192
Cash and cash equivalents at beginning of year 9,388,685 20,041,908 11,445,716
------------ ------------- -------------
Cash and cash equivalents at end of year $ 12,927,578 $ 9,388,685 $ 20,041,908
------------ ------------- -------------
------------ ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 5,028,411 $ 4,320,615 $ 3,745,841
Income taxes $ 875,000 $ 1,145,181 $ 869,000
Non-cash investing activities:
Real estate acquired through foreclosure $ 78,957 $ 226,000 $ 107,235
Other assets acquired through foreclosure of
consumer loans $ 228,903 $ 453,409 $ 267,210
Net change in unrealized gain (loss) on
available-for-sale investment securities $ 48,498 $ (106,555) $ (291,323)
Supplemental schedule related to acquisition:
On February 21, 1997, the Bank acquired or
assumed the following assets and
liabilities of another bank (Note 15):
Deposits assumed $ 18,141,712
Premises and equipment (480,226)
Loans (18,633)
Other liabilities assumed 47,218
------------
17,690,071
Premium paid for deposits (658,494)
------------
Cash acquired $ 17,031,577
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Tehama Bancorp (the "Company") was incorporated on January 15, 1997
and subsequently obtained approval of the Board of Governors of the
Federal Reserve System to be a bank holding company. On June 30,
1997, Tehama Bank (the "Bank") consummated a merger with Tehama
Bancorp that was effected through the exchange of one share of the
Company's stock for each share of the Bank's stock. The merger was
accounted for in a manner similar to the purchase method of
accounting. However, because the entities were under common control,
assets and liabilities were not adjusted to fair market value, and as
a result, no goodwill was recorded.
The accounting and reporting policies of the Company and its
subsidiary conform with generally accepted accounting principles and
prevailing practices within the banking industry.
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All material
intercompany transactions and accounts have been eliminated in
consolidation.
The Bank's 50 percent investment in Bancorp Financial Services, Inc.
(Bancorp), a leasing company, is accounted for by the equity method.
Although the Bank owns 50 percent of the outstanding stock of the
leasing company, it does not have the ability to significantly
influence the financial and operating policies of Bancorp.
INVESTMENT SECURITIES
Investments are classified into one of the following categories:
- Available-for-sale securities reported at fair
value, with unrealized gains and losses excluded
from earnings and reported, net of taxes, as a
separate component of stockholders' equity.
- Held-to-maturity securities, which management has
the positive intent and ability to hold, reported
at amortized cost, adjusted for the accretion of
discounts and amortization of premiums.
Management determines the appropriate classification of its
investments at the time of purchase and may only change the
classification in certain limited circumstances. All transfers
between categories are accounted for at fair value.
Gains or losses on the sale of investment securities are computed on
the specific identification method. Interest earned on investment
securities is reported in interest income,
7
<PAGE>
net of applicable adjustments for accretion of discounts and
amortization of premiums. In addition, unrealized losses that are
other than temporary are recognized in earnings for all investments.
8
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS HELD FOR SALE
Loans held for sale consist of mortgage loans and are carried at the
lower of cost or market value. Market value is determined using the
specific identification method as of the balance sheet date.
Unrealized losses and realized gains or losses are determined on the
specific identification method and are reflected in non-interest
income or other expense. Loans held for sale are included in accrued
interest receivable and other assets.
LOANS
Loans are stated at principal balances outstanding, except for loans
transferred from loans held for sale which are carried at the lower
of principal balance or market value at the date of transfer,
adjusted for accretion of discounts. Interest is accrued daily based
upon outstanding loan balances. However, when, in the opinion of
management, loans are considered to be impaired and the future
collectibility of interest and principal is in serious doubt, loans
are placed on nonaccrual status and the accrual of interest income is
suspended. Any interest accrued but unpaid is charged against income.
Payments received are applied to reduce principal to the extent
necessary to ensure collection. Subsequent payments on these loans,
or payments received on nonaccrual loans for which the ultimate
collectibility of principal is not in doubt, are applied first to
earned but unpaid interest and then to principal.
An impaired loan is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or, as a practical matter, at the loan's observable market price or
the fair value of collateral if the loan is collateral dependent. A
loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect all
amounts due (including both principal and interest) in accordance
with the contractual terms of the loan agreement.
Loan origination fees, commitment fees, direct loan origination costs
and purchase premiums and discounts on loans are deferred and
recognized as an adjustment of yield, to be amortized to interest
income over the contractual term of the loan. The unamortized
balances of deferred fees and costs and unearned loan discounts are
reported as a component of net loans.
9
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TRANSFERS AND SERVICING OF LOANS
The Company adopted Financial Accounting Standards Board Statement
No. 125 (SFAS 125), ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, on January 1,
1997. Under SFAS 125, sales of financial assets are recognized when
the transferred assets are put beyond the reach of the transferor and
its creditors, even in bankruptcy or receivership. In addition,
servicing rights acquired through 1) a purchase or 2) the origination
of loans which are sold or securitized with servicing rights retained
are recognized as separate assets or liabilities. Servicing assets or
liabilities are recorded at the difference between the contractual
servicing fees and adequate compensation for performing the
servicing, subsequently amortized in proportion to and over the
period of the related net servicing income or expense. Servicing
assets and liabilities are periodically evaluated for impairment.
Servicing assets and liabilities were not material for the year ended
December 31, 1997.
Loans with unpaid balances of approximately $25,304,000 and
$29,156,000 were being serviced for others at December 31, 1997 and
1996, respectively.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The allowance for loan and lease losses is maintained to provide for
losses related to impaired loans and other losses that can be
expected to occur in the normal course of business. The determination
of the allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically
identified problem loans, potential losses inherent in the portfolio
taken as a whole and economic conditions in the Bank's service area.
These estimates are particularly susceptible to changes in the
economic environment and market conditions. The allowance is
established through a provision for loan and lease losses which is
charged to expense.
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial
settlement of loan obligations. When property is acquired, any excess
of the Bank's recorded investment in the loan balance and accrued
interest income over the estimated fair market value of the property,
net of estimated selling costs, is charged against the allowance for
loan losses. A valuation allowance for losses on other real estate is
maintained to provide for temporary declines in value. Subsequent
gains or losses on sales or writedowns resulting from permanent
impairment are recorded in other income or expense as incurred.
10
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is
determined using the straight-line method over the estimated useful
lives of the related assets. The useful lives of furniture, fixtures
and equipment are estimated to be three to ten years. Leasehold
improvements are amortized over the life of related leases, or the
life of the asset, whichever is shorter. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to expense as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences between the financial statement
and tax basis of existing assets and liabilities. On the balance
sheet, net deferred tax assets are included in accrued interest
receivable and other assets.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from
banks and Federal funds sold are considered to be cash equivalents.
Generally, Federal funds are sold for one day periods.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which established new
standards for computing and presenting earnings per share (EPS). This
Statement was adopted by the Company for financial statements issued
for the year ended December 31, 1997 and requires the restatement of
all prior-period EPS data presented.
Basic EPS, which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period and replaces the
presentation of primary EPS. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock, such as stock options, result in the issuance of common
stock which shares in the earnings of the Company. Diluted EPS is
computed similarly to, and replaces the presentation of, fully
diluted EPS. The treasury stock method has been applied to determine
the dilutive effect of stock options in computing diluted EPS.
Earnings per share is retroactively adjusted for stock dividends for
all periods presented.
11
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
MERCHANT BANK CARD PROCESSING
The Bank serves as a merchant processor, under contract with a third
party, for processing credit card transactions of selected merchants.
Processing fees are recorded as non-interest income and are based
upon a contractual percentage of valid credit card transactions
processed each month. A portion of direct costs of the Bank's
merchant card processing personnel is reimbursed by the program's
marketing agent. The credit card processing equipment and related
software are the assets of the third party and are not reflected in
the consolidated financial statements.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the exercise
price. However, if the fair value of stock-based compensation
computed under a fair value based method, as prescribed in Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION, is material to the financial statements,
pro-forma net income and earnings per share are disclosed as if the
fair value method had been applied.
12
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment
securities at December 31, 1997 and 1996 consisted of the following:
AVAILABLE-FOR-SALE:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury se-
curities and obli-
gations of U.S.
Government cor-
porations and
agencies $ 17,065,054 $ 45,661 $ (31,715) $ 17,079,000
Obligations of
states and polit-
ical subdivisions 681,921 3,100 (21) 685,000
Other securities 374,500 374,500
-------------- --------------- --------------- -------------
$ 18,121,475 $ 48,761 $ (31,736) $ 18,138,500
-------------- --------------- --------------- -------------
-------------- --------------- --------------- -------------
</TABLE>
Net unrealized gains on available-for-sale investment securities
totaling $17,025 were recorded net of $7,145 in tax liabilities as a
separate component of stockholders' equity at December 31, 1997.
Proceeds of $8,240,000 from calls and sales of available-for-sale
investment securities resulted in a gross realized gain of $138 for
the year ended December 31, 1997.
13
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
AVAILABLE-FOR-SALE: (Continued)
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------- --------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
U.S. Treasury se-
curities and obli-
gations of U.S.
Government cor-
porations and
agencies $ 19,662,402 $ 30,331 $ (69,733) $ 19,623,000
Obligations of
states and polit-
ical subdivisions 1,428,071 9,456 (1,527) 1,436,000
Other securities 366,800 366,800
--------------- -------------- ------------- ---------------
$ 21,457,273 $ 39,787 $ (71,260) $ 21,425,800
--------------- -------------- ------------- ---------------
--------------- -------------- ------------- ---------------
</TABLE>
Net unrealized losses on available-for-sale investment securities
totaling $31,473 were recorded net of $13,283 in tax benefits as a
component of stockholders' equity at December 31, 1996. Proceeds of
$2,771,739 from called available-for-sale investment securities
resulted in no gains or losses for the year ended December 31, 1996.
Proceeds of $500,000 from the sale of an available-for-sale
investment security resulted in a gross realized gain of $1,847 for
the year ended December 31, 1995.
HELD-TO-MATURITY:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Obligations of states
and political sub-
divisions $ 10,288,265 $ 296,735 $ - $ 10,585,000
-------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- -------------------
<CAPTION>
1996
-----------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------- --------------------- --------------------- -------------------
Obligations of states
and political sub-
divisions $ 10,164,588 $ 215,408 $ (44,996) $ 10,335,000
-------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- -------------------
</TABLE>
14
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
There were no sales or transfers of held-to-maturity investment
securities during the years ended December 31, 1997, 1996 or 1995.
