<PAGE>
As filed with the Securities and Exchange Commission on July 23, 1996.
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
TRICO BANCSHARES
(Exact name of registrant as specified in charter)
CALIFORNIA 94-2792841 6022
- -------------------- ------------------- -----------------
(State or other (I.R.S. Employer (Primary Standard Industrial
jurisdiction of Identification No.) Classification Code Number)
incorporation or
organization)
15 Independence Circle
Chico, CA 95973 (916) 898-0300
(Address including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
Robert H. Steveson Copies To: Copies to:
President and CEO Herbert H. Davis III, Esq. James E. Topinka, Esq.
TriCo Bancshares Rothgerber, Appel, Powers & Graham & James
15 Independence Circle Johnson LLP One Maritime Plaza
Chico, California 95973 1200 17th Street, #3000 San Francisco, California
(916) 898-0300 Denver, Colorado 80202 94111
(Name and address of (303) 623-9000 (415) 954-0200
agent for service)
Approximate date of commencement of proposed sale of the securities to
the public:
The exchange of shares is to take place contemporaneously with the merger of
Sutter Buttes Savings Bank, F.S.B., Yuba City, California with and into TriCo
Bancshares, Chico, California, which date will be after approval of the merger
is received from the appropriate bank regulatory authorities.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box.
================================================================================
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being Price Offering Registration
Being Registered Registered Per Share(1) Price(1) Fee
Common Stock
no par value 125,000 shs. $15.90 $1,987,164 $685.23
================================================================================
(1) Calculated in accordance with Rule 457(f)(2)(3) on the basis of the
June 30, 1996, book value of the shares of Sutter Buttes Stock being
exchanged.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
This Registration Statement, including Exhibits, contains ______ pages. The
Exhibit Index appears on page ______ of the sequentially numbered pages of this
Registration Statement.
<PAGE>
TRICO BANCSHARES
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
BETWEEN REGISTRATION STATEMENT (FORM S-4) AND FORM OF PROSPECTUS
Item Number and Caption....................................Caption in Form S-4
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..........Facing page of Registration
Statement; Cross Reference
Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................Table of Contents;
Available Information;
Incorporation of Certain
Documents by Reference;
Accompanying Documents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information...................Summary of Prospectus
4. Terms of The Transaction
(a)(l), (2), (5), and (6).......................Proposed Merger
(a)(3) and (4)..................................Certain Considerations;
Proposed Merger; Capital
Stock
(b).............................................Proposed Merger
(c).............................................Proposed Merger
5. Pro Forma Financial Information.................Summary of Prospectus
6. Material Contacts with the Company Being
Acquired........................................Proposed Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters..............................Not Applicable
8. Interests of Named Experts and Counsel..........Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.....................................Indemnification
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by
Reference.......................................Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.....................................Incorporation of Certain
Documents by Reference;
Accompanying Documents
<PAGE>
13. Incorporation of Certain Information by
Reference.......................................Incorporation of Certain
Documents by Reference;
Accompanying Documents
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants...............Not Applicable
15. Information with Respect to S-3 Companies.......Not Applicable
16. Information with Respect to S-2 or S-3
Companies.......................................Incorporation of Certain
Documents by Reference;
Accompanying Documents
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies.................Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited
(a)(l), (2), and (4)............................The Meeting of Shareholders
(a)(3)..........................................Proposed Merger
(a)(5), (6), and (7)............................Summary of Prospectus;
Certain Considerations; The
Meeting of Shareholders;
Beneficial Ownership of
Sutter Buttes Common and
Preferred
(b).............................................Summary of Prospectus
19. Information if Proxies, Consents,
Authorizations are not to be Solicited
or in an Exchange Offer.........................Not Applicable
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SUTTER BUTTES SAVINGS BANK, F.S.B., YUBA CITY, CALIFORNIA
700 Plumas Street, Yuba City, California 95991
(916) 673-7283
TO OUR STOCKHOLDERS:
You are cordially invited to attend a Special Meeting of Shareholders
of Sutter Buttes Savings Bank, F.S.B., Yuba City, California ("Sutter Buttes"),
to be held on the ____ day of September, 1996, at 7:30 p.m., local time, at the
offices of Sutter Buttes at 700 Plumas Street, Yuba City, California 95991.
At the Meeting, Sutter Buttes shareholders will be asked to consider
and vote upon a proposal to adopt and approve an Acquisition Agreement and Plan
of Merger dated June 15, 1996 (the "Acquisition Agreement"), between and among
TriCo Bancshares ("TriCo"), Tri Counties Bank ("Tri Counties"), and Sutter
Buttes, whereby Sutter Buttes will merge with and into Tri Counties with Tri
Counties as the surviving bank (the "Merger"). The Acquisition Agreement is
attached as Exhibit A to the accompanying Prospectus/Proxy Statement. Tri
Counties is a commercial bank organized under the laws of the State of
California and operating as a wholly owned subsidiary of TriCo, which is a
registered bank holding company.
Upon consummation of the Merger, holders of the common stock of Sutter
Buttes ("Sutter Buttes Common Stock") will receive, in exchange for their shares
of Sutter Buttes Common Stock, shares of TriCo common stock ("TriCo Stock")
and/or cash with a value of approximately $2.99 per share of Sutter Buttes
Common Stock, subject to adjustment as described in the attached
Prospectus/Proxy Statement. In addition, holders of the preferred stock of
Sutter Buttes ("Sutter Buttes Preferred Stock") who do not convert their shares
to Sutter Buttes Common Stock will receive their liquidation preference of $5.00
per share. Holders of Sutter Buttes Common and Preferred Stock who dissent from
the Merger and properly perfect their appraisal rights will receive the value of
their shares in cash. No fractional shares of TriCo Stock will be issued in the
Merger, and fractional share values will be paid in cash.
As is explained in detail in the enclosed Prospectus/Proxy Statement,
if the Merger is approved, holders of shares of Sutter Buttes Common Stock who
do not exercise dissenters' rights may request payment for their shares either
in cash or in TriCo Stock. Enclosed with this Prospectus/Proxy Statement is a
Consideration Request Form. Please specify the form of payment you wish to
receive by marking the appropriate box, and sign the Form. Enclose the marked
and signed Form with your completed and signed proxy and mail them in the
enclosed postage-paid envelope no later than __________. If you intend to be at
the Meeting in person and not to send a proxy, you may send only the
Consideration Request Form in the enclosed envelope or bring it to the Meeting.
Please note that because fifty-one percent (51%) of the consideration to be paid
by TriCo must be in the form of TriCo Stock, shareholders who do not request
payment in TriCo Stock may nevertheless be assigned TriCo Stock if requests for
TriCo Stock total less than 51% of the total consideration. In the event that
requests for TriCo Stock total less than 51% of the total consideration, TriCo
Stock will be allocated first, on a pro rata basis, to those shareholders who
fail to request a form of payment through the Consideration Request Form and
next, if necessary, on a pro rata basis, to those shareholders who request cash.
Conversely, shareholders who do not request payment in cash may nevertheless be
assigned cash if requests for TriCo Stock total more than 51% of the total
consideration.
Also at the Meeting, Sutter Buttes shareholders will be asked to
consider and vote upon a proposal to grant special stock options to CEO W. R.
Hagstrom and Chairman of the Board Lee Colby in recognition of their
contributions to Sutter Buttes. Mr. Hagstrom would receive a special option to
purchase 24,000 shares under the Executive Officer Special Stock Option and Mr.
Colby would receive a special option to purchase 15,000 shares under the
Director Special Stock Option, each for $1.00 per share. No business other than
the foregoing is expected to be transacted at the Meeting, except matters
incidental to the conduct of the Meeting.
The approval and adoption of the Acquisition Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
Sutter Buttes Common and Preferred Stock voting together as one class. The
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<PAGE>
proposed Merger is also subject to certain regulatory approvals and satisfaction
of the conditions contained in the Acquisition Agreement. The approval and
adoption of the Executive Officer Special Stock Option and the Director Special
Stock Option requires the affirmative vote of the holders of a majority of the
outstanding shares of Sutter Buttes Common and Preferred Stock voting together
as one class.
THE BOARD OF DIRECTORS OF SUTTER BUTTES HAS UNANIMOUSLY APPROVED THE MERGER
AND THE EXECUTIVE OFFICER AND DIRECTOR SPECIAL STOCK OPTIONS. THE BOARD
RECOMMENDS VOTING FOR EACH OF THE PROPOSALS.
The accompanying Notice and Prospectus/Proxy Statement describe the
matters to be acted upon at the Special Meeting, including matters incidental to
the conduct of the Special Meeting. Shareholders are urged to review carefully
the attached Prospectus/Proxy Statement, including the Exhibits, which together
describe the Merger and its terms and conditions in detail.
Very truly yours,
Sutter Buttes Savings Bank, F.S.B.
Date: , 1996
W. R. Hagstrom, President and CEO
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SUTTER BUTTES SAVINGS BANK, F.S.B., YUBA CITY, CALIFORNIA
700 Plumas Street
Yuba City, California 95991
NOTICE
OF
SPECIAL MEETING OF SHAREHOLDERS
to be held September ____, 1996
Notice is hereby given that pursuant to the call of its Board of
Directors, a Special Meeting of Shareholders of Sutter Buttes Savings Bank,
F.S.B., Yuba City, California ("Sutter Buttes") will be held on September ____,
1996, at 7:30 p.m., local time, at the offices of Sutter Buttes at 700 Plumas
Street, Yuba City, California 95991, for the following purposes, all of which
are more fully described in the accompanying Prospectus/Proxy Statement.
(1) To approve a merger (the "Merger") pursuant to an Acquisition
Agreement and Plan of Merger dated as of June 15, 1996 (the "Acquisition
Agreement"), by and among TriCo Bancshares ("TriCo"), Tri Counties Bank, a
wholly owned subsidiary of TriCo ("Tri Counties"), and Sutter Buttes. Pursuant
to the Acquisition Agreement, a copy of which is attached as Exhibit A to the
accompanying Prospectus/Proxy Statement, Sutter Buttes will merge with and into
Tri Counties and Tri Counties will be the surviving bank and will operate under
its current name and Articles of Incorporation.
(2) To approve the Executive Officer Special Stock Option, by which a
special option to purchase 24,000 shares of the common stock of Sutter Buttes
("Sutter Buttes Common Stock") will be granted to W. R. Hagstrom, CEO of Sutter
Buttes, for $1.00 per share.
(3) To approve the Director Special Stock Option, by which an option to
purchase 15,000 shares of Sutter Buttes Common Stock will be granted to Lee
Colby, Chairman of the Board of Sutter Buttes, for $1.00 per share.
No other business will be transacted at the Meeting other than matters
incidental to the conduct of the Meeting.
Only shareholders of record at the close of business on July 26, 1996,
will be entitled to vote at the meeting. You may revoke your proxy at any time
prior to its exercise. Approval of the Merger requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Sutter Buttes Common and
Preferred Stock voting together as one class. Approval of the Executive Officer
Special Stock Option and the Director Special Stock Option require the
affirmative vote of the holders of a majority of the outstanding shares of
Sutter Buttes Common and Preferred Stock voting together as one class.
Each shareholder, even though he or she may not plan to attend the
Meeting in person, is requested to sign, date, and return the enclosed Proxy
without delay in the enclosed postage-paid envelope. You may revoke your Proxy
at any time prior to its exercise.
By Order of the Board of Directors
Date: __________ ____, 1996 ___________________________________
Barbara J. Thilo, Secretary
PLEASE DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
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<PAGE>
PROSPECTUS
The Date of this Prospectus/Proxy Statement is ______________, 1996
TRICO BANCSHARES
125,000 Shares
COMMON STOCK
(No Par Value)
THIS DOCUMENT SERVES AS A PROSPECTUS FOR SHARES OF COMMON STOCK OF TRICO
BANCSHARES AND ALSO AS A PROXY STATEMENT FOR THE SPECIAL MEETING OF THE
SHAREHOLDERS OF SUTTER BUTTES SAVINGS BANK, F.S.B., YUBA CITY, CALIFORNIA.
This Prospectus/Proxy Statement covers up to 125,000 shares of common
stock (no par value) of TriCo Bancshares, a California corporation ("TriCo"), to
be issued in connection with the merger of Sutter Buttes Savings Bank, F.S.B.,
Yuba City, California ("Sutter Buttes") with and into Tri Counties Bank ("Tri
Counties"), a wholly owned subsidiary of TriCo (the "Merger"). Tri Counties will
be the continuing entity as described elsewhere in this Prospectus/Proxy
Statement.
Shareholders of Sutter Buttes who do not dissent from the Merger and
perfect their rights of appraisal under applicable provisions of the Regulations
of the Office of Thrift Supervision (the "OTS") will have the right to receive,
in exchange for their shares of common stock of Sutter Buttes ("Sutter Buttes
Common Stock"), shares of common stock of TriCo ("TriCo Stock") and/or cash with
a value of approximately $2.99 per share of Sutter Buttes Common Stock, subject
to adjustment as described below. No fractional shares of TriCo Stock will be
issued, and fractional share values will be paid in cash. The approximate per
share price is based on the total price provided in the Acquisition Agreement of
$3,896,400 before adjustments provided therein, and 1,301,976 shares of Sutter
Buttes Common Stock outstanding on a fully-diluted basis assuming the conversion
of all outstanding shares of preferred stock of Sutter Buttes ("Sutter Buttes
Preferred Stock"), and the exercise of all proposed special stock options, all
outstanding in-the-money stock options with an exercise price of $2.99 or less,
and all outstanding warrants. The total price will be adjusted by 1.1 times
after-tax earnings or after-tax losses of Sutter Buttes, as the case may be,
from April 1, 1996 through the date the Merger is consummated. Such after-tax
earnings or after-tax losses will include any expenses incurred by Sutter Buttes
in connection with the Merger in excess of $70,000 and the accrual and booking
of provisions to the loan and lease loss reserve agreed upon among the parties,
but not the accrual and booking of any charges or expenses associated with the
transfer of deposit insurance from one institution to the other.
Consummation of the Merger is conditioned upon its approval by holders
of two-thirds of the outstanding shares of both Sutter Buttes Common and
Preferred Stock, approval of the Merger by the Federal Deposit Insurance
Corporation ("FDIC"), and various other conditions as described in this
Prospectus/Proxy Statement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, OR THE FDIC, NOR HAVE ANY
OF THEM PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER STATE OR
FEDERAL GOVERNMENT AGENCY.
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<PAGE>
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER ____, 1996
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Sutter Buttes Savings Bank, F.S.B.,
Yuba City, California ("Sutter Buttes") of proxies for use at the Special
Meeting of Shareholders of Sutter Buttes to be held September ____, 1996. Only
shareholders of record as of the close of business on July 26, 1996 will be
entitled to notice of, and to vote at, the Special Meeting. Each share is
entitled to one vote on the matters to be voted on at this Special Meeting.
There were 647,956 shares of Sutter Buttes Common Stock and 232,200 shares of
Sutter Buttes Preferred Stock outstanding as of June 30, 1996.
The expenses related to the solicitation of proxies will be borne by
Sutter Buttes. In addition to use of the mails, proxies may be solicited
personally or by telephone or telegraph by officers and directors who will not
be specially compensated for such solicitation.
This Prospectus/Proxy Statement and enclosed proxy were first mailed to
Sutter Buttes' shareholders on or about August ____, 1996.
Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised, and, therefore, execution of the proxy will not in any
way affect the shareholder's right to attend the meeting in person. Revocation
may be made prior to the meeting by written revocation or a duly executed proxy
bearing a later date sent to Sutter Buttes, Attention: Barbara J. Thilo,
Corporate Secretary, 700 Plumas Street, Yuba City, California 95991, or it may
be done personally upon oral or written request at the Special Meeting. In the
absence of specific instructions to the contrary, proxies received by the Board
of Directors will be voted in favor of the proposals described herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, OR THE FDIC, NOR HAVE
ANY OF THEM PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED
HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER STATE OR
FEDERAL GOVERNMENT AGENCY.
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
In order that there may be proper representation at the meeting, you are
urged to sign and return the enclosed proxy in the envelope provided no later
than ____ __.m., ___________. If you attend the meeting, you may withdraw your
proxy and vote in person. That number of shares of Sutter Buttes Common Stock
represented by proxies which are returned unmarked will be voted in favor of the
Plan of Merger.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
AVAILABLE INFORMATION.............................................................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................2
ACCOMPANYING DOCUMENTS............................................................................................2
SUMMARY OF PROSPECTUS/PROXY STATEMENT.............................................................................3
CERTAIN DEFINITIONS.........................................................................................3
PURPOSE OF THE MEETING OF SHAREHOLDERS......................................................................4
INFORMATION ABOUT TRICO AND SUTTER BUTTES...................................................................4
THE PROPOSED MERGER.........................................................................................6
Terms of the Merger...................................................................................6
Reasons for Merger; Fairness..........................................................................7
Procedures for Exchange of Shares.....................................................................8
Management After the Merger...........................................................................8
Tax Consequences......................................................................................8
Vote Required.........................................................................................9
Dissenters' Rights....................................................................................9
Conditions; Regulatory Approvals......................................................................9
Amendment and Termination............................................................................10
Accounting Treatment.................................................................................10
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................................................................10
DIFFERENCES BETWEEN TRICO STOCK AND SUTTER BUTTES COMMON STOCK.............................................11
MARKET PRICE; ABSENCE OF MARKET FOR SHARES.................................................................11
POSSIBLE RESTRICTIONS ON RESALE............................................................................12
SELECTED FINANCIAL DATA....................................................................................12
PRO FORMA (UNAUDITED) FINANCIAL INFORMATION................................................................14
THE MEETING OF SHAREHOLDERS......................................................................................22
PURPOSE OF THE MEETING OF SHAREHOLDERS.....................................................................22
RECORD DATE AND VOTING RIGHTS..............................................................................22
CONSIDERATION REQUEST FORM.................................................................................23
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................................................................23
PROXIES....................................................................................................24
CERTAIN CONSIDERATIONS...........................................................................................25
ADDITIONAL INFORMATION CONCERNING TRICO....................................................................25
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION..................................................................25
INTERESTS OF DIRECTORS AND OFFICERS OF SUTTER BUTTES IN THE MERGER.........................................26
REAL ESTATE LENDING ACTIVITIES; NONACCRUAL LOANS...........................................................27
LEGISLATIVE AND REGULATORY ENVIRONMENT.....................................................................27
ANTITAKEOVER PROVISIONS....................................................................................28
PROPOSED MERGER..................................................................................................29
BACKGROUND AND REASONS FOR THE MERGER......................................................................29
Fairness.............................................................................................29
Potential Litigation.................................................................................30
MATERIAL CONTACTS..........................................................................................30
EFFECT OF THE MERGER.......................................................................................31
TERMS OF THE MERGER........................................................................................31
Consideration for Shares of Sutter Buttes Common Stock...............................................31
Covenants in the Acquisition Agreement...............................................................33
Conditions of the Acquisition Agreement..............................................................34
Termination/Amendment................................................................................35
OPERATION OF TRI COUNTIES AFTER THE MERGER.................................................................35
FEDERAL TAX CONSEQUENCES OF THE MERGER.....................................................................36
RIGHTS OF DISSENTING SHAREHOLDERS..........................................................................37
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<PAGE>
ACCOUNTING TREATMENT.......................................................................................38
RESALES BY AFFILIATES......................................................................................39
EXCHANGE PROCEDURES........................................................................................40
INDEMNIFICATION............................................................................................41
CAPITAL STOCK....................................................................................................41
DESCRIPTION OF TRICO STOCK.................................................................................41
Antitakeover Provisions..............................................................................42
Shares Eligible for Future Sale......................................................................43
COMPARISON BETWEEN TRICO STOCK AND SUTTER BUTTES COMMON STOCK..............................................43
Dividend Rights......................................................................................43
Voting Rights........................................................................................44
Preemptive Rights....................................................................................45
Liquidation Rights...................................................................................45
Redemption Rights; Conversion Rights; Sinking Funds..................................................45
Assessment...........................................................................................45
BENEFICIAL OWNERSHIP OF SUTTER BUTTES COMMON AND PREFERRED.......................................................45
OWNERSHIP OF SUTTER BUTTES COMMON STOCK....................................................................45
OWNERSHIP OF SUTTER BUTTES PREFERRED STOCK.................................................................46
OWNERSHIP OF SHARES BY OFFICERS AND DIRECTORS OF SUTTER BUTTES.............................................48
SPECIAL STOCK OPTIONS............................................................................................49
NEW PLAN BENEFITS..........................................................................................49
EXECUTIVE COMPENSATION.....................................................................................49
OTHER MATTERS....................................................................................................51
LEGAL OPINIONS...................................................................................................51
EXPERTS..........................................................................................................51
ADDITIONAL INFORMATION...........................................................................................51
</TABLE>
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<PAGE>
NO PERSON IS AUTHORIZED BY TRICO OR SUTTER BUTTES TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN ANY INFORMATION OR
REPRESENTATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE SOLICITATION
AND THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN
WHICH A SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF TRICO OR SUTTER BUTTES SINCE
THE DATE HEREOF.
AVAILABLE INFORMATION
TriCo is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance therewith,
TriCo files reports, proxy statements, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by TriCo with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C., at the Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, and at the New York Regional Office, Seven World Trade Center, 13th
Floor, New York, New York. Copies of such material also can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
Sutter Buttes is subject to the informational requirements of the
Exchange Act as administered by the Office of Thrift Supervision (the "OTS"). In
accordance therewith, Sutter Buttes files reports, proxy statements, and other
information with the OTS. Such reports, proxy statements, and other information
can be inspected at, and copies obtained from, the Business Transactions
Division of the OTS, 1700 G Street N.W., Washington, D.C. 20552, at prescribed
rates.
TriCo has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the shares of TriCo Stock to be issued in connection with the Merger
(together with any amendments thereto, the "Registration Statement"). The
Registration Statement includes certain reports and other information of Sutter
Buttes previously filed with the OTS, so that the same are now available from
the Commission at the above address. Although to TriCo's knowledge information
concerning Sutter Buttes included in the Registration Statement is accurate,
TriCo has not verified either its accuracy or its completeness. This
Prospectus/Proxy Statement also constitutes the Prospectus of TriCo filed as
part of the Registration Statement and does not contain all of the information
set forth in the Registration Statement and exhibits thereto. The Registration
Statement and the exhibits thereto may be inspected and copied, at prescribed
rates, at the public reference facilities maintained by the Commission at the
addresses set forth above.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE BY TRICO (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST FROM THE CORPORATE SECRETARY, TRICO BANCSHARES, 15
INDEPENDENCE CIRCLE, CHICO, CALIFORNIA 95973 (TELEPHONE (916) 898-0300). THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE BY SUTTER BUTTES (OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM THE
CORPORATE SECRETARY, SUTTER BUTTES SAVINGS BANK, F.S.B., 700 PLUMAS STREET, YUBA
CITY, CALIFORNIA 95991 (TELEPHONE (916) 673-7283). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE MEETING TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES, ANY REQUEST SHOULD BE MADE BY SEPTEMBER ___, 1996.
The following documents of TriCo are hereby incorporated by reference
in this Prospectus/Proxy Statement and shall be deemed to be a part hereof from
the date of filing of those documents: TriCo's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995; TriCo's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996; TriCo's Proxy Statement related to the
1996 Annual Meeting of Shareholders, dated April 24, 1996; and all other reports
and documents filed by TriCo pursuant to Section 13(a), 13(c), 14, or 15(d) of
the Exchange Act subsequent to the date of this Prospectus/Proxy Statement and
prior to the termination of the offering of TriCo Stock to which this
Prospectus/Proxy Statement relates. Also, the following portions of TriCo's
Annual Report to Shareholders for the year ended December 31, 1995 are hereby
incorporated by reference in this Prospectus/Proxy Statement: TriCo Bancshares,
page 1 of the Annual Report; Common Stock Information, page 26 of the Annual
Report; Selected Financial Data, pages 3 and 4 of the Annual Report; and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, pages 27 to 42 of the Annual Report.
The following documents of Sutter Buttes are hereby incorporated by
reference in this Prospectus/Proxy Statement and shall be deemed to be part
hereof: Sutter Buttes' Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; Sutter Buttes' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996; Sutter Buttes' Proxy Statement related to the 1995 Annual
Meeting of Shareholders, dated April 6, 1995; and all other reports and
documents filed by Sutter Buttes pursuant to Section 13(a), 13(c), 14, or 15(d)
of the Exchange Act subsequent to the date of this Prospectus/Proxy Statement
and prior to the termination of the offering of TriCo Stock to which this
Prospectus/Proxy Statement relates. Also, the following portions of Sutter
Buttes' Annual Report to Security Holders for the year ended December 31, 1995
are hereby incorporated by reference in this Prospectus/Proxy Statement:
Description of Business, page 3 of the Annual Report; Market for the Bank's
Common and Preferred Stock, page 44 of the Annual Report; Selected Financial
Data, page 6 of the Annual Report; and Management's Discussion and Analysis of
Financial Condition and Results of Operation, pages 7 to 22 of the Annual
Report.
ACCOMPANYING DOCUMENTS
This Prospectus/Proxy Statement is accompanied by a copy of TriCo's
Annual Report to Security Holders for the year ended December 31, 1995 and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
This Prospectus/Proxy Statement is also accompanied by a copy of Sutter
Buttes' Annual Report to Security Holders for the year ended December 31, 1995
and Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
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PROSPECTUS AND PROXY STATEMENT
SUMMARY OF PROSPECTUS/PROXY STATEMENT
The following is a summary of certain information set forth in the
Prospectus/Proxy Statement. This summary does not purport to be complete and
should be read in conjunction with the Prospectus/Proxy Statement as a whole.
Shareholders are urged to read carefully this Prospectus/Proxy Statement and the
attached Exhibits in their entirety.
CERTAIN DEFINITIONS
"TriCo" shall mean TriCo Bancshares, 15 Independence Circle, Chico,
California 95973, telephone number (916) 898-0300, a California corporation and
registered bank holding company, of which shares of common stock are being
offered hereby in connection with the Merger.
"Tri Counties" shall mean Tri Counties Bank, 15 Independence Circle,
Chico, California 95973, a commercial bank chartered under the laws of the State
of California and a wholly owned subsidiary of TriCo.
"Sutter Buttes" shall mean Sutter Buttes Savings Bank, F.S.B., 700
Plumas Street, Yuba City, California 95991, telephone number (916) 673-7283, a
savings bank chartered under the laws of the United States.
"TriCo Stock" shall mean the no par value common stock of TriCo.
"Sutter Buttes Common Stock" shall mean the $0.01 par value common
stock of Sutter Buttes.
"Sutter Buttes Preferred Stock" shall mean the $5.00 par value
Preferred Stock, Series A of Sutter Buttes.
"Sutter Buttes Common and Preferred" shall mean Sutter Buttes Common
Stock and Sutter Buttes Preferred Stock.
"Effective Time" shall mean the time of the filing with the
Superintendent of Banks of the State of California of a duly executed
counterpart of the Merger Agreement certified by the California Secretary of
State and Officer Certificates prescribed by Section 1103 of the California
General Corporation Law.
"Closing Date" shall mean the last business day of the month in which
the conditions specified in Article III of the Acquisition Agreement have all
been satisfied or such other date as is mutually agreed by the parties.
"Acquisition Agreement" shall mean that certain Acquisition Agreement
and Plan of Merger by and among TriCo, Sutter Buttes, and Tri Counties dated
June 15, 1996, attached as Exhibit A and further described herein.
"Merger" shall mean the merger of Sutter Buttes with and into Tri
Counties, as contemplated by and in the Acquisition Agreement.
"Merger Agreement" shall mean that certain Merger Agreement specified
in the Acquisition Agreement and executed by TriCo, Sutter Buttes, and Tri
Counties for the purpose of filing with the Superintendent of Banks of the State
of California to make the Merger effective under California law.
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"Prospectus/Proxy Statement" shall mean this Prospectus and Proxy
Statement.
"Surviving Bank" shall mean Tri Counties at and after the Effective
Time.
"Special Stock Options" shall mean special options to purchase a total
of 39,000 shares of Sutter Buttes Common Stock that are proposed to be granted
to Sutter Buttes' CEO W. R. Hagstrom and Chairman Lee Colby.
"In-the-money" stock options shall mean options to purchase shares of
Sutter Buttes Common Stock with an exercise price less than or equal to $2.99,
the approximate per share Total Consideration before adjustments.
PURPOSE OF THE MEETING OF SHAREHOLDERS
The Special Meeting (including any adjournments or postponements
thereof) (the "Meeting") will be held at 700 Plumas Street, Yuba City,
California, on September ____, 1996, at 7:30 p.m., local time. At the Meeting,
holders of Sutter Buttes Common and Preferred will consider and vote upon a
proposal to adopt and approve the Acquisition Agreement and the Merger
contemplated thereby. Only holders of record of Sutter Buttes Common and
Preferred at the close of business on July 26, 1996 (the "Record Date"), will be
entitled to notice of, and to vote at, the Meeting. See "THE MEETING OF
SHAREHOLDERS."
The approval of the Merger by the Sutter Buttes shareholders will
constitute approval and adoption of the Acquisition Agreement and the Merger
contemplated thereby, as more fully described herein. The affirmative vote of
the holders of two-thirds of the outstanding shares of Sutter Buttes Common and
Preferred entitled to vote at the Meeting (voting together as one class) is
required to adopt and approve the Acquisition Agreement and the Merger. Such
approval is a condition to and is required for consummation of the Merger. See
"THE MEETING OF SHAREHOLDERS" and "PROPOSED MERGER."
Also at the Meeting, Sutter Buttes shareholders will be asked to
consider and vote upon a proposal to grant Special Stock Options to CEO W. R.
Hagstrom and Chairman of the Board Lee Colby in recognition of their
contributions to Sutter Buttes. Mr. Hagstrom would receive an option to purchase
24,000 shares under the Executive Officer Special Stock Option and Mr. Colby
would receive an option to purchase 15,000 shares under the Director Special
Stock Option, each for $1.00 per share. See "SPECIAL STOCK OPTIONS."
INFORMATION ABOUT TRICO AND SUTTER BUTTES
TriCo, headquartered in Chico, California and incorporated under the
laws of the State of California, is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Through its wholly
owned banking subsidiary, Tri Counties, TriCo has 14 traditional banking offices
and 7 in-store branches located in the counties of Butte, Glenn, Lassen, Nevada,
Shasta, Siskiyou, Sutter and Tehama in Northern California. Tri Counties
commenced business in 1975 and provides traditional deposit, lending, mortgage,
and commercial products and services to business and retail customers throughout
its primary market area. In October, 1995, Tri Counties opened a regional
lending office in Bakersfield, California, to promote primarily agricultural
lending activities in that area. In February, 1996, Tri Counties opened a
regional lending office in Sacramento, California, to promote primarily
commercial and consumer lending activities in that area.
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Tri Counties emphasizes retail banking with its client base being
predominately individuals and small to medium-sized businesses. The majority of
Tri Counties' loans are geographically concentrated in its primary market area
as defined above. Tri Counties relies substantially on local promotional
activity including the personal relationships of its directors, officers,
employees, and shareholders, in addition to personalized service in its
community banking orientation, as means to compete with larger statewide
financial institutions.
Additional information regarding TriCo, including its management,
management's compensation, directors, principal holders of voting securities,
and certain relationships and related transactions, is included in TriCo's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
incorporated herein by this reference. See "ACCOMPANYING DOCUMENTS" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Sutter Buttes was incorporated under the laws of the State of
California as a savings and loan association in 1982 and commenced operation in
1983. In 1993, Sutter Buttes converted to a federal savings bank charter. Sutter
Buttes operates out of two offices in Yuba City, California, and serves a
primary market area consisting of the cities of Yuba City and Marysville.
Sutter Buttes' principal business is accepting checking and savings
deposits and making residential real estate and home improvement loans secured
by first and second mortgages. Sutter Buttes also engages in wholesale mortgage
banking by originating mortgage loans and then selling them to third parties.
Sutter Buttes retains the right to service some of the mortgage loans it sells
for a fee. Sutter Buttes also offers safe deposit, night depository, wire
transfer, and other customary bank services to its customers.
Additional information regarding Sutter Buttes, including its
management, management's compensation, directors, and certain relationships and
transactions, is included in Sutter Buttes' Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, incorporated herein by this reference. See
"ACCOMPANYING DOCUMENTS" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Material Changes in TriCo's Affairs
Between March 31, 1996 and June 30, 1996, Tri Counties has realized
loan growth of $43,351,000 (13.2%) to $372,926,000. Tri Counties made a
concerted effort to increase its outstanding loans by hiring new loan officers,
looking to new commercial customers as well as promoting consumer products. The
loan portfolio growth accounted for all of the $38.5 million growth in total
assets during this period. Tri Counties moved from being a net seller of $8.2
million in Federal Funds at the end of March 1996 to being a net buyer of $30.0
million in Federal Funds at June 30th.
Material Changes in Sutter Buttes' Affairs
There have been no material changes in Sutter Buttes' affairs since
March 31, 1996.
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THE PROPOSED MERGER
Pursuant to the Acquisition Agreement, Sutter Buttes will merge with
and into Tri Counties which will, as the Surviving Bank, succeed to the business
of Sutter Buttes and will continue the operations of Sutter Buttes under Tri
Counties' current name, Articles of Incorporation, and Bylaws. See "PROPOSED
MERGER--EFFECT OF THE MERGER."
Terms of the Merger
In exchange for their shares of Sutter Buttes Common Stock, the holders
of Sutter Buttes Common Stock shall receive the "Total Consideration," which
shall consist of cash and/or TriCo Stock. The Total Consideration, subject to
adjustments described below, is $3,896,400, or approximately $2.99 per share, on
a fully-diluted basis assuming conversion of all shares of Sutter Buttes
Preferred Stock to Sutter Buttes Common Stock, and the exercise of all proposed
Special Stock Options, all outstanding in-the-money stock options, and all
warrants.
There are several possible adjustments to the Total Consideration. The
Total Consideration will be increased or reduced, as the case may be, by 1.1
times after-tax earnings or after-tax losses of Sutter Buttes from April 1,
1996, through the Closing Date. Such after-tax earnings or after-tax losses will
include any expenses incurred by Sutter Buttes in connection with the Merger in
excess of $70,000 and the accrual and booking of provisions to the loan and
lease loss reserve agreed upon among the parties, but not the accrual and
booking of any charges or expenses associated with the transfer of deposit
insurance from one institution to the other.
The holders of Sutter Buttes Preferred Stock who, as of the Closing
Date, have not converted their shares of Sutter Buttes Preferred Stock to Sutter
Buttes Common Stock will receive the Sutter Buttes Preferred Stock liquidation
preference of $5.00 per share plus any declared and unpaid cash dividends (or
warrants in lieu thereof) attributable to Sutter Buttes Preferred Stock. Because
each share of Sutter Buttes Preferred Stock converts into 1.98 shares of Sutter
Buttes Common Stock, it is expected that all Sutter Buttes Preferred Stock will
be converted. Holders of Sutter Buttes Common and Preferred who choose to
exercise and perfect their dissenters' rights of appraisal will receive a fair
value of their shares in cash. See "RIGHTS OF DISSENTING SHAREHOLDERS." The
amounts paid, if any, to holders of Sutter Buttes Preferred Stock who do not
convert and to Dissenting Shareholders will be deducted from the Total
Consideration paid to holders of Sutter Buttes Common Stock.
Outstanding warrants convertible into 65,024 shares of Sutter Buttes
Common Stock have been issued to holders of Sutter Buttes Preferred Stock in
lieu of cash dividends, and will be treated as if exercised at the Effective
Time. The holders thereof will be entitled to receive an appropriate portion of
the Total Consideration. Holders of stock options and Special Stock Options will
be entitled to exercise their options on or before the Closing Date in any one
of three ways: (i) in exchange for Sutter Buttes Common Stock with a value equal
to the per share value of Sutter Buttes Common Stock, less the per share
exercise price of the options, times the options; (ii) for cash in the amount
just described; or (iii) by paying the exercise price for the number of shares
underlying the options. There are currently outstanding options to purchase
92,740 shares of Sutter Buttes Common Stock, however, options to purchase 2,500
shares have exercise prices in excess of the estimated Total Consideration per
share, and therefore are not considered to be in-the-money and are not likely to
be exercised. Holders of stock options and Special Stock Options who exercise
for Sutter Buttes Common Stock will be entitled to receive an appropriate
portion of the Total Consideration.
Of the Total Consideration paid, 51% shall be in the form of TriCo
Stock, and TriCo reserves the right to assure that 51% of the Total
Consideration will be in the form of TriCo Stock. In assuring that 51% of the
Total Consideration will be in the form of TriCo Stock, TriCo shall deduct the
amount of cash
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payments for fractional shares and potential cash payments for the holders of
Sutter Buttes Preferred Stock not converting such stock, for holders of stock
options or Special Stock Options exercising for cash, and for Dissenting Shares.
The value of TriCo Stock will be based on the average closing sale price (or
mean between the closing bid and asked price if there is no closing sale price
on any day) of TriCo Stock on the ten trading days preceding the Closing Date.
Enclosed with this Prospectus/Proxy Statement is a Consideration
Request Form. Please specify the form of payment you wish to receive by marking
the appropriate box. Then sign the Form, enclose it with your completed and
signed proxy, and mail them in the enclosed postage-paid envelope no later than
________. If you intend to be at the Meeting in person and not send a proxy, you
may send only the Consideration Request Form in the enclosed envelope or bring
it to the Meeting. Please note that because fifty-one percent (51%) of the Total
Consideration to be paid by TriCo must be in the form of TriCo Stock,
shareholders who do not request payment in TriCo Stock may nevertheless be
assigned TriCo Stock if requests for TriCo Stock total less than 51% of the
Total Consideration. In the event that requests for TriCo Stock total less than
51% of the Total Consideration, then TriCo Stock will be allocated first, on a
pro rata basis, to those shareholders who fail to request a form of payment
through the Consideration Request Form and next, if necessary, on a pro rata
basis, to those shareholders who request cash. Conversely, shareholders who do
not request payment in cash may nevertheless be assigned cash if requests for
TriCo Stock total more than 51% of the Total Consideration. To the extent
possible, TriCo will cause cash to be paid to those holders of Sutter Buttes
Common Stock requesting cash payment, and will cause TriCo Stock to be delivered
to those holders of Sutter Buttes Common Stock requesting TriCo Stock. However,
to guarantee that 51% of the Total Consideration is in the form of TriCo Stock,
TriCo reserves the right to allocate TriCo Stock and cash, as necessary, among
the holders of Sutter Buttes Common Stock. TriCo's determination to allocate
cash and TriCo Stock on a pro rata basis to guarantee that 51% of the Total
Consideration is TriCo Stock according to the terms of this paragraph shall be
at TriCo's sole determination and shall not be subject to review or question by
Sutter Buttes or its shareholders.
Any special assessments imposed on Sutter Buttes deposits by the FDIC
or the Savings Association Insurance Fund (the "SAIF"), other than regular
insurance premiums will not reduce the Total Consideration to Sutter Buttes
shareholders and will be paid directly by Tri Counties, subject to consummation
of the Merger.
No fractional shares of TriCo Stock will be issued, and any fractional
share values will be paid in cash based on the average closing sale price (or
mean between the closing bid and asked price if there is no closing sale price
on any day) of TriCo Stock on the ten trading days preceding the Closing Date.
See "PROPOSED MERGER--TERMS OF THE MERGER" for sample payment scenarios.
Reasons for Merger; Fairness
In order to minimize costs associated with this transaction, the Board
of Directors of Sutter Buttes did not engage the services of an investment
banking or other firm to review the financial aspects of the Merger and to
render a fairness opinion with respect thereto. Based on its review and analysis
of this transaction, similar transactions, and Sutter Buttes' difficulty in
competing because of its size and limited capital structure, it is the opinion
of Sutter Buttes' Board of Directors that this transaction is in the best
interests of Sutter Buttes and its shareholders, and that an investment banking
or other firm would come to the same conclusion. See "PROPOSED
MERGER--BACKGROUND AND REASONS FOR THE MERGER."
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<PAGE>
Procedures for Exchange of Shares
As of the Effective Time each share of Sutter Buttes Common Stock will
be converted into, and each certificate thereof shall represent a right to
receive, a pro rata share of the adjusted Total Consideration. As soon as
practicable after the Effective Time, a paying agent will send to each record
holder of former shares of Sutter Buttes Common Stock a notice of consummation
of the Merger and a transmittal form detailing the procedure for surrendering
the certificates in exchange for a pro rata portion of the Total Consideration.
Such record holders will then submit their certificates to the paying agent,
either directly or through one of the Sutter Buttes branches, and in return will
receive a check and/or shares of TriCo Stock in the appropriate amounts. TriCo
will attempt to pay those requesting cash in cash and those requesting stock in
stock, subject to TriCo's right to pay 51% of the Total Consideration in TriCo
Stock. Payment for the shares exchanged will be made as soon as the Total
Consideration can be determined, which may be delayed substantially to allow for
the determination of amounts due to any Dissenting Shareholders. Any former
holder of Sutter Buttes Common Stock who does not submit his or her certificates
to the paying agent within 120 days after the Effective Time must submit such
certificates to TriCo in exchange for a pro rata portion of the Total
Consideration. See "PROPOSED MERGER--EXCHANGE PROCEDURES." These procedures do
not apply to shareholders who exercise their dissenters' rights, as described
below.
Any holders of Sutter Buttes Preferred Stock who do not convert their
shares into shares of Sutter Buttes Common Stock prior to the Effective Time
will receive, as soon as possible after the Effective Time, the liquidation
preference of $5.00 per share of Sutter Buttes Preferred Stock plus any declared
and unpaid cash dividends (or warrants in lieu thereof) attributable to the
Sutter Buttes Preferred Stock. The amounts paid, if any, to holders of Sutter
Buttes Preferred Stock who do not convert will be deducted from the Total
Consideration paid to holders of Sutter Buttes Common Stock.
Management After the Merger
At the Effective Time, the separate corporate existence of Sutter
Buttes will cease and Tri Counties will operate as the Surviving Bank under its
current Articles of Incorporation and Bylaws. Management of Tri Counties as in
existence immediately prior to the Merger will continue after the Merger, and
Sutter Buttes' operations will be assumed by Tri Counties' Yuba City branches.
Tax Consequences
It is anticipated that the principal federal income tax consequences of
the Merger will be as follows: (a) the Merger will be part of a reorganization
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended; (b) no gain or loss will be recognized by the shareholders of Sutter
Buttes to the extent TriCo Stock is received in exchange for their Sutter Buttes
Common Stock; and (c) the holding period and basis of the shares of TriCo Stock
received by the shareholders of Sutter Buttes will be the same as the tax basis
of their exchanged Sutter Buttes Common Stock. For a detailed discussion of the
income tax consequences of the Merger, see "PROPOSED MERGER--FEDERAL TAX
CONSEQUENCES OF THE MERGER." Sutter Buttes shareholders should consult their
personal tax advisors as to the consequences of the Merger to them under
federal, state, or local law, or applicable foreign tax laws.
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Vote Required
As of the Record Date, the directors and officers of Sutter Buttes and
their respective affiliates as a group held an aggregate of ____________ shares,
or approximately ________%, of the then outstanding shares of Sutter Buttes
Common Stock and ___________ shares, or approximately ________%, of the then
outstanding shares of Sutter Buttes Preferred Stock. These shares, together with
options and warrants held by such directors and officers and their afiliates,
represent approximately _______% of the 1,262,976 shares of Sutter Buttes Stock
outstanding on a fully-diluted basis, assuming the conversion of all Sutter
Buttes Preferred Stock to Sutter Buttes Common Stock, and the exercise of all
outstanding warrants and in-the-money stock options, but not assuming approval
of the Special Stock Options, as those shares will not be entitled to vote at
the Meeting. Each Sutter Buttes director and officer intends to vote all of the
shares of Sutter Buttes Common and Preferred over which such director or officer
has sole or shared voting power for approval and adoption of the Acquisition
Agreement and the Merger pursuant thereto. Accordingly, approval and adoption of
the Acquisition Agreement and the Merger at the Meeting is expected to require
the affirmative vote of an additional ___________ shares of Sutter Buttes Common
and Preferred, based on the shares of Sutter Buttes Common and Preferred
outstanding as of the Record Date, or ________-__ shares of Sutter Buttes Common
Stock, on a fully-diluted basis as described above, voted by the remaining
shareholders of Sutter Buttes. See "THE MEETING OF SHAREHOLDERS--RECORD DATE AND
VOTING RIGHTS."
Dissenters' Rights
Under the Regulations of the OTS, found at 12 C.F.R. 552.14 and
attached hereto as Exhibit B, a shareholder of Sutter Buttes who wishes to
assert dissenters' rights with respect to the Merger must deliver to Sutter
Buttes, prior to the Meeting, a written objection identifying himself or herself
and stating his or her intention thereby to demand appraisal of and payment for
his or her shares. In addition, in order to dissent, the shareholder must not
vote in favor of the Merger. The demand for appraisal and payment must be in
addition to and separate from any proxy or vote against the Merger by the
shareholder. See "PROPOSED MERGER--RIGHTS OF DISSENTING SHAREHOLDERS."
Conditions; Regulatory Approvals
Consummation of the Merger is subject to satisfaction or waiver of
various conditions, including compliance with certain covenants and confirmation
of certain representations and warranties, the approval of shareholders of
Sutter Buttes, the receipt of all necessary regulatory approvals, the
registration under applicable federal securities laws of TriCo Stock to be
issued pursuant to the Acquisition Agreement, and the absence of any litigation
or regulatory proceeding presenting significant risk of material damages against
Sutter Buttes, Tri Counties, TriCo, or their shareholders, or a significant risk
that the Merger will not be consummated.
In order for the Merger to be completed, approval must be obtained from
the FDIC and the Superintendent of Banks of the State of California (the
"Superintendent"). Applications for these regulatory approvals were filed on
__________. See "PROPOSED MERGER--TERMS OF THE MERGER."
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<PAGE>
Amendment and Termination
The Acquisition Agreement may be amended by mutual written consent of
Tri Counties, TriCo, and Sutter Buttes, if so directed by their respective
Boards of Directors, at any time prior to the Effective Time without the
approval of the shareholders of TriCo or the shareholders of Sutter Buttes with
respect to any of its terms except the terms relating to the form or amount of
consideration to be delivered to the Sutter Buttes shareholders in the Merger.
The Acquisition Agreement may be terminated by the mutual consent of the Boards
of Directors of both TriCo and Sutter Buttes at any time prior to the
consummation of the Merger. The Acquisition Agreement also provides that the
parties may terminate the Acquisition Agreement if the Merger is not consummated
on or before December 31, 1996. See "PROPOSED MERGER--TERMS OF THE MERGER."
Accounting Treatment
The Merger is expected to be accounted for according to the purchase
method of accounting. See "PROPOSED MERGER--ACCOUNTING TREATMENT."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the shareholders of Sutter Buttes approve, and if the Merger is
consummated, CEO W. R. Hagstrom will receive a special option to purchase 24,000
shares of Sutter Buttes Common Stock for $1.00 per share, and Chairman of the
Board Lee Colby will receive a special option to purchase 15,000 shares of
Sutter Buttes Common Stock for $1.00 per share. In addition, Mr. Hagstrom and
Chief Financial Officer Philip Safran are parties to employment agreements with
Sutter Buttes which provide that Sutter Buttes shall be obligated to pay $20,000
to Mr. Hagstrom in the event he is terminated without cause, and $15,900 to Mr.
Safran in the event he is terminated without cause. TriCo has agreed to assume
Sutter Buttes' obligations under these contracts. Otherwise, no officers,
directors, and principal shareholders of Sutter Buttes will receive any
consideration in the Merger other than their pro rata portion of the Total
Consideration, on the same terms described herein for all shareholders, for the
shares that they own. Certain officers and directors of Sutter Buttes have
outstanding options to acquire shares of Sutter Buttes Common Stock that may be
exercised in full on or before the Closing Date, which would increase their pro
rata portion of the Total Consideration.
To TriCo's knowledge, as of the Record Date, directors and executive
officers of TriCo did not beneficially own any shares of Sutter Buttes Common
and Preferred.
As of June 30, 1996, there were 4,482,712 shares of TriCo Stock
outstanding, of which 782,640 shares of TriCo Stock were beneficially owned by
officers and directors of TriCo and their affiliates. See "THE MEETING OF
SHAREHOLDERS--INTERESTS OF CERTAIN PERSONS IN THE MERGER."
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DIFFERENCES BETWEEN TRICO STOCK AND SUTTER BUTTES COMMON STOCK
Holders of shares of Sutter Buttes Common Stock are entitled to
dividends as and when declared by the Board of Directors out of funds legally
available therefor, subject to the dividend preference of the Sutter Buttes
Preferred Stock; to one vote for each share held on matters properly coming
before a meeting of the shareholders, except the election of the Board of
Directors, where cumulative voting is permitted; and, in the event of
liquidation, to the net
assets remaining after satisfaction of all liabilities and of the liquidation
preferences of the Sutter Buttes Preferred Stock. Sutter Buttes shareholders do
not have the preemptive right to purchase newly issued shares of Sutter Buttes
Common Stock. The holders of TriCo Stock are also entitled to dividends as and
when declared by the Board of Directors out of funds legally available therefor;
to one vote for each share held on matters properly coming before a meeting of
the shareholders, except the election of the Board of Directors, where
cumulative voting is permitted; and, in the event of liquidation, to the net
assets remain-
ing after satisfaction of all liabilities. There are currently no classes of
capital stock in TriCo outstanding other than the TriCo Stock, however, TriCo
has authorized 1 million shares of preferred stock, none of which is currently
outstanding. If shares of preferred stock are issued in the future, dividends on
and liquidation of shares of TriCo Stock would be subject to the dividend and
liquidation preferences of the shares of preferred stock. TriCo shareholders do
not have the preemptive right to purchase newly issued shares of TriCo Stock.
See "COMPARISON BETWEEN TRICO STOCK AND SUTTER BUTTES COMMON STOCK."
MARKET PRICE; ABSENCE OF MARKET FOR SHARES
TriCo Stock is listed and traded on the National Market System of the
National Association of Securities Dealers ("Nasdaq NMS") under the symbol
"TCBK." The shares of Sutter Buttes Common Stock are not traded or listed on any
exchange or market quotation system, nor are there any formal market makers in
the shares. The infrequent trades that occur are individually negotiated between
the buyer and the seller.
The following table sets forth the last reported trade of Sutter Buttes
Common Stock known to Sutter Buttes officials, which occurred on April 12, 1995.
The table also shows the last reported sales price of TriCo Stock on the Nasdaq
NMS on June 18, 1996, the trading date prior to the public announcement of the
Merger, and on ______________, 1996, the latest practicable trading day before
the printing of this Prospectus/Proxy Statement.
Historical
Market Value
Per Share
Sutter Buttes TriCo
Last Trade:
June 18, 1996 n/a $18.25
August xx, 1996 n/a $xx.xx
April 12, 1995 $1.86 $18.00
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Following the Merger, no shares of Sutter Buttes Common Stock will be
outstanding, and TriCo Stock will continue to be traded on the Nasdaq NMS.
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POSSIBLE RESTRICTIONS ON RESALE
Public resale of TriCo Stock by certain persons deemed to be affiliates
(control persons) of Sutter Buttes, such as certain directors and executive
officers of Sutter Buttes, will be restricted pursuant to certain provisions of
Rule 145 promulgated under the Securities Act, and the certificates for TriCo
Stock received by such persons will bear legends to that effect. No resales will
be made pursuant to this Prospectus/Proxy Statement or the Registration
Statement in which it was filed under Federal securities laws. See "PROPOSED
MERGER- RESALES BY AFFILIATES."
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for TriCo and Sutter Buttes, and comparative historical
and pro forma per share data. The tables should be read in conjunction with the
audited consolidated financial statements, unaudited interim consolidated
financial statements, and unaudited pro forma consolidated financial information
and the notes to each, which are included elsewhere in this Prospectus/Proxy
Statement or incorporated by reference herein.
- 12 -
<PAGE>
TRICO Selected Historical Financial Information
(unaudited)
<TABLE>
<CAPTION>
At or for the
Three Months Ended
March 31 At or for the Year Ended December 31,
(in thousands) (amounts in thousands)
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 11,605 $ 11,301 $ 46,011 $ 43,240 $ 40,947 $ 40,272 $ 40,451
Interest expense 4,535 4,373 17,988 15,680 13,996 15,600 18,988
Net Interest income 7,070 6,928 28,023 27,560 26,951 24,672 21,463
Provision for loan losses 40 40 335 316 1,858 2,101 1,531
Net interest income after
provision for loan losses 7,030 6,888 27,688 27,244 25,093 22,571 19,932
Noninterest income 1,466 1,432 5,933 5,025 6,726 5,572 4,965
Noninterest expense 5,505 5,556 21,661 22,058 20,225 18,031 17,045
Provision for income taxes 1,247 1,134 4,915 4,350 4,779 4,112 3,031
Net income 1,744 1,630 7,045 5,861 6,815 6,000 4,821
Preferred dividends - 105 245 420 630 797 944
Income available for common
shareholders $ 1,744 $ 1,525 $ 6,800 $ 5,441 $ 6,185 $ 5,203 $ 3,877
Balance Sheet Data:
Net loans $ 323,869 $ 291,115 $ 313,186 $301,495 $299,929 $312,720 $ 312,241
Total assets 578,606 564,399 603,554 593,834 575,897 492,404 439,358
Total deposits 491,008 489,704 516,193 491,172 515,999 451,346 400,479
Other borrowed funds 24,289 16,488 26,292 48,956 7,144 907 1,027
Preferred stock -- 3,899 -- 3,899 3,899 6,086 8,630
Common shareholders' equity 54,243 46,911 53,213 44,332 43,169 30,459 26,192
Total shareholders' equity $ 54,243 $ 50,810 $ 53,213 $ 48,231 47,068 36,545 34,822
Performance Ratios:(1)
Return on average assets 1.18% 1.12% 1.22% 0.99% 1.25% 1.25% 1.15%
Return on average common equity(2) 12.92% 13.17% 13.95% 12.42% 15.81% 19.48% 15.69%
Leverage ratio(3) 9.52% 9.43% 8.92% 8.75% 8.18% 7.39% 7.97%
Total risk-based capital ratio 15.15% 15.52% 15.17% 14.65% 14.02% 11.94% 11.49%
Common Share Data:(4)
Primary earnings per share $ 0.38 $ 0.33 $ 1.46 $ 1.18 $ 1.42 $ 1.46 $ 1.10
Fully diluted earnings per share 0.37 0.33 1.45 1.18 1.40 1.46 1.10
Cash dividends per share 0.13 0.08 0.37 0.32 0.31 0.28 0.24
Tangible book value per share 12.14 11.55 11.92 10.10 10.05 8.46 7.25
Number of common shares:
Weighted average primary 4,646,490 4,598,305 4,656,893 4,641,383 4,338,255 3,556,836 3,515,270
Weighted average fully diluted 4,668,500 4,611,876 4,693,188 4,642,197 4,416,135 3,556,836 3,528,091
(1) Quarter return ratios have been annualized.
(2) Income available for common shareholders divided by average common equity.
(3) Ending Tier 1 capital divided by period end total assets.
