<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1995
CALIFORNIA BANCSHARES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-9584 94-2147553
- ----------------- --------------- ------------------
100 Park Place, Suite 140, San Ramon, California 94583
-----------------------------------------------------------------------
Address, including zip code, of registrant's principal executive office
(510) 743-4200
--------------------------------------------------------
Registrant's telephone number, including area code
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1995, California Bancshares, Inc. (the "Company")
acquired all of the outstanding equity securities of First Community Bankshares,
Inc., the holding company for Centennial Bank of Castro Valley, California for
$16,250,000 in cash. Centennial has four branches, assets of approximately $115
million and shareholders' equity of approximately $11 million.
The transaction was accounted for using the purchase method of
accounting and accordingly all of First Community Bankshares, Inc. assets and
liabilities were revalued to fair value at the time of acquisition. The
Company's consolidated financial statements will include Centennial's results of
operations beginning July 1, 1995. The sellers were Norman C. Schultz and John
C. Davis as trustee of the Guston Charles Schultz Trust. The sellers had no
prior relationship with California Bancshares, Inc. or any of its affiliates,
any director or officer of California Bancshares, Inc. or any associate of any
such director or officer.
The sources of funds for the acquisition were cash on hand and
dividends received from the Company's bank subsidiaries. The Company will
continue to operate the branches of Centennial Bank as bank branches.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENT OF BUSINESSES ACQUIRED.
The audited consolidated financial statements of First Community
Bankshares, Inc., including balance sheet and income statement as of and
for the year ended December 31, 1994 are attached beginning at page_______.
(b) PRO FORMA FINANCIAL INFORMATION.
A pro forma balance sheet as of March 31, 1995 and pro forma
statements of income for the year ended December 31, 1994 and three months
ended March 31, 1995 are filed with this report and included beginning at
page_____.
(c) EXHIBITS.
NO. DESCRIPTION
2. Purchase Agreement between California Bancshares, Inc., Norman C. Schultz
and John C. Davis as trustee of the Guston Charles Schultz Trust dated as
of April 18, 1995 (incorporated by reference from Form 8-K filed with the
Commission on or about May 3, 1995)
28. Press release issued by the Company on June 30, 1995 (incorporated by
reference from Form 8-K filed with the Commission on or about July 5, 1995)
(2)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this current report to be signed on its behalf by the
undersigned duly authorized person.
Date: June 30, 1995 California Bancshares, Inc.
By:______________________________
Its President and Chief Executive
Officer
(3)
<PAGE>
ARTHUR ANDERSEN LLP
FIRST COMMUNITY BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
First Community Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of First Community
Bankshares, Inc. (a California corporation) and Subsidiary as of December 31,
1994 and 1993, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Community Bankshares,
Inc. and Subsidiary as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for certain
investments in debt and equity securities as required by Statement of Financial
Accounting Standards No. 115.
/s/ Arthur Andersen LLP
San Francisco, California,
March 10, 1995
F-2
<PAGE>
FIRST COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---------- ----------
<S> <C> <C>
Cash and due from banks $ 7,244 $ 5,552
Federal funds sold 2,000 2,000
Short-term investments 500 5,500
---------- ----------
Total cash and cash equivalents 9,744 13,052
Interest-bearing deposits with other financial institutions - 2,000
Investment securities-
Held to maturity 13,072 25,249
Available for sale 11,024 -
Loans, net of allowance for loan losses of $1,071 and $1,062 at
December 31, 1994 and 1993, respectively 74,107 76,165
Premises and equipment, net 2,391 2,406
Accrued interest receivable 863 822
Goodwill 1,496 1,614
Other assets 246 228
---------- ----------
Total assets $ 112,943 $ 121,536
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 21,711 $ 21,524
Interest-bearing deposits-
Transaction deposits 32,167 33,020
Savings deposits 17,194 19,915
Time certificates of deposit of $100,000 or more 5,112 4,853
Other time deposits 24,719 30,586
---------- ----------
Total deposits 100,903 109,898
Capital notes 500 865
Other liabilities 184 203
Minority interest in subsidiary 403 446
---------- ----------
Total liabilities 101,990 111,412
---------- ----------
Commitments (Note 10)
Stockholders' equity:
Common stock 1,000 1,000
Additional contributed capital 3,000 3,000
Retained earnings 7,258 6,124
Net unrealized loss on available-for-sale securities (305) -
---------- ----------