15
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
The amortized cost and estimated market value of investment
securities at December 31, 1997 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------------------------------- -----------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Within one year $ 2,041,722 $ 2,037,000
After one year
through five years 15,705,253 15,727,000 $ 2,616,776 $ 2,675,000
After five years
through ten years 6,897,841 7,125,000
After ten years 773,648 785,000
-------------- --------------- ------------- --------------
17,746,975 17,764,000
Investment securities
not due at a single
maturity date:
Federal Reserve
Bank stock 366,800 366,800
Other 7,700 7,700
-------------- ---------------
$ 18,121,475 $ 18,138,500 $ 10,288,265 $ 10,585,000
-------------- --------------- ------------- ----------------
-------------- --------------- -------------- -----------------
</TABLE>
Investment securities with amortized costs of approximately
$4,228,000 and $2,201,000 and estimated market values of $4,215,000
and $2,199,000 were pledged to secure deposits at December 31, 1997
and 1996, respectively. Additionally, investment securities with
amortized costs of approximately $2,000,000 and estimated market
values of $2,003,000 were pledged to VISA at December 31, 1997 in
conjunction with the Bank's merchant processing services.
16
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. LOANS
Outstanding loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996
----------------- ------------------
<S> <C> <C>
Commercial $ 15,455,277 $ 10,064,119
Commercial real estate 11,220,784 8,959,255
Real estate - construction 11,141,532 5,824,170
Real estate - mortgage 39,890,658 31,456,377
Leases 2,404,594 470,735
Installment 41,950,733 36,916,096
----------------- ---------------
122,063,578 93,690,752
Unearned discount (1,722,166) (1,110,267)
Deferred loan costs and fees, net 95,589 3,618
Allowance for loan and lease losses (1,705,200) (896,733)
----------------- ---------------
$ 118,731,801 $ 91,687,370
----------------- ---------------
----------------- ---------------
</TABLE>
Changes in the allowance for loan and lease losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1997 1996 1995
------------- ------------ --------------
<S> <C> <C> <C>
Balance, beginning of year $ 896,733 $ 809,608 $ 720,557
Provision charged to operations 1,705,000 570,000 330,000
Losses charged to allowance (978,709) (537,585) (250,067)
Recoveries 82,176 54,710 9,118
------------- ------------- --------------
Balance, end of year $ 1,705,200 $ 896,733 $ 809,608
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
At December 31, 1997 and 1996, nonaccrual loans totaled $594,800 and
$123,000, respectively. Interest foregone on nonaccrual loans totaled
approximately $29,400, $4,200 and $3,600 for the years ended December
31, 1997, 1996 and 1995, respectively. The recorded investment in
loans that were considered to be impaired at December 31, 1997
totaled $354,600. The related allowance for loan and lease losses for
these loans at December 31, 1997 was $177,300. The average recorded
investment in impaired loans for the year ended December 31, 1997 was
$123,800. The Bank recognized no interest income on impaired loans
during this same period. There were no significant loans considered
to be impaired during the years ended December 31, 1996 and 1995.
Salaries and employee benefits totaling $259,000, $165,000 and
$71,000 have been deferred as loan origination costs for the years
ended December 31, 1997, 1996 and 1995, respectively.
17
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Land $ 200,840 $ 163,163
Bank premises 831,343 497,963
Furniture, fixtures and equipment 1,565,821 1,049,774
Leasehold improvements 160,844 127,335
------------- -------------
2,758,848 1,838,235
Less accumulated depreciation
and amortization (803,218) (637,771)
------------- -------------
$ 1,955,630 $ 1,200,464
------------- -------------
------------- -------------
</TABLE>
Depreciation and amortization included in occupancy expense totaled
$233,319, $160,486 and $141,194 for the years ended December 31,
1997, 1996 and 1995, respectively.
5. INVESTMENT IN LEASING COMPANY
On January 2, 1997, the Bank invested $2,000,000 in a joint venture
with another community bank to form Bancorp Financial Services, Inc.
(Bancorp). Bancorp principally engages in the business of
originating, purchasing and selling lease contracts. The lease
contracts provide financing primarily for the acquisition of
computer, office products, medical and other business equipment. All
equipment leased is acquired from unrelated parties. The Bank's fifty
percent interest in Bancorp's net income for the year ended December
31, 1997 totaled $35,256.
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Savings $ 14,075,378 $ 10,046,368
Money market 25,415,366 24,575,331
NOW accounts 10,364,661 7,855,017
Time, $100,000 or more 13,173,337 10,498,752
Other time 54,832,084 45,688,683
-------------- --------------
$ 117,860,826 $ 98,664,151
-------------- --------------
-------------- --------------
</TABLE>
18
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INTEREST-BEARING DEPOSITS (Continued)
Interest expense recognized on interest-bearing deposits consisted of
the following:
<TABLE>
<CAPTION> Year Ended December 31,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Savings $ 394,557 $ 299,085 $ 302,566
Money market 1,033,029 1,047,823 958,019
NOW accounts 208,777 149,802 143,162
Time, $100,000 or more 692,358 562,084 468,839
Other time 2,895,835 2,297,874 2,006,084
---------- ---------- ----------
$5,224,556 $4,356,668 $3,878,670
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
Federal State Total
---------- -------- ----------
<S> <C> <C> <C>
1997
----
Current $ 576,000 $256,000 $ 832,000
Deferred (168,000) (51,000) (219,000)
--------- -------- ----------
Income tax expense $ 408,000 $205,000 $ 613,000
--------- -------- ----------
--------- -------- ----------
1996
----
Current $ 708,000 $324,000 $1,032,000
Deferred (63,000) (10,000) (73,000)
--------- -------- ----------
Income tax expense $ 645,000 $314,000 $ 959,000
--------- -------- ----------
--------- -------- ----------
1995
----
Current $ 799,000 $334,000 $1,133,000
Deferred (71,000) (23,000) (94,000)
--------- -------- ----------
Income tax expense $ 728,000 $311,000 $1,039,000
--------- -------- ----------
--------- -------- ----------
</TABLE>
19
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES (Continued)
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 537,000 $322,000
Salary continuation expense 249,000 203,000
Future benefit of state tax deduction 87,000 111,000
Unrealized loss on available-for-sale
investment securities 13,000
Capitalization of organization costs 29,000
Other real estate 27,000
Other 20,000
--------- --------
Total deferred tax assets 929,000 669,000
--------- --------
Deferred tax liabilities:
Bank premises and equipment (65,000) (52,000)
Future liability of state deferred tax asset (56,000) (39,000)
Undistributed interest in earnings of leasing
company (16,000)
Unrealized gain on available-for-sale
investment securities (7,000)
Other (38,000)
--------- --------
Total deferred tax liabilities (182,000) (91,000)
--------- --------
Net deferred tax assets $ 747,000 $578,000
--------- --------
--------- --------
</TABLE>
The provision for income taxes differs from amounts computed by
applying the statutory Federal income tax rate to operating income
before income taxes. The tax effects for these differences are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------------ ---------------------
Amount Rate % Amount Rate % Amount Rate %
-------- ----- ------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
expense, at
statutory rate $650,680 34.0 $ 985,477 34.0 $ 981,811 34.0
State franchise tax,
net of Federal tax
effect 128,402 6.7 204,056 7.0 196,173 6.8
Interest on obligations
of states and political
subdivisions (180,281) (9.4) (188,585) (6.5) (180,714) (6.3)
Other 14,199 .7 (41,948) (1.4) 41,730 1.5
-------- ----- ---------- ------- --------- -------
Total income
tax expense $613,000 32.0 $ 959,000 33.1 $1,039,000 36.0
-------- ----- --------- ------- ---------- ------
-------- ----- --------- ------- ---------- ------
</TABLE>
20
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHORT-TERM BORROWING ARRANGEMENTS
The Bank has a $3,000,000 unsecured borrowing arrangement with one of
its correspondent banks and a Federal funds line of credit available
up to an aggregate of the fair market value of pledged securities.
Securities pledged had amortized costs totaling $999,800 and
estimated market values totaling $992,500 at December 31, 1997. There
were no borrowings outstanding under these arrangements at December
31, 1997 and 1996.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Bank's minimum commitments under operating leases for premises
and equipment as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-------------
<S> <C>
1998 $ 93,725
1999 88,440
2000 88,440
2001 88,440
2002 73,080
Thereafter 90,440
---------
$522,565
---------
---------
</TABLE>
Rental expense for premises and equipment included in occupancy
expense totaled approximately $111,000, $63,000 and $58,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess
of the amount recognized on the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit is represented by
the contractual amount of those instruments. Management uses the same
credit policies in making commitments as it does for loans included
on the balance sheet.
21
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
The following financial instruments represent off-balance-sheet
credit risk:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Commitments to extend credit $17,368,000 $9,763,000
Letters of credit $ 132,000 $ 109,000
</TABLE>
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. Since some of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Management evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies, but may include
real estate, accounts receivable and personal property.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
At December 31, 1997, commercial loan commitments represent
approximately 56% of total commitments and are generally unsecured.
Real estate loan commitments represent 32% of total commitments and
are generally secured by property with a loan-to-value ratio not to
exceed 80%. Unsecured credit cards and consumer lines of credit
represent the remaining 12% of total commitments. In addition, the
majority of the Bank's commitments have variable rates.
The Bank is a party to additional financial instruments entered into
in the normal course of business. These financial instruments include
commitments to sell loans. Commitments to sell loans are agreements
to sell to another party loans originated by the Bank. The Bank only
sells loans to third parties without recourse. As long as the Bank
has fulfilled its obligations as stated in the sales commitment on
such loans, the Bank is not exposed to credit loss if the borrower
fails to perform according to the promissory note.
22
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank grants real estate mortgage, real estate construction,
commercial and consumer loans to customers throughout Tehama, Butte,
Glenn and Shasta counties.
Although the Bank has a diversified loan portfolio, a substantial
portion of its portfolio is secured by commercial and residential
real estate. Additionally, automobiles, trucks and recreational
vehicles secure a substantial portion of the Bank's installment
loans. However, personal and business income represents the primary
source of repayment for a majority of these loans.