(4) Adjusted to reflect 5-for-4 stock split in 1995, and 12%, 15% and 15% stock dividends declared in 1993, 1992, and 1991,
respectively.
</TABLE>
- 13 -
<PAGE>
SUTTER BUTTES Selected Historical Financial Information
(unaudited)
<TABLE>
<CAPTION>
At or for the
Three Months Ended
March 31 At or for the Year Ended December 31,
(in thousands) (amounts in thousands)
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 1,232 $ 1,057 $ 4,573 $ 3,927 $ 3,610 $ 3,946 $ 4,645
Interest expense 784 727 3,139 2,271 1,908 2,231 3,152
Net Interest income 448 330 1,434 1,656 1,702 1,715 1,493
Provision for loan losses - - (1) (11) (107) (125) (206)
Net interest income after
provision for loan losses 448 330 1,435 1,667 1,809 1,840 1,699
Noninterest income 70 49 489 213 289 171 138
Noninterest expense 407 373 1,552 1,696 1,616 1,601 1,802
Provision for income taxes 46 3 21 76 3 43 13
Net income 65 3 351 108 479 367 22
Preferred dividends - - - - - - -
Income available for common
shareholders $ 65 $ 3 $ 351 $ 108 $ 479 $ 367 $ 22
Balance Sheet Data:
Net loans $ 57,899 $ 58,403 $ 59,904 $ 58,360 $ 47,085 $ 45,075 $ 40,202
Total assets 66,921 62,784 64,630 63,462 51,641 49,991 45,060
Total deposits 59,106 55,672 57,406 49,747 43,973 43,738 41,443
Other borrowed funds 3,900 3,725 3,400 10,375 4,475 3,500 1,300
Preferred stock 1,161 1,161 1,161 1,161 1,161 1,161 1,161
Common shareholders' equity 2,453 2,040 2,388 2,037 1,928 1,449 1,082
Total shareholders' equity $ 3,614 $ 3,201 $ 3,549 $ 3,198 3,089 2,610 2,243
Performance Ratios:(1)
Return on average assets 0.40% 0.00% 0.55% 0.18% 0.95% 0.80% 0.08%
Return on average common equity(2) 7.41% 0.41% 10.71% 3.45% 16.91% 14.93% 2.08%
Leverage ratio(3) 5.40% 5.10% 5.49% 5.04% 5.98% 5.22% n/a
Total risk-based capital ratio 10.01% 9.27% 10.20% 9.19% 9.90% 8.44% n/a
Common Share Data:(4)
Primary earnings per share $ 0.06 $ - $ 0.31 $ 0.10 $ 0.45 $ .37 $ 0.06
Fully diluted earnings per share
Cash dividends per share - - - - - - -
Tangible book value per share 3.06 2.80 3.11 2.90 2.91 2.63 3.64
Number of common shares:
Weighted average primary 1,181,618 1,141,819 1,142,725 1,103,096 1,062,019 992,512 616,638
Weighted average fully diluted
(1) Quarter return ratios have been annualized.
(2) Income available for common shareholders divided by average common equity.
(3) Ending Tier 1 capital divided by period end total assets.
</TABLE>
PRO FORMA (UNAUDITED) FINANCIAL INFORMATION
At the Effective Time, Sutter Buttes will merge with and into Tri
Counties and the separate existence of Sutter Buttes will cease. All assets and
liabilities of Sutter Buttes will become assets and liabilities of Tri Counties.
In addition, the number of shares of TriCo Stock outstanding will be increased
by the number of shares of TriCo Stock issued to holders of Sutter Buttes Common
Stock in the Merger.
- 14 -
<PAGE>
The following tables show unaudited pro forma financial information for
TriCo and Sutter Buttes. The unaudited pro forma income statement assumes that
the Merger had already taken place at the beginning of each year for which the
information is shown. For example, 1995 unaudited pro forma financial
information shows what the financial statements of a merged entity would have
been had the Merger taken place at the beginning of 1995. Unaudited pro forma
balance sheets are shown for December 31, 1995 and March 31, 1996, and unaudited
pro forma income statements are shown for the calendar year 1995 and the three
months ended March 31, 1996. Also presented for TriCo is primary and
fully-diluted income from continuing operations per share data, in each case on
an historical and pro forma basis. TriCo does not expect any material pro forma
adjustment to the historical information to result from the Merger.
Selected Pro Forma Combined Financial Information of
TRICO and SUTTER BUTTES
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996 Year Ended December 31, 1995
--------------------------------- ----------------------------
Historical Historical Pro Forma Historical Historical Pro Forma
TRICO SUTTER COMBINED TRICO SUTTER COMBINED
Pro Forma Consolidated Summary of Operations:
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 11,605 $ 1,232 $ 12,812 $ 46,011 $ 4,573 $ 50,484
Interest expense 4,535 784 5,319 17,988 3,139 21,127
------ ----- ------ ------ ----- ------
Net interest income 7,070 448 7,493 28,023 1,434 29,357
Provision for loan losses 40 - 40 335 (1) 334
------ ----- ------ ------ ------ ------
Net interest income after
provision for loan losses 7,030 448 7,453 27,688 1,435 29,023
Other income 1,466 70 1,536 5,933 489 6,422
Other expenses 5,505 407 5,942 21,661 1,552 23,332
------ ----- ------ ------ ----- ------
Income before income taxes 2,991 111 3,047 11,960 372 12.113
Income taxes 1,247 46 1,270 4,915 21 4,846
------ ----- ------ ------ ----- ------
Net income 1,744 65 1,777 7,045 351 7,267
====== ===== ====== ====== ===== ======
Selected balance sheet information:
Total Assets $ 578,606 $ 66,921 $ 644,185 $ 603,554 $ 64,630 $ 666,753
Long-term debt $ 24,289 - $ 24,289 $ 26,292 - $ 26,292
Earnings per share:
Primary $ 0.38 - $ 0.37 $ 1.46 - $ 1.47
Fully diluted $ 0.37 - $ 0.37 $ 1.45 - $ 1.46
Cash dividends paid per share $ 0.13 - $ 0.13 $ 0.37 - $ 0.37
Book value per common share $ 12.14 - $ 12.26 $ 11.92 - $ 12.01
Weighted average shares outstanding:
Primary 4,646,490 113,543 4,760,033 4,656,893 113,543 4,770,436
Fully diluted 4,668,500 113,543 4,782,043 4,693,188 113,543 4,806,731
</TABLE>
- 15 -
<PAGE>
TRICO BANCSHARES AND SUTTER BUTTES SAVINGS BANK
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Unaudited)
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
TRICO SUTTER Adjustments Combined Total
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 28,761 $ 1,769 $ 30,530
Fed funds sold 8,200 -- $ (1,909) 6,291
Certificates of deposit -- 1,373 1,373
Securities available for sale 72,198 -- 72,198
Securities held for investment 112,874 400 113,274
Mortgage loans held for sale -- 3,851 3,851
Total loans, net 323,869 57,899 381,768
Premises and equipment 13,785 539 14,324
Other assets 18,919 1,090 567 20,576
------- ------ ------ -------
Total assets $578,606 $66,921 $ (1,342) $644,185
======= ====== ======= =======
Liabilities:
Deposits $491,008 $59,105 $550,113
Short-term borrowings -- 3,900 3,900
Other liabilities 9,066 302 317 9,685
Long-term debt 24,289 -- 24,289
------- ------ --- -------
Total liabilities 524,363 63,307 317 587,987
Stockholders' equity:
Preferred stock -- 1,161 (1,161) --
Common stock 44,408 1,620 367 46,395
Surplus -- 450 (450) --
Retained earnings 10,697 383 (415) 10,665
Securities unrealized
holding loss (862) (862)
------- ------ ------- -------
Total stockholders' equity 54,243 3,614 (1,659) 56,198
------- ------ ------- -------
Total liabilities and stockholders'
equity $578,606 $66,921 $ (1,342) $644,185
======= ====== ======== =======
</TABLE>
See notes to pro forma combined condensed financial statements.
- 16 -
<PAGE>
TRICO BANCSHARES AND SUTTER BUTTES SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
TRICO SUTTER Adjustments Combined Total
<S> <C> <C> <C> <C>
Interest income $ 11,605 $ 1,232 $ (25) $ 12,812
Interest expense 4,535 784 5,319
------ ----- --- ------
Net interest income 7,070 448 (25) 7,493
Provision for loan losses 40 -- 40
------ --- ------
Net interest income after provision for
loan losses 7,030 448 (25) 7,453
Other income 1,466 70 1,536
Other expenses 5,505 407 30 5,942
------ ----- --- ------
Income before income taxes 2,991 111 (55) 3,047
Income taxes 1,247 46 (23) 1,270
------ ----- --- ------
Net income $ 1,744 $ 65 $ (32) $ 1,777
====== ===== === ======
Earnings per share:
Primary $ 0.38 $ 0.37
Fully diluted $ 0.37 $ 0.37
Weighted average shares outstanding:
Primary 4,646,490 113,543 4,760,033
Fully diluted 4,668,500 113,543 4,782,043
</TABLE>
See notes to pro forma combined condensed financial statements.
- 17 -
<PAGE>
TRICO BANCSHARES AND SUTTER BUTTES SAVINGS BANK
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(Unaudited)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma Combined
TRICO SUTTER Adjustments Total
<S> <C> <C> <C> <C>
Interest income $ 46,011 $ 4,573 $ (100) $ 50,484
Interest expense 17,988 3,139 21,127
------ ----- ---- ------
Net interest income 28,023 1,434 (100) 29,357
Provision for loan losses 335 (1) 334
------ ----- ---- ------
Net interest income after provision for
loan losses 27,688 1,435 (100) 29,023
Other income 5,933 489 6,422
Other expenses 21,661 1,552 119 23,332
------ ----- ---- ------
Income before income taxes 11,960 372 (219) 12,113
Income taxes 4,915 21 (90) 4,846
---- ------
Net income $ 7,045 351 (129) 7,267
====== ===== ==== ======
Earnings per share:
Primary $ 1.46 $ 1.47
Fully diluted $ 1.45 $ 1.46
Weighted average shares outstanding:
Primary 4,656,893 113,543 4,770,436
Fully diluted 4,693,188 113,543 4,806,731
</TABLE>
See notes to pro forma combined condensed financial statements.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(unaudited)
NOTE A - BASIS OF PRESENTATION
UNAUDITED PRO FORMA COMBINATION. The unaudited Pro Forma Condensed
Combined Balance Sheet is based on the unaudited consolidated balance sheets of
TriCo and Sutter Buttes as of March 31, 1996. The unaudited Pro Forma Condensed
Combined Statement of Income is based on the supplemental consolidated
statements of income of TriCo and the statements of income of Sutter Buttes for
the three months ended March 31, 1996, and the year ended December 31, 1995.
TOTAL CONSIDERATION. Pursuant to the Acquisition Agreement, the
shareholders of Sutter Buttes will receive as Total Consideration cash and/or
TriCo Stock having a value equal to $3,896,400 plus or less 1.1 times any
after-tax earnings or after-tax losses, as recorded in accordance with generally
accepted accounting principles, of Sutter Buttes from April 1, 1996, through the
Closing Date.
The following summarizes the calculation of the shares of TriCo Stock
to be issued as of March 31, 1996:
- 18 -
<PAGE>
(Dollars in Thousands Except per Share Data)
Total Consideration $3,896
======
Cash (49% of total $1,909
TriCo common stock (51% of total) $1,987
TriCo average common stock price during ten
days preceding March 31, 1996 $17.50
Estimated number of TriCo common shares issued 113,543
=======
METHOD OF ACCOUNTING. The Merger will be accounted for by TriCo under
the purchase method of accounting in accordance with APB No. 16. Under this
method of accounting, the purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values at the Effective Time.
The fair values of Sutter Buttes' assets and liabilities are preliminary and
will likely be revised as updated information becomes available prior to the
Effective Time.
COST SAVINGS. The positive effects of potential cost savings and
revenue enhancements which may be achieved subsequent to the Merger have not
been reflected in the unaudited pro forma combined condensed financial
statements.
NOTE B - CALCULATION OF PER SHARE VALUE OF SUTTER BUTTES COMMON STOCK
Total Consideration per Acquisition Agreement $3,896,400
==========
June 30, 1996 outstanding shares of Sutter
Buttes Common Stock 647,956
Conversion of 232,200 shares of Sutter Buttes
Preferred Stock 459,756
Exercise of warrants 65,024
Exercise of outstanding in-the-money stock options 90,240
Exercise of Special Stock Options 39,000
----------
Estimated shares of Sutter Buttes Common Stock
outstanding at consummation of the Merger, on
a fully-diluted basis $1,301,976
==========
Estimated per share value of Sutter Buttes
Common Stock on a fully-diluted basis $ 2.993
==========
In accordance with the Acquisition Agreement, the Total Consideration
is subject to increase or decrease for the after-tax earnings or after-tax
losses, as the case may be, of Sutter Buttes from April 1, 1996, through the
Closing Date. The above calculation assumes the conversion of all shares of
outstanding Sutter Buttes Preferred Stock, the approval and exercise of all
proposed Special Stock Options, and the exercise of all outstanding warrants and
outstanding stock options except those options having an exercise price in
excess of the fully-diluted per share value of Sutter Buttes Common Stock.
Exercise of these options may trigger adjustments to the Total Consideration via
charges to income and equity which are impossible to determine at this time.
NOTE C - ALLOCATION OF PURCHASE PRICE
The purchase price has been allocated as described in the table below:
- 19 -
<PAGE>
(In Thousands)
Purchase price allocation:
Total Consideration due to Sutter Buttes stockholders $3,896
Estimated cost of branch closings 100
Estimated severance expense 90
Estimated legal and accounting fees 125
------
Total purchase price $4,211
Sutter Buttes equity 3,614
------
Intangibles acquired--core deposits $ 597
======
As previously stated, the purchase method of accounting requires that
the purchase price be allocated to assets acquired and liabilities assumed based
upon their fair values. Based upon a preliminary assessment, and except for the
value of Sutter Buttes' core deposits as indicated above, the book values of
Sutter Buttes' assets and liabilities approximate their fair values as of March
31, 1996. The estimated fair values are subject to change as additional
information becomes available and preliminary Merger plans are finalized prior
to the Closing Date.
Each of the allocations in the table above is described in more detail
in the following Notes to Pro Forma Combined Financial Statements.
NOTE D - OTHER ASSETS
The pro forma adjustment to other assets is comprised of the following:
(In Thousands)
Pro Forma Adjustment:
Core deposit intangible related to the
Sutter Buttes acquisition $597
Accumulated amortization of core deposit intangible (30)
----
$567
====
The pro forma adjustment to Sutter Buttes' assets has resulted in the
following adjustments to "Other Expenses" at March 31, 1996 and December 31,
1995:
Three
Months Ended Year Ended
arch 31, 1996 December 31, 1995
(in thousands)
Pro Forma Adjustments:
Amortization of intangible assets $30 $119
=== ====
- 20 -
<PAGE>
NOTE E - OTHER LIABILITIES
Other liabilities have been adjusted as described in the table below.
(In Thousands)
Pro Forma adjustment:
Accrual of Merger-related restructuring costs $190
Accrual of estimated legal and accounting costs 125
Offset to Pro Forma income statement adjustments less
accumulated amortization of core deposit intangible
reflected in adjustments to other assets 2
----
$317
====
A liability for Merger-related costs of $315,000 has been recorded in
the unaudited Pro Forma Condensed Combined Balance Sheet reflecting management's
estimate of merger and restructuring costs including separation and benefit
costs related to Sutter Buttes' employees to be terminated, premises expected to
be vacated, and other Merger-related costs. This estimated liability is based on
current plans which are subject to change as final plans are formulated prior to
the Closing Date.
NOTE F - STOCKHOLDERS' EQUITY
As part of the purchase accounting adjustments, Sutter Buttes
shareholders' equity balances have been eliminated.
Pursuant to the Merger Agreement, the shareholders of Sutter Buttes
will receive as Total Consideration cash and TriCo Stock having a value of
$3,896,400 plus or less 1.1 times any after-tax earnings or after-tax losses, as
recorded in accordance with generally accepted accounting principles, of Sutter
Buttes from April 1, 1996, through the Closing Date. Pursuant to the Acquisition
Agreement, the cash part of the Total Consideration will not exceed 49% of the
Total Consideration. It is anticipated that the cash part of the Total
Consideration will consist of cash which would otherwise be invested in federal
funds sold. The unaudited Pro Forma Condensed Combined Statements of Income
include an adjustment to reflect the reduction in interest income due to the use
of cash which would otherwise be invested in federal funds sold. Pursuant to the
Merger Agreement, the remaining part of the Total Consideration will consist of
TriCo Stock. The number of TriCo shares to be issued will be based on the value
of the remaining part of the Total Consideration divided by the average TriCo
Stock price during the ten-day period preceding the Closing. The unaudited Pro
Forma Condensed Combined Statements of Income and the unaudited Pro Forma
Condensed Combined Balance Sheet include adjustments for the estimated value and
number of TriCo Stock to be issued.
NOTE G - INCOME TAX PROVISION
The income tax provisions for adjustments related to the Sutter Buttes
acquisition reflected in the unaudited Pro Forma Condensed Combined Statements
of Income have been computed at TriCo's effective combined federal and state
marginal tax rate.
- 21 -
<PAGE>
THE MEETING OF SHAREHOLDERS
This Prospectus and Proxy Statement is being furnished to the holders
of Sutter Buttes Common and Preferred in connection with the solicitation of
proxies by the Board of Directors of Sutter Buttes for use at the Special
Meeting of shareholders of Sutter Buttes, and at any adjournment or adjournments
thereof. The Meeting will be held on September ____, 1996, at 7:30 p.m. local
time at 700 Plumas Street, Yuba City, California 95991.
PURPOSE OF THE MEETING OF SHAREHOLDERS
At the Meeting, the holders of Sutter Buttes Common and Preferred will
vote on the approval of the Merger pursuant to the Acquisition Agreement.
Other matters to be considered at the meeting include Special Stock
Options for Lee Colby, Chairman of the Board, and W. R. Hagstrom, President and
CEO. These Special Stock Options are more fully discussed under "THE MEETING OF
SHAREHOLDERS--INTERESTS OF CERTAIN PERSONS IN THE MERGER" and "SPECIAL STOCK
OPTIONS."
RECORD DATE AND VOTING RIGHTS
The Board of Directors of Sutter Buttes has fixed the close of business
on July 26, 1996, as the Record Date for determination of shareholders entitled
to notice of and to vote at the Meeting and any adjournment thereof. As of the
Record Date, Sutter Buttes had outstanding and entitled to vote ________ shares
of Sutter Buttes Common Stock and ____________ shares of Sutter Buttes Preferred
Stock. Each share of Sutter Buttes Common and Preferred is entitled to one vote.
A quorum consisting of a majority of the outstanding shares of Sutter Buttes
Common and Preferred, represented in person or by proxy, must be present in
order to hold the Meeting. The Acquisition Agreement must be approved by the
holders of two-thirds of the outstanding shares of Sutter Buttes Common and
Preferred voting together as one class. Each share of Sutter Buttes Common and
Preferred for which an abstention from voting or a broker non- vote is recorded
will be counted as a share entitled to vote that was not voted in favor of the
Acquisition Agreement and, therefore, will have the same effect as a vote
against approval.
As of the Record Date, the directors of Sutter Buttes and their
respective affiliates as a group held an aggregate of ___________ shares, or
approximately _______%, of the then outstanding shares of Sutter Buttes Common
Stock, and __________ shares, or approximately ________%, of the then
outstanding shares of Sutter Buttes Preferred Stock. These shares, together with
options and warrants held by such directors and officers and their affiliates,
represent approximately _______% of the 1,262,976 shares of Sutter Buttes Common
Stock outstanding on a fully-diluted basis assuming conversion of all Sutter
Buttes Preferred Stock to Sutter Buttes Common Stock, and exercise of all
outstanding warrants and in-the-money stock options for Sutter Buttes Common
Stock, but not assuming approval of the Special Stock Options, as such shares
will not be entitled to vote at the Meeting. Each Sutter Buttes director intends
to vote all of the shares of Sutter Buttes Common and Preferred over which such
director has sole or shared voting power for approval and adoption of the
Acquisition Agreement and the Merger pursuant thereto. Accordingly, approval and
adoption of the Acquisition Agreement and the Merger at the Meeting is expected
to require the affirmative vote of an additional __________ shares of Sutter
Buttes Common and Preferred, based on the shares of Sutter Buttes
- 22 -
<PAGE>
Common and Preferred outstanding as of the Record Date, or ___________ shares of
Sutter Buttes Common Stock, on a fully diluted basis as described above, voted
by the remaining shareholders of Sutter Buttes.
CONSIDERATION REQUEST FORM
As is described below in detail, holders of shares of Sutter Buttes
Common Stock who participate in the Merger may request payment for their shares
either in cash or in TriCo Stock. Enclosed with this Prospectus/Proxy Statement
is a Consideration Request Form. Please request payment in either cash or TriCo
Stock by marking the appropriate box. Then sign the Form, enclose it with your
completed and signed proxy, and mail them in the enclosed postage-paid envelope
no later than __________. If you intend to be at the Meeting in person and not
to send a proxy, you may send only the Consideration Request Form in the
enclosed envelope or bring it to the Meeting. Please note that because fifty-one
percent (51%) of the consideration to be paid by TriCo must be in the form of
TriCo Stock, shareholders who do not request payment in TriCo Stock may
nevertheless be assigned TriCo Stock if requests for TriCo Stock total less than
51% of the Total Consideration. In the event that requests for TriCo Stock total
less than 51% of the Total Consideration, TriCo Stock will be allocated first,
on a pro rata basis, to those shareholders who fail to request a form of payment
through the Consideration Request Form and next, if necessary, on a pro rata
basis, to those shareholders who request cash. Conversely, shareholders who do
not request payment in cash may nevertheless be assigned cash if requests for
TriCo Stock total more than 51% of the total consideration.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Sutter Buttes' President and Chief Executive Officer, W. R. Hagstrom,
and Senior Vice President and Chief Financial Officer, Philip Safran, are
parties to employment agreements with Sutter Buttes dated as of June 20, 1996,
and June 1, 1996, respectively. Under the terms of the employment agreements, in
the event that either Mr. Hagstrom or Mr. Safran is terminated without cause,
Sutter Buttes will be obligated to pay an amount equal to all accrued but unused
paid vacation through the date of such termination any unreimbursed expenses,
and the equivalent of three months' salary ($20,000 for Mr. Hagstrom and $15,900
for Mr. Safran). Tri Counties is assuming these obligations in the Merger.
In addition, Sutter Buttes' officers and directors have options to
purchase, in the aggregate, 92,740 shares of Sutter Buttes Common Stock,
exercisable at prices between $2.42 and $3.04 per share. The options were
granted under Sutter Buttes' 1992 Stock Option Plan and Directors Stock Option
Plan (the "Stock Option Plans") and were evidenced by stock option agreements.
Under the terms of the Stock Option Plans, the Stock Option Committee of the
Sutter Buttes Board of Directors (the "Committee") has the power to accelerate
the option vesting schedule with the consent of the optionee. The Committee
exercised its discretion under the Stock Option Plans to fully vest any unvested
options as of August 31, 1996, so that such options may be exercised in full on
the Closing Date. Because options to purchase 2,500 shares have exercise prices
in excess of the estimated Total Consideration per share of approximately $2.99,
- 23 -
<PAGE>
such options are not considered to be in-the-money and therefore are not likely
to be exercised.
Holders of stock options will be entitled to exercise their options
before the Closing Date in any one of three ways: (i) in exchange for Sutter
Buttes Common Stock with a value equal to the per share value of Sutter Buttes
Common Stock, less the per share exercise price of the options, times the number
of shares underlying the options; (ii) for cash in the amount just described; or
(iii) by paying the exercise price for the number of shares underlying the
options. Holders of stock options who exercise for Sutter Buttes Common Stock
will be entitled to receive an appropriate portion of the Total Consideration.
When Mr. Hagstrom was hired in June of 1994 as Chief Executive Officer,
the Board of Directors negotiated his compensation at a level significantly
below the Board's estimate of prevailing market rates for a comparable position.
At that time, the Board agreed to review his performance in the future and
recognize any substantial contributions and achievements through an incentive or
bonus payment.
The Board of Directors believes Mr. Hagstrom has performed in a
superior manner and that his contributions have materially improved the
financial performance of Sutter Buttes over what it would have been without his
efforts. His efforts were also instrumental in negotiating the Acquisition
Agreement.
The Board is recommending that the shareholders approve the Executive
Officer Special Stock Option, which is a special option to purchase 24,000
shares of Sutter Buttes Common Stock for $1.00 per share, or $24,000. Assuming
conversion of the shares to a pro rata portion of unadjusted Total
Consideration, the pre-tax value of this special option is approximately $47,760
to Mr. Hagstrom. It is the Board's opinion that this Special Stock Option, in
addition to the stock options recently granted to Mr. Hagstrom, will
appropriately recognize and reward his past contributions.
Lee Colby was singularly responsible for bringing TriCo to Sutter
Buttes as a potential acquiror. The Board believes it is appropriate to
recognize and reward these efforts, and is recommending that the shareholders
approve the Director Special Stock Option, which is a special option to purchase
15,000 shares of Sutter Buttes Common Stock for $1.00 per share, or $15,000.
Assuming conversion of the shares to a pro rata portion of unadjusted Total
Consideration, the pre-tax value of this Special Stock Option is approximately
$29,850 to Mr. Colby. Mr. Hagstrom's and Mr. Colby's Special Stock Options may
instead be exercised for cash.
If the proposed grants of the Director Special Stock Option and the
Executive Officer Special Stock Option are not approved by the shareholders of
Sutter Buttes, the Board of Directors of Sutter Buttes may consider providing
Messrs. Hagstrom and Colby bonus payments in amounts approximately equal to the
respective values of the Special Stock Options.
PROXIES
A proxy for use at the Meeting accompanies this Prospectus/Proxy
Statement. A shareholder may use a proxy whether or not he intends to attend the
Meeting in person. The proxy may be revoked in writing by the person giving it
at any time before the Meeting by notice to Barbara J. Thilo, Corporate
Secretary of Sutter Buttes, at 700 Plumas Street, Yuba City, California 95991,
or by submitting a proxy having a later date, or by such person appearing at the
Meeting and electing to vote in person. All proxies validly submitted and not
revoked will be voted in the manner specified therein. IF NO SPECIFICATION IS
MADE, THE
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PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER PURSUANT TO THE ACQUISITION
AGREEMENT AND FOR APPROVAL OF THE SPECIAL OPTIONS FOR MR. HAGSTROM AND MR.
COLBY. The Board of Sutter Buttes is not aware of any other matters which may be
presented for action at the Meeting, but if other matters do properly come
before the Meeting it is intended that the shares represented by the
accompanying proxy will be voted by the persons named in the proxy in accordance
with their best judgment. The shares represented by the accompanying proxy may
not be voted to adjourn the Meeting for the purpose of soliciting additional
votes to approve the Merger.
Proxies are being solicited by Sutter Buttes. Solicitation of proxies
will be carried out in person, by mail, or by telephone or telegraph by
directors, officers and employees of Sutter Buttes and/or TriCo, for which no
additional compensation will be paid.
CERTAIN CONSIDERATIONS
In deciding whether to approve the Merger, Sutter Buttes shareholders
should carefully consider the following factors, in addition to the other
matters set forth or incorporated by reference herein.
ADDITIONAL INFORMATION CONCERNING TRICO
Pursuant to the Exchange Act, TriCo files reports and proxy statements
with the Commission which include, but are not limited to, an Annual Report on
Form 10-K and a Quarterly Report on Form 10-Q. The TriCo Form 10-K for the year
ended December 31, 1995, and TriCo Form 10-Q for the quarter ended March 31,
1996, contain certain information which Sutter Buttes' shareholders may desire
to review, including Management's Discussion and Analysis of TriCo's Financial
Condition and Results of Operations. Copies of the foregoing reports may be
inspected and copied at public reference facilities maintained by the Commission
at the addresses set forth above under the section entitled "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." TriCo and Sutter Buttes will also provide
copies of such reports and other information incorporated herein by reference,
at no charge, to any Sutter Buttes shareholder upon request. Any shareholder may
contact TriCo or Sutter Buttes at the telephone numbers set forth herein under
the section entitled "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." TriCo
also has filed with the Commission its Annual Report on Form 10-K for the year
ended December 31, 1995 on or about March 12, 1996 and has prepared and has
available an Annual Report to Shareholders for the year ended December 31, 1995.
A copy of the TriCo Annual Report to Shareholders is enclosed with this
Prospectus/Proxy Statement.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Shares of TriCo Stock eligible for future sale could have a dilutive
effect on the market for TriCo Stock and could adversely affect the market
price. The Articles of Incorporation of TriCo authorize the issuance of
20,000,000 shares of TriCo Stock and 1,000,000 shares of preferred stock of
TriCo. As of June 30, 1996, 4,482,712 shares of TriCo Stock, and options for an
additional 492,000 shares were outstanding. Such options have exercise prices of
between $7.43 and $13.20 per share. Sales of substantial amounts of TriCo Stock
in the public market following the Merger could adversely affect the market
price of TriCo Stock. There are no restrictions in the Agreement preventing
TriCo from issuing additional shares.
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INTERESTS OF DIRECTORS AND OFFICERS OF SUTTER BUTTES IN THE MERGER
Sutter Buttes' President and Chief Executive Officer, W. R. Hagstrom,
and Senior Vice President and Chief Financial Officer, Philip Safran, are
parties to employment agreements with Sutter Buttes dated as of June 20, 1996,
and June 1, 1996, respectively. Under the terms of the employment agreements, in
the event that either Mr. Hagstrom or Mr. Safran is terminated without cause,
Sutter Buttes will be obligated to pay an amount equal to all accrued but unused
paid vacation through the date of such termination, any unreimbursed expenses,
and the equivalent of three months' salary ($20,000 for Mr. Hagstrom and $15,900
for Mr. Safran). Tri Counties is assuming these obligations in the Merger.
In addition, Sutter Buttes officers and directors have options to
purchase, in the aggregate, 92,740 shares of Sutter Buttes Common Stock,
exercisable at prices between $2.42 and $3.04 per share. The options were
granted under the Stock Option Plans and were evidenced by stock option
agreements. Under the terms of the Stock Option Plans, the Committee has the
power to accelerate the option vesting schedule with the consent of the
optionee. The Committee exercised its discretion under the Stock Option Plans to
fully vest any unvested options as of August 31, 1996, so that such options may
be exercised in full on the Closing Date. Because options to purchase 2,500
shares have exercise prices in excess of the estimated Total Consideration per
share of approximately $2.99, such options are not considered to be in-the-money
and therefore are not likely to be exercised.
Holders of stock options will be entitled to exercise their options
before the Closing Date in any one of three ways: (i) in exchange for Sutter
Buttes Common Stock with a value equal to the per share value of Sutter Buttes
Common Stock, less the per share exercise price of the options, times the number
of shares underlying the options; (ii) for cash in the amount just described; or
(iii) by paying the exercise price for the number of shares underlying the
options. Holders of stock options who exercise for Sutter Buttes Common Stock
will be entitled to receive an appropriate portion of the Total Consideration.
When Mr. Hagstrom was hired in June of 1994 as Chief Executive Officer,
the Board of Directors negotiated his compensation at a level significantly
below the Board's estimate of prevailing market rates for a comparable position.
At that time, the Board agreed to review his performance in the future and
recognize any substantial contributions and achievements through an incentive or
bonus payment.
The Board of Directors believes Mr. Hagstrom has performed in a
superior manner and that his contributions have materially improved the
financial performance of Sutter Buttes over what it would have been without his
efforts. His efforts were also instrumental in negotiating the Acquisition
Agreement.
The Board is recommending that the shareholders approve the Executive
Officer Special Stock Option, which is a special option to purchase 24,000
shares of Sutter Buttes Common Stock for $1.00 per share, or $24,000. Assuming
conversion of the shares to a pro rata portion of unadjusted Total
Consideration, the pre-tax value of this Special Stock Option is approximately
$47,760 to Mr. Hagstrom. It is the Board's opinion that this Special Stock
Option, in addition to the stock options recently granted to Mr. Hagstrom, will
appropriately recognize and reward his past contributions.
Lee Colby was singularly responsible for bringing TriCo to Sutter
Buttes as a potential acquiror. The Board believes it is appropriate to
recognize and reward these efforts, and is recommending that the shareholders
approve the Director Special Stock Option, which is a special option to purchase
15,000
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shares of Sutter Buttes Common Stock for $1.00 per share, or $15,000. Assuming
conversion of the shares to a pro rata portion of unadjusted Total
Consideration, the pre-tax value of this Special Stock Option is approximately
$29,850 to Mr. Colby. Mr. Hagstrom's and Mr. Colby's Special Stock Options may
instead be exercised for cash.
If the proposed grants of the Director Special Stock Option and the
Executive Officer Special Stock Option are not approved by the shareholders of
Sutter Buttes, the Board of Directors of Sutter Buttes may consider providing
Messrs. Hagstrom and Colby bonus payments in amounts approximately equal to the
respective values of the Special Stock Options.
REAL ESTATE LENDING ACTIVITIES; NONACCRUAL LOANS
The loan portfolios of TriCo and Sutter Buttes are dependent on real
estate. At March 31, 1996, real estate served as the principal source of
collateral with respect to approximately 99.8% of Sutter Buttes' loan portfolio
and 32.5% of TriCo's loan portfolio. A worsening of current economic conditions
and rising interest rates could have an adverse effect on the demand for new
loans, the ability of borrowers to repay outstanding loans and the value of real
estate and other collateral securing loans as well as TriCo's financial
condition in general and the market value for TriCo Stock. Acts of nature,
including earthquakes, which may cause uninsured damage and other loss of value
to real estate that secures these loans, may also negatively impact TriCo's
financial condition.
Sutter Buttes' nonaccrual loans were $532,253 or .79% of total assets
at March 31, 1996, as compared to $436,979 or .68% of total assets at December
31, 1995, $113,300 or .17% of total assets at December 31, 1994, and no loans on
nonaccrual at December 31, 1993. TriCo's nonaccrual loans were $2.7 million or
0.47% of total assets at March 31, 1996, as compared to $2.2 million or 0.37% of
total assets at December 31, 1995, $1.1 million or 0.19% of total assets at
December 31, 1994, and $1.6 million or 0.28% of total assets at December 31,
1993. There are no assurances that nonaccrual loans will not increase and
adversely affect the financial condition of Sutter Buttes and/or TriCo. The
Acquisition Agreement provides that a mutual condition to TriCo's and Sutter
Buttes' obligation to consummate the Merger is that there not occur any material
adverse change in Sutter Buttes' or Tri Counties' loan portfolios.
LEGISLATIVE AND REGULATORY ENVIRONMENT
The banking and financial services businesses in which TriCo and Sutter
Buttes engage are highly regulated. The laws and regulations affecting such
businesses are under constant review by Congress and applicable regulatory
agencies and may be changed dramatically in the future. Such changes could
affect the business of bank holding companies and banks. For example, in
September 1994, the President signed legislation amending the BHC Act and the
Federal Deposit Insurance Act to provide for interstate banking and branching.
Such changes may affect the competitive environment in which Tri Counties and
Sutter Buttes operate and may affect the amount of capital that banks and bank
holding companies are required to maintain, the premiums paid for or the
availability of deposit insurance or other matters directly affecting earnings.
It is not certain what changes will occur or the effect that any such changes
would have on the profitability of the combined company, its ability to achieve
certain cost savings or compete effectively or its ability to take advantage of
new opportunities after the Merger.
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Under Federal law, the Savings Association Insurance Fund (the "SAIF"),
which is the fund created for the insurance of the deposits of savings
institutions, including Sutter Buttes, is required to maintain minimum capital
of 1.25% of the total deposits insured by the SAIF. The SAIF has never met this
minimum capital requirement. In the fall of 1995 and again in the spring of
1996, Congress introduced bills proposing the imposition of a special assessment
on all SAIF-insured deposits in order to bring the SAIF's capital up to its
minimum required level. If one of the bills had been passed into law,
institutions with SAIF-insured deposits would have borne substantial liability
for the special assessment. It is possible that Congress will raise this issue
again in the near future and that a special assessment will be imposed on all
SAIF-insured deposits. If the Merger is consummated, Sutter Buttes' former
deposits will remain insured by the SAIF, and TriCo may bear the liability of
any such special assessment.
TriCo is organized under the corporate law of California while Sutter
Buttes is organized under the Home Owners' Loan Act of 1933, as amended
("HOLA"). While similarities in rights exist for shareholders of TriCo and
Sutter Buttes, there are significant differences in the laws applicable to each
company and in their respective charter documents. The primary difference is
that TriCo is a bank holding company which principally operates within the
framework of the BHC Act and is regulated by the Federal Reserve Board while
Sutter Buttes is a federal savings bank which operates within the framework of
HOLA. Sutter Buttes' primary regulatory is the Office of Thrift Supervision.
ANTITAKEOVER PROVISIONS
TriCo's Articles of Incorporation and Bylaws contain certain provisions
that may be deemed to be antitakeover in nature. One of the provisions is the
authorization of 20,000,000 shares of common stock of TriCo and 1,000,000 shares
of preferred stock of TriCo, described herein, combined with the denial of
preemptive rights. The additional shares of common and preferred stock were
authorized for the purpose of providing the Board of Directors of TriCo with as
much flexibility as possible to issue additional shares, without further
shareholder approval, for proper corporate purposes including financing,
acquisitions, stock dividends, stock splits, employee incentive plans, and other
similar purposes. These additional shares, however, may also be used by the
Board of Directors (if consistent with its fiduciary responsibilities) to deter
future attempts to gain control over TriCo. Since shareholders do not have
preemptive rights, management could offer additional stock to friendly parties
without having to offer stock to the bidder.
A provision of TriCo's Articles of Incorporation specifies certain
actions that TriCo and its Board of Directors shall or may take in the event
that a third party makes a tender or exchange offer for TriCo's stock, or an
offer to merge or consolidate with TriCo or any subsidiary, or to acquire all or
substantially all of the properties or assets of TriCo or any subsidiary. In
evaluating such an offer, the Board of Directors is required to consider not
just the economic benefit to TriCo shareholders, but all relevant factors in
determining whether it is in the best interest of TriCo and its shareholders.
Such factors include, but are not limited to the financial condition of TriCo
and its future prospects; whether a more favorable offer could be obtained; the
effects of the proposed transaction on TriCo's employees, customers, and the
community it serves; the business practices and reputation of the offeror; the
value of any securities being offered in exchange; and the legal and regulatory
issues raised by the offer.
If the Board of Directors determines that the offer should be rejected,
it may take any lawful action to defeat the offer including, but not limited to,
advising TriCo's shareholders not to accept the offer; instituting litigation
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against the offeror; filing complaints with governmental authorities; having
TriCo acquire its own stock; selling or issuing authorized but unissued stock of
TriCo; acquiring a company which creates regulatory problems; or obtaining an
offer from another entity.
The effect of these provisions may be to deter a future tender offer
which might include a substantial premium over the market price of TriCo's stock
at that time. In addition, these provisions may enable management to retain its
position and allow it to resist changes that some TriCo shareholders may deem
desirable.
PROPOSED MERGER
The following description of the material features of the Merger is
qualified in its entirety by reference to the Acquisition Agreement which is
attached as Exhibit A, and incorporated herein by this reference.
BACKGROUND AND REASONS FOR THE MERGER
Due to the persistent illiquidity of Sutter Buttes Common Stock and
difficulty competing with larger institutions, the Sutter Buttes Board of
Directors requested in 1994 that Mr. Hagstrom explore possible merger candidates
for Sutter Buttes. At various times during 1995, Mr. Hagstrom met with numerous
local institutions to discuss the feasibility of their acquiring or combining
with Sutter Buttes. The intent was that Sutter Buttes become part of a larger
institution with a larger shareholder base and stronger competitive ability in
order to create shareholder value and stock liquidity. None of these meetings
was successful. In late 1995 Lee Colby, Chairman of the Board, met with Mr.
Robert Steveson, President and Chief Executive Officer of TriCo, to inquire
about interest TriCo had expressed in acquiring Sutter Buttes in earlier years.
As a result of that meeting and subsequent meetings with Mr. Hagstrom, TriCo
submitted a letter of interest to Sutter Buttes. After reviewing the letter, the
Sutter Buttes Board of Directors requested that Mr. Colby and Mr. Hagstrom
commence negotiations with TriCo. A final agreement was reached on terms
acceptable to both Boards in June of 1996.
Fairness
The Sutter Buttes Board of Directors believes that the Merger is fair
and in the best interests of the shareholders of Sutter Buttes. In reaching its
conclusion, the Sutter Buttes Board of Directors considered numerous factors,
including the following:
(1) The overall lack of institutions interested in acquiring Sutter Buttes;
(2) The amount of consideration to be paid by TriCo, which is, in the
opinion of the Board, favorable;
(3) The acceptability of the terms and conditions of the Merger, which are
summarized below, upon review of them with Sutter Buttes' legal counsel;
(4) The structure of the Merger as partially tax-free to the holders of
Sutter Buttes Common Stock;
(5) The market liquidity and dividend history of TriCo Stock, which is,
in the opinion of the Board, favorable;
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(6) The market illiquidity of Sutter Buttes Common Stock and Sutter Buttes'
lack of ability to pay cash dividends on stock, which are, in the opinion of the
Board, unfavorable; and
(7) The current and projected financial condition of Sutter Buttes
as an independent institution, which are, in the opinion of the Board,
unfavorable.
In order to minimize costs associated with the merger, the Board of
Directors of Sutter Buttes did not engage the services of an investment banking
or other firm to review the financial aspects of the Merger and to render a
fairness opinion. It is the Board's opinion, based on its business judgment
after review and analysis of this transaction, similar transactions, and Sutter
Buttes' difficulty in competing because of its size and limited capital
structure, that this transaction is in the best interests of Sutter Buttes and
its shareholders, and that an investment banking or other firm would come to the
same conclusion.
Potential Litigation
In view of Sutter Buttes' determination not to obtain a fairness
opinion in connection with the Merger, the Acquisition Agreement allocates the
cost of potential litigation related thereto among Tri Counties, TriCo, and
Sutter Buttes. Tri Counties has agreed to bear the cost of defending any claim
or action asserting or alleging that the directors of Sutter Buttes failed to
exercise due care or were otherwise deficient in determining the fairness of the
Merger. Sutter Buttes agreed to acquire a three-year extension to its existing
directors' and officers' liability insurance policy which will provide coverage
for such judgment and the costs of defending any such claim or action.
MATERIAL CONTACTS
In 1994, Robert H. Steveson, President of TriCo, and Lee Colby,
Chairman of the Board of Sutter Buttes, informally discussed the possibility of
a merger. The discussions were preliminary in nature, and after reaching no
general agreement as to structure, form, or price, the matter was dropped.
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EFFECT OF THE MERGER
At and after the Effective Time, the separate existence of Sutter
Buttes will cease and Tri Counties will succeed, without other transfer, to all
the rights and property of Sutter Buttes and will be subject to all the debts
and liabilities of each in the same manner as if Tri Counties had itself
incurred them.
All rights of creditors and all liens upon the property of Sutter
Buttes and Tri Counties shall be preserved unimpaired, except that such liens on
the property of Sutter Buttes will be limited to the property affected thereby
immediately prior to the Effective Time.
Any action or proceeding pending by or against Sutter Buttes may be
prosecuted to judgment, which shall bind Tri Counties, or Tri Counties may be
proceeded against or substituted in Sutter Buttes' place.
TERMS OF THE MERGER
Although the parties have not adopted any formal timetable, it is
presently anticipated that the Merger will be consummated on or prior to
September 27, 1996, assuming all the conditions set forth in the Acquisition
Agreement are theretofore satisfied or waived; however, it is possible that the
Closing Date may extend beyond such date.
Consideration for Shares of Sutter Buttes Common Stock
In exchange for their shares of Sutter Buttes Common Stock, the holders
of Sutter Buttes Common Stock shall receive the Total Consideration, which shall
consist of cash and/or TriCo Stock. The Total Consideration, subject to
adjustments described below, is $3,896,400, or approximately $2.99 per share, on
a fully-diluted basis assuming conversion of all outstanding shares of Sutter
Buttes Preferred Stock into shares of Sutter Buttes Common Stock, the exercise
of all outstanding warrants and in-the-money options to purchase Sutter Buttes
Common Stock, and shareholder approval of the Special Stock Options and the
exercise thereof.
There are several possible adjustments to the Total Consideration. The
Total Consideration will be increased or reduced, as the case may be, by 1.1
times after-tax earnings or after-tax losses of Sutter Buttes from April 1,
1996, through the Closing Date. After-tax earnings or losses, as the case may
be, shall include the accrual and booking of provisions to the loan and lease
loss reserve agreed upon among the parties, and shall not include any expense
associated with the transfer of Federal Deposit Insurance from Sutter Buttes to
Tri Counties or the payment of any special assessments imposed on Sutter Buttes'
deposits by the FDIC or the SAIF, other than normal deposit insurance premiums.
Such earnings or losses will also include any expenses incurred by Sutter Buttes
in connection with the Merger in excess of $70,000. TriCo will bear its own
expenses in connection with the Merger, as well as Sutter Buttes' expenses up to
$70,000, but Sutter Buttes will bear the cost of soliciting proxies for the
Meeting and distributing this Prospectus/Proxy Statement. Sutter Buttes'
expenses associated with the Merger include legal and accounting fees and the
cost of purchasing a three-year extension of Sutter Buttes' directors' and
officers' liability insurance policy.
The holders of Sutter Buttes Preferred Stock who, as of the Closing
Date, have not converted their shares of Sutter Buttes Preferred Stock to Sutter
Buttes Common Stock will receive the Sutter Buttes Preferred Stock liquidation
preference of $5.00 per share plus any declared and unpaid cash dividends (or
warrants in lieu thereof) attributable to the Sutter Buttes Preferred Stock.
Because each share of Sutter Buttes Preferred Stock converts into 1.98 shares of
Sutter Buttes Common Stock, it is expected that all Sutter Buttes Preferred
Stock will be converted. Holders of Sutter Buttes Common and Preferred who
choose to exercise and perfect their dissenters' rights of appraisal will
receive a fair value of their shares in cash. See "RIGHTS OF DISSENTING
SHAREHOLDERS." The amounts paid, if any, to holders of Sutter Buttes Preferred
Stock who do not convert and to Dissenting Shareholders will be deducted from
the Total Consideration paid to holders of Sutter Buttes Common Stock.
Outstanding warrants issued to holders of Sutter Buttes Preferred Stock
in lieu of cash dividends will be treated as if exercised at the Effective Time,
and the holders thereof will be entitled to receive an appropriate portion of
the Total Consideration. Holders of stock options and Special Stock Options will
be entitled to exercise their options before the Closing Date in any one of
three ways: (i) in exchange for Sutter Buttes Common Stock with a value equal to
the per share value of Sutter Buttes Common Stock, less the per share exercise
price
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of the options, times the number of shares underlying the options; (ii) for cash
in the amount just described; or (iii) by paying the exercise price for the
number of shares underlying the options. Holders of stock options and Special
Stock Options who exercise for Sutter Buttes Common Stock will be entitled to
receive an appropriate portion of the Total Consideration.
Of the Total Consideration paid, 51% shall be in the form of TriCo
Stock, and TriCo reserves the right to assure that 51% of the Total
Consideration will be in the form of TriCo Stock. In assuring that 51% of the
consideration will be in the form of TriCo Stock, TriCo shall deduct the amount
of cash payments for fractional shares and potential cash payments for the
holders of Sutter Buttes Preferred Stock not converting such stock, for holders
of stock options or Special Stock Options exercising for cash, and for
Dissenting Shares. The value of TriCo Stock will be based on the average closing
sale price (or mean between the closing bid and asked prices if there is no
closing sale price on any day) of TriCo Stock on the ten trading days preceding
the Closing Date.
Enclosed with this Prospectus/Proxy Statement is a Consideration
Request Form. Please request payment in either cash or TriCo Stock by marking
the appropriate box. Then sign the Form, enclose it with your completed and
signed proxy, and mail them in the enclosed postage-paid envelope. If you intend
to be at the Meeting in person and not to send a proxy, you may send only the
Consideration Request Form or bring it to the Meeting.
To the extent possible, TriCo will cause cash to be paid to those
holders of Sutter Buttes Common Stock requesting cash payment and to cause TriCo
Stock to be delivered to those holders of Sutter Buttes Common Stock requesting
TriCo Stock. However, to guarantee that 51% of the Total Consideration is in the
form of TriCo Stock, TriCo reserves the right to allocate TriCo Stock and cash,
as necessary, among the holders of Sutter Buttes Common Stock. In the event that
requests for shares total less than 51%, the remaining shareholders not
requesting stock shall be assigned stock to bring the total stock issued to 51%
of the Total Consideration; stock will be allocated first to those failing to
request stock or cash, and next, if necessary, to those requesting cash. In the
event that requests for TriCo Stock exceed 51%, the remaining shareholders not
requesting cash shall be assigned cash to bring the total stock issued to 51% of
the Total Consideration; cash will be allocated first to those failing to
request stock or cash, and next, if necessary, to those requesting stock.
TriCo's determination to allocate cash and TriCo Stock on a pro rata basis to
guarantee that 51% of the Total Consideration is TriCo Stock according to the
terms of this paragraph shall be at TriCo's sole determination and shall not be
subject to review or question by Sutter Buttes or its shareholders.
No fractional shares of TriCo Stock will be issued, and any fractional
share values will be paid in cash based on the average closing sale price (or
mean between the closing bid and asked price if there is no closing sale price
for any day) of TriCo Stock on the ten trading days preceding the Closing Date.
As of June 30, 1996, there were 647,956 shares of Sutter Buttes Common
Stock outstanding. There may be additional shares outstanding as of the Closing
Date due to the conversion of Sutter Buttes Preferred Stock or warrants or the
exercise of stock options or Special Stock Options. Each of the 232,200 shares
of Sutter Buttes Preferred Stock outstanding may be converted into 1.98 shares
of Sutter Buttes Common Stock. In addition, warrants for 65,024 shares of Sutter
Buttes Common Stock, which were issued in lieu of cash dividends on Sutter
Buttes Preferred Stock, will be treated as if exercised and converted at the
Effective Time to Sutter Buttes Common Stock. Furthermore, each person holding
options to purchase shares of Sutter Buttes Common Stock pursuant to the Stock
Option Plans will be entitled to exercise their options at or immediately prior
to the Closing
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Date. As of June 30, 1996, options to purchase 92,740 shares of Sutter Buttes
Common Stock were outstanding, however, options to purchase 2,500 shares have
exercise prices in excess of the estimated Total Consideration per share, and
therefore are not considered to be in-the-money and are not likely to be
exercised. Exercise of stock options for cash or shares of Sutter Buttes Common
Stock will be permitted. Finally, Special Stock Options to purchase a total of
39,000 shares of Sutter Buttes Common Stock will be issued to CEO W. R. Hagstrom
and Chairman Lee Colby if the shareholders approve the Special Stock Options.
Below are three stock/cash allocation examples:
1. Assume that 30% of the holders of Sutter Buttes Common Stock request
stock, 40% request cash, and 30% fail to make a request. All of those requesting
stock will receive stock and all of those requesting cash will receive cash.
Those failing to make a request will receive 21/30 of their consideration in
stock and 9/30 of their consideration in cash.
2. Assume that 60% of the holders of Sutter Buttes Common Stock request
stock, 20% request cash, and 20% fail to make a request. Those requesting stock
will receive 51/60 of their consideration in stock and 9/60 of their
consideration in cash. Those requesting cash and those failing to make a request
will all receive cash.
3. Assume that 25% of the holders of Sutter Buttes Common Stock request
stock, 65% request cash, and 10% fail to make a request. All of those requesting
stock and all of those failing to make a request will receive stock. Those
requesting cash will receive 49/65 of their consideration in cash and 16/65 of
their consideration in stock.
Covenants in the Acquisition Agreement
The Acquisition Agreement contains covenants of Sutter Buttes, TriCo,
and Tri Counties ensuring that the parties proceed toward and do not hinder
consummation of the Merger. These covenants include that Sutter Buttes will
provide TriCo and Tri Counties access to Sutter Buttes' records and other
internal information, that all parties will not disclose certain confidential
information, and that, subject to the Board's fiduciary duties to Sutter Buttes
and its shareholders, Sutter Buttes will not agree to transfer its business to
another entity, acquire any of its own stock, acquire the capital stock or
assets of any other entity outside the ordinary course of business, or commence
any proceedings for winding up and dissolution. In addition, neither Sutter
Buttes nor its agents will solicit or encourage any discussions or proposals for
entering into any agreement providing for a transfer of the business or disclose
any non-public information regarding Sutter Buttes to any person or business
entity. Nevertheless, if the Board of Directors receives a bona fide offer for a
transfer of the business, the Board will take any action on such offer that may
be required to fulfill its fiduciary duties to Sutter Buttes and its
shareholders. Other such covenants include that Sutter Buttes will provide
information to TriCo for any required regulatory applications and for the
Registration Statement of which this Prospectus/Proxy Statement is a part, that
TriCo will file such required regulatory applications and the Registration
Statement of which this Prospectus/Proxy Statement is a part, and that Sutter
Buttes take all reasonable action necessary to convene the Meeting.
The Acquisition Agreement also contains covenants of Sutter Buttes
regarding how it will conduct its business between the date of the Acquisition
Agreement and the Closing Date. These covenants include that business will be
conducted only in its ordinary course; that, subject to certain exceptions,
Sutter Buttes' charter and bylaws will not be changed; that, subject to certain
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exceptions, Sutter Buttes' capitalization will not be changed; that Sutter
Buttes will not enter certain contracts that extend for more than one year or
that involve payment by Sutter Buttes of more than $10,000; that, subject to
certain exceptions, Sutter Buttes will not enter new arrangements with employees
or materially increase salaries or benefits; that Sutter Buttes will use its
best efforts to retain its customers; that Sutter Buttes will comply with all
applicable laws; and that Sutter Buttes will not pay any dividend or
distribution without the approval of TriCo.
Conditions of the Acquisition Agreement
Consummation of the Merger is subject to satisfaction or waiver of
various conditions, including compliance with respective covenants, confirmation
of certain representations and warranties, and the absence of any litigation or
regulatory proceeding presenting significant risk of material damages against
Sutter Buttes, Tri Counties, TriCo, or their shareholders, or a significant risk
that the Merger will not be consummated. Following are descriptions of some of
the major conditions of consummation of the Merger.
The Merger is conditioned on there being no material adverse change in
the respective businesses of TriCo and Sutter Buttes between the date of the
Acquisition Agreement and the Closing Date. The Merger is also conditioned on
Sutter Buttes' termination of all employees which Tri Counties does not wish to
retain on a date prior to the Closing Date. Tri Counties will be solely
responsible for any termination expenses it chooses to incur.
The affirmative vote of the holders of two-thirds of the shares of
Sutter Buttes Common Stock and Sutter Buttes Preferred Stock is required for
approval of the Merger. The Merger must also receive the final approval of the
FDIC and the Superintendent of Banks. Applications to the FDIC and the
Superintendent of Banks were filed on _________, 1996, and action is expected on
each during the _____ quarter of 1996.
