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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, 1998.
/ / 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 Identification No.)
incorporation or organization
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; 1,677,387 shares outstanding (March 5, 1999)
(Title of Class)
Aggregate market value of the voting stock held by non-affiliates: $ 15,231,172
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, 1998 (PART II)
PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS (PART III)
The Index of Exhibits is located on page 13
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TABLE OF CONTENTS
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Page
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PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . .7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . .7
Item (*) EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . . . .8
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . .8
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . .8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . .8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. . . . . . . . . .8
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . .9
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . .9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . .9
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEX OF EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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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,
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(g) 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; at 160 North
Butte Street, Willows, Glenn County and at 1770 Pine Street, Redding, Shasta
County. The Bank formerly maintained a Loan Production Office in Redding that
was eliminated when the full service branch at Pine Street opened in Septemeber
of 1998.
The Bank's main office in Red Bluff, its Chico, Orland, Willows and Redding
offices all maintain the same 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 Fridays). The Bank's Los
Molinos office maintains lobby hours of 9:00 A.M. through 4:00 P.M., Monday
through Thursday, and 9:00 A.M. through 5:00 P.M. on Friday. The Red Bluff,
Chico, Orland and Willows offices also 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 Redding office
maintains a drive-up window for transactions during the hours of 8:00 A.M.
through 5:00 P.M., Monday through Thursday and 8:00 A.M. through 6:00 P.M. on
Friday. Additionally, a 24-hour Automated Teller Machine (ATM) is available at
the Red Bluff, Chico, Orland, Willows and Redding offices. The Los Molinos
office does not have a drive-up window or an ATM.
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 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. 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 have extended credit to BFS
and have purchased (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 3 Park Center Drive, Suite 100, in Sacramento,
California. The company engages in equipment leasing in the so-called "small
ticket" segment of the industry, which includes 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
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and resell them to investors. 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. Effective April 1, 1998 the Bank
transferred its interest in BFS to Tehama Bancorp, the Bank's parent Holding
Company. This transaction has little current effect on the consolidated
bank/holding company entity, but moves responsibility for this non-banking
business to the Holding Company and better positions it if additional shares
of BFS are ever considered for sale publically or privately.
LENDING ACTIVITIES. As of the close of business on December 31, 1998, the
Bank's loan portfolio consisted of $59.3 million in real estate loans (including
$8.8 million in real estate construction loans and $11.8 million in commercial
real estate loans), $31.4 million in commercial loans (including $8.7 million in
commercial leases), and $31.9 million in installment loans to individuals for
household, family and other personal expenditures. Comparable segments of the
loan portfolio as of December 31, 1997 were carried at values of $62.2 million,
$17.8 million, and $41.9 million, respectively.
As of December 31, 1998 and 1997, the Bank had outstanding credit
commitments (including standby letters of credit) of $18 million and $17.5
million, respectively. The Bank expects approximately 40 percent of its
commitments to lend as of December 31, 1998 will not be exercised within the
current year.
At December 31, 1998, the Bank's loan limit to individual customers for
unsecured loans was $2.4 million and the limit for unsecured and secured loans
combined was $4.1 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 53% 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, 1998 held $70,203 in United States agency deposits and $1,946,730
in local agency deposits.
EMPLOYEES. At March 1, 1999 the Bank employed 125 persons (40 of whom were
part-time employees), including 5 principal officers and a total of 44 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 95 competitive banking offices, of
which 50 are offices of major chain banking systems and 45 are offices of other
independent banks. On June 30, 1998, amounts reported by state and federal
agencies indicated that these banking offices held approximately $3.3 billion in
total deposits, averaging approximately $35 million per office. The service
areas also contain the offices of 8 savings and loan associations, with
approximately $505 million in total deposits as of June 30, 1998.
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
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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 1995, California and federal law have
(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 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.
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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.
Federal regulations require that insured banks with significant "trading
activity" adjust their risk based capital calculations in order to maintain
adequate capital against such market risk exposures as changes in the general
level of interest rates, equity prices, foreign exchange rates and commodity
prices. The Bank currently has no trading assets or liabilities. However, the
Uniform Financial Institutions Rating System (the "CAMELS" system) applicable to
the Bank has included for all bank regulatory examinations since 1997 a rating
for 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.
As of December 31, 1998, the Company's and the Bank's total risk-based
capital ratios were approximately 14.9 percent and 12.8 percent, and their
leverage ratios were approximately 9.4 percent and 7.9 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.
DEPOSIT INSURANCE ASSESSMENTS. The Bank's deposit insurance assessment
rate is at the lower end of the range (from $0 to $0.27 per $100 of deposits)
imposed by the FDIC in 1995. The Bank does not anticipate that its deposit
insurance assessment for 1999 will differ materially from its assessment for
1998 ($18,236).
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 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.
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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 1998 Annual Report to Shareholders, which is incorporated here by
reference.
ITEM 2. PROPERTIES
The Bank leases its Orland and Redding branch offices, 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 1998 were approximately $156,546 and its minimum future commitments
under operating leases, as of December 31, 1998, totaled $1,267,503.
The Bank acquired the right to purchase its head office, a two-story
commercial building with approximately 7,700 square feet of space, by assignment
in 1988 from two of the Bank's directors, Orville Jacobs and John Koeberer. The
building was acquired 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 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.
The Bank acquired the Willows office at a combined value (land and
building) of approximately $340,000 in connection with its 1997 acquisition of
deposits and assets of Wells Fargo Bank branches located in Willows and Orland,
California. The building area is approximately 6,400 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 office is a leased facility. The Bank entered into a lease
agreement in July 1998 for a period of ten (10) years, with two (2) separate,
consecutive five (5) year options to extend. Monthly payments on this facility
are $7,454.
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.
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ITEM (*) EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents certain information regarding the executive
officers of the Company and the Bank.
<TABLE>
Name Age Position(s) Since
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William P. Ellison 50 President, Chief Executive 1991
Officer of the Company
and the Bank
Wayne Shaffer 55 Senior Vice President, 1997
Chief Credit Officer
of the Bank
W. Steven Gilman 44 Senior Vice President 1995
Director of Sales and Service
of the Bank
William M. Jenkins 44 Vice President, Chief 1997
Financial Officer of the
Company and the Bank
Helen M. McIntosh 40 Vice President, 1997
Director of Technology
of the Bank
</TABLE>
(*) Included pursuant to General Instruction G(3).
PART II
Those portions of the Company's 1998 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 1998 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 1998 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 1998 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 Changes in Shareholders' Equity,
Consolidated Statement of Cash Flows, and Notes to Consolidated Financial
Statements, in the Company's 1998 Annual Report to Shareholders, which report,
financial statements and notes are incorporated here by reference.
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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 1999 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.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for the 1999 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.
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 1999 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 1999 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."
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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, 1998, are
incorporated by reference in Item 8 of this report:
Independent Auditor's Report dated February 12, 1999
(page 1 of Annual Report).
Consolidated Balance Sheet: December 31, 1998 and 1997
(page 2 of Annual Report).
Consolidated Statement of Income: Years Ended December
31, 1998, 1997 and 1996 (page 3 of Annual Report).
Consolidated Statement of Changes in Shareholders'
Equity: Years Ended December 31, 1998, 1997 and 1996
(pages 4-5 of Annual Report).
Consolidated Statement of Cash Flows: Years Ended
December 31, 1998, 1997 and 1996 (pages 6-7 of Annual
Report).
Notes to Consolidated Financial Statements (pages 8
through 34 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.
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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.
<TABLE>
<S> <C>
Date: April 9, 1999 /s/ William P. Ellison
--------------------------------------------------------------
William P. Ellison, President and Chief Executive Officer
(Principal Executive Officer)
Date: April 9, 1999 /s/ William M. Jenkins
--------------------------------------------------------------
William M. Jenkins, Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: April 9, 1999 /s/ Henry C. Arnest, III
--------------------------------------------------------------
Henry Clay Arnest III, Director
Date: April 9, 1999 /s/ Louis J. Bossetti
--------------------------------------------------------------
Louis J. Bossetti, Director
Date: April 9, 1999 /s/ Harry Dudley
--------------------------------------------------------------
Harry Dudley, Director
Date: April 9, 1999 /s/ William P. Ellison
--------------------------------------------------------------
William P. Ellison, Director
Date: April 9, 1999 /s/ Garry D. Fish
--------------------------------------------------------------
Garry D. Fish, Director
Date: April 9, 1999 /s/ Max M. Froome
--------------------------------------------------------------
Max M. Froome, Director
Date: April 9, 1999 /s/ Orville K. Jacobs
--------------------------------------------------------------
Orville K. Jacobs, Director
Date: April 9, 1999 /s/ Gary C. Katz
--------------------------------------------------------------
Gary C. Katz, Director
Date: April 9, 1999 /s/ John W. Koeberer
--------------------------------------------------------------
John W. Koeberer, Director and Chairman of the Board
Date: April 9, 1999 /s/ Raymond C. Lieberenz
--------------------------------------------------------------
Raymond C. Lieberenz, Director and Secretary to the Board
11
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Date: April 9, 1999 /s/ Leslie L. Melburg
--------------------------------------------------------------
Leslie L. Melburg, Director
Date: April 9, 1999 /s/ Gary L. Napier
--------------------------------------------------------------
Gary L. Napier, Director and Vice Chairman of the Board
Date: April 9, 1999 /s/ Eugene F. Penne
--------------------------------------------------------------
Eugene F. Penne, Director
Date: April 9, 1999 /s/ John D. Regh
--------------------------------------------------------------
John D. Regh, Director
Date: April 9, 1999 /s/ Terrance A. Rust
--------------------------------------------------------------
Terrance A. Rust, Director
</TABLE>
12
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
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 1, 1994, and March
15, 1994.
10.7* +(A) Executive Salary Continuation Agreement dated June 17, 1993 with
William P. Ellison
++(B) Executive Salary Continuation Agreement dated September 24, 1997
with W. Steven Gilman
#(C) Amended 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 Bancorp1998 Annual Report to Shareholders
which have been incorporated by reference in Items 5-8 herein are
filed with the SEC.
23 Consent of Perry-Smith & Co.
27 Financial Data Schedule
</TABLE>
(*) 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.
(#) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1997, filed with the SEC.