Total stockholders' equity 10,953 10,124
---------- ----------
Total liabilities and stockholders' equity $ 112,943 $ 121,536
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FIRST COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $6,979 $6,419
Interest and dividends on investment securities-
Taxable securities 1,476 1,296
Tax-exempt securities 60 91
------ ------
Total interest income 8,515 7,806
------ ------
INTEREST EXPENSE:
Interest on deposits-
Savings and interest-bearing transaction accounts 993 1,070
Time certificates of deposit of $100,000 or more 189 150
Other time deposits 944 815
Interest on capital notes 68 91
------ ------
Total interest expense 2,194 2,126
------ ------
Net interest income 6,321 5,680
PROVISION FOR LOAN LOSSES 457 450
------ ------
Net interest income after provision for loan losses 5,864 5,230
------ ------
OTHER OPERATING INCOME:
Service charges on deposit accounts 887 897
Other income 299 300
------ ------
Total other operating income 1,186 1,197
------ ------
OTHER OPERATING EXPENSE:
Salaries and employee benefits 2,703 2,546
Occupancy and equipment 756 790
Other operating expense 1,610 1,370
------ ------
Total other operating expense 5,069 4,706
------ ------
Income before income taxes 1,981 1,721
PROVISION FOR INCOME TAXES 790 769
------ ------
Income before minority interest in net income 1,191 952
MINORITY INTEREST IN NET INCOME 57 59
------ ------
Net income $1,134 $ 893
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FIRST COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Net
------------------------------------- Unrealized
Shares Loss on
------------------------- Additional Available-
Class A - Class B - Contributed for-Sale Retained
Voting Nonvoting Amount Capital Securities Earnings Total
--------- --------- ------ ----------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1992 3,200 800 $1,000 $3,000 $ - $5,231 $ 9,231
Net income - - - - - 893 893
----- --- ------ ------ ------ ------ -------
BALANCE AT
DECEMBER 31, 1993 3,200 800 1,000 3,000 - 6,124 10,124
Effect of change
in accounting
method for
investment
securities - - - - (13) - (13)
Change in
unrealized loss
on available-
for-sale
securities - - - - (292) - (292)
Net income - - - - - 1,134 1,134
----- --- ------ ------ ------ ------ -------
BALANCE AT
DECEMBER 31, 1994 3,200 800 $1,000 $3,000 $ (305) $7,258 $10,953
----- --- ------ ------ ------ ------ -------
----- --- ------ ------ ------ ------ -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
FIRST COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
IN THOUSANDS
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,134 $ 893
------- --------
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 338 333
Provision for loan losses 457 450
Deferred tax benefit (8) (80)
Minority interest in net income 57 59
Increase in accrued interest receivable (41) (91)
Decrease (increase) in other assets (18) 364
Decrease in other liabilities (11) (30)
------- --------
Total adjustments 774 1,005
------- --------
Net cash provided by operating activities 1,908 1,898
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits with other
financial institutions 2,000 20
Proceeds from maturities of investment securities 6,850 17,303
Proceeds from sales of investment securities 3,072 -
Purchases of investment securities (9,099) (23,881)
Net decrease (increase) in loans 1,601 (8,195)
Capital expenditures (191) (70)
Net liabilities acquired from purchase of Homestead
Federal Savings Association deposits - (726)
------- --------
Net cash used in investing activities 4,233 (15,549)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, transaction
deposits and savings deposits (3,387) 1,747
Net increase (decrease) in time deposits (5,608) 13,344
Payments on note payable and capital notes (365) (140)
Dividends paid to minority interest (23) (13)
Purchase of Bank Stock by the Holding Company (66) (41)
------- --------
Net cash provided by financing activities (9,449) 14,897
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,308) 1,246
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,052 11,806
------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,744 $ 13,052
------- --------
------- --------
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 2,063 $ 2,156
Income taxes 738 805
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1993, the Bank purchased the deposits of a Homestead Federal Savings
Association branch for $726. In conjunction with the acquisition, the following
assets and liabilities were assumed:
Cash $ 22,867
Loans 139
Deposits (23,732)
--------
Net liabilities acquired $(726)
--------
--------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
FIRST COMMUNITY BANKSHARES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of First Community Bankshares, Inc. (the
Holding Company) and its majority-owned subsidiary, Centennial Bank (the Bank),
conform to generally accepted accounting principles and general practices within
the banking industry. The following is a description of the more significant of
these policies.