The registration pursuant to the Securities Act of TriCo Stock which is
to be issued under the Acquisition Agreement is also a condition to the
consummation of the Merger. The registration of TriCo Stock has been effected by
the filing of the Registration Statement of which this Prospectus/Proxy
Statement is a part, according to the applicable provisions of and Rules under
the Securities Act.
The receipt by Sutter Buttes of a Federal tax opinion is a condition of
the Merger. The opinion of the law firm of Rothgerber, Appel, Powers & Johnson
LLP regarding the Federal tax consequences of the Merger is set forth as Exhibit
C to this Prospectus/Proxy Statement, incorporated herein by this reference, and
is summarized under "FEDERAL TAX CONSEQUENCES OF THE MERGER."
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Termination/Amendment
The Agreement may be terminated and the Merger abandoned (either before
or after receiving the approval of the shareholders of Sutter Buttes and without
seeking further shareholder approval) at any time prior to the Effective Time
only in one of the following manners:
(i) By mutual written consent of the parties authorized by their
respective Boards of Directors;
(ii) By written notice from Sutter Buttes to TriCo or from TriCo to
Sutter Buttes, if the Closing Date shall not have occurred on or before December
31, 1996;
(iii) By written notice from TriCo to Sutter Buttes or from Sutter
Buttes to TriCo, in the event of a material breach by the other party hereto of
any representation, warranty, covenant, or other agreement contained in the
Acquisition Agreement, which breach is not cured after thirty (30) days' written
notice is given to the party committing the breach by the other party;
(iv) By written notice from TriCo to Sutter Buttes if an environmental
report indicates the presence of Hazardous Materials on any of Sutter Buttes'
property or properties and if the costs for any remediation indicated by such
reports are deemed material by TriCo;
(vi) By TriCo if a pre-closing audit or review determines that the
condition of Sutter Buttes has undergone material adverse change from the date
of the Acquisition Agreement; and
(vii) By Sutter Buttes if it receives an offer which the Board of
Directors, on the advice of counsel, believes that it is legally required to
accept.
If either party terminates the Acquisition Agreement other than in one
of the preceding circumstances, that party will be liable to the other party for
$50,000 in liquidated damages.
OPERATION OF TRI COUNTIES AFTER THE MERGER
Upon the consummation of the Merger, the separate corporate existence
of Sutter Buttes will cease and Sutter Buttes will be merged with and into Tri
Counties.
TriCo anticipates that after the Effective Time, the Sutter Buttes Yuba
City deposit and loan activities will be absorbed by the existing Tri Counties
branches in Yuba City. The branch in Marysville may continue operations
depending on further review of the deposit and customer base. Mortgage
origination activities will continue. There are no assurances that Sutter
Buttes' customers will not move their banking relationships to other financial
institutions.
As the Surviving Bank, Tri Counties will operate under its current
Articles of Incorporation and Bylaws until altered, amended, or repealed
pursuant to their terms or applicable law.
The current directors and officers of Tri Counties shall be directors
and officers of Tri Counties as the Surviving Bank. No changes in the officers
or directors of Tri Counties will result from the Merger.
Tri Counties' deposits are insured up to $100,000 per depositor by the
Bank Insurance Fund ("BIF") through the FDIC, whereas Sutter Buttes' deposits
are insured up to $100,000 per depositor by the SAIF through the FDIC. If the
Merger is consummated, Tri Counties will continue to pay annual assessments to
SAIF of approximately $149,500 for insurance of Sutter Buttes' former deposits.
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FEDERAL TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain material U.S. Federal income tax
consequences of the Merger, including certain consequences to holders of Sutter
Buttes Common Stock and who are citizens or residents of the United States and
who hold their shares as capital assets. It does not discuss all tax
consequences that may be relevant to Sutter Buttes shareholders subject to
special Federal income tax treatment (such as insurance companies, dealers in
securities, certain retirement plans, financial institutions, tax exempt
organizations or foreign persons), or to Sutter Buttes shareholders who acquired
their shares of Sutter Buttes Common Stock pursuant to the exercise of employee
stock options or otherwise as compensation. The summary does not address the
state, local or foreign tax consequences of the Merger, if any.
TriCo has asked the firm of Rothgerber, Appel, Powers & Johnson LLP,
special counsel to TriCo, for its opinion regarding certain federal income tax
aspects of the reorganization. Rothgerber, Appel, Powers & Johnson LLP has
provided TriCo with a draft of such an opinion, found at Exhibit C, which is
summarized below. The final opinion is intended to be rendered upon the closing
of the transaction in substantially the form presented in Exhibit C, assuming no
changes in the facts or the law upon which the draft opinion is based and
subject to the receipt, review and approval of final documents. This summary
covers only the principal terms of the opinion and is qualified in its entirety
by the full text of that opinion, including certain facts, representations and
assumptions outlined therein. It should not be relied upon without first
consulting the full text.
It is the opinion of special counsel that the proposed transaction will
meet the requirements of Section 368(a)(1)(A). The Acquisition Agreement will
qualify as a "plan of reorganization." The proposed Merger will also qualify as
a "reorganization." TriCo, Tri Counties and Sutter Buttes will all be "parties
to the reorganization." Special counsel further believes that the proposed
transaction will meet the requirements of Section 368(a)(2)(D). At least 51
percent of the total consideration received by the Sutter Buttes shareholders
will be TriCo Stock and no stock of Tri Counties will be issued in the
transaction. Lastly, in addition to meeting the statutory requirements of
Section 368, special counsel believes that the doctrines of "business purpose,"
continuity of business enterprise and "continuity of interest" will be met in
the proposed transaction.
Section 354(a)(1) provides that no gain or loss shall be recognized by
a shareholder exchanging, pursuant to a plan of reorganization, stock of one
corporation which is a party to the reorganization solely for stock of a second
corporation which is also a party to the reorganization. Thus, Sutter Buttes
shareholders who receive only TriCo Stock in the merger will recognize no gain
or loss.
Dissenting shareholders who receive cash will not qualify for
nonrecognition. Those shareholders will be deemed to have received a
distribution in redemption of their shares, which will be taxed as a sale or
exchange (generally capital gain or loss) to shareholders qualifying under
Section 302(b), and as a dividend (ordinary income to the extent of earnings and
profits) to those who do not so qualify. Section 267 may disallow loss
recognition to any shareholder who owns (directly or indirectly) 50 percent of
Sutter Buttes.
The tests under Section 302(b) are applied in light of all the facts
and circumstances surrounding each individual shareholder. Since those facts may
vary from shareholder to shareholder, each shareholder is urged to consult his
or her own tax counsel before acting on the proposed transaction.
The basis for the TriCo Stock will be the same as the basis of the
Common Stock of Sutter Buttes exchanged therefor for those shareholders
receiving only TriCo Stock. Section 358(a). The holding period of such stock
will include the
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period for which the shareholders held the Sutter Buttes Common Stock exchanged
therefor for shareholders who held the Sutter Buttes Common Stock as a capital
asset. Section 1223(1).
Sutter Buttes will receive nonrecognition treatment under Section 1032;
similar treatment will be afforded TriCo by Section 354 and Tri Counties by
Section 361.
THE INCOME TAX DISCUSSION AS SET FORTH ABOVE IS BASED ON THE INTERNAL
REVENUE CODE (AND AUTHORITIES THEREUNDER) AS IN EFFECT ON THE DATE OF THIS
PROSPECTUS, WITHOUT CONSIDERATION OF THE PARTICULAR FACTS OR CIRCUMSTANCES OF
ANY SHAREHOLDER. THE ABOVE DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO
SHARES ACQUIRED PURSUANT TO THE EXERCISE OF SPECIAL STOCK OPTIONS. SHAREHOLDERS
ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR SITUATIONS, AS WELL AS
CONSEQUENCES UNDER ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the OTS Regulations, found at 12 C.F.R. 552.14 and attached
hereto as Exhibit B, a shareholder of Sutter Buttes who wishes to assert
dissenters' rights with respect to the Merger must deliver to Sutter Buttes,
prior to the Meeting, a written objection identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. In addition, in order to dissent, the shareholder must not vote
in favor of the Merger. The demand for appraisal and payment must be in addition
to and separate under any proxy or vote against the Merger by the shareholder.
Shareholders who follow this procedure are referred to as "Dissenting
Shareholders," and their shares are "Dissenting Shares."
Within ten (10) days after the Effective Time, Tri Counties must: (I)
mail written notice thereof to each Dissenting Shareholder; (ii) make a written
offer to each Dissenting Shareholder to pay for his or her shares at a specified
price deemed by Tri Counties it to be the fair value thereof; and (iii) inform
such Dissenting Shareholders that within sixty (60) days of the Effective Time,
the offer must be agreed to or formally rejected or the terms of the Merger will
be deemed accepted. The notice and offer must be accompanied by a balance sheet
and statement of income of Sutter Buttes for the fiscal year ended December 31,
1995, with the latest available interim financial statements.
If the Dissenting Shareholder and Tri Counties agree upon a fair value
within sixty (60) days, then payment must be made within ninety (90) days of the
Effective Time. If within sixty (60) days of the Effective Time the Dissenting
Shareholder and Tri Counties do not agree, then the Dissenting Shareholder may
file a petition with the OTS, with a copy by registered or certified mail to Tri
Counties, demanding a determination of the fair market value of the shares of
all Dissenting Shareholders. A Dissenting Shareholder who fails to file such
petition within sixty (60) days of the Effective Time will be deemed to have
accepted the terms offered under the Merger. Within sixty (60) days of the
Effective Time, each Dissenting Shareholder demanding appraisal and payment must
submit to the transfer agent his or her stock certificates for notation thereon
that an appraisal and payment have been demanded with respect to such shares and
that appraisal proceedings are pending. Any shareholder who fails to submit his
or her stock certificates for such notation will no longer be entitled to
appraisal rights under the OTS Regulations and will be deemed to have accepted
the terms offered under the Merger.
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If a Dissenting Shareholder property files a petition with the OTS, the
OTS will make its determination of fair value in accordance with the OTS
Regulations. The OTS will also apportion costs and expenses related to the
appraisal in its own discretion.
At any time within sixty (60) days after the Effective Time any
shareholder has the right to withdraw his or her demand for appraisal and to
accept the terms of the Merger.
The above summary of rights of shareholders to dissent and demand
payment for their shares does not purport to be a complete statement of the OTS
Regulations and is qualified by reference to the provisions of 12 C.F.R. ss.
552.14 which have been set forth in full as Exhibit B to this older should
consult with his or her own legal counsel concerning the specific procedures and
available remedies.
ANY FAILURE TO FOLLOW STRICTLY THE DETAILED PROCEDURES SET FORTH IN THE
OTS REGULATIONS REGARDING DISSENTERS' RIGHTS MAY RESULT IN A SHAREHOLDER LOSING
ANY RIGHT HE OR SHE MAY HAVE TO CLAIM FAIR VALUE FOR HIS OR HER SHARES. IF A
SHAREHOLDER FAILS TO PERFECT HIS OR HER DISSENTERS' RIGHTS, HIS OR HER SUTTER
BUTTES SHARES WILL BE CONVERTED IN THE MERGER INTO A RIGHT TO RECEIVE TRICO
STOCK AND CASH AS DESCRIBED HEREIN.
ACCOUNTING TREATMENT
The merger will be accounted for by TriCo under the purchase method of
accounting in accordance with APB No. 16. Under this method of accounting, the
purchase price is allocated to assets acquired and liabilities assumed based on
their estimated fair values at the Effective Time.
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RESALES BY AFFILIATES
The shares of TriCo Stock issuable to shareholders of Sutter Buttes
upon consummation of the Merger have been registered under the Securities Act,
but such registration does not cover resales by affiliates of Sutter Buttes
("Affiliates"). TriCo Stock received and beneficially owned by those
shareholders of Sutter Buttes who are deemed to be Affiliates may be resold
without registration as provided for by Rule 145 under the Securities Act, or as
otherwise permitted. The term Affiliate is defined to include any person who,
directly or indirectly, controls, or is controlled by, or is under common
control with Sutter Buttes at the time the Acquisition Agreement is submitted
for approval by a vote of the shareholders of Sutter Buttes. Each Affiliate who
desires to resell TriCo Stock received in the Merger must sell such TriCo Stock
either (I) pursuant to an effective registration statement under the Securities
Act, (ii) in accordance with the applicable provisions of Rule 145 under the
Securities Act or (iii) in a transaction which, in the opinion of counsel for
such Affiliate or as described in a "no-action" or interpretive letter from the
Staff of the Commission, in each case reasonably satisfactory in form and
substance to TriCo, is exempt from the registration requirements of the
Securities Act.
Rule 145(d) requires that persons deemed to be Affiliates resell their
TriCo Stock pursuant to certain of the requirements of Rule 144 under the
Securities Act if such TriCo Stock is sold within the first two years after the
receipt thereof. After two years, persons no longer Affiliates of TriCo may
resell their TriCo Stock subject to there being current periodic reports filed
with the Commission as required by the Exchange Act. After three years from the
issuance of the TriCo Stock, if such person is not at the time of sale, and has
not been for at least three months prior to such sale, an Affiliate of TriCo,
such person may freely resell such TriCo Stock without limitation. Those who
remain Affiliates of TriCo remain subject to the requirements of Rule 144.
Sutter Buttes will use its best efforts to cause each Affiliate to
deliver to TriCo prior to the Effective Time a written agreement to the effect
that no sale will be made of any shares of TriCo Stock received in the Merger by
an Affiliate except (I) in accordance with the Securities Act and (ii) until
such time as TriCo shall have been subject to the periodic reporting
requirements of the Exchange Act for a period of at least 90 days and, as it
expects to do, TriCo has filed all reports required by the Exchange Act during
such period. Such persons shall be entitled to rely upon a statement in the most
recent quarterly or annual report of TriCo, as the case may be, required to be
filed pursuant to the Exchange Act, that TriCo has filed all reports required by
the Exchange Act and has been subject to such filings requirements for the past
90 days, unless such person knows or has reason to believe that TriCo has not
complied with such requirements. The certificates of TriCo Stock issued to
Affiliates of Sutter Buttes in the Merger may contain an appropriate restrictive
legend, and appropriate stop transfer orders may be given to the transfer agent
for such certificates.
TriCo is a reporting company under the Exchange Act. TriCo will
continue to produce audited year-end financial statements and distribute them to
shareholders. In addition, TriCo files its annual and quarterly financial
statements with the Commission, and to file statements concerning significant
corporate events as they occur. Finally, the proxy statements are distributed to
shareholders in connection with annual or special meetings of the shareholders
which meet certain SEC specifications regarding form and content. This
Prospectus and Proxy Statement has been prepared in accordance with such
Commission specifications.
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EXCHANGE PROCEDURES
As of the Effective Time each share of Sutter Buttes Common Stock will
be converted into, and each certificate thereof shall represent a right to
receive, a pro rata share of the adjusted Total Consideration. As soon as
practicable after the Effective Time, a paying agent will send to each record
holder of former shares of Sutter Buttes Common Stock a notice of consummation
of the Merger and a transmittal form detailing the procedure for surrendering
the certificates in exchange for a pro rata portion of the Total Consideration.
Such record holders will then submit their certificates to the paying agent,
either directly or through one of the Sutter Buttes branches, and in return will
receive a check and/or shares of TriCo Stock in the appropriate amounts. TriCo
will attempt to pay those requesting cash in cash and those requesting stock in
stock, subject to TriCo's right to pay 51% of the Total Consideration in TriCo
Stock. Shareholders who do not request payment in stock may nevertheless be
assigned stock if requests for TriCo Stock total less than 51% of the Total
Consideration. Conversely, shareholders who do not request payment in cash may
nevertheless be assigned cash if requests for TriCo Stock total more than 51% of
the Total Consideration.
Payment for the shares exchanged will be made as soon as the Total
Consideration can be determined, which may be delayed substantially to allow for
the determination of amounts due to any Dissenting Shareholders. TriCo will
distribute as much of the Total Consideration as possible while withholding such
amount that may be reasonably necessary to pay Dissenting Shareholders.
The paying agent shall not be entitled to vote or exercise any rights
of ownership with respect to the shares of TriCo Stock held by it from time to
time, except that it shall receive and hold all dividends or other distributions
paid with respect to such shares for the account of the persons entitled
thereto.
Any former holder of Sutter Buttes Common Stock who does not submit his
or her certificates to the paying agent within 120 days after the Effective Time
must submit such certificates to TriCo in exchange for a pro rata portion of the
Total Consideration. If any holder of Sutter Buttes Common Stock is unable to
surrender his or her certificates because the certificates have been lost or
destroyed, the holder may deliver an indemnity bond in lieu thereof, provided
that the bond and surety are satisfactory to TriCo.
No transfer taxes shall be payable by any holder of record of Sutter
Buttes Common Stock at the Effective Time in respect to the exchange of
certificates for the Total Consideration. If a portion of the Total
Consideration is to be delivered to any person other than the registered holder
of Sutter Buttes Common Stock surrendered for exchange, the amount of any
stock-transfer or similar taxes payable on account of the transfer to such
person shall be paid to the paying agent by such person. The paying agent may
refuse to make such exchange unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted.
Any holders of Sutter Buttes Preferred Stock who do not convert their
shares into shares of Sutter Buttes Common Stock prior to the Effective Time
will receive, as soon as possible after the Effective Time, the liquidation
preference of $5.00 per share of Sutter Buttes Preferred Stock plus any declared
and unpaid cash dividends (or warrants in lieu thereof) attributable to the
Sutter Buttes Preferred Stock.
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INDEMNIFICATION
The bylaws of TriCo provide that TriCo shall indemnify the directors
and officers of vice president level or above of both TriCo and Tri Counties
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of TriCo. If the officer or director
initiates a proceeding, indemnification is available only if the proceeding was
authorized by TriCo's Board of Directors. Further, the bylaws provide that any
agent of TriCo may be indemnified pursuant to a duly adopted resolution of the
Board of Directors, agreement or otherwise, to the fullest extent permitted with
respect to the indemnification of directors and officers of vice president level
or above of TriCo. TriCo shall indemnify an agent against expenses actually and
reasonably incurred by the agent, to the extent the agent has been successful on
the merits in the defense of any proceeding arising by reason of the fact that
the person is or was an agent of TriCo. The circumstances under which the bylaws
provide for indemnification may include liability arising under the Securities
Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling TriCo
pursuant to the bylaws, TriCo has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
CAPITAL STOCK
DESCRIPTION OF TRICO STOCK
The Articles of Incorporation of TriCo authorize the issuance of
20,000,000 shares of TriCo Stock. Holders of TriCo Stock are entitled to one
vote for each share held, except that in the election of directors each
shareholder has cumulative voting rights, that is, he or she is entitled to as
many votes as shall equal the number of shares held by him or her multiplied by
the number of directors to be elected, and he or she may cast all of his or her
votes for a single candidate or distribute his or her votes among any or all of
the candidates he or she chooses. However, no shareholder shall be entitled to
cumulate votes unless such candidate or candidates' names have been properly
placed in nomination prior to the voting and such shareholder has given notice
at the meeting prior to the voting of the shareholder's intention to cumulate
his or her votes. If any shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination. Holders of a majority of the
shares of TriCo Stock outstanding may authorize a merger, consolidation, plan of
exchange, a dissolution of TriCo, the sale of substantially all TriCo's assets
or an amendment of TriCo's Articles of Incorporation.
Holders of TriCo Stock do not have preemptive rights to acquire
unissued or treasury shares. Therefore, holders of TriCo Stock may have their
percentage holdings reduced when TriCo Stock is issued by TriCo. Holders of
TriCo Stock are entitled to receive such dividends as may be paid on the TriCo
Stock from time to time by the Board of Directors out of funds legally available
therefor. In the event of liquidation, holders of TriCo Stock are entitled to
share pro rata in any distribution of TriCo's assets to holders of TriCo Stock
after payment of liabilities and payment to holders of preferred stock (if any)
of their liquidation preference and all accrued and unpaid dividends. There are
no conversion, redemption, sinking fund or similar provisions regarding the
TriCo Stock. All outstanding shares are, and the shares being offered by TriCo
pursuant to the Merger when issued and paid for pursuant to the Merger will be,
fully paid and nonassessable.
Banking laws and regulations require that under certain circumstances
before stock of TriCo is acquired, approvals of the Board of Governors of the
Federal Reserve (the "FRB") and California State Banking Department must be
obtained. No bank holding company can acquire 5% or more of any class of voting
securities of TriCo without obtaining the prior approval of the FRB under the
BHC Act. No corporation, association or other entity may acquire 25% or more of
any class of voting securities of TriCo (or lesser amount if control is
obtained) without the prior approval of the FRB under the BHC Act. No person or
entity may acquire 10% or more of any class of voting securities of TriCo
without filing a Change of Control Notice with the FRB under the Change of Bank
Control Act and complying with applicable Financial Code change of control
provisions. These requirements act as a deterrent to a takeover of TriCo or a
tender offer for its stock. Such requirements do not prohibit individual
shareholders or management from soliciting proxies but may have the effect of
deterring corporations, associations or other entities from soliciting proxies
to attempt to exercise control over TriCo because of the possibility of being
deemed to be bank holding companies by the FRB. Any entity deemed t be a bank
holding company must either cease all activities not closely related to banking
a permitted by the FRB or divest itself of its bank or bank holding company
stock.
Under TriCo's Articles of Incorporation, its Board of Directors has the
right to issue preferred stock of TriCo from time to time in series and to
designate the terms, rights and preferences of each series. As of June 30, 1996,
there were no shares of preferred stock outstanding.
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Antitakeover Provisions
TriCo's Articles of Incorporation and Bylaws contain certain provisions
that may be deemed to be antitakeover in nature. One of the provisions is the
authorization of 20,000,000 shares of common stock of TriCo and 1,000,000 shares
of preferred stock of TriCo, described herein, combined with the denial of
preemptive rights. The additional shares of common and preferred stock were
authorized for the purpose of providing the Board of Directors of TriCo with as
much flexibility as possible to issue additional shares, without further
shareholder approval, for proper corporate purposes including financing,
acquisitions, stock dividends, stock splits, employee incentive plans, and other
similar purposes. These additional shares, however, may also be used by the
Board of Directors (if consistent with its fiduciary responsibilities) to deter
future attempts to gain control over TriCo. Since shareholders do not have
preemptive rights, management could offer additional stock to friendly parties
without having to offer stock to the bidder.
A provision of TriCo's Articles of Incorporation specifies certain
actions that TriCo and its Board of Directors shall or may take in the event
that a third party makes a tender or exchange offer for TriCo's stock, or an
offer to merge or consolidate with TriCo or any subsidiary, or to acquire all or
substantially all of the properties or assets of TriCo or any subsidiary. In
evaluating such an offer, the Board of Directors is required to consider not
just the economic benefit to TriCo shareholders, but all relevant factors in
determining whether it is in the best interest of TriCo and its shareholders.
Such factors include, but are not limited to the financial condition of TriCo
and its future prospects; whether a more favorable offer could be obtained; the
effects of the proposed transaction on TriCo's employees, customers and the
community it serves; the business practices and reputation of the offeror; the
value of any securities being offered in exchange; and the legal and regulatory
issues raised by the offer.
If the Board of Directors determines that the offer should be rejected,
it may take any lawful action to defeat the offer including, but not limited to,
advising TriCo's shareholders not to accept the offer; instituting litigation
against the offeror; filing complaints with governmental authorities; having
TriCo acquire its own stock; selling or issuing authorized but unissued stock of
TriCo; acquiring a company which creates regulatory problems; or obtaining an
offer from another entity.
The effect of these provisions may be to deter a future tender offer
which might include a substantial premium over the market price of TriCo's stock
at that time. In addition, these provisions may enable management to retain its
position and allow it to resist changes that some TriCo shareholders may deem
desirable.
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Shares Eligible for Future Sale
Shares of stock in TriCo that are eligible for future sale could have a
dilutive effect on the market for TriCo Stock and could adversely affect its
market price. The Articles of Incorporation of TriCo authorize the issuance of
20,000,000 shares of common stock and 1,000,000 shares of preferred stock. As of
June 30, 1996, there were 4,482,712 shares of common stock outstanding, with
options for an additional 492,000 shares granted but unexercised. As
approximately 113,543 shares are being offered pursuant to the Merger, TriCo
will have 15,403,745 shares of common stock eligible for future issuance. Also
as of June 30, 1996, TriCo had no shares of preferred stock outstanding, leaving
all 1,000,000 shares of preferred stock available for future issuance. There are
no restrictions in the Acquisition Agreement preventing TriCo from issuing
additional shares.
COMPARISON BETWEEN TRICO STOCK AND SUTTER BUTTES COMMON STOCK
The rights of shareholders of Sutter Buttes are governed by HOLA and
the Regulations of the OTS. The rights of shareholders of TriCo are governed by
the California General Corporation Law and the BHC Act.
Sutter Buttes' Charter authorize the issuance of 5,000,000 shares of
Sutter Buttes Common Stock, $0.01 par value, and 5,000,000 shares of Sutter
Buttes Preferred Stock, $5.00 par value. As of June 30, 1996, 647,956 shares of
Sutter Buttes Common Stock were outstanding, and 232,200 shares of Sutter Buttes
Preferred Stock were outstanding.
TriCo's Articles of Incorporation authorize the issuance of up to
20,000,000 shares of common stock, no par value, and 1,000,000 shares of
preferred stock, no par value. As of June 30, 1996, there were 4,482,712 shares
of common stock outstanding and no shares of preferred stock outstanding.
Dividend Rights
The holders of TriCo Common Stock are entitled to receive cash
dividends when, as, and if declared by the Board of Directors, out of funds
legally available therefor, subject to the dividend rights of holders of TriCo's
preferred stock, which may be issued in the future. TriCo has paid a quarterly
dividend on its common stock since March of 1990.
Sutter Buttes has a dividend policy that permits payment of cash
dividends on Sutter Buttes Common Stock out of funds legally available therefor,
conditioned on adequate profits and capital and subject to the dividend rights
of holders of Sutter Buttes Preferred Stock. Sutter Buttes has never paid a
dividend on Sutter Buttes Common Stock.
Holders of Sutter Buttes Preferred Stock have the right to receive
annually, if and as declared by the Board of Sutter Buttes out of funds legally
available therefor, a cash dividend equal to 12% of the $5.00 par value of the
shares. Dividends may not be paid on Sutter Buttes Common Stock in a given year
unless they are paid on Sutter Buttes Preferred Stock during that year. This
dividend preference is non-cumulative, meaning that unpaid cash dividends in any
year do not accrue and are not payable in subsequent years. Instead, unpaid
dividends are replaced by warrants to purchase shares of Sutter Buttes Common
Stock having a book value equal to the cash value of the unpaid dividends.
- 43 -
<PAGE>
Voting Rights
Holders of TriCo Stock are entitled to one vote for each share held
except that in the election of directors each shareholder has cumulative voting
rights. However, no shareholder shall be entitled to cumulate votes unless such
candidate or candidates' names have been properly placed in nomination prior to
the voting and such shareholder has given notice at the meeting prior to the
voting of the shareholder's intention to cumulate his or her votes. If any
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination. Holders of a majority of the outstanding shares of
TriCo Stock outstanding may authorize a merger, consolidation, plan of exchange,
a dissolution of TriCo, the sale of substantially all TriCo's assets or an
amendment of TriCo's Articles of Incorporation.
Each share of Sutter Buttes Common Stock and each share of Sutter
Buttes Preferred Stock is entitled to one vote per share on each matter
presented for a vote of the shareholders. However, all such holders have the
right to cumulative voting in the election of directors. Holders of a majority
of the outstanding shares of Sutter Buttes Common and Preferred may authorize an
amendment of Sutter Buttes' Charter.
TriCo's bylaws provide for the election of all directors annually.
Sutter Buttes' Charter provide for "staggered" Board terms, with roughly
one-third of the directors being elected each year, and each director being
subject to election every three years.
The California General Corporation Law provides that dissenting holders
of TriCo Stock have appraisal rights with respect to mergers and consolidations,
and other extraordinary transactions. The Regulations of the OTS also provide
that dissenting holders of Sutter Buttes Common Stock or Sutter Buttes Preferred
Stock have appraisal rights with respect to mergers and consolidations, and
other extraordinary transactions.
- 44 -
<PAGE>
Preemptive Rights
Holders of TriCo Stock do not have the preemptive right to purchase
unissued shares. Holders of Sutter Buttes Common Stock also do not have the
preemptive right to purchase unissued shares.
Liquidation Rights
In the event of liquidation, holders of TriCo Stock are entitled to
share pro rata in any distribution of TriCo's assets to holders of TriCo Stock,
after payment of liabilities and payment to holders of preferred stock (if any)
of their liquidation preference and all accrued and unpaid dividends. In the
event of liquidation, holders of Sutter Buttes Common Stock are entitled to
share pro rata in any distribution of Sutter Buttes' assets to holders of Sutter
Buttes Common Stock, after payment of liabilities and payment to holders of
Sutter Buttes Preferred Stock of their $5.00 per share liquidation preference
and conversion of unpaid warrants.
Redemption Rights; Conversion Rights; Sinking Funds
HOLA prohibits the repurchase or redemption by a federal savings bank
of its common shares, except in limited circumstances. Therefore, Sutter Buttes
generally may not redeem or repurchase Sutter Buttes Common Stock.
TriCo is permitted under California law to redeem or repurchase its
shares, provided that doing so would not cause TriCo to become insolvent. Under
the BHC Act, TriCo's repurchase or redemption of its shares is limited to 10% of
its total capital, annually. Repurchased or redeemed shares may be subsequently
reissued without a vote of TriCo's shareholders.
There are no conversion, sinking fund, or similar provisions regarding
TriCo Stock or Sutter Buttes Common Stock.
Assessment
The shares of TriCo Stock, including, when issued, those to be issued
pursuant to the Merger, and the shares of Sutter Buttes Common and Preferred are
fully paid and nonassessable.
BENEFICIAL OWNERSHIP OF SUTTER BUTTES COMMON AND PREFERRED
OWNERSHIP OF SUTTER BUTTES COMMON STOCK
As of the June 30, 1996, no person or group known to Sutter Buttes
owned beneficially more than five percent (5%) of the outstanding shares of its
Common Stock, except as described below:
- 45 -
<PAGE>
Percentage of
Name of Number of Shares Outstanding
Beneficial Owner Beneficially Owned Common Stock
Lee 'B' Colby 70,958 (1) 10.60%
72 Fairway Drive
Chico, CA 95973
Rodney P. Beard 51,867 (2)(3) 7.57%
P.O. Box 700
Empire, CA 95319
James L. Harrison (4) 32,969 5.09%
1707 Hastings Way
Yuba City, CA 95991
- ------------------------
(1) Includes 3,360 shares held of record in the name of Mr. Colby's
children and 1440 shares held of record in the name of Mr. Colby's
grandchildren, over which Mr. Colby has voting power pursuant to a
power of attorney, and 21,740 shares issuable upon exercise of options
granted pursuant to Sutter Buttes' Directors' Stock Option Plan (the
"Directors' Plan").
(2) Includes 10,762 shares and 3,497 shares held in the names of
Environmental Filtration Trust and Tulelake Environmental Trust,
respectively, of which Mr. Beard is sole trustee.
(3) Includes 37,608 shares issuable upon exercise of Warrants.
(4) Held jointly with his wife, Patricia J. Harrison.
OWNERSHIP OF SUTTER BUTTES PREFERRED STOCK
As of the June 30, 1996, no person or group known to Sutter Buttes
owned beneficially more than 5% of the outstanding shares of its Preferred
Stock, except as follows:
- 46 -
<PAGE>
Percentage
Name of Number of Shares of Outstanding
Beneficial Owner Beneficially Owned Preferred Stock
Jon Beard 20,000 8.61%
Jill Schaefer
P.O. Box 280
Meridian, CA 95957
Rodney P. Beard 53,000 (1) 22.83%
P.O. Box 700
Empire, CA 95319
The Allen J. & Pauline B. 12,000 (2) 5.17%
Clause Family Trust
72-377 Magnesia Falls Rd.
Rancho Mirage, CA 92270
James L. Harrison (3) 23,980 10.33%
1707 Hastings Way
Yuba City, CA 95991
George Murray 20,000 (4) 8.61%
3433 Lessey Drive
Yuba City, CA 95993
M.B. Consultants Inc. 20,000 (5) 8.61%
Profit-Sharing Trust
1787 Tribute Rd., Ste. J
Sacramento, CA 95815
- ------------------------
(1) Includes 40,000 shares and 13,000 shares held in the names of
Environmental Filtration Trust and Tulelake Environmental Trust,
respectively, of which Mr. Beard is sole trustee. Does not include
eight (8) immediately-exercisable Warrants to purchase 37,608 shares of
Sutter Buttes Common Stock.
(2) Does not include three (3) immediately-exercisable Warrants to purchase
5,979 shares of Sutter Buttes Common Stock.
(3) Held with his wife, Patricia J. Harrison.
(4) Includes 2,000 shares held with his wife, Shirley Murray, 2,000 shares
held by Mr. Murray's son and 16,000 shares held by the George Murray
Inc.
Money Purchase Pension and Profit Sharing Plan.
(5) Does not include one (1) immediately-exercisable Warrant to purchase a
total of 3,149 shares of Sutter Buttes Common Stock.
- 47 -
<PAGE>
OWNERSHIP OF SHARES BY OFFICERS AND DIRECTORS OF SUTTER BUTTES
<TABLE>
<CAPTION>
Shares of Preferred Stock Shares of Common Stock
Beneficially Owned as of Beneficially Owned as of
June 30, 1996 June 30, 1996(1)
Directors and Positions and Offices Percent Percent
Nominees Held with Sutter Amount of Class Amount of Class
- ------------- --------------------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
Lee 'B' Colby Chairman of the 10,000 4.31% 70,958(2) 10.60%(2)
Board of Directors
W. R. Hagstrom President, Chief -0- -0- 25,400(3) 3.77%(3)
Executive Officer
and Director
James L. Harrison Director 23,980(4) 10.33%(4) 32,969(5) 5.09%(5)
George Murray Director 20,000(6) 8.61%(6) 22,305(7) 3.43%(7)
Lonny L. Renfrow Director 4,000 1.72% 26,252(8) 3.97%(8)
Don J. Strachan(9) Director 6,200 2.67% 14,602(10) 2.23%(10)
Jon Beard Director 20,000 8.61% 12,513(11) 1.93%(11)
All directors and
executive officers
of Sutter Buttes as
a group (9 in number) 84,980 36.60% 221,779(12) 30.12%(12)
====== ===== ======= =====
- ------------------------------
(1) Includes shares of Sutter Buttes Common Stock issuable upon exercise of
Warrants and presently exercisable and nonexercisable options
outstanding under Sutter Buttes' 1992 Employee Stock Option Plan (the
"Employee Plan") and the Directors' Plan.
(2) See Note 1 to "OWNERSHIP OF SUTTER BUTTES COMMON STOCK."
(3) Includes 25,000 shares of Sutter Buttes Common Stock issuable upon
exercise of options granted pursuant to the Employee Plan.
(4) See Note 3 to "OWNERSHIP OF SUTTER BUTTES PREFERRED STOCK."
(5) Includes 2,740 shares of Sutter Buttes Common Stock issuable upon
exercise of options granted pursuant to the Directors' Plan. Also
includes Warrants to purchase a total of 3,776 shares of Sutter Buttes
Common Stock.
(6) See Note 4 to "OWNERSHIP OF SUTTER BUTTES PREFERRED STOCK."
(7) Includes 2,740 shares of Sutter Buttes Common Stock issuable upon
exercise of options granted pursuant to the Directors' Plan.
(8) Includes 12,740 shares subject to options granted pursuant to the Directors' Plan.
(9) Held in the name of Strachan Apiaries, Inc., of which Mr. Strachan is President.
(10) Includes 5,540 shares of Sutter Buttes Common Stock issuable upon
exercise of options granted pursuant to the Directors' Plan.
(11) Includes 1740 shares subject to options granted pursuant to the Directors' Plan.
(12) Includes 47,240 shares of Sutter Buttes Common Stock issuable upon exercise of options
granted pursuant to the Directors' Plan, 41,000 shares of Sutter Buttes
Common Stock issuable upon exercise of options granted pursuant to the
Employee Plan.
</TABLE>
- 48 -
<PAGE>
SPECIAL STOCK OPTIONS
The Board is recommending that the shareholders approve the Executive
Officer Special Stock Option and the Director Special Stock Option (the "Special
Options"), which are options for CEO W. R. Hagstrom and Chairman of the Board
Lee Colby to purchase shares of Sutter Buttes Common Stock for $1.00 per share.
Mr. Hagstrom would receive a Special Option to purchase 24,000 shares and Mr.
Colby would receive a Special Option to purchase 15,000 shares. The purpose of
the Special Options is to recognize and reward Mr. Hagstrom for his past
contributions to Sutter Buttes, and to reward Mr. Colby for his role in
negotiating the Merger. It is the opinion of the Board that Mr. Hagstrom has
been undercompensated for the entirety of his tenure.
NEW PLAN BENEFITS
Executive Officer Director
Special Stock Option Special Stock Option
Number Number
Name and Position Dollar Value of Units Dollar Value of Units
W. R. Hagstrom, CEO $47,760 24,000 $ 0 0
Lee Colby, Chairman 0 0 29,850 15,000
EXECUTIVE COMPENSATION
Sutter Buttes is complying with the disclosure requirements for a Small
Business Issuer in accordance with SEC Regulation S-B.
Summary of Compensation
The following table sets forth a summary of the compensation paid
during Sutter Buttes' past fiscal year for services rendered in all capacities
to W. R. Hagstrom, the Chief Executive of Sutter Buttes, from June 20, 1994,
through December 31, 1995. There are no other officers or directors of Sutter
Buttes who received more than $100,000 in compensation for services to Sutter
Buttes.
- 49 -
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation/
Other Awards/Securities
Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
<S> <C> <C> <C> <C> <C> <C>
W. R. Hagstrom, CEO 1995 $75,000 $0 $0 25,000(1) $18,750(2)
1994 $39,821(3) $0 $0 0 $18,750(4)
- ---------------------------------
(1) See "Option Grants and Exercises" herein.
(2) In the event that Mr. Hagstrom was terminated other than for cause during 1995, he was entitled to
receive 3 months' compensation under the terms of his employment agreement. See "Employment Contracts"
herein.
(3) Represents a partial year of service with Sutter Buttes, which began June 20, 1994.
(4) In the event that Mr. Hagstrom was terminated other than for cause during 1994, he was entitled to
receive 3 months' compensation under the terms of his employment agreement. See "Employment Contracts"
herein.
</TABLE>
Option Grants and Exercises
Sutter Buttes has established the 1992 Employee Stock Option Plan, in
which Mr. Hagstrom and other employees of Sutter Buttes participate. On February
7, 1996, the Board of Directors granted Mr. Hagstrom 25,000 options which are
exercisable on August 31, 1996. Mr. Hagstrom has received no other grants of
stock options.
Director Compensation
The Chairman of the Board receives monthly compensation of $500, plus
$75 for each meeting of the Board of Directors that he attends. All other
directors receive monthly compensation of $300, plus $75 for each meeting of the
Board of Directors attended.
The chairman of any committee of the Board of Directors receives $100
per committee meeting attended. All other members of any committee of the Board
of Directors receives $75 for each committee meeting attended.
Employment Contracts
On June 20, 1994, Sutter Buttes entered into a one-year employment
agreement with W. R. Hagstrom as President, Chief Executive Officer, Chief
Operating Officer, and Chief Loan Officer of Sutter Buttes. Pursuant to the
agreement, Mr. Hagstrom's beginning salary is $75,000. In addition, the
employment agreement provides that in the event Mr. Hagstrom is terminated other
than for cause, Sutter Buttes will continue to pay Mr. Hagstrom's salary for a
period of three months. Medical, dental, and life insurance benefits may be paid
for a period of up to three months, subject to Mr. Hagstrom's finding alternate
employment. Mr. Hagstrom also receives certain benefits provided to other Sutter
Buttes employees. On June 20, 1995, Sutter Buttes entered into Amendment No. 1
of Mr. Hagstrom's employment agreement granting Mr. Hagstrom a car allowance of
$225.00 per month.
- 50 -
<PAGE>
OTHER MATTERS
The Meeting is called for the purpose set forth in the notice.
Management does not know of any matter for action by shareholders at the Meeting
other than the matters described in the notice. However, the enclosed Proxy will
confer discretionary authority with respect to matters which are not known to
management at the time of the printing hereof and which may properly come before
the Meeting. It is the intention of the persons named in the Proxy to vote in
pursuance of the Proxy in accordance with the recommendations of management.
LEGAL OPINIONS
The legality of the TriCo Stock to be issued pursuant to the
Acquisition Agreement will be passed upon for TriCo by the law firm of
Rothgerber, Appel, Powers & Johnson LLP.
The law firm of Rothgerber, Appel, Powers & Johnson LLP, One Tabor
Center, Suite 3000, 1200 17th Street, Denver, Colorado 80202, has served as
counsel to TriCo in the preparation of the registration statement relating to
the proposed Merger. Further, the firm of Rothgerber, Appel, Powers & Johnson
LLP has rendered its opinion regarding the tax consequences of the proposed
Merger. No members of that firm own shares of TriCo Stock.
The law firm is not employed on a contingent basis.
EXPERTS
The consolidated financial statements of TriCo as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
incorporated in this Prospectus by reference have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the report of said
firm and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Sutter Buttes as of December 31, 1995 and
December 31, 1994, and for each of the three years in the three-year period
ended December 31, 1995, incorporated in this Prospectus by reference have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report with respect thereto and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
TriCo has filed with the Commission a Registration Statement on Form
S-4 with respect to the TriCo Stock offered hereby. This Prospectus/Proxy
Statement, filed as part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to TriCo and the TriCo Stock
offered hereby, reference is made to the Registration Statement and to the
Exhibits and schedules thereto. Statements made in the Prospectus/Proxy
Statement as to the contents of any contract, agreement or document referred to
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, and each such statement is qualified in its entirety by such
reference. The Registration
- 51 -
<PAGE>
Statement, such reports and other information may be inspected by anyone without
charge at the public reference facilities maintained by the Commission at its
principal office located at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C., 20549. Copies of all such material may be obtained from the Public
Reference Section of the Commission upon payment of prescribed fees.
- 52 -
<PAGE>
EXHIBIT A
ACQUISITION AGREEMENT
AND
PLAN OF MERGER
Among
TRICO BANCSHARES
TRI COUNTIES BANK
and
SUTTER BUTTES SAVINGS BANK
As of June 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - PRINCIPAL TERMS OF THE MERGER......................................... 1
1.1 The Plan of Merger................................................... 1
------------------
1.2 Closing Date......................................................... 4
------------
1.3 The Surviving Bank................................................... 4
------------------
ARTICLE II - DISTRIBUTIONS TO SUTTER BUTTES SHAREHOLDERS........................... 5
2.1 Delivery of Consideration............................................ 5
-------------------------
2.2 Stock Options........................................................ 6
-------------
2.3 Dissenting Shareholders.............................................. 6
-----------------------
ARTICLE III - CONDITIONS........................................................... 6
3.1 Mutual Conditions.................................................... 6
-----------------
a. No Litigation................................................. 6
-------------
b. Shareholder Approval.......................................... 6
--------------------
c. Approvals..................................................... 6
---------
d. Effective Registration Statement.............................. 7
--------------------------------
3.2 Conditions in Favor of Sutter Buttes................................. 7
------------------------------------
a. Representations, Warranties and Agreements.................... 7
------------------------------------------
b. Officers' Certificate......................................... 7
---------------------
c. Authorization of Merger....................................... 7
-----------------------
d. Secretary's Certificate....................................... 7
-----------------------
e. Legal Opinion................................................. 7
-------------
f. Material Adverse Change....................................... 8
-----------------------
g. Proper Actions and Documentation.............................. 8
--------------------------------
h. Federal Tax Opinion........................................... 8
-------------------
3.3 Conditions in Favor of TriCo and Tri Counties........................ 9
---------------------------------------------
a. Material Adverse Change....................................... 9
-----------------------
b. Representations, Warranties and Agreements.................... 9
------------------------------------------
c. Officer's Certificate......................................... 9
---------------------
d. Legal Opinion................................................. 9
-------------
e. Proper Actions and Documentation.............................. 10
--------------------------------
f. Employee Terminations......................................... 10
---------------------
g. Environmental Report.......................................... 11
--------------------
ARTICLE IV - REPRESENTATION AND WARRANTIES......................................... 11
4.1 Representations and Warranties of Sutter Buttes...................... 11
a. Organization of Sutter Buttes................................. 11
b. Subsidiaries and Assets....................................... 12
c. Financial Statements.......................................... 12
d. Absence of Undisclosed Liabilities............................ 12
e. Absence of Certain Changes or Events.......................... 12
f. Tax Matters................................................... 13
g. Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.......................................................... 13
h. Litigation.................................................... 14
i. Authority Relative to This Agreement.......................... 14
EXHIBIT A - i -
<PAGE>
j. Information Furnished to TriCo and Tri Counties............... 14
-----------------------------------------------
k. Compliance with Laws.......................................... 15
--------------------
l. Employee Benefit Plans........................................ 15
----------------------
m. Insurance..................................................... 16
---------
n. Environmental Protection...................................... 16
------------------------
o. Employee Relations............................................ 17
------------------
p. Material Contract Defaults.................................... 17
--------------------------
q. Agreements with Regulatory Authorities........................ 17
--------------------------------------
r. Reports....................................................... 17
-------
s. Loan Documentation............................................ 17
------------------
t. Accounting, Tax and Regulatory Matters........................ 17
--------------------------------------
u. Brokers and Finders........................................... 18
-------------------
4.2 Representations and Warranties of TriCo and Tri Counties............. 18
--------------------------------------------------------
a. Organization.................................................. 18
------------
b. Authority Relative to Agreement............................... 18
-------------------------------
c. Legal Proceedings............................................. 18
-----------------
d. Applications to Regulators.................................... 19
--------------------------
e. Information Furnished to Sutter Buttes........................ 19
--------------------------------------
f. Absence of Undisclosed Liabilities............................ 19
----------------------------------
g. Registration Statement........................................ 19
----------------------
h. TriCo Capital Stock........................................... 19
-------------------
ARTICLE V - COVENANTS.............................................................. 20
5.1 Covenants of Sutter Buttes........................................... 20
a. Access to Information Concerning Properties and Records....... 20
-------------------------------------------------------
b. Conduct of Business........................................... 20
-------------------
c. Confidentiality............................................... 21
---------------
d. No Merger or Solicitation..................................... 21
-------------------------
e. Information for Applications and Statements................... 22
-------------------------------------------
f. Shareholder Meeting........................................... 22
-------------------
g. Affiliate's Letter............................................ 22
------------------
h. Due Diligence................................................. 22
-------------
5.2 Covenants of TriCo and Tri Counties.................................. 22
-----------------------------------
a. Approvals of Regulatory Authorities........................... 22
-----------------------------------
b. Confidentiality............................................... 23
---------------
c. Registration of TriCo Stock................................... 23
---------------------------
d. Due Diligence................................................. 23
-------------
e. Status Reports................................................ 23
--------------
ARTICLE VI - MISCELLANEOUS......................................................... 23
6.1 Termination.......................................................... 23
a. Mutual Agreement.............................................. 23
----------------
b. Expiration of Time............................................ 24
------------------
c. Breach........................................................ 24
------
d. Environmental Report.......................................... 24
--------------------
e. Review of Sutter Buttes Disclosure Letter..................... 24
-----------------------------------------
f. Material Adverse Change....................................... 24
-----------------------
g. Fiduciary Duty................................................ 24
--------------
6.2 Expenses and Damages................................................. 24
--------------------
6.3 No Liability Upon Proper Termination................................. 24
------------------------------------
6.4 Press Releases and Public Statements................................. 25
------------------------------------
6.5 Maximum Expenses..................................................... 25
----------------
EXHIBIT A - ii -
<PAGE>
6.6 Knowledge............................................................ 25
---------
6.7 Desirable Amendments................................................. 25
--------------------
6.8 Benefits of this Agreement........................................... 25
--------------------------
6.9 Notices.............................................................. 25
-------
6.10 Potential Litigation re Fairness of the Transaction.................. 26
---------------------------------------------------
6.11 Entire Agreement..................................................... 26
----------------
6.12 Waiver or Modification............................................... 26
----------------------
6.13 Controlling Law...................................................... 27
---------------
6.14 Counterparts......................................................... 27
------------
Exhibit A Disclosure Letter to be provided by Sutter Buttes to be agreed upon
Exhibit B Form of Letter from Affiliates of Sutter Buttes to Tri-Co to be agreed upon
</TABLE>
EXHIBIT A - iii -
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF MERGER
This amended and restated Acquisition Agreement and Plan of Merger
("Agreement") is entered into this ____ day of July, 1996, by and among TriCo
Bancshares ("TriCo"), Tri Counties Bank ("Tri Counties"), and Sutter Buttes
Savings Bank ("Sutter Buttes") and amends and restates the Acquisition Agreement
and Plan of Merger entered into by the parties June 15, 1996. This amended and
restated agreement is effective as of June 15, 1996.
RECITALS:
A. TriCo is a California corporation and bank holding company registered
under the Bank Holding Company Act of 1936, as amended ( the "BHC Act") having
its principal office at 15 Independence Circle, Chico, California 95973.
B. Tri Counties is a commercial bank organized and existing under the laws
of the State of California, having its principal office at 15 Independence
Circle, Chico, California 95973. All of the outstanding capital stock of Tri
Counties is owned by TriCo.
C. Sutter Buttes is a savings bank organized under the laws of the United
States having its principal offices at 700 Plumas Street, Yuba City, California
95991.
D. The respective Boards of Directors of TriCo, Tri Counties and Sutter
Buttes have by the necessary vote determined that it is in the best interest and
to the advantage of their respective banks and their respective shareholders
that TriCo acquire 100% of the capital stock of Sutter Buttes by a merger of
Sutter Buttes with and into Tri Counties on the terms and conditions hereinafter
set forth.
E. The respective Boards of Directors of TriCo, Tri Counties and Sutter
Buttes have, by resolution approved and authorized the execution and delivery of
this Agreement on the terms and conditions set forth herein.
THEREFORE, in consideration of the mutual covenants, promises, agreements
and provisions contained herein and subject to the satisfaction of the terms and
conditions set forth herein, and intending to be legally bound hereby, TriCo,
Tri Counties and Sutter Buttes agree as follows:
ARTICLE I - PRINCIPAL TERMS OF THE MERGER
1.1 The Plan of Merger. Subject to the terms and conditions of this
Agreement, including the receipts of all requisite governmental and shareholder
approvals, the acquisition of Sutter Buttes by TriCo (the "Merger") will be
carried out in the following manner:
a. Sutter Buttes will cooperate in the preparation and filing by TriCo and
Tri Counties of such applications to regulatory authorities as may be necessary
to obtain all approvals requisite to the consummation of the Merger, and Sutter
Buttes will cooperate in the registration of the no par value TriCo common
stock, ("TriCo Stock"), to be issued to Sutter Buttes' shareholders pursuant to
a Registration Statement on Form S-4 (the "Registration Statement") with the
U.S. Securities and Exchange Commission, (the "SEC"), pursuant to the Securities
Act of 1933, as amended (the "1933 Act").
EXHIBIT A - 1 -
<PAGE>
b. TriCo, Tri Counties and Sutter Buttes will each cooperate and use their
respective best efforts to consummate the transactions contemplated by this
Agreement.
c. Sutter Buttes shall call a meeting of its shareholders to approve the
Merger and shall solicit proxies in favor of the Merger.
d. Subject to the provisions of this Agreement and consistent with this
Agreement, the parties shall execute an Agreement of Merger in a form agreed to
by the parties ("the Merger Agreement") on or before the Closing Date. The
Merger shall become effective upon the filing with the Superintendent of Banks
of the State of California ("Superintendent") of a duly executed counterpart of
the Merger Agreement certified by the California Secretary of State and Officer
Certificates prescribed by Section 1103 of the California General Corporation
Law (the "Effective Time").
e. At the Effective Time, Sutter Buttes shall merge with and into Tri
Counties, the separate existence of Sutter Buttes shall cease, and Tri Counties
shall continue as the surviving corporation. (Tri Counties, in its capacity as
the corporation surviving the Merger, is hereinafter sometimes referred to as
the "Surviving Corporation").
f. In exchange for their shares of common stock of Sutter Buttes, the
shareholders of Sutter Buttes shall receive as total consideration, the ("Total
Consideration"), cash and TriCo Stock having a value equal to $3,896,400 plus or
less 1.1 times after-tax earnings or after-tax losses as the case may be of
Sutter Buttes from April 1,1996 through the Closing Date. Earnings or losses of
Sutter Buttes from April 1, 1996 through the Closing Date shall be accrued and
booked in accordance with generally accepted accounting principles or regulatory
requirements and shall have included the accrual of expenses associated with
unused vacations and other employee termination liabilities [excluding
termination pay and other contracted termination expenses for which provision is
made in the following paragraphs of this agreement]. After-tax earnings or
losses as the case may be, of Sutter Buttes from April 1, 1996 shall also
include the accrual and booking of provisions to the loan and lease loss
reserves agreed upon among the parties, and shall not include the accrual or
booking of any charges or expenses associated with the transfer of the deposit
insurance from one institution to another. Any special assessments, other than
normal deposit insurance premiums, imposed on Sutter Buttes deposits by the
Federal Deposit Insurance Corporation, (the "FDIC") or the Savings Association
Insurance Fund ("the SAIF"), will not reduce the Total Consideration to Sutter
Buttes shareholders and will be paid directly by Tri Counties subject to the
Closing of the Merger.
Expenses associated with this transaction include legal and accounting fees
and the cost of the purchase of a three year extension of Sutter Buttes
directors and officers liability insurance policy ("tail insurance") shall be
borne by TriCo up to the limit of $70,000.00. Sutter Buttes agrees to pay any
fees associated with this transaction over the $70,000.00 limit which excess
will be included in the calculation of earnings and losses from April 1, 1996
through to Closing Date. Sutter Buttes will provide any information available
regarding expenses and will attempt to limit expenses by using "in house"
resources where ever possible.
From the Total Consideration, the holders of $5.00 par value Preferred
Stock, Series A of Sutter Buttes Preferred Stock who, as of the Closing Date,
have not converted their shares of Preferred Stock to common stock of Sutter
Buttes shall receive the Preferred Stock of Sutter Buttes liquidation preference
of $5.00 per share plus any declared and unpaid cash dividends (or warrants in
lieu thereof) attributable to the Preferred Stock ("the Preferred Stock
Liquidation").
EXHIBIT A - 2 -
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Warrants issued in lieu of cash dividends on the Preferred Stock shall be
treated as if exercised on the Effective Date and converted at the Effective
Date to common stock of Sutter Buttes, and the holders thereof shall be entitled
to receive an appropriate portion of the Total Consideration of cash and TriCo
Stock.
The holders of the common stock of Sutter Buttes (the "Sutter Buttes
Stock") as of the Closing Date, including Sutter Buttes Stock resulting from
conversion of Preferred Stock, and Sutter Buttes Stock issued pursuant to
exercise of options or warrants, shall receive the remaining Total
Consideration.