13
<PAGE>
EXHIBIT 3.2 TO 10-K
BYLAWS
TEHAMA BANCORP
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
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.
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
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.
ANNUAL MEETINGS; SHAREHOLDER PROPOSALS. 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.
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.
Notice of proposals which shareholders intend to present at any annual
meeting of shareholders and wish to be included in the proxy statement of
management of the corporation distributed in connection with such annual meeting
must be received at the principal executive offices of the corporation not less
than 120 days prior to the date on which, during the previous year, management's
proxy statement for the previous year's annual meeting was first distributed to
shareholders. Any such proposal, and the proponent shareholder, must comply
with the eligibility requirements set forth in Rule 14a-8 of the Securities and
Exchange Commission.
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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.
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 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.
ADIOURNED 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
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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.
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.
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 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.
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
16
<PAGE>
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 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.
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. The proxy solicited by
management for any annual meeting of shareholders shall confer discretionary
authority upon management's proxy holders to vote with respect to any
shareholder proposal offered at such meeting, the proponent of which has not
17
<PAGE>
notified the corporation, within the time period specified by Section 4 of these
Bylaws, of his or her intention to present such proposal at the annual meeting.
Specific reference to such voting authority shall be made in management's proxy
statement for each annual meeting.
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.
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 of 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 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
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.
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 ar 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
18
<PAGE>
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.
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
ago 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.
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.
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No reduction of the authorized number of directors shall have the effect of
removing any director before his term of office expires.
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, 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.
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.
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.
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.
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.
20
<PAGE>
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.
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 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.
ADJOURNMENT. A majority of the directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place.
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.
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.
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.
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.
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ARTICLE IV
OFFICERS
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 officers, 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.
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.
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.
SUBORDINATE OFFICERS. The Board of Dlrectors 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.
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.
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.
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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.
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.
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.
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.
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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.
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, 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
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 tc 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.
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.
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.
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.
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.
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.
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,
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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.
INDEMNITY OF OFFICERS, DIRECTORS, ETC.
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 the corporation or that the person had reasonable cause to
believe that the person's conduct was unlawful.
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
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its shareholders; except that no indemnification shall be made under this
subsection 48(B) for any of the following:
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:
Of amounts paid in settling or otherwise disposing of a pending
action without court approval; or
Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
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:
A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
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
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.
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.
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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.
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 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.
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
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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.
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.
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.
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 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.
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.
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:
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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;
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;
The corporation shall have the burden of proving that the Agent
did not meet the applicable standard of conduct in subsection 48(C);
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;
Unless otherwise agreed to in writing between an Agent and the
corporation in any specific case, indemnification may be made under
subsection 48(B) for amounts paid in settling or otherwise disposing
of a pending action without court approval.
ARTICLE VI
AMENDMENTS
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.
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.
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ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
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 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;
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
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 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: The approval of any action for which
shareholder approval is also required.
The filling of vacancies on the Board or in any committee.
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The fixing of compensation of the directors for serving on the Board
or on any committee.
The amendment or repeal of Bylaws or the adoption of new Bylaws.
The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
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.
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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TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
AND
INDEPENDENT AUDITOR'S REPORT
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
and Shareholders
Tehama Bancorp and Subsidiary
We have audited the accompanying consolidated balance sheet of Tehama
Bancorp and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Certified Public Accountants
February 12, 1999
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
-------------------- --------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,362,664 $ 5,927,578
Federal funds sold 14,400,000 7,000,000
Investment securities (market value of $47,440,300
in 1998 and $28,723,500 in 1997) (Note 2) 47,092,556 28,426,765
Loans, less allowance for loan and lease losses of
$2,080,831 in 1998 and $1,705,200 in 1997 (Note 3) 119,009,536 118,731,801
Bank premises and equipment, net (Note 4) 2,337,327 1,955,630
Investment in leasing company (Note 5) 2,335,967 2,035,256
Accrued interest receivable and other assets
(Notes 7, 12 and 16) 6,243,914 5,644,998
-------------------- --------------------
$ 199,781,964 $ 169,722,028
-------------------- --------------------
-------------------- --------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 39,191,013 $ 34,810,231
Interest bearing (Note 6) 141,319,598 117,860,826
-------------------- ---------------------
Total deposits 180,510,611 152,671,057
Accrued interest payable and other liabilities 1,560,096 1,141,293
-------------------- --------------------
Total liabilities 182,070,707 153,812,350
--------------------- ---------------------
Commitments and contingencies (Note 9)
Shareholders' 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; 1,672,129 and 1,628,291
shares issued and outstanding in 1998 and
1997, respectively 12,824,202 12,337,764
Retained earnings 4,908,485 3,562,034
Accumulated other comprehensive (loss) income
(Notes 2 and 14) (21,430) 9,880
-------------------- --------------------
Total shareholders' equity 17,711,257 15,909,678
-------------------- --------------------
$ 199,781,964 $ 169,722,028
-------------------- --------------------
-------------------- --------------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
1998 1997 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,213,700 $ 10,135,028 $ 8,144,669
Interest on Federal funds sold 1,146,637 626,727 716,204
Interest on investment securities:
Taxable 934,510 1,269,062 876,606
Exempt from Federal income
taxes 583,934 583,198 536,484
-------------------- -------------------- --------------------
Total interest income 13,878,781 12,614,015 10,273,963
Interest expense on deposits (Note 6) 5,614,467 5,224,556 4,356,668
-------------------- -------------------- --------------------
Net interest income 8,264,314 7,389,459 5,917,295
Provision for loan and lease losses
(Note 3) 1,113,000 1,705,000 570,000
-------------------- -------------------- --------------------
Net interest income after
provision for loan and lease
losses 7,151,314 5,684,459 5,347,295
-------------------- -------------------- --------------------
Non-interest income:
Service charges 711,977 549,488 372,800
Merchant processing fees 1,335,672 1,322,564 1,229,003
Loan servicing fees 57,283 74,133 77,511
Gain on sale of loans 108,366 49,199 23,001
Undistributed income of investment
in leasing company (Note 5) 300,711 35,256
Other income 257,733 159,909 157,507
-------------------- -------------------- --------------------
Total non-interest income 2,771,742 2,190,549 1,859,822
-------------------- -------------------- --------------------
Other expenses:
Salaries and employee benefits
(Notes 3 and 12) 3,676,133 2,660,463 2,108,086
Occupancy (Notes 4 and 9) 945,899 831,656 498,637
Other (Note 11) 2,440,354 2,469,123 1,701,933
-------------------- -------------------- --------------------
Total other expenses 7,062,386 5,961,242 4,308,656
-------------------- -------------------- --------------------
Income before income taxes 2,860,670 1,913,766 2,898,461
Income taxes (Note 7) 852,000 613,000 959,000
-------------------- -------------------- --------------------
Net income $ 2,008,670 $ 1,300,766 $ 1,939,461
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
Basic earnings per share (Note 10) $ 1.21 $ .81 $ 1.21
------------- ------------- -------------
------------- ------------- -------------
Diluted earnings per share (Note 10) $ 1.17 $ .78 $ 1.18
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------ RETAINED COMPREHENSIVE SHAREHOLDERS'
COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY INCOME
------ ------ -------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,450,621 $ 10,117,632 $ 2,924,523 $ 43,708 $13,085,863
Comprehensive income:
Net income 1,939,461 1,939,461 1,939,461
Other comprehensive loss,
net of tax:
Unrealized losses on
available-for-sale
investment securities (61,898) (61,898) (61,898)
--------
Total comprehensive income $ 1,877,563
------------
------------
Stock options exercised and
related tax benefit (Note 10) 15,468 152,601 152,601
10% stock dividend 144,851 1,955,489 (1,958,340) (2,851)
------- --------- ----------- -------
Balance, December 31, 1996 1,610,940 12,225,722 2,905,644 (18,190) 15,113,176
Comprehensive income:
Net income 1,300,766 1,300,766 $ 1,300,766
Other comprehensive income,
net of tax:
Unrealized gains on
available-for-sale
investment securities 28,070 28,070 28,070
------
Total comprehensive income $ 1,328,836
-----------
-----------
Stock options exercised and related
tax benefit (Note 10) 17,351 112,042 112,042