MERCHANT BANK CARD PROCESSING
The Bank has a merchant transaction servicing agreement for the
processing of credit card transactions with First Data Resources,
Inc. (FDRI). The Bank is contingently liable for undetected fraud on
third-party credit card transactions processed under its agreement
with FDRI. However, the Bank is reimbursed on a monthly basis by the
marketing agent of the program, CardService International, Inc.
(CSI), for losses incurred. The Bank has not incurred any losses to
date for transactions processed under this program.
DATA PROCESSING
The Bank has also entered into a data processing service agreement
with Bank Processing, Inc. Under this agreement, the Bank's minimum
payments are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-------------
<S> <C> <C>
1998 $152,904
1999 152,904
2000 89,194
--------
$395,002
--------
--------
</TABLE>
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured
financial institutions under correspondent banking agreements.
Uninsured deposits totaled $3,567,000 at December 31, 1997.
23
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. STOCKHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors of the Company, all
stockholders of record will be entitled to receive dividends. The
Company's only present source of income with which to pay dividends
is dividends from the Bank. The California Financial Code restricts
the total cash dividend payment of any state bank at any time to the
lesser of (1) the Bank's retained earnings or (2) the Bank's net
income for its last three fiscal years, less distributions made to
stockholders during the same three-year period. At December 31, 1997,
the Bank had $727,977 in retained earnings available for dividend
payments to the Company.
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of
Net Shares Per-Share
For the Year Ended Income Outstanding Amount
------------------------------------ ----------- ----------- ---------------
<S> <C> <C> <C>
DECEMBER 31, 1997
Basic earnings per share $1,300,766 1,615,122 $ .81
---------------
---------------
Effect of dilutive stock options 59,535
---------- ---------
Diluted earnings per share $1,300,766 1,674,657 $ .78
---------- --------- ---------------
---------- --------- ---------------
DECEMBER 31, 1996
Basic earnings per share $1,939,461 1,600,756 $ 1.21
---------------
---------------
Effect of dilutive stock options (1) 43,212
---------- ---------
Diluted earnings per share $1,939,461 1,643,968 $ 1.18
---------- --------- ---------------
---------- --------- ---------------
DECEMBER 31, 1995
Basic earnings per share $1,848,679 1,583,562 $ 1.17
---------------
---------------
Effect of dilutive stock options 69,022
---------- ---------
Diluted earnings per share $1,848,679 1,652,584 $ 1.12
---------- --------- ---------------
---------- --------- ---------------
</TABLE>
(1) Options to purchase 22,550 shares of common stock at $12.27 per
share were outstanding during all quarters of 1996 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of
the common shares during the same period.
24
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. STOCKHOLDERS' EQUITY (Continued)
STOCK OPTIONS
In 1994, the Bank established a Stock Option Plan for which 439,544
shares of no par value common stock are reserved for issuance to
employees and directors under incentive and non-statutory agreements.
The Company assumed all obligations of the Bank under this plan as of
July 1, 1997, and options to purchase shares of the Company's common
stock were substituted for options to purchase shares of common stock
of the Bank. The plan requires that the option price may not be less
than the fair market value of the stock at the date the option is
granted, and that the stock must be paid in full at the time the
option is exercised. Options granted vest at twenty percent each
year. The options under this plan expire on dates determined by the
Board of Directors, but not later than ten years from the date of
grant. The Bank's 1984 Stock Option Plan expired during 1995. As of
December 31, 1995, all options related to the 1984 plan had been
exercised or expired. The activity within these plans are combined
and summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 195,826 $ 9.21 172,100 $ 8.75 196,012 $ 8.90
Options granted 12,000 $12.00 25,500 $11.97
Options resulting from
10% stock dividend 19,150 $ 9.13 16,480 $ 9.63
Options exercised (17,351) $ 8.84 (15,468) $ 8.68 (36,392) $ 5.68
Options canceled (17,955) $ 9.04 (5,456) $ 8.91 (4,000) $ 9.83
--------- -------- --------
Options outstanding,
end of year 172,520 $ 9.46 195,826 $ 9.21 172,100 $ 9.63
--------- -------- --------
--------- -------- --------
Options exercisable,
end of year 120,016 $ 9.08 97,549 $ 8.94 68,840 $ 9.63
--------- -------- --------
--------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------------------------
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
RANGE OF EXERCISE PRICES 1997 Life 1997
----------------- ----------------- -------------
<S> <C> <C> <C>
$ 8.68 109,078 1 year 87,263
$ 8.94 24,442 2 years 19,553
$10.75 5,000 4 years 2,000
$12.27 22,000 3 years 8,800
$12.00 12,000 4 years 2,400
-------------- ------------
172,520 120,016
-------------- ------------
-------------- ------------
</TABLE>
25
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. STOCKHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL
The Company and the Bank are subject to certain regulatory capital
requirements administered by the Board of Governors of the Federal
Reserve System. Failure to meet these minimum capital requirements
can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum amounts and
ratios of total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. The average assets and risk
weighted assets of the Company and the Bank are not materially
different at December 31, 1997. Each of these components is defined
in the regulations. Management believes that the Company and the Bank
met all their capital adequacy requirements as of December 31, 1997.
26
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. STOCKHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (Continued)
In addition, the most recent notification from the Fed as of December
31, 1997 categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth below.
There are no conditions or events since that notification that
management believes have changed the Bank's category.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
LEVERAGE RATIO
Tehama Bancorp and subsidiary $15,271,900 9.4%
Tehama Bank $15,118,600 9.3% $15,131,400 11.5% $13,042,200 10.2%
Minimum requirement for "Well-
Capitalized" institution $ 8,127,700 5.0% $6,582,600 5.0% $6,391,400 5.0%
Minimum regulatory requirement $ 6,502,200 4.0% $5,266,100 4.0% $5,113,100 4.0%
TIER I RISK-BASED CAPITAL RATIO
Tehama Bancorp and subsidiary $15,271,900 12.7%
Tehama Bank $15,118,600 12.5% $15,131,400 16.8% $13,042,200 15.5%
Minimum requirement for "Well-
Capitalized" institution $ 7,236,200 6.0% $5,420,400 6.0% $5,054,100 6.0%
Minimum regulatory requirement $ 4,824,200 4.0% $3,613,600 4.0% $3,369,400 4.0%
TOTAL RISK-BASED CAPITAL RATIO
Tehama Bancorp and subsidiary $16,787,300 13.9%
Tehama Bank $16,634,000 13.8% $16,028,100 17.7% $13,851,800 16.4%
Minimum requirement for "Well-
Capitalized" institution $12,041,500 10.0% $9,034,000 10.0% $8,423,500 10.0%
Minimum regulatory requirement $ 9,633,200 8.0% $7,227,200 8.0% $6,738,800 8.0%
</TABLE>
27
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. OTHER EXPENSES
Other expenses consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
------------- ----------- ----------
<S> <C> <C> <C>
Data processing fees $ 220,909 $ 173,665 $ 155,555
Professional services 392,863 237,491 159,809
Regulatory assessments 40,385 19,494 122,176
Directors' fees 155,350 151,350 151,983
Stationery and supplies 231,170 123,073 119,802
Advertising 118,708 151,705 111,743
Officer salary continuation
plan expense (Note 12) 136,293 144,227 127,098
Other 1,173,445 700,928 710,032
------------- ----------- ----------
$ 2,469,123 $ 1,701,933 $1,658,198
------------- ----------- ----------
------------- ----------- ----------
</TABLE>
12. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
In 1987, the Bank adopted an employee stock ownership plan. This plan
is designed to invest primarily in securities of the Company,
purchased on the open market. The Company's contributions to the plan
are at the sole discretion of the Board of Directors. Contributions
are limited on a participant-by-participant basis to the lesser of
$30,000 or twenty-five percent of the participant's compensation for
the plan year. Employee contributions are not permitted. The Company
made contributions of $29,875, $38,789 and $41,328 for the years
ended December 31, 1997, 1996 and 1995, respectively.
PROFIT SHARING PLAN
During 1992, the Bank adopted the Tehama Bank 401(k) Profit Sharing
Plan. The plan is available to all employees of the Bank. The Bank's
contribution to the plan is discretionary and is allocated at 25
percent of each participant's annual contribution. Aggregate
contributions to the profit sharing plan totaled $30,795, $24,324 and
$15,517 for the years ended December 31, 1997, 1996 and 1995,
respectively.
28
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. EMPLOYEE BENEFIT PLANS (Continued)
SALARY CONTINUATION PLANS
The Bank has salary continuation plans for key executives. Under
these plans, the Bank is obligated to provide the executives, or
their designated beneficiaries, with annual benefits for fifteen
years after retirement or death. These benefits are substantially
equivalent to those available under insurance policies purchased by
the Bank on the lives of the executives. In addition, the estimated
present value of these future benefits are accrued over the period
from the effective date of the plans until each of the executives'
expected retirement dates. The expense recognized under these plans
for the years ended December 31, 1997, 1996 and 1995 totaled
$136,293, $144,227, and $127,098, respectively.
Under these plans, the Bank invested in single premium life insurance
policies with cash surrender values totaling $1,834,190 and
$1,413,986 at December 31, 1997 and 1996, respectively. On the
consolidated balance sheet, the cash surrender value of life
insurance policies is included in accrued interest receivable and
other assets.
13. RELATED PARTY TRANSACTIONS
During the normal course of business, the Company and Bank enter into
transactions with related parties, including Directors and
affiliates. These transactions are on substantially the same terms
and conditions as those prevailing for comparable transactions with
unrelated parties and include borrowings from the Bank and the
purchase of casualty insurance and advertising through Directors.
In addition, during 1997 the Bank purchased approximately $2,354,000
in leases from Bancorp Financial Services, Inc. at the same price
offered to other lease purchasers. Leases were evaluated for
creditworthiness in accordance with the Bank's normal underwriting
procedures.