For each outstanding share of Sutter Buttes Stock held immediately prior to
the Closing Date, including Sutter Buttes Stock held as a result of Preferred
Stock conversion or the exercise of stock option rights, and excepting for those
shareholders effectively exercising their dissenters' rights (as described in
Section 2.3 below), the holders thereof shall receive consideration having a
value equal to the Total Consideration, as adjusted, less the amount of the
Preferred Stock Liquidation and the amount due to holders of Dissenting Shares
(as defined below), divided by the total number of shares of Sutter Buttes Stock
after Preferred Stock conversion and the exercise of options and warrants, less
Dissenting Shares. Cash payment shall be made for Dissenting Shares. Cashless
exercise of stock options will be permitted.
Each person holding one or more options to purchase Sutter Buttes Stock
shall be entitled to exercise vested options at or immediately prior to the
Closing Date by receiving, at their election, Sutter Buttes Stock or cash equal
in value to the difference between the option price and the value of Sutter
Buttes Stock at Closing and pursuant to this Agreement, or shall be allowed to
exercise the options by the payment of the option price and the receipt of
Sutter Buttes stock so long as the exercise is pursuant to this Agreement and
made on or before the Closing Date. The parties shall cooperate in effecting
appropriate exercise of the options under the Sutter Buttes 1992 Stock Option
Plan and the Sutter Buttes Directors Stock Option Plans so long as such
treatment is consistent with generally accepted accounting principles.
i. Of the Total Consideration paid pursuant to this Agreement, 51% shall be
in the form of TriCo Stock, and TriCo reserves the right to assure that 51% of
the Total Consideration will be in the form of TriCo Stock. In assuring that 51%
of the consideration will be in the form of TriCo Stock, TriCo shall consider
cash payments for fractional shares and potential cash payments for Preferred
Stock Liquidations, to holders of options to purchase Sutter Buttes Stock and
Dissenting Shares.
ii. To the extent possible, TriCo will cause cash to be paid to those
shareholders of Sutter Buttes requesting cash payment, and to cause TriCo Stock
to be delivered to those shareholders of Sutter Buttes requesting TriCo Stock,
prior to the meeting of shareholders at which the Merger is approved. However,
to guarantee that 51% of Total Consideration is in the form of TriCo Stock,
TriCo reserves the right to allocate TriCo Stock and cash, as necessary, to
shareholders of Sutter Buttes. In the event that the request for shares does not
equal 51%, the remaining shareholders not requesting TriCo Stock shall be
assigned stock to bring the total TriCo Stock issued to 51% of the Total
Consideration. In this situation, stock will be allocated first to those failing
to request stock or cash prior to the meeting of shareholders at which the
Merger is approved and next, if necessary, to those request cash on a pro rata
basis. In the event that the request for shares exceeds 51%, the shareholders
requesting TriCo Stock will have the number of shares to be received reduced on
a pro rata basis until the total TriCo Stock transferred equals 51% of the total
consideration with the balance of the price for the shares being paid in cash on
a pro rata basis. TriCo's determination to allocate cash and TriCo Stock on a
pro rata basis to guarantee
EXHIBIT A - 3 -
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that 51% of the Total Consideration is TriCo Stock according to the terms of
this paragraph shall be at TriCo's sole determination and shall not be subject
to review or question by other parties to this Agreement or shareholders of
Sutter Buttes.
iii. TriCo Stock to be issued under the terms of this Agreement shall be
registered under the 1933 Act under a Registration Statement on Form S-4, and
shall be issued in compliance with any applicable state securities laws.
iv. No fractional shares of TriCo Stock will be issued in the Merger, and
in lieu thereof cash in the amount of the Fair Market Value of a share of TriCo
Stock times the faction of a share that would otherwise be issued shall be paid.
The "Fair Market Value" of a share of TriCo Stock shall be the average closing
sale price (or if there is no closing sale price for a trading day, the mean
between the closing bid and ask price for such day) for the TriCo Stock for the
ten trading days preceding the Closing Date.
v. The number of shares of TriCo Stock to be issued for delivery to the
shareholders of Sutter Buttes shall be that number of shares which, when
multiplied by the Fair Market Value of a Share of TriCo Stock, equals at least
51% of the Total Consideration.
g. At the Effective Time, each certificate theretofore representing shares
of Sutter Buttes Stock shall be converted into and represent a right to receive
a pro rata portion of the Total Consideration.
1.2 Closing Date. The "Closing Date" of the transaction shall be the last
business day of the month in which the conditions specified in Article III of
this Agreement have all been satisfied, or such other date as is mutually agreed
by the parties. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of TriCo on the Closing Date or
at such other place as the parties may agree. At the Closing, the parties shall
exchange the various agreements, certificates, instruments and documents to be
delivered pursuant to the terms of this Agreement.
1.3 The Surviving Bank. At the Effective Time, Sutter Buttes shall cease to
exist and Tri Counties will be the "Surviving Bank." The articles of
incorporation and bylaws of Tri Counties as in effect immediately prior to the
Effective Time will remain the articles of incorporation and bylaws of Tri
Counties as the Surviving Bank after the Effective Time until amended or
repealed in accordance with their provisions and applicable law. The directors
and officers of Tri Counties immediately prior to the Effective Time shall be
the directors and officers of Tri Counties after the Effective Time until their
successors have been elected or qualified or until their resignation or removal
according to law and the bylaws of Tri Counties.
At and after the Effective Time, all rights, privileges, powers and
franchises and all property and assets of every kind and description of Tri
Counties and Sutter Buttes shall be vested in and be held and enjoyed by the
Surviving Bank, without further act or deed, and all the estates and interests
of every kind of Tri Counties and Sutter Buttes, including all debts owed to
either of them, shall be as effectively the property of the Surviving Bank as
they were of Tri Counties and Sutter Buttes, and the title to any real estate
vested by deed or otherwise in either Tri Counties or Sutter Buttes shall not
revert or be in any way impaired by reason of the Merger. All rights of
creditors and liens upon any property of Tri Counties or Sutter Buttes shall be
preserved unimpaired and all debts, liabilities and duties of Tri Counties and
Sutter Buttes shall be debts, liabilities and duties of the Surviving Bank and
may be enforced against it to the same extent as if said debts, liabilities, and
duties had been incurred or contracted by it.
EXHIBIT A - 4 -
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ARTICLE II - DISTRIBUTIONS TO SUTTER BUTTES SHAREHOLDERS
2.1 Delivery of Consideration. At least sixty (60) prior to the Closing
Date, Sutter Buttes shall appoint a paying agent (the "Paying Agent") whom TriCo
shall pay its fee. Such Paying Agent shall be responsible for receiving
certificates representing Sutter Buttes Stock and paying the total consideration
as soon as reasonably possible and in conformance with this agreement. On the
Closing Date, TriCo shall deliver to the Paying Agent the Total Consideration.
Any interest earned on any cash while in the hands of the Paying Agent shall be
the property of Tri Counties. The Paying Agent subsequently shall deliver to the
holders of certificates formerly evidencing ownership of Sutter Buttes Stock,
immediately upon the later of the receipt of such certificates from the holders
thereof, duly executed and in proper form for transfer, and the date the amount
of the Total Consideration is determined, the Consideration to which they are
entitled pursuant to the following provisions:
a. As soon as practical after the Effective Time, but not later than three
(3) business days after the Closing Date, the Paying Agent shall send notice and
a transmittal form to each record holder of a certificate evidencing Sutter
Buttes Stock, advising such holder of the Merger and the procedure for
surrendering to the Paying Agent such certificate in exchange for a pro rata
portion of the Total Consideration. Each holder of such certificate, upon
surrender of the same to the Paying Agent in accordance with such transmittal
form, shall be entitled to receive a pro rata portion of the Total
Consideration. The transmittal form shall permit holders of Sutter Buttes Stock
to submit their certificates and accompanying documentation to the paying Agent
through either of the Sutter Buttes branches.
b. No transfer taxes shall be payable by any holder of record of Sutter
Buttes Stock at the Effective Time in respect of the exchange of certificates
for the Consideration. If the Total Consideration for the Sutter Buttes Stock
provided for herein is to be delivered to any person other than the registered
holder of the Sutter Buttes Stock surrendered for exchange, the amount of any
stock-transfer or similar taxes (whether imposed on the holder of record or such
person) payable on account of the transfer to such person shall be paid to the
Paying Agent by such person. The Paying Agent may refuse to make such exchange
unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted.
c. After the Effective Time, each outstanding certificate which theretofore
represented Sutter Buttes Stock shall until surrendered for exchange in
accordance with this section 2.1 be deemed for all purposes to evidence only the
right to receive the a pro rata portion of Total Consideration. After the
Effective Time, there shall be no further registration or transfer of Sutter
Butte Stock.
d. Any portion of the Total Consideration deposited with the Paying Agent
that remains unclaimed by a former holder of Sutter Buttes Stock one hundred and
twenty (120) days after the Effective Time shall be repaid or returned to TriCo
upon demand, and holders of Sutter Buttes Stock who have not theretofore
complied with this Section 2.1 hereof shall thereafter look only to TriCo for
payment of their claim.
e. Notwithstanding anything to the contrary set forth herein, if any,
holder of Sutter Buttes Stock shall be unable to surrender his or her
certificates because such certificates have been lost or destroyed, such holder
may deliver in lieu thereof an indemnity bond in form and substance and with a
surety satisfactory to TriCo or such other undertaking as may be approved by
TriCo.
EXHIBIT A - 5 -
<PAGE>
f. The Paying Agent shall not be entitled to vote or exercise any rights of
ownership with respect to the shares of TriCo Stock held by it from time to time
hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares of TriCo Stock for
the account of the persons entitled thereto.
g. Distributions of the Total Consideration shall not be made until the
amount due dissenting shares, if any, under Section 2.3 hereof has been
determined or an appropriate amount has been reserved therefore. In the event
that there are Dissenting Shares, it is the intent of the parties hereto to
distribute as much of the Total Consideration as possible while withholding such
amount that may be reasonably necessary to pay the Dissenting Shares.
2.2 Stock Options. All options and warrants for Sutter Buttes Stock will be
either exercised or surrendered for cancellation prior to the Closing Date. Such
options and warrants are listed in Sutter Butte's Disclosure Letter attached as
Exhibit A.
2.3 Dissenting Shareholders. Any shares of Sutter Buttes Stock held by
persons who have complied with 12 C.F.R. Section 552.14 regarding dissenter and
appraisal rights ("Dissenters' Rights"), and have not effectively withdrawn or
lost such Dissenters' Rights (such shares being referred to as "Dissenting
Shares") shall not be converted pursuant to this Agreement, but the holders
thereof shall be entitled only to such Dissenters' Rights. Each dissenting
shareholder who is entitled to payment for his or her shares of Sutter Buttes
Stock pursuant to such Dissenters' Rights shall receive payment from Tri
Counties in an amount as determined pursuant to such Dissenters' Rights.
ARTICLE III - CONDITIONS
3.1 Mutual Conditions. The obligations of Sutter Buttes, TriCo and Tri
Counties under this Agreement are subject to and conditioned upon the
satisfaction of, prior to and on the Closing Date, each of the following
conditions except as each of Sutter Buttes, TriCo and Tri Counties may waive in
writing:
a. No Litigation. Except for litigation described in the Disclosure Letter
attached hereto as Exhibit C, no suit, action, claim or other proceeding having
been threatened or pending before any court, administrative or governmental
agency which, in the reasonable opinion of Sutter Buttes or TriCo, presents a
significant risk of restraint or prohibition of the transaction contemplated
hereby or the attainment of material damages or other relief against Sutter
Buttes or its shareholders, or TriCo or its shareholders or Tri Counties in
connection therewith.
b. Shareholder Approval. Approval of the Merger by the holders of
two-thirds of the outstanding shares of Sutter Buttes Common Stock and Sutter
Buttes Preferred Stock;
c. Approvals. Receipt of all authorizations, approvals, and/or consents as
well as the expiration of applicable waiting periods, of any third parties,
including federal or state governmental and/or regulatory bodies and officials,
necessary for the consummation of this agreement and for the continuation in all
material respects of the business of Tri Counties and Sutter Buttes by the
Surviving Bank without interruption after the Effective Time, in substantially
the manner in which such business is now conducted, and no such authorizations
or approvals shall contain any conditions or restrictions that TriCo reasonably
believes will materially restrict or limit the business or activities of the
Surviving Bank or have a material adverse effect on business, operations or
financial condition taken as a whole.
EXHIBIT A - 6 -
<PAGE>
d. Effective Registration Statement. A Registration Statement registering
the shares of TriCo Stock to be issued as Consideration shall have been declared
effective and shall not be subject to a stop order of the Securities and
Exchange Commission (the "SEC") and all applicable state blue sky laws shall
have been complied with.
3.2 Conditions in Favor of Sutter Buttes. All obligations of Sutter Buttes
under this Agreement are subject to and conditioned upon the satisfaction of,
prior to and on the Closing Date, each of the following conditions except as
Sutter Buttes may waive in writing:
a. Representations, Warranties and Agreements. All of the representations
and warranties of TriCo and Tri Counties contained in this Agreement or in any
written statement, including without limitation, financial statements, exhibits,
certificates, schedules or other documents delivered pursuant hereto or in
connection with the transactions contemplated hereby, being true in all material
respects at the date hereof, and at the Closing Date true and correct and that
TriCo and Tri Counties have performed the covenants, obligations and agreements
undertaken by them herein.
b. Officers' Certificate. Receipt by Sutter Buttes of a certificate in form
and content satisfactory to Sutter Buttes from the President and the Chief
Financial Officer of TriCo, dated the Closing Date, to the effect that the
representations and warranties made herein by TriCo and Tri Counties were on the
date hereof and are on the Closing Date true and correct and that TriCo and Tri
Counties have performed the covenants obligations and agreements undertaken by
them herein.
c. Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Agreement by TriCo and Tri Counties
and the consummation of the transactions contemplated hereby having been duly
and validly taken by the Boards of Directors of TriCo and Tri Counties, and Tri
Counties shall have full power and right to merge with Sutter Buttes pursuant to
this Agreement and the Merger Agreement.
d. Secretary's Certificate. Receipt by Sutter Buttes of, in form and
content satisfactory to it, certificate of the Secretary or an Assistant
Secretary of TriCo to the effect that all necessary approvals of the Merger by
the Boards of Directors of TriCo and Tri Counties and by TriCo as the sole
shareholder of Tri Counties were obtained at meetings duly called for such
purposes and as to the incumbency of all corporate officers of Tri Counties at
all relevant times.
e. Legal Opinion. Receipt by Sutter Buttes of an opinion of legal counsel
for TriCo as of the Closing Date to the effect that:
i. TriCo and Tri Counties are duly organized, validly existing and in good
standing under the laws of California and TriCo is a bank holding company
registered under the BHC Act. TriCo and Tri Counties have the requisite
corporate power and authority, and possess all governmental, regulatory and
other permits, licenses and other authorizations, necessary to carry out their
businesses as now being conducted, to enter into this Agreement and to perform
their obligations thereunder;
ii. all requisite actions of the Board of Directors of TriCo and the Board
of Directors and shareholders of Tri Counties to duly authorize and approve this
Agreement and the Merger have been taken and this Agreement has duly been
executed and delivered by TriCo and Tri Counties;
EXHIBIT A - 7 -
<PAGE>
iii. all regulatory and other third-party approvals required to be obtained
by TriCo and Tri Counties for the consummation of the transactions contemplated
hereby have been obtained;
iv. assuming the due execution and delivery of this Agreement by Sutter
Buttes, this Agreement constitutes a legal, valid and binding obligation of
TriCo and Tri Counties enforceable against them in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights in general or by general principles of equity; and
v. consummation of the transactions contemplated hereby will not in any
material respect conflict with, violate or result in a material breach of or
default in any of the terms, conditions or provisions of the articles of
incorporation or bylaws of TriCo or Tri Counties, or, to the best of counsel's
knowledge based on an opinion of Rothgerber, Appel, Powers, & Johnson LLP, any
applicable law, rule, regulation or order of any court or governmental agency,
or any material agreement, not, lease, mortgage, contract, instrument or
commitment of any kind, oral or written, formal or informal, to which TriCo or
Tri Counties is a party or by which either of them or their respective
properties may be bound.
vi. at the effective time, TriCo stock issued pursuant to the Merger will
be duly authorized, validly issued fully paid and nonassessable.
f. Material Adverse Change. Since the date of this Agreement, there have
been no material adverse changes, occurrences or developments in the business of
TriCo and Tri Counties that have, or would be expected to have, a material
adverse effect on the business, operations or financial condition of TriCo and
Tri Counties; and Sutter Buttes shall not have discovered any fact or
circumstance not disclosed by TriCo or Tri Counties prior to the date of this
Agreement that has resulted in, or could reasonably be expected to result in, a
material adverse effect on the business, operations or financial condition of
TriCo and Tri Counties. A "material adverse change" shall not include changes
caused by general economic conditions or changes in prevailing interest rates.
g. Proper Actions and Documentation. All actions to be taken by TriCo and
Tri Counties in connection with the transactions contemplated by this Agreement
having been taken, all documents incidental thereto being in a form and
substance reasonably satisfactory to Sutter Buttes and its legal counsel, and
Sutter Buttes having received copies of all documents that it may have
reasonably requested in connection with such transactions.
h. Federal Tax Opinion. An opinion of Rothgerber, Appel & Johnson LLP shall
have been received by Sutter Buttes to the effect that for federal income tax
purposes:
i. the Merger qualifies as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
ii. no gain or loss need be recognized by Sutter Buttes shareholders to the
extent TriCo Stock is received in exchange for their Sutter Buttes Stock;
iii. the holding period and basis of the TriCo Stock received in exchange
for Sutter Buttes Stock will be the same as the holding period and basis of the
Sutter Buttes Stock exchanged therefor; and
EXHIBIT A - 8 -
<PAGE>
iv. cash received in exchange of Sutter Buttes Stock will be treated as a
distribution in full payment for such Sutter Buttes Stock exchanged and will
qualify for capital gain or loss treatment assuming the Sutter Buttes Stock
exchanged was a capital asset in the hands of the Sutter Buttes shareholder at
the Closing Date.
3.3 Conditions in Favor of TriCo and Tri Counties. All obligations of TriCo
and Tri Counties under this Agreement are subject to and shall be conditioned
upon the satisfaction of, prior to and on the Closing Date, each of the
following conditions except as TriCo and Tri Counties may waive such conditions
in writing:
a. Material Adverse Change. Since the date of this Agreement, there having
been no material adverse changes, occurrences or developments in the business of
Sutter Buttes that have, or would be expected to have, a material adverse effect
on the business, operations or financial condition of Sutter Buttes; and TriCo
and Tri Counties shall not have discovered any fact or circumstance not
disclosed by Sutter Buttes prior to the date of this Agreement that has resulted
in, or could reasonably be expected to result in, a material adverse effect on
the business, operations or financial condition of Sutter Buttes. A "material
adverse change" shall not include changes caused by general economic conditions
or prevailing interest rates or an actual or impending FDIC, SAIF assessment.
b. Representations, Warranties and Agreements. All of the representations
and warranties of Sutter Buttes contained in this Agreement, in any attachment
or exhibit hereto, or in any written statement, including, without limitation,
financial statements, disclosure letters, deeds, exhibits, certificates,
schedules or other documents delivered pursuant hereto or in connection with the
transactions contemplated hereby, being true in all material respects at the
date hereof, and at the Closing Date as if then made and Sutter Buttes having
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the Closing
Date.
c. Officer's Certificate. Receipt by TriCo and Tri Counties of a
certificate in form and content satisfactory to TriCo and Tri Counties, from the
President and Chief Financial Officer of Sutter Buttes, dated the Closing Date,
to the effect that the representations and warranties made herein by Sutter
Buttes and, except as otherwise indicated in the certificate, in any other
written statement delivered in connection with the transaction contemplated
hereby, were on the date hereof, and are on the Closing Date, true and correct
in all material respects and that Sutter Buttes has performed the covenants,
obligations and agreements undertaken by it herein.
d. Legal Opinion. Receipt by TriCo and Tri Counties of an opinion of Sutter
Buttes' legal counsel as of the Closing Date, to the effect that:
i. Sutter Buttes is a savings bank validly existing and operating as a
SAIF- insured financial institution under the laws of the United States and has
full corporate power and authority, and possesses all governmental, regulatory
and other permits, licenses and authorizations, necessary to carry out it
business as now conducted, to own and operate the properties and assets it owns
or operates, to enter into the Agreement and to perform its obligations
thereunder;
ii. all requisite actions of the board of Directors and shareholders of
Sutter Buttes to duly authorize and approve this agreement and the Merger have
been taken and this Agreement has been duly executed and delivered by Sutter
Buttes;
EXHIBIT A - 9 -
<PAGE>
iii. assuming the due execution and delivery of this Agreement by Tri
Counties, this Agreement constitutes a legal, valid and binding obligation of
Sutter Buttes enforceable against Sutter Buttes in accordance with its terms,
except as endorsement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights in general or by general principles of equity;
iv. consummation of the transactions contemplated hereby will not in any
material respect conflict with, violate, or result in a material breach of or
default in any of the terms, conditions or provisions of the charter or bylaws
of Sutter Buttes, or to the best of counsel's knowledge after reasonable
investigation, any applicable law, rule, regulation, order of any court or
governmental agency, or any material agreement, note, lease, mortgage, contract,
instrument or commitment of any kind, oral or written, formal or informal, to
which Sutter Buttes is a party or by which it or its respective properties may
be bound;
v. except as disclosed to Tri Counties in writing, to the best of counsel's
knowledge without inquiry, there are no claims, actions, suits, proceedings or
investigations pending, or threatened by or against, or otherwise affecting
Sutter Buttes or its properties or business, or the transactions contemplated by
this Agreement or its directors, officers or employees in actions against them
in such capacity at law or in equity, or before or by any federal, municipal or
other governmental department, commission, board, agency, instrumentality or
authority;
vi. the authorized capital stock of Sutter Buttes consists solely of
5,000,000 of $.01 par value common stock with 625,438 shares issued and
outstanding, and 5,000,000 shares of preferred Stock with a liquidation
preference of $5.00. As of the date of this Agreement, there are 232,200 shares
of Preferred Stock issued and outstanding.
vii. to the best of counsel's knowledge, excepting as shown on Exhibit A,
there are no outstanding options, warrants, calls, rights, commitments,
securities or agreements of any character to which Sutter Buttes is a party or
by which it is bound, obligating Sutter Buttes to issue, deliver or sell, or
cause to be issued, delivered or sold additional shares of capital stock of
Sutter Buttes or obligating Sutter Buttes to grant, extend or enter into any
such option, warrant, call, right, commitment, or agreement.
e. Proper Actions and Documentation. All actions to be taken by Sutter
Buttes in connection with the transactions contemplated by this Agreement have
been taken, all documents incidental thereto being in a form and substance
reasonably satisfactory to TriCo and its legal counsel, and TriCo has received
copies of all documents that it may have reasonably requested in connection with
such transactions.
f. Employee Terminations. As directed by Tri Counties, Sutter Buttes shall
have terminated all employees which Tri Counties Bank does not wish to retain on
a date prior to the Closing Date. The decision to retain or eliminate certain
functions undertaken by Sutter Buttes and the decision to retain or eliminate
employees performing these functions and decision to terminate any other
employee will be made prior to the Closing Date. Should Tri Counties choose to
offer termination benefits to encourage any employee to remain until closing or,
in the case of termination payments pursuant to employee contracts, the
resulting expense shall not be a charge against or a deduction from Sutter
Buttes earnings. Tri Counties will be solely responsible for the payment of the
termination expense it chooses to incur and will pay the termination benefits
set forth in the existing employment contracts.
EXHIBIT A - 10 -
<PAGE>
g. Environmental Report. Tri Counties shall have the right, in its
discretion and at it sole expense, to arrange with an environmental consultant
to prepare an environmental report based on the consultant's inspection of the
surface of the properties owned or leased by Sutter Buttes and based on
investigation of records relating to such properties in the files of Sutter
Buttes or any government agency. Such inspections, investigations and reports
shall be concluded no later than thirty (30) days after the date of this
Agreement. If such reports indicate an absence of Hazardous Materials (as
defined in Section 4.1.n. hereof) on such properties, or other properties where
such Hazardous Materials endanger the Sutter Buttes properties, this Section
3.3h shall be deemed satisfied. If, however, such reports indicate the presence
of Hazardous Materials on such properties, Tri Counties shall have the right to
investigate those properties further, and Tri Counties shall have the right to
negotiate with Sutter Buttes concerning the appropriate allocation of costs for
any remediation indicated by such reports, prior to the Closing Date.
ARTICLE IV - REPRESENTATION AND WARRANTIES
4.1 Representations and Warranties of Sutter Buttes. Except as set forth in
its Disclosure Letter or the Sutter Buttes Statements, as hereinafter defined,
attached hereto as Exhibit A and incorporated herein by reference, Sutter Buttes
hereby represents and warrants to Tri Counties as of the date hereof and up to
and including the Closing Date as follows:
a. Organization of Sutter Buttes.
i. Sutter Buttes is a savings bank duly organized, validly existing and
operating as a SAIF-insured financial institution under the laws of the United
States, and it has full corporate power and authority, and possesses all
governmental, regulatory and other permits, licenses and authorizations,
necessary to carry on its business as now conducted and to own and operate the
properties and assets it owns or operates, to enter into this Agreement and to
perform its obligations hereunder.
ii. Sutter Buttes' authorized capital stock consists of 5,000,000 of $.01
par value common stock with 625,428 shares outstanding, and 5,000,000 shares of
Preferred Stock with a liquidation preference of $5.00. As of the date of this
Agreement, there are 232,200 shares of Preferred Stock issued and outstanding.
iii. Except for the Preferred Stock and the unexercised options and
warrants listed in Exhibit A, Sutter Buttes has no outstanding securities
convertible into shares of capital stock or existing options, warrants, calls
commitments or other rights of any character granted or entered into by Sutter
Buttes relating to its authorized or issued stock and no such rights will be
granted or entered into.
iv. There are no outstanding or unsatisfied preemptive rights or rights of
first refusal with respect to Sutter Buttes' capital stock.
v. Except pursuant to outstanding options and warrants, no shares of Sutter
Buttes' capital stock have been or will be issued between the date hereof and
the Effective Date.
b. Subsidiaries and Assets. Sutter Buttes does not have any direct or
indirect subsidiaries and does not have any interest in any partnership, firm,
association, corporation, or joint venture other than investment securities
purchased and loans made in the regular and usual course of its business.
EXHIBIT A - 11 -
<PAGE>
c. Financial Statements. Attached hereto are copies of the following
financial statements for Sutter Buttes ("Sutter Buttes Statements"), all of
which are accurate and complete in all material respects, are in accordance with
the books and records of Sutter Buttes, have been prepared in accordance with
generally accepted accounting principles or regulatory requirements consistently
applied throughout for the periods indicated and present fairly the financial
position of Sutter Buttes and the consolidated results of Sutter Buttes'
operations for the periods ended on the dates indicated:
Statements of Condition, as of December 31, 1994 and 1995, and Statements
of Income, Statements of Changes in Stockholders' Equity, and Statements of Cash
Flows for the years ended December 31, 1993, 1994, and 1995 certified by
Deloitte & Touche LLP and an unaudited Statement of Condition as of March 31,
1996, and unaudited Statement of Income for the 3-month period ended March 31,
1996.
d. Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Sutter Buttes' Statements, Sutter Buttes
has no material liabilities or obligations, except those incurred in the
ordinary course of their business, whether accrued, absolute, contingent or
otherwise, including, governmental charges or lawsuits, or any tax liabilities
due or to become due whether (i) incurred in respect of or measured by the
consolidated income of Sutter Buttes for any period up to the close of business
on the respective dates of the Sutter Buttes' Statements, or (ii) arising out of
transactions entered into, or any statement of facts existing, prior thereof.
e. Absence of Certain Changes or Events. Since the date of the Sutter
Buttes' Statements, there has not been:
i. any material adverse change in the condition (financial or otherwise),
assets, liabilities, or business of Sutter Buttes as determined by a pre-closing
review or audit of Sutter Buttes conducted by Tri Counties and its agent;
ii. any material adverse change in the character of the assets or
liabilities of Sutter Buttes;
iii. any capital improvements, except for ordinary maintenance and repairs,
by Sutter Buttes or any purchase of property by Sutter Buttes at a cost in
excess of $10,000 other than supplies in the ordinary course of business;
iv. any physical damage, destruction or loss not covered by insurance
exceeding $10,000 in value or affecting in a material and adverse way the
property, assets, business or prospects of Sutter Buttes;
v. any material change in the accounting methods or practices of Sutter
Buttes unless required by regulation or generally accepted accounting
principles:
vi. any material change in the capital structure of Sutter Buttes;
EXHIBIT A - 12 -
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vii. any loss incurred or determined to probable for Sutter Buttes as a
result of environmental problems which have, or would be expected to have, a
material adverse effect on the financial position of Sutter Buttes; or
viii. any material increase in the compensation payable, or to become
payable, by Sutter Buttes to any officers or employees, or any bonus, percentage
compensation, service award or other like benefit, granted, made or accrued to,
or to the credit of, any officers or employees, or any pension, retirement,
deferred compensation or similar payment or arrangement made or agreed to by
Sutter Buttes other than in accordance with pre-existing plans.
f. Tax Matters.
i. Sutter Buttes has filed all federal, state, municipal and local income,
excise, property, special district, sales, transfer and other tax returns and
reports of information statements which are required to be filed up to and
including the date hereof and has paid all taxes which have become due pursuant
to such returns or pursuant to any assessment which has become due pursuant to
such returns or pursuant to any assessment which has become payable. Sutter
Buttes will hereafter file such returns as are required to be filed by it prior
to the Effective Date and will pay all taxes which become due pursuant to such
returns or pursuant to any assessments.
ii. The returns filed and to be filed by Sutter Buttes have been and will
be accurately and properly prepared.
iii. To the extent that any tax liability or assessment has accrued as of
the date of the Sutter Buttes' Statements, but has not yet become payable or has
been proposed for assessment or determination as of the date of the Sutter
Buttes' Statements, but remains unpaid, the same has been reflected as a
liability on the date of the Sutter Buttes Statements subject to normal year-end
adjustments. Since the date of the Sutter Buttes' Statements, Sutter Buttes has
not incurred any liability with respect to any such taxes except for normal
taxes incurred in the ordinary and regular course of its business, all of which
will be fully accrued as a liability on the books of Sutter Buttes at the
Effective Date.
iv. Sutter Buttes has not executed or filed with the Internal Revenue
Service or any other taxing authority any agreement extending the period for
assessment or collection of any income taxes. As of the date of this Agreement,
there are no examinations, reviews, audits or investigations of any tax return
or report of Sutter Buttes which are presently pending or, to the best of Sutter
Buttes' knowledge threatened, and Sutter Buttes is not party to any pending
action or proceeding by any governmental authority for assessment or collection
of income taxes.
g. Title to Properties; Absence of Liens and Encumbrances, Leases
Enforceable.
i. Sutter Buttes has good and marketable title to their assets, real and
personal (including those reflected in the Sutter Buttes' Statements, except as
thereafter sold or otherwise disposed of in the ordinary course of business and
for adequate consideration), free and clear of all mortgages, pledges, liens,
charges and encumbrances, except (A) investment securities which are pledged to
secure the deposit of public monies or monies under the control of any court,
(B) the lien of taxes not yet due and payable or being contested in good faith
by appropriate proceedings, and (C) such imperfections of title and
encumbrances, if any, and such liens, if any, incidental to the conduct of their
businesses or the ownership of their assets as are not material in amount and do
not affect the value of, or interfere with the present use of, their assets or
otherwise materially impair their operations.
EXHIBIT A - 13 -
<PAGE>
ii. The structures and equipment owned or used by Sutter Buttes comply with
all applicable laws, regulations and ordinances and are in good operating
condition, subject to ordinary wear and tear.
iii. The real property, if any, leased by Sutter Buttes is held under valid
and enforceable leases. Sutter Buttes is not in default under any such leases.
All rentals due and payable have been paid.
h. Litigation. There are no material claims, actions, suits, proceedings or
investigations pending, or, to the best of Sutter Buttes' knowledge, threatened,
by or against, or otherwise materially affecting Sutter Buttes, or its assets,
business or properties, or the transactions contemplated by this Agreement, or
its directors, officers or employees in reference to actions taken by them in
such capacity at law or in equity, or before or by any federal, state, municipal
or other government department, commission, board, agency, instrumentality or
authority, nor, to Sutter Buttes' knowledge, is there any valid basis for any
such action, proceeding or investigation, other than (i) claims by Sutter Buttes
in the ordinary course of its business for the recovery of loans or protection
of its interest as a secured or unsecured creditor, and (ii) claims fully
covered by insurance.
i. Authority Relative to This Agreement.
i. Sutter Buttes has the requisite corporate power and authority to enter
into this Agreement and perform its obligations hereunder.
ii. The execution, delivery and performance of this Agreement by Sutter
Buttes has been duly and effectively authorized and approved by the Board of
Directors of Sutter Buttes, subject to the required vote of its shareholders,
and subject to obtaining the regulatory approvals and other consents
contemplated by this Agreement.
iii. This Agreement has been duly executed and delivered by Sutter Buttes
and constitutes a valid and binding obligation of Sutter Buttes enforceable in
accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
iv. The consummation of the transactions contemplated by this Agreement
will not in any material respect conflict with, violate or result in a material
breach of or material default of in (a) any term, condition or provision of the
charter of bylaws of Sutter Buttes; (b) any applicable law, rule, regulation or
order of any court of governmental agency; or (C) any material agreement, lease,
mortgage, note, contract or commitment of any kind, oral or written, formal or
informal, to which Sutter Buttes is a party or by which it or its properties may
be bound.
j. Information Furnished to TriCo and Tri Counties. The documents furnished
by Sutter Buttes to TriCo and Tri Counties (the "Sutter Buttes Documents"),
including but not limited to Sutter Buttes' Disclosure Letter and the Sutter
Buttes Statements, are true and complete copies of such documents and do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. To the best of its
EXHIBIT A - 14 -
<PAGE>
knowledge, there is no fact which Sutter Buttes has not disclosed in the Sutter
Buttes Documents, which materially and adversely affects the properties,
business, prospects, profits or condition (financial or otherwise) of Sutter
Buttes or the ability of Sutter Buttes to perform this Agreement, except that
Sutter Buttes makes no representation or warranty as to the effect of general
economic conditions, the condition of the financial markets, future legislation
or future regulatory action. The information relating to Sutter Buttes included
in the Registration Statement that is furnished by Sutter Buttes to Tri Counties
will be accurate and complete in all material respects, will not omit to state
any material fact required to be stated therein or necessary to prevent such
information from being misleading, and will comply in all material respects with
the requirements of federal law at the date of first mailing of the
Prospectus/Proxy Statement to the shareholders of Sutter Buttes.
k. Compliance with Laws.
i. Sutter Buttes has all permits licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with,
federal, state, local or foreign governmental or regulatory bodies that are
required in order to permit it to own or lease its properties and assets and to
carry on its business as presently conducted and that are material to its
business; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Sutter
Buttes, no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current.
ii. The conduct by Sutter Buttes of its business and the condition and use
of its properties does not violate or infringe, in any respect material to any
such, any applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation.
iii. Sutter Buttes is not in default under any order, license, regulation
or demand of any federal, state, municipal or other governmental agency or with
respect to any order, writ, injunction or decree of any court.
iv. Except for statutory or regulatory restrictions of general application,
no federal, state, municipal or other governmental authority has placed any
restriction on the business or properties of Sutter Buttes which reasonably
could be expected to have a material adverse effect on the business or
properties of Sutter Buttes taken as a whole.
l. Employee Benefit Plans.
i. True, accurate and complete copies of all pension plans, retirement
plans, profit-sharing plans, deferred compensation agreements, collective
bargaining agreements, insurance plans or any other similar employee benefit
plans, agreements or arrangements of Sutter Buttes (the "Plans") have been
furnished to TriCo and Tri Counties.
ii. Each Plan which is intended to provide tax-deferred benefits under any
provision of the Internal Revenue Code of 1996, as amended, (the "Code"), meets
all requirements that must be met in order for such tax-deferred benefits to be
available. There has been no change in any of the documents delivered to TriCo
and Tri Counties under which each Plan is maintained and no change, since each
Plan's most recent valuation date, in the operations of the Plan which could be
expected to adversely affect or alter the tax status of, or materially increase
the cost of maintaining, any such Plan.
iii. The reporting and disclosure requirements of the Employee Retirement
Income Security Act of 1974 ("ERISA") and the Code, as applicable, and the group
EXHIBIT A - 15 -
<PAGE>
health plan continuation coverage requirements of the Code and ERISA have been
fulfilled in all material respects. Sutter Buttes has furnished to TriCo and Tri
Counties copies of all filings, if any, with the Internal Revenue Service and
the Department of Labor or other applicable authority for each Plan's most
recent plan year.
iv. Neither Sutter Buttes, any of the Plans, any of the trusts created
under any Plan nor any trustee, administrator or other fiduciary of a Plan has,
to Sutter Buttes' best knowledge, engaged in a "prohibited transaction," as such
term is defined in the applicable provisions of the Code or of ERISA, or
otherwise taken or omitted any action which could subject the Plans, Sutter
Buttes, any of the trusts created under a Plan or any trustee or administrator
thereof, or any party dealing with such Plans or trusts, to a material tax or
penalty on prohibited transactions imposed by ERISA or the Code or otherwise,
and neither Sutter Buttes, any Plan, any trust created under a Plan nor any
other fiduciary of any Plan or its attendant trust has breached its fiduciary
duties under ERISA in a manner which could result in a direct or indirect
material liability to Sutter Buttes, or the trustee or administrator of any
Plan.
v. The Pension Benefit Guaranty Corporation has not instituted proceedings
to terminate (or appoint a trustee to administer) any Plan, and no event has
occurred or condition exists which might constitute grounds under ERISA for the
termination of (or the appointment of a trustee to administer) any Plan.
vi. The minimum funding requirements under the Code and ERISA have been
satisfied with respect to each Plan.
m. Insurance. The properties of Sutter Buttes are insured as disclosed in
Sutter Buttes' Disclosure Letter.
n. Environmental Protection.
i. To the best of Sutter Buttes' knowledge, none of the assets of Sutter
Buttes (defined for purposes of this subsection as the real property and
tangible personal property owned or leased by Sutter Buttes) contain any
hazardous materials (defined as any substance whose nature and/or quantity or
existence, use, manufacture or effect render it subject to federal, state or
local regulation as potentially injurious to public health or welfare,
including, without limitation, friable asbestos or PCBs ("Hazardous
materials")), other than in such quantities which are incidental and customary
for the maintenance and operation of such assets (e.g., cleaning fluids)
("Incidental Quantities").
ii. To the best of Sutter Buttes' knowledge, no notice or other
communication has been made or issued by any governmental agency having
jurisdiction over Sutter Buttes, or any other person, with respect to any
alleged violation of any federal, state or local laws, rules, regulations,
ordinances and codes governing Hazardous Materials and which are applicable to
the asses of Sutter Buttes.
iii. To the best of Sutter Buttes' knowledge all Hazardous Materials which
have been remediated from any assets of Sutter Buttes' prior to or during their
ownership by Sutter Buttes have been handled in compliance with all applicable
laws.
iv. To the best of Sutter Buttes' knowledge, no collateral securing any
loan made by Sutter Buttes, contains any Hazardous Materials, other than in
Incidental Quantities.
EXHIBIT A - 16 -
<PAGE>
o. Employee Relations. Copies of all employment agreements between Sutter
Buttes and its employees have been delivered to Tri Counties. To the best of
Sutter Buttes' knowledge, Sutter Buttes has complied with all Federal, state and
local laws or regulations applicable to it relating to the employment of labor
and the provisions of such laws or regulations relating to wages,
nondiscriminatory hiring and employment practices and procedures the violation
of which would have a materially adverse effect on the financial condition,
pertains or prospects of Sutter Buttes. No claim has been made nor any
proceeding commenced against Sutter Buttes for any wages, penalties or other
liabilities for failure to comply with any such laws or regulations. Sutter
Buttes is not subject to any collective bargaining agreement with its employees.
p. Material Contract Defaults. Sutter Buttes is not in default in any
material respect under the terms of any outstanding contract, agreement, lease
or other commitment, which is material to the business, operations, properties,
assets, or the condition, financial or otherwise, of Sutter Buttes, or under the
charter, articles of incorporation or bylaws thereof, and no event has occurred
which, with notice or lapse of time, or both, may be or become an event of
default under any such contract, agreement, lease or other commitment or under
the charter or bylaws of Sutter Buttes.
q. Agreements with Regulatory Authorities. Sutter Buttes is not a party to
any written agreement or memorandum of understanding with any federal or state
administrative agency or commission or other governmental authority or
instrumentality charged with supervision or regulation of savings banks or
engaged in the insurance of deposits which restricts materially the conduct of
its business or in any manner relates to its capital adequacy, its credit
policies or its management.
r. Reports. For the last three years, Sutter Buttes has filed all reports,
registrations and statements, together with any required amendments thereto and
has paid all fees and assessments due and payable therewith, that it was
required to file with any federal and state securities, banking, insurance and
other governmental or regulatory authorities (collectively, the "Regulatory
Authorities"). All such reports and statements required to be filed with any
such Regulatory Authority are collectively referred to herein as the "Reports."
As of its respective date, each Report complied in all material respects with
all the rules and regulations promulgated by the applicable Regulatory Authority
and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
s. Loan Documentation. The documentation relating to each loan made by
Sutter Buttes, including as to security interests, mortgagees and other liens
with respect to the collateral for such loans, is adequate for the enforcement
of the loan except for inadequacies that will not in the aggregate have a
material adverse effect on the financial conditional of Sutter Buttes taken as a
whole.
t. Accounting, Tax and Regulatory Matters. Sutter Buttes has no knowledge
of any fact or circumstance that would (i) prevent the transaction contemplated
hereby from qualifying as a tax-free reorganization under the Code, or (ii)
materially impede or delay receipt of any required regulatory approval referred
to in Section 3.1.c.
u. Brokers and Finders. Neither Sutter Buttes nor any officer, director or
employee of Sutter Buttes has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Sutter Buttes in connection with this Agreement or the transactions contemplated
thereby.
EXHIBIT A - 17 -
<PAGE>
4.2 Representations and Warranties of TriCo and Tri Counties. TriCo and Tri
Counties hereby represent and warrant to Sutter Buttes as of the date hereto and
up to and including the Closing Date as follows:
a. Organization. TriCo and Tri Counties are duly organized, validly
existing and operating under the laws of California, and TriCo is a bank holding
company registered under the BHC Act. TriCo and Tri Counties have the requisite
corporate power and authority, and possess all material governmental, regulatory
and other permits, licenses and other authorization, necessary to carry on their
respective business as now conducted.
b. Authority Relative to Agreement.
i. The execution, delivery and performance of this Agreement by TriCo and
Tri Counties has been duly and effectively authorized and approved by the
respective Boards of Directors of TriCo and Tri Counties subject to obtaining
the regulatory approvals and other consents contemplated by this Agreement.
ii. The approval of TriCo's shareholders is not required for consummation
of the transactions contemplated by this Agreement.
iii. This Agreement has been duly executed and delivered by Tri Counties
and constitutes a valid and binding obligation of TriCo and Tri Counties
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally and principles of
equity (regardless of whether such enforceability is considered in a proceeds in
equity or at law).
iv. The consummation of the transactions contemplated by this Agreement
will not in any material respect conflict with, violate or result in a material
breach of or material default in (A) any term, condition or provision of the
articles of incorporation, charter or bylaws of TriCo and Tri Counties; (B) any
applicable law, rule, regulation or order of any court or governmental agency;
or (C) any material agreement, lease, mortgage, note, contract or commitment of
any kind, oral or written, formal or informal, to which either TriCo or Tri
Counties is a party or by which they or their properties may be bound.
c. Legal Proceedings. There are no legal proceedings pending against,
affecting, or to the knowledge of TriCo or Tri Counties, threatened against
TriCo or Tri Counties which would prevent or enjoin TriCo or Tri Counties from
carrying out their obligations under this Agreement; and TriCo and Tri Counties
are not in default or in violation in any material way with respect to (i) any
order, writ, injunction or decree of any court, or (ii) any instrument, statute,
rule, order or regulation of any government, governmental department,
commission, board, bureau, agency or instrumentality, and the consummation of
the transactions contemplated by this Agreement will not constitute such a
default.
d. Applications to Regulators. All of the representations contained in the
applications filed by TriCo and Tri Counties with regulators with or on behalf
of Sutter Buttes, will be at the time the same were made accurate in all
material respects, except TriCo and Tri Counties makes no representation as to
matter contained therein that are based on information provided by Sutter Buttes
to TriCo and Tri Counties.
EXHIBIT A - 18 -
<PAGE>
e. Information Furnished to Sutter Buttes. The documents furnished by TriCo
and Tri Counties to Sutter Buttes (the "TriCo Documents") are true and complete
copies of such documents and do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. To the best of its knowledge, there is no fact which TriCo or Tri
Counties has not disclosed in the TriCo documents, which materially and
adversely affects the properties, business, prospects, profits or condition
(financial or otherwise) of TriCo or Tri Counties or the ability of TriCo or Tri
Counties to perform this Agreement, except that TriCo and Tri Counties make no
representation or warranty as to the effect of general economic conditions, the
condition of the financial markets, future legislation or future regulatory
action.
f. Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the financial statements (the "TriCo
Statements") furnished to Sutter Buttes or contained in filings made or to be
made by TriCo under the reporting provisions of the Securities Exchange Act of
1934, as amended, which comply in all material respects with applicable
requirements thereunder (the "TriCo Reports") or disclosed by TriCo or Tri
Counties to Sutter Buttes in writing, TriCo and Tri Counties have no material
liabilities or obligations whether accrued, absolute, contingent or otherwise,
including governmental charges or lawsuits, or any tax liabilities due or to
become due and whether (i) incurred in respect of or measured by the income of
TriCo and Tri Counties for any period up to the close of business on the
respective dates of the TriCo Statements, or (ii) arising out of transactions
entered into, or any state of facts existing, prior thereto. to the best
knowledge of TriCo and Tri Counties, TriCo and Tri Counties do not have any
liabilities or obligations, either accrued or contingent, which are material to
TriCo and Tri Counties and which have not been either (I) reflected or disclosed
in the TriCo Statements, or (ii) incurred subsequent to the date of the TriCo
Statements in the ordinary course of business.
g. Registration Statement. Except for information provided by Sutter
Buttes, the information included in the Registration Statement or the
Prospectus/Proxy Statement or incorporated therein by reference, as of the date
the Prospectus/Proxy Statement is first mailed to the Sutter Buttes
stockholders, and at all times subsequent thereto, up to and including the date
of the Sutter Buttes Stockholders Meeting and the Closing Date will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances when made, not misleading.
h. TriCo Capital Stock. As of May 6, 1996, the authorized capital stock of
TriCo is 20,000,000 shares of common stock and 1,000,000 shares of Preferred
Stock of which 4,460,543 shares of common stock and -0- shares of Preferred
Stock are currently issued and outstanding. The TriCo Stock issued in the Merger
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable.
EXHIBIT A - 19 -
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ARTICLE V - COVENANTS
5.1 Covenants of Sutter Buttes. Sutter Buttes covenants with TriCo and Tri
Counties as an inducement to Tri Counties to enter into this Agreement that:
a. Access to Information Concerning Properties and Records. Sutter Buttes
will give to TriCo and Tri Counties and to their counsel, accountants and other
representatives ("advisers"), upon reasonable notice, during normal business
hours throughout the period prior to the Closing Date, full access to the books,
records, customer and loan files, contracts, and commitments of Sutter Buttes,
except for documents as to which there exists an attorney-client privilege or
except as otherwise restricted by law. For the period to the Effective Time,
Sutter Buttes shall deliver to Tri Counties such statements, schedules and
reports concerning the business, operations and financial condition of Sutter
Buttes as are regularly provided to its Board of Directors at such times as they
are regularly supplied to its Board of Directors. Sutter Buttes shall give
notice to TriCo and Tri Counties of all board of directors and committee
meetings of Sutter Buttes. Tri Counties shall be entitled, at its expense, to
have a representative attend any such meeting to observe and participate in
discussion but not to vote on any matter.
b. Conduct of Business. Until the Effective Time or the earlier termination
of this Agreement, and except as contemplated by this Agreement or disclosed in
the Disclosure Letter or as consented to or otherwise approved by TriCo and Tri
Counties in writing:
i. the business of Sutter Buttes shall be conducted only in the ordinary
course which, without limitation, shall include using their best efforts to
maintain in force the insurance policies now in effect, or insurance policies
providing substantially the same coverage to the extent such coverage remains
available to Sutter Buttes with acceptable limitations and at a reasonable cost;
ii. excepting for bylaw changes providing for shareholder meetings, no
change shall be made in the charter or bylaws of Sutter Buttes;
iii. no change shall be made in the number of shares of capital stock of
Sutter Buttes issued and outstanding, nor shall any option, warrant, call,
convertible security, commitment or other right be granted or made by Sutter
Buttes relating to its authorized or issued capital stock;
iv. no purchase order, contract or commitment (other than deposits, loans
loan commitments and investments or the sale of other real estate owned in the
ordinary course of business of Sutter Buttes) shall be entered into by or on
behalf of Sutter Buttes extending for more than one year or involving payment by
Sutter Buttes of more the $10,000 in any one contract or related series of
contracts or otherwise materially affecting its business;
v. except as agreed by the parties or provided herein, no employment
agreement or other agreement shall be entered into with any employee of Sutter
Buttes and no salary or benefits of any employee of Sutter Buttes shall be
materially increased;
vi. Sutter Buttes shall use it best efforts, consistent with conducting its
business in accordance with its own business judgment, to retain its depositors
and customers and to preserve its business in its present form and to preserve
the good will of the depositors, customers and others having business relations
with Sutter Buttes;
EXHIBIT A - 20 -
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vii. Sutter Buttes shall duly comply in all material respects with all
applicable laws, the failure to comply with which would have a material adverse
effect upon its business or financial condition;
viii. no dividend or distribution with respect to Sutter Buttes stock shall
be paid without the prior approval of TriCo, and it is understood and agreed
that any such dividend or distribution will constitute a reduction in Sutter
Buttes' equity and therefore a reduction in Total Consideration as provided in
Section 1.1 of this Agreement.
ix. Except in the case of the wholesale mortgage activities where there is
a commitment in hand to acquire a loan which is being considered for funding, no
loans in excess of $50,000 will be made and no security will be purchased or
sold by Sutter Buttes without providing TriCo and Tri Counties with a reasonable
opportunity to review such transaction and indicate approval or disapproval. If
representations of TriCo and Tri Counties register disapproval and the loan is
made or the security is purchased, the shareholder of Sutter Buttes shall, at
the option of TriCo and Tri Counties, purchase the disapproved loans or
securities from Sutter Buttes at par value or market value, whichever is higher,
prior to the Closing Date;
c. Confidentiality. Until the Merger is consummated, Sutter Buttes shall
not, without the prior written consent of TriCo or Tri Counties, disclose to
third parties, and shall use care to assure that its directors, officers,
employees, advisers do not disclose to third parties, any confidential
information concerning TriCo and Tri Counties, which shall include all
information received from TriCo and Tri Counties in the course of discussing,
investigating, negotiating and performing the transactions contemplated by this
Agreement, whether such information has been obtained before or after the date
of execution of this Agreement. The term "confidential information" does not
include information which (i) was known to Sutter Buttes, its directors,
officers, employees, or advisers prior to the time of its disclosure by TriCo or
Tri Counties; (ii) is or becomes publicly known or available; or (iii) is
independently developed or discovered by Sutter Buttes or its directors,
officers, employees, or advisers outside of the discussions, investigations,
negotiations and performance contemplated by this Agreement. "Third parties"
does not include the directors, officers, employees, or advisors of TriCo and
Tri Counties.
In the event that the Merger is not consummated, or this Agreement is
otherwise terminated, Sutter Buttes shall promptly return to TriCo and Tri
Counties all such confidential information (and all copies thereof), without
retaining any copies, or to the extent agreed by TriCo or Tri Counties, shall
destroy information and documents not to be returned, including all electronic
images, and confirm such destruction in writing to TriCo and Tri Counties; and
thereafter all such information shall continue not to be disclosed by Sutter
Buttes, and its directors, officers, employees, agents and advisers to third
parties without the written consent of TriCo and Tri Counties.
d. No Merger or Solicitation. Subject to the continuing fiduciary duties of
the Board of Directors of Sutter Buttes to the shareholders of Sutter Buttes,
prior to the Effective Time, Sutter Buttes shall not effect or agree to effect
any transfer of the business, agree to acquire or acquire any of its own capital
stock or the capital stock or assets (except in the ordinary course of business)
of any other entity, or commence any proceedings for winding up and dissolution
affecting either of them.
Subject to the continuing fiduciary duties of the Board of Directors of
Sutter Buttes to the shareholders of Sutter Buttes, prior to the Effective Date,
neither Sutter Buttes, nor any officer, director or affiliate of Sutter Buttes ,
nor any investment banker, attorney, accountant or other agent, advisor or
EXHIBIT A - 21 -
<PAGE>
representative retained by Sutter Buttes shall (A) solicit or encourage,
directly or indirectly, make any inquiries, discussions or proposals for
entering into any agreement providing for a transfer of the business or (B)
disclose, directly or indirectly, any nonpublic information to any corporation,
partnership, or person or afford any such party access to any books or records
of Sutter Buttes or furnish any information concerning the business, financial
condition, operations, or properties of Sutter Buttes.
Sutter Buttes shall notify Tri Counties of the details of any indication
of interest of any person, partnership, or corporation to acquire by any means a
controlling interest in Sutter Buttes within two (2) business days of any such
indication of interest.
In the event the Board of Directors of Sutter Buttes receives a bona
fide offer for a purchase or transfer of an interest in Sutter Buttes and
reasonably determines, on the advice of counsel, that as a result of such offer,
any duty to act or to refrain from doing any act pursuant to this agreement is
inconsistent with the continuing fiduciary duties of the Board of Directors to
the shareholders of Sutter Buttes, such failure to act or refrain from doing any
act shall not constitute any breach of this Agreement and neither Sutter Buttes
nor its officers, directors or agents shall have any further liability with
regard thereto for any failure to act or omission of any act pursuant to this
subsection.
e. Information for Applications and Statements. Sutter Buttes shall furnish
to TriCo and Tri Counties in a timely manner all information concerning Sutter
Buttes required for inclusion in all regulatory applications to be filed, in any
other notices or statements to be made by TriCo and Tri Counties to any
governmental or regulatory body required to consummate the Merger.
f. Shareholder Meeting. Sutter Buttes shall take all reasonable action
necessary in accordance with applicable law and its charter and bylaws to
convene a meeting of shareholders to vote upon this Agreement and the Merger. In
connection therewith, Sutter Buttes shall mail to all shareholders of record
entitled to vote at such meeting the Prospectus/Proxy Statement which shall
indicate that the Board of Directors of Sutter Buttes has, by resolution,
approved the Merger on the terms and subject to the conditions set forth in this
Agreement. Subject to applicable laws, Sutter Buttes shall use reasonable
efforts to solicit from its shareholders proxies in favor of such adoption and
approval and shall take all other reasonable action necessary or helpful to
secure a vote of its shareholders in favor of the Merger.
g. Affiliate's Letter. Sutter Buttes shall use its best efforts to obtain
and deliver to TriCo prior to the filing of the Registration Statement a signed
letter in the form attached as Exhibit B from each Sutter Buttes Shareholder who
may be deemed an "affiliate" of Sutter Buttes with the meaning of such term as
used in Rule 145 under the Securities Act of 1933.
h. Due Diligence. Sutter Buttes shall use its best efforts to deliver by
the Closing Date all opinions, certificates and other documents required to be
delivered by it and to cause all conditions to Closing being satisfied in a
timely manner.