Cash dividend - $.40 per share (644,376) (644,376)
--------- ---------
Balance, December 31, 1997 1,628,291 12,337,764 3,562,034 9,880 15,909,678
--------- ---------- --------- ----- ----------
</TABLE>
(Continued)
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------ RETAINED COMPREHENSIVE SHAREHOLDERS'
COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY INCOME
------ ------ -------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,628,291 $12,337,764 $ 3,562,034 $ 9,880 $15,909,678
Comprehensive income:
Net income 2,008,670 2,008,670 $ 2,008,670
Other comprehensive loss,
net of tax:
Unrealized losses on
available-for-sale
investment securities (31,310) (31,310) (31,310)
--------
Total comprehensive income $ 1,977,360
---------
---------
Retirement of common stock
(Note 10) (18,803) (260,559) (260,559)
Stock options exercised and
related tax benefit (Note 10) 62,641 746,997 746,997
Cash dividend - $.40 per share (662,219) (662,219)
--------- ---------
Balance, December 31, 1998 1,672,129 $12,824,202 $ 4,908,485 $ (21,430) $17,711,257
--------- ---------- ------------ -------- ---------------
--------- ---------- ------------ -------- ---------------
Disclosure of reclassification
amount, net of taxes:
Unrealized holding losses arising
during 1998 $(18,690)
Less: reclassification adjustment
for gains included in net income 12,620
------
Net unrealized losses on
available-for-sale investment
securities $(31,310)
------
------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,008,670 $ 1,300,766 $ 1,939,461
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan and lease losses 1,113,000 1,705,000 570,000
Depreciation and amortization 331,672 263,929 160,486
Amortization of investment security
premiums, net 1,668 27,823 786
Deferred loan origination costs and fees, net 63,383 (91,971) (35,569)
Undistributed earnings of investment in
leasing company (300,711) (35,256)
Provision for losses on other real estate 60,000
(Gain) loss on sale of other real estate (23,959) 18,876
Loss on sale of other assets 45,226 45,399 48,275
Decrease (increase) in loans held for sale 304,428 (229,428) (75,000)
Increase in cash surrender value of life
insurance policies (117,602) (65,204) (41,660)
Decrease (increase) in accrued interest
receivable and other assets 122,584 (220,378) (517,472)
Increase (decrease) in accrued interest
payable and other liabilities 418,803 (312,331) 252,495
Deferred taxes (122,000) (219,000) (73,000)
------------------ ------------------ ------------------
Net cash provided by operating activities 3,869,121 2,205,390 2,247,678
------------------ ------------------ ------------------
Cash flows from investing activities:
Cash acquired in the purchase of selected assets
and liabilities of another bank 17,031,577
Proceeds from called available-for-sale invest-
ment securities 15,480,741 8,240,138 2,771,739
Proceeds from called held-to-maturity investment
securities 633,854 80,000 405,000
Proceeds from matured available-for-sale invest-
ment securities 1,540,000 1,095,000 3,435,000
Purchases of available-for-sale investment
securities (33,188,997) (6,059,041) (13,203,912)
Purchases of held-to-maturity investment
securities (3,229,579) (225,000) (2,792,045)
Principal payments received from mortgage-
backed available-for-sale investment securities 43,599 53,201 53,092
Net increase in loans (1,762,474) (28,593,443) (11,848,173)
Purchases of premises and equipment (680,996) (508,258) (223,035)
<PAGE>
<S> <C> <C> <C>
Proceeds from sale of other real estate 399,271 49,618 225,664
Proceeds from sale of other foreclosed assets 207,333 143,506 128,425
Investment in leasing company (2,000,000)
Purchase of life insurance policies (995,000) (355,000)
------------------ ------------------ ------------------
Net cash used in investing activities (21,552,248) (11,047,702) (21,048,245)
------------------- ------------------ ------------------
</TABLE>
(Continued)
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits,
interest-bearing and savings accounts $ 21,951,669 $ 6,908,625 $ 13,747
Net increase in time deposits 5,887,885 6,018,014 8,002,232
Payments for fractional shares (2,851)
Proceeds from exercise of stock options 601,437 98,942 134,216
Payment of cash dividends (662,219) (644,376)
Retirement of common stock (260,559)
------------------ ------------------ ------------------
Net cash provided by financing activities 27,518,213 12,381,205 8,147,344
------------------- ------------------- ------------------
Increase (decrease) in cash and cash
equivalents 9,835,086 3,538,893 (10,653,223)
Cash and cash equivalents at beginning of year 12,927,578 9,388,685 20,041,908
------------------- ------------------ -------------------
Cash and cash equivalents at end of year $ 22,762,664 $ 12,927,578 $ 9,388,685
------------------- ------------------ -------------------
------------------- ------------------ -------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 5,609,794 $ 5,028,411 $ 4,320,615
Income taxes $ 854,000 $ 875,000 $ 1,145,181
Non-cash investing activities:
Real estate acquired through foreclosure $ 110,295 $ 78,957 $ 226,000
Other assets acquired through foreclosure of
consumer loans $ 198,067 $ 228,903 $ 453,409
Net change in unrealized gain (loss) on
available-for-sale investment securities $ (52,422) $ 48,498 $ (106,555)
Supplemental schedule related to acquisition:
On February 21, 1997, the Bank acquired or
assumed the following assets and liabilities
of another bank (Note 16):
Deposits assumed $ 18,141,712
Premises and equipment (480,226)
Loans (18,633)
Other liabilities assumed 47,218
------------------
17,690,071
<PAGE>
<S> <C> <C> <C>
Premium paid for deposits (658,494)
Cash acquired $ 17,031,577
------------------
------------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<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 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 1998.
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 Company's fifty percent investment in Bancorp Financial Services,
Inc. (Bancorp), a leasing company, is accounted for by the equity
method. Although the Company owns fifty 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
Financial Services.
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 accumulated other comprehensive income
(loss) within shareholders' 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, 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.
<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
components of net loans.
TRANSFERS AND SERVICING OF LOANS
Sales of loans are recognized when the transferred loans are put beyond
the reach of the Bank and its creditors, even in receivership.
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, 1998
and 1997.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TRANSFERS AND SERVICING OF LOANS (Continued)
Loans with unpaid balances of approximately $19,034,000 and
$25,304,000 were being serviced for others at December 31, 1998 and
1997, 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 leases 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 and
lease portfolio, specifically identified problem loans and leases,
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. On the balance
sheet, other real estate is included in accrued interest receivable and
other assets.
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.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
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. The treasury stock method has been applied to
determine the dilutive effect of stock options in computing diluted
EPS.
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.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW FINANCIAL ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY, which is
effective for all fiscal quarters of fiscal years beginning after June
15, 1999. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires
that entities recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value.
Management does not believe that the adoption of SFAS 133 will have a
significant impact on its financial position and results of operations
when implemented.
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment
securities at December 31, 1998 and 1997 consisted of the following:
AVAILABLE-FOR-SALE:
<TABLE>
<CAPTION>
1998
----
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 $16,211,356 $42,535 $(36,891) $16,217,000
Obligations of states
and political sub-
divisions 140,000 1,000 141,000
Commercial paper 5,988,631 (7,631) 5,981,000
Government guaran-
teed mortgage-
backed securities 10,992,410 2,535 (36,945) 10,958,000
Other securities 936,300 936,300
------- ----- -------- -------
$34,268,697 $46,070 $(81,467) $34,233,300
----------- ------- --------- -----------
----------- ------- --------- -----------
</TABLE>
Net unrealized losses on available-for-sale investment securities
totaling $35,397 were recorded net of $13,967 in tax benefits as
accumulated other comprehensive loss within shareholders' equity at
December 31, 1998.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
AVAILABLE-FOR-SALE: (Continued)
<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 $16,949,984 $41,731 $(31,715) $16,960,000
Obligations of states
and political sub-
divisions 681,921 3,100 (21) 685,000
Government guaran-
teed mortgage-
backed securities 115,070 3,930 119,000
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
accumulated other comprehensive income within shareholders' equity at
December 31, 1997.
HELD-TO-MATURITY:
<TABLE>
<CAPTION>
1998
----
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of states
and political sub-
divisions $12,859,256 $347,744 $ - $13,207,000
----------- -------- ---------- -----------
----------- -------- ---------- -----------
</TABLE>
<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
</TABLE>
There were no sales or transfers of held-to-maturity investment
securities during the years ended December 31, 1998, 1997 or 1996.
<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, 1998 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 $12,339,408 $12,330,000 $ 769,579 $ 776,000
After one year
through five years 10,000,579 10,009,000 3,169,072 3,289,000
After five years
through ten years 6,099,125 6,292,000
After ten years 2,821,480 2,850,000
--------- ---------
22,339,987 22,339,000 12,859,256 13,207,000
Investment securities not due
at a single maturity date:
Government guaran-
teed mortgage-
backed securities 10,992,410 10,958,000
Federal Reserve
Bank stock 367,200 367,200
Federal Home
Loan Bank
stock 569,100 569,100
------- -------
$34,268,697 $34,233,300 $12,859,256 $13,207,000
----------- ----------- ----------- -----------
</TABLE>
Investment securities with amortized costs of approximately $2,228,000
and $4,228,000 and estimated market values of $2,243,000 and $4,215,000
were pledged to secure deposits at December 31, 1998 and 1997,
respectively. Additionally, investment securities with amortized costs
and estimated market values of approximately $2,000,000 were pledged to
VISA at December 31, 1998 and 1997 in conjunction with the Bank's
merchant processing services.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. LOANS
Outstanding loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Commercial $22,679,709 $15,455,277
Commercial real estate 11,781,897 11,220,784
Real estate - construction 8,873,686 11,141,532
Real estate - mortgage 38,673,581 39,890,658
Leases 8,744,942 2,404,594
Installment 31,953,756 41,950,733
---------- ----------
122,707,571 122,063,578
Unearned discount (1,649,410) (1,722,166)
Deferred loan origination costs, net 32,206 95,589
Allowance for loan and lease losses (2,080,831) (1,705,200)
$119,009,536 $118,731,801
</TABLE>
Changes in the allowance for loan and lease losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $1,705,200 $ 896,733 $ 809,608
Provision charged to operations 1,113,000 1,705,000 570,000
Losses charged to allowance (962,480) (978,709) (537,585)
Recoveries 225,111 82,176 54,710
------- ------ ------
Balance, end of year $2,080,831 $1,705,200 $ 896,733
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At December 31, 1998 and 1997, nonaccrual loans totaled $253,900 and
$594,800, respectively. Interest foregone on nonaccrual loans totaled
approximately $44,477, $29,400 and $4,200 for the years ended December
31, 1998, 1997 and 1996, respectively. The recorded investment in loans
that were considered to be impaired at December 31, 1998 and 1997
totaled $1,352,933 and $354,600, respectively. The related allowance
for loan and lease losses for these loans at December 31, 1998 and 1997
was $459,065 and $177,300, respectively. The average recorded
investment in impaired loans for the year ended December 31, 1998 and
1997 was $287,434 and $123,800, respectively. The Bank recognized no
interest income on impaired loans during these same periods. There were
no significant loans considered to be impaired during the year ended
December 31, 1996.
Salaries and employee benefits totaling $154,000, $259,000 and $165,000
have been deferred as loan origination costs for the years ended
December 31, 1998, 1997 and 1996, respectively.
<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,
------------
1998 1997
---- ----
<S> <C> <C>
Land $ 200,840 $ 200,840
Bank premises 878,406 831,343
Furniture, fixtures and equipment 2,046,561 1,565,821
Leasehold improvements 313,288 160,844
---------- ----------
3,439,095 2,758,848
Less accumulated depreciation
and amortization (1,101,768) (803,218)
----------- ---------
$ 2,337,327 $1,955,630
------------ -----------
------------ -----------
</TABLE>
Depreciation and amortization included in occupancy expense totaled
$299,299, $233,319 and $160,486 for the years ended December 31, 1998,
1997 and 1996, 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). In March 1998, ownership of the investment in Bancorp was
transferred to the holding company (the "Company") through a dividend
from the Bank. 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, automobiles, medical and other business equipment. All
equipment leased is acquired from unrelated parties. The Company's
fifty percent interest in Bancorp's net income for the year ended
December 31, 1998 and 1997 totaled $300,711 and $35,256, respectively.