CONSOLIDATION
The financial statements include the accounts of the Holding Company and its
subsidiary, the Bank. All significant intercompany balances and transactions
have been eliminated in consolidation.
GOODWILL
The excess of cost over the fair market value of the tangible net assets of the
Bank at the date of acquisition (goodwill) is being amortized over 20 years.
Accumulated amortization was $557 and $488 at December 31, 1994 and 1993,
respectively.
The Bank purchased the deposits of the Hayward branch of Homestead Federal
Savings Association on September 17, 1993. The excess of liabilities over
assets acquired of $726 (goodwill), is being amortized over 15 years.
Accumulated amortization was $60 and $12 at December 31, 1994 and 1993,
respectively.
INVESTMENT SECURITIES
As of January 1, 1994, the Bank adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires that investments in debt and equity
securities be classified as "held-to-maturity," "trading" or "available-for-
sale." It requires that investments classified as held-to-maturity be reported
at amortized cost, that investments classified as trading securities be reported
at fair value with unrealized gains and losses included in earnings and that
investments classified as available-for-sale be reported at fair value with
unrealized gains and losses, net of related tax, if any, reported as a separate
component of stockholders' equity. The effect of adopting this statement was to
recognize an unrealized loss (net of tax) of $13 as a decrease in stockholders'
equity.
F-8
<PAGE>
- 2 -
LOANS
Loans are stated at the principal amount outstanding, net of unearned income and
the allowance for loan losses. Interest on loans, including installment loans,
is credited to income on a simple interest basis. It is the policy of the Bank
to stop accruing interest on loans which are 90 days or more delinquent unless
they are both well secured and in process of collection. Any previously accrued
but unpaid interest on these loans is reversed against income at the time loans
are placed on nonaccrual status.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to
provide for estimated probable credit losses resulting from loans and
commitments to extend credit. The allowance is increased by provisions charged
to operating expense and is reduced by net charge-offs. The Bank makes periodic
reviews of the loan portfolio and considers current economic conditions,
historical loan loss experience, and other factors in determining the adequacy
of the allowance balance.
The allowance for loan losses is based on estimates, and ultimate losses may
vary from the current estimates. These estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings in the periods in
which they become known.
LOAN FEES
Origination fees, commitment fees and related direct costs are deferred and
recognized over the contractual life of the loan as a yield adjustment.
PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the assets, ranging from 3 to 15 years
for furniture and equipment and 5 to 33 years for the premises.
INCOME TAXES
Effective January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
established new financial accounting and reporting standards for the effects of
income taxes that result from an enterprise's activities during the current and
preceding years. This standard requires an asset and liability approach for
financial accounting and reporting for income taxes and replaced the income
statement approach inherent in the former income tax accounting standard.
Adoption of this statement did not have a material impact on the financial
position or results of operations of the Bank.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents include cash and due from banks, money market funds
and federal funds sold with an original maturity of less than three months.
F-9
<PAGE>
- 3 -
FUTURE ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS 114). The statement, as amended by Statement of Financial Accounting
Standard No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," requires that impaired loans that are within the
scope of this statement be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate or, alternatively, at the
loan's observable market price or the fair value of collateral if the loan is
collateral-dependent. While the effect of applying the pronouncement, which is
required to be implemented in 1995, has not yet been determined, the Bank
believes that its impact on the financial position or results of operations will
not be significant.