5.2 Covenants of TriCo and Tri Counties. TriCo and Tri Counties as an
inducement to Sutter Buttes to enter into this agreement covenant that:
a. Approvals of Regulatory Authorities. As soon as practicable, TriCo and
Tri Counties shall file applications with the proper regulatory authorities for
approval of the Merger and the acquisition of Sutter Buttes shall thereafter
take all action with due diligence to obtain the approval of such regulatory
authorities. To the extent permitted by law, all filings, requests for approval
EXHIBIT A - 22 -
<PAGE>
or other submissions for any regulatory approval shall be made available for
review by Sutter Buttes prior to filing.
b. Confidentiality. Until the Merger is consummated, TriCo and Tri Counties
shall not, without the prior written consent of Sutter Buttes, disclose to third
parties, and shall use care to assure that their directors, officers, employees,
and advisers do not disclose to third parties, any confidential information
concerning Sutter Buttes, which shall include all information received from
Sutter Buttes in the course of discussing, investigating, negotiating and
performing the transactions contemplated b this Agreement, whether such
information has bee obtained before or after the date of execution of this
Agreement. The term "confidential information" does not include information
which (i) is known to either TriCo or Tri Counties, or their directors,
officers, employees, or advisers, prior to its disclosure by Sutter Buttes, (ii)
is or become publicly known or available; or (iii) is independently developed or
discovered by TriCo or Tri Counties, or their directors, officers, employees, or
advisers outside of the discussions, investigations, negotiations and
performance contemplated by this Agreement. "Third parties" do not include
directors, officers, employees, or advisors of Sutter Buttes.
In the event that the Merger is not consummated, or this Agreement is
otherwise terminated, TriCo and Tri Counties shall promptly return to Sutter
Buttes all such confidential information (and all copies thereof), without
retaining any copies, or to the extent agreed by Sutter Buttes, shall destroy
information and documents not to be returned, including all electronic images,
and confirm such destruction in writing to Sutter Buttes; and thereafter all
such information shall continue not to be disclosed by TriCo and Tri Counties
and their directors, officers, employees, or advisors to third parties without
Sutter Buttes' written consent.
c. Registration of TriCo Stock. TriCo shall promptly prepare and file the
Registration Statement with the SEC and shall make all applicable state
securities filings, shall provide Sutter Buttes and its legal counsel with an
opportunity to review and comment on the Registration Statement and state
securities filings, and shall take all reasonable steps necessary to cause the
Registration Statement and state filings to be declared effective.
d. Due Diligence. TriCo and Tri Counties shall use their best efforts to
deliver by the Closing Date all opinions, certificates and other documents
required to be delivered by it and to cause all conditions to Closing be
satisfied in a timely manner.
e. Status Reports. TriCo and Tri Counties shall advise Sutter Buttes from
time to time regarding TriCo's and Tri Counties' applications for regulatory
approval of the Merger and provide Sutter Buttes copies of all applications,
comments, correspondence and approvals to or from regulators in connection with
the applications and give Sutter Buttes copies of all regulatory approvals
referred to in this Agreement.
ARTICLE VI - MISCELLANEOUS
6.1 Termination. This Agreement may be terminated and the Merger
abandoned (either before or after approvals and authorizations by the
shareholders of Sutter Buttes contemplated hereby and without seeking further
shareholder approval) at any time prior to the Effective Time only in one of the
following manners:
a. Mutual Agreement. By mutual written consent of the parties authorized by
their respective Boards of Directors at any time prior to the Effective Time.
EXHIBIT A - 23 -
<PAGE>
b. Expiration of Time. By written notice from Sutter Buttes to TriCo or
from TriCo to Sutter Buttes, if the Closing Date shall not have occurred on or
before December 31, 1996.
c. Breach. By written notice from TriCo to Sutter Buttes or from Sutter
Buttes to TriCo, in the event of a material breach by the other party hereto of
any representation, warranty, covenant or other agreement contained in this
Agreement, which breach is not cured after thirty (30) days' written notice
thereof is given to the party committing such breach by the other party.
d. Environmental Report. TriCo shall have the right, in its discretion and
at its sole expense, to arrange with an environmental consultant to prepare an
environmental report on any property owned or leased by Sutter Buttes. If such
report indicates the presence of Hazardous Materials on any such property or
properties and if the costs for any remediation indicated by such
reports are deemed material by TriCo, TriCo shall have the right to terminate
this Agreement written notice to Sutter Buttes.
e. Review of Sutter Buttes Disclosure Letter. By TriCo within five (5)
calendar days of receipt by TriCo of the Sutter Buttes Disclosure Letter.
f. Material Adverse Change. Within thirty (30) days prior to the Closing,
TriCo shall be entitled to conduct a pre-closing audit or review of Sutter
Buttes and the financial condition of Sutter Buttes, and this Agreement may be
terminated by TriCo if that audit or review determines that the condition of
Sutter Buttes has undergone material adverse change from the date of this
Agreement.
g. Fiduciary Duty. Sutter Buttes shall have the right to terminate this
Agreement if it receives an offer as set forth in Section 5.1 above which the
Board of Directors of Sutter Buttes on the advice of counsel, believes that it
is legally required to accept.
6.2 Expenses and Damages. Except as otherwise provided in this agreement,
each party shall pay its own expenses in connection with the Agreement and the
Merger. Nothing contained in this Section 6.2 shall be deemed to preclude either
from seeking to recover damages which it incurs as a result of breach by the
other party of this Agreement or to obtain other legal or equitable relief
(including specific performance). In the event of the termination of this
Agreement or the abandonment of the Merger by TriCo otherwise than as allowed to
TriCo under the provisions of Section 6.1, then TriCo shall pay Sutter Buttes
$50,000 plus actual expenses incurred in this transaction, which amount the
parties agree is reasonable and full liquidated damage and reasonable
compensation to Sutter Buttes for its involvement in the transactions
contemplated by this Agreement and is not a penalty or forfeiture. In the event
of the termination of this Agreement or the abandonment of the Merger by Sutter
Buttes otherwise than as allowed to Sutter Buttes under the provisions of
Section 6.1, then Sutter Buttes shall pay TriCo $50,000, which amount the
parties agree is reasonable and full liquidated damage and reasonable
compensation to TriCo for its involvement in the transactions contemplated by
this Agreement and is not a penalty or forfeiture.
6.3 No Liability Upon Proper Termination. Upon proper termination by
written notice as provided in Section 6.1 of this Agreement, this Agreement
shall be void and of no further effect, except as set forth in Section 6.2, and
there shall be no liability by reason of this Agreement or the termination
thereof on the part of either TriCo, Tri Counties or Sutter Buttes or their
directors, officers, employees, agents or shareholders, and all such parties
shall be released from all such liability.
EXHIBIT A - 24 -
<PAGE>
6.4 Press Releases and Public Statements. No press release or public
statement will be issued relating to the transactions contemplated by this
Agreement without prior approval of TriCo and Sutter Buttes. However,
notwithstanding the confidentiality provisions of this Agreement, either TriCo
or Sutter Buttes may issue at any time any press release or other public
statements it believes, on the written advice of its counsel, it is obligated to
issue to avoid liability under applicable law relating to disclosures, but the
party issuing such press release or public statement shall make every reasonable
effort to give the other party prior notice and an opportunity to participate in
such release or statement.
6.5 Maximum Expenses. Sutter Buttes' expenses attributable to the
negotiation and consummation of this Agreement and the transactions contemplated
hereby, including the cost of the purchase of directors and officers liabilities
tail insurance as provided in Section 1.1 hereof, shall not exceed $70,000.00,
and any amount paid or accrued in excess thereof shall result in a reduction of
the Consideration in the amount of such excess.
6.6 Knowledge. Whenever the term "knowledge," "best knowledge" or similar
expression is used is this Agreement, it shall mean knowledge of a party's
respective directors and officers.
6.7 Desirable Amendments. Subject to the performance of the respective
fiduciary obligations of each party, if at any time after the date hereof it
shall appear that any change or changes in the structure of the transactions
contemplated hereby shall be necessary or desirable or comply with applicable
law, or to comply with the requirements of regulatory authorities having
jurisdiction over the transactions so as to enable the transactions contemplated
hereby to be consummated, the parties hereto agree to use their best efforts to
effect such changes in this Agreement and the other documents contemplated
hereby in taking such other actions as may be required to effect such changes,
provided that neither party hereto shall be required to agree to any change in
the amount or form of consideration set forth herein.
6.8 Benefits of this Agreement. This Agreement and the rights and
obligations of TriCo and Tri Counties and Sutter Buttes hereunder shall not be
assigned by any party to any third party, except with the prior written consent
of the other. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto, the shareholders of Sutter Buttes, and
their respective permitted successors and assigns, any rights or remedies under
or by reason of this Agreement and there are not third-party beneficiaries of
this Agreement.
6.9 Notices. Any notice, request, instruction, legal process, or other
instrument to be given or served hereunder by any party to another, shall be
deemed given or served if in writing and delivered personally or sent by
registered or certified mail, postage prepaid, to the respective party or
parties at the following addresses:
If to TriCo and/or Tri Counties:
Robert H. Steveson
Chief Executive Officer
Tri Counties Bank
15 Independence Circle
Chico, California 95973
EXHIBIT A - 25 -
<PAGE>
With copies to:
Rothgerber, Appel, Powers & Johnson LLP
Attention: William P. Johnson, Esq.
1200 - 17th Street, Suite 3000
Denver, Colorado 80202
If to Sutter Buttes:
W. R. Hagstrom
President & Chief Executive Officer
Sutter Buttes Savings Bank, F.S.B.
700 Plumas Street
Yuba City, California 95991
With copies to:
Graham & James, LLP
Attention: James E. Topinka, Esq.
One Maritime Plaza
San Francisco, California 94111
and to such other person or address or addresses as either party may designate
to the other by like notice as set forth above.
6.10 Potential Litigation re Fairness of the Transaction. The Board of
Directors of Sutter Buttes has reviewed and analyzed this agreement and the
transactions contemplated thereby and determined it to be fair and in the best
interests of the shareholders of Sutter Buttes. In view of this determination
and since it is deemed an unnecessary expense, the parties have decided not to
purchase a fairness opinion regarding this transaction. If a claim is made or an
action commenced asserting or alleging that the directors of Sutter Buttes
failed to exercise due care or were otherwise deficient in determining the
fairness of this transaction, Tri Counties shall defend any and all such claims
or actions at its sole expense including all attorney fees and costs associated
therewith. If a court enters a final judgment that holds that the transaction is
unfair, any damages resulting therefrom shall be the responsibilities of Sutter
Buttes and not of TriCo or Tri Counties. Sutter Buttes shall acquire a three (3)
year extension to its existing directors and officers liability insurance policy
which will provide coverage for such judgment and the costs of defending any
such claim or action.
6.11 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated hereby and
thereby supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussion, whether oral or written, of the parties, and there
are no warranties, representations, covenants or other agreements between the
parties in connection with the subject matter hereof except as specifically set
forth herein.
6.12 Waiver or Modification. Any party to this Agreement may, at any time
prior to the Effective Time, by action taken by its Board of Directors or
officers thereunto duly authorized, waive any of the terms or conditions of this
Agreement or agree to an amendment or modifications to this Agreement by an
agreement in writing executed in the same manner (but not necessarily by the
same persons) as this Agreement. No amendment, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
EXHIBIT A - 26 -
<PAGE>
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar), nor shall any waiver constitute a continuing waiver unless so
expressly provided. Sutter Buttes' Board of Directors may authorize the
amendment or supplementation of this agreement or waiver of any provision hereof
or thereof, either before or after the approval of Sutter Buttes' shareholders
(and without seeking further shareholder approval), so long as such amendment,
supplement or waiver does not result in the reduction of the consideration given
or result in an adverse tax or other effect to Sutter Buttes' shareholders.
6.13 Controlling Law. This Agreement shall be construed in accordance with
the laws of the State of California, except to the extent that federal law is
applicable.
6.14 Counterparts. This Agreement may be executed in any number of copies,
each of which shall be deemed an original, and all of which together shall be
deemed one and the same instrument.
IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of TriCo, Tri Counties and Sutter Buttes, this Agreement has
been signed on behalf of said corporations by their respective Chairmen of the
Boards, Presidents or Vice Presidents, as the case may be, under their
respective corporate seals, and attested by their respective Secretaries or
Assistant Secretaries, as the case may be, all on the date, month and year first
written above. The signature of a Secretary or Assistant Secretary is intended
not only as an execution hereof, but also is a certification that such parties'
Board of Directors has duly authorized the execution and delivery of this
Agreement.
TriCo Bancshares
By: /s/ Robert H. Steveson
Tri Counties Bank
By: /s/ Robert H. Steveson
Sutter Buttes Savings Bank
By: /s/ Lee B. Colby
EXHIBIT A - 27 -
<PAGE>
EXHIBIT B
Section 552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with ss. 552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to ss. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure--(1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder electing to make
a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy or
vote against the combination by the stockholder.
(3) Notification of effective date and written offer. Within ten days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent
Federal stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of the
effective date of the combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting association to be
the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out
in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and
statement of income of the association the shares of which the dissenting
stockholder holds, for a fiscal year ending not more than sixteen month If
within sixty days of the effective date of the combination the fair value is
agreed upon between the resulting association and any stockholder who has
complied with the provisions of paragraph (c)(2) of this section, payment
therefor shall be made within ninety days of the effective date of the
combination.
<PAGE>
(5) Petition to be filed if offer not accepted. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) Stock certificates to be noted. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.
(11) Status. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
EXHIBIT B 2
<PAGE>
EXHIBIT C
OPINION OF ROTHGERBER, APPEL, POWERS & JOHNSON LLP
AS TO FEDERAL INCOME TAX CONSEQUENCES
<PAGE>
EXHIBIT C
July __, 1996
THE FOLLOWING OPINION IS INTENDED TO BE RENDERED UPON THE CLOSING OF THE
TRANSACTION DESCRIBED HEREIN IN SUBSTANTIALLY THE FORM PRESENTED, ASSUMING NO
CHANGES IN THE FACTS OR THE LAW UPON WHICH SUCH OPINION IS BASED, AND SUBJECT TO
THE RECEIPT, REVIEW AND APPROVAL OF FINAL DOCUMENTS.
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
700 Plumas Street
Yuba City, CA 95991
Re: Federal Income Tax Aspects of Acquisition of Sutter Buttes
Savings Bank, F.S.B. by TriCo Bancshares
Dear Mr. Hagstrom:
You have requested our opinion concerning certain federal income tax
aspects of the acquisition by TriCo Bancshares ("Holding Company") of all of the
outstanding shares of Sutter Buttes Savings Bank, F.S.B. ("Sutter Buttes" or
"Bank").
We have reviewed the Prospectus/Proxy Statement prepared in connection
with the offering of Holding Company shares, the exhibits attached thereto, and
such other information, materials and matters of law as we believe appropriate.
In addition, we have relied upon certain representations made to us by the
management of Bank and Holding Company ("Management"). Although we have made no
independent investigation of those representations, we have no reason to believe
they are untrue. Statutory references herein are to the Internal Revenue Code of
1986, as amended, except as otherwise indicated.
Background Facts
TriCo is incorporated under the laws of the State of California, and
headquartered in Chico, California. TriCo, through its wholly owned banking
subsidiary, Tri Counties ("Tri Counties"), has 14 traditional banking offices
and 7 in-store branches located in the counties of Butte, Glenn, Lassen, Nevada,
Shasta, Siskiyou, Sutter and Tehama in Northern California. Tri Counties
commenced business in 1975 and provides traditional deposit, lending, mortgage,
and
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 2 EXHIBIT C
commercial products and services to business and retail customers throughout its
primary market area. In October, 1995, Tri Counties opened a regional lending
office in Bakersfield, California, to promote primarily agricultural lending
activities in that area. In February, 1996, Tri Counties opened a regional
lending office in Sacramento, California, to promote primarily commercial and
consumer lending activities in that area.
Tri Counties emphasizes retail banking with its client base being
predominately individuals and small to medium-sized businesses. The majority of
Tri Counties' loans are geographically concentrated in its primary market area
as defined above. Tri Counties relies substantially on local promotional
activity including the personal relationships of its directors, officers,
employees, and shareholders, in addition to personalized service in its
community banking orientation, as means to compete with larger statewide
financial institutions.
Sutter Buttes was incorporated under the laws of the State of California
as a savings and loan association in 1982 and commenced operation in 1983. In
1993, Sutter Buttes converted to a federal savings bank charter.
Sutter Buttes' principal business is accepting checking and savings
deposits and making residential real estate and home improvement loans secured
by first and second mortgages. Sutter Buttes also engages in wholesale mortgage
banking by originating mortgage loans and then selling them to third parties.
Sutter Buttes retains the right to service some of the mortgage loans it sells
for a fee. Sutter Buttes also offers safe deposit, night depository, wire
transfer, and other customary bank services to its customers.
Business Purpose
Due to the persistent illiquidity of Sutter Buttes Common Stock and
difficulty competing with larger institutions, the Sutter Buttes has explored
possible merger candidates. TriCo submitted a letter of interest to Sutter
Buttes. After reviewing the letter, the Sutter Buttes Board of Directors
requested that Mr. Colby and Mr. Hagstrom commence negotiations with TriCo. A
final agreement was reached on terms acceptable to both TriCo and Sutter Buttes
in June of 1996.
The Sutter Buttes Board of Directors believes that the Merger is fair
and in the best interests of the shareholders of Sutter Buttes. In reaching its
conclusion, the Sutter Buttes Board of Directors considered numerous factors,
including the following:
(1) The overall lack of institutions interested in acquiring Sutter
Buttes;
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 3 EXHIBIT C
(2) The amount of consideration to be paid by TriCo, which is, in the
opinion of the Board, favorable;
(3) The acceptability of the terms and conditions of the Merger,
which are set summarized below, upon review of them with
Sutter Buttes' accountants and legal counsel;
(4) The structure of the Merger as partially tax-free to the holders
of Sutter Buttes Common Stock;
(5) The market liquidity and dividend history of TriCo Stock, which
is, in the opinion of the Board, favorable; and
(6) The current and projected financial condition of Sutter Buttes
as an independent institution, which are, in the opinion of the
Board, unfavorable.
Description of the Transaction
Pursuant to the Acquisition Agreement, Sutter Buttes will merge with and
into Tri Counties which will, as the Surviving Bank, succeed to the business of
Sutter Buttes and will continue the operations of Sutter Buttes under Tri
Counties' current name, Articles of Incorporation, and Bylaws.
In exchange for their shares of Sutter Buttes Common Stock, the holders
of Sutter Buttes Common Stock shall receive the "Total Consideration," which
shall consist of cash and/or TriCo Stock. The Total Consideration, subject to
substantial adjustments described below, is $3,843,000, or $2.95 per share,
assuming conversion of all Sutter Buttes Preferred Stock to Sutter Buttes Common
Stock, the exercise of all outstanding stock options, the conversion of all
outstanding warrants, and the approval of the Special Stock Bonuses.
The holders of Sutter Buttes Preferred Stock who, as of the Closing
Date, have not converted their shares of Sutter Buttes Preferred Stock to Sutter
Buttes Common Stock will receive the Sutter Buttes Preferred Stock liquidation
preference of $5.00 per share plus any declared and unpaid cash dividends.
Because each share of Sutter Buttes Preferred Stock converts into 1.98 shares of
Sutter Buttes Common Stock, it is expected that all Sutter Buttes Preferred
Stock will be converted. Holders of Sutter Buttes Common and Preferred who
choose to exercise and perfect their dissenters' rights of appraisal will
receive a fair value of their shares in cash. The amounts paid, if any, to
holders of Sutter Buttes Preferred Stock who do not convert and to Dissenting
Shareholders will be deducted from the Total Consideration paid to holders of
Sutter Buttes Common Stock.
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 4 EXHIBIT C
Warrants outstanding in lieu of cash dividends on Sutter Buttes
Preferred Stock will be treated as if exercised, and the holders thereof will be
entitled to receive an appropriate portion of the Total Consideration. Holders
of stock options will be entitled to exercise their options on or before the
Closing Date in any one of three ways: in exchange for Sutter Buttes Common
Stock with a value equal to the per share value of Sutter Buttes Common Stock,
less the per share exercise price of the options, times the number of shares
underlying the options; or for cash in the amount just described; or by paying
the exercise price for the number of shares underlying the options. The amounts
paid, if any, to holders of stock options who exercise for cash will be deducted
from the Total Consideration. Holders of stock options whom Stock will be
entitled to receive an appropriate portion of the Total Consideration.
Of the Total Consideration paid, 51% shall be in the form of TriCo
Stock, and TriCo reserves the right to assure that 51% of the Total
Consideration will be in the form of TriCo Stock. In assuring that 51% of the
consideration will be in the form of TriCo Stock, TriCo shall deduct the amount
of cash payments for fractional shares and potential cash payments for the
holders of Sutter Buttes Preferred Stock not converting such stock, for holders
of stock options exercising for cash, and for payment of any amounts to Sutter
Buttes shareholders who exercise their dissenters' rights. The value of TriCo
Stock will be based on the average closing sale price (or mean between the
closing bid and asked price if there is no closing sale price on any day) of
TriCo Stock on the ten trading days preceding the Closing Date.
To the extent possible, TriCo will cause cash to be paid to those
holders of Sutter Buttes Common Stock requesting cash payment, and will cause
TriCo Stock to be delivered to those holders of Sutter Buttes Common Stock
requesting TriCo Stock. However, to guarantee that 51% of the Total
Consideration is in the form of TriCo Stock, TriCo reserves the right to
allocate TriCo Stock and cash, as necessary, among the holders of Sutter Buttes
Common Stock. In the event that requests for TriCo Stock total less than 51%,
the remaining shareholders not requesting stock shall be assigned stock to bring
the total stock issued to 51% of the Total Consideration. In this situation,
stock will be allocated first to those failing to request stock or cash, and
next, if necessary, to those requesting cash. In the event that requests for
TriCo Stock exceed 51%, those requesting stock will receive fewer shares until
the total stock transferred equals 51% of the Total Consideration, and will
receive the balance in cash. TriCo's determination to allocate cash and TriCo
Stock on a pro rata basis to guarantee that 51% of the Total Consideration is
TriCo Stock shall be at TriCo's sole determination.
Additional Representations
1. The "Background Facts," "Business Purpose" and "Description of the
Transaction" as set forth in this letter are accurately stated, and there are no
material omissions of information necessary to prevent such statements from
being misleading.
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 5 EXHIBIT C
2. The fair market value of Holding Company stock to be received by the
shareholders of Bank will in each instance be approximately equal to the fair
market value of the Bank stock surrendered in exchange therefor.
3. The fair market value of the assets of Bank to be transferred to Tri
Counties will equal or exceed the sum of the liabilities to be assumed, plus the
amount of liabilities to which the transferred assets are subject.
4. The liabilities of Bank to be assumed by Tri Counties and the
liabilities, if any, to which the transferred assets of the Bank are subject
were incurred in the ordinary course of business.
5. In the proposed transaction, Tri Counties will acquire at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Bank immediately prior to the
transaction. For purposes of this representation, amounts paid by Bank to
dissenters, amounts paid by Bank for its reorganization expenses, and all
redemptions and distributions (except for regular, normal distributions) made by
Bank immediately prior to the transaction will be included as assets of Bank
held immediately prior to the transaction.
6. Prior to the proposed transaction, Holding Company will be in
control of Tri Counties within the meaning of Section 368(c)of the Code.
7. Holding Company has not plan or intention to liquidate Tri Counties
merge Tri Counties with any other corporation, to sell or otherwise dispose of
the stock of Tri Counties or to cause Tri Counties to sell or dispose of any of
the assets of Bank to be acquired, except for dispositions made in the ordinary
course of business.
8. There is no plan or intention by the shareholders of Bank who own 1
percent or more of the Bank stock, and to the best of the knowledge of the
management of Bank, there is no plan or intention on the part of the remaining
shareholders of Bank to sell, exchange or otherwise dispose of a number of
shares of Holding Company stock to be received in the proposed transaction which
would reduce such shareholders' holding to a number of shares having, in the
aggregate, a value less than 50 percent of the total value of all of the
formerly outstanding stock of Bank as of the transaction date. For purposes of
this representation, stock surrendered by dissenters will be treated as
outstanding Bank stock otherwise sold, redeemed, or disposed of prior to the
proposed transaction will be considered in making this representation.
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 6 EXHIBIT C
9. Following the proposed transaction, Tri Counties will not issue
additional shares of its stock which would result in Holding Company losing
control of Tri Counties within the meaning of Section 368(c) of the Code.
10. Holding Company will pay the expenses of itself, Tri Counties and
Bank incurred in the proposed transaction. Furthermore, the shareholders of Bank
will each pay their own expenses, if any, incurred in the transaction.
11. Holding Company has no plan or intention to redeem or otherwise
reacquire any of its stock to be issued in the proposed transaction.
12. No stock of Tri Counties will be issued as consideration in the
proposed transaction.
13. Following the proposed transaction, Holding Company and Tri Counties
will continue the business of Bank in a substantially unchanged manner.
14. No two parties to this transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
15. There is no intercorporate debt issued or to be settled at a
discount between Holding Company and Tri Counties or Tri Counties and Bank.
16. No corporation, a party to be the proposed reorganization, is under
the jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
17. None of the compensation received by any shareholder-employee of
Bank will be separate consideration for, or allocable to, any of their shares of
Bank stock; none of the shares of Holding Company stock received by any
shareholder-employee will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder- employee
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services.
Tax Opinions
Based on the foregoing, it is our opinion that, for purposes of the
federal income tax (excluding any possible application of the alternative
minimum tax):
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 7 EXHIBIT C
1. Provided that the proposed merger of Bank with and into Tri Counties
qualifies as a merger under California law, the acquisition by Tri Counties of
substantially all of the properties of Bank in exchange for shares of Holding
Company common stock, and the assumption by Tri Counties of the liabilities of
Bank, will constitute a reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code. For purposes of this ruling,
"Substantially all" means 90 percent of the fair market value of the net assets
and at least 70 percent of the fair market value of the gross assets held by
Bank immediately prior to the proposed transaction. Holding Company, Tri
Counties and Bank will each be "a party to a reorganization" within the meaning
of Section 368(b) of the Code.
2. No gain or loss will be recognized by Bank on the transfer of
substantially all of its assets and assumption by Tri Counties or Bank's
liabilities in the transaction. Sections 361(a) and 357(a).
3. No gain or loss will be recognized by Holding Company or Tri Counties
on the receipt by Tri Counties of substantially all of the assets of Bank in
exchange for Holding Company stock and the assumption by Tri Counties of Bank
liabilities in the transaction.
Rev. Rul. 57-278, 1957-1 C.B. 124.
4. The basis of the assets of Bank to be received by Tri Counties will
be the same as the basis of those assets in the hands of Bank immediately before
the transfer.
Section 362(b).
5. The basis of the Tri Counties stock in the hands of Holding Company
will be increased by an amount equal to the basis of the assets of Bank
transferred to Tri Counties, and decreased by the sum of the liabilities of Bank
assumed by Tri Counties and the amount of the liabilities, if any, to which the
transferred assets of Bank are subject.
6. The holding period of the assets of Bank in the hands of Tri
Counties will include the period during which those assets were held by Bank.
Section 1223(2).
7. No gain or loss will be recognized by Bank shareholders on the
exchange of their Bank common stock for Holding Company common stock.
Section 354(a)(1).
8. The basis of the shares of Holding Company common stock to be
received by Bank shareholders will be the same as the basis of the shares of
Bank common stock surrendered. Section 358(a)(1).
9. The holding period of the Holding Company common stock to be
received by Bank shareholders will include the holding period of Bank common
stock surrendered in the
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 8 EXHIBIT C
exchange, provided Bank common stock is held as a capital asset on the day of
the exchange (Section 1221(1)).
10. Where a dissenter to the proposed merger receives cash, in exchange
for Bank common stock, such cash will be treated as received by that shareholder
as a distribution in redemption of his/her Bank common stock subject to the
conditions and limitation of Section 302 of the Code. Where, as a result of such
distribution, a shareholder neither owns any stock of Holding Company directly,
nor is deemed to own any such stock under the constructive ownership rules of
Section 318(a), the redemption will be a complete termination of interest within
the meaning of Section 302(b)(3), and will be treated as a distribution in full
payment in exchange for the stock redeemed as provided in Section 302(a). As
provided in Section 1001, gain or (subject to the limitations of Section 267)
loss will be realized and recognized to such shareholders measured by the
difference between the redemption price and the adjusted basis of the Bank
shares surrendered as determined under Section 1011. Rev. Rul. 74-515, 1974-2
C.B. 118. Provided Section 341 (relating to collapsible corporations) is
inapplicable and the Bank stock is a capital asset in the hands of such
shareholders, the gain, if any, generally will constitute capital gain.
11. As provided in Section 381(a) of the Code, Tri Counties will succeed
to and take into account the tax attributes of Bank as of the dates of the
transfer described under Section 381(c). These items will be taken into account
by Tri Counties subject to the provisions and limitations specified in Section
381, 382, 383 and 384 of the Code and the regulations thereunder.
12. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Income Tax Regulations, Tri Counties will succeed to and
take into account the earnings and profits or deficit in earnings and Profits of
Bank as of the date or dates of transfer.
* * *
These opinions are based upon existing statutes, regulations, proposed
regulations, Internal Revenue Service Rulings and Revenue Procedures, judicial
and administrative decisions and other matters of record. An opinion of counsel,
unlike a tax ruling, has no official status of any kind; no guarantee can be
given that the IRS will not challenge or prevail on any issue. In addition, the
law upon which the opinions are based is subject to change and no assurance can
be given that any such change will not be applied retroactively. Application for
a tax ruling has not been made.
<PAGE>
W. R. Hagstrom, President
Sutter Buttes Savings Bank, F.S.B.
July __, 1996
Page 9 EXHIBIT C
Neither this letter nor copies hereof may be distributed or otherwise
made available to anyone other than Bank, Holding Company, their employees,
directors and shareholders, without our prior written consent, except that we
consent to the inclusion of this letter as an exhibit to the Prospectus/Proxy
Statement.
Very truly yours,
/s/ ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 317 of the California General Corporation Law contains detailed
provisions on indemnification of directors and officers of a California
corporation against expenses, judgments, fines and amounts paid in settlement,
actually and reasonably incurred in connection with litigation, subject to the
limits set forth in Section 204 of the General Corporation Law with respect to
actions for breach of duty to the corporation and its shareholders.
The Articles of Incorporation of TriCo Bancshares authorize the
indemnification of directors and officers to the full extent permitted or
allowed by the laws of the State of California, through bylaw provisions,
agreements with such agents, votes of shareholders or disinterested directors or
otherwise, or any combination of the foregoing, in excess of the indemnification
otherwise permitted by Section 317 of the General Corporation Law, subject only
to the limits set forth in Section 204 of the General Corporation Law. The
bylaws of TriCo Bancshares provide that the Company shall indemnify the
directors and officers of vice president level or above of both the Company and
of the Bank against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of the Company. If the
officer or director initiates a proceeding, indemnification is available only if
the proceeding was authorized by the board of directors of the Company. Further,
the bylaws provide that any agent of the Company may be indemnified pursuant to
a duly adopted resolution of the Board of Directors, agreement or otherwise, to
the fullest extent permitted with respect to the indemnification of directors
and officers of vice president level or above of the Company. The Company shall
indemnify an agent against expenses actually and reasonably incurred by the
agent, to the extent the agent has been successful on the merits in the defense
of any proceeding arising by reason of the fact that the person is or was an
agent of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
(2) Acquisition Agreement and Plan of Merger dated June 15, 1996
(Exhibit A to the Prospectus and Proxy Statement forming Part
I hereof).
(5) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
legality.
(8) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
Federal Income Tax Consequences (Exhibit C to the Prospectus
and Proxy Statement forming Part I hereof).
(10.1) Lease for Park Plaza Branch premises entered into as of
September 29, 1978, by and between Park Plaza Limited
Partnership as lessor and Tri Counties Bank as lessee, filed
as Exhibit 10.9 to TriCo's Registration Statement on Form S-14
(Registration No. 2-74796) (Incorporated herein by reference).
II - 1
<PAGE>
(10.2) Lease for Administration Headquarters premises entered into as
of April 25, 1986, by and between Fortress-Independence
Partnership (A California Limited Partnership) as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.6 to TriCo's
Report on Form 10-K for the year ended December 31, 1986
(Incorporated herein by reference).
(10.3) Lease for Data Processing premises entered into as of April
25, 1986, by and between Fortress-Independence Partnership (A
California Limited Partnership) as lessor and Tri Counties
Bank as lessee, filed as Exhibit 10.7 to TriCo's Report on
Form 10-K for the year ended December 31, 1986 (Incorporated
herein by reference).
(10.4) Lease for Chico Mall premises entered into as of March 11,
1988, by and between Chico Mall Associates as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.4 to TriCo's
Report on Form 10-K for the year ended December 31, 1988
(Incorporated herein by reference).
(10.5) First Amendment to lease for Chico Mall premises entered into
as of May 31, 1988, by and between Chico Mall Associates as
lessor and Tri Counties Bank as lessee, filed as Exhibit 10.5
to TriCo's Report on Form 10-K for the year ended December 31,
1988 (Incorporated herein by reference).
(10.6) Employment Agreement of Robert H. Steveson, dated December 12,
1989 between Tri Counties Bank and Robert H. Steveson, filed
as Exhibit 10.9 to TriCo's Report on Form 10-K for the year
ended December 31, 1989 (Incorporated herein by reference).
(10.7) Lease for Purchasing and Printing Department premises entered
into as of February 1, 1990, by and between Dennis M.
Casagrande as lessor and Tri Counties Bank as lessee, filed as
Exhibit 10.11 to TriCo's Report on Form 10-K for the year
ended December 31, 1991 (Incorporated herein by reference).
(10.8) Addendum to Employment Agreement of Robert H. Steveson, dated
April 9, 1991 between Tri Counties Bank and Robert H.
Steveson, filed as Exhibit 10.12 to TriCo's Report on Form
10-K for the year ended December 31, 1991 (Incorporated herein
by reference).
(13.1) TriCo's Annual Report to Shareholders for the fiscal year
ended December 31, 1995 (Incorporated herein by reference to
TriCo's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
(13.2) TriCo's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 (Incorporated herein by reference).
(23.1) Consent of Arthur Andersen LLP.
(23.2) Consent of Rothgerber, Appel, Powers & Johnson LLP.
(23.3) Consent of Deloitte & Touche LLP.
(23.4) Consent of Rothgerber, Appel, Powers & Johnson LLP re:
Legality Opinion.
(99.1) Proxy Card for Solicitation of Proxies by Sutter Buttes' Board
for Special Meeting of Shareholders.
II - 2
<PAGE>
(99.2) Consideration Request Form.
(99.3) Sutter Buttes' Annual Report to Shareholders for the fiscal
year ended December 31, 1995.
(99.4) Sutter Buttes' Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(99.5) Sutter Buttes' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
(99.6) Sutter Buttes' Proxy Statement related to the 1995 Annual
Meeting of Shareholders, dated April 6, 1995.
ITEM 22. UNDERTAKINGS.
(a) Item 512 Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this registration
statement.
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;"
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(g)(1) The undersigned Registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement,
II - 3
<PAGE>
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(g)(2) The Registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Act
and is used in connection with an offering of securities subject to Rule
415, will be refiled as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II - 4
<PAGE>
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chico, State of
California, on July ____, 1996.
TRICO BANCSHARES
By: /s/ Robert H. Steveson
Robert H. Steveson, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Robert H. Steveson
_________________________________ President, Chief July 22, 1996
Robert H. Steveson Executive Officer,
and Director
/s/ Joan Jones
_________________________________ Executive Vice July 22, 1996
Joan Jones President
/s/ Robert M. Stanberry
_________________________________ Vice President and July 22, 1996
Robert M. Stanberry Chief Financial
Officer
/s/ Everett B. Beich
_________________________________ Director and Vice July 22, 1996
Everett B. Beich Chairman of the
Board
/s/ William J. Casey
_________________________________ Director July 22, 1996
William J. Casey
/s/ Craig S. Compton
_________________________________ Director July 22, 1996
Craig S. Compton
/s/ Richard C. Guiton
_________________________________ Director July 22, 1996
Richard C. Guiton
/s/ Douglas F. Hignell
_________________________________ Secretary and July 22, 1996
Douglas F. Hignell Director
/s/ Brian D. Leidig
_________________________________ Director July 22, 1996
Brian D. Leidig
II - 5
<PAGE>
/s/ Wendell J. Lundberg
_________________________________ Director July 22, 1996
Wendell J. Lundberg
/s/ Donald E. Murphy
_________________________________ Director July 22, 1996
Donald E. Murphy
/s/ Rodney W. Peterson
_________________________________ Director July 22, 1996
Rodney W. Peterson
/s/ Alex A. Vereschagin, Jr.
_________________________________ Chairman of the July 22, 1996
Alex A. Vereschagin, Jr. Board and
Director
II - 6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
(2) Acquisition Agreement and Plan of Merger dated June 15, 1996
(Exhibit A to the Prospectus and Proxy Statement forming Part
I hereof).
(5) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
legality.
(8) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
Federal Income Tax Consequences (Exhibit C to the Prospectus
and Proxy Statement forming Part I hereof).
(10.1) Lease for Park Plaza Branch premises entered into as of *
September 29, 1978, by and between Park Plaza Limited
Partnership as lessor and Tri Counties Bank as lessee, filed
as Exhibit 10.9 to TriCo's Registration Statement on Form S-14
(Registration No. 2-74796) (Incorporated herein by reference).
(10.2) Lease for Administration Headquarters premises entered into as *
of April 25, 1986, by and between Fortress-Independence
Partnership (A California Limited Partnership) as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.6 to TriCo's
Report on Form 10-K for the year ended December 31, 1986
(Incorporated herein by reference).
(10.3) Lease for Data Processing premises entered into as of April *
25, 1986, by and between Fortress-Independence Partnership (A
California Limited Partnership) as lessor and Tri Counties
Bank as lessee, filed as Exhibit 10.7 to TriCo's Report on
Form 10-K for the year ended December 31, 1986 (Incorporated
herein by reference).
(10.4) Lease for Chico Mall premises entered into as of March 11, *
1988, by and between Chico Mall Associates as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.4 to TriCo's
Report on Form 10-K for the year ended December 31, 1988
(Incorporated herein by reference).
(10.5) First Amendment to lease for Chico Mall premises entered into *
as of May 31, 1988, by and between Chico Mall Associates as
lessor and Tri Counties Bank as lessee, filed as Exhibit 10.5
to TriCo's Report on Form 10-K for the year ended December 31,
1988 (Incorporated herein by reference).
<PAGE>
(10.6) Employment Agreement of Robert H. Steveson, dated December 12, *
1989 between Tri Counties Bank and Robert H. Steveson, filed
as Exhibit 10.9 to TriCo's Report on Form 10-K for the year
ended December 31, 1989 (Incorporated herein by reference).
(10.7) Lease for Purchasing and Printing Department premises entered *
into as of February 1, 1990, by and between Dennis M.
Casagrande as lessor and Tri Counties Bank as lessee, filed as
Exhibit 10.11 to TriCo's Report on Form 10-K for the year
ended December 31, 1991 (Incorporated herein by reference).
(10.8) Addendum to Employment Agreement of Robert H. Steveson, dated *
April 9, 1991 between Tri Counties Bank and Robert H.
Steveson, filed as Exhibit 10.12 to TriCo's Report on Form
10-K for the year ended December 31, 1991 (Incorporated herein
by reference).
(13.1) TriCo's Annual Report to Shareholders for the fiscal year *
ended December 31, 1995 (Incorporated herein by reference to
TriCo's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
(13.2) TriCo's Quarterly Report on Form 10-Q for the quarter ended *
March 31, 1996 (Incorporated herein by reference).
(23.1) Consent of Arthur Andersen LLP.
(23.2) Consent of Rothgerber, Appel, Powers & Johnson LLP.
(23.3) Consent of Deloitte & Touche LLP.
(23.4) Consent of Rothgerber, Appel, Powers & Johnson LLP re:
Legality Opinion.
(99.1) Proxy Card for Solicitation of Proxies by Sutter Buttes' Board
for Special Meeting of Shareholders.
(99.2) Consideration Request Form.
(99.3) Sutter Buttes' Annual Report to Shareholders for the fiscal
year ended December 31, 1995.
(99.4) Sutter Buttes' Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(99.5) Sutter Buttes' Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995.
(99.6) Sutter Buttes' Proxy Statement related to the 1995 Annual
Meeting of Shareholders, dated April 6, 1995.
-------------------------
*Previously filed.
</TABLE>
EXHIBIT 2
[Exhibit A to the Prospectus
and Proxy Statement forming Part I hereof]
<PAGE>
<PAGE>
EXHIBIT 5
OPINION OF ROTHGERBER, APPEL, POWERS & JOHNSON LLP
AS TO LEGALITY
<PAGE>
EXHIBIT 5
July 22, 1996
TriCo Bancshares
15 Independence Circle
Chico, CA 95926
Ladies and Gentlemen:
You have requested our opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") which is expected to be
filed by TriCo Bancshares (the "Corporation") on or about July 16, 1996, with
respect to the offer and sale of 125,000 shares of a single class of common
stock, without par value, issuable pursuant to the merger of Sutter Buttes
Savings Bank, F.S.B. with and into Tri Counties Bank, as set forth in that
certain Acquisition Agreement and Plan of Merger entered into as of June 15,
1996 by and among TriCo Bancshares, Tri Counties Bank, and Sutter Buttes Savings
Bank, F.S.B., as described in the Registration Statement.
We have reviewed such corporate documents and have made such
investigation of California law as we have deemed necessary under the
circumstances. Based on that review and investigation, it is our opinion that
when the shares referred to above are registered under the Securities Act of
1933, as amended, and issued as provided in the Registration Statement, said
shares will be authorized, fully paid and nonassessable.
Sincerely yours,
/s/ROTHGERBER, APPEL, POWERS & JOHNSON LLP
-------------------------------------------
ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
<PAGE>
EXHIBIT 8
[Exhibit C to the Prospectus
and Proxy Statement forming Part I hereof]
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP,
INDEPENDENT AUDITORS FOR THE REGISTRANT
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 23, 1996,
incorporated by reference in TriCo Bancshares' Form 10-K for the year ended
December 31, 1995, and to all references to our firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
July 19, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
EXHIBIT 23.2
July 22, 1996
CONSENT OF LEGAL COUNSEL
TriCo Bancshares
15 Independence Circle
Chico, CA 95926
Dear Sirs:
We consent to the use in the Form S-4 Registration Statement of TriCo
Bancshares (the "Corporation"), to be filed on or about July 16, 1996, relating
to the registration of shares to be issued pursuant to the merger of Sutter
Buttes Savings Bank, F.S.B. with and into Tri Counties Bank pursuant to that
certain Acquisition Agreement and Plan of Merger entered into as of June 15,
1996 by and among the Corporation, Tri Counties Bank, and Sutter Buttes Savings
Bank, F.S.B., of our name and the statement with respect to our firm under the
heading of "Legal Opinions."
Sincerely yours,
/s/ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
<PAGE>
EXHIBIT 23.3
CONSENT OF DELOITTE & TOUCHE LLP,
INDEPENDENT AUDITORS FOR SUTTER BUTTES
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of TriCo Bancshares on Form
S-4 of our report on the financial statements of Sutter Buttes, FSB as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 dated March 13, 1996, included in the Prospectus by reference,
which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Sacramento, California
July 23, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF ROTHGERBER, APPEL, POWERS & JOHNSON LLP
RE: LEGALITY OPINION
<PAGE>
EXHIBIT 23.4
July 22, 1996
CONSENT OF LEGAL COUNSEL
TriCo Bancshares
15 Independence Circle
Chico, CA 95926
Dear Sirs:
We consent to the use in the Form S-4 Registration Statement of TriCo
Bancshares (the "Corporation"), to be filed on or about July 16, 1996, relating
to the registration of shares of common stock in the Corporation (the "Shares")
to be issued in the merger of Sutter Buttes Savings Bank, F.S.B. with and into
Tri Counties Bank pursuant to that certain Acquisition Agreement and Plan of
Merger entered into as of June 15, 1996 by and among the Corporation, Tri
Counties Bank, and Sutter Buttes Savings Bank, F.S.B., of our opinion as to the
legality of the Shares as set forth in Exhibit 5 to the Registration Statement.
Sincerely yours,
/s/ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
<PAGE>
EXHIBIT 99.1
PROXY CARD FOR SOLICITATION OF PROXIES BY
SUTTER BUTTES' BOARD
<PAGE>
EXHIBIT 99.1
PROXY
SUTTER BUTTES SAVINGS BANK, F.S.B.
Solicited by the Board of Directors for Special Meeting
of Shareholders, September __, 1996
The undersigned holder of common and/or preferred stock of Sutter
Buttes Savings Bank, F.S.B. ("Sutter Buttes"), acknowledges receipt of a copy of
the Notice of Special Meeting of Shareholders and the accompanying
Prospectus/Proxy Statement dated __________, 1996, and, revoking any proxy
heretofore given, hereby appoints W.R. Hagstrom and Lee Colby, and each of them,
with full power to each of substitution as attorneys and proxies to appear and
vote all shares of common and/or preferred stock of Sutter Buttes registered in
the name(s) of the undersigned and held by the undersigned of record as of July
26, 1996, at the Special Meeting of Shareholders of Sutter Buttes to be held at
Sutter Buttes' main office, 700 Plumas Street, Yuba City, California 95991 on
September __, 1996, at 7:30 p.m., and at any postponements and adjournments
thereof, upon the following items as set forth in the Notice of Special Meeting
and Prospectus/Proxy Statement and to vote according to their discretion on all
other matters which may be properly presented for action at the meeting. All
properly executed proxies will be voted as indicated.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE
FOLLOWING ITEMS:
(1) To approve a merger pursuant to an Acquisition Agreement
and Plan of Merger dated as of June 15, 1996, by and among
TriCo Bancshares, Tri Counties Bank, a wholly-owned
subsidiary of TriCo Bancshares, and Sutter Buttes, by which
Sutter Buttes will merge with and into Tri Counties Bank,
as more fully described in the Prospectus/Proxy Statement.
____ FOR approval of the Merger.
____ AGAINST approval of the Merger.
____ ABSTAIN from voting in regard to the Merger.
(2) To approve the Executive Officer Special Stock Option,
which is an option for W. R. Hagstrom, CEO of Sutter
Buttes, to purchase 24,000 shares of Sutter Buttes Common
Stock for $1.00 per share, as more fully described in the
Prospectus/Proxy Statement.
____ FOR approval of the Option.
____ AGAINST approval of the Option.
____ ABSTAIN from voting in regard to the Option.
<PAGE>
(3) To approve the Director Special Stock Option, which is an
option for Lee Colby, Chairman of the Board of Sutter
Buttes, to purchase 15,000 shares of Sutter Buttes Common
Stock for $1.00 per share, as more fully described in the
Prospectus/Proxy Statement.
____ FOR approval of the Option.
____ AGAINST approval of the Option.
____ ABSTAIN from voting in regard to the Option.
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
PROPOSALS 1, 2, AND 3. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS
DIRECTED. IF NO DIRECTION IS MADE IT WILL BE VOTED "FOR" PROPOSALS 1, 2, AND 3.
SEE REVERSE
<PAGE>
REVERSE SIDE OF PROXY
WITNESS my hand this day of , 1996.
- ---------------------------------------
| Name and Address of | (Please sign exactly as name
| Sutter Buttes Shareholder(s) | appears hereon. When signing
| | as attorney, executor, ad-
| | ministrator, trustee or
| | guardian, give full title as
| | such. If a corporation, please
| | affix corporate seal. If a
| | partnership, please sign in
| | partnership name by authorized
| | persons. If joint tenants,
| | each joint tenant should sign.)
- ---------------------------------------
[Signature of Shareholder(s)]
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY CARD PROMPTLY BY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
WE DO ____ DO NOT ___ EXPECT TO ATTEND THIS MEETING.
<PAGE>
<PAGE>
EXHIBIT 99.2
CONSIDERATION REQUEST FORM
<PAGE>
EXHIBIT 99.2
CONSIDERATION REQUEST FORM
I am a holder of shares of stock in Sutter Buttes Savings Bank, F.S.B. ("Sutter
Buttes"), and I do not intend to exercise dissenter's rights in the proposed
merger of Sutter Buttes with and into Tri Counties Bank, a California commercial
bank. I understand that, when the proposed merger takes place, some shareholders
of Sutter Buttes will receive cash in exchange for their shares, and others will
receive common stock of TriCo Bancshares in exchange for their shares. I request
to receive payment as set forth below:
|_| Please pay me cash in exchange for my shares of common stock in Sutter
Buttes.
|_| Please pay me common stock of TriCo Bancshares in exchange for my shares
of common stock in Sutter Buttes.
I understand that there is no guarantee that I will receive payment according to
this request.
Date________________ __________________________________________
Name
__________________________________________
Name
(Please type or print name(s) exactly as it appears
on your stock certificate(s).)
__________________________________________
Signature
__________________________________________
Signature
(Please sign name(s) exactly as it appears on your
stock certificate(s).)
In the event that requests for TriCo Stock equal less than 51% of the total
consideration, TriCo Stock will be allocated first, on a pro rata basis, to
those shareholderrs who fail to request a form of payment through this
Consideration Request Form and next, if necessary, on a pro rata basis, to those
shareholders who request cash. In the event that requests for TriCo Stock equal
more than 51% of the total consideration, cash will be allocated first, on a pro
rata basis, to those shareholderrs who fail to request a form of payment through
this
<PAGE>
<PAGE>
EXHIBIT 99.3
SUTTER BUTTES SAVINGS BANK, F.S.B.
Financial Statements as of December 31, 1995 and 1994 and for each of
the Three Years in the Period Ended December 31, 1995 and Independent
Auditors' Report
<PAGE>
- 2 -
INDEPENDENT AUDITORS' REPORT
Sutter Buttes Savings Bank, F.S.B.:
We have audited the accompanying balance sheets of Sutter Buttes Savings Bank,
F.S.B. (Bank) as of December 31, 1995 and 1994, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Bank'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, such financial statements present fairly, in all material
respects, the financial condition of Sutter Buttes Savings Bank, F.S.B. at
December 31, 1995 and 1994, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
March 13, 1996
<PAGE>
<TABLE>
<CAPTION>
SUTTER BUTTES SAVINGS BANK, F.S.B.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------
ASSETS NOTES 1995 1994
<S> <C> <C> <C>
Cash and cash equivalents 1,2 $ 1,260,414 $ 1,416,969
Certificates of deposit 1,386,000 1,386,000
Held to maturity securities 1,3 399,862 399,678
Loans, net of allowance for loan losses of
$415,000 and $467,967 in 1995 and 1994 1,4-5,13 57,724,860 58,359,570
Mortgage loans held for sale, at the lower
of cost or market 1 2,178,779
Interest receivable 1 389,171 308,609
Premises and equipment - net 1,6 556,912 944,157
Federal Home Loan Bank stock 7 480,148 556,313
Other real estate owned 1 104,768
Prepaid expenses and other assets 148,825 91,201
----------- -----------
TOTAL $64,629,739 $63,462,497
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Customer deposits 8 $57,405,955 $49,746,571
Advances from Federal Home
Loan Bank 9 3,400,000 10,375,000
Other liabilities 275,072 143,243
----------- -----------
Total liabilities 61,081,027 60,264,814
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $5.00 par; liquidation
preference of $5.00; 5,000,000 shares
authorized; 232,200 shares issued and
outstanding 10 1,161,000 l,161,000
Common stock, $.01 par: 5,000,000 shares
authorized; 625,438 and 581,193 shares
issued and outstanding 1,619,750 1,619,750
Additional paid-in capital 450,498 381,194
Retained earnings 317,464 35,739
----------- -----------
Total stockholders' equity 3,548,712 3,197,683
----------- -----------
TOTAL $64,629,739 $63,462,497
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUTTER BUTTES SAVINGS BANK, F.S.B.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -----------------------------------------------------------------------------------------------------
NOTES 1995 1994 1993
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $4,417,657 $ 3,828,861 $ 3,518,661
Investments 155,803 98,791 91,479
---------- ----------- -----------
Total 4,573,460 3,927,652 3,610,140
---------- ----------- -----------
INTEREST EXPENSE:
Customer deposits 2,904,420 1,896,545 1,818,124
FHLB advances 234,285 374,917 90,012
---------- ----------- -----------
Total 3,138,705 2,271,462 1,908,136
---------- ----------- -----------
NET INTEREST INCOME 1,434,755 1,656,190 1,702,004
CREDIT TO ALLOWANCE FOR
LOAN LOSSES 4 972 10,867 106,548
---------- ----------- -----------
NET INTEREST INCOME AFTER CREDIT
TO ALLOWANCE FOR LOAN LOSSES 1,435,727 1,667,057 1,808,552
NONINTEREST INCOME:
Fees, service charges, and dividends 171,873 176,474 142,790
Gain on sale of loans and servicing rights 285,813 36,583 122,062
Gain on sale of real estate owned 31,293 11,998
Real estate owned operations - net 1 12,417
---------- ----------- -----------
INCOME BEFORE GENERAL AND
ADMINISTRATIVE EXPENSES 1,924,706 1,880,114 2,097,819
GENERAL AND ADMINISTRATIVE
EXPENSES 12 1,552,508 1,695,676 1,615,540
---------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 372,198 184,438 482,279
PROVISION FOR INCOME TAXES 14 21,169 76,099 3,424
---------- ----------- -----------
NET INCOME $ 351,029 $ 108,339 $ 478,855
========== =========== ===========
EARNINGS PER SHARE $.31 $.10 $.45
==== ==== ====
Weighted average number of shares
used in computation 1,142,725 1,103,096 1,062,019
========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUTTER BUTTES SAVINGS BANK, F.S.B.
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Retained
Preferred Stock Common Stock Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 232,200 $1,161,000 511,238 $ 1,619,750 $ 207,261 $(377,522) $2,610,489
Net income 478,855 478,855
Exercise of warrants 35,467
Balance, December 31, 1993 232,200 1,161,000 546,705 1,619,750 207,261 101,333 3,089,344
------- ---------- ------- ----------- --------- --------- ----------
Net income 108,339 108,339
Declaration of warrants 173,933 (173,933)
Exercise of warrants 34,488
Balance, December 31, 1994 232,200 1,161,000 581,193 1,619,750 381,194 35,739 3,197,683
Net income 351,029 351,029
Declaration of warrants 69,304 (69,304)
Exercise of warrants 44,245
Balance, December 31, 1995 232,200 $1,161,000 625,438 $ 1,619,750 $ 450,498 $ 317,464 $3,548,712
======= ========== ======= =========== ========= ========= ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SUTTER BUTTES SAVINGS BANK, F.S.B.