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Savings $14,815,345 $14,075,378
Money market 39,779,595 25,415,366
NOW accounts 12,831,352 10,364,661
Time, $100,000 or more 15,568,599 13,173,337
Other time 58,324,707 54,832,084
----------- -----------
$141,319,598 $117,860,826
------------ ------------
------------ ------------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INTEREST-BEARING DEPOSITS (Continued)
Aggregate annual maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $62,187,415
2000 8,449,891
2001 3,217,203
2003 38,797
------
$73,893,306
-----------
-----------
</TABLE>
Interest expense recognized on interest-bearing deposits consisted of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Savings $ 411,548 $ 394,557 $ 299,085
Money market 1,185,336 1,033,029 1,047,823
NOW accounts 234,125 208,777 149,802
Time, $100,000 or more 752,158 692,358 562,084
Other time 3,031,300 2,895,835 2,297,874
---------- --------- ---------
$5,614,467 $5,224,556 $4,356,668
---------- ---------- ----------
</TABLE>
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1998,
1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
Federal State Total
------- ------ -----
1998
----
<S> <C> <C> <C>
Current $ 686,000 $288,000 $ 974,000
Deferred (102,000) (20,000) (122,000)
---------- --------- ----------
Income tax expense $ 584,000 $268,000 $ 852,000
1997
----
Current $ 576,000 $256,000 $ 832,000
Deferred (168,000) (51,000) (219,000)
--------- -------- ---------
Income tax expense $ 408,000 $205,000 $ 613,000
--------- -------- ---------
--------- -------- ---------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 655,000 $537,000
Salary continuation expense 272,000 249,000
Future benefit of state tax deduction 85,000 87,000
Unrealized loss on available-for-sale
investment securities 14,000
Capitalization of organization costs 28,000 29,000
Other real estate 13,000 27,000
------ ------
Total deferred tax assets 1,067,000 929,000
--------- -------
Deferred tax liabilities:
Bank premises and equipment (85,000) (65,000)
Future liability of state deferred tax asset (65,000) (56,000)
Undistributed interest in earnings of leasing
company (27,000) (16,000)
Unrealized gain on available-for-sale
investment securities (7,000) (38,000)
Other
Total deferred tax liabilities (177,000) (182,000)
--------- ---------
Net deferred tax assets $ 890,000 $ 747,000
--------- ---------
--------- ---------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES (Continued)
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>
1998 1997 1996
---- ---- ----
AMOUNT RATE % AMOUNT RATE % AMOUNT RATE%
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
expense, at
statutory rate $ 972,628 34.0 $ 650,680 34.0 $ 985,477 34.0
State franchise tax,
net of Federal tax
effect 151,661 5.3 128,402 6.7 204,056 7.0
Interest on obligations
of states and political
subdivisions (171,124) (6.0) (180,281) (9.4) (188,585) (6.5)
Dividends received
deduction from
investment in
leasing company (81,793) (2.9)
Other (19,372) (0.6) 14,199 .7 (41,948) (1.4)
-------- ----- ------- --- -------- -----
Total income
tax expense $ 852,000 29.8 $ 613,000 32.0 $ 959,000 33.1
---------- ---- ---------- ---- --------- ----
---------- ---- ---------- ---- --------- ----
</TABLE>
8. SHORT-TERM BORROWING ARRANGEMENTS
The Bank has a $5,000,000 unsecured borrowing arrangement with one of
its correspondent banks. There were no borrowings outstanding under
this arrangement at December 31, 1998 and 1997.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Bank's minimum commitments under operating leases for premises and
equipment as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999 $ 173,688
2000 173,688
2001 173,688
2002 160,428
2003 147,168
Thereafter 438,843
----------
$1,267,503
----------
----------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
LEASES (Continued)
Rental expense for premises and equipment included in occupancy expense
totaled approximately $156,000, $111,000 and $63,000 for the years
ended December 31, 1998, 1997 and 1996, 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 and letters of credit
is represented by the contractual amount of those instruments.
Management uses the same credit policies in making commitments and
letters of credit as it does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit
risk:
<TABLE>
<CAPTION>
December 31,
-----------
1998 1997
---- ----
<S> <C> <C>
Commitments to extend credit $17,847,000 $17,368,000
Letters of credit $ 140,000 $ 132,000
</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, deposit accounts 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.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At December 31, 1998, commercial loan commitments represent
approximately 59% of total commitments and are generally unsecured.
Real estate loan commitments represent 24% 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 17% of total commitments. In addition, the majority of the
Bank's commitments have variable interest rates.
9. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
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.
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>
1999 $152,904
2000 85,194
---------
$242,098
--------
--------
</TABLE>
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured
financial institutions under correspondent banking agreements.
Uninsured deposits totaled $5,719,000 at December 31, 1998.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors of the Company, all
shareholders 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 shareholders
during the same three-year period. At December 31, 1998, the Bank had
$1,739,200 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, 1998
-----------------
Basic earnings per share $2,008,670 1,663,956 $1.21
-----
-----
Effect of dilutive stock options 51,289
------
Diluted earnings per share $2,008,670 1,715,245 $1.17
---------- --------- -----
---------- --------- -----
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 43,212
------
Diluted earnings per share $1,939,461 1,643,968 $1.18
---------- --------- -----
---------- --------- -----
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE (Continued)
The following options were not included in the computation of diluted
earnings per share because their exercise prices were greater than the
average market prices of the common shares during the same periods:
options to purchase 34,390 shares of common stock at prices ranging
from $16.81 to $17.50 outstanding during the second and third quarters
of 1998; options to purchase 52,280 shares of common stock at prices
ranging from $14.00 to $17.50 outstanding during the fourth quarter of
1998; and options to purchase 22,550 shares of common stock at $12.27
per share outstanding during all quarters of 1996.
STOCK OPTIONS
In 1994 and 1984, the Board of Directors established stock option plans
for which 319,160 shares of common stock are reserved for issuance to
employees and directors under incentive and nonstatutory agreements.
The Company assumed all obligations under the plans 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 plans require 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 generally vest at twenty percent each year. The options
under the plans expire on dates determined by the Board of Directors,
but not later than ten years from the date of grant. Outstanding
options under the 1984 Plan are exercisable until their expiration
date; however, no new options will be granted under this plan. A
summary of combined activity within the plans follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- ------------------
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 172,520 $ 9.46 195,826 $ 9.21 172,100 $ 8.75
Options granted 52,280 $ 16.12 12,000 $ 12.00 25,500 $ 11.97
Options resulting from
10% stock dividend 19,150 $ 9.13
Options exercised (62,641) $ 8.75 (17,351) $ 8.84 (15,468) $ 8.68
Options canceled (3,663) $ 8.94 (17,955) $ 9.04 (5,456) $ 8.91
------- ---------- ------- ---------- ------- --------
Options outstanding,
end of year 158,496 $ 11.96 172,520 $ 9.46 195,826 $ 9.21
======= ========== ======= ========== ======= ========
Options exercisable,
end of year 98,738 $ 10.19 120,016 $ 9.08 97,549 $ 8.94
======= ========== ======= ========== ======= ========
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
Range of Exercise Prices 1998 Life 1998
------------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
$ 8.68 58,740 1 year 58,740
$ 8.94 8,641 1 year 8,641
$ 10.75 5,000 2 years 3,000
$ 12.27 21,835 2 years 13,101
$ 12.00 12,000 3 years 4,800
$ 15.13 5,000 4 years 1,000
$ 16.81 23,500 4 years 4,700
$ 17.50 10,890 4 years 2,178
$ 14.50 2,000 5 years 400
$ 14.00 10,890 5 years 2,178
------------------ ---------------
158,496 98,738
================== ==================
</TABLE>
COMMON STOCK REPURCHASE PROGRAM
During 1997, the Board of Directors authorized the repurchase of up to
$500,000 of the Company's common stock. Repurchases will generally be
made at market prices.
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 (FRB). 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.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier
1 capital to average assets. Each of these components is defined in the
regulations. Management believes that the Company and the Bank meet all
their capital adequacy requirements as of December 31, 1998.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL (Continued)
In addition, the most recent notification from the Federal Depository
Insurance Corporation (FDIC) 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 1 risk-based and Tier 1 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>
1998 1997 1996
---------------------- ------------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
LEVERAGE RATIO
Tehama Bancorp and subsidiary $17,137,200 9.4% $15,271,900 9.4%
Tehama Bank $14,222,200 7.9% $15,118,600 9.3% $15,131,400 11.5%
Minimum requirement for "Well-
Capitalized" institution $ 9,073,500 5.0% $ 8,127,700 5.0% $ 6,582,600 5.0%
Minimum regulatory requirement $ 7,258,800 4.0% $ 6,502,200 4.0% $ 5,266,100 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
Tehama Bancorp and subsidiary $17,137,200 13.6% $15,271,900 12.7%
Tehama Bank $14,222,200 11.5% $15,118,600 12.5% $15,131,400 16.8%
Minimum requirement for "Well-
Capitalized" institution $ 7,562,900 6.0% $ 7,236,200 6.0% $ 5,420,400 6.0%
Minimum regulatory requirement $ 5,042,000 4.0% $ 4,824,200 4.0% $ 3,613,600 4.0%
TOTAL RISK-BASED CAPITAL RATIO
Tehama Bancorp and subsidiary $18,719,024 14.9% $16,787,300 13.9%
Tehama Bank $15,772,281 12.8% $16,634,000 13.8% $16,028,100 17.7%
Minimum requirement for "Well-
Capitalized" institution $12,604,900 10.0% $12,041,500 10.0% $ 9,034,000 10.0%
Minimum regulatory requirement $10,083,900 8.0% $ 9,633,200 8.0% $ 7,227,200 8.0%
</TABLE>
<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,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Data processing fees $ 258,618 $ 220,909 $ 173,665
Professional services 236,966 392,863 237,491
Directors' fees 170,450 155,350 151,350
Stationery and supplies 143,070 231,170 123,073
Advertising 154,297 118,708 151,705
Officer salary continuation
plan expense (Note 12) 114,620 136,293 144,227
Other 1,362,333 1,213,830 720,422
------------------ ------------------ ------------------
$ 2,440,354 $ 2,469,123 $ 1,701,933
================== ================== ==================
</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 $39,403, $29,875 and $38,789 for the years ended
December 31, 1998, 1997 and 1996, 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
twenty-five percent of each participant's annual contribution.