The following is a summary of the aggregate lending activity
involving related party borrowers for the year ended December 31,
1997:
<TABLE>
<S> <C>
Balance, beginning of year $ 3,200,000
Disbursements 1,800,000
Amounts repaid (2,400,000)
-----------
Balance, end of year $ 2,600,000
-----------
-----------
Undisbursed commitments to related parties,
December 31, 1997 $ 450,000
-----------
-----------
</TABLE>
29
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures include estimated fair values for financial instruments
for which it is practicable to estimate fair value. These estimates
are made at a specific point in time based on relevant market data
and information about the financial instruments. These estimates do
not reflect any premium or discount that could result from offering
the Company's entire holdings of a particular financial instrument
for sale at one time, nor do they attempt to estimate the value of
anticipated future business related to the instruments. In addition,
the tax ramifications related to the realization of unrealized gains
and losses can have a significant effect on fair value estimates and
have not been considered in any of these estimates.
Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the fair
values presented.
The following methods and assumptions were used by management to
estimate the fair value of its financial instruments at December 31,
1997 and 1996:
CASH AND CASH EQUIVALENTS: For cash and cash equivalents, the
carrying amount is estimated to be fair value.
INVESTMENT SECURITIES: For investment securities, fair values are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are estimated using quoted
market prices for similar securities and indications of value
provided by brokers.
LOANS: For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying
values. Fair values of loans held for sale are estimated using quoted
market prices for similar loans. Fair values for other loans are
estimated using discounted cash flow analyses, using interest rates
being offered at each reporting date for loans with similar terms to
borrowers of comparable creditworthiness. The carrying amount of
accrued interest receivable approximates its fair value.
LIFE INSURANCE POLICIES: The fair values of life insurance policies
are based on current cash surrender values at each reporting date as
provided by the insurers.
DEPOSITS: The fair values for demand deposits are, by definition,
equal to the amount payable on demand at each reporting date
represented by their carrying amount. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow
analysis using interest rates being offered at each reporting date by
the Bank for certificates with similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair
value.
TREASURY TAX AND LOAN AGREEMENT: For the Treasury Tax and Loan
Agreement, included in Other Liabilities on the balance sheet, the
carrying amount is estimated to be fair value.
30
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are
primarily for adjustable rate loans. For these commitments, there are
no differences between the committed amounts and fair values.
Commitments to fund fixed rate loans are at rates which approximate
fair value at each reporting date. The fair values of letters of
credit are estimated using the fees currently charged to enter into
similar agreements. These fees approximate fair value.
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 5,927,578 $ 5,927,578 $ 4,388,685 $ 4,388,685
Federal funds sold 7,000,000 7,000,000 5,000,000 5,000,000
Investment securities 28,426,765 28,723,500 31,590,388 31,760,800
Loans 118,731,801 120,170,000 91,687,370 92,823,000
Accrued interest receivable 1,151,978 1,151,978 955,833 955,833
Cash surrender value of life
insurance policies 1,834,190 1,834,190 1,413,986 1,413,986
----------- ------------- ------------ ------------
$163,072,312 $ 164,807,246 $135,036,262 $136,342,304
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
Financial liabilities:
Deposits $152,671,057 $152,759,000 $121,602,706 $121,735,000
Accrued interest payable 447,274 447,274 354,585 354,585
Treasury tax and loan
agreement 60,644 60,644 383,443 383,443
---------- ------------ ------------ --- --------
$153,178,975 $153,266,918 $122,340,734 $122,473,028
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Off-balance-sheet financial
instruments:
Commitments to extend credit $17,368,000 $ 17,368,000 $ 9,763,000 $ 9,763,000
Standby letters of credit 132,000 132,000 109,000 109,000
---------- ------------- ----------- ------------
$17,500,000 $ 17,500,000 $ 9,872,000 $ 9,872,000
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
</TABLE>
31
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. BRANCH ACQUISITION
The Bank acquired certain assets and liabilities of the Willows and
Orland branches of Wells Fargo Bank on February 21, 1997 summarized
as follows:
<TABLE>
<S> <C>
Cash $17,031,577
Fair value of assets and
liabilities acquired, net 451,641
Premium paid for deposits 658,494
-----------
Deposits assumed $18,141,712
-----------
-----------
</TABLE>
The deposit premium is included on the consolidated balance sheet in
accrued interest receivable and other assets and is being amortized
using the straight-line method over fifteen years. Amortization
expense totaled $36,898 for the year ended December 31, 1997.
32
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
ASSETS
Cash and due from banks $ 20,423
Investment in subsidiary 15,756,313
Other assets 132,942
-----------
$15,909,678
-----------
-----------
STOCKHOLDERS' EQUITY
Common stock $12,337,764
Retained earnings 3,562,034
Unrealized gain on available-for-sale
investment securities, net of taxes 9,880
-----------
$15,909,678
-----------
-----------
</TABLE>
33
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF INCOME
FOR THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Income:
Dividends declared by subsidiary -
eliminated in consolidation $125,000
--------
Expenses:
Professional fees 79,571
Other expenses 24,006
--------
Total expenses 103,577
--------
Income before equity in undistributed
income of subsidiary 21,423
Equity in undistributed income of subsidiary 374,759
--------
Income before income taxes 396,182
Income tax benefit 33,000
--------
Net income $429,182
--------
--------
</TABLE>
34
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
AVAILABLE-
COMMON STOCK FOR-SALE
--------------------------- RETAINED INVESTMENT
SHARES AMOUNT EARNINGS SECURITIES TOTAL
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Stock issued to effect
merger with the Bank 1,610,940 $ 12,225,722 $ 3,132,852 $ 44,728 $ 15,403,302
Issuance of common stock
under stock option plan 17,351 112,042 112,042
Net income 429,182 429,182
Net change in unrealized
gain or available-for-sale
investment securities,
net of taxes (34,848) (34,848)
--------- ------------ ------------- ---------- -----------
Balance, December 31,
1997 1,628,291 $ 12,337,764 $ 3,562,034 $ 9,880 $ 15,909,678
--------- ------------ ------------- ---------- ------------
--------- ------------ ------------- ---------- ------------
</TABLE>
35
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Cash flows from operating activities:
Net income $ 429,182
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiary (374,759)
Increase in other assets (132,942)
-----------
Net cash used in operating activities (78,519)
-----------
Cash flows provided by investing activities:
Proceeds from exercise of stock options 98,942
-----------
Cash and cash equivalents at end of year $ 20,423
-----------
-----------
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Net change in unrealized gain on available-for-sale
investment securities $ 58,785
Non-cash financing activities:
Issuance of common stock in exchange for assets
and liabilities of the Bank $15,403,302
</TABLE>
36
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The purpose of this discussion is to focus on information about Tehama
Bancorp's financial condition and results of operations which is not
otherwise apparent from the financial statements in this annual report.
Reference should be made to those statements and accompanying notes and the
selected financial data presented elsewhere in this report for an
understanding of the following discussion and analysis. Since Tehama Bancorp
has not acquired or initiated any other business operations other than Tehama
Bank the following discussion pertains primarily to the bank.
BUSINESS ORGANIZATION
Tehama Bank (the "Bank"), chartered as Tehama County Bank in Red Bluff,
California in 1984, was created by local business people with $2.5 million in
initial capital. Tehama Bancorp, the Bank's parent holding company (the
"Company") was created in 1997 with the Bank as its only subsidiary. At
close of business December 31, 1997, the Company's capital totaled $15.9
million.
The Red Bluff Branch remains the Bank's main office and largest of five
branch locations. The Bank has a second branch location in Los Molinos
(Tehama County), a branch in Chico (Butte County) and branches in Willows and
Orland (Glenn County). The Bank's administrative office is adjacent to its
Red Bluff Branch. Additionally, the Bank maintains a Loan Production Office
in Redding (Shasta County). In 1997, the Bank consolidated some of its
back-office operations by establishing a centralized loan processing
department at the Los Molinos premises and by establishing a centralized
operations support unit next to the Red Bluff Branch.
Throughout its history, the Bank has engaged in basic consumer and
commercial banking, offering a diverse range of banking products and services
to individuals, businesses and the professional community. 1997 saw many new
opportunities and challenges for the Bank to develop and deliver new
products, and increase its level of technology in order to meet customers'
needs. New convenience products like OnLine Banking, OnLine Bill Pay, and 24
Hour Customer Service were met with overwhelming acceptance. Additionally,
new checking accounts and equity loan products were introduced during the
year. The Bank has remained committed to its most distinguishing feature:
providing positively outstanding service.
37
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Bank, in 1997, experienced another year of growth and expansion. On
January 2 the Bank's newly formed leasing company (Bancorp Financial Services
(BFS)--a 50% joint venture with Humboldt Bank) began its first year of
operation. BFS achieved profitability within eight months and by year-end
exceeded its first year profit goals. In February, the Bank completed the
purchase of two additional branches from another bank and expanded its
service area into Glenn County. This acquisition added approximately
$18,000,000 in deposits to the Bank and increased the number of branches from
three to five. At mid-year Tehama Bancorp was created to provide the Bank
with an organizational structure that would allow greater diversity and the
ability to pursue additional products and services. By year-end 1997, as
compared with year-end 1996, total assets increased 22.9% to $169,722,028,
total loans increased 30.3% to $122,063,578 and total deposits increased
25.6% to $152,671,057. Consolidated earnings for 1997 totaled $1,300,766
representing a 32.9% decrease over the previous year. Several key factors
contributed to the lower earnings. The one-time costs associated with the
purchase of the two new branches and the associated operating costs to
adequately staff those branches impacted earnings throughout the year. The
start-up costs of Bancorp Financial Services and of Tehama Bancorp added
one-time expenses not seen in previous periods and the creation of a more
efficient long-term operation through centralization of several "back office"
processes also involved some one-time start-up costs. Additionally, the Bank
made provisions for loan losses totaling $1,705,000 in 1997 compared to
$570,000 in 1996. The increased allocations to the allowance for loan and
lease losses was due to rapid loan growth in 1997 and loan losses of $978,709
booked during the year, compared to $537,585 in 1996. At December 31, 1997
the allowance for loan and lease losses as a percent of total loans had
increased to 1.40 versus 0.96 at the end of 1996. Shareholders' equity
totaled $15,909,678 at year-end, compared to $15,113,176 in 1996 and
$13,085,863 in 1995. Basic earnings per share equaled $0.81, $1.21 and
$1.17 for the same three year periods, while diluted earnings per share
(recognizing the dilutive effect of stock options not yet exercised) equaled
$0.78, $1.18 and $1.12 respectively.