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 351,029 $ 108,339 $ 478,855
Reconciliation to net cash provided by operating activities:
Provision for loan and real estate losses including
recoveries (972) (11,538)
Depreciation and amortization 96,222 114,575 83,362
Gain on sale of loans and servicing rights (285,813) (36,583) (122,062)
Gain on sale of real estate owned (31,293) (11,998)
Gain on sale of premises (54)
Loans originated for sale (20,311,648) (4,303,690) (14,512,238)
Proceeds from sale of loans 18,418,682 4,340,273 14,634,300
Changes in:
Federal Home Loan Bank stock 76,165 (99,513) (16,100)
Interest receivable (80,562) (79,298) 48,168
Prepaid expenses and other assets (57,624) 401,315 (276,909)
Deferred loan fees (18,797) (10,313) (36,852)
Other liabilities 131,829 39,857 (39,043)
---------- ---------- ----------
Net cash (used) provided by operating activities (1,712,836) 474,962 217,945
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of investments held to maturity (399,632)
Change in deposits with other banks 188,954
Decrease in investments 194,000
Sales of real estate acquired in settlement of loan 179,722
Net change in loans 581,004 (11,263,847) (1,961,941)
Proceeds from sale of premises 298,604
Purchase of equipment (7,711) (112,694) (205,347)
---------- ---------- ----------
Net cash provided (used) by investing activities 871,897 (11,587,219) (1,793,566)
---------- ----------- ----------
FINANCING ACTIVITIES:
Net increase in customer deposits 7,659,384 5,773,637 228,710
Net proceeds (repayments) - Federal Home
Loan Bank borrowings (6,975,000) 5,900,000 975,000
---------- ---------- ----------
Net cash provided by financing activities 684,384 11,673,637 1,203,710
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (156,555) 561,380 (371,911)
CASH AND CASH EQUIVALENTS:
Beginning of Year 1,416,969 855,589 1,227,500
---------- ---------- ----------
End of Year $1,260,414 $1,416,969 $ 855,589
========== ========== ==========
OTHER CASH FLOW INFORMATION:
Cash payments for:
Interest $3,136,196 $2,278,734 $1,893,207
Income taxes 800 800 31,266
NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of foreclosed loans from loans receivable to
real estate owned $239,439
Sales of other real estate owned financed by the Bank $134,671
========
</TABLE>
See notes to financial statements.
<PAGE>
SUTTER BUTTES SAVINGS BANK, F.S.B.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
General - The accounting and reporting policies of Sutter Buttes Savings
Bank, F.S.B. (the Bank) conform to generally accepted accounting
principles and to prevailing practices within the savings and loan
industry.
Nature of Operations - The Bank operates two branches in Sutter and Yuba
Counties in Northern California. The Bank's primary source of revenue is
through providing loans to customers, who are predominately small and
middle market businesses and middle income individuals. The Bank also
operates a wholesale mortgage banking division in San Diego, California,
in which mortgage loans are originated by third parties and sold to the
secondary market.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The more significant accounting and reporting policies are discussed
below.
Cash and Cash Equivalents - For the purposes of the statements of cash
flows, cash and cash equivalents have been defined as cash, demand
deposits with correspondent banks, federal funds sold, and highly liquid
investments purchased with an original maturity, at date of purchase, of
three months or less, excluding certificates of deposit and treasury
securities. Generally, federal funds are sold for one-day periods.
Investment Securities - The Bank accounts for investments in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The
Bank's policy with regard to investments is as follows:
Held-to-Maturity Securities are carried at cost adjusted for
amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. The Bank's policy of
carrying such investment securities at amortized cost is based upon
its ability and management's intent to hold such securities to
maturity.
Loans Receivable - Loans are reported at the principal amount
outstanding, net of deferred loan fees or costs or unamortized premiums
or discounts on purchased loans, and the allowance for loan losses.
Interest on loans is calculated by using the simple interest method on
the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full and
timely collection of interest or principal, or when a loan becomes
contractually past due by 90 days or more with respect to interest or
principal. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans when,
in the judgment of management, the loans are estimated to be fully
collectible as to both principal and interest.
<PAGE>
Deferred Loan Fees - Loan fees and certain related direct costs to
originate loans are deferred and amortized to income by a method that
approximates a level yield over the contractual life of the underlying
loans.
Allowance for Loan Losses - The Bank provides for specific loan losses
and for a general loan loss allowance. Allowances for specific loan
losses are maintained in amounts that management deems adequate to cover
identifiable estimated losses on loans receivable. Provisions for the
general loan loss allowance are based on management's analysis that
incorporates a number of factors, including past loan experience, the
Bank's underwriting practices, current and anticipated economic
conditions that may affect the borrower's ability to repay the
obligation, and management's ongoing assessment of credit risk inherent
in the portfolio. Actual results could differ from those estimates.
The Bank adopted SFAS No. 114, Accounting by Creditors for Impairment of
a Loan and SFAS No. 118, Accounting by Creditors for Impairment of Loan
- Income Recognition and Disclosures, effective January 1, 1995. Under
the new standards, a loan is considered impaired if, based on current
information and events, it is probable that the Bank will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured
for impairment based on the fair value of the collateral. In
management's opinion the adoption of SFAS No. 114 and SFAS No. 118 did
not have a material effect on the Bank's financial position and results
of operations.
Mortgage Banking Activities - The Bank originates and sells residential
mortgage loans to a variety of secondary market investors, including the
Federal Home Loan Mortgage Corporation (FHLMC), the Federal National
Mortgage Association (FNMA) and others. Gains or losses on the sale of
mortgage loans are recognized upon delivery based on the difference
between the selling price and the carrying value of the related mortgage
loans sold. Deferred origination fees and expenses are recognized at the
time of sale in the determination of the gain or loss. The Bank may
retain the servicing on such loans or it may also sell the servicing for
such loans to either the purchaser of the loans or to a third party. The
Bank recognizes the gain or loss on servicing sold when all risks and
rewards of ownership have transferred.
Mortgage loans held for sale are stated at the lower of cost or market
value as determined by outstanding commitments from investors. Valuation
adjustments are charged against the gain or loss on sale of loans.
The Bank adopted SFAS No. 122, Accounting for Mortgage Servicing Rights,
during fiscal year 1995. Under the new standard the Bank recognizes as
separate assets rights to service mortgage loans for others, whether
those servicing rights are originated or purchased. Previously, only
purchased servicing rights were capitalizable as an asset whereas
internally originated rights were expensed. The bank assesses
capitalized servicing rights for impairment based on fair value, rather
than an estimate of undiscounted future cash flows. The effect of
adoption of this standard was not material.
Derivative Financial Instruments - The Bank utilizes forward sales
commitments on mortgage loans as part of its interest rate risk
management strategy. These commitments may be optional or mandatory.
Under optional commitments the Bank is not at risk of loss if it does
not fulfill the commitment. Mandatory commitments may entail possible
financial risk to the Bank if it does not deliver sufficient mortgage
loans to fulfill the commitment. The Bank does not hold any derivative
financial instruments for trading purposes.
<PAGE>
Other Real Estate Owned - Real estate acquired by foreclosure is carried
at the lower of the recorded investment in the property or its fair
value less estimated costs to sell (net realizable value). Immediately
upon foreclosure, the value of the underlying loan is written down to
the fair value of the real estate acquired by a charge to the allowance
for loan losses, if necessary. Any subsequent write-downs are recorded
as a valuation allowance and charged against operating expenses.
Operating expenses of such properties, net of related income are
included in other expenses and gains and losses on their disposition are
included in other income and other expenses.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation, which is computed principally on the
straight-line method over the estimated useful lives of the respective
assets. Leasehold improvements are amortized on the straight-line method
over the shorter of the estimated useful lives of the improvements or
the terms of the respective leases. Estimated useful lives of various
classes of assets are as follows:
Buildings and improvements 5-30 years
Furniture, fixtures and equipment 1-7 years
Income Taxes - The Bank accounts for income taxes in compliance with the
provisions of Statement of Financial Accounting Standards No. 109 (SFAS
109) Accounting for Income Taxes. SFAS 109 applies the asset and
liability method of accounting for income taxes. Under SFAS 109,
deferred tax assets and liabilities are calculated by applying
applicable tax laws to the differences between the financial statement
basis and tax basis of assets and liabilities currently recognized in
the financial statements. Deferred taxes are provided in the statement
of operations in the amount of the net change during the year of the
deferred tax balances in the statement of financial condition. Under
SFAS 109, deferred tax benefits are reduced, by a valuation allowance
for any benefits that, more likely than not in the opinion of
management, are not expected to be realized.
Earnings Per Share is calculated by dividing net income by the weighted
average number of common and common equivalent shares (convertible
preferred stock, warrants and stock options) outstanding during the
period. The calculation of fully diluted earnings per share does not
differ materially from primary earnings per share and is not presented.
Accounting for Stock-Based Compensation - In October 1995, the FASB
issued SFAS No. 123, Accounting for Stock-Based Compensation. The new
standard defines a fair value method of accounting for stock options and
other equity instruments, such as stock purchase plans. Under this
method, compensation cost is measured based on the fair value of the
stock award when granted and is recognized as an expense over the
service period, which is usually the vesting period. This standard will
be effective for the Bank beginning in 1996, and requires measurement of
awards made beginning in 1995.
The new standard permits the Bank to account for equity transactions
with employees under existing accounting rules, but requires disclosure
in a note to the financial statements of the pro forma net income and
earnings per share as if the Bank had applied the new method of
accounting. The Bank has determined that the effect of adopting these
disclosure requirements will not be material and adoption of the new
standard will not impact reported earnings or earnings per share, and
will have no effect on the Bank's cash flows.
Reclassifications - Certain reclassifications have been made to the 1993
and 1994 financial statements to conform with the 1995 presentation.
<PAGE>
2. RESTRICTED CASH BALANCES
At December 31, 1995 and 1994, reserves of $37,000 and $41,000 in the
form of vault cash and deposits with the Federal Reserve Board were
required to satisfy federal regulatory requirements.
Under regulations of the Office of Thrift Supervision, the Bank is
required to maintain cash, United States government securities and other
qualifying securities in an amount equal to at least 5% of savings
accounts and other obligations due within one year. The Bank satisfied
such requirements at December 31, 1995 and 1994.
3. HELD-TO-MATURITY SECURITIES
At December 31, the amortized cost of investment securities and their
fair value were as follows:
<TABLE>
<CAPTION>
Carrying Gross Gross
Amount Unrealized Unrealized Fair
(Amortized Cost) Gains Losses Value
Held-to-Maturity Securities:
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasuries $ 399,862 $3,888 $403,750
December 31, 1994
U.S. Treasuries $ 399,678 $(7,053) $392,625
</TABLE>
At December 31, 1995, all held-to-maturity securities are due in one
year or less.
4. LOANS RECEIVABLE
The Bank originates loans for business and real estate activities. Such
loans are concentrated in Sutter and Yuba Counties and neighboring
communities. Substantially all loans are collateralized. Generally real
estate loans are secured by real property. Commercial and other loans
are secured by bank deposits or business or personal assets. The Bank's
policy for requiring collateral is through analysis of the borrower, the
borrower's industry and the economic environment in which the loan would
be granted. The loans are expected to be repaid from cash flows or
proceeds from the sale of selected assets of the borrower. Management
believes that there were no industry or borrower group concentrations at
December 31, 1995.
<PAGE>
Major classification of loans at December 31, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
Real estate loans secured by:
<S> <C> <C>
One to four family residences $32,441,349 $ 31,492,668
Multifamily properties 12,661,111 12,835,601
Improved commercial properties 12,410,827 13,261,914
Construction - net 595,554 1,359,037
Land 89,104 29,464
----------- ------------
Total real estate loans 58,197,945 58,978,684
Commercial loans 29,687 23,229
Loans on savings accounts 118,224 50,397
----------- ------------
Total loans receivable 58,345,856 59,052,310
Deferred loan fees (205,996) (224,773)
Allowance for loan losses (415,000) (467,967)
----------- ------------
Total loans receivable - net $57,724,860 $ 58,359,570
=========== ============
</TABLE>
As determined under the capital standards provisions of FIRREA, a
savings bank's aggregate commercial real estate loans may not exceed
400% of its capital. The Bank is subject to this limitation. At December
31, 1995, the Bank had total investments in commercial real estate loans
which were $3,444,021 less than the maximum allowed under FIRREA.
At December 31, 1995 and 1994, the Bank serviced residential real estate
loans which it had sold to the secondary market amounting to
approximately $7,867,000 and $21,613,000.
A summary of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $ 467,967 $ 365,000 $ 376,538
Provision credited to expense (972) (10,867) (106,548)
Recoveries 1,470 113,834 95,010
Losses charged against allowance (53,465)
---------
Balance at end of year $ 415,000 $ 467,967 $ 365,000
========= ========= =========
</TABLE>
At December 31, 1995, 1994 and 1993, $415,000, $365,000, and $365,000,
respectively of the allowance for loan losses is considered to be a
general loss allowance for regulatory capital calculation purposes.
During the year ended December 31, 1994, $113,300 of the Bank's
recoveries resulted from a judicial settlement.
<PAGE>
5. IMPAIRED AND NONPERFORMING LOANS
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was
approximately $436,979. All of which has a related valuation allowance
of $37,430. For the year ended December 31, 1995, the average recorded
investment in loans for which impairment has been recognized was
approximately $503,000. During the portion of the year that the loans
were impaired the Bank recognized no interest income.
Nonaccrual and nonperforming loans at December 31, 1995 were $436,979.
There were no loans on nonaccrual status at December 31, 1994.
Interest income foregone on nonaccrual loans approximated $11,972 in
1995, $9,064 in 1994 and $0 in 1993. No cash collections of interest on
nonaccrual loans for the same periods were recorded.
At December 31, 1995, there were no commitments to lend additional funds
to borrowers whose loans were classified as nonaccrual.
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 160,000 $ 225,568
Buildings and improvements 450,666 735,217
Furniture, fixtures and equipment 476,481 496,485
---------- ----------
Total 1,087,147 1,457,270
Less accumulated depreciation (530,235) (513,113)
---------- ----------
$ 556,912 $ 944,157
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $95,642, $114,093, and $77,938, respectively.
7. FEDERAL HOME LOAN BANK STOCK
The Bank is a member of the Federal Home Loan Bank System and as such is
required to maintain an investment in capital stock of the Federal Home
Loan Bank of San Francisco. At December 31, 1995 and 1994 the Bank owned
4,801 and 5,563 shares, respectively, of its $100 par value capital
stock. The amount of stock owned satisfies the latest annual
determination made by the Federal Home Loan Bank of San Francisco.
<PAGE>
8. CUSTOMER DEPOSITS
Customer deposits by interest rate at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
Certificate accounts:
<S> <C> <C>
Less than 4% $ 163,488 $ 3,905,468
4.00% to 6.00% 20,821,305 25,599,646
6.01% to 8.00% 20,978,178 6,798,019
----------- ------------
Total 41,962,971 36,303,133
NOW and money market accounts 7,724,793 7,633,719
Passbook accounts 7,718,191 5,809,719
----------- ------------
Total $57,405,955 $ 49,746,571
=========== ============
Weighted average interest rate 5.30% 4.43%
==== ====
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $5,592,008 and $5,989,986 at
December 31, 1995 and 1994, respectively.
A summary of certificate accounts by maturity at December 31 is as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Maturity within one year $24,465,245 $ 29,154,039
Balance thereafter 17,497,726 7,149,094
----------- ------------
Total $41,962,971 $ 36,303,133
=========== ============
</TABLE>
Interest expense on deposits for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Certificates of Deposit $ 2,522,661 $1,522,963 $ 1,502,709
Passbook Savings 245,044 209,232 47,749
NOW and Money Market 136,715 164,350 267,666
----------- ---------- -----------
$ 2,904,420 $1,896,545 $ 1,818,124
=========== ========== ===========
</TABLE>
<PAGE>
9. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of San Francisco are
collateralized by certain first mortgage loans and the Bank's investment
in Federal Home Loan Bank stock. Mortgage loans receivable pledged to
the Federal Home Loan Bank of San Francisco totaled approximately
$24,405,455 and $23,034,466 at December 31, 1995 and 1994, respectively.
Weighted average interest rates on advances at December 31, 1995 and
1994 of $3,400,000 and $10,375,000 were 6.32% and 6.19%, respectively.
All advances from the Federal Home Loan Bank are less than one year in
term.
10. STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Preferred stock is immediately convertible into common stock at any time
at the option of the holders of the preferred stock, on the basis of
1.98 shares of the common stock of the Bank for each share of the
preferred stock converted.
At the discretion of the Board of Directors, the preferred stockholders
are eligible to receive a cash dividend equal to $0.60 per share or 12%
of the par value per share per year. Preferred stock dividends have
priority over common stock dividends. Dividends are nonparticipating and
non cumulative. If, in any year a cash dividend is not declared and
paid, preferred stockholders shall earn the right to receive immediately
exercisable warrants to purchase a number of shares of common stock
equal to the cash dividend per share based on the per share book value
of the underlying common stock at the end of the year in which the
preferred stock dividend is earned. The warrants are not transferable,
have a five-year term and can be exercised for $0.01 per share for each
share of common stock.
The difference between the exercise price of the warrants and their
estimated fair market value is reclassified from retained earnings to
additional paid-in-capital when the preferred stockholders earn the
right to receive the warrants. Prior to 1994, management estimated that
the fair value of the warrants approximated zero. During 1994,
management revised its estimate of the fair value of the warrants earned
by preferred stockholders during the years ended December 31, 1994, 1993
and 1992. As a result, the cumulative differences of $173,933 between
the revised fair values of the warrants and their exercise price has
been recorded as a reclassification between retained earnings and
additional paid-in capital for the year ended December 31, 1994.
As of December 31, 1995, 227,055 warrants were earned, 190,533 were
issued and 139,513 were exercised. During the years ended December 31,
1995, 1994, and 1993 preferred stockholders earned 36,522, 39,658, and
39,410 warrants, respectively.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet 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.
Capital adequacy guidelines and the regulatory framework for prompt
corrective action require that the Bank meet specific capital adequacy
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 classification is
also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
<PAGE>
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and a leverage
ratio of Tier 1 capital (as defined in the regulations) to adjusted
assets (as defined), and a minimum ratio of Tier 1 and total capital (as
defined) to risk-weighted assets (as defined). In addition, the Bank is
subject to a minimum tangible capital ratio. Management believes, as of
December 31, 1995, that the Bank meets all capital adequacy requirements
to which it is subject.
The following table shows the Bank's capital ratios at December 31, as
well as the minimum capital ratios required to be deemed "well
capitalized" under the regulatory framework:
<TABLE>
<CAPTION>
Minimum
Well
Capitalized
1995 1994 Ratios
<S> <C> <C> <C>
Total risk-based capital ratio 10.20% 9.19% 10.00%
Tier 1 capital to risk-weighted assets 9.14% 8.25% 6.00%
Leverage ratio 5.49% 5.04% 6.00%
Tangible capital 5.49% 5.04% 3.00%
</TABLE>
Legislation is currently pending in Congress which would recapitalize
the Savings Association Insurance Fund (SAIF) in order to bring it into
parity with the FDIC's other insurance fund, the Bank Insurance Fund
(BIF). The legislation would require an assessment of all SAIF-insured
institutions of approximately 0.80% of their March 31, 1995, customer
balances. If such legislation had been passed by December 31, 1995, the
Bank would have been assessed approximately $325,000, on an after tax
basis. After paying the one-time assessment, it is expected that the
Bank would pay significantly reduced insurance premiums on its customer
deposits. There is no certainty that such legislation will become law.
11. STOCK OPTIONS
On April 21, 1992 the Board of Directors adopted the Employee Stock
Option Plan (Employee Plan) for full-time salaried officers and
employees of the Bank and the Directors' Stock Option Plan (Directors'
Plan) for all nonemployee directors of the Bank. The Employee and
Directors' Plans were approved by the Bank shareholders on June 10,
1992. Employee options vest over three to five years and at exercise
prices per share of $2.42 to $3.04. Director options vest six months
after issuance at $2.42 per share.
The following is a summary of stock option activity for the employee
plan for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Options Options Outstanding
Available Number Price
For Grant of Shares Per Share
<S> <C> <C> <C>
Balance, January 1, 1993: 102,084 15,000 $2.42
Options granted (2,500) 2,500 3.04
Options terminated 6,000 (6,000) 2.42
--------- -------
Balance, December 31, 1993: 105,584 11,500 2.42-3.04
Options granted (10,500) 10,500 2.82
Options terminated 9,500 (9,500) 2.42-2.82
-------- ------- ----------
Balance, December 31, 1994 and 1995 104,584 12,500 $2.42-3.04
======= ====== ==========
</TABLE>
At December 31, 1995, 7,500 options were exercisable.
<PAGE>
Under the Directors' Plan, 39,028 options were reserved for issuance.
During 1992, 36,800 options were granted. No options issued under the
Directors' Plan have been exercised or terminated. At December 31, 1995,
36,800 options were exercisable and 2,228 options were available for
grant.
12. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the years ended December 31
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Compensation and benefits $ 736,085 $ 821,587 $ 692,807
Occupancy and equipment 206,676 211,128 162,508
Insurance 174,982 175,863 202,375
Office operating expenses 118,087 108,769 100,105
Data processing 88,018 85,190 117,089
Bank processing charges 76,706 66,692 71,497
Professional services 65,304 85,972 134,605
Assessments and fees 22,045 19,604 27,484
Advertising 19,718 55,836 52,699
Loan department expenses 3,909 12,432 19,793
Other 40,978 52,603 34,578
----------- ---------- -----------
Total $ 1,552,508 $1,695,676 $ 1,615,540
=========== ========== ===========
</TABLE>
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Bank enters into commitments to fund residential mortgage loans,
provided the borrower meets certain credit and financial criteria. The
Bank's total commitments to fund loans as of December 31, 1995 totaled
$2,402,041. In addition the Bank is committed to fund $3,746 for
undisbursed portions of residential construction loans in accordance
with the specified terms and conditions of such loans. Both types of
commitments entail possible credit risk to the Bank, which is controlled
through loan underwriting, construction inspection procedures, and
management's ongoing assessment of the credit risk inherent in such
loans. Management believes that the credit risk inherent in these
commitments is similar to the credit risk inherent in its existing loan
portfolio.
The Bank is involved in various additional claims and legal action
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Bank's financial condition.
<PAGE>
14. INCOME TAXES
The components of the provision for income taxes for 1995, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
Current:
<S> <C> <C> <C>
Federal
State $(29,626) $ 800 $ 800
-------- -------- --------
(29,626) 800 800
-------- -------- --------
Deferred:
Federal 183,520 13,155
State (132,726) 62,144 2,624
-------- -------- --------
50,794 75,299 2,624
-------- -------- --------
Total $ 21,168 $ 76,099 $ 3,424
======== ======== ========
</TABLE>
A reconciliation of the income tax expense computed at the federal
statutory rate of 35% to the Bank's actual tax expense is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal income tax expense at
statutory rate $131,127 $ 64,553 $168,798
State franchise taxes (net of
federal income tax benefit) 11,055 13,962 35,968
Benefit of amending prior year California
returns and changing California method
of accounting for bad debts (107,394)
Reduction of valuation allowance
relating to recognition of NOL
carryforwards (8,831) (2,913) (204,684)
Other (4,788) 497 3,342
-------- -------- --------
Total $ 21,169 $ 76,099 $ 3,424
======== ======== ========
</TABLE>
In 1995, the Bank amended prior year California returns to claim the
enterprise zone net interest deduction. The Bank also received
permission to change its method of accounting for bad debts for
California purposes in 1995. This resulted in the recapture of the
entire California bad debt reserve of $1,388,275, and the utilization of
$1,087,143 of net operating losses that would otherwise have expired in
1995. The net tax benefit of these events is $107,394.
Deferred income taxes reflect the tax effect of temporary differences
existing between financial statement basis and tax basis of assets and
liabilities recognized in the financial statements. Under SFAS 109,
deferred tax benefits are reduced, by a valuation allowance for any
benefits that, more likely than not in the opinion of management, are
not expected to be realized.
<PAGE>
The tax effect of the principle temporary items creating the Bank's
deferred tax benefits at December 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net operating loss carryforward $ 356,845 $ 491,676
Bad debt reserves (373,822) (462,764)
FHLB dividends (83,688) (90,122)
Other (22,949) (2,778)
---------- ---------
Net deferred tax asset (liability) (123,614) (63,988)
Valuation allowance (18,079) (26,910)
---------- ---------
$ (141,693) $ (90,898)
========== =========
</TABLE>
At December 31, 1995, the valuation allowance of $18,079 relates to
California state NOLs which in management's opinion it is more likely
than not that a portion of such NOLs may expire before utilization.
Under SFAS No. 109, a deferred tax liability is recognized for temporary
differences arising from bad debt reserves for tax purposes of U.S.
savings and loan associations that originated in tax years beginning
after December 31, 1987. For tax bad debt reserves existing as of
December 31, 1987 (the base year tax bad debt reserve) a qualifying
savings and loan association is not required to provide deferred income
taxes on the amount of such reserves unless it becomes apparent that
such temporary differences will reverse in the foreseeable future.
Retained earnings at December 31, 1995 include approximately $212,000
representing such cumulative bad debt deductions for which no deferred
income taxes have been provided.
The reduction in valuation allowance of $8,831, $2,913, and $204,685 for
the years ended December 31, 1995, 1994 and 1993 relates to changes in
the valuation allowance established as of December 31, 1991 for the
Bank's NOLs.
At December 31, 1995, the Bank had a NOLs of $930,564 for federal tax
purposes and $542,412 for state tax purposes that can be used to offset
future taxable income.
The federal NOLs begin expiring in 2004, and the state NOLs expire as
follows:
Year Amount
1997 $403,975
1998 49,695
1999 88,742
Utilization of the NOLs in future years may be limited by the provisions
of Internal Revenue Code Section 382, which reduces the amount of NOL
carryforwards that can be utilized in the event of a change in stock
ownership.
<PAGE>
15. INTEREST RATE RISK
The Bank is engaged principally in providing first mortgage loans to
individuals and commercial enterprises. At December 31, 1995, the Bank's
assets consisted primarily of assets that earned interest at adjustable
interest rates. Those assets were funded primarily with short-term
liabilities that have interest rates that vary with market rates over
time.
At December 31, 1995, the Bank had interest earning assets of
$63,271,500 having a weighted average effective yield of 7.68% and a
weighted average term to adjustment of 9 months, and interest bearing
liabilities of $60,805,955 having a weighted average effective interest
rate of 5.35% and a weighted average maturity of 6 months. The Bank
originates and purchases both adjustable and fixed interest rate loans.
At December 31, 1995, the loan portfolio was composed of fixed rate
loans (4.3%) and adjustable rate loans (95.7%) as follows:
Next Repricing Opportunity Fixed Rate Adjustable Rate
or Contractual Maturity Book Value Book Value
1 month - 1 year $ $55,829,413
===========
3 years- 5 years 276,533
Over 20 years 2,239,910
-----------
$ 2,516,443
The adjustable rate loans have interest rate adjustment limitations and
are generally indexed to the Federal Home Loan Banks 11th District Cost
of Funds index rate. Future market factors may affect the correlation of
the interest rate adjustment with the rates the Bank pays on the
short-term deposits that have been primarily utilized to fund these
loans.
16. RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, certain officers and directors were
indebted to the Bank for loans made in the ordinary course of business.
The activity for such related party loans and advances for 1995 and 1994
is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Beginning of year $ 196,807 $ 216,494
Borrowings 138,000
Repayments (21,808) (19,687)
--------- ----------
End of year $ 312,999 $ 196,807
========= =========
</TABLE>
On February 6, 1995 the Bank sold its administrative premises to a
company owned by a director. In conjunction with the sale, the Bank
leased back a portion of the premises from the buyer. The lease is at a
rate of $870 per month and is for a term of one year. The sales price
approximated book value.
<PAGE>
17. FAIR VALUE OF FINANCIAL STATEMENTS
The Bank adopted SFAS No. 107, Disclosures About Fair Value of Financial
Instruments (SFAS 107) during fiscal year 1995 which requires that the
Bank disclose the fair value of financial instruments for which it is
practicable to estimate that value. Although management uses its best
judgment in assessing fair value, there are inherent weaknesses in any
estimating technique that may be reflected in the fair values disclosed.
The fair value estimates are made at a discrete point in time based on
relevant market data, information about the financial instruments, and
other factors. Estimates of fair value of instruments without quoted
market prices are subjective in nature and involve various assumptions
and estimates that are matters of judgment. Changes in the assumptions
used could significantly affect these estimates. Fair value has not been
adjusted to reflect changes in market conditions subsequent to December
31, 1995, therefore, estimates presented herein are not necessarily
indicative of amounts which could be realized in a current transaction.
The following estimates and assumptions were used as of December 31,
1995 to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value.
(a) Cash and Cash Equivalents - The carrying amount represents a
reasonable estimate of fair value.
(b) Investment Securities - Held-to-maturity securities are based on
quoted market prices, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices
for similar securities.
(c) Loans Receivable - Commercial loans, residential mortgages, and
construction loans are segmented by fixed and adjustable rate
interest terms, by remaining maturity, and by performing and
nonperforming categories.
The fair value of performing loans is estimated by discounting
contractual cash flows using the current interest rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Assumptions
regarding credit risk, cash flow, and discount rates are
judgmentally determined using available market information.
The fair value of nonperforming loans and loans delinquent more
than 30 days is estimated by discounting estimated future cash
flows using current interest rates with an additional risk
adjustment reflecting the individual characteristics of the
loans.
(d) Deposit Liabilities - Noninterest bearing and interest bearing
demand deposits and savings accounts are payable on demand and
book value approximates fair value. The fair value of time
deposits are based on the discounted value of contractual cash
flows based on rates currently offered for deposits of similar
size and remaining maturities.
(e) Commitments to Fund Loans/Standby Letters of Credit - Commitments
are estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the
counterparties. The differences between the carrying value of
commitments to fund loans or standby letters of credit and their
fair value is not significant and therefore not included in the
following table.
<PAGE>
The estimated fair values of the Bank's financial instruments as of
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1995
Carrying Fair
Amount Value
FINANCIAL ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,260,414 $ 1,260,414
Certificates of deposits 1,386,000 1,386,000
Investments held to maturity 399,862 403,750
Loans receivable 59,903,639 60,399,000
FINANCIAL LIABILITIES:
Deposits 57,405,955 57,728,000
FHLB advances 3,400,000 3,402,000
</TABLE>
* * * * * *
<PAGE>
EXHIBIT 99.4
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
FORM 10 - KSB
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended: December 31, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required)
OTS Docket Number: 7931
SUTTER BUTTES SAVINGS BANK, F.S.B.
(Exact name of registrant as specified in its charter)
United States 94-2793476
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Plumas Street, Yuba City, California 95991
(Address of principal executive offices) (Zip Code)
(916) 673-7283
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per Share ("Common Stock")
(Title of Class)
Series A Preferred Stock, Par Value $5.00 per Share
("Preferred Stock")
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 at least the past 90 days.
Yes X No
Issuer's revenues for its most recent fiscal year: $5,062,439
Aggregate market value of Common Stock held by nonaffiliates of Sutter Buttes
Savings Bank at March 26, 1996: $1,496,653. Aggregate market value of Preferred
Stock held by nonaffiliates of Sutter Buttes Savings Bank at March 26, 1996:
$741,100.
There were 626,743 shares of Common Stock and 232,200 shares of the Series A
Preferred Stock of the Registrant outstanding as of March 26, 1996.
Documents incorporated by reference: Definitive Proxy Statement for the 1996
Annual Meeting of Shareholders (the "Proxy Statement"). (See Part III, Items
9, 10, 11 and 12).
Transitional Small Business Disclosure Format:
Yes No X
This report includes a total of 91 pages. Exhibit Index is on page 56-58.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business....................................... 3
Item 2. Properties..................................... 31
Item 3. Legal Proceedings.............................. 31
Item 4. Submission of Matters to a Vote of Security
Holders........................................ 31
PART II
Item 5. Market for the Common Equity and Related
Stockholder Matters............................ 32
Item 6. Selected Financial Data........................ 36
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 37
Item 8. Financial Statements and Supplementary Data.... 55
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 55
PART III
Item 10. Directors and Executive Officers............... 55
Item 11. Executive Compensation......................... 55
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................... 55
Item 13. Certain Relationships and Transactions......... 55
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................ 56
Signatures............................................... 60
2
<PAGE>
ITEM 1. BUSINESS
The Bank
Sutter Buttes Savings Bank, F.S.B. ("Bank") was originally chartered as
a California state savings and loan association by the Department of Savings and
Loan ("DSL") in 1982 and began operations on May 23, 1983. The Bank conducts its
business at three locations. The main savings branch and executive office is
located at 700 Plumas Street, Yuba City, California 95991. The Bank also
operates a branch facility located at 729 "E" Street, Marysville, California
95901. In addition, on March 1, 1995 the Bank opened a wholesale mortgage
banking division located at 5355 Avenida Encinas, Carlsbad, California 92008.
The business of the Bank consists primarily of attracting deposits from
the general public and using those deposits, together with borrowings and other
funds, in the origination and servicing of loans secured by real estate and, to
a lesser extent, various types of consumer and commercial loans. Currently, the
Bank invests in short-term certificates of deposit, federal funds and U.
S. Treasury Securities.
The Bank's lending is focused primarily on the origination of mortgage
or construction loans for one-to-four unit residential real estate. To a lesser
extent, loans are also originated on five or more unit residential real estate
and non-residential real estate. The principal sources of funds for the Bank's
lending activities are deposit accounts, repayments of existing loans, the sale
of loans and advances from the Federal Home Loan Bank ("FHLB") of San Francisco.
The Bank's principal sources of income are interest on loans and fees earned
from the origination and sale of real estate loans. Its principal expenses are
interest paid on deposit accounts, borrowings and expenses of its day-to-day
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance Corporation
("FDIC") and until June 1, 1993, the DSL (See "Conversion"). It is also a member
of the FHLB of San Francisco, which is one of the 12 regional banks making up
the Federal Home Loan Bank System. The Bank is further subject to regulations of
the Board of Governors of the Federal Reserve System (the "FRB") governing
reserves required to be maintained against deposits and certain other matters.
See "SUPERVISION AND REGULATION."
Conversion
The Bank converted from a state-chartered savings and loan association
to a federally-chartered savings bank effective June 1,
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1993. Shareholder approval of the conversion was obtained at the Annual Meeting
of Shareholders on April 27, 1993, and OTS approval was obtained on May 14,
1993.
Stock Offerings
General
Between June 26, 1991 and January 31, 1992, the Bank conducted a public
offering (the "Offering") pursuant to which it sold 152,200 shares (the
"Shares") of Series A Preferred Stock (the "Preferred Stock") at a price of
$5.00 per Share. In April 1991, a Private Offering of 80,000 Shares of Series A
Preferred Stock was made to certain directors, officers and key new investors in
the Bank, on substantially the same terms as the Shares were offered in the
Offering. The Bank received $400,000 from the sale of Shares in the Private
Offering which was used by the Bank to satisfy its regulatory core and tangible
capital requirements. The Bank used the net proceeds from the Offering to
support its deposit gathering and lending activities.
The Preferred Stock
The Preferred Stock is entitled to an annual, noncumulative 12% Cash
Dividend ($0.60) per Share, if and as declared by the Board of Directors in its
sole discretion, out of funds legally available therefor. In the event that the
12% Cash Dividend is unpaid in any year, the holders of the Preferred Stock
shall receive one (1) immediately exercisable five (5) year Warrant representing
the right to purchase a number of shares of Common Stock, determined pursuant to
a formula. See "The Warrants," herein. The Preferred Stock is entitled to a
liquidation preference of $5.00 per Share plus any declared and unpaid cash
dividends and is senior to all other existing equity securities of the Bank with
respect to dividends and rights to payment on liquidation. The Preferred Stock
is immediately convertible into Common Stock at the option of the holders at the
rate of 1.98 shares of Common Stock per Share of Preferred Stock. No fractional
shares of Common Stock will be issued upon conversion of the Preferred Stock.
The Preferred Stock has one (1) vote per Share and the right to cumulate votes
in the election of directors of the Bank. The Preferred Stock is redeemable at
the option of the Bank (subject to regulatory approval or notice) for cash at a
redemption price of the par value of the Preferred Stock, per Share, plus any
unpaid cash dividend without interest thereon, less any Warrants previously
exercised. Additionally, upon redemption of the Preferred Stock, the Warrants
are also redeemable, at the option of the Board of Directors, at a redemption
price of $0.01 per each share of Common Stock issuable upon exercise of the
Warrant.
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The Warrants
In the event that the Bank does not declare a Cash Dividend in any year,
the holders of Preferred Stock receive an immediately exercisable,
non-transferable Warrant representing the right to purchase a number of shares
of Common Stock determined by dividing the cash value of the 12% Cash Dividend
($0.60) by the book value of the underlying Common Stock, per share, as of the
end of the year in which the 12% Cash Dividend was earned. No fractional shares
of Common Stock will be issued; alternatively, the number of shares for which a
Warrant is issued in any year is rounded down to the next whole number of shares
of Common Stock. Each Warrant when issued has a term of five (5) years. The
exercise price of the Warrants are $0.01 per Share for each share of Common
Stock issuable upon exercise. The Warrants do not confer on the holders thereof
any rights as shareholders of the Bank until the Warrant is exercised by payment
of the purchase price and submission of a Warrant exercise form. At any time and
from time to time the rights of the holders of Warrants to exercise the Warrants
may be suspended in order for the Bank to comply with State and Federal
securities laws and regulations affecting the exercise of the Warrants. Upon
redemption of the Preferred Stock, the Warrants are redeemable at any time
during their term at a redemption price of $0.01 per Share issuable upon
exercise of the Warrant. Upon issuance, the Warrants are subject to the terms of
the respective Warrant Agreements dated February 25, 1992, February 23, 1993,
February 15, 1994, February 21, 1995, and February 27, 1996.
Due to the capital requirements applicable to the Bank and the Bank's
present desire to retain earnings to support growth and future operations, it
was not anticipated that the 12% Cash Dividend to which the Preferred Stock is
entitled would be distributed in cash during at least the first five (5) years
following the Offering. Accordingly, for fiscal years 1991, 1992, 1993, 1994 and
1995 the 12% cash dividend was paid and distributed in the form of Warrants, and
it is anticipated that this will continue.
Capital Compliance
The following table sets forth information concerning the Bank's capital
compliance using the minimum regulatory capital requirements and the Bank's
actual regulatory capital levels through December 31, 1995:
<TABLE>
<CAPTION>
Excess of
Capital Required Actual required
Standard Required % Actual % Amount Amount Amount
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Core capital(1) 4.00% 5.49% $2,587 $3,549 $ 962
Tangible
capital 1.50% 5.49% $ 970 $3,549 $2,579
Risk-based
capital 8.00% 10.20% $3,107 $3,964 $ 857
- -----------------
(1) Leverage limit.
</TABLE>
5
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Lending Activities
General
The Bank has adopted a policy of making real estate loans for its own
portfolio principally in the form of adjustable rate mortgage loans. As a part
of its asset/liability management strategy, the Bank's lending activity includes
short-term and interest rate sensitive loans. The Bank has general authority to
lend anywhere in the United States; however, the Bank's primary service area is
Yuba and Sutter Counties in California. The Bank's secondary market area is made
up of Butte, Sacramento, Yolo, Colusa, Placer and Nevada Counties, and, to a
lesser degree, surrounding counties in Northern California. On March 1, 1995,
the Bank opened a wholesale mortgage banking division in San Diego, California.
This division originates loans throughout California, with a concentration in
the San Diego area. The wholesale division originates loans for sale to the
secondary market. In 1995 the majority of loans originated through the Bank were
from the wholesale division.
Real Estate Lending
At year end 1995 the real estate loans, including portfolio loans and
loans held for sale, had increased to $59.9 million from $58.4 million at year
end 1994. The Bank's primary lending activity consists of originating
residential loans for the purpose of enabling borrowers to purchase, hold or
refinance residential real property secured by first liens on such property. The
Bank has established criteria with respect to documentation and credit standards
that are applied equally to all real estate lending.
Origination, Purchase and Sale of Loans
The Bank primarily originates loans for its own portfolio and for sale
in the secondary market. In an effort to reduce the interest rate risk in its
loan portfolio, the Bank offers loan products with adjustable interest rates. At
December 31, 1995, adjustable rate mortgages represented approximately 95.7% of
the Bank's loan portfolio. The Bank's current policy is to limit its origination
of fixed rate residential real estate loans to loans in conformance with the
standards of secondary market conduits to which the Bank sells. The sale of
fixed rate loans in the secondary market generates non-interest income, the
excess of the sales price over the cost of origination of fixed rate loans.
Loans are originated by loan officers and commissioned loan agents or
referred by loan brokers, which have been approved by the Board of Directors.
Loans may be approved by management up to limits prescribed in the Bank's loan
policy or by the Bank's Loan Committee. The Bank's loan products require
significant documentation, and careful effort is maintained to insure quality
6
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control. All processing, servicing, underwriting and funding are
subject to review by the Board of Directors.
As part of the loan process, qualified independent appraisers inspect
and appraise the secured property, while loan personnel gather and analyze
information concerning the income, financial condition, employment and credit
history of the applicant. When analysis and appraisal are complete, the
transaction is either declined or forwarded to the Loan Committee for approval.
The Loan Committee is comprised of the President, a Loan Manager and four
non-management directors. The President and the Loan Manager have the authority
to approve 1-4 family loans, originated for sale to the secondary market up to
the maximum secondary marketing limits. Any two members of Loan Committee may
approve salable loan products authorized by the Board and portfolio loans,
including construction loans, up to $250,000.
The Bank's loan policy requires title insurance insuring the priority of
the Bank's lien on all of its loans secured by real property and requires that
fire and extended coverage casualty insurance be maintained in amounts at least
equal to the amounts of the loans on all properties standing as security for its
loans.
The Bank sells its fixed rate whole loans and participations in loans to
institutional investors and is approved as a seller-servicer by FHLMC and FNMA
and several other buyers of loans in the secondary markets. At December 31,
1995, the Bank was servicing $7,867,413 in loans for FHLMC, FNMA and private
institutional loan buyers. During 1995 the Bank sold $17,368,895 of its
servicing portfolio to a mortgage banking company. Management does not believe
there is any additional risk inherent in the sale and servicing of loans because
the underwriting involved is the same as origination for portfolio.
Interest Rates, Terms and Fees
Interest rates charged on the Bank's loans are affected primarily by the
demand for such loans, the availability to the Bank of funds for lending
purposes and yields available to the Bank from alternative investment
opportunities. These factors are in turn affected by general economic conditions
and such other factors as monetary policies of the federal government, the
general supply of money in the economy, legislative tax policies and
governmental budgetary matters. Interest rates charged by the Bank in California
are not subject to the state's constitutional usury limitations because lending
activities of savings institutions are exempt from California usury laws, but
the Bank is subject to federal usury laws.
The Bank's single-family residential loan contracts provide for
repayment of principal over 30 years or less. Because borrowers may refinance or
prepay their loans, however, such loans
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normally remain outstanding for a substantially shorter period of
time.
In addition to interest earned on loans, the Bank receives fees in
connection with the origination of loans. The Bank earns additional income from
fees for loan modifications, servicing sold loans, late payments, changes of
property ownership and for miscellaneous related services.
Customer Deposits and Other Sources of Funds
General
Savings and other types of deposits are the principal source of the
Bank's funds for use in lending and for other general business purposes. In
addition to deposit accounts, the Bank derives funds from loan repayments and
prepayments, whole loan and loan participation sales, borrowings and retained
earnings. The availability of funds from loan sales is influenced by general
interest rates and other market conditions. Loan repayments and prepayments have
been a relatively stable source of funds, while savings accounts inflows and
outflows vary widely. Borrowings have been limited to FHLB of San Francisco
advances.
Deposit Accounts
The Bank attracts both short-term and long-term savings deposits from
the general public by providing a wide assortment of accounts and rates. These
deposit programs include regular passbook accounts and interest-bearing checking
accounts, money market savings accounts, and certificates of deposit with
varying maturities and rates. Included among these savings programs are
Individual Retirement Accounts and Keogh accounts. The Bank does not use
brokerage firms to obtain negotiable certificate of deposit accounts. The Bank's
savings deposits are obtained principally from residents of its primary market
area.
Subject to applicable regulatory requirements, interest rates, minimum
balance requirements, service fees, penalties and other terms and conditions of
accounts are established by management and reviewed by the Board of Directors.
Deposits represent liabilities of the Bank and, therefore, account
holders would be entitled to full payment of their accounts prior to any payment
to shareholders in the event of liquidation of the Bank. The Bank's accounts are
insured by the Savings Association Insurance Fund ("SAIF") up to applicable
limits (currently $100,000 per depositor in most cases). See "SUPERVISION AND
REGULATION."
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Employees
At December 31, 1995, the Bank had a total of twenty-six (26) full-time
equivalent employees, including seven (7) part-time employees. The Bank provides
its employees with a comprehensive program of benefits, including basic major
medical insurance, dental insurance, life insurance, accident death and
dismemberment insurance, and long-term disability coverage, a 401 (k) Plan and
an Internal Revenue Service Section 125 - Cafeteria Plan. The employees are not
represented by a collective bargaining group. The Bank's management considers
its employee relations to be excellent.
Competition
The Bank experiences substantial competition in both attracting and
retaining deposits, as well as in making new loans.
Most of the Bank's competition for deposits and loans comes from other
financial institutions operating in its primary service area, comprising Sutter
and Yuba Counties, California, and, to a lesser extent, other nearby areas of
Northern California. The Bank also faces competition for deposits from various
investment vehicles sold by securities dealers and competition for loans from
mortgage bank/brokerage operations. As of December 31, 1995, management
estimates that there were approximately 10 other financial institutions with
offices in the Bank's primary service area. The Bank's asset size of $64,629,739
at December 31, 1995 is modest compared with several of the large institutions
(with assets well in excess of $1 billion) which have offices in the Bank's
market area.
The Bank's primary deposit market is considered to be the retail
consumer area, particularly individual money market accounts, certificates of
deposit and low volume NOW accounts and checking accounts. The Bank has
attracted new deposits by paying competitive rates on certificates of deposit
and money market accounts and by providing convenient personal service.
The Bank's competition for loan originations is principally from other
financial institutions, mortgage banking companies, insurance companies and
other institutional lenders. The Bank attracts loan applicants primarily through
competitive interest rates and loan origination fees, professional quality of
services and prompt local loan application review and closing procedures.
SUPERVISION AND REGULATION
General
As a federally chartered savings bank, the Bank is subject to
regulation, supervision and periodic examination by the OTS and the FDIC. The
regulations of these agencies govern most aspects of the
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Bank's business and operations. Until its conversion to a federal charter in
June 1993, the Bank also was regulated by the California Department of Savings
and Loan. The Bank's deposits are insured by the Savings Association Insurance
Fund ("SAIF") which is administered by the FDIC to the maximum amount permitted
by law, which is currently $100,000 per depositor in most cases.
As administrator of the SAIF, the FDIC may prohibit any activity found
to pose a serious risk of loss to the insurance fund or restrict the amount of
an activity engaged in by a state-chartered thrift or its subsidiaries where it
exceeds authority available to federal savings institutions.
The OTS has authority to issue regulations, conduct examinations and
supervise the operations of savings institutions. The OTS regulatory scheme is
comprehensive, governing, among other things, capital requirements, equity
investments, affordable housing, liquidity, securities issuances, the form of
savings instruments issued by savings institutions, certain aspects of a savings
bank's lending activities, including appraisal requirements, maximum loan
amounts, private mortgage insurance coverage, lending authority and
nondiscriminatory lending practices. OTS regulations also restrict transactions
between savings institutions and affiliated parties which are deemed to be a
conflict of interest under the regulations. In addition, the OTS' consent is
required prior to any major corporate reorganization, including a merger or bulk
purchase or disposition of assets.
The Federal Home Loan Bank System
Stock Ownership
All savings institutions that make long-term home mortgage loans or
insured depository institutions which maintain at least 10% of their total
assets in residential mortgages are required to be members of the regional
Federal Home Loan Banks (the "FHLBs"), which are in turn overseen by the Federal
Housing Finance Board. The Bank, as a member of the Federal Home Loan Bank
System, is required, at a minimum, to acquire and hold shares of capital stock
in the FHLB of San Francisco in an amount equal to 1% of the Bank's aggregate
unpaid loan principal, but not less than $500. The Bank earned dividends
totalling $23,415 and $25,094 during the years ended December 31, 1995 and 1994,
respectively.
Advances
The Bank is authorized to apply for advances from the FHLB of San
Francisco for residential housing finance, provided certain standards related to
creditworthiness have been met. Advances are made pursuant to several different
credit programs, each having its own interest rate and range of maturities.
Amounts an institution may borrow decrease if the institution fails to meet the
Qualified
10
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Thrift Lender ("QTL") test. See "Federal Deposit Insurance Corporation
Improvement Act of 1991 - Qualified Thrift Lender Test." The FHLB prescribes the
acceptable uses for advances as well as limitations on the size of advances.
Additionally, at the time of origination or renewal of a loan or advance, FHLBs
must obtain a security interest in collateral in the form of the following
low-risk assets: whole loans, United States Government or mortgage-backed
securities, FHLB deposits, and certain other real estate. At December 31, 1995,
the Bank had $3,400,000 in advances from the FHLB of San Francisco.
Federal Reserve System
The Board of Governors of the Federal Reserve System ("FRB") adopted
regulations that require savings banks to maintain reserves against their
transaction accounts (primarily NOW accounts) and non-personal time deposits.
FRB regulations generally exempt from reserve requirements the first $4.3
million in net transaction accounts. Reserves of 3% (subject to adjustment by
the FRB) must be maintained against net transaction accounts from $4.3 to $52.0
million, and a reserve of $1,560,000 plus 10% against that portion of total
transaction accounts in excess of $52.0 million must be maintained. The FRB
regulations do not presently require reserves to be maintained on time deposits
and savings accounts.
The balances on deposit to meet the reserve requirements imposed by the
FRB may also be used to satisfy the liquidity requirements that are imposed by
the OTS. See "Liquidity Requirements". As of December 31, 1995 the Bank had net
transaction accounts totalling $5,533,000 and therefore no reserve requirement
beyond what is met through vault cash.
Capital Adequacy Requirements
The Bank is subject to the OTS's regulations governing capital adequacy,
which include an interest rate risk component as of January 1994. OTS
regulations set total capital requirements and define capital in terms of "core
capital elements," or Tier 1 capital1 and "supplemental capital elements," or
Tier 2
- --------
1 Tier 1 capital is generally defined as the sum of the core
capital elements less a percentage of goodwill and certain
intangibles. The following items are defined as core capital
elements: (i) common stockholders' equity; (ii) noncumulative
perpetual preferred stock and related surplus; and (iii)
minority interests in the equity accounts of consolidated
subsidiaries. Qualifying supervisory goodwill was limited to
0.375% of total assets during 1994 and must be phased out as
a component of core capital by January 1, 1995.
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capital.2 The maximum amount of supplemental capital elements which qualifies as
Tier 2 capital is limited to one-hundred percent (100%) of Tier 1 capital.
OTS regulations require the Bank to maintain leverage capital at a
minimum of 3% of adjusted total assets, risk-based capital at a minimum of 8% of
risk weighted assets and tangible capital at a minimum of 1.5% of adjusted total
assets.
Tangible capital includes core capital less qualifying supervisory
goodwill and other intangible assets, plus purchased mortgage servicing rights.
Risk-weighted assets equal total assets plus consolidated off-balance sheet
items where each asset or item is multiplied by a risk weight assigned by the
OTS. Off-balance sheet items are converted to on-balance sheet credit
equivalents and then assigned a risk weight.
The OTS adopted rules, effective January 1, 1994, setting forth a method
of incorporating an interest rate risk component into the current risk-based
capital rules, with the goal of ensuring that institutions with high levels of
interest rate risk have sufficient capital to cover their exposures. The
principal objectives in adopting an interest rate risk component are to make
capital requirements sensitive to differences in interest rate exposures among
savings banks, discourage savings banks from taking excessive interest rate
risk, and to protect the deposit insurance fund. The regulation requires only
institutions with an "above normal" level of interest rate risk exposure to
maintain additional capital over the 8% risk-based capital requirement.
Generally, institutions whose measured interest rate risk is less than or equal
to 2% will not be required to maintain additional capital for interest rate
risk. Those whose measured interest rate risk exceeds 2%, (i.e., those that
would suffer a loss of market value portfolio equity exceeding 2% of the
estimated market value of their assets under a 200 basis point rate shock) will
be required to hold additional capital. The regulation became effective January
1, 1994, with implementation deferred to June 30, 1995.
Recently adopted regulations by the federal banking agencies have
revised the risk-based capital standards to take adequate account of
concentrations of credit and the risk of non-traditional activities.
Concentrations of credit refers to situations where a lender has a relatively
large proportion of loans involving one borrower, industry, location, collateral
or loan type. Nontraditional activities are considered those that have not
customarily been part of the banking business but that start to be conducted as
a result of developments in, for example, technology
- --------
2 Supplementary capital elements include: (i) allowance for loan and lease
losses (which cannot exceed 1.25% of an institution's risk weighted
assets); (ii) cumulative perpetual preferred stock and other qualifying
perpetual preferred stock; and (iii) hybrid capital instruments,
perpetual debt and mandatory convertible debt instruments.
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or financial markets. The regulations require institutions with high or
inordinate levels of risk to operate with higher minimum capital standards. The
federal banking agencies also are authorized to review an institution's
management of concentrations of credit risk for adequacy and consistency with
safety and soundness standards regarding internal controls, credit underwriting
or other operational and managerial areas.
The Bank has applied the OTS proforma model to the Bank's loans
portfolio and has found no material impact on the Bank.
Higher individual capital requirements may be imposed by the OTS on
savings banks on a case-by-case basis if the OTS determines it to be necessary
or appropriate, pursuant to the regulations and guidelines issued by the OTS for
this purpose.
Set forth below are the Bank's risk based and leverage capital ratios as
of December 31, 1995:
<TABLE>
<CAPTION>
====================================================================================
RISK BASED CAPITAL RATIO
AS OF DECEMBER 31, 1995
------------------------------------------------------
Amount Ratio
======================================================
- ------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital $3,549,000 9.14%
- ------------------------------------------------------------------------------------
Tier 1 Capital Minimum
Requirement 1,554,000 4.00%
- ------------------------------------------------------------------------------------
Excess 1,995,000 5.14%
- ------------------------------------------------------------------------------------
Total Capital 3,964,000 10.20%
- ------------------------------------------------------------------------------------
Total Capital Minimum
Requirement 3,107,000 8.00%
- ------------------------------------------------------------------------------------
Excess 857,000 2.20%
- ------------------------------------------------------------------------------------
Risk-Adjusted Assets 38,838,000
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LEVERAGE RATIO
AS OF DECEMBER 31, 1995
-----------------------------------------------
Amount Ratio
===============================================
- -------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital to
Average Total Assets
(Leverage Ratio) $3,549,000 5.49%
- -------------------------------------------------------------------------------------
Minimum Leverage 2,584,000 to
Requirement 3,230,000 4.00% to 5.00%
- -------------------------------------------------------------------------------------
252,000 to
Excess 898,000 .49% to 1.49%
- -------------------------------------------------------------------------------------
Average Total Assets 63,801,541
=====================================================================================
</TABLE>
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Failure to Meet Capital Requirements
A bank which does not meet its capital ratio requirements is required
to submit a capital plan to the OTS. The capital plan has to be acceptable to
the OTS in order for an institution to obtain exemptions from the capital
standards and exemptions from sanctions for failure to meet capital
requirements. If the plan submitted is not approved by the OTS, the bank
immediately cannot increase its assets beyond the amount held on the day it
received the notice of disapproval, and immediately must comply with any
restrictions or limitations set forth in the written notice of disapproval.