Aggregate contributions to the profit sharing plan totaled $38,868,
$30,795 and $24,324 for the years ended December 31, 1998, 1997 and
1996, respectively.
<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 executive's expected retirement
date. The expense recognized under these plans for the years ended
December 31, 1998, 1997 and 1996 totaled $114,620, $136,293 and
$144,227, respectively.
Under these plans, the Bank invested in single premium life insurance
policies with cash surrender values totaling $2,946,792 and $1,834,190
at December 31, 1998 and 1997, 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.
The following is a summary of the aggregate lending activity involving
related party borrowers for the year ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ 2,600,000
Disbursements 3,500,000
Amounts repaid (1,400,000)
------------------
Balance, end of year $ 4,700,000
==================
</TABLE>
Undisbursed commitments to related parties,
December 31, 1998 $ 423,000
==================
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
During 1998 and 1997, the Bank purchased approximately $6,448,000 and
$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.
In addition, the Bank is a thirty-four percent participant with
Humboldt Bank (lead bank) in a $3,750,000 revolving line of credit to
Bancorp Financial Services, Inc. The line of credit, which was made
under terms similar to those available to other commercial borrowers,
matures in May 1999. As of December 31, 1998, the Bank's portion of the
outstanding line totaled $714,000 and is included in loans.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. COMPREHENSIVE INCOME
The Bank adopted Financial Accounting Standards Board Statement No. 130
(SFAS 130), REPORTING COMPREHENSIVE INCOME, on January 1, 1998. This
Statement requires the reporting of comprehensive income in addition to
net income for all periods presented. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of
other comprehensive income that historically has not been recognized in
the calculation of net income. SFAS 130 requires the unrealized gains
and losses on the Bank's available-for-sale investment securities to be
included in other comprehensive income. Total comprehensive income and
the components of accumulated other comprehensive income are presented
in the Statement of Changes in Shareholders' Equity.
For the years ended December 31, 1998, 1997 and 1996, the Bank held
securities classified as available-for-sale which had unrealized
(losses) gains as follows:
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
--- ------- ---
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive income:
Unrealized holding losses $ (31,033) $ 12,343 $ (18,690)
Reclassification adjustment for gains
included in net income 21,389 (8,769) 12,620
--------------- --------------- ----------------
Total other comprehensive
income $ (52,422) $ 21,112 $ (31,310)
=============== =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1997
Other comprehensive income:
Unrealized holding gains $ 48,498 $ (20,428) $ 28,070
=============== =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1996
Other comprehensive income:
Unrealized holding losses $ (106,555) $ 44,657 $ (61,898)
================ =============== ================
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. 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.
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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,
1998 and 1997:
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, which is included in accrued interest payable and other
liabilities on the consolidated balance sheet, the carrying amount is
estimated to be fair value.
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are
primarily for adjustable rate loans and letters of credit. For these
commitments, there are no differences
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
between the committed amounts and fair values. Commitments to fund
fixed rate loans are at rates which approximate fair value at each
reporting date.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 8,362,664 $ 8,362,664 $ 5,927,578 $ 5,927,578
Federal funds sold 14,400,000 14,400,000 7,000,000 7,000,000
Investment securities 47,092,556 47,440,300 28,426,765 28,723,500
Loans 119,009,536 121,472,837 118,731,801 120,170,000
Accrued interest receivable 1,213,291 1,213,291 1,151,978 1,151,978
Cash surrender value of life
insurance policies 2,946,792 2,946,792 1,834,190 1,834,190
------------- ------------- ------------- -------------
$ 193,024,839 $ 195,835,884 $ 163,072,312 $ 164,807,246
============= ============= ============= =============
Financial liabilities:
Deposits $ 180,510,611 $ 180,715,000 $ 152,671,057 $ 152,759,000
Accrued interest payable 451,947 451,947 447,274 447,274
Treasury tax and loan
agreement 191,014 191,014 60,644 60,644
------------- ------------- ------------- -------------
$ 181,153,572 $ 181,357,961 $ 153,178,975 $ 153,266,918
============= ============= ============= =============
Off-balance-sheet financial
instruments:
Commitments to extend credit $ 17,847,000 $ 17,847,000 $ 17,368,000 $ 17,368,000
Standby letters of credit 140,000 140,000 132,000 132,000
------------- ------------- ------------ -------------
$ 17,987,000 $ 17,987,000 $ 17,500,000 $ 17,500,000
============= ============= ============ =============
</TABLE>
16. BRANCH ACQUISITION
<PAGE>
TEHAMA BENCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 $32,373 and $30,611 for the years ended December 31, 1998 and
1997, respectively.
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 373,445 $ 20,423
Investment in subsidiary 14,796,283 15,756,313
Investment in leasing company 2,335,967
Other assets 205,562 132,942
----------- -----------
$17,711,257 $15,909,678
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
Common stock $12,824,202 $12,337,764
Retained earnings 4,908,485 3,562,034
Accumulated other comprehensive
(loss) income (21,430) 9,880
----------- -----------
$17,711,257 $15,909,678
----------- -----------
----------- -----------
</TABLE>
<PAGE>
TEHAMA BENCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Income:
Dividends declared by subsidiary -
eliminated in consolidation $ 662,219 $125,000
---------- --------
Expenses:
Professional fees 82,478 79,571
Other expenses 4,318 24,006
---------- --------
Total expenses 86,796 103,577
---------- --------
Income before equity in undistributed
income of subsidiary 575,423 21,423
Equity in undistributed income of investment in
leasing company 251,135
Equity in undistributed income of subsidiary 1,156,112 374,759
---------- --------
Income before income taxes 1,982,670 396,182
Income tax benefit 26,000 33,000
---------- --------
Net income $2,008,670 $429,182
---------- --------
---------- --------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
ACCUMULATED
OTHER
COMMON STOCK COMPREHENSIVE
------------------- RETAINED INCOME SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS (LOSS) EQUITY INCOME
------ ------ -------- ------ ------------- -------------
<S> <C> <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
Comprehensive income:
Net income 429,182 429,182 $ 429,182
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (34,848) (34,848) (34,848)
------
Total comprehensive income $ 394,334
-----------
-----------
Stock options exercised and related
tax benefit (Note 10) 17,351 112,042 112,042
--------- ---------- -----------
Balance, December 31, 1997 1,628,291 12,337,764 3,562,034 9,880 15,909,678
Comprehensive income:
Net income 2,008,670 2,008,670 $ 2,008,670
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (31,310) (31,310) (31,310)
-------
Total comprehensive income $ 1,977,360
-----------
-----------
Retirement of common stock (Note 10) (18,803) (260,559) (260,559)
Stock options exercised and related tax
benefit (Note 10) 62,641 746,997 746,997
Cash dividend - $.40 per share (662,219) (662,219)
---------- ----------
Balance, December 31, 1998 1,672,129 $12,824,202 $ $ 4,908,485 $ (21,430) $17,711,257
---------- ----------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ----------- ---------- -----------
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM JULY 1, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,008,670 $ 429,182
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Undistributed income of leasing company (251,135)
Undistributed income of subsidiary (1,156,112) (374,759)
Decrease (increase) in other assets 72,940 (132,942)
------ ---------
Net cash provided by (used in) operating
activities 674,363 (78,519)
------- --------
Cash flows provided by investing activities:
Proceeds from exercise of stock options 601,437 98,942
------- --------
Cash flows from financing activities:
Retirement of common stock (260,559)
Dividends paid to shareholders (662,219)
---------
Net cash used in financing activities (922,778)
---------
Increase in cash and cash equivalents 353,022 20,423
Cash and cash equivalents at beginning of
period 20,423
--------
Cash and cash equivalents at end of year $ 373,445 $ 20,423
---------- --------
---------- --------
Supplemental disclosures of cash flow information:
</TABLE>
<PAGE>
TEHAMA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C> <C>
Non-cash investing activities:
Net change in unrealized gain on available-
for-sale investment securities $ (52,923) $ 58,785
Dividend of investment in leasing company
from the Bank to the holding company $2,084,832
Non-cash financing activities:
Issuance of common stock in exchange for
assets and liabilities of the Bank $15,403,302
</TABLE>
<PAGE>
EXHIBIT 13 TO 10-K
TEHAMA BANCORP 1998 ANNUAL REPORT TO SHAREHOLDERSS
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
business operations other than Tehama Bank the following discussion pertains
primarily to the bank. In April 1998 the Bank transferred its interest in
Bancorp Financial Services to the holding company.
Certain matters discussed in this analysis are forward-looking statements
that are subject to risks and uncertainties that could cause actual results to
differ materially from those projected. Changes to such risks and
uncertainties, which could impact future financial performance, include, among
others, (1) competitive pressures in the industry; (2) changes in the interest
rate environment; (3) general economic conditions, either nationally or
regionally; (4) changes in the regulatory environment; (5) changes in business
conditions and inflation; (6) changes in securities markets; and (7) Year 2000
compliance problems. Therefore, the information set forth herein should be
carefully considered when evaluating the business prospects of the Company.
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, 1998, the Company's capital totaled $17.7 million.
The Red Bluff Branch remains the Bank's main office and largest of six
branch locations. The Bank has a branch in Los Molinos (Tehama County), a
branch in Chico (Butte County),
33
<PAGE>
branches in Willows and Orland (Glenn County), and, as of September 1998, a
branch in Redding (Shasta County). The Bank's administrative office is
adjacent to its Red Bluff Branch. 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, also located 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. Converting the Bank's
loan production office in Redding to a full service branch was a major project
during 1998 and its completion in September provides the Bank with an important
new market. During 1998 the Bank began development of a wide area computer
network to link its branches and operating departments. The network, which is
expected to be fully implemented by the end of 1999, will provide enhanced
communication and customer service. The Bank also began work on a website in
1998. The first phase is now complete and offers extensive product information,
rate charts, and interactive calculators to assist customers with their savings
plans and loan payment calculations. The website for Tehama Bank can be
accessed at: www.tehamabank.com. Late in the fourth quarter of 1998, the Bank
expanded its Manufactured Housing lending activities by establishing a dedicated
department to meet the needs of this segment of our business. Initial results
are very encouraging and this business is projected to contribute significantly
in 1999. Throughout 1998 the Bank has remained committed to its most
distinguishing feature--providing positively outstanding service--and will
remain committed to this goal during 1999.