38
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
FIVE YEAR SELECTED FINANCIAL DATA
(in thousands, except share data)
<TABLE>
<CAPTION>
1997(1) 1996 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
- ----------------------------------------
Interest income $ 12,614 $ 10,274 $ 9,424 $ 6,946 $ 5,813
Interest expense 5,225 4,357 3,879 2,519 2,292
--------------------------------------------------------
Net interest income 7,389 5,917 5,545 4,427 3,521
Provision for loan and lease losses 1,705 570 330 180 183
--------------------------------------------------------
Net interest income after provision for
loan and lease losses 5,684 5,347 5,215 4,247 3,338
Non-interest income 2,191 1,860 1,775 1,655 1,382
Non-interest expense 5,961 4,309 4,102 3,335 2,491
--------------------------------------------------------
Income before income taxes 1,914 2,898 2,888 2,567 2,229
Provision for income taxes 613 959 1,039 891 708
--------------------------------------------------------
Net income $ 1,301 $ 1,939 $ 1,849 $ 1,676 $ 1,521
--------------------------------------------------------
--------------------------------------------------------
SHARE DATA
- ----------------------------------------
Diluted earnings per share $ 0.78 $ 1.18 $ 1.12 $ 1.08 $ 1.00
Cash dividend paid per share $ 0.40 n/a n/a n/a n/a
Stock dividend paid per share n/a 10% 10% 10% 10%
BALANCE SHEET DATA
- ----------------------------------------
Total assets $ 169,722 $ 138,122 $ 127,826 $ 106,390 $ 88,691
Total loans, gross 122,064 93,691 82,018 74,803 59,511
Total deposits 152,671 121,603 113,587 94,646 78,926
Total shareholders' equity 15,910 15,113 13,086 10,758 8,862
SELECTED FINANCIAL RATIOS
- ----------------------------------------
Return on average assets 1.29% 1.54% 1.66% 1,79% 2.01%
Return on average shareholders' equity 13.16% 14.63% 16.70% 18.10% 22.54%
Leverage ratio 9.40% 11.50% 10.20% 10.20% 10.00%
Total risk-based capital ratio 13.90% 17.70% 16.40% 16.30% 16.90%
Allowance for loan and lease losses to
total loans outstanding at year end 1.40% 0.96% 0.99% 0.96% 1.13%
</TABLE>
(1) 1997 figures represent consolidated bank and holding company figures
39
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
TOTAL ASSETS
[GRAPH]
TOTAL LOANS, GROSS
[GRAPH]
TOTAL DEPOSITS
[GRAPH]
NET INTEREST INCOME
[GRAPH]
NET INCOME
[GRAPH]
FULLY DILUTED EARNINGS PER SHARE
[GRAPH]
40
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET INTEREST INCOME / NET INCOME
The primary source of income for the Bank is net interest income, the
excess of interest and fees earned on loans and investments over the interest
paid on deposits and borrowed funds. Net interest margin is net interest
income expressed as a percentage of average earning assets. Net interest
income for 1997 totaled $7,389,459 which was up $1,472,164 (24.9%) over the
prior year. Changes in net interest income can be attributed to changes in
the yield on interest-earning assets and to changes in the rate paid on
interest-bearing liabilities. It can also be attributed to changes in the
volume of interest-earning assets and interest-bearing liabilities. Over the
course of 1997 changes in the volumes of both interest-earning assets and
interest-bearing liabilities accounted for 95% of the increase in net
interest income over 1996.
Average outstanding loan balances totaling $109,087,000 for 1997 reflect
a $21,879,000 increase (25%) over 1996 balances. These higher balances
contributed $2,027,000 to interest income and were the major factor in the
improvement in net interest income from 1996. However, the average yield
received on loans fell slightly (4 basis points) to 9.29%, offsetting
interest income gains by $37,000. The lower loan yield was due primarily to
increased market competition. Average balances of investment securities
increased $7,129,000 (29.6%) largely a result of the planned increase in
deposits and cash upon acquisition of the two new branches. The increase in
the volume of securities contributed $423,000 to interest income, while an
increase in the average yield received on the investment portfolio
contributed another $16,000 toward interest income. Average Federal funds
sold for the year decreased $2,006,000 (14.7%) with a resultant decrease in
interest income of $108,000. However, the average yield on Federal funds
increased by 14 basis points in 1997, offsetting the decrease by $19,000.
Interest expense increased $868,000 (19.9%) in 1997 over 1996. Higher
volumes in all interest bearing account categories contributed $940,000
towards an increase in interest expense, however, a slight decrease in the
average rates paid on deposit accounts had an offsetting effect of $72,000
resulting in the net increase of $868,000. Net interest margin for 1997 was
4.86% versus 4.73% in 1996 and 5.03% in 1995.
The first of the following two tables presents, for the periods
indicated, the Bank's interest income from average earning assets, interest
expense on average interest-bearing liabilities, and the Bank's net interest
income and net interest margins. The second table presents a summary of the
effect of the changes in volumes and rates for each major component of
earning assets and interest-bearing liabilities and their contribution to net
interest income. It shows the portion attributable to changes in average
rates versus the portion attributable to changes in average volumes for the
periods indicated. Changes in interest income and expense resulting from
combined rate and volume changes have been allocated based on the magnitude
of the individual volume and rate changes.
41
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST YIELDS/RATES
<TABLE>
1997 1996 1995
---------------------------------------------------------------------------------------
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
(in thousands) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Commercial loans (1) $ 13,460 $ 1,433 10.65% $ 10,589 $ 1,205 11.38% $ 12,282 $ 1,361 11.08%
Real estate loans (1) 54,372 4,974 9.15% 44,012 3,873 8.80% 40,987 3,699 9.02%
Installment loans (1) 41,255 3,728 9.04% 32,667 3,067 9.39% 28,201 2,716 9.63%
--------------------------- ---------------------------- ---------------------------
Sub-total loans 109,087 10,135 0.29% 87,268 8,145 9.33% 81,470 7,776 9.54%
Federal funds sold 11,630 627 5.39% 13,636 716 5.25% 12,761 725 5.68%
Investments (2) 31,239 1,852 5.93% 24,110 1,413 5.86% 15,929 923 5.79%
--------------------------- ---------------------------- ---------------------------
Total earning assets 151,956 12,614 8.30% 125,014 10,274 8.22% 110,160 9,424 8.55%
------- ------- ------
------- ------- ------
Less: Allowance for loan losses (1,095) (933) (784)
Less: Unearned discount (1,414) (827) (692)
Cash and due from banks 5,011 3,786 3,435
Other real estate owned 482 485 538
Premises and equipment, net 1,791 1,304 1,207
Cash surrender value of
life insurance 1,571 1,389 1,350
Accrued interest receivable
and other assets 4,805 1,580 1,509
-------- -------- --------
Total Assets $163,107 $131,798 $116,723
-------- -------- --------
-------- -------- --------
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing demand deposits $ 36,871 $ 1,242 3.37% $ 33,279 $ 1,198 3.60% $ 31,366 $ 1,101 3.51%
Savings accounts 13,187 394 2.99% 9,939 299 3.01% 9,580 303 3.16%
Time deposits 65,383 3,574 5.47% 52,205 2,846 5.45% 42,956 2,462 5.73%
Other short-term borrowings 264 15 5.68% 285 14 4.91% 255 13 5.10%
--------------------------- ---------------------------- ---------------------------
Total interest-bearing
liabilities 115,705 5,225 4.52% 95,708 4,357 4.55% 84,157 3,879 4.61%
------- ------- ------
------- ------- ------
Non-interest bearing deposits 30,769 21,274 19,683
Other liabilities 1,118 896 904
-------- -------- --------
Total liabilities 147,592 117,878 104,744
Common stock 12,255 11,477 9,448
Retained earnings 3,351 2,563 2,628
Unrealized loss on
investment securities (91) (120) (97)
-------- -------- --------
Total shareholders' equity 15,515 13,920 11,979
Total liabilities and
shareholders' equity $163,107 $131,798 $116,723
-------- -------- --------
-------- -------- --------
Net interest income $ 7,389 $ 5,917 $ 5,545
------- ------- ------
------- ------- ------
Interest income as a percentage
of average earning assets 8.30% 8.22% 8.55%
Interest expense as a percentage
of average earning assets 3.44% 3.49% 3.52%
Net yield on average earning
assets (net interest margin) 4.86% 4.73% 5.03%
</TABLE>
(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a
nonaccrual basis. Loan interest income includes loan fees of approximately
$392,000, $297,000 and $336,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
(2) Applicable nontaxable yields have not been calculated on a
taxable-equivalent basis.
42
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
<TABLE>
<CAPTION>
(In Thousands) 1997 OVER 1996 1996 over 1995
---------------------------- ----------------------------
VOLUME RATE TOTAL Volume Rate Total
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans $ 2,027 $ (37) $ 1,990 $ 544 $(175) $ 369
Investment securities 423 16 439 479 11 490
Federal funds sold (108) 19 (89) 48 (57) (9)
---------------------------- ----------------------------
Total 2,342 (2) 2,340 1,071 (221) 850
Increase (decrease) in interest expense:
Transaction accounts 124 (80) 44 68 29 97
Savings accounts 98 (1) 97 11 (16) (5)
Time deposits 719 7 726 510 (126) 384
Other short term borrowings (1) 2 1 2 - 2
---------------------------- ----------------------------
Total 940 (72) 868 591 (113) 478
Increase (decrease) in net interest income $ 1,402 $ 70 $ 1,472 $480 $ (108) $ 372
---------------------------- ----------------------------
</TABLE>
NON-INTEREST INCOME AND EXPENSE
Non-interest income consists of service charges on deposit accounts,
other fees and charges collected by the Bank for both deposit accounts and
loans, gain on sale of loans and fee income generated by the Bank's Merchant
Bankcard department. Non-interest income increased by 17.8% in 1997,
compared to increases of 4.8% in 1996 and 7.3% in 1995. Non-interest income
generated by the Merchant Bankcard department contributed 60% of total
non-interest income during 1997 compared to 66% of the total in 1996.