The OTS must prohibit any asset growth by savings banks not in
compliance with capital standards, except for specific growth expressly approved
according to certain guidelines. A bank not in compliance either with the
capital regulations, individual minimum leverage ratio requirements or
requirements included as part of an agreement between the bank and the OTS,
further may be subject to a capital directive or to such other enforcement
actions as the OTS deems necessary for the safety and soundness of the bank.
Failure to satisfy an individual capital ratio constitutes a legal basis for a
capital directive against a bank, which capital directive may contain those
restrictions the OTS deems appropriate. A savings bank may apply for an
exemption from the provisions of a capital directive, which must be accompanied
by a capital plan acceptable to the OTS. The OTS District Director will treat as
an unsafe and unsound practice any material failure by a savings bank to comply
with any plan, regulation, or written agreement undertaken to comply with these
requirements.
In addition to the OTS minimum regulatory capital requirements, FDICIA
has created capital categories for the purpose of determining when supervisory
or other corrective action is appropriate. See "Federal Deposit Insurance
Corporation Improvement Act of 1991 - Prompt Corrective Action" herein.
Regulatory Proceedings
Prior to February 20, 1992, the Bank was subject to various regulatory
orders, including a Cease and Desist Order and a supervisory directive requiring
the submission of a Capital Plan.
The Bank met the regulatory capital requirements at December 31, 1991
and, as a result, the OTS waived the Bank's Capital Plan requirement on February
20, 1992. The Bank continues to meet all minimum regulatory capital requirements
as of December 31, 1995.
Liquidity Requirements
The OTS requires savings institutions to maintain for each calendar
month an average daily balance of "liquid assets" (cash, certain time deposits,
bankers' acceptances, certain corporate obligations and specified United States
Government, State or Federal agency obligations) of not less than 5% of the
average daily balance of the institution's "liquidity base" (net
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withdrawable savings deposits plus short-term borrowings) during the preceding
calendar month. In addition, savings banks must maintain an average daily
balance of short-term liquid assets of not less than 1% of the average daily
balance of its liquidity base during the preceding calendar month.
The OTS may impose monetary penalties if an institution fails to meet
liquidity requirements. At December 31, 1995, the Bank's ratio was 5.08%, and
the Bank was in compliance with all such liquidity requirements.
Investment and Lending Restrictions
Investments
Under the Home Owner's Loan Act of 1933, as amended, the Bank is subject
to limitations on the nature and amount of some types of investments and loans
it may make. Under the regulations of the OTS, a savings banks is permitted to
invest, without limitation as a percentage of assets, in U.S. government
securities and accounts of insured depositor institutions among other things.
Loan Limitations
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposes on savings banks the following loans-to-one-borrower
limitations. FIRREA states a general rule allowing savings banks to lend up to
15% of the savings bank's unimpaired capital and unimpaired surplus to a single
borrower, plus an additional 10% of unimpaired capital and unimpaired surplus
for loans fully secured by readily marketable collateral. Readily marketable
collateral does not include real estate. Notwithstanding these limits, FIRREA
provides three exceptions which allow a savings institution to: (1) loan up to
$500,000 to one borrower, regardless of the percentage of capital accounts that
this amount represents, (2) develop domestic residential housing units up to the
lesser of $30,000,000 or 30% of the savings institution's unimpaired capital and
unimpaired surplus if, among other conditions, the loans made to all borrowers
in the aggregate under this provision do not exceed 150% of the savings
institution's unimpaired capital and unimpaired surplus, and (3) loan up to 50%
of its unimpaired capital and surplus to one borrower in making a loan to
finance the sale of real property acquired in satisfaction of debts previously
contracted in good faith.
OTS regulations allow a savings bank to make consumer loans up to 35% of
the savings bank's assets, and commercial loans not in excess of 10% of the
savings bank's assets.
A savings bank authorized to make loans in excess of 90% of value on the
security of real estate comprising single-family
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dwellings or dwelling units for four or fewer families may do so only if such
loans are insured or guaranteed by various governmental agencies or if such
loans comply with real estate lending standards as set forth in written policies
adopted and maintained by the Bank. The policies must establish appropriate
limits and standards for extensions of credit that are secured by liens on or
interests in real estate, or that are made for the purpose of financing
permanent improvements to real estate. This does not apply to loans to
facilitate the sale of REO as a result of foreclosure, or acquired by deed in
lieu of foreclosure.
Real estate lending policies adopted by a savings bank must, among other
things, reflect safe and sound banking practices, be appropriate to the size and
the nature and scope of the operations of the institution, and be reviewed and
approved by the board of directors at least annually. The policies must
establish loan portfolio diversification standards, prudent underwriting
standards, loan administration procedures, and documentation, approval and
reporting requirements to adequately monitor compliance.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
In September 1994, President Clinton signed the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Riegle- Neal"), which amends the
Bank Holding Company Act and the Federal Deposit Insurance Act to provide for
interstate banking, branching and mergers. Subject to the provisions of certain
state laws and other requirements, one year after the date of its enactment,
Riegle-Neal will allow a bank holding company that is adequately capitalized and
adequately managed to acquire a commercial bank located in a state other than
the holding company's home state. Similarly, beginning on June 1, 1997, the
federal banking agencies may approve interstate merger transactions, subject to
applicable restrictions and state laws. Further, a state may elect to allow out
of state commercial banks to open de novo branches in that state. Riegle-Neal
also includes several other provisions which may have an impact on the business
of commercial banks nationally. The provisions include, among other things, a
mandate for review of regulations to equalized competitive opportunities between
U.S. and foreign banks, and evaluation on a bank-wide, state-wide and, if
applicable, metropolitan area basis of the Community Reinvestment Act compliance
of banks with interstate branches. With respect to both banks and savings
institutions, Riegle-Neal includes provisions allowing the FDIC, when appointed
as conservator or receiver of a financial institution, to revive otherwise
expired causes of action for fraud and intentional misconduct resulting in
unjust enrichment or substantial loss to a bank or savings institution.
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California has adopted the Caldera, Weggeland, and Killea California
Interstate Banking and Branching Act of 1995 ("IBBA"), which became effective on
October 2, 1995. The IBBA is concerned with the supervision of state chartered
banks which operate across state lines, and covers such areas as branching,
applications for new facilities and mergers, consolidations and conversions,
among other things. The IBBA allows a California state bank to have agency
relationships with affiliated and unaffiliated insured depository institutions
and allows a bank subsidiary of a bank holding company to act as an agent to
receive deposits, renew time deposits, service loans and receive payments for a
depository institution affiliate. In addition, pursuant to the IBBA, California
"opts in early" to the Riegle-Neal provisions regarding interstate branching,
allowing a state bank chartered in a state other than California to acquire by
merger or purchase, at any time after effectiveness of the IBBA, a California
bank or industrial loan company which is at least five (5) years old and thereby
establish one or more California branch offices. However, the IBBA prohibits a
state bank chartered in a state other than California from entering California
by purchasing a California branch office of a California Bank or industrial loan
company without purchasing the entire entity or by establishing a de novo
California branch office.
The changes effected by Riegle-Neal and the IBBA may increase the
competitive environment in which the Bank operates in the event that out of
state financial institutions directly or indirectly enter the Bank's market
area. It is expected that Riegle-Neal will accelerate the consolidation of the
banking industry as a number of the largest bank holding companies attempt to
expand into different parts of the country that were previously restricted.
However, at this time, it is not possible to predict what specific impact, if
any, Riegle-Neal and the IBBA will have on the Bank, the competitive environment
in which the Bank operates, or the impact on the Bank of any regulations to be
proposed under Riegle-Neal and the IBBA.
Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")
General
FDICIA primarily addresses the safety and soundness of the deposit
insurance funds, supervision of and accounting by insured depository
institutions and prompt corrective action by the federal bank regulatory
agencies with respect to troubled institutions. FDICIA gives the FDIC, in its
capacity as federal insurer of deposits, broad authority to promulgate
regulations to assure the viability of the deposit insurance funds. FDICIA also
places restrictions on institutions failing to meet minimum capital standards
and provides enhanced enforcement authority for the
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federal banking agencies. FDICIA also strengthened Federal Reserve
Board regulations regarding insider transactions.
Prompt Corrective Action
FDICIA amended the FDIA to establish a format for closer monitoring of
insured depository institutions and to enable prompt corrective action by
regulators when an institution begins to experience difficulty. The general
thrust of these provisions is to impose greater scrutiny and more restrictions
on institutions as they descend the capitalization ladder.
FDICIA establishes five capital categories for insured depository
institutions: (a) Well Capitalized3; (b) Adequately Capitalized4; (c)
Undercapitalized5; (d) Significantly Undercapitalized6; and (e) Critically
Undercapitalized7.
Undercapitalized institutions are subject to the following mandatory
supervisory actions: (1) increased monitoring and periodic review of the
institution's efforts to restore its capital; (2) requirements that the
institution submit a capital restoration plan; (3) restrictions on growth of the
institution's total assets; and (4) limitations on the institution's ability to
- --------
3 Well Capitalized means a financial institution with a total
risk-based ratio of 10% or more, a Tier 1 risk-based ratio of
6% or more and a leverage ratio of 5% or more, so long as the
institution is not subject to an order, written agreement,
capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital
measure.
4 Adequately Capitalized means a financial institution with a total
risk-based ratio of 8% or more, a Tier 1 risk-based ratio of 4% or more
and a leverage ratio of 4% or more (3% or more if the institution has
received the highest corporate rating in its most recent report of
examination) and does not meet the definition of a Well Capitalized
institution.
5 Undercapitalized means a financial institution with a total risk-based
ratio of less than 8%, a Tier 1 risk-based ratio of less than 4% or a
leverage ratio of less than 4%.
6 Significantly Undercapitalized means a financial institution with a
total risk-based ratio of less than 6%, a Tier 1 risk- based ratio of
less than 3% or a leverage ratio of less than 3%.
7 Critically Undercapitalized means a financial institution with a ratio
of tangible equity to total assets that is equal to or less than 2%.
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make any acquisition, open any new branch offices or engage in any
new line of business.
Significantly Undercapitalized institutions and Undercapitalized
institutions that fail to submit and implement adequate capital restoration
plans are subject to the four mandatory provisions applicable to
Undercapitalized institutions and, in addition, may be required to: (1) sell
enough additional capital, including voting shares, to bring the institution to
an Adequately Capitalized level; (2) restrict transactions with affiliates; (3)
restrict interest rates paid on deposits to the prevailing rates in the region
where the institution is located; (4) restrict asset growth or reduce total
assets; (5) terminate, reduce or alter any activity (including any activity
conducted by a subsidiary of the institution) determined by the bank regulatory
agency to pose an excessive risk to the institution; (6) hold a new election for
the institution's board of directors; (7) dismiss directors or senior officers
and/or employ new officers, subject to agency approval; (8) cease accepting
deposits from correspondent depository institutions; (9) divest or liquidate
certain subsidiaries and/or (10) take any other action that the regulatory
agency determines to be appropriates.
In addition, Significantly Undercapitalized institutions are prohibited
from paying any bonus or raise to a senior executive officer without prior
agency approval. No such approval will be granted to an institution which is
required to but has failed to submit an acceptable capital restoration plan.
A Critically Undercapitalized institution faces even more severe
restrictions. In addition to those steps that can be taken with respect to
Significantly Undercapitalized institutions, a Critically Undercapitalized
institution must be placed in conservatorship or receivership within 90 days of
becoming Critically Undercapitalized, unless the appropriate federal banking
agency determines, with FDIC concurrence, that other action would better achieve
the purposes of the FDIA.
Beginning December 19, 1993, no advances from a Federal Reserve Bank to
any Undercapitalized depository institution may be outstanding for more than
sixty (60) days in any given 120-day period, unless the head of the appropriate
federal banking agency certifies to the Federal Reserve Bank that the
institution is viable, or if the FRB Chairman so certifies to the Federal
Reserve Bank. In either case, a grace period for the next sixty (60) days may be
provided. There are more stringent restrictions on advances to Critically
Undercapitalized institutions. Federal Reserve Banks shall have no obligation to
make, increase, renew, or extend any advance or discount to any depository
institution. The FRB is given the prerogative of examining any depository
institution or affiliate in connection with any Federal Reserve System
transaction.
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FDICIA also provides that if an institution is in an unsafe or unsound
condition or is engaging in an unsafe or unsound practice, its capital category
may be downgraded to achieve a higher level of regulatory scrutiny.
The Bank's capital ratios meet the test to be considered "Well
Capitalized" as of December 31, 1995 according to these regulations.
Brokered Deposits
FDICIA restricts the solicitation and acceptance of and interest rates
payable on brokered deposits by insured depository institutions that are not
Well Capitalized. An Undercapitalized institution is not allowed to solicit
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest on insured deposits in the particular institution's
normal market areas or in the market areas in which such deposits would
otherwise be accepted. Under FDIC regulations, Well Capitalized institutions may
accept brokered deposits without restriction and Adequately Capitalized
institutions may accept brokered deposits with a waiver from the FDIC (subject
to certain restrictions imposed on payment of rates), while Undercapitalized
institutions may not accept brokered deposits.
Risk-Based Assessment System
FDICIA amended the FDIA to require the FDIC to establish a risk-based
assessment system for calculating a depository institution's semiannual deposit
insurance premium. Under regulations adopted by the FDIC, the risk which each
insured depository institution poses to its insurance fund is determined on the
basis of capital and supervisory evaluations. The regulations became effective
November 2, 1992 and applied to the first semiannual calendar period of 1993.
With respect to capital, insured institutions are divided into three
main capital groups: well-capitalized (those institutions considered
"well-capitalized" for prompt corrective action purposes); adequately
capitalized (those institutions considered "adequately capitalized" for prompt
corrective action purposes, except that the leverage capital ratio may not be
less than 4%); and undercapitalized (all other institutions). Each of the three
capital categories are further subdivided by three supervisory subgroups
designated "A" (financially sound institutions with only a few minor
weaknesses), "B" (institutions having weaknesses which, if not corrected, could
result in significant deterioration and increased risk of loss to the
appropriate insurance fund) and "C" (institutions which pose a substantial
probability of loss to the appropriate insurance fund if corrective action is
not taken), resulting in a total of nine categories for risk assessment
purposes. The nine-category rate schedule is expressed in terms of basis points,
resulting in an assessment range from .23% for well-
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capitalized institutions in subgroup "A" to .31% per annum for undercapitalized
institutions in subgroup "C." During 1995, the Bank's assessment rate was .26%
of insured deposits. For the first half of 1996 the Bank will pay an assessment
rate of .29%.
One purpose of the risk-based assessment system is the recapitalization
of the two insurance subfunds maintained by the FDIC, the Bank Insurance Fund
("BIF") and the Savings Association Insurance Fund ("SAIF"), to 1.25% of
estimated insured deposits. During 1995 the BIF reached the 1.25% reserve ratio.
As a result BIF premiums were reduced substantially. BIF members that were
well-capitalized generally paid .03% in premiums. During the year there were
several proposals that would require the SAIF members to pay a one time premium
large enough to bring the SAIF up to the 1.25% reserve ratio. At that time SAIF
premiums would be dropped to levels approximating BIF premiums. The 1995 budget
dispute kept these proposals from being enacted into law. It was anticipated
that the one time assessment would be charged to savings institutions in the
first quarter of 1996. At this time it is not known when such legislation might
be enacted into law.
Qualified Thrift Lender ("QTL") Test
Subtitle G of FDICIA contains the Qualified Thrift Lender Reform Act of
1991, which amends provisions of the Home Owner's Loan Act relating to the QTL
Test. Beginning January 1, 1992, a savings bank that was not subject to
penalties for failure to maintain QTL status as of June 30, 1991, under the QTL
regulations then in effect, was deemed to be a qualified thrift lender and will
continue as one so long as the bank's actual thrift investment percentage
("ATIP") in at least nine months out of each twelve month period after January
1, 1992 continues to equal or exceed 65%. Qualified thrift investments include,
among others, loans that were made to purchase, refinance, or construct domestic
residential housing or manufactured housing, home equity loans and securities
backed by or representing an interest in mortgages on domestic residential
housing or manufactured housing.
Other Provisions of FDICIA
FDICIA required the federal banking agencies to adopt regulations or
guidelines with respect to safety and soundness standards. The agencies have
adopted uniform Guidelines which are used, primarily in connection with
examinations, to identify and address problems at insured depository
institutions before capital becomes impaired. The federal bank regulatory
agencies recently proposed asset quality and earnings standards which would be
added to the safety and soundness Guidelines.
FDICIA restricts the acceptance of brokered deposits by
insured depository institutions that are not well capitalized. It
also places restrictions on the interest rate payable on brokered
deposits and the solicitation of such deposits. An
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undercapitalized institution will not be allowed to solicit brokered deposits by
offering rates of interest that are significantly higher than the prevailing
rates of interest on insured deposits in the particular institution's normal
market areas or in the market area in which such deposits would otherwise be
accepted. In addition to these restrictions on acceptance of brokered deposits,
FDICIA provides that no pass-through deposit insurance will be provided to
employee benefit plan deposits accepted by an institution which is ineligible to
accept brokered deposits under applicable law and regulations.
FDICIA also adds grounds to the previously existing list of reasons for
appointing a conservator or receiver for an insured depository institution.
FDICIA also places restrictions on insured state bank activities and
equity investments, interbank liabilities and extensions of credit of insiders
and transactions with affiliates.
Finally, the federal banking agencies recently have proposed regulations
establishing new capital requirements for general market risk and specific risk
as they pertain to the trading activities of a banking organization and to the
organization's other foreign exchange and commodities activities. Because these
and other proposed regulations are subject to change before they are adopted in
final form, their ultimate impact on the Bank cannot yet be determined.
Financial Institutions Reform, Recovery, and Enforcement Act of
1989
Some of the important provisions and major changes made by FIRREA are
discussed below.
Enhanced Authority of Regulatory Agencies
Any savings bank which does not operate in accordance with or conform to
the OTS regulations, policies and directives may be sanctioned for
noncompliance. FIRREA gave the OTS the power to (1) institute cease-and-desist
proceedings; (2) order restitution or indemnification; (3) remove an officer or
director and impose an industry-wide prohibition; and (4) enforce these powers
by injunction and civil money penalties. Cease-and-desist proceedings may be
initiated against an institution if the OTS is of the opinion that the
institution has engaged, is engaging, or will engage in an unsafe or unsound
practice or violate any law, rule, regulation or condition imposed by the OTS.
The OTS further has the power to enforce any effective and outstanding notice or
order and may seek civil money penalties for the violation of laws, regulations,
orders, or other conditions imposed on the bank. FIRREA significantly expands
the grounds upon which a receiver or conservator may be appointed for a savings
bank. Included in the new grounds are "having substantially insufficient
capital,"
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incurrence or likely incurrence of losses that will deplete all or substantially
all of a bank's capital with no reasonable prospect for that capital to be
replenished without Federal assistance, or a violation of law or regulation
which is likely to weaken the condition of the institution.
Acquisition of Control
FIRREA amended the Home Owner's Loan Act to establish new provisions
governing savings and loan holding companies. A savings and loan holding company
is defined as any company which directly or indirectly controls a savings bank
or controls another company which is a savings and loan holding company. Under
FIRREA, "control" exists where a person (a) directly or indirectly, or acting in
concert with one or more other persons or through one or more subsidiaries,
owns, controls or holds the power to vote (or holds proxies representing) more
than 25% of the voting shares of a savings bank, (b) controls in any manner the
election of a majority of the directors of the savings bank or (c) directly or
indirectly exercises a controlling influence over the management or policies of
the savings bank. Once control of a savings bank has been established, various
provisions of FIRREA govern the activities of savings and loan holding
companies.
OTS regulations prohibit companies from acquiring control of a savings
bank without the prior written approval of the OTS. Persons acquiring control of
a savings bank must provide written notice to the OTS, which the OTS may
disapprove or allow to take effect after the expiration of a certain waiting
period. Certain types of acquisitions by companies or persons are exempt from
the OTS application or notice requirements.
The OTS is empowered to disapprove an acquisition of control upon a
consideration of, among other things, the following factors: (i) whether the
acquisition would result in or tend to result in a monopoly or would
substantially lessen competition, (ii) whether the financial and managerial
resources and future prospects of the acquiror and bank involved would be
detrimental to the bank or the insurance risk of the SAIF or BIF, and (iii) the
convenience and needs of the community to be served.
Transactions with Affiliated Persons and Conflicts of Interest
OTS regulations impose a number of restrictions on transactions and
dealings between the Bank and affiliated persons. As used in applicable statutes
and regulations the definition of "affiliated person" includes the Bank's
directors and officers and their spouses and certain members of their immediate
families. Also included as affiliated persons are certain persons, corporations
and other organizations who possess certain relationships with the Bank as set
out in the regulations.
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FIRREA requires savings institutions to comply with the laws and
regulations of the FRB (Sections 22(h) (as recently amended by FDICIA), 23A and
23B of the Federal Reserve Act and Regulation O) concerning conflicts of
interest and loans to affiliates in the same manner and to the same extent as if
the savings institution were a member bank of the Federal Reserve System. These
laws and regulations limit loans or extensions of credit to: executive officers,
directors and principal shareholders (i.e., in most cases those persons who own,
control or have power to vote more than 10% of any class of voting securities);
companies controlled by such executive officer, director or shareholder who
directly or indirectly or acting through or in concert with one or more other
person owns, controls or has the power to vote 25% or more of any class of
voting securities, controls the election of a majority of directors, or has the
power to exercise controlling influence over management or policies; or
political or campaign committee funds which will benefit executive officers,
directors or principal shareholders. Loans extended to any of the above persons
must comply with the loan-to-one-borrower limits, require full board approval
when aggregate extensions of credit to such person exceed specified amounts,
must be granted on substantially the same terms, including interest rates and
collateral as, and following credit underwriting procedures that are not less
stringent than, those prevailing at the time for comparable transactions with
non-affiliated persons, and must not involve more than the normal risk of
repayment or present other unfavorable features. Finally, the Bank is prohibited
from paying an overdraft on an account of an executive officer or director,
except pursuant to a written preauthorized interest-bearing extension of credit
specifying a method of prepayment.
FDICIA also resulted in an amendment to Regulation O which provides that
the aggregate limit on extensions of credit to all insiders of a financial
institution as a group cannot exceed the institution's unimpaired capital and
unimpaired surplus. An exception to this limitation is provided for financial
institutions with deposits of less than $100,000,000 which may, by resolution of
its Board of Directors, increase the general limit referenced herein to a level
not to exceed two times the savings bank's unimpaired capital and unimpaired
surplus, if: the Board of Directors determines that a higher limit is consistent
with prudent, safe and sound banking practices and is necessary to avoid
restricting credit or to attract or retain facts and reasoning on which the
Board of Directors bases its determination; the savings bank is in satisfactory
overall condition as determined in the most recent report of examination of the
savings bank; and the savings bank meets or exceeds all applicable capital
requirements.
Other Transactions with Affiliated Persons
The Bank may not deposit funds with any affiliated person or in any
financial institution of which an affiliated person is a director, without the
prior written approval of the Regional
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Director of the OTS. No affiliated person may receive, directly or indirectly,
from the Bank or any other source, any fee or compensation of any kind in
connection with the procurement of any loan from the Bank. The Bank may not,
directly or indirectly, purchase or lease from, jointly own with, or sell to, an
affiliated person any interest in real property unless the transaction is
determined by the Regional Director of the OTS to be fair to, and in the best
interest of, the Bank. The regulations also restrict loans to third persons
secured by collateral of an affiliated person or guaranteed by an affiliated
person, the investment in the securities of an affiliated person, and the
purchase of securities from an affiliated person under a repurchase agreement.
The Bank may not permit any salaried officer or employee to work for an
affiliated person during the employee's hours of employment by the Bank unless
the affiliated person compensates the Bank for the time involved. The Bank may
not grant any loan subject to the prior condition, agreement or understanding
that the borrower will contract with any specific person or organization for
insurance services, building materials or construction services, legal services,
services of a real estate agent or broker, or real estate or property management
services.
The composition of the Board of Directors of the Bank must comply with
the following requirements: (a) a majority of the directors must not be salaried
officers or employees of the Bank; (b) not more than 2 of the directors may be
members of the same immediate family; and (c) not more than one director may be
an attorney with a particular law firm.
Other legislation which has been or may be proposed to the United States
Congress and regulations which may be proposed by the OTS, the FDIC and the FRB
may affect the business of the Bank. It cannot be predicted whether any pending
or proposed legislation or regulations will be adopted or the effect such
legislation or regulations may have upon the business of the Bank.
Income Taxation
Bad Debt Reserve
Generally, a savings bank is taxed in the same manner as other
corporations. Unlike other corporations, however, a savings bank meeting certain
definitional tests prescribed by the Internal Revenue Code of 1986, as amended
(the "Code"), is eligible for a deduction from taxable income for a reasonable
annual addition to its bad debt reserve. To qualify for the deduction, at least
60% of the assets of the bank must consist of cash, federal government
obligations, taxable state and local government obligations, loans secured by
deposits or by interests in residential real property, educational loans,
property used by the institution in the conduct of its business, and certain
other assets. As of December 31, 1994, the Bank held in excess of 60% of its
assets in qualifying property and anticipates continuing to do so.
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For purposes of computing the bad debt reserve deduction, the Bank's
loans are separated into "qualifying real property loans" (generally, those
loans secured by interests in improved real property) and "nonqualifying loans"
(all other loans). The reasonable addition to the bad debt reserve for each of
the two categories of loans is determined and these two amounts are combined to
determine the addition for the year to the bad debt reserve.
The addition to the bad debt reserve for nonqualifying loans is
determined using the "experience" method. The addition to the bad debt reserve
for qualifying real property loans may be based on either the experience method
or the "percentage of taxable income" method. The percentage of taxable income
method permits an addition to the bad debt reserve equal to as much as 8% of a
bank's taxable income for that taxable year. There are several limits, however,
on the use of the percentage of taxable income method. First, the amount is
reduced by the addition to the bad debt reserve for nonqualifying loans. Second,
the addition to the bad debt reserve for qualifying real property loans cannot
result in a reserve for such loans greater than 6% of such loans outstanding at
the end of the tax year. In addition, the reserve for qualifying real property
loans is limited to the greater of (a) the amount determined under the
experience method or (b) the amount which, when added to the addition to bad
debt reserve for nonqualifying loans, equals the amount by which 12% of deposits
or withdrawable accounts of depositors at the close of the tax year exceeds the
sum of the bank's surplus, undivided profits and reserves at the beginning of
that year. In 1993, 1994 and 1995 the Bank used the percentage of taxable income
method.
Subject to the provisions of Code Section 593(e) and the Treasury
Regulations thereunder, if a savings bank distributes cash or property to its
shareholders, and the distribution is treated as being from its accumulated bad
debt reserves, the distribution may cause the bank to have additional gross
income. Numerous detailed and complicated rules govern the calculations under
Code Section 593(e). Generally, however, the distributions potentially subject
to Code Section 593(e) include all distributions to shareholders with respect to
their stock including certain redemptions and liquidations. Distributions not in
redemption or liquidation of a shareholder's stock which a savings bank makes
from its current or accumulated earnings and profits are not treated as
distributions made from the accumulated bad debt reserves. The amount of
additional gross income is equal to the lesser of: (a) the amount of the bad
debt reserves, or (b) the gross amount of the deemed distribution (i.e., the
amount which after reduction for the income tax attributable to the amount is
equal to the actual distribution).
In 1995 the Bank applied for and received permission from the State of
California to change its method of accounting for bad debts for California
purposes in 1995. The Bank will only deduct
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from income loans specifically charged off for California Income
Tax purposes.
The following are other more significant federal and California income
tax provisions affecting savings banks.
Corporate Tax Rates
The federal corporate tax rate is 34% for up to $10 million of taxable
income, and 35% for taxable income over $10 million. The 1% differential is
phased out between $15 million and approximately $18.3 million so that
corporations with over approximately $18.3 million of taxable income are taxed
at a flat rate of 35%.
Corporate Alternative Minimum Tax
Generally, a corporation will be subject to an alternative minimum tax
("AMT") to the extent the tentative minimum tax exceeds the corporation's
regular tax liability. The tentative minimum tax is equal to (a) 20 percent of
the excess of a corporation's "alternative minimum taxable income" ("AMTI") over
an exemption amount, less (b) the alternative minimum foreign tax credit. AMTI
is defined as taxable income computed with special adjustments and increased by
the amount of tax preference items for a tax year. An important adjustment is
made for "adjusted current earnings," which generally measures the difference
between corporate earnings and profits (as adjusted) and taxable income.
Finally, a corporation's net operating loss (computed for AMT purposes), if any,
can be utilized only up to 90% of AMTI, with the result that a corporation with
current year taxable income will pay some tax.
Interest incurred for tax-exempt obligations
Generally, taxpayers are not allowed to deduct interest on indebtedness
incurred to purchase or carry tax-exempt obligations. This rule applies to a
bank, to the extent of its interest expense that is allocable to tax-exempt
obligations acquired after August 7, 1986. A special exception applies, however,
to a "qualified tax-exempt obligation," which includes any tax-exempt obligation
that (a) is not a private activity bond and (b) is issued after August, 7, 1986
by an issuer that reasonably anticipates it will issue not more than $10 million
of tax-exempt obligations (other than certain private activity bonds) during the
calendar year. Interest expense on qualified tax-exempt obligations is
deductible, although it is subject to a 20 percent disallowance under special
rules applicable to financial institutions.
Net operating losses
Generally, a bank is permitted to carry a net operating loss ("NOL")
back to the prior three tax years and forward to the succeeding fifteen tax
years. If the NOL of a commercial bank is attributable to a bad debt deduction
taken under the specific
27
<PAGE>
charge-off method after December 31, 1986 and before January 1, 1994, however,
such portion of the NOL may be carried back ten years and carried forward five
years. The 1990 Act clarified that a commercial bank's bad debt loss is treated
as a separate NOL to be taken into account after the remaining portion of the
NOL for the year.
Amortization of intangible assets including bank deposit base
Prior to the Revenue Reconciliation Act of 1993 (the "1993 Act"), there
was considerable controversy regarding the amortization (depreciation) of
certain intangible assets, such as customer lists and similar items. Generally,
the issue involved whether the intangible asset represented nonamortizable
goodwill or a separate and distinct asset which could be amortized over its
useful life.
The 1993 Act provides that certain intangible property acquired by a
taxpayer must be amortized over a 15 year period. For this purpose, acquired
assets required to be amortized include goodwill and the deposit base or any
similar asset acquired by a financial institution (such as checking and savings
accounts, escrow accounts and similar items). The 15 year amortization rule
generally applies to property acquired after August 10, 1993.
Mark-to-market rules
The 1993 Act introduced certain "mark-to-market" tax accounting rules
for "dealers in securities." Under these rules, certain "securities" held at the
close of a taxable year must be marked to fair market value, and the unrealized
gain or loss inherent in the security must be recognized in that year for
federal income tax purposes. Under the definition of a "dealer," a bank or
financial institution that regularly purchases or sells loans may be subject to
the new rules. The rules generally are effective for tax years ending on or
after December 31, 1993.
Certain securities are excepted from the mark-to-market rules provided
the taxpayer timely complies with specified identification rules. The principal
exceptions affecting banks are for (1) any security held for investment and (2)
any note, bond, or other evidence of indebtedness acquired or originated in the
ordinary course of business and which is not held for sale. If a taxpayer timely
and properly identifies loans and securities as being excepted from the
mark-to-market rules, these loans and securities will not be subject to these
rules. Generally, a financial institution may make the identification of an
excepted debt obligation in accordance with normal accounting practices, but no
later than 30 days after acquisition.
28
<PAGE>
California tax laws
A commercial bank is subject to the California franchise tax at a
special bank tax rate based on the general corporate (non financial) rate plus
2%. The rate for calendar income year 1995 was 11.3%. The applicable tax rate is
higher than that applied to general corporations because it includes an amount
"in lieu" of many other state and local taxes and license fees payable by such
corporations but generally not payable by banks and financial corporations.
California has adopted substantially the federal AMT, subject to certain
modifications. Generally, a bank is subject to California AMT in an amount equal
to the sum of (a) seven percent of AMTI (computed for California purposes) over
an exemption amount and (b) the excess of the bank tax rate over the general
corporation tax rate applied against net income for the taxable year, unless the
bank's regular tax liability is greater.
California permits a bank to compute its deduction for bad debt losses
under either the specific charge-off method or according to the amount of a
reasonable addition to a bad debt reserve.
California has incorporated the federal NOL provisions, subject to
significant modifications for most corporations. First, NOLs arising in income
years beginning before 1987 are disregarded. Second, no carryback is permitted,
and for most corporations NOLs may be carried forward only five years. Third, in
most cases, only fifty percent of the NOL for any income year may be carried
forward. Fourth, NOL carryover deductions are suspended for income years
beginning in calendar years 1991 and 1992, although the carryover period is
extended by one year for losses sustained in income years beginning in 1991 and
by two years for losses sustained in income years beginning before 1991.
Finally, the special federal NOL rules regarding bad debt losses of commercial
banks do not apply for California purposes.
Finally, in 1994, California enacted legislation conforming to the
federal tax treatment of amortization of intangibles and goodwill, with certain
modifications. No deduction is allowed under this provision for any income year
beginning prior to 1994.
The various laws discussed herein contain other changes that could have
a significant impact on the banking industry. The effect of these changes is
uncertain and varied, and it is unclear to what extent any of these changes may
influence the Bank's operations or the banking industry generally.
In addition, there are several tax bills currently pending before
Congress which could have a significant impact on the banking industry. As of
March 18, 1996, it is uncertain whether
29
<PAGE>
these bills will be enacted and what impact these bills will have on the Bank.
Recent Accounting Pronouncements
The Bank adopted Statement of Financial Accounting Standards (SFAS) No.
107, "Disclosures About Fair Value of Financial Instruments' (SFAS 107) during
fiscal year 1995, which requires that the Bank disclose the fair value of
financial instruments for which it is practicable to estimate that value.
Although management uses its best judgement in assessing fair value, there are
inherent weaknesses in any estimating technique that may be reflected in the
fair values disclosed. The fair value estimates are made at a discrete point in
time based on relevant market data, information about the financial instruments,
and other factors. Estimates of fair value of instruments without quoted market
prices are subjective in nature and involve various assumptions and estimates
that are matters of judgement. Changes in the assumptions used could
significantly affect these estimates. Fair value has not been adjusted to
reflect changes in market conditions subsequent to December 31, 1995, therefore,
estimates presented herein are not necessarily indicative of amounts which could
be realized in a current transaction. The effect of adoption of this standard
was not material.
In 1995, the Bank adopted SFAS No. 122, "Accounting by Mortgage
Servicing Rights". Under the new standard the Bank recognizes as separate assets
rights to service mortgage loans for others, whether those servicing rights are
originated or purchased. Previously, only purchased servicing rights were
capitalizable as an asset whereas internally originated rights were expensed.
The Bank assesses capitalized servicing rights for impairment based on fair
value, rather than an estimate of undiscounted future cash flows. The effect of
adoption of this standard was not material.
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<PAGE>
ITEM 2. PROPERTIES
At December 31, 1995, the Bank conducted its business through three (3)
offices. The Bank's loan origination and loan servicing departments as well as
the accounting and compliance departments are maintained in the 508 Forbes
facility adjacent to the Bank's main office. The Bank opened its first full
service branch located at 729 E Street, Marysville, California 95901, on March
14, 1994 and on March 11, 1995 opened a mortgage wholesale division located at
5355 Avenida Encinas, Suite 206, Carlsbad, CA 92008. Further information
concerning its main office and other office properties and equipment is set
forth in Note 5 of the "Notes to Financial Statements" included elsewhere in
this Form 10-KSB.
The following is a list of properties owned by the Bank at December 31,
1995 and the net book value of each property:
Location Net Book Value
700 Plumas Street $409,483
Yuba City, CA
The Bank sold its premises at 508 Forbes Street in early 1995. The sale
was made to an affiliated party, Valley Fair Realty which is owned by George
Murray, a director of Sutter Buttes Savings Bank. The terms of the deal were all
cash. The Bank leased back a portion of this building at a rate of $870 per
month for a term of one (1) year beginning February 1, 1995. The Bank agreed to
renew the lease for another one (1) year term beginning February 1, 1996. The
Board of Directors determined that the terms of the sale and lease were no less
favorable than those which could have been obtained from unaffiliated third
parties.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Bank is occasionally made a party
to actions seeking to recover damages from the Bank. The Bank is involved in
various claims and legal action arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Bank's financial condition.
Additionally, no director, officer, affiliate, or more than 5%
shareholder of the Bank is a party adverse to the Bank or has a material
interest adverse to the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote
of security holders, through solicitation of proxies or otherwise.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Trading History
Common Stock
The Bank's Common Stock is not listed on any exchange nor is it quoted
on NASDAQ. Historically, there has been no trading market for the Common Stock
and it is not expected that one is likely to develop. The Common Stock is not
the subject of regular quotations by brokers or dealers, but shares are traded
from time to time in private transactions.
Based upon information available to the Bank from the Bank's transfer
agent and registrar, 5,381 shares of common stock were sold in 1995 at a price
of $1.86 per share. 1,400 shares of common stock were sold in 1994 at a price of
$2.75 per share. 4,000 shares of Common Stock were sold in 1993 with prices
ranging from $2.70 per share to $3.04 per share. In 1992, 240 shares of common
stock were sold at a price of $2.50 per share.
As of December 31, 1995, the fully diluted book value per share of the
Bank's Common Stock was $3.10. The computation was based on stockholders' equity
at December 31, 1995 divided by the total number of common stock equivalents
outstanding as of December 31, 1995. Common stock equivalents include common
stock, convertible preferred stock, warrants issued and outstanding, and stock
options issued and outstanding.
At March 26, 1996, there were approximately 347 holders of record of the
626,743 issued and outstanding shares of Common Stock.
Preferred Stock
The Preferred Stock is not listed on any exchange nor is it quoted on
NASDAQ. It is not expected that there will be any trading market established for
the Preferred Stock. It is not anticipated that the Preferred Stock will be
listed or quoted on an exchange or market. As of March 26, 1996, there were
approximately 73 holders of record of the 232,200 issued and outstanding shares
of Preferred Stock.
Based upon information available to the Bank from the Bank's transfer
agent and registrar, 20,000 shares of preferred stock, including two (2) years'
of outstanding warrants associated with such shares, were sold in 1994 at a
price of $5.00 per share. No shares were sold in 1995.
32
<PAGE>
Warrants
The Warrants are not listed on any exchange nor are they quoted on
NASDAQ. As the Warrants are nontransferable, no trading market can be
established for the Warrants, nor will they be listed or quoted on any exchange
or market. See "Dividends" herein.
Options
On April 21, 1992, the Board of Directors adopted the Employee Stock
Option plan for full-time salaried officers and employees of the Bank and the
Directors' Stock Option Plan for all non-employee directors of the Bank. The
Employee and Directors' Plans were approved by the Bank shareholders on June 10,
1992.
Outstanding employee options vest over three to five years and at
exercise prices per share of $2.42 to $3.04. Outstanding director options vest
six months after issuance at $2.42 per share. No options have been exercised. At
December 31, 1995, the plans contained:
Employee Plan Directors' Plan
Shares reserved 117,084 39,028
Options granted 12,500 36,800
Options vested 11,500 36,800
Dividends
The Bank has never paid dividends on the Common Stock but has adopted a
Dividend Policy that would allow the Bank to declare a cash dividend on Common
Stock subject to adequate profitability and maintenance of the well capitalized
status according to the prompt corrective action provisions of FDICIA. The
Preferred Stock has the right to receive annually, if and as declared by the
Board of Directors in its sole discretion, out of funds legally available
therefor, a cash dividend equal to 12% ($0.60) of the par value of the Preferred
Stock, per Share (the "12% Cash Dividend"). The Preferred Stock has priority
over the Common Stock in the payment of dividends. This dividend right is
non-participating and non-cumulative, meaning that unpaid cash dividends in any
year do not accrue and are not payable in subsequent years. Rather, if in any
year a cash dividend is not declared and paid by the Bank's Board of Directors,
holders of the Preferred Stock shall receive immediately exercisable Warrants
representing the right to purchase a number of shares of Common Stock determined
by dividing the cash value of the 12% Cash Dividend ($0.60) by the book value of
the underlying Common Stock, per share, at the end of the year in which the
Preferred Stock dividend is earned. The Warrants will be exercisable according
to their terms, are not transferable and will be outstanding for a period of
five (5) years from the date of issuance. See "The Warrants," herein.
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<PAGE>
OTS regulations impose limitations on the ability of savings banks to
make various capital distributions. Capital distributions include dividends,
stock repurchases or redemptions or other transactions requiring the payout of
capital by a bank. A stock dividend is not considered a capital distribution
under the regulations.
OTS regulations establish a three-tiered system governing capital
distributions. An institution that has "capital" (as defined) at least equal to
its fully phased-in capital requirement in effect as of January 1, 1994 is a
"Tier 1" capital institution. An institution that has capital at least equal to
the risk-based capital standard in effect as of January 1, 1993, but less than
its fully phased-in capital requirement, is a "Tier 2" institution. An
institution having capital that is less than the risk-based capital standard in
effect as of January 1, 1993 is a "Tier 3" institution.
A Tier 1 institution may, following notice to the OTS, make capital
distributions during a calendar year up to 100% of its net income to date during
the calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess over its fully phased-in capital requirement) at the
beginning of the calendar year; or 75% of its net income over the most recent
four-quarter period. Any additional amount of capital distribution by a Tier 1
institution requires prior regulatory approval. An institution that meets the
Tier 1 capital criteria but has been notified that it requires more than normal
regulatory supervision is treated as a Tier 2 or Tier 3 savings bank (see below)
unless the OTS determines that such treatment is not necessary to ensure the
savings bank's safe and sound operation.
A savings bank that meets the Tier 2 criteria is able to make capital
distributions from 25% to 75% of its net income during its most recent
four-quarter period, less any capital distributions previously made over the
same period, depending upon whether the bank meets its fully phased-in capital
requirement. Notice must be given to the OTS. Any additional amount of capital
distribution by a Tier 2 institution requires prior regulatory approval. A Tier
3 institution generally is not authorized under the regulation to make any
capital distributions without prior regulatory approval, but may make such
distributions in accordance with an approved capital plan.
Based upon the regulatory requirements discussed above and the Bank's
retained earnings of $317,464 at December 31, 1995, the Bank can pay cash
dividends on the Common Stock or the Preferred Stock within regulatory
guidelines. Even if the Bank may, in the future, pay the 12% Cash Dividend, no
assurance can be given that the 12% Cash Dividend will be declared or paid by
the Bank. Rather, in lieu of the 12% Cash Dividend, the Bank anticipates the
distribution of Warrants to purchase Common Stock. Such a distribution of
Warrants is not subject to the capital distribution regulations.
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<PAGE>
In the event that the 12% Cash Dividend on the Preferred Stock has not
been declared and paid or set apart during any fiscal year of the Bank, the
holders of the Series A Preferred Stock will be entitled to receive one (1)
immediately exercisable, non-transferable Warrant representing the right to
purchase a number of shares of Common Stock determined by dividing the cash
value of the 12% Cash Dividend ($0.60) by the book value of the underlying
Common Stock, per share, as of the end of the year in which the 12% Dividend was
earned. The exercise price of the Warrants shall be $0.01 per share for each
share of Common Stock issuable upon exercise of the Warrant. The term of each
Warrant shall be five (5) years, commencing on the date the Warrant is issued.
No fractional shares of Common Stock will be issued; alternatively, the number
of shares for which a Warrant may be issued in any year will be rounded down to
the next whole number of shares of Common Stock.
Although the Warrant is immediately exercisable and, therefore, the
holder thereof may elect to exercise the Warrant at any time during its five (5)
year term, the right of the holder to exercise the Warrant may nonetheless be
suspended, at any time and from time to time, in the event counsel to the Bank
determines that such suspension is required for the Bank to comply with any
federal or state law or regulation pertaining to the regulation of Warrants and
the other securities of the Bank.
The Board of Directors may declare the 12% Cash Dividend on the
Preferred Stock at any time. If the 12% Cash Dividend is paid in the form of
Warrants, the Bank will issue such Warrants within forty-five (45) days after
the record date set by the Board of Directors for the 12% Cash Dividend, or if
the Board of Directors is unable to determine the book value of the Common Stock
as of the record date, the Warrants will be issued as soon thereafter as said
book value is determined.
Once issued, the Warrants will not confer on the holders thereof any
right to vote on matters affecting the Bank, any right to receive dividends, any
preemptive rights, any right to share in the Bank's assets in the event of any
liquidation, dissolution or winding up or any other rights as a shareholder of
the Bank, until such time as a Warrant is exercised by payment of the exercise
price and execution of a form of election to exercise the Warrant.
See "Stock Offerings - The Warrants" herein).
As of March 26, 1996, the Preferred Shareholders had earned 227,055
Warrants of which 190,533 have been issued and 140,548 have been exercised.
35
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
financial statements of the Bank. The information contained herein should be
read in conjunction with the audited financial statements and notes thereto
contained elsewhere in this Form 10-KSB.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME $4,573,460 $3,927,652 $3,610,140 $3,946,498 $4,644,683
TOTAL INTEREST EXPENSE 3,138,705 2,271,462 1,908,136 2,231,683 3,152,142
--------- ---------- ---------- ---------- ----------
NET INTEREST INCOME 1,434,755 1,656,190 1,702,004 1,714,815 1,492,541
CREDIT TO ALLOWANCE FOR LOAN
LOSSES 972 10,867 106,548 125,507 206,134
--------- ---------- --------- ---------- ----------
NET INTEREST INCOME AFTER
CREDIT TO ALLOWANCE FOR LOAN
LOSSES 1,435,727 1,667,057 1,808,552 1,840,322 1,698,675
NON-INTEREST INCOME 488,979 213,057 289,267 170,999 137,746
GENERAL AND ADMINISTRATIVE
EXPENSES 1,552,508 1,695,676 1,615,540 1,600,714 1,801,712
---------- ---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 372,198 184,438 482,279 410,607 34,709
PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM 21,169 76,099 3,424 43,385 12,287
---------- ---------- ---------- ---------- ----------
INCOME BEFORE
EXTRAORDINARY ITEM 351,029 108,339 478,855 367,222 22,422
EXTRAORDINARY ITEM 0 0 0 0 12,287
----------- ----------- ----------- ----------- ----------
NET INCOME $351,029 $108,339 $478,855 $367,222 $ 34,709
========== ========== ======== ======== ========
EARNINGS PER SHARE $.31 $.10 $.45 $.36 $.056
==== ==== ==== ==== =====
WEIGHTED AVERAGE NUMBER OF SHARES 1,142,725 1,103,096 1,062,019 1,008,122 616,638
FINANCIAL CONDITION DATA:
TOTAL ASSETS $64,629,739 $63,462,497 $51,640,664 $49,997,142 $45,059,940
LOANS, NET 59,903,639 58,359,570 47,085,410 45,075,079 40,201,640
REAL ESTATE OWNED, NET 104,768 0 0 167,724 0
CUSTOMER DEPOSITS 57,405,955 49,746,571 43,972,934 43,744,224 41,442,895
STOCKHOLDERS' EQUITY 3,548,712 3,197,683 3,089,344 2,610,489 2,243,267
SELECTED STATISTICAL DATA:
EQUITY-TO-ASSETS RATIO 5.14% 5.16% 5.98% 5.22% 4.98%
RETURN ON AVERAGE EQUITY 10.71% 3.45% 16.91% 14.93% 2.08%
RETURN ON AVERAGE ASSETS .55% .18% .95% .80% .08%
- ------------------------
</TABLE>
36
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparative Results and Other Data for Fiscal Years Ended
December 31, 1995, 1994 and 1993
Certain comparative information related to the Bank's results of
operations for the years ended December 31, 1995, 1994 and 1993 and its
financial condition at December 31, 1995 and 1994 is set forth below.
General
The business of the Bank consists primarily of attracting deposits from
the general public and using these deposits, together with borrowings and other
funds, for the origination and servicing of loans secured by real estate and, to
a lesser extent, various types of consumer and commercial loans.
The Bank's principal sources of income are interest income from real
estate loans, income from loan origination fees on loans sold, and gain on sale
of real estate loans. In 1993 credits to estimated loan losses, arising largely
from the recovery of previously charged off loans, were a substantial source of
income. Income is also earned from interest on the investment of liquid assets
as well as fees earned in connection with checking accounts and other banking
services. The Bank's principal expenses are interest paid on deposits and
borrowings and, to a lesser extent, administrative and other operating expenses.
The Bank's sources of funds are loan sales and repayments, increases in deposits
and FHLB of San Francisco advances. Generally, the Bank's primary use of funds
during the reported period was the origination and acquisition of real estate
loans.
Significant influences on the Bank's operations, and on the operations
of savings institutions generally, include general economic conditions, the
related monetary and fiscal policies of the federal government and the policies
of the various regulatory authorities. The Bank's results of operations depend
largely upon net interest income - the difference between interest earned on
loans and investments and interest paid on deposits and borrowings. Deposit
flows and loss of funds are influenced by interest rates on competing
investments and general market rates of interest. The demand for real estate and
other types of loans, along with the cost and availability of funds, affect
lending activities.
The results of operations for each of the three years in the period
ended December 31, 1995 reflect management's effort to improve asset quality and
improve capital ratios. The Bank's operating activities produced positive cash
flow of $1,710,892, $474,962 and $217,945, in 1995, 1994 and 1993, respectively.
Management's strategy to improve profit and cash flow from
37
<PAGE>
operating activities includes origination activities and deposit growth within
the guidelines of its business plan, reducing litigation and regulatory expenses
and controlling other general and administrative expenses.
Results of Operations
The Bank's net income for the year ended December 31, 1995 amounted to
$351,029 or $.31 per share. This compares with net income of $108,339 or $.10
per share in 1994 and a net income of $478,855 or $.45 per share in 1993. The
increase in net income in 1995 compared to 1994 resulted from lower general and
administrative expenses in 1995 compared to 1994 as well as higher non-interest
income in 1995, and a lower effective income tax rate in 1995.
The Bank's net income for the year ended December 31, 1994 amounted to
$108,339 or $.10 per share. This compares with net income of $478,855 or $.45
per share in 1993. The decrease in net income in 1994 compared to 1993 was the
result of reduced net interest income, reduced gains on sales of loans, a
reduction in credits to the provision for loan losses, an increase in general
and administrative expenses along with an increase in income tax expense.
The following table sets forth certain ratios concerning the Bank's
operations:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Return on average assets(1) .55% .18% .95%
Return on average equity(2) 10.71% 3.45% 16.91%
Average equity to assets(3) 5.14% 5.16% 5.60%
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average shareholders' equity.
(3) Average shareholders' equity divided by average total assets.
Net and Total Interest Income
Net interest income is affected primarily by the correlation of
repricing frequencies between interest-earning assets and interest-bearing
liabilities, the yield earned and rates paid, and the level of interest earning
assets and interest bearing liabilities.
Net interest income for 1995 was $1,434,755 which was a decrease of
$221,435 or 13.4% from the $1,656,190 level for 1994. Net interest income
decreased by $45,814 or 2.69% in 1994 compared to 1993, or from a level of
$1,702,004 to $1,656,190.
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<PAGE>
Total interest income increased from $3,927,652 to $4,573,460 in 1995.
This represented an increase of $645,808 or 16.4%. The increase was due to
higher market interest rates on loans receivable in 1995 compared to 1994 as
well as higher average balances for loans receivable in 1995 compared to 1994.
Total interest income increased to $3,927,652 in 1994 compared to $3,610,140 in
1993. This represents an increase of $317,512 or 8.80%. This increase was a
result of higher loans receivable balances in 1994 compared to 1993.
Total interest expense increased to $3,138,705 in 1995 compared to
$2,271,462 in 1994. This represents an increase of $867,243 or 38.2%. The
increase was due to the increase in deposits and borrowings outstanding in 1995
compared to 1994, as well as higher rates paid on deposits and borrowings in
1995 compared to 1994. Total interest expense increased from $1,908,136 in 1993
to $2,271,462 in 1994. This represented an increase of $363,326 or 19.0%. The
increase was due to the increase in levels of deposits and borrowings in 1994
compared to 1993.
The Bank's net spread (measured as the difference between the average
yield on combined interest earning assets and the average rates paid on interest
bearing liabilities) fell from 2.71% in 1994 to 2.06% in 1995. The average yield
on earning assets rose in 1995 compared to 1994 as did the average rate paid on
interest bearing liabilities. However, the increase in the rate paid on
liabilities rose at a higher rate. The decrease in 1994 from 3.47% in 1993
resulted from a greater decrease in rate of return on interest-earning assets
versus the decrease in the cost of funds on deposits and borrowed funds.
The following table sets forth the average yield on the interest-earning
assets and the average rate paid on interest-bearing liabilities for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Average yield on
<S> <C> <C> <C>
interest earning assets 7.37% 6.66% 7.47%
Average rate paid on
interest bearing liabilities 5.31 3.95 4.00
---- ----- ----
Spread 2.06% 2.71% 3.47%
===== ===== =====
</TABLE>
Credit to Allowance for Loan Losses
The credit to the allowance for loan losses for 1995 amounted to $972.
This represented a decrease of $9,895 or 91.1% from the credit of $10,867 in
1994. The credit to the allowance for loan losses in 1995 represented a recovery
of a previously charged off loan. This recovery was largely offset by an
increase in the general loan loss allowance in 1995. The credit to the allowance
39
<PAGE>
for loan losses for 1994 amounted to $10,867 as compared to a credit of $106,548
for 1993, a decrease of $95,681 or 89.8%.
Other Income
Other income in 1995 amounted to $488,979. This represented an increase
of $275,922 or 129.5% over the 1994 level of $213,057. The increase is largely
due to an increase in gain on sale of loans in 1995 compared to 1994. The
increase in gain on sale of loans is the result of the establishment of a
wholesale mortgage banking division by the Bank in March 1995. The Bank also had
a gain on the sale of real estate owned in 1995. No gains on sale of real estate
owned were recorded in 1994.
Other income in 1994 amounted to $213,057. This represented a decrease
of $76,210 or 26.35% from 1993. The major reason for the decrease in other
income was a result of a decrease in gain on sale of loans. This resulted from a
decrease in loans originated for sale in the secondary market in 1994 compared
to 1993. In 1994 loans originated for sale totalled $4,303,690 compared to
$14,512,238 in 1993. Income from the operation of real estate owned declined
from $24,415 to $0 as the Bank held no real estate owned in 1994.