RECLASSIFICATIONS
Certain amounts previously reported in the 1993 financial statements have been
reclassified to conform to the 1994 presentation. These reclassifications had
no impact on previously reported net income or stockholder's equity.
2. INVESTMENT SECURITIES:
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in debt and equity securities as of December
31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1994
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity-
U.S. Treasury securities $10,174 $ 6 $ 342 $9,838
U.S. government agencies 350 1 82 269
Obligations of states and
political subdivisions 1,048 8 19 1,037
Other 1,500 - 32 1,468
------- --- ------ -------
Total 13,072 15 475 12,612
------- --- ------ -------
Available for sale-
U.S. Treasuries 1,000 4 - 1,004
U.S. government agencies 2,964 2 - 2,966
Other 7,588 - 534 7,054
------- --- ------ -------
Total 11,552 6 534 11,024
------- --- ------ -------
Total investment
securities $24,624 $21 $1,009 $23,636
------- --- ------ -------
------- --- ------ -------
</TABLE>
F-10
<PAGE>
- 4 -
<TABLE>
<CAPTION>
1993
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,733 $218 $14 $ 9,937
U.S. government agencies 1,861 99 - 1,960
Obligations of states and
political subdivisions 1,148 58 - 1,206
Other 12,507 110 - 12,617
------- ---- --- -------
$25,249 $485 $14 $25,720
------- ---- --- -------
------- ---- --- -------
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----------- ----------
<S> <C> <C>
Due in one year or less $ 4,548 $ 4,560
Due after one year through
five years 11,565 11,136
Due after five years through
ten years 1,673 1,636
Other, with no specified maturities 6,838 6,304
------- -------
$24,624 $23,636
------- -------
------- -------
</TABLE>
There were no sales of investments in debt securities during 1994 and 1993.
Investment securities having an amortized cost of $1,423 at December 31, 1994,
were pledged to secure public and other deposits as required by law.
3. LOANS AND ALLOWANCE FOR LOAN LOSSES:
Loan balances as of December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Commercial $12,770 $16,932
Construction 8,238 15,405
Real estate 45,242 34,639
Installment 9,313 10,640
Deferred loan fees (385) (389)
------- -------
Total loans 75,178 77,227
Less- Allowance for loan losses (1,071) (1,062)
------- -------
$74,107 $76,165
------- -------
------- -------
</TABLE>
F-11
<PAGE>
- 5 -
The following is an analysis of the allowance for loan losses for the years
ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Balance, beginning of year $1,062 $ 945
Provision charged to operations 457 450
Loans charged off (456) (337)
Recoveries 8 4
------ ------
Balance, end of year $1,071 $1,062
------ ------
------ ------
</TABLE>
There were loans totaling $120 and $0 on nonaccrual status at December 31, 1994
and 1993, respectively. Loans greater than 90 days past due not on nonaccrual
status were $864 and $1,172 at December 31, 1994 and 1993, respectively.
The Bank grants consumer, commercial and residential loans to customers
principally in southern Alameda County. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the local economy and the real estate economic
sector.
4. PREMISES AND EQUIPMENT:
The following presents the cost of premises, furniture and equipment and the
related accumulated depreciation and amortization as of December 31, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Land $ 470 $ 471
Bank premises 1,386 1,530
Leasehold improvements 1,022 1,226
Furniture and equipment 717 2,116
------- -------
3,595 5,343
Less- Accumulated depreciation
and amortization (1,204) (2,937)
------- -------
$2,391 $ 2,406
------- -------
------- -------
</TABLE>
Depreciation and amortization related to premises and equipment and included in
operating expense was $203 and $226 in 1994 and 1993, respectively.
5. CAPITAL NOTES:
In 1988, the Holding Company issued a $500 seven-year capital note due June 30,
1995. There are no required principal payments until maturity. The note bears
interest at prime plus 1.75 percent, payable quarterly.
During 1994, the Bank paid the entire outstanding balance of $365 on its seven-
year capital notes which were outstanding as of December 31, 1993.