In 1991, the Bank contracted with CardService International, Inc. (CSI)
for the solicitation on behalf of the Bank of merchants who accept credit
cards as payment for goods and services. As a result, the Bank has obtained
electronic credit card draft processing relationships with approximately
27,000 merchants on a nationwide basis. The Bank also entered into an
agreement with First Data Resources, Inc. (FDRI) for the processing of
merchant credit card transactions. Fee income to the Bank after payment of
obligations to CSI and FDRI totaled $1,322,564 in 1997, $1,229,003 in 1996,
and $1,185,210 in 1995.
Deposit account service charges, loan servicing fees, gain on sale of
loans and other income contributed 38% of non-interest income. Service
charges on deposit accounts increased 47% in 1997, compared to an increase of
16.8% in 1996 and 22.5% in 1995. This increase was heavily influenced by the
acquisition of the new branches, but also a result of management's efforts to
increase the profitability of this revenue area.
Non-interest expense consists of salaries and related benefits,
occupancy and equipment expense and other expenses. These expenses increased
by 38% in 1997, 5% in 1996 and 23% in 1995. Increases in salary expense
during these periods are attributable to the hiring of additional branch and
administrative personnel due to the significant growth recorded by the Bank
during those years. Salary expense increased 26.2%, 4.8% and 25.3% in 1997,
1996 and 1995, respectively. SFAS 91 requires the Bank to defer loan
origination costs (salary
43
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
related benefits) associated with the origination of loans, resulting in
recording salary expense at an amount less than that actually paid by the
Bank. The difference amounted to $259,000, $165,000 and $71,000 in 1997,
1996 and 1995, respectively. The combined occupancy and other expenses
increased by 50% in 1997, 5.2% in 1996 and 20.8% in 1995.
BALANCE SHEET ANALYSIS
LOANS
The Bank uses its funds primarily to support its lending activities
within its defined market area. Direct loans are originated at each of the
Bank's branch offices and by real estate, agricultural and small business
specialists who cover the Bank's entire service area. The following table
represents a breakdown of the Bank's loan portfolio in both dollars
outstanding as well as percentage of total loans for the years ended December
31, 1997, 1996, 1995, 1994 and 1993, respectively.
LOANS ARE COMPRISED OF THE FOLLOWING, FOR THE YEARS ENDED DECEMBER 31, 1997,
1996, 1995, 1994 AND 1993 RESPECTIVELY.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995 1994 1993
------------------ ------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial 15,455 12.7% $10,064 10.7% $10,564 12.9% $11,067 14.8% $ 9,101 15.3%
Commercial real estate 11,221 9.2% 8,959 9.6% 10,035 12.2% 7,842 10.5% 8,106 13.6%
Real estate construction 11,141 9.1% 5,824 6.2% 5,602 6.8% 5,619 7.5% 6,254 10.5%
Real estate mortgage 39,891 32.7% 31,456 33.6% 26,624 32.5% 25,867 34.6% 20,975 35.3%
Leases 2,405 2.0% 471 0.5% 0.0% 0.0% 0.0%
Installment 41,951 34.4% 36,916 39.4% 29,163 35.6% 24,408 32.6% 15,075 25.3%
------------------ ------------------ ----------------- ---------------- -----------------
SUBTOTAL 122,064 100.0% 93,690 100.0% 82,018 100.0% 74,803 100.0% 59,511 100.0%
------------------ ------------------ ----------------- ---------------- -----------------
Less:
Unearned discount (1,722) (1,110) (594) (565) (354)
Net deferred loan fees & costs 95 4 (32) (94) (165)
Allowance for loan losses (1,705) (897) (810) (721) (671)
------------------ ------------------ ----------------- ---------------- ----------------
TOTAL LOANS, NET $118,732 $91,687 $80,582 $73,423 $58,321
------------------ ------------------ ----------------- ---------------- ----------------
</TABLE>
Real estate and installment loans commonly fall into planned pricing and
maturity models for routine types of credits. Commercial loans tend to be
more unique and generally have pricing and/or maturity set on an individual
loan basis. The following table sets forth the maturity distribution of the
loan portfolio as of December 31, 1997.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
BUT WITHIN AFTER THREE BUT WITHIN
WITHIN ONE THREE BUT WITHIN FIFTEEN FIFTEEN OR
(in thousands) YEAR YEARS FIVE YEARS YEARS MORE YEARS TOTAL
---------- ---------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 7,926 $ 4,719 $ 1,560 $ 2,357 $ 1,298 $ 17,860
Real estate 10,643 7,133 6,891 22,030 15,556 $ 62,253
Installment 1,518 7,067 19,246 13,691 429 $ 41,951
------- ------- ------- ------- ------- --------
Total $20,087 $18,919 $27,697 $38,078 $17,283 $122,064
------- ------- ------- ------- ------- --------
</TABLE>
Commercial and commercial real estate loans comprised approximately 22%
of the Bank's loan portfolio at December 31, 1997, compared to 20% at
December 31, 1996. These loans are generally made to small and mid-size
businesses and professionals. Commercial loans are diversified as to
industries and types of business, with no material industry or specific
44
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
borrower concentrations. Most of these loans have floating rates with the
majority tied to the Bank's prime rate, which is set based on the the prime
rate established by the Bank's primary correspondent bank. The primary
source of repayment on most commercial loans is cash flow from primary
business operations. Collateral in the form of real estate, cash deposits,
accounts receivable, inventory, equipment or other financial instruments is
often obtained as a secondary source of repayment.
Real estate construction and real estate mortgage loans comprised
approximately 42% of the Bank's loan portfolio at December 31, 1997, compared
to 40% at December 31, 1996. Real estate construction loans are primarily
made for the construction of single family residential housing. Real estate
mortgage loans include single family and multi-family residential loans, farm
and ranch properties, as well as some non-residential properties. Real
estate mortgage loans are secured by first deeds of trust and may either have
fixed or adjustable interest rates.
Installment loans comprised approximately 34% of the Bank's loan
portfolio at December 31, 1997, compared to approximately 40% at December 31,
1996. This category includes traditional consumer loans (vehicles, credit
cards, lines of credit) and may be secured by title to various types of
collateral or be unsecured. Loans made by the Bank's Dealer Center are
included in this category.
Leases, part of the Bank's commercial loan portfolio, increased in 1997
through the purchase of pools of leases from the Bank's leasing company,
Bancorp Financial Services. At year-end the Bank had $2,111,065 in purchased
leases on its books. These leases are secured by equipment and, while sold
to the Bank, are serviced by BFS. Interest recorded on these leases is
reflected in the Bank's interest income category.
The Bank assesses and manages credit risk on an ongoing basis through
formal lending policies, stringent approval and credit review processes, and
extensive internal monitoring. Additionally, the Bank contracts with an
outside loan review consultant to periodically review the existing loan
portfolio. Management believes its ability to identify and assess risk and
return characteristics of the Bank's loan portfolio is critical for
profitability and growth. Management strives to maintain low levels of
credit losses by continuing its emphasis on credit quality in the loan
approval process, active credit administration and regular monitoring. With
this in mind, management has designed and implemented a comprehensive loan
review and grading system that functions to continually assess the credit
risk inherent in the loan portfolio. Additionally, management believes its
ability to manage portfolio credit risk is enhanced by the knowledge of the
Bank's service area possessed by its lending personnel and Board of Directors.
The Bank's policy is to cease accruing interest when a loan becomes 90 days
past due as to principal or interest, when the full, timely collection of
interest and principal becomes uncertain; or when a portion of the principal
balance has been charged off, unless the loan is well secured and in the process
of collection. When a loan is placed on nonaccrual status, the accrued and
uncollected interest receivable is reversed and the loan is accounted for on the
cash method thereafter, until qualifying for return to accrual status.
Generally, a loan may be returned to accrual status when all delinquent interest
and principal become current in accordance with the terms of the loan agreement
or when the loan is both well secured and in process of collection. At December
31, 1997 the Bank did not have any loans past due 90 days or more that were not
transferred to a nonaccrual status. The following table summarizes the
nonaccrual loans as of December 31, 1997, 1996, 1995, 1994, and 1993,
respectively:
45
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $594,800 $123,000 $136,000 $258,000 $822,000
Interest foregone $ 29,400 $ 4,200 $ 3,600 $ 4,000 $ 26,000
</TABLE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
The 1997 provision for loan losses of $1,705,000 was a significant
increase over the 1996 provision of $570,000. Net loan charge-offs for 1997
increased to $896,533 from $482,875 in 1996. Consumer installment loans
account for the majority of the increase. Management has implemented new
credit review procedures and enhanced the collection process to help improve
loan portfolio performance. The 1997 charge-offs represent 0.82% of average
loans outstanding versus 0.55% the previous year.
The increased provision resulted in increasing the ratio of the
allowance for loan losses-to-total loans to 1.40% at year-end. This compares
with 1996 and 1995 ratios of 0.96% and 0.99% respectively. The allowance for
loan losses reflects management's judgment as to the level which is
considered adequate to absorb potential losses inherent in the loan
portfolio. This allowance is increased by provisions charged to expense and
reduced by loan charge-offs, net of recoveries. Management determines an
appropriate provision based on information currently available to analyze
credit loss potential, including: (1) composition of the loan portfolio and
its growth in the period, (2) a comprehensive grading and review of new and
existing loans outstanding, (3) past charge-off experience, and (4) current
economic conditions, as well as recent changes and trends.
The allowance for loan losses totaled $1,705,200 at December 31, 1997,
compared to $896,733 at December 31, 1996 and 0.99% as of December 31, 1995.