OVERVIEW
The Bank, in 1998, experienced another year of growth and expansion. By
year-end 1998, as compared with year-end 1997, total assets increased 17.7% to
$199,781,964, total loans increased 0.5% to $122,707,571 and total deposits
increased 18.2% to $180,510,611. Consolidated earnings for 1998 totaled
$2,008,670 representing a 54.42% increase over the previous year. Additionally,
the Bank made provisions for loan losses totaling $1,113,000 in 1998 compared to
$1,705,000 in 1997. At December 31, 1998 the allowance for loan and lease
losses as a percent of total loans had increased to 1.70 versus 1.40 at the end
of 1997. Shareholders' equity totaled $17,711,257 at year-end, compared to
$15,909,678 in 1997. Basic earnings per share equaled $1.21, $0.81, and $1.21,
respectively for 1998, 1997 and 1996, while diluted earnings per share
(recognizing the dilutive effect of stock options not yet exercised) equaled
$1.17, $0.78, and $1.18 respectively.
34
<PAGE>
The following chart presents, for comparison purposes, selected balance
sheet, income statement, and share data, along with selected financial ratios.
The figures for years 1998 and 1997 represent consolidated bank and holding
company information. Prior to 1997 the figures represent the bank only.
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except share data) 1998 1997 1996 1995 1994
---------------------------------------------------------------------
STATEMENT OF EARNINGS DATA
- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 13,878 $ 12,614 $ 10,274 $ 9,424 $ 6,946
Interest expense 5,614 5,225 4,357 3,879 2,519
---------------------------------------------------------------------
Net interest income 8,264 7,389 5,917 5,545 4,427
Provision for loan and lease losses 1,113 1,705 570 330 180
---------------------------------------------------------------------
Net interest income after provision for
loan and lease losses 7,151 5,684 5,347 5,215 4,247
Non-interest income 2,772 2,191 1,860 1,775 1,655
Non-interest expense 7,062 5,961 4,309 4,102 3,335
---------------------------------------------------------------------
Income before income taxes 2,861 1,914 2,898 2,888 2,567
Provision for income taxes 852 613 959 1,039 891
---------------------------------------------------------------------
Net income $ 2,009 $ 1,301 $ 1,939 $ 1,849 $ 1,676
---------------------------------------------------------------------
SHARE DATA
- ----------------------------------------------
Diluted earnings per share $ 1.17 $ 0.78 $ 1.18 $ 1.12 $ 1.08
Cash dividend paid per share $ 0.40 $ 0.40 n/a n/a n/a
Stock dividend paid per share N/A n/a 10% 10% 10%
BALANCE SHEET DATA
- ----------------------------------------------
Total assets $ 199,782 $ 169,722 $ 138,122 $ 127,826 $ 106,390
Total loans, gross 122,708 122,064 93,691 82,018 74,803
Total deposits 180,511 152,671 121,603 113,587 94,646
Total shareholders' equity 17,711 15,910 15,113 13,086 10,758
SELECTED FINANCIAL RATIOS
- ----------------------------------------------
Return on average assets 1.31% 1.29% 1.54% 1.66% 1.79%
Return on average shareholders' equity 13.54% 13.16% 14.63% 16.70% 18.10%
Leverage ratio 9.40% 9.40% 11.50% 10.20% 10.20%
Total risk-based capital ratio 14.90% 13.90% 17.70% 16.40% 16.30%
Allowance for loan and lease losses to
total loans outstanding at year end 1.70% 1.40% 0.96% 0.99% 0.96%
</TABLE>
35
<PAGE>
Graph Input Data
TOTAL ASSETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$106,390 $127,826 $138,122 $169,722 $199,782
</TABLE>
TOTAL LOANS, GROSS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$74,803 $82,018 $93,691 $122,064 $122,708
</TABLE>
TOTAL DEPOSITS
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$94,646 $113,587 $121,603 $152,671 $180,511
</TABLE>
NET INCOME
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,676 $1,849 $1,939 $1,301 $2,009
</TABLE>
NET INTEREST INCOME
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4,427 $5,545 $5,917 $7,389 $8,264
</TABLE>
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.08 $1.12 $1.18 $0.78 $1.17
</TABLE>
36
<PAGE>
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 1998 totaled $8,264,314 which was up $874,855 (11.8%) 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 1998 changes in the volumes of both interest-earning assets and
interest-bearing liabilities accounted for 100% of the net increase in net
interest income over 1997.
Average outstanding loan balances totaling $121,211,000 for 1998 reflect a
$12,124,000 increase (11%) over 1997 balances. These higher balances
contributed $1,121,000 to the increase in interest income and were the major
factor in the improvement in net interest income from 1997. However, the
average yield received on loans fell slightly (4 basis points) to 9.25%,
offsetting interest income gains by $43,000. The lower loan yield was due
primarily to increased market competition. Average balances of investment
securities decreased $4,307,000 (13.8%). The decrease in the volume of
securities resulted in a decrease to interest income of $245,000, while
decreases of 29 basis points in the average yield received on the investment
portfolio contributed another $88,000 towards a decrease in interest income.
Average Federal funds sold for the year increased $10,355,000 (89%) with a
resultant contribution of $541,000 to the increase in interest income. However,
the average yield on Federal funds decreased by 17 basis points in 1998,
offsetting the increase by $219,000. Interest expense increased $390,000 (7.5%)
in 1998 over 1997. Higher volumes in all interest bearing account categories
contributed $506,000 towards an increase in interest expense, however, a
decrease in the average rates paid on deposit accounts had an offsetting effect
of $116,000 resulting in the net increase of $390,000. Net interest margin was
4.86% in 1998 and 1997 and 4.73% in 1996.
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.
37
<PAGE>
AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST YIELDS/RATES
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------------------------
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) $ 25,095 $ 2,411 9.61% $ 13,460 $ 1,433 10.65% $ 10,589 $ 1,205 11.38%
Real estate loans (1) 59,336 5,462 9.21% 54,372 4,974 9.15% 44,012 3,873 8.80%
Installment loans (1) 36,780 3,341 9.08% 41,255 3,728 9.04% 32,667 3,067 9.39%
------------------------------ ---------------------------- ---------------------------
Sub-total loans 121,211 11,214 9.25% 109,087 10,135 9.29% 87,268 8,145 9.33%
Federal funds sold 21,985 1,147 5.22% 11,630 627 5.39% 13,636 716 5.25%
Investments (2) 26,932 1,518 5.64% 31,239 1,852 5.93% 24,110 1,413 5.86%
------------------------------ ---------------------------- ---------------------------
Total earning assets 170,128 13,879 8.16% 151,956 12,614 8.30% 125,014 10,274 8.22%
-------- -------- -------
Less: Allowance for loan losses (1,905) (1,905) (933)
Less: Unearned discount (1,807) (1,414) (827)
Cash and due from banks 5,455 5,011 3,786
Other real estate owned 97 482 485
Premises and equipment, net 2,070 1,791 1,304
Cash surrender value of
life insurance 2,544 1,571 1,389
Accrued interest receivable
and other assets 5,963 4,805 1,580
-------- -------- ---------
Total Assets $182,545 $163,107 $131,798
-------- -------- ---------
-------- -------- ---------
LIABILITY AND SHAREHOLDERS'
EQUITY
Interest-bearing demand deposits $ 42,968 $ 1,419 3.30% $ 36,871 $ 1,242 3.37% $ 33,279 $ 1,198 3.60%
Savings accounts 14,166 412 2.91% 13,187 394 2.99% 9,939 299 3.01%
Time deposits 70,632 3,773 5.34% 65,383 3,574 5.47% 52,205 2,846 5.45%
Other short-term borrowings 162 10 6.17% 264 15 5.68% 285 14 4.91%
------------------------------ ---------------------------- ---------------------------
Total interest-bearing
liabilities 127,928 5,614 4.39% 115,705 5,225 4.52% 95,708 4,357 4.55%
-------- -------- -------
Non-interest bearing deposits 35,900 30,769 21,274
Other liabilities 1,846 1,118 896
-------- -------- ---------
Total liabilities 165,674 147,592 117,878
Common stock 12,703 12,255 11,477
Retained earnings 4,150 3,351 2,563
Accumulated other
comprehensive (loss) income 18 (91) (120)
-------- -------- ---------
Total shareholders' equity 16,871 15,515 13,920
Total liabilites and
shareholders' equity $182,545 $163,107 $131,798
-------- -------- ---------
-------- -------- ---------
Net interest income $ 8,265 $ 7,389 $ 5,917
-------- -------- -------
Interest income as a percentage
of average earning assets 8.16% 8.30% 8.22%
Interest expense as a percentage
of average earning assets 3.30% 3.44% 3.49%
Net yield on average earning
assets (net interest margin) 4.86% 4.86% 4.73%
(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 $639,000, $392,000, and
$297,000 at December 31, 1998, 1997 and 1996, respectively.
(2) Applicable nontaxable yields have not been calculated on a taxable-equivalent basis.
</TABLE>
38
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
<TABLE>
<CAPTION>
(in thousands)
1998 OVER 1997 1997 over 1996
----------------------------- --------------------------
VOLUME RATE TOTAL Volume Rate Total
----------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans $ 1,121 $ (43) $ 1,078 $ 2,027 $ (37) $ 1,990
Investment securities (245) (88) (333) 423 16 439
Federal funds sold 541 (21) 520 (108) 19 (89)
----------------------------- --------------------------
Total 1,416 (151) 1,265 2,342 (2) 2,340
Increase (decrease) in interest expense:
Transaction accounts 201 (24) 177 124 (80) 44
Savings accounts 28 (11) 17 98 (1) 97
Time deposits 283 (82) 201 719 7 726
Other short term borrowings (6) 1 (5) (1) 2 1
----------------------------- --------------------------
Total 506 (116) 390 940 (72) 868
Increase (decrease) in net interest income $ 910 $ (35) $ 875 $ 1,402 $ 70 $ 1,472
----------------------------- --------------------------
</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 26.5% in 1998 compared to
increases of 17.8% in 1997, and 4.8% in 1996. Non-interest income generated by
the Merchant Bankcard department contributed 48% of total non-interest income
during 1998 compared to 60% of the total in 1997.