F-12
<PAGE>
- 6 -
6. INCOME TAXES:
The components of income tax expense included in the statements of income for
the years ended December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------- ----------------------------------------------
Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal $558 $ (3) $555 $630 $(58) $572
State 240 (5) 235 219 (22) 197
---- ---- ---- ---- ---- ----
$798 $ (8) $790 $849 $ (80) $769
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
</TABLE>
Not included in the preceding table are tax benefits related to unrealized
losses on available-for-sale securities that are recorded as an adjustment to
stockholders' equity. This deferred tax benefit was $223 in 1994.
The provision for income taxes differs from the statutory federal rate of 34
percent for the following reasons:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Income tax based on statutory federal rate $674 $585
State and local taxes on income, net of the
federal income tax benefit 161 146
Interest on municipal securities exempt
from federal taxation (20) (31)
Goodwill 23 23
Others, net (48) 46
---- ----
Total tax provision $790 $769
---- ----
---- ----
</TABLE>
At December 31, 1994 and 1993, the net deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Deferred tax assets-
Allowance for loan losses $ 319 $ 313
California income tax 56 50
Unrealized loss on available for
sale securities 223 -
Other assets 1 1
----- -----
Total deferred tax assets 599 364
----- -----
Deferred tax liability-
Depreciation and accretion (118) (114)
Other liabilities (15) (15)
----- -----
Total deferred tax liabilities (133) (129)
----- -----
Net deferred tax asset $ 466 $ 235
----- -----
----- -----
</TABLE>
F-13
<PAGE>
- 7 -
7. SAVINGS PLAN:
The Bank has a defined contribution profit sharing plan under which all
employees who have completed 1,000 hours of service and are 18 years of age or
older, as defined by the plan, are eligible for participation. There were no
expenses under this plan in 1994 or 1993.
8. COMMON STOCK:
The Bank has $3.20 par value common stock. There are 2,000,000 shares
authorized and 344,288 shares outstanding.
The Holding Company has two classes of $250 par value common stock. Class A
voting common stock has 8,000 shares authorized and 3,200 shares outstanding.
There are 2,000 shares of Class B nonvoting common stock authorized and 800
shares outstanding.
9. RELATED PARTY TRANSACTIONS:
The Bank has, and expects to have in the future, banking transactions in the
ordinary course of its business with directors, officers and other associates.
In management's opinion, loans to such parties are granted on the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with others, and do not involve more than the normal
risk of collectibility or present other unfavorable features. Such loans
amounted to $164 and $66 at December 31, 1994 and 1993, respectively.
10. COMMITMENTS:
The Bank leases certain premises. The total annual rental expense included in
occupancy expense was $217 in 1994 and $213 in 1993. At December 31, 1994, the
approximate minimum future lease payments under noncancellable lease agreements
were:
<TABLE>
<S> <C>
1995 $ 216
1996 216
1997 216
1998 216
1999 132
Thereafter 1,285
------
$2,281
------
------
</TABLE>
The Bank makes commitments to extend credit in the normal course of business to
meet the financing needs of its customers. 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 many of the commitments are expected to expire without being drawn upon,
the total commitment amount does not necessarily represent future cash
requirements.
F-14
<PAGE>
- 8 -
The Bank is exposed to credit loss, in the event of nonperformance by the
borrower, in the contract amount of the commitment. The Bank uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments and evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Bank, is
based on management's credit evaluation of the borrower. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and real property.
The Bank also issues standby letters of credit that are unconditional
commitments to guarantee the performance of a customer to a third party. These
guarantees are primarily issued to support construction bonds, private borrowing
arrangements and similar transactions. Most of these guarantees are short-term
commitments expiring in 1995 and are not expected to be drawn upon. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Bank holds collateral
as deemed necessary, as described above.
The contract amount of commitments not reflected on the balance sheet at
December 31, 1994, were as follows:
<TABLE>
<S> <C>
Loan commitments and lines of credit $13,974
Standby letters of credit 542
</TABLE>
11. DIVIDEND RESTRICTIONS:
One of the principal sources of funds for the Holding Company is dividends
received from the Bank. The California Financial Code provides that a bank may
not make a cash distribution to its stockholders in excess of the lesser of (1)
the bank's retained earnings or (2) the bank's net income for its last three
fiscal years, less the amount of any distributions made by the bank to
stockholders during such period. Subject to regulatory capital adequacy
restrictions, at December 31, 1994, the Bank had $2,593 available for dividends
to the Holding Company.