Based on information currently available to analyze loan loss potential,
management believes the existing allowance for loan losses is adequate. The
following table presents the activity within the allowance for loan losses
for the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 897 $ 810 $ 721 $ 671 $ 515
Provision charged to expense 1,705 570 330 180 183
------- ------ ------ ------- ------
Charge-offs: Commercial (42) (131) (87) (1)
Real estate (75)
Installment (937) (407) (163) (62) (27)
------- ------ ------ ------- ------
Total Charge-offs (979) (538) (250) (137) (28)
------- ------ ------ ------- ------
Recoveries: Commercial 16 1
Installment 82 39 9 7
------- ------ ------ ------- ------
Total Recoveries 82 55 9 7 1
------- ------ ------ ------- ------
Net Charge-offs (897) (483) (241) (130) (27)
------- ------ ------ ------- ------
Balance, end of year $ 1,705 $ 897 $ 810 $ 721 $671
------- ------ ------ ------- ------
</TABLE>
46
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table represents the allocation of the allowance for loan
losses for the years ended December 31, 1997, 1996, 1995, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995 1994 1993
----------------- -------------- ----------------- --------------- ----------------
PERCENT Percent Percent Percent Percent
AMOUNT OF TOTAL Amount of Total Amount of Total Amount of Total Amount of Total
------------------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 187 11.0% $119 13.3% $170 21.0% $183 25.4% $289 43.1%
Real Estate 520 30.5% 147 16.4% 189 23.3% 226 31.3% 216 32.2%
Installment 998 58.5% 631 70.3% 451 55.7% 312 43.3% 166 24.7%
----------------- -------------- ----------------- --------------- ----------------
Total Allowance $1,705 100.0% $897 100.0% $810 100.0% $721 100.0% $671 100.0%
----------------- -------------- ----------------- --------------- ----------------
</TABLE>
INVESTMENT SECURITIES
Investment securities of $28,426,765 at December 31, 1997 represent a
decrease of $3,163,623 or 10% from the balance of $31,590,388 at December 31,
1996. However, average balances of $31.2 million in 1997 exceeded average
balances of $24.1 million for 1996, enabling this portfolio to contribute
towards the increase in net interest income of the Bank. Planned growth in
investment securities took place in the first quarter after the acquisition
of $18,000,000 in deposits added significant funds to the Bank's balance
sheet. As the loan portfolio grew throughout 1997 some of these investments
were shifted into loan assets.
The provisions of Statement of Financial Accounting Standards (SFAS) 115
require, among other things, that certain investments in debt and equity
securities be classified under three categories: securities
available-for-sale; securities held-to-maturity; and trading securities.
Securities classified as available-for-sale are to be reported at fair value
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of tax; securities classified
as held-to-maturity are to be reported at amortized cost; and securities
classified as trading securities are to be reported at fair value with
unrealized gains and losses included in operations. The Bank does not have
any securities classified as trading securities.
The following table sets forth the maturity distribution and estimated
market value of securities available-for-sale and the weighted-average yields of
these securities as of December 31, 1997:
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
SECURITIES AVAILABLE-FOR-SALE (1) WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
--------------- ----------------- --------------- -------------- -----------------
(in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
--------------- ----------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries $511 6.65% $ 511 6.65%
U.S. Government agencies $1,492 5.30% $15,076 6.19% 16,568 6.11%
Obligations of states and
political subdivisions 545 4.37% 140 3.55% 685 4.26%
Other securities (2) 375 5.95% 375 5.95%
--------------- ----------------- --------------- -------------- ------------------
TOTAL $2,412 5.19% $15,727 6.18% $ - 0.00% $ - 0.00% $18,139 6.05%
--------------- ----------------- --------------- -------------- -----------------
</TABLE>
(1) Yields calculated on nontaxable securities have not been adjusted for tax
equivalent effects.
(2) Federal Reserve Bank stock that is required to be held and does not have
a stated maturity.
The following table sets forth the maturity distribution and amortized
cost of securities held-to-maturity and the weighted-average yields of these
securities as of December 31, 1997:
47
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
----------------- ----------------- ----------------- ---------------- ---------------
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ - $2,617 4.87% $6,898 5.18% $773 5.08% $10,288 5.10%
----------------- ----------------- ----------------- ---------------- ---------------
</TABLE>
The following table is a comparison of the amortized cost and approximate
fair value of the securities portfolio as of December 31, 1997, 1996, 1995 and
1994, respectively:
<TABLE>
<CAPTION>
1997 1996 1995 1994
------------------ ------------------ ----------------- ------------------
AMORTIZED FAIR Amortized Fair Amortized Fair Amortized Fair
(In thousands) COST VALUE Cost Value Cost Value Cost Value
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities and
obligations of U.S. Government
corporations and agencies $17,065 $17,079 $19,662 $19,623 $12,169 $12,225 $ 6,711 $6,503
Obligations of states and
political subdivisions 10,970 11,270 11,593 11,771 9,820 10,112 9,907 9,738
Other securities 375 375 367 367 303 303 240 240
------------------- ------------------ ----------------- ----------------
Total Investment Securities: $28,410 $28,724 $31,622 $31,761 $22,292 $22,640 $16,858 $16,481
------------------- ------------------ ----------------- ----------------
------------------- ------------------ ----------------- ----------------
</TABLE>
DEPOSITS
Deposits represent the Bank's primary source of funds to support its
various lending and investment activities. Virtually all of the Bank's
deposits are from individuals and businesses within the Bank's service area.
The Bank's deposit mix has traditionally seen approximately 80% held in
interest-bearing accounts and 20% in non-interest bearing accounts. Total
deposits equaled $152,671,057 at year-end 1997, representing an increase of
$31,068,351 or 25.6% from the 1996 year-end figure of $121,602,706.
Approximately $18,000,000 in deposits was acquired with the purchase of the
Orland and Willows branches in February. At year-end deposits at those two
branches had grown to $23,644,150 (approximately 31% growth). By deposit
type, growth in total deposits was most significant in demand deposits--up
$11.8 million from the previous year. Time deposits less than $100,000 show
the next largest increase, up $9.1 million from the previous year. The
following table represents the composition of the deposit mix at December 31,
1997, 1996, 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
----------------- ----------------- ------------------ ---------------- ----------------
AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
----------------- ----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
Demand $ 34,810 22.8% $ 22,939 18.9% $ 20,921 18.4% $18,801 19.9% $15,182 19.2%
Interest-bearing:
savings 14,076 9.2% 10,046 6.3% 9,589 8.4% 9,158 9.7% 8,676 11.0%
Money market 25,415 16.7% 24,575 20.2% 25,953 22.9% 25,939 27.3% 33,024 41.9%
NOW accounts 10,365 6.8% 7,855 6.5% 8,936 7.9% 6,680 7.1% 6,711 8.5%
Time, $100,000 or more 13,173 8.6% 10,499 8.6% 10,206 9.0% 6,398 6.8% 3,485 4.4%
Other time 54,832 35.9% 45,689 37.5% 37,980 33.4% 27,670 29.2% 11,848 15.0%
----------------- ----------------- ------------------ ---------------- ----------------
Total interest-bearing
deposits 117,861 77.2% 98,664 81.1% 92,666 81.6% 75,845 80.1% 63,744 80.8%
----------------- ----------------- ------------------ ---------------- ----------------
Total deposits $152,671 100.0% $121,603 100.0% $113,587 100.0% $94,645 100.0% $78,926 100.0%
----------------- ----------------- ------------------ ----------------- ----------------
</TABLE>
Jumbo time deposits include all time deposits of $100,000 or more. Due to
the size of these individual and aggregate deposits, relatively small changes in
volume can have a more significant affect on the size of the entire deposit
portfolio than other categories. The following
48
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
table represents the total amounts and maturities of time deposits of
$100,000 or more at December 31, 1997.
<TABLE>
<CAPTION>
THREE OVER THREE OVER ONE OVER
MONTHS THROUGH THROUGH THREE
(In thousands) OR LESS TWELVE MONTHS THREE YEARS YEARS TOTAL
-------- ------------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Maturities of time deposits
of $100,000 or more $6,731 $5,750 $692 $ - $13,173
-------- ------------- ------------ ------ -------
</TABLE>
LIQUIDITY
Liquidity refers to the Bank's ability to provide funds at an acceptable
cost and on an ongoing basis to meet loan demand and deposit withdrawals, as
well as to meet the needs of unanticipated funding needs or loss of funding
sources. Both assets and liabilities can contribute to the Bank's liquidity
position. Sources of funds on the asset side of the balance sheet that add
to the Bank's liquidity include: repayments and maturities of loans, sales
of loans, maturities of investment securities, sales of securities from the
available-for-sale portfolio, and for 1997 the purchase of selected assets
and liabilities of another bank. These activities are summarized as
investing activities in the Consolidated Statement of Cash Flows. Net cash
used by these activities totaled approximately ($11,191,000) in 1997. The
net increase in the Bank's loan portfolio was responsible for the major use
of funds in this category.
Sources of funds on the liability side of the balance sheet that add to
the Bank's liquidity include: deposit growth and short-term borrowings.
These activities are included under financing activities in the cash flow
statement. In 1997 funds totaling approximately $12,381,000 were provided by
financing activities. Liquidity is also provided or used through the results
of operating activities. In 1997 operating activities provided approximately
$2,337,000 in cash towards liquidity.
A common measurements of liquidity for banks is the ratio of net loans
to deposits. A ratio of 85% or lower is generally considered to be an
indication of sufficient liquidity. This ratio for the Bank was 77.8% as of
December 31, 1997 compared to 76.1% as of December 31, 1996, and 71.7% as of
December 31, 1995. Management monitors the likelihood of projected funding
requirements by reviewing historical funding patterns, current and forecasted
economic conditions, pending new loan fundings and individual customer needs.
The Bank's liquidity is further managed by structuring the investment
securities portfolio with individual maturities designed to meet anticipated
future liquidity needs. Additionally, the Bank's borrowing arrangement with a
correspondent bank and the availability of a Federal Funds line of credit
adds to the Bank's ability to increase its liquidity. Finally, residential
real estate loans are documented in such a manner that the Bank will be able
to sell them in the secondary market if needed to provide an additional
source of liquidity.
49
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
CAPITAL
Tehama Bank maintains a strong capital position to take advantage of
business opportunities while ensuring that it has the resources necessary to
absorb the risks inherent in the industry. The Bank has historically been
able to sustain its growth in capital through retention of earnings.
The Federal Reserve Board, jointly with other Federal Regulatory
Agencies, has issued capital adequacy requirements applicable to the Bank and
the Company based upon asset risk and minimum leverage. A minimum ratio of
8% of qualifying total capital to total risk-adjusted assets is required for
banking organizations in the United States. On December 31, 1997 Tehama
Bancorp's total consolidated risk-based capital was 13.9%, while the same
ratio for the Bank was 13.8%. Both figures are well above the minimum
regulatory requirements.
Additionally, minimum capital requirements for "well-capitalized" banks
were defined under the Federal Deposit Insurance Corporation Improvement Act.