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
$1,335,672 in 1998, $1,322,564 in 1997, and $1,229,003 in 1996.
Deposit account service charges, loan servicing fees, gain on sale of loans
and other income contributed 41% of non-interest income in 1998. Service
charges on deposit accounts increased 29% in 1998, compared to an increase of
47% in 1997 and 16.8% in 1996. This increase is attributed to growth in overall
deposit accounts and 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 18% in
1998, 38% in 1997, and 5% in 1996. 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 38%, 26%, and 5% in 1998, 1997, and 1996 respectively.
SFAS 91 requires the Bank to defer loan origination costs (salary and related
benefits) associated with the origination of loans, resulting in recording
salary expense at
39
<PAGE>
an amount less than that actually paid by the Bank. The difference amounted
to $154,000 in 1998, $259,000 in 1997, and $165,000 in 1996. Combined
occupancy and other expenses increased by 14% in 1998, 67% in 1997, and 15.2%
in 1996.
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 various loan 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, 1998, 1997, 1996, 1995, and 1994, respectively.
LOANS ARE COMPRISED OF THE FOLLOWING AT DECEMBER 31, 1998, 1997, 1996, 1995,
AND 1994 RESPECTIVELY
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996 1995 1994
----------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 22,680 18.5% $ 15,455 12.7% $10,064 10.7% $10,594 12.9% $11,067 14.8%
Commercial real estate 11,782 9.7% 11,221 9.2% 8,959 9.6% 10,035 12.2% 7,842 10.5%
Real estate construction 8,874 7.2% 11,141 9.1% 5,824 6.2% 5,602 6.8% 5,619 7.5%
Real estate mortgage 36,673 31.5% 39,891 32.6% 31,456 33.6% 26,624 32.5% 25,867 34.6%
Leases 8,745 7.1% 2,405 2.0% 471 0.5% 0.0% 0.0%
Installment 31,954 26.0% 41,951 34.4% 36,916 39.4% 29,163 35.6% 24,408 32.6%
----------------- ---------------- ---------------- --------------- ---------------
SUBTOTAL 122,708 100.1% 122,064 99.9% 93,690 100.0% 82,018 100.0% 74,803 100.0%
----------------- ---------------- ---------------- --------------- ---------------
Less:
Unearned discount (1,649) (1,722) (1,110) (594) (565)
Net deferred loan fees &
costs 32 95 4 (32) (94)
Allowance for loan losses (2,081) (1,705) (897) (810) (721)
----------------- ---------------- ---------------- --------------- ---------------
TOTAL LOANS, NET $119,010 $118,732 $91,687 $80,582 $73,423
----------------- ---------------- ---------------- --------------- ---------------
</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, 1998.
<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 $11,429 $ 6,068 $ 6,308 $ 2,473 $ 5,147 $ 31,425
Real estate 10,678 4,675 10,327 27,450 6,199 59,329
Installment 9,131 11,371 6,237 5,088 127 31,954
---------- ---------- ----------- ---------- ---------- --------
Total $31,238 $22,114 $22,872 $35,011 $11,473 $122,708
---------- ---------- ----------- ---------- ---------- --------
</TABLE>
Commercial and commercial real estate loans comprised approximately 28% of
the Bank's loan portfolio at December 31, 1998, compared to 22% at December 31,
1997. 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 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 prime rate established by the Bank's primary
correspondent bank. The primary source of repayment on most commercial loans is
cash flow
40
<PAGE>
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 39% of the Bank's loan portfolio at December 31, 1998, compared to
42% at December 31, 1997. 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 have either fixed or
adjustable interest rates.
Installment loans comprised 26% of the loan portfolio at December 31, 1998,
compared to approximately 34% at December 31, 1997. This category includes
traditional consumer loans (vehicles, credit cards, lines of credit), as well as
loans made by the Bank's Dealer Center, and may be secured by title to various
types of collateral or be unsecured.
Leases, part of the Bank's commercial loan portfolio, increased in 1998
through the purchase of pools of leases from the Company's jointly owned leasing
company, Bancorp Financial Services. At year-end the Bank had $8,426,741 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, 1998 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, 1998, 1997, 1996, 1995, and 1994,
respectively:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $253,900 $594,800 $123,000 $136,000 $258,000
Interest foregone $ 44,500 $ 29,400 $ 4,200 $ 3,600 $ 4,000
</TABLE>
41
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
The 1998 provision for loan and lease losses of $1,113,000 was a decrease
from the 1997 provision of $1,705,000. The ratio of the allowance for losses to
total loans outstanding has increased significantly during the past two years
and was 1.70% at December 31, 1998, compared to 1.40% in 1997, and 0.96% in
1996. This level of reserves better meets the Bank's needs and is more in line
with industry standards. Net loan charge-offs for 1998 decreased to $737,000
from $897,000 in 1997. Consumer installment loans account for the majority
(82%) of those loans charged off. Management continues to maintain credit
review procedures and an effective collection process to help improve loan
portfolio performance. In 1998 the Bank's collection program resulted in loan
recoveries of $225,000 compared to $82,000 in 1997 and $55,000 in 1996.
The allowance for loan and lease 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 following table presents the activity within the allowance for loan and
lease losses as at December 31, 1998, 1997, 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,705 $ 897 $ 810 $ 721 $ 671
Provision charged to expense 1,113 1,705 570 330 180
-------- -------- -------- -------- --------
Charge-offs: Commercial (168) (42) (131) (87)
Real estate (75)
Installment (794) (937) (407) (163) (62)
-------- -------- -------- -------- --------
Total Charge-offs (962) (979) (538) (250) (137)
-------- -------- -------- -------- --------
Recoveries: Commercial 73 16
Installment 152 82 39 9 7
-------- -------- -------- -------- --------
Total Recoveries 225 82 55 9 7
-------- -------- -------- -------- --------
Net Charge-offs (737) (897) (483) (241) (130)
-------- -------- -------- -------- --------
Balance, end of year $ 2,081 $ 1,705 $ 897 $ 810 $ 721
-------- -------- -------- -------- --------
</TABLE>
The following table represents the allocation of the allowance for loan
losses as at December 31, 1998, 1997, 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996 1995 1994
---------------- ---------------- --------------- --------------- ---------------
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 $ 368 17.7% $ 187 11.0% $ 119 13.3% $ 170 21.0% $ 183 25.4%
Real Estate 404 19.4% 520 30.5% 147 16.4% 189 23.3% 226 31.3%
Installment 1,309 62.9% 998 58.5% 631 70.3% 451 55.7% 312 43.3%
---------------- ---------------- --------------- --------------- ---------------
Total Allowance $2,081 100.0% $1,705 100.0% $ 897 100.0% $ 810 100.0% $ 721 100.0%
---------------- ---------------- --------------- --------------- ---------------
</TABLE>
42
<PAGE>
INVESTMENT SECURITIES
Investment securities of $47,092,556 at December 31, 1998 represent an
increase of $18,665,791 or 66% from the balance of $28,426,765 at December 31,
1997. The on-going growth in the Bank's deposit portfolio, combined with
minimal growth in the loan portfolio resulted in this significant increase to
the investment portfolio.
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, 1998:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE (1)
After One After Five
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 512 6.65% 512 6.65%
6.65^
U.S. Government agencies $ 6,209 5.20% $ 9,497 5.96% $15,706 5.66%
Commercial Paper $ 5,981 5.70% $ 5,981 5.70%
Tax-Exempt Municipals $ 140 3.85% $ 140 3.85%
------------------ ----------------- ----------------- ----------------- ----------------
Totals: $12,330 5.43% $10,009 6.00% $ - 0.00% -0.00% $22,339 5.68%
------------------ ----------------- ----------------- ----------------- ----------------
Securities not due at a single maturity date:
Mortgage Backed Securities $10,958 6.10%
Federal Reserve Bank stock $ 367 6.00%
Federal Home Loan Bank stock $ 569 4.80%
(1) Yields calculated on nontaxable securities have not been adjusted for tax equivalent effects.
</TABLE>
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, 1998:
<TABLE>
<CAPTION>
SECURITIES HELD-TO-MATURITY (1)
After One After Five
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 $770 4.90% $3,169 4.97% $6,099 5.19% $2,821 4.55% $12,859 4.97%
------------------ ----------------- ----------------- ----------------- ----------------
</TABLE>
The following table is a comparison of the amortized cost and approximate
fair value of the securities portfolio as of December 31, 1998, 1997, 1996, 1995
and 1994, respectively:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------------- ------------------ ------------------ ------------------ -----------------
AMORTIZED FAIR Amortized Fair Amortized Fair Amortized Fair Amortized Fair
(in thousands) COST VALUE Cost Value Cost Value Cost Value Cost Value
------------------- ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities and
obligations of U.S. Government
corporations and agencies $16,211 $16,217 $17,065 $17,079 $19,662 $19,623 $12,169 $12,225 $ 6,711 $ 6,503
Obligations of states and
political subdivisions 12,999 13,348 10,970 11,270 11,593 11,771 9,820 10,112 9,907 9,738
Commercial Paper 5,989 5,981
Mortgage Backed Securities 10,992 10,958
Other securities 936 936 375 375 367 367 303 303 240 240
------------------- ------------------ ------------------- ------------------ -----------------
Total Investment Securities: $47,127 $47,440 $28,410 $28,724 $31,622 $31,761 $22,292 $22,640 $16,858 $16,481
------------------- ------------------ ------------------- ------------------ -----------------
</TABLE>
43
<PAGE>
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 been approximately 80% held in interest-bearing
accounts and 20% in non-interest bearing accounts. Total deposits equaled
$180,510,611 at year-end 1998, representing an increase of $27,839,554 or 18%
from the 1997 year-end figure of $152,671,057. By deposit type, growth in total
deposits was most significant in money market accounts--up $14 million (56%)
from the previous year. NOW accounts show the next largest percentage increase,
up $2.5 million or 24% from the previous year. The following table represents
the composition of the deposit mix at December 31, 1998, 1997, 1996, 1995, and
1994, respectively.