F-15
<PAGE>
- 9 -
12. PARENT COMPANY FINANCIAL INFORMATION:
The condensed financial statements of the Holding Company presented on an
unconsolidated basis are:
CONDENSED BALANCE SHEETS--DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------- -------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 355 $ 98
Equity in Centennial Bank 10,266 9,624
Goodwill 835 905
Other assets 22 31
------- -------
Total assets $11,478 $10,658
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Capital notes $ 500 $ 500
Other liabilities 25 34
------- -------
Total liabilities 525 534
------- -------
Stockholders' equity:
Common stock 1,000 1,000
Additional contributed capital 3,000 3,000
Retained earnings 7,258 6,124
Unrealized loss on investment securities available for sale (305) -
------- -------
Total stockholders' equity 10,953 10,124
------- -------
Total liabilities and stockholders' equity $11,478 $10,658
------- -------
------- -------
</TABLE>
F-16
<PAGE>
- 10 -
CONDENSED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------ -----
<S> <C> <C>
Income from subsidiary-
Cash dividends $ 552 $ 245
Undistributed income from subsidiary 882 912
Interest expense- interest on notes (54) (56)
Other income 32 30
Salaries and employee benefits (299) (246)
Occupancy and equipment expense (46) (38)
Other operating expense (96) (92)
Income tax benefit 163 138
------ -----
Net income $1,134 $ 893
------ -----
------ -----
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities-
Net income $1,134 $ 893
------ -----
Adjustments to reconcile net income to net cash provided by
operating activities-
Equity in undistributed income from subsidiary (882) (912)
Amortization of goodwill 71 70
Decrease in other assets 9 52
Increase (decrease) in other liabilities (9) 34
------ -----
Total adjustments (811) (756)
------ -----
Net cash provided by operating activities 323 137
------ -----
Cash flows from investing activities- purchase of Bank stock (66) (41)
------ -----
Net cash used in investing activities (66) (41)
------ -----
Cash flows from financing activities- payment of note payable - (140)
------ -----
Net cash used in financing activities - (140)
------ -----
Net change in cash and cash equivalents 257 (44)
------ -----
Cash and cash equivalents at beginning of year 98 142
------ -----
Cash and cash equivalents at end of year $ 355 $ 98
------ -----
------ -----
</TABLE>
F-17
<PAGE>
CALIFORNIA BANCSHARES, INC. AND FIRST COMMUNITY BANKSHARES, INC.
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
California First Pro
(Dollars in thousands) Bancshares, Community Forma
ASSETS Inc. Bankshares, Inc. Adjustments Combined
------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks $69,847 $5,966 ($16,750) (2) $59,063
Federal funds sold 52,324 12,800 65,124
------------- --------------- ------------- -------------
Total cash and cash equivalents 122,171 18,766 (16,750) 124,187
Securities 302,381 23,122 (90) (3) 325,413
Loans 943,118 74,183 (529) (3) 1,016,722
Allowance for loan losses (14,377) (1,039) (15,416)
------------- --------------- ------------- -------------
Net loans 928,741 73,144 (529) 1,001,356
Premises and equipment, net 18,551 2,461 21,012
Other assets 33,498 2,716 5,849 (3) 42,063
------------- --------------- ------------- -------------
Total Assets $1,405,342 $120,209 ($11,520) $1,514,031
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
LIABILITIES:
Deposits
Noninterest-bearing demand $228,305 $22,178 $250,483
Savings and interest-bearing demand 529,516 46,215 575,731
Time certificates, $100,000 or more 81,689 5,350 87,039
Other time 412,418 33,871 (107) (3) 446,182
------------- --------------- ------------- -------------
Total deposits 1,251,928 107,614 (107) 1,359,435
Borrowed funds 26,000 500 26,500
Other liabilities 6,367 682 7,049
------------- --------------- ------------- -------------
Total liabilities 1,284,295 108,796 (107) 1,392,984
------------- --------------- ------------- -------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred stock, no par value
Shares authorized: 2,000,000
Shares issued: none - - - -