The Act defined a bank as well capitalized if the leverage ratio (ratio of
tier 1 capital to total assets), Tier 1 risk-based capital ratio and total
risk-based capital ratio exceed 5.0%, 6.0% and 10.0% respectively. At
December 31, 1997 the Company and the Bank met the definition of
well-capitalized with leverage ratios of 9.4% and 9.3%, respectively, Tier 1
risk-based capital ratios of 12.7% and 12.5%, respectively, and total
risk-based capital ratios (as noted above also) of 13.9% and 13.8%,
respectively.
OTHER SIGNIFICANT ISSUES
YEAR 2000
Tehama Bancorp, like most businesses, uses numerous in-house and vendor
supplied computer software programs that may be affected by the date change
in the year 2000. The heart of the year 2000 problem comes from what are now
perceived as shortcuts taken by the first computer programmers more than 30
years ago. The inability of many computer programs to distinguish the year
2000 from the year 1900 poses a substantial risk to not only financial
institutions, but all businesses alike. The "solution" to this problem
requires that all programs be reviewed, be updated where necessary, and then
tested to ensure that all functionality is maintained, before the year 2000
arrives. In fact, most experts agree that updates and testing should be
completed long before that date, to avoid any last minute crisis. Tehama
Bank and Tehama Bancorp are taking active measures to ensure that the
computer systems that they rely upon are reviewed and tested to meet all year
2000 requirements. The Company and the Bank are following the programs and
procedures offered by their various regulatory agencies and to date have
satisfactorily passed their reviews.
50
<PAGE>
TEHAMA BANCORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARKET FOR THE COMPANY'S STOCK
There is limited trading in shares of the Common Stock of Tehama
Bancorp, which is not listed on any exchange or quoted on any automated
quotations system. There were approximately 1,100 shareholders of record as
of February 25, 1998.
The following table summarizes those trades of which management has
knowledge, setting forth the approximate high and low bid prices for the
period indicated. For all periods prior to the quarter ending September 30,
1997, the information presented represents trades of the common stock of
Tehama Bank. Tehama Bank paid a cash dividend of $0.40 per share on May 30,
1997, a 10% stock dividend on May 1, 1996, and a 10% stock dividend on May 1,
1995.
<TABLE>
<CAPTION>
Price of
Common Stock (1) Estimated Trading Dividends Dividends
Calendar ---------------- Volume Paid in Paid in
Quarter Ending Low High Common Stock Cash
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1995 $12.00 $13.00 12,006 -0- -0-
June 30, 1995 $12.63 $13.00 8,184 130,833 $2,961(2)
September 30, 1995 $13.00 $14.75 12,245 -0- -0-
December 31, 1995 $13.50 $14.25 23,962 -0- -0-
March 31, 1996 $13.00 $13.75 23,265 -0- -0-
June 30, 1996 $10.25 $11.88 137,200 144,851 $2,851(2)
September 30, 1996 $10.75 $11.50 28,800 -0- -0-
December 31, 1996 $10.63 $12.25 56,500 -0- -0-
March 31, 1997 $11.63 $12.63 26,700 -0- -0-
June 30, 1997 $12.38 $12.63 61,400 -0- $644,376
September 30, 1997 $13.25 $14.00 28,700 -0- -0-
December 31, 1997 $13.63 $14.38 55,600 -0- -0-
</TABLE>
(1) As estimated by the Company based upon trades of which it was aware, and
not including purchases of stock pursuant to the exercise of stock options.
The Company is not aware of the prices of some of the trades included in
the Estimated Trading Volume column, above. Information regarding trades
was derived from Hoefer & Arnett, Incorporated and there may have been
trades of which the Company is unaware.
(2) Represents cash paid in lieu of issuance of fractional shares in connection
with payment of stock dividends.
Note: If you are a shareholder who received this annual report through your
broker and would like to receive information about the bank throughout
the year, please contact the Company's Finance and Accounting
Department at (530) 528-3000 or mail your request to Tehama Bancorp,
P.O. Box 890, Red Bluff, CA 96080 and we will add your name to our
shareholder mailing list.
51
<PAGE>
TEHAMA BANCORP
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS
----------------------------------------------------------------------------------------------------
JOHN W. KOEBERER
Chairman of the Board HARRY DUDLEY GARY C. KATZ
Resort/Park Concessionaire Construction Radio Station Operator
GARY L. NAPIER WILLIAM P. ELLISON RAYMOND C. LIEBERENZ
Vice Chairman of the Board President & Secretary to the Board
Insurance Broker CEO Tehama Bank Real Estate Broker
HENRY C. ARNEST, III GARRY D. FISH GENE PENNE
Vice President, Northwest Carbon Optometrist Owner, Bowling Recreation Centers
LOUIS J. BOSETTI MAX FROOME TERRANCE A. RUST
Educational Consultant Real Estate/Investments Oral Surgeon
DANIEL B. CARGILE ORVILLE K. JACOBS
Business Development Real Estate Developer
SHAREHOLDER INFORMATION
----------------------------------------------------------------------------------------------------
STOCK TRANSFER AGENT SALES & PURCHASES OF STOCK SALES & PURCHASES OF STOCK
U.S. Stock Transfer Corporation Hoefer & Arnett, Inc./Marc Arnett Paine Webber/James E. Hennis
1745 Gardena Avenue 353 Sacramento Street, 10th Floor 1051 Mangrove Avenue
Glendale CA 91204-2991 San Francisco, CA 94111 Chico CA 95926
(800)835-8778 (800)346-5544 (800)472-3867
SALES & PURCHASES OF STOCK SALES & PURCHASES OF STOCK SALES & PURCHASES OF STOCK
Dean Witter Reynolds, Inc. Sutro & Co. Van Kasper & Company
James L. Horton Troy Norlander L. Jack Block
2150 Main Street PO Box 1688 600 California Street, Suite 1700
Red Bluff, CA 96080 Big Bear Lake, CA 92315 San Francisco CA 94108
(530)527-1484 (800)288-2811 (800)652-1747
TEHAMA BANK
TEHAMA BANK OFFICERS
----------------------------------------------------------------------------------------------------
ADMINISTRATION
WILLIAM P. ELLISON HELEN M. MCINTOSH JUANITA M. RAJANEN
President & Vice President & Assistant Vice President &
Chief Executive Officer Director of Operations & Technologies Human Resource Manager
W. STEVEN GILMAN FRANK S. ONIONS WAYNE SHAFFER
Senior Vice President & Senior Vice President Senior Vice President &
Director of Sales & Services Chief Credit Officer
WILLIAM M. JENKINS GARRY R. PROSPERI DALE J. WYMORE
Vice President & Chief Financial Vice President & Compliance Officer Vice President & Marketing Manager
Officer
BRANCHES & DEPARTMENTS
RED BLUFF BRANCH CHICO BRANCH LOS MOLINOS BRANCH
RICHARD E. MEHLING JOLENE D. DIETLE LAURALEE WILLIAMS
Vice President & Manager Vice President & Manager Manager
ORLAND BRANCH WILLOWS BRANCH MERCHANT BANKCARD
SYLVIA C. LOPEZ GERALDINE M. RAINBOLT K. KAY WEBB
Assistant Vice President & Assistant Vice President & Manager Assistant Vice President & Manager
Manager
REDDING LOAN OFFICE LOAN CENTER OPERATIONS CENTER
DARYL F. SUTTERFIELD MICHAEL P. ZEPPONI KRISTY M. WEIR
Vice President & SBA Loan Vice President & Agri-Business Operations Manager
Specialist Specialist
STAN R. PATTERSON WILLIAM M. ODLE
Real Estate Loans Vice President &
Consumer Credit Administrator
LISA FRECH
Assistant Vice President & Loan
Center Manager
</TABLE>
<PAGE>
Personal Banking at its VERY Best!
Member FDIC
<TABLE>
<S> <C> <C>
ADMINISTRATION
239 South Main Street
Red Bluff CA 96080
(530)528-3000
CHICO BRANCH LOS MOLINOS BRANCH ORLAND BRANCH
2025 Pillsbury Road 7843 Highway 99-E 301 Walker Street
Chico CA 95926 Los Molinos CA 96055 Orland CA 95963
(530)891-5837 (530)384-1411 (530)865-4483
RED BLUFF BRANCH WILLOWS BRANCH REDDING LOAN OFFICE
237 South Main Street 160 North Butte Street 2775 Bechelli Lane
Red Bluff CA 96080 Willows CA 95988 Redding CA 96002
(530)529-0436 (530)934-4661 (530)224-4512
</TABLE>
1
<PAGE>
EXHIBIT 23
CONSENT OF PERRY-SMITH & CO.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8, pertaining to the Tehama Bancorp 1994 Stock Option
Plan, as amended, of our report dated January 23, 1998, with respect to the
financial statements of Tehama Bancorp and subsidiary attached as an exhibit
to Tehama Bancorp's Form 10-K dated March 17, 1998 filed with the Securities
and Exchange Commission.
Perry-Smith & Co.
Certified Public Accountants
Sacramento, California
March 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, STATEMENT OF CASH
FLOWS, AND STATEMENT OF CHANGES IN SHAREHOLDER EQUITY, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,928
<INT-BEARING-DEPOSITS> 117,861
<FED-FUNDS-SOLD> 7,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,139
<INVESTMENTS-CARRYING> 10,165
<INVESTMENTS-MARKET> 10,335
<LOANS> 118,732
<ALLOWANCE> 1,705
<TOTAL-ASSETS> 169,722
<DEPOSITS> 152,671
<SHORT-TERM> 61
<LIABILITIES-OTHER> 1,141
<LONG-TERM> 0
0
0
<COMMON> 12,338
<OTHER-SE> 3,562
<TOTAL-LIABILITIES-AND-EQUITY> 169,722
<INTEREST-LOAN> 10,135
<INTEREST-INVEST> 2,479
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,614
<INTEREST-DEPOSIT> 5,225
<INTEREST-EXPENSE> 5,225
<INTEREST-INCOME-NET> 7,389
<LOAN-LOSSES> 1,705
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 5,961
<INCOME-PRETAX> 1,914
<INCOME-PRE-EXTRAORDINARY> 1,914
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,301
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.78
<YIELD-ACTUAL> 8.30
<LOANS-NON> 595
<LOANS-PAST> 682
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 950
<CHARGE-OFFS> 1,032
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 1,705
<ALLOWANCE-DOMESTIC> 1,705
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