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996 1995 1994
-------------------- ------------------- ------------------- ------------------- -----------------
AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
-------------------- ------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing:
Demand $ 39,191 21.7% $ 34,810 22.8% $ 22,939 18.9% $ 20,921 18.4% $ 18,801 19.9%
Interest-bearing:
Savings 14,815 8.2% 14,076 9.2% 10,046 8.3% 9,589 8.4% 9,158 9.7%
Money market 39,780 22.1% 25,415 16.7% 24,575 20.2% 25,953 22.9% 25,939 27.3%
NOW accounts 12,831 7.1% 10,365 6.8% 7,855 6.5% 8,938 7.9% 6,680 7.1%
Time, $100,000 or more 15,569 8.6% 13,173 8.6% 10,499 8.6% 10,206 9.0% 6,398 6.8%
Other time 58,325 32.3% 54,832 35.9% 45,689 37.5% 37,980 33.4% 27,670 29.2%
-------------------- ------------------- ------------------- ------------------- -----------------
Total interest-bearing
deposits 141,320 78.3% 117,861 77.2% 98,664 81.1% 92,666 81.6% 75,845 80.1%
-------------------- ------------------- ------------------- ------------------- -----------------
Total deposits $ 180,511 100.0% $ 152,671 100.0% $ 121,603 100.0% $ 113,587 100.0% $ 94,646 100.0%
-------------------- ------------------- ------------------- ------------------- -----------------
-------------------- ------------------- ------------------- ------------------- -----------------
</TABLE>
Due to the size of individual and aggregate jumbo time deposits ($100,000
or more), relatively small changes in volume can have a more significant affect
on the size of the entire deposit portfolio than other categories. The
following table represents the total amounts and maturities of time deposits of
$100,000 or more at December 31, 1998.
<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 $ 6,791 $ 6,618 $ 2,160 $ - $ 15,569
----------- ------------- ----------- ----- ----------
</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, and sales of securities from the
available-for-sale portfolio. These activities are summarized as investing
activities in the Consolidated Statement of Cash Flows. Net cash used by these
activities totaled approximately $21,523,363 in 1998. Activity in the Bank's
investment 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
44
<PAGE>
financing activities in the cash flow statement. In 1998 funds totaling
approximately $27,518,213 were provided by financing activities, with most of
this coming from increases in the deposit portfolio. Liquidity is also
provided or used through the results of operating activities. In 1998
operating activities provided approximately $3,840,236 in cash towards
liquidity.
A common measurements of liquidity for banks is the ratio of loans to
deposits. Tehama Bank's target range for this ratio is 70-80%. The lower this
ratio, the higher the Bank's liquidity, but at the cost of fewer assets in the
loan category, which is the highest yielding earning asset. This ratio for the
Bank was 67.1% as of December 31, 1998 compared to 77.8% as of December 31,
1997, and 76.1% as of December 31, 1996. 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.
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, 1998 Tehama Bancorp's total
consolidated risk-based capital was 14.9%, while the same ratio for the Bank was
12.8%. 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, 1998
the Company and the Bank met the definition of well-capitalized with leverage
ratios of 9.4% and 7.9%, respectively, Tier 1 risk-based capital ratios of
13.6% and 11.5%, respectively, and total risk-based capital ratios (as noted
above also) of 14.9% and 12.8%, 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
45
<PAGE>
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. Tehama Bank established a Year 2000 Task Force
comprised of senior managers representing all units within the Bank. The
objective of the task force is to ensure Tehama Bank is fully prepared for
the change in the century date. Task force objectives and status to date
include:
- - Review of the Bank's business and technology operations to determine the
impact of the Year 2000 date change. Completed 1st quarter of 1998
- - Assessment of the risk to bank operations from computer hardware and
software impacted by the millennium change. Completed 2nd quarter of 1998
- - Upgrade critical systems, software and networks to Year 2000 readiness.
Completed 3rd quarter 1998
- - Test and certify all hardware and software systems (including interfaces).
Initiated 3rd quarter 1998, to be completed during 2nd quarter 1999
- - Develop contingency plans for all mission-critical applications. Completed
1st quarter 1999
Tehama Bank has completed the inventory, assessment and renovation phases of
our plan. In addition, we have completed an internal review of technology assets
which may be sensitive to the change in the century date. Tehama Bank is
currently in the midst of the testing and implementation phases. We plan to
complete testing and have all system changes implemented by June 30, 1999, as
recommended by the Federal Financial Institutions Examination Council (FFIEC).
Additionally, we have purchased an independent third party review of our main
data processing provider to ensure that it will be Y2K compliant. We are
confident that all the steps Tehama Bank is taking will meet the Bank's and our
customers needs during the Year 2000.
Regarding our vendors, Tehama Bank has established an ongoing vendor
management program to obtain information about the Year 2000 readiness of
vendors and service providers. A Year 2000 risk assessment program is also
underway to evaluate the impact of Year 2000 on our significant borrowers and
funds providers. In addition, liquidity risk planning is underway to ensure
that we will be able to meet the needs of our customers. We have taken a
proactive approach to awareness and communication, both in the organization as
well as the community.
In any project involving the identification, testing and modification of
hardware and software there is a risk that not all potential problems will be
satisfactorily addressed on time. To mitigate this risk, Tehama Bank is
formulating contingency plans for all mission critical operations to reduce the
impact of any unexpected failure resulting from the century change.
Furthermore, Tehama Bank is updating its business continuity plans for the
entire organization. These plans include provisions for supplementary human
resources, outsourcing of operational activities and alternate sources of power
in the event that a power failure or other type of business disruption occurs.
The majority of costs associated with the Bank's Year 2000 preparedness
efforts have been associated with the use of existing staff to prepare, test and
confirm the components of the plan. In some cases, third parties have been used
to assist with planning and testing and
46
<PAGE>
certain new software and hardware products have been procured. The majority
of these costs would have been incurred in the normal course of business as
the Bank regularly upgrades its various systems in an effort to more
efficiently and effectively serve its clientele and conduct its operations.
The Bank incurred costs of approximately $20,000 in 1998 related to the use
of third party consultants and other extraordinary Year 2000 expenses and
expects to expend approximately $20,000 to $80,000 in 1999. The costs
incurred in 1998 did not have a material effect on the Bank's net income and
the Bank does not expect the costs that will be incurred in 1999 to have a
material impact on the Bank's net income in 1999.
MARKET FOR THE COMPANY'S STOCK
There is limited trading in shares of the Common Stock of Tehama Bancorp,
which is not listed on a major exchange, but trading information is available on
a delayed basis on the OTC bulletin board. There were approximately 1,100
shareholders of record as of March 5, 1999.
The following table summarizes those trades of which management has
knowledge, setting forth the approximate high and low bid prices for the periods
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 cash dividends of $0.40 per share on May 15, 1998, and on May
30, 1997, and a 10% stock dividend on May 1, 1996.
<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 31,1996 $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-
March 31,1998 $16.50 $16.88 64,100 -0- -0-
June 30, 1998 $14.50 $15.00 50,300 0 $662,219
September 30, 1998 $14.50 $15.00 21,900 -0- -0-
December 31, 1998 $13.00 $14.00 32,200 -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.
47
<PAGE>
BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
JOHN W. KOEBERER GARY L. NAPIER
RAYMOND C. LIEBERENZ
CHAIRMAN OF THE BOARD VICE CHAIRMAN OF THE BOARD
SECRETARY TO THE BOARD
Resort/Park Concessionaire Insurance Broker Licensed Real Estate Broker
HENRY C. ARNEST, III GARRY D. FISH LESLIE L. MELBURG
Vice President, Manufacturing Firm Optometrist Partner, Architectural Firm
LOUIS J. BOSETTI MAX M. FROOME EUGENE F. PENNE
Educational Consultant Real Estate Consultant/Antique Broker Owner, Bowling Recreation Center
HARRY DUDLEY ORVILLE K. JACOBS JOHN D. REGH
Construction Company Owner Real Estate Developer Owner, Office Equipment
Company
WILLIAM P. ELLISON GARY C. KATZ TERRANCE A. RUST
President & CEO, Tehama Bank Radio Station Operator Oral Surgeon
and Tehama Bancorp
SHAREHOLDER INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
Stock Transfer Agent Sales & Purchases of Stock Sales & Purchases of Stock
U.S. STOCK TRANSFER CORPORATION HOEFER & ARNETT, INC./MARC ARNETT PAINEWEBBER/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 SUTRO & CO. VAN KASPER & COMPANY
James L. Horton Troy Norlander Steve Eddy
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
</TABLE>
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.
48
<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 February 12, 1999, with respect to the consolidated
financial statements of Tehama Bancorp and subsidiary as an exhibit to Tehama
Bancorp's Form 10-K dated April 14, 1999 filed with the Securities and Exchange
Commission.
Perry-Smith & Co., LLP
Certified Public Accountants
Sacramento, California
April 14, 1999
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,363
<INT-BEARING-DEPOSITS> 141,320
<FED-FUNDS-SOLD> 14,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,233
<INVESTMENTS-CARRYING> 10,288
<INVESTMENTS-MARKET> 10,585
<LOANS> 119,010
<ALLOWANCE> 2,081
<TOTAL-ASSETS> 199,782
<DEPOSITS> 180,511
<SHORT-TERM> 191
<LIABILITIES-OTHER> 1,560
<LONG-TERM> 0
0
0
<COMMON> 12,824
<OTHER-SE> 4,908
<TOTAL-LIABILITIES-AND-EQUITY> 199,782
<INTEREST-LOAN> 11,214
<INTEREST-INVEST> 2,665
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,879
<INTEREST-DEPOSIT> 5,614
<INTEREST-EXPENSE> 5,614
<INTEREST-INCOME-NET> 8,265
<LOAN-LOSSES> 2,081
<SECURITIES-GAINS> (21)
<EXPENSE-OTHER> 7,062
<INCOME-PRETAX> 2,861
<INCOME-PRE-EXTRAORDINARY> 2,861
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 8.16
<LOANS-NON> 254
<LOANS-PAST> 677
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,705
<CHARGE-OFFS> 962
<RECOVERIES> 225
<ALLOWANCE-CLOSE> 2,081
<ALLOWANCE-DOMESTIC> 2,081
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