Common stock, $2.50 par value
Shares authorized: 16,000,000
Shares issued and outstanding: 9,984,000 24,960 1,000 (1,000) 24,960
Capital Surplus 37,489 3,000 (3,000) 37,489
Change in unrealized loss on securities available
for sale, net (144) (229) 229 (144)
Retained earnings 58,742 7,642 (7,642) 58,742
------------- --------------- ------------- -------------
Total shareholders' equity 121,047 11,413 (11,413) (4) 121,047
------------- --------------- ------------- -------------
Total Liabilities and Shareholders' Equity $1,405,342 $120,209 ($11,520) $1,514,031
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
CALIFORNIA BANCSHARES, INC. AND FIRST COMMUNITY BANKSHARES, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995
California First Pro
Bancshares, Community Forma
(In thousands except per share amounts) Inc. Bankshares, Inc. Adjustments Combined
-------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $21,819 $1,759 $44 (3) $23,622
Securities
Taxable 3,736 376 8 (3) 4,120
Exempt from Federal income taxes 627 15 642
Other interest income 549 68 (251) (5) 366
-------------- ------------------ ------------- ------------
Total interest income 26,731 2,218 (199) 28,750
-------------- ------------------ ------------- ------------
INTEREST EXPENSE
Interest on deposits:
Savings and interest-bearing demand 3,339 244 3,583
Time certificates $100,000 or more 819 56 875
Other time 4,768 317 9 (3) 5,094
-------------- ------------------ ------------- ------------
Total interest on deposits 8,926 617 9 9,552
Interest on borrowed funds 565 13 578
-------------- ------------------ ------------- ------------
Total interest expense 9,491 630 9 10,130
-------------- ------------------ ------------- ------------
Net interest income 17,240 1,588 (208) 18,620
Provision for loan losses 390 90 480
-------------- ------------------ ------------- ------------
Net interest income after provision
for loan losses 16,850 1,498 (208) 18,140
-------------- ------------------ ------------- ------------
NONINTEREST INCOME
Service charges on deposit accounts 1,321 209 1,530
Other operating income 689 68 757
-------------- ------------------ ------------- ------------
Total noninterest income 2,010 277 2,287
-------------- ------------------ ------------- ------------
NONINTEREST EXPENSE
Salaries and employee benefits 6,716 587 7,303
Occupancy 2,048 176 2,224
Other operating expense 3,624 337 104 (3) 4,065
-------------- ------------------ ------------- ------------
Total noninterest expense 12,388 1,100 104 13,592
-------------- ------------------ ------------- ------------
Income before provision for income taxes 6,472 675 (312) 6,835
Provision for income taxes 2,472 286 (73) (6) 2,685
-------------- ------------------ ------------- ------------
NET INCOME $4,000 $389 ($239) $4,150
-------------- ------------------ ------------- ------------
-------------- ------------------ ------------- ------------
PER SHARE
Net Income $0.40 $0.42
-------------- -----------
-------------- -----------
Dividends declared $0.18 $0.18
-------------- -----------
-------------- -----------
Weighted average shares outstanding 9,974 9,974
-------------- -----------
-------------- -----------
<CAPTION>
Year Ended December 31, 1994
California First Pro
Bancshares, Community Forma
(In thousands except per share amounts) Inc. Bankshares, Inc. Adjustments Combined
-------------- ------------------ ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $59,481 $6,979 $176 (3) $66,636
Securities
Taxable 13,627 1,476 30 (3) 15,133
Exempt from Federal income taxes 2,740 60 2,800
Other interest income 2,124 - (1,005) (5) 1,119
-------------- ------------------ ------------- ------------
Total interest income 77,972 8,515 (799) 85,688
-------------- ------------------ ------------- ------------
INTEREST EXPENSE
Interest on deposits:
Savings and interest-bearing demand 10,061 993 11,054
Time certificates $100,000 or more 2,481 189 2,670
Other time 8,559 944 36 (3) 9,539
-------------- ------------------ ------------- ------------
Total interest on deposits 21,101 2,126 36 23,263
Interest on borrowed funds 145 68 213
-------------- ------------------ ------------- ------------
Total interest expense 21,246 2,194 36 23,476
-------------- ------------------ ------------- ------------
Net interest income 56,726 6,321 (835) 62,212
Provision for loan losses 1,895 457 2,352
-------------- ------------------ ------------- ------------
Net interest income after provision
for loan losses 54,831 5,864 (835) 59,860
-------------- ------------------ ------------- ------------
NONINTEREST INCOME
Service charges on deposit accounts 4,446 887 5,333
Other operating income 3,060 299 3,359
-------------- ------------------ ------------- ------------
Total noninterest income 7,506 1,186 8,692
-------------- ------------------ ------------- ------------
NONINTEREST EXPENSE
Salaries and employee benefits 23,381 2,703 26,084
Occupancy 6,729 756 7,485
Other operating expense 13,890 1,667 415 (3) 15,972
-------------- ------------------ ------------- ------------
Total noninterest expense 44,000 5,126 415 49,541
-------------- ------------------ ------------- ------------
Income before provision for income taxes 18,337 1,924 (1,250) 19,011
Provision for income taxes 6,701 790 (294) (6) 7,197
-------------- ------------------ ------------- ------------
NET INCOME $11,636 $1,134 ($956) $11,814
-------------- ------------------ ------------- ------------
-------------- ------------------ ------------- ------------
PER SHARE
Net Income $1.24 $1.26
-------------- -----------
-------------- -----------
Dividends declared $0.55 $0.55
-------------- -----------
-------------- -----------
Weighted average shares outstanding 9,365 9,365
-------------- -----------
-------------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
<FN>
CALIFORNIA BANCSHARES, INC. AND FIRST COMMUNITY BANKSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) In the opinion of management, any unaudited interim financial statements
furnished reflect all normal recurring adjustments necessary for a fair
presentation of the results for the periods presented.
The unaudited pro forma combined balance sheet as of March 31, 1995 and
combined statement of income for the three months ended March 31, 1995 and
the year ended December 31, 1994, reflects the acquisition of First
Community Bankshares, Inc. ("FCB") by California Bancshares, Inc. (the
"Company"). The pro forma combined statement of income for the periods
presented reflects the acquisition as if it had been consummated on
January 1 of each period. The unaudited pro forma amounts are not
necessarily indicative of future results of operations of the Company, or
the results that would have actually occurred had the acquisition been in
effect for the periods presented.
(2) The total cost of the acquisition to the Company consists of:
Total cash paid to Mssrs. Schultz and Davis as trustee of the
Guston Charles Schultz Trust $16,250
Acquisition costs of the Company (estimated) 500
----------
Total $16,750
----------
----------
(3) The estimated fair value of net assets of FCB acquired as of March 31,
1995 and the period over which the purchase accounting adjustments will
be amortized to income (expense) are as follows:
Income (Expense)
-----------------------------
Amortization Three months Year
period in March 31, December 31,
Amount years 1995 1994
(Amounts in thousands) ---------- ------------- ------------ ------------
Book value as of March 31, 1995 $11,413
Purchase accounting fair value adjustments:
Writeoff existing goodwill (1,438) 29 117
Estimated fair value of securities (90) 3 8 30
Estimated fair value of loans (529) 3 44 176
Estimated fair value of deposits 107 3 (9) (36)
Deferred tax on acquisition adjustments 1,001
----------
Estimated fair value of tangible net assets acquired 10,464
Total cost of acquisition (16,750) (251) (1,005)
----------
Excess of purchase price over fair value of tangible net
assets acquired (Goodwill and core deposit intangible) $6,286 5 - 15 (133) (532)
----------
----------
(4) Elimination of capital accounts.
(5) Financing of acquisition.
(6) Tax effect of acquisition adjustments.
</TABLE>
F-20