General and Administrative Expense
In 1995 general and administrative expenses decreased by $143,168 or
8.4% from $1,695,676 in 1994 to $1,552,508 in 1995. Compensation expense
decreased by $85,502 or 10.4% in 1995. Advertising expense decreased by $36,118
or 64.7%. Professional services expense decreased by $20,668 or 24.0%. All of
these reductions were part of a general effort to control expense levels.
General and administrative expenses increased by $80,136 or 4.96% from
$1,615,540 in 1993 to $1,695,676 in 1994. Compensation expense in 1994 increased
by $128,781 compared to 1993. This was due largely to the opening of a savings
branch in Marysville, California, as well as the severance paid to the former
President of the Bank who resigned on June 15, 1994. In 1994 data processing
expense decreased as the Bank had a full year of service with its new data
processing service bureau under the terms of a long term contract, compared to
the premiums paid to the prior servicing bureau in 1993 under the short term
contract that was in effect at the time. Occupancy expense increased largely as
a result of the opening of the branch office.
40
<PAGE>
A comparison of general and administrative expense for 1995, 1994 and
1993 is provided below:
<TABLE>
<CAPTION>
General and Administrative Expenses
Years Ended December 31,
% Change % Change
1995 1995/1994 1994 1994/1993 1993
-------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Compensation and Benefits $ 736,085 (10.41)% $ 821,587 18.59% $ 692,807
Insurance 174,982 (0.01)% 175,863 (13.10)% 202,375
Occupancy and Equipment 206,676 (2.11)% 211,128 29.92% 162,508
Professional Services 65,304 (24.0)% 85,972 (36.13)% 134,605
Data Processing 88,018 3.32% 85,190 (27.24)% 117,089
Office Operating Expenses 118,087 8.57% 108,769 8.65% 100,105
Bank Processing Charges 76,706 15.02% 66,692 (6.72)% 71,497
Advertising 19,718 (64.69)% 55,836 5.95% 52,699
Federal and State Assessment and Fees 22,045 12.45% 19,604 (28.67)% 27,484
Loan Department Expenses 3,909 (68.56)% 12,432 (37.19)% 19,793
Other 40,978 (22.10)% 52,603 52.13% 34,578
--------- --------- ----------
Total General and
Administrative Expenses $1,552,508 (8.44)% $1,695,676 4.96% $1,615,540
========== ======= ========== ====== ==========
</TABLE>
Income Taxes and Extraordinary Items
SFAS 109 applies the asset and liability method in accounting for income
taxes. Under SFAS 109, deferred tax assets and liabilities are calculated
applying applicable tax laws to the differences between the financial statement
basis and tax basis of assets and liabilities currently recognized in the
financial statements. Deferred taxes are provided in the statement of operations
in the amount of the net change during the year of the deferred tax balances in
the statement of financial condition.
At December 31, 1995 the Bank had federal net operating loss
carryforwards (NOLs) of $930,564 for federal tax purposes. These NOLs begin
expiring in 2004. The Bank had $542,412 of State NOLs for State Income Tax
purposes. These NOLs begin expiring in 1997 and are not expected to be fully
utilized. The Bank has partially reserved these NOLs in order to account for the
likelihood of the NOLs expiring partially unused. Utilization of the NOLs in
future years may be limited by the provisions of IRS Section 382, which reduces
the amount of NOL carryforwards that can be utilized in the event of a change in
stock ownership.
Income tax expense in 1995 was $54,930 lower than in 1994. The effective
tax rate was substantially lower in 1995, as a percentage of net income before
income taxes than in 1994. This was a result of the filing of amended tax
returns for 1990, 1991, 1992 and 1993 in order to take advantage of Enterprise
Zone deductions for state income tax purposes. In addition the Bank changed its
method of accounting for bad debts in 1995 for state tax purposes which resulted
in the utilization of expiring California NOLs. The net tax benefit of these
events is $107,394.
In 1994 income tax expense increased by $72,675 as the Bank was unable
to earn income free of tax expense to the degree it had in 1993. This was
because the asset from NOLs was offset by the
41
<PAGE>
tax liability due to the excess of tax bad debt reserve over the bad debt
reserve recognized for financial reporting.
Financial Condition at December 31, 1995 and 1994
Total assets at December 31, 1995 amounted to $64,629,739, representing
a 1.84% or $1,167,242 increase from the $63,462,497 reported at year end 1994.
The increase in assets was fully attributable to an increase in loans receivable
in 1995 compared to 1994. Total loans receivable, including loans held for sale,
increased by $1,544,069 to $59,903,639 at December 31, 1995 compared to
$58,359,570 at December 31, 1994. Total savings deposits increased by $7,659,384
from December 31, 1994 to December 31, 1995. Advances from Federal Home Loan
Bank decreased from $10,375,000 at December 31, 1994 to $3,400,000 at December
31, 1995.
Impact of Changing Prices
The impact of changing prices on a financial institution differs
significantly from that exerted on an industrial concern primarily because a
financial institution's assets and liabilities consist largely of monetary
items. The most direct effect of changing prices is changing interest rates.
However, the Bank's earnings are affected by the spread between the yield on
interest-earning assets and the rates paid on interest-bearing liabilities
rather than the absolute level of interest rates. The effects of inflation on
premises and equipment and on non-interest expense have not been significant.
Liquidity and Capital Resources
Liquidity represents the ability of the Bank to meet the requirements of
customers for loans and deposit withdrawals in a timely and cost-effective
manner. Liquidity management focuses on the ability to obtain funds with varying
terms in the market place and to maintain assets which may be immediately
converted into cash at a minimal cost. Funds are provided primarily by deposits
which include checking accounts, passbook savings, money market accounts and
certificates of deposit. Deposits were $57,405,955 and $49,746,751 at December
31, 1995 and 1994, respectively.
Liquid assets (cash and cash equivalents, certificates of deposits and
investments held to maturity) at December 31, 1995 and 1994 amounted to
$3,046,276 and $3,202,647, respectively. The minimum regulatory level for
liquidity is currently set by OTS regulations at 5% of average deposits and
advances. The regulatory liquidity ratio of the Bank was 5.08% and 5.18% at
December 31, 1995 and 1994, respectively.
In addition, funds available for liquidity are provided by
both short-and long-term borrowing. To a degree, the Bank has used
42
<PAGE>
borrowings from the Federal Home Loan Bank of San Francisco to supplement its
other sources of liquidity. At December 31, 1995 such borrowings amounted to
$3,400,000 as compared to $10,375,000 at December 31, 1994.
Shareholders' equity increased $351,029 or 10.98% from year end 1994 due
to net income during the twelve months ended December 31, 1995.
Yields Earned and Rates Paid
The Bank's results of operations depend primarily upon the spread
between the income it receives from loans, its investment portfolio and other
interest-earning assets, and its cost of funds, consisting of the interest paid
by it on deposits, borrowings and other interest-bearing liabilities.
Fluctuations in income from investment securities are dependent upon the amount
invested during the period and interest rate levels on such securities.
Competition generally dictates the rates received on loans and the rates paid on
deposits. The loan portfolio yield changes principally as a result of the
repricing of adjustable rate loans, which constitute a majority of the Bank's
total loans outstanding and, to a lesser degree, existing mortgage loan
repayments as well as the rates and volume of mortgage loans originated.
The Bank's lending activities are and will be concentrated in the
origination of adjustable rate residential loans for its own portfolio and the
origination of fixed rate loans for sale in the secondary market. See "BUSINESS
- - Lending Activities," herein. As a result of this emphasis, the ratio of loans
adjusting to market rates to total loans receivable was 95.7% as of December 31,
1995.
A substantial portion of the Bank's loan portfolio is tied to an index
that will tend to change more slowly than market interest rates. Many of the
adjustable rate loans have limits on the amount that their interest rates may
change every six months as well as limits on the amount that their interest
rates may change during the life of the loan. During much of 1995, the Bank
experienced a substantial reduction in net interest income as loans repriced
much more slowly than deposits as a result of the lagging index on most of the
Bank's adjustable rate loans as well as the limits on changes. The spread
increased later in the year as interest rates paid for deposits and borrowings
declined at the same time that loan interest rates increased due to the lag
effect of the adjustable rate loans.
43
<PAGE>
The following table presents an interest rate repricing analysis as of
December 31, 1995. Amounts are stated as repricing based upon contractual terms,
other than the expected impact of loan repayments, which are estimates of
anticipated prepayments of long-term real estate loans.
<TABLE>
<CAPTION>
Interest Rate Repricing Analysis
As of December 31, 1995
(dollars in thousands)
Maturity/Repricing Interval
Within 1-3 4-5 6-10 Over 10
Balance One Year Years Years Years Years
Interest Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Real estate loans (1) .......... $59,941 57,276 $ 110 $ 315 $ 0 $ 2,240
Other Loans ............................ 30 30 0 0 0 0
Investments ............................ 2,747 2,747 0 0 0 0
------- ------- ------- ------- ------- -------
62,718 60,053 110 315 0 2,240
Expected impact of
loan repayments ........................ 0 2,375 (25) (110) 0 (2,240)
------- ------- ------- ------- ------- -------
62,718 62,428 85 205 0 0
------- ------- ------- ------- ------- -------
Interest Bearing
Liabilities
Deposits ............................... 56,196 47,454 5,706 3,036 0 0
Federal Home Loan
Bank advances .......................... 3,400 3,400 0 0 0 0
------- ------- ------- ------- ------- -------
59,596 50,854 5,706 3,036 0 0
------- ------- ------- ------- ------- -------
Repricing Gap .............................. $ 3,122 $11,574 ($5,621) $(2,831) $ 0 $ 0
======= ======= ======= ======= ======= =======
Cumulative Gap ............................. $11,574 $ 5,953 $ 3,122 $ 3,122 $ 3,122
======= ======= ======= ======= =======
Cumulative Gap as a
percentage of Total Assets ............... 18.5% 9.5% 5.0% 5.0% 5.0%
======= ======= ======= ======= =======
</TABLE>
(1) Total principal balance less non-accrual loans.
The preceding table does not necessarily indicate the impact of general
interest rate movements on the Bank's net interest income because the repricing
of various assets and liabilities can be discretionary and is subject to
competition and other pressures. As a result, assets and liabilities indicated
as repricing within the same period may in fact reprice at different times and
different rate levels.
44
<PAGE>
The following table sets forth the Bank's average balances; weighted
average yield on loans and investments; interest rates paid on deposits and
borrowings and the spread between yields earned and rates paid by the Bank at
and for the periods indicated. Month-end balances were used in computing
weighted averages.
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in Thousands)
Year Ended December 31,
1995 1994 1993
Yield/ Yield/ Yield/
Volume Interest Cost Volume Interest Cost Volume Interest Cost
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Time deposits, Fed Funds and
interest earning bank deposits $ 2,881 $ 156 5.41% $ 2,661 $ 99 3.71% $ 2,817 $ 91 3.23%
------ ----- ------ ----- ------ -----
Loans:
Real estate 60,052 4,406 7.34 56,289 3,818 6.78 45,278 3,499 7.73
Commercial and other 129 12 9.30 136 11 7.99 260 20 7.66
----- ------ ------ ----- ------ -----
Total loans 60,181 4,418 7.34 56,425 3,829 6.79 45,538 3,519 7.73
------ ------ ------ ----- ------ ------
Total earning assets 63,062 4,574 7.25 59,086 $3,928 6.65 48,355 $3,610 7.47
===== =====
Cash and equivalents 324 291 130
Premises and equipment 634 977 862
Other assets 362 197 1,220
---- ------ -----
TOTAL ASSETS $64,382 $60,551 $50,567
====== ====== ======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Customer deposits:
Transaction accounts $13,965 382 2.74 $14,869 $ 374 2.51% $11,679 $ 315 2.70%
Time accounts 42,769 2,523 5.90 34,442 1,530 4.42 33,080 1,503 4.54
------ ----- ------ ----- ------ -----
Total customer deposits 56,734 2,905 5.12 49,311 1,904 3.85 44,759 1,818 4.06
Borrowings and FHLB advances 3,566 234 6.56 7,641 367 4.91 2,900 90 3.10
------ --- ---- ------ ----- ------ -----
Total interest-bearing liabilities 60,300 3,139 5.21 56,952 2,271 3.99 47,659 1,908 4.00
----- -----
Other liabilities 789 460 58
Stockholders' equity 3,293 3,139 2,850
------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $64,382 $60,551 $50,567
====== ====== ======
Net interest income/interest rate
rate spread $1,435 2.04% $1,656 2.66% $1,702 3.47%
===== ===== =====
Net yield on average interest-
earning assets 2.28% 2.80% 3.52%
</TABLE>
Net interest income decreased substantially in 1995 compared to 1994 as
a result of the decrease in interest rate spread in 1995 compared to 1994. While
net interest income showed a substantial increase due to higher volume this was
more than offset by the decline due to rate change. Net interest income
decreased substantially in 1994 compared to 1993 as a result of the decrease in
interest rate spread in 1994 compared to 1993. The decline in interest rate
spread more than offset the
45
<PAGE>
substantial increase in interest earning assets in 1994 compared
to 1993.
The following table presents a rate/volume analysis of interest income
and expense on interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
Years Ended December 31,
1995 vs. 1994 1994 vs. 1993
Increase (Decrease) Increase (Decrease)
Due to: Due to:
Volume Rate Total Volume Rate Total
(dollars in thousands)
Interest income(1)
<S> <C> <C> <C> <C> <C> <C>
Time deposits with banks $ 8 $ 49 $ 57 $ (5) $ 12 $ 7
------ ------ ------ ------- ------- -------
Loans:
Real estate 255 333 588 851 (533) 318
Commercial and other 0 1 1 (9) 1 (8)
------ ------ ------ ------ ------- -------
Total loans 255 334 589 842 (532) 310
------ ------ ------ ------ ------- -------
Total interest-
earning assets $263 $383 $646 $837 $(520) $317
====== ====== ====== ====== ======= =======
Interest expense
Customer deposits:
Savings, Now, Money Market $(23) $31 $8 $ 86 $ (28) $ 58
Time 491 502 993 62 (42) 20
---- ----- ----- ------ ------ ------
Total customer deposits 468 533 1,001 148 (70) 78
FHLB of San Francisco
and other borrowings (267) 134 (133) 147 138 285
----- ----- ----- ------ ------- ------
Total interest bearing
liabilities 201 667 868 295 68 363
----- ----- ----- ------ ------- ------
Net interest income before
provision for losses 62 (284) (222) $ 542 $ (588) $ (46)
===== ===== ====== ====== ======= ======
- ---------------
(1) The volume-rate combined variances have been allocated to the volume variance.
</TABLE>
46
<PAGE>
Loan Portfolio Analysis
In 1993 the Bank funded $25,631,490 in residential loans of which
$14,512,238 were fixed rate loans that were sold in the secondary market and
$11,119,252 of adjustable rate loans that were retained by the Bank. In 1994 the
Bank funded $20,359,778 of residential real estate loans of which $4,303,690
were sold in the secondary market. In 1995 the Bank funded $24,445,935 in real
estate loans of which $20,311,648 were sold in the secondary market.
The following table shows at the dates indicated the dollar amount and
percentage of the Bank's portfolio and loans held for sale by type of loan and
by type of security.
<TABLE>
<CAPTION>
At December 31,
1995 1994
Amount Percentage Amount Percentage
Type of Loan
REAL ESTATE LOANS SECURED BY:
<S> <C> <C> <C> <C>
One to four family residences $34,620,128 57.8% $31,492,668 54.0%
More than four family residences 12,661,111 21.1% 12,835,601 22.0%
Improved commercial properties 12,410,827 20.7% 13,261,914 22.7%
Construction - net 601,046 1.0% 1,888,769 3.3%
Land 89,104 0.2% 29,464 0.0%
----------- ----- ----------- -----
Total real estate loans 60,382,216 100.8% 59,508,416 102.0%
Allowance for estimated losses-
real estate loans (414,109) (0.7)% (467,270) (0.8)%
------------ ------ ------------ ------
Total real estate loans - net of
allowance 59,968,107 100.1% 59,041,146 101.2%
----------- ------ ----------- ------
Commercial loans:
Secured 13,430 0.0% 23,229 0.0%
Unsecured 16,257 0.0% 0 0.0%
Loans on savings accounts 118,224 0.2% 50,398 0.1%
----------- ----- ----------- -----
Total commercial and other loans 147,911 0.2% 73,627 0.1%
Allowance for estimated losses -
commercial and other loans (891) (0.0)% (697) (0.0)%
------------ ------ ------------ ------
Total commercial and other loans
net of allowance 147,020 0.2% 72,930 .1%
------------ ----- ----------- -----
Undisbursed loan funds 3,746 (529,732) (0.9)%
Deferred loan fees (207,742) (0.3)% (224,774) (0.4)%
------------ ------ ------------ ------
Total loans receivable - net $59,903,639 100.0% $58,359,570 100.0%
============ ====== ============ ======
</TABLE>
Contractual Maturities of Loans
The following table presents information regarding loan maturities and
contractual principal repayments by categories of loans during the periods
indicated.
<TABLE>
<CAPTION>
COMMERCIAL
REAL ESTATE AND
YEAR ENDING MORTGAGE OTHER
DECEMBER 31, 1995 LOANS LOANS TOTAL
- ----------------- ----------- ----------- --------
<S> <C> <C> <C>
Within One Year $ 597,300 $ 92,024 $ 689,324
One to Five Years 2,048,802 39,632 2,088,434
Over Five Years 57,730,622 16,256 57,746,878
----------- ----------- -----------
TOTAL $60,376,724 $ 147,912 $60,524,636
=========== =========== ===========
LOANS DUE AFTER ONE YEAR:
ADJUSTABLE
RATE $57,937,562 $ 29,687 $57,967,249
FIXED RATE 1,841,862 26,201 1,868,063
----------- ----------- -----------
TOTAL $59,779,424 $ 55,888 $59,835,312
=========== =========== ===========
</TABLE>
47
<PAGE>
Contractual maturities of loans do not reflect the actual life of the
loan portfolio. The average life of mortgage loans is substantially less than
their contractual terms because of loan prepayments and because of enforcement
of due-on-sale clauses, which gives the Bank the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. Most
of the Bank's loan portfolio consists of adjustable rate real estate loans. The
risk of adverse interest rate movements for adjustable rate loans is determined
by the repricing characteristics rather than their contractual maturities.
Summary of Loan Loss Experience
OTS regulations require all insured institutions to review their asset
portfolios, classify all or portions of problem assets as "substandard,"
"doubtful," "loss" or "special mention," depending on the presence of certain
characteristics, and to set aside appropriate valuation allowances or reserves
on the basis of such self-classification. "Substandard" assets are defined as
those which have a well-defined weakness or weaknesses and are inadequately
protected by the obligor's current net worth and paying capacity or by the
pledged collateral. "Doubtful" assets are defined as those having all the
weaknesses inherent in "substandard" assets, with the added characteristic that,
given the surrounding circumstances, the weaknesses make collection or
liquidation in full highly questionable and improbable. Assets classified "loss"
are those considered uncollectible. Finally, assets deserving "special mention"
are those not currently presenting a degree of risk warranting one of the above
classifications but possessing credit deficiencies or potential weaknesses
deserving management's close attention.
Under OTS regulations, general valuation allowances or reserves are
required to be established for assets classified as "substandard" or "doubtful."
Assets classified as "loss" may either be charged off or reserves of 100% of
loan balance must be established for them. An institution's determination as to
the classification of its assets and the amount of valuation allowance are
subject to review by the institution's examiner or the Regional Director of the
OTS, who could require the establishment of additional general loss allowances.
The effect of establishing specific valuation allowances for problem
assets classified as "doubtful" and "loss" is to reduce the Bank's regulatory
capital by the amount of such specific valuation allowances. The Bank regularly
reviews the problem loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations.
48
<PAGE>
A summary of activity in the allowance for loan losses for the Bank is
as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995 1994
- ------------------------------- ---- ----
<S> <C> <C>
Balance at beginning of period $467,967 $365,000
Charge-offs (53,465) 0
Recoveries 1,470 113,834
-------- --------
Net Recoveries 415,972 478,834
Provision credited to expense (972) (10,867)
-------- -------
Balance at End of Period $415,000 $467,967
======== ========
Loans outstanding at end of period
(net of deferred loan fees and
undisbursed loan funds) $60,318,639 $58,826,840
=========== ===========
Average loans outstanding $59,971,500 $55,696,615
=========== ===========
Ratio of the Allowance to Loans at
end of period 0.69% 0.80%
Ratio of Net Recoveries to
Average Loans 0.00% 0.02%
</TABLE>
The Bank's Board of Directors has established an internal asset review
policy that, among other things, establishes procedures for management to
evaluate the risk in the Bank's loan portfolio, to provide for adequate reserves
and to provide for timely charge off of loans and other real estate owned.
The Internal Asset Review Committee of the Board of Directors may review
all loans funded to determine that all necessary and proper credit rating
procedures were utilized in the processing of the loan. All loans past due 30
days or more are reviewed by management and the Board of Directors monthly. Once
a loan becomes past due as to principal and interest for a period of 60 days (90
days for 1-4 unit residential loans), the loans may be submitted to the Internal
Asset Review Committee and may be assigned a new "Borrower Risk Rating" based on
the credit worthiness of the borrower. In addition to the payment performance of
a loan, the Internal Asset Review Committee reviews the classification of loans
with respect to past-due property taxes, deferred maintenance of collateral or
other material information which may come to the attention of the Bank. The
Internal Asset Review Committee may also select at random certain loans for
review and inspection as a matter of course. Loans are classified according to
the risk rating assigned.
49
<PAGE>
At December 31, 1995 and 1994, the Bank established specific reserves of
$0 and $102,967, respectively, for various loans, based on an asset-by-asset
review of its internally classified assets. In addition, in 1995 and 1994, the
Bank established a general valuation allowance in the amount of $415,000 and
$365,000, respectively, based upon percentages of different types of assets in
the Bank's portfolio. The reserve for loan losses is maintained at an amount
management deems adequate to cover estimated losses. In determining the level to
be maintained, management evaluates many factors, including current economic
trends, industry experience, historical loss experience, industry loan
concentrations, the borrower's ability to repay and repayment performance,
estimated collateral values and information provided through regulatory
examinations. In the opinion of management, the present reserve is adequate to
absorb reasonably foreseeable loan losses.
At December 31, 1995 the Bank had $427,369 in assets internally
classified and $537,350 at December 31, 1994. The decrease was the result of the
foreclosure and subsequent sale of the collateral for one loan.
The following table sets forth the allocation of the allowance for loan
losses at December 31, 1995 and 1994. The allocation table should not be
interpreted as an indication of the specific amounts or the relative proportion
of future changes to the allowance. The allocation amounts are based upon
specific reserves for certain internally classified loans and a percentage of
remaining loans.
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
1995 1994
Percent of Percent of
loans in each loans in each
category to category to
Amount Total Loans Amount Total Loans
Balance at end of period
applicable to:
<S> <C> <C> <C> <C>
Real estate $414,109 99.8% $467,270 99.9%
Commercial and other 891 0.2% 697 0.1%
------- ----- -------- ------
$415,000 100.0% $467,967 100.0%
======== ====== ======== ======
</TABLE>
Non-Accrual Loans
The Bank's policy on non-accrual loans is that only loans regarded
collectible as to both principal and interest accrue interest. Management will
review monthly all past-due loans. All loans 90 days past due, unless fully
secured and in the process of collection, are placed on non-accrual status.
After a decision has been made to place a loan on non-accrual, management will
immediately charge all accrued interest on that loan against current earnings.
From that point on, all interest collected will be applied to current income on
a cash basis. At December 31, 1994 one loan in the amount of $113,300 was on
non-accrual status. At
50
<PAGE>
December 31, 1995 two loans in the amount of $436,978 were on non-accrual
status.
Real Estate Owned
During 1995 two loans in the amount of $216,147 were foreclosed on. An
allowance for loss was set up in the amount of $53,465. This allowance was
removed upon the sale of the property. The Bank earned $31,293 on the sale of
the property. At December 31, 1995 the Bank held $104,768 in Real Estate Owned.
No valuation allowance is held against this property because it is the opinion
of management that full recovery of the asset value is expected upon sale of the
property.
Investments in Securities and Certificates of Deposit
Income from interest on fed funds, bank balances, treasury securities
and certificates of deposit was $155,803 and $98,791 during the years ended
December 31, 1995 and 1994, respectively.
The Bank is required under federal regulations to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and is also permitted to make certain other securities investments. The Bank's
investment practices allow for investment in certificates of deposit insured by
the FDIC. Investment decisions are made by authorized officers of the Bank under
guidelines established by the Board of Directors.
At both December 31, 1995 and 1994, the Bank had $1,368,000 of
certificates of deposit issued by various savings institutions whose deposits
are insured by FDIC. At December 31, 1995 and 1994 the Bank held $400,000 of
Treasury notes. See "Notes to Consolidated Financial Statements" for the book
value, maturities and weighted average yield on the Bank's investment portfolio.
Deposit Analysis
The distribution of maturities on time certificate accounts and other
liabilities is an indicator of the relative stability of a savings bank's supply
of lendable funds. The Bank's strategy is to extend the maturities of its time
certificate accounts to more adequately match the maturities or rate adjustment
dates of its loans.
The following table sets forth the amounts of time deposits by
categories of interest rates at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
Interest Rate 1995 1994
- ------------- ---- ----
<S> <C> <C>
Less than 4% $ 163,488 $ 3,905,468
4.00% to 6.00% 20,821,305 25,599,646
6.01% to 8.00% 20,978,178 6,798,019
8.01% and above 0 0
----------- -----------
Total $41,962,971 $36,303,133
=========== ===========
</TABLE>
51
<PAGE>
The following table shows the maturity distribution of the Bank's time
certificates of deposit in amounts of $100,000 or more at December 31, 1995
Maturity Schedule Amount
Less than 3 months $1,798,309
3 months to 6 months 1,547,824
6 months to 12 months 1,157,910
over 12 months 1,087,965
----------
Total $5,592,008
Borrowings
A traditional thrift industry source of borrowings is advances from the
Federal Home Loan Bank System. Such borrowings may be made by the Bank pursuant
to several different credit programs offered from time to time by the FHLB of
San Francisco. Each credit program has its own interest rates and range of
maturities, and the FHLB of San Francisco prescribes the acceptable uses to
which the advances pursuant to each program may be put as well as limitations on
the size of the advances. Depending upon the credit program used, the FHLB of
San Francisco advances bear interest at fixed rates or at rates that vary with
market conditions. Under FIRREA, the ability of savings banks, including the
Bank, to secure advances from the Federal Home Loan Bank System is subject to
stricter regulation. See "SUPERVISION AND REGULATION - Federal Home Loan Bank
System."
The following table sets forth information concerning the Bank's
borrowings from the FHLB at the dates indicated.
For the Year Ended December 31,
1995 1994
FHLB Borrowings
Amount outstanding at
end of period $ 3,400,000 $10,375,000
Average balance outstanding $ 3,600,000 $ 8,500,000
Maximum amount outstanding
at any month-end $ 6,850,000 $10,475,000
Weighted average interest
rate on amounts outstanding
at end of period 6.12% 6.19%
Weighted average interest
rate (1) 6.51% 4.41%
- ----------------------
(1) Weighted average interest rate is equal to total interest accrued during
the respective period divided by total borrowings during the respective
period.
52
<PAGE>
Regulatory Capital
As of December 31, 1992, OTS regulations set the minimum risk- based
capital requirement at 8% of risk weighted assets, the minimum leverage capital
requirement at 3% of adjusted total assets and the minimum tangible capital
requirement at 1.5% of adjusted total assets. In addition, the OTS has adopted
rules, effective January 1994, which require savings institutions to incorporate
an interest-rate risk component into the OTS's risk-based capital rules. At
December 31, 1995, the Bank had the following minimum regulatory capital
requirements and regulatory capital positions.
Capital Requirement Actual Required Excess
Tangible capital $3,549,000 $ 970,000 $2,579,000
Tangible capital ratio 5.49% 1.50% 3.99%
Core capital $3,549,000 $1,939,000 $1,610,000
Core capital ratio 5.49% 3.00% 2.49%
Risk-based capital $3,964,000 $3,107,000 $ 857,000
% of risk-weighted assets 10.20% 8.00% 2.20%
In addition to the OTS minimum regulatory capital requirements, FDICIA
has created categories for the purpose of determining when supervisory or other
corrective action is appropriate. See "BUSINESS - SUPERVISION AND REGULATION -
Federal Deposit Insurance Corporation Improvement Act of 1991 - Prompt
Corrective Action." The five capital categories are well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
The rules provide that a savings association is "adequately capitalized"
if its total risk-based capital ratio is 8% or greater, its Tier 1 risk-based
capital ratio is 4% or greater, its leverage ratio is 4% or greater, and the
institution is not subject to a capital directive.
As used herein, total risk-based capital ratio means the ratio of total
capital to risk-weighted assets, Tier 1 risk-based capital ratio means the ratio
of core capital to risk-weighted assets, and leverage ratio means the ratio of
core capital to adjusted total assets, in each case as calculated in accordance
with current OTS capital regulations.
53
<PAGE>
At December 31, 1995 the Bank had the following regulatory capital
calculated in accordance with FDICIA's capital standards using "adequately
capitalized" guidelines:
Actual Required
Leverage $3,549,000 $2,586,000
Leverage ratio 5.49% 4.00%
Tier 1 risk-based 3,549,000 l,551,000
Tier 1 risk-based ratio 9.14% 6.00%
Total risk-based 3,964,000 3,107,000
Total risk-based ratio 10.21% 8.00%
Recently Issued Accounting Standards to be Adopted
In October 1995, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation". The new standard defines a fair value method of
accounting for stock options and other equity instruments, such as stock
purchase plans. Under this method, compensation cost is measured based on the
fair value of the stock award when granted and is recognized as an expense over
the service period, which is usually the vesting period. This standard will be
effective for the Bank beginning in 1996, and requires measurement of awards
made beginning in 1995.
54
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For a list of financial statements of the Bank filed with this report,
see "Item 13 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K"
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements between the Bank and
its accountants on accounting and financial disclosures.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)
EXHIBIT INDEX
Sequentially
Exhibit No. Exhibit Numbered Page
2 Not applicable
3.1 Federal Stock Charter (3)
3.2 Bylaws of the Bank (4)
4 Warrant Agreement and Form
of Warrant (2)
9 Not Applicable
10.1 Employment Agreement by and
between the Bank and Philip
E. Safran, Senior Vice
President and Chief Financial
Officer of the Bank dated
June 1, 1993 (5)
10.2 Employment Agreement by and
between the Bank and Gregory A.
Pater, Vice President/Wholesale
Mortgage Banking Division of
the Bank dated March 1, 1995 82
10.3 Form of Escrow Agreement by and
between the Bank and First
Interstate Bank, Ltd. (1)
10.4 Employment Agreement by and
between the Bank and W. R.
Hagstrom, President and Chief
Executive and Loan Officer of
the Bank dated June 20, 1994 (6)
10.5 Amendment No. 1 to Employment
Agreement by and between Philip
E. Safran, Senior Vice President
and Chief Financial Officer of
the Bank dated June 1, 1994 (11)
10.6 Amendment No. 1 to Employment
Agreement by and between W. R.
Hagstrom, President and Chief
Executive Officer and Loan Officer
of the Bank dated June 20, 1995 90
10.7 Employee Stock Option Plan (7)
10.8 Directors' Stock Option Plan (8)
55
<PAGE>
10.9 Employee Stock Option Agreement (9)
10.10 Directors' Stock Option Agreement (10)
10.11 Amendment No. 2 to Employment
Agreement by and between Philip
E. Safran, Senior Vice President
and Chief Financial Officer of
the Bank dated June 1, 1995 91
11 Not Applicable
12 Not Applicable
13 Not Applicable
16 Not Applicable
18 Not Applicable
21 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
27 Not Applicable
28 Not Applicable
99 Not Applicable
(1) Filed as Exhibit 10.3 to the Bank's Preliminary Offering Circular on
Form OC, which is incorporated by reference.
(2) Filed as Appendix B to the Bank's Preliminary Offering Circular on
Form OC, which is incorporated by reference.
(3) Filed as Exhibit 3.1 to the Bank's Annual Report on Form 10-KSB dated
December 31, 1993.
(4) Filed as Exhibit 3.2 to the Bank's Annual Report on Form 10-KSB dated
December 31, 1993.
(5) Filed as Exhibit 10.1 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1993.
(6) Filed as Exhibit 10.4 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1994.
(7) Filed as Exhibit 10.6 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1993.
(8) Filed as Exhibit 10.7 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1993.
56
<PAGE>
(9) Filed as Exhibit 10.8 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1993.
(10) Filed as Exhibit 10.9 to the Bank's Annual Report on Form 10-KSB
dated December 31, 1993.
(11) Filed as Exhibit 10.5 to the Bank's Annual Report on Form 10-KSB date
December 31, 1994.
(b) No reports on Form 8-K were filed during the fourth quarter of 1995.
57
<PAGE>
FINANCIAL STATEMENTS INDEX
Page
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Income F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
In accordance with Regulation S-X, the financial statement schedules have
been omitted because (a) they are not applicable to or required of the Bank; or
(b) the information required is included in the financial statements or notes
thereto.
58
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 26, 1996
SUTTER BUTTES SAVINGS BANK, F.S.B.
By: /s/ W. R. Hagstrom
W. R. Hagstrom
President, Chief Executive Officer
and Chief Loan Officer
(Principal 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.
Signature Title Date
/s/ Lee 'B' Colby Director and March 26, 1996
- ------------------------- Chairman of the Board
/s/ W. R. Hagstrom President, Chief March 26, 1996
- ------------------------- Executive Officer
and Chief Lending
Officer and Director
/s/ Philip E. Safran Senior Vice President
- ------------------------- and Chief Financial
Officer (Principal
Financial Officer) March 26, 1996
/s/ Jon Beard Director March 26, 1996
- -------------------------
/s/ James L. Harrison Director March 26, 1996
- -------------------------
/s/ George Murray Director March 26, 1996
- -------------------------
/s/ Lonny L. Renfrow Director March 26, 1996
- -------------------------
/s/ Don J. Strachan Director March 26, 1996
- -------------------------
59
<PAGE>
Supplemental Information to be Furnished with Reports Filed
Pursuant to Section 15(d) of the Exchange Act
by Non-reporting Issuers
(a) (1) The Bank's 1995 Annual Report to Shareholders will be sent to
shareholders on or about April 30, 1996, along with the Bank's 1996 Proxy
Materials. At that time, four (4) copies of the Bank's Annual Report to
Shareholders will be submitted to the Office of Thrift Supervision ("OTS") for
the information only of the OTS. Such information will not be deemed to be
"filed" or subject to the liabilities of Section 18 of the Exchange Act.
60
<PAGE>
<PAGE>
EXHIBIT 99.5
DEPARTMENT OF THE TREASURY
OFFICE OF THRIFT SUPERVISION
OFFICE OF THE CHIEF COUNSEL
CORPORATE AND SECURITIES DIVISION
1700 "G" STREET, N.W.
WASHINGTON, D.C. 20552
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
OTS Docket Number: 7931
SUTTER BUTTES SAVINGS BANK, F.S.B.
(Exact name of small business issuer as specified in its charter)
United States 94-2793476
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Plumas Street, Yuba City, California 95991
(Address of principal executive offices) (Zip Code)
(916) 673-7283
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the past 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
There were 635,580 shares of Common Stock and 232,200 shares of the Series A
Preferred Stock of the registrant outstanding as of May 13, 1996.
Transitional Small Business Disclosure Format:
Yes No X
This report includes a total of 13 pages. Exhibit Index is on page 12.
1
<PAGE>
PART 1.
ITEM 1. FINANCIAL STATEMENTS
SUTTER BUTTES SAVINGS BANK, F.S.B.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,769,083 $1,260,414
Certificates of deposit 1,373,000 1,386,000
Held to maturity securities 399,908 399,862
Loans, net of allowance for loan
losses of $415,000 57,898,522 57,724,860
Mortgage loans held for sale,
at the lower of cost or market 3,851,128 2,178,779
Interest receivable 392,665 389,171
Premises and equipment - net 539,285 556,912
Federal Home Loan Bank stock 478,800 480,148
Other real estate owned 104,768 104,768
Prepaid expenses and other assets 114,312 148,825
------------- -------------
TOTAL $66,921,471 $64,629,739
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Customer deposits $59,105,776 $57,405,955
Advances from Federal Home
Loan Bank 3,900,000 3,400,000
Other liabilities 301,507 275,072
------------ ------------
Total liabilities 63,307,283 61,081,027
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $5.00 par;
liquidation preference of $5.00;
5,000,000 shares authorized;
232,200 shares issued and outstanding 1,161,000 1,161,000
Common stock, $.01 par:
5,000,000 shares authorized;
626,743 and 625,438 shares issued
and outstanding 1,619,750 1,619,750
Additional paid-in capital 450,498 450,498
Retained earnings 382,940 317,464
------------- -------------
Total stockholders' equity 3,614,188 3,548,712
------------ ------------
TOTAL $66,921,471 $64,629,739
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
SUTTER BUTTES SAVINGS BANK, F.S.B.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996 March 31, 1995
(Unaudited)
INTEREST INCOME:
<S> <C> <C>
Loans $1,197,588 $1,020,975
Investments 34,586 36,604
----------- -----------
Total 1,232,174 1,057,579
---------- ----------
INTEREST EXPENSE:
Customer deposits 739,175 607,018
FHLB advances 44,974 120,424
---------- ----------
Total 784,149 727,442
---------- ----------
NET INTEREST INCOME 448,025 330,137
CREDIT TO ALLOWANCE FOR LOAN LOSSES 0 294
---------- ----------
NET INTEREST INCOME AFTER CREDIT TO
ALLOWANCE FOR LOAN LOSSES 448,025 330,431
NON-INTEREST INCOME:
Fees, service charges, and dividends 37,937 46,155
Gain on sale of loans 32,624 2,423
---------- ----------
INCOME BEFORE GENERAL AND
ADMINISTRATIVE EXPENSES 518,586 379,009
GENERAL AND ADMINISTRATIVE EXPENSES 407,121 373,385
---------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 111,465 5,624
PROVISION FOR INCOME TAXES 45,989 2,321
---------- ---------
NET INCOME $ 65,476 $ 3,303
======== ========
EARNINGS PER SHARE $.06 $ .00
==== =====
Weighted average number of shares
used in computation 1,181,618 1,141,819
</TABLE>
See notes to financial statements.
3
<PAGE>
SUTTER BUTTES SAVINGS BANK, F.S.B.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 232,200 $1,161,000 625,438 $1,619,750 $450,498 $317,464 $3,548,712
Net income 65,476 65,476
Exercise of Warrants 1,305
Balance, March 31, 1996 232,200 $1,161,000 626,743 $1,619,750 $450,498 $382,940 $3,614,188
======= ========== ======= ========== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SUTTER BUTTES SAVINGS BANK, F.S.B.
STATEMENTS OF CASH FLOWS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 65,476 $ 3,303
Reconciliation to net cash provided
by operating activities:
Depreciation and amortization 21,788 28,196
Gain on sale of real estate loans (32,624) (2,423)
Loans originated for sale (9,998,950) (517,950)
Proceeds from sale of loans 8,359,225 520,373
Changes in:
Interest receivable (3,494) (12,024)
Federal Home Loan Bank stock dividend (23,415) (5,600)
Prepaid expenses and other assets 59,276 (248,464)
Deferred loan fees 16,195 3,895
Other liabilities 26,435 43,303
---------- -----------
Net cash provided (used) by operating activities (1,510,088) (187,391)
----------- -----------
INVESTING ACTIVITIES:
Purchase of investments held to maturity
Maturities of investments held to maturity
Decrease (increase) in investments 12,954 (46)
Loans originated net of principal collections (189,857) (47,691)
Retirements (purchase) of equipment (4,161) 290,796
--------- ----------
Net cash provided (used) by investing activities (181,064) 243,059
---------- ----------
FINANCING ACTIVITIES:
Net increase in customer deposits 1,699,821 5,925,001
Net proceeds from (payments of) bank borrowings 500,000 (6,650,000)
--------- -----------
Net cash provided (used) by financing activities 2,199,821 (724,999)
--------- -----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 508,669 (669,331)
CASH AND EQUIVALENTS:
Beginning of Year 1,260,414 1,416,969
--------- ----------
1,769,083 $ 747,638
========= ==========
OTHER CASH FLOW INFORMATION:
Cash payments for:
Interest $784,149 $724,919
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
- ----------------------------------------------------------------
Notes to Financial Statements (Unaudited)
- -----------------------------------------------------------------
1) The accompanying interim financial statements have been prepared by the
bank in accordance with Generally Accepted Accounting Principles (GAAP).
All adjustments (consisting of only normal, recurring adjustments)which,
in the opinion of management, are necessary to present fairly the Bank's
financial position as of March 31, 1996 and December 31, 1995 and the
results of its operations, cash flows and statement of stockholders'
equity for the interim periods ended March 31, 1996 and 1995 have been
recorded.
The accompanying interim financial statements do not contain all
disclosures required by GAAP for complete financial statements. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and the related notes included in Form
10-KSB for the year ended December 31, 1995.
Operating results for interim periods are not necessarily indicative of
those expected for the full year.
2) Primary earnings per share is computed using the weighted average number
of common shares outstanding from the beginning of the period or date of
issuance, including preferred shares at a 1.98 to 1 common share
equivalent and the effect of weighted average unexercised warrants issued
and outstanding during the respective periods. Options to acquire common
shares are included in the earnings per share calculations.
3) The provision for income taxes for the periods presented is computed
using statutory Federal and State tax rates adjusted by recoveries of
previously charged off loans and by utilization of net operating losses
for federal purposes where applicable.
4) Certain reclassifications have been made in the 1995 financial
statements to conform with the 1996 presentation.
6
<PAGE>
- -----------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------
THE BANK
General
The Bank was originally chartered as a California state savings and loan
association by the Department of Savings and Loan ("DSL") in 1982 and began
operations on May 23, 1983. The Bank converted from a state chartered savings
and loan association to a federally chartered savings bank effective June 1,
1993.
The Bank conducts its business at three locations. The main savings
branch and executive office is located at 700 Plumas Street, Yuba City,
California 95991, a branch facility is located at 729 "E" Street, Marysville,
California 95901 and a wholesale mortgage banking division is located at 5355
Avenida Encinas, Carlsbad, California 92008.
The business of the Bank consists primarily of attracting deposits from
the general public and using those deposits, together with borrowings and other
funds, in the origination and servicing of loans secured by real estate and, to
a lesser extent, various types of consumer and commercial loans. The Bank
invests in short-term certificates of deposit, short term treasury securities
and federal funds.
Sutter Buttes' lending is focused primarily on existing or proposed
construction of one-to-four unit residential real estate. To a lesser extent,
loans are also originated on five or more unit residential real estate.
Beginning in 1995, the Bank began to originate non-residential real estate
loans. The principal sources of funds for the Bank's lending activities are
deposit accounts, repayments of existing loans and capital. The Bank obtains
additional funds through sales of loans and advances from the Federal Home Loan
Bank ("FHLB") of San Francisco. The Bank's principal source of income is
interest on loans. Its principal expenses are interest paid on savings accounts,
borrowings and expenses of its day-to-day operations.
The Bank is subject to examination and comprehensive regulation by the
OTS and the Federal Deposit Insurance Corporation ("FDIC"). The Bank is also a
member of the FHLB of San Francisco, which is one of the 12 regional banks
making up the Federal Home Loan Bank System. The Bank is further subject to
regulations of the Board of Governors of the Federal Reserve System ("FRS")
governing reserves required to be maintained against deposits and certain other
matters.
7
<PAGE>
The Offering
On January 31, 1992, the Bank completed an offering of a total of
232,200 shares or $1,161,000 of its Series A Preferred Stock at a price of $5.00
per share. The Preferred Stock is entitled to an annual, noncumulative 12% cash
dividend ($0.60) per share of Preferred Stock, if and as declared by the Board
of Directors.
Warrants
In the event that the Bank does not declare a Cash Dividend on the
Preferred Stock in any year, the holders of Preferred Stock receive an
immediately exercisable, non-transferable Warrant representing the right to
purchase a number of shares of Common Stock determined by dividing the cash
value of the 12% Cash Dividend ($0.60) by the book value of the underlying
Common Stock, per share, as of the end of the year in which the 12% Cash
Dividend was earned. The terms of the Warrants are governed by the Bank's
Charter and the respective Warrant Agreements. The Warrants have a term of five
(5) years and an exercise price of $0.01 per share for each share of Common
Stock subject thereto. As of March 31, 1996, the Bank had declared and issued
190,533 Warrants of which 49,715 remain unexercised. An additional 36,522
Warrants were earned as of December 31, 1995. These Warrants were issued April
12, 1996.
Stock Option Plans
On April 21, 1992, the Board of Directors of the Bank adopted the
Sutter Buttes Savings Bank's 1992 Employee Stock Option Plan for key, full-time
salaried officers and employees of the Bank and the 1992 Directors' Stock Option
Plan for all non-employee directors of the Bank.
There are presently reserved for issuance pursuant to options under the
Employee Plan a total of 141,781 shares and under the Directors' Plan a total of
47,260 shares. Options to purchase 45,500 shares have been granted under the
Employee Stock Option Plan and 47,240 shares have been granted under the
Directors' Stock Option Plan. The options are exercisable at varying dates
beginning October 31, 1992 for a ten year term. No granted options have been
exercised.
8
<PAGE>
Results of Operations
Three months ended March 31, 1996 and 1995
The following analysis pertains to the interim financial condition and
results of operations of Sutter Buttes Savings Bank at and for the quarter ended
March 31, 1996 and 1995.
The Bank's net income for the quarter ended March 31, 1996, was $65,476,
or $.06 per share, as compared to $3,303 or $.00 per share for the quarter ended
March 31, 1995. The increase of $62,173, or 1882.32% was primarily attributable
to an increase in net interest income as well as an increase in gain on sale of
real estate loans.
For the quarter ended March 31, 1996 and 1995, the Bank's return on
average assets was 0.40% and 0.02%, respectively; its return on average equity
was 7.41% and 0.41%, respectively. The Bank's average equity to average assets
ratio was 5.42% and 5.11%, respectively.
Net Interest Income
Gross interest income increased $174,595 or 16.51% to $1,232,174 for the
quarter ended March 31, 1996 from $1,057,579 for the three month period ended
March 31, 1995. The increase was principally due to an increase in loans
receivable in 1996 compared to 1995. Gross interest expense increased $56,707 or
7.80% to $784,149 in the period ending March 31, 1996 from $727,442 in the
period ended March 31, 1995. The increase was principally due to an increase in
deposits and borrowings outstanding in 1996 compared to 1995 . The increase in
deposits and borrowings was partially offset by a decrease in interest rates on
these liabilities.
Consequently, net interest income increased $117,888, or 35.71%, to
$448,025 in the three month period ended March 31, 1996 from $330,137 for the
same period ending March 31, 1995. The Bank's net interest margin as a percent
of average earning assets was 2.77% and 2.16%, for the three months ended March
31, 1996 and 1995, respectively.
Provision for Loan and Real Estate Losses
The credit to the allowance for loan losses for the quarter ended March
31, 1996 and 1995 was $0 and $294, respectively. These credit provisions were
primarily comprised of non-recurring recoveries of previously charged off loans.
The Bank's allowance for estimated loan losses as a percentage of total
loans at March 31, 1996 and December 31, 1995 was 0.67% and 0.71%, respectively.
9
<PAGE>
Non-Interest Income
For the three months ended March 31, 1996, non-interest income increased
$21,983 or 45.26% as compared to the three months ended March 31, 1995. The
change is due to an increase in the gain on sale of real estate loans as a
result of higher levels of loan originations generated by the Bank's mortgage
banking division in the quarter ended March 31, 1996 compared to the absence of
such activity during the same period in 1995.
General and Administrative Expense
General and administrative expenses were $407,121 for the first quarter
of 1996 compared to $373,385 for the first three months of 1995. This represents
an increase of $33,736 or 9.04%. The major component of the increase is an
increase in compensation of $17,189 or 9.62%. This increase is largely the
result of the establishment of the Wholesale Mortgage Banking Division. The
Division did not become active until the second quarter of 1995. Therefore its
expenses during the first quarter of 1995 were not significant. Office expense
increased by $10,557 or 32.27%. This was also attributable to the Wholesale
Mortgage Banking Division.
Income Taxes
For the three months ended March 31, 1996 and 1995, income taxes as a
percentage of income before taxes were 41.26% and 41.26%, respectively. While
the Bank is not currently paying income taxes, state and federal deferred income
taxes are being accrued for a future date when such taxes will be required to be
paid.
Financial Condition
Total assets at March 31, 1996 amounted to $66,921,471, representing a
$2,291,732 or 3.55% increase from $64,629,739 reported at year end 1995. Most of
the increase was represented by an increase of $1,672,349 in mortgage loans held
for sale. There were also increases in cash and equivalents as well as portfolio
loans held by the Bank.
Liquidity
Liquidity at March 31, 1995 amounted to $3,541,991, representing an
increase of $495,715 or 16.27% from $3,046,276, reported at year end 1995.
Liquidity for the savings and loan industry is measured as the ratio of cash and
eligible investments to the average sum of net withdrawable savings and
borrowings due within one year. The minimum regulatory level is currently set by
OTS regulations at 5%. The average regulatory liquidity ratio of the Bank was
5.07% and 5.08% at March 31, 1996 and December 31, 1995, respectively.
10
<PAGE>
Capital Resources
Shareholders' equity increased $65,476 during the three months ended
March 31, 1996 solely due to net income earned during the period. The capital
ratios for the Bank have increased since December 31, 1995 and are summarized
below for the period ended March 31, 1996.
CAPITAL REQUIREMENTS As Of March 31, 1996 (Amounts in 000's)
<TABLE>
<CAPTION>
Requirements Actual Excess
Dollars % Dollars % Dollars
<S> <C> <C> <C> <C> <C>
Tangible Capital $1,000 1.5% $3,614 5.40% $2,614
Core Capital 2,677 4.0 3,614 5.40% 937
Risk-based Capital 3,220 8.0 4,029 10.01% 809
</TABLE>
Note: Tangible and core capital requirements are based on the percentage of
tangible assets of $66,921,471. Risk-based capital requirements are based on
the percentage of risk-adjusted assets of $40,250,000.
Note: The shares of the Bank's Series A Preferred Stock, 232,200 shares of which
are issued and outstanding, are subject to redemption at any time by the Bank,
subject to OTS regulations and thirty days' written notice to the holders
thereof. The redemption price of the Series A Preferred Stock shall be the par
value per share plus any unpaid cash dividend, without interest, less warrants
previously exercised, and with the cancellation (redemption) of any outstanding
Warrants.
The Bank's core capital ratio of equity to assets decreased to 5.40% at
March 31, 1996 from 5.49% at December 31, 1995 as the result of first quarter
asset growth. The Bank's risk-based capital ratio of equity to risk-based
assets, decreased to 10.01% at March 31, 1996 from 10.21% at December 31, 1995,
also the result of asset growth. The addition of commercial real estate loans
was an additional factor.
As of March 31, 1996 the fully diluted book value per share of common
stock was $3.06. Book value per share is not necessarily indicative of the
market value of the Bank's stock.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, the Bank is occasionally made a party
to actions seeking to recover damages from the Bank. Any such actions are not
expected to have a material impact on the Bank's financial condition.
ITEM 2. CHANGES IN SECURITIES
No changes were made in the quarter ending March 31, 1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Item is inapplicable. The Bank has no such indebtedness.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
There was no submission of matters to a vote of security holders during
the first quarter ended March 31, 1996.
ITEM 5. OTHER INFORMATION
The Savings Association Insurance Fund (SAIF) recapitalization issue
still has not been resolved. It is management's belief that the FDIC assessment
to be imposed on the Bank will approximate 75 to 80 basis points of deposits.
The Bank will continue to meet all minimum regulatory capital requirements even
after the assessment has been paid.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
a. None
b. There were no reports filed on Form 8-K during the quarter ending
March 31, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUTTER BUTTES SAVINGS BANK, F.S.B.
Date: May 13, 1996 By: /s/ W. R. Hagstrom
------------------
W. R. Hagstrom
President and Chief Executive
Officer (Principal Executive
Officer)
Date: May 13, 1996 By: /s/ Philip E. Safran
--------------------
Philip E. Safran
Senior Vice President and
Chief Financial Officer
(Principal Accounting and
Financial Officer)
13
<PAGE>
<PAGE>
EXHIBIT 99.6
SUTTER BUTTES' PROXY STATEMENT RELATED TO THE 1995
ANNUAL MEETING OF SHAREHOLDERS, DATED APRIL 6, 1995.
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS APRIL 25,
1995 - 5:30 P.M.
TO THE SHAREHOLDERS:
The 1995 Annual Meeting of Shareholders (the "Annual Meeting") of Sutter
Buttes Savings Bank, F.S.B., a federally chartered savings bank (the "Bank"),
will be held at Sutter Buttes Savings Bank, F.S.B., 700 Plumas Street, Yuba
City, California, on Tuesday, April 25, 1995 at 5:30 p.m. for the following
purposes:
1. To elect Directors;
2. To ratify the appointment of Deloitte & Touche as the Bank's independent
public accountants for the 1995 fiscal year; and
3. To transact such other business as may properly come before the Annual
Meeting.
The names of the Board of Directors' nominees to be Directors of the
Bank are set forth in the accompanying Proxy Statement and are herein
incorporated by reference.
The Bylaws of the Bank provide for the nomination of directors in the
following manner: "The Board of Directors shall act as a nominating committee
for selecting management's nominees for election as directors. Except in the
case of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the Secretary at least twenty (20) days prior to the date of the annual
meeting. Upon delivery, such nominations shall be posted in a conspicuous place
in each office of the Savings Bank. No nominations for directors except those
made by the nominating committee shall be voted upon at the annual meeting
unless other nominations by shareholders are made in writing and delivered to
the Secretary of the Savings Bank at least twenty (20) days prior to the date of
the annual meeting, or, if the notice of annual meeting and proxy statement
shall be mailed to shareholders thirty (30) or fewer days prior to the annual
meeting, then nominations by shareholders may be made in writing and delivered
to the Secretary of the Savings Bank at least ten (10) days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Savings Bank. Ballots bearing the names
of all persons nominated by the nominating committee and by shareholders shall
be provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least twenty (20) days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon." NOMINATIONS NOT MADE IN
ACCORDANCE HEREWITH MAY, IN THE DISCRETION OF THE CHAIRPERSON OF THE MEETING, BE
DISREGARDED AND UPON THE CHAIRPERSON'S INSTRUCTIONS, THE INSPECTOR OF ELECTION
CAN DISREGARD ALL VOTES CAST FOR EACH SUCH NOMINEE. Any notice submitted in
accordance with the above procedure should be sent to Sutter Buttes Savings
Bank, F.S.B., 700 Plumas St., Yuba City, CA 95991.
Only shareholders of record at the close of business on March 22, 1995
are entitled to notice of and to vote at this Annual Meeting and any
adjournments thereof. Whether or not you plan to attend the Annual Meeting, you
may vote by promptly completing, signing and returning the enclosed proxy. You
may revoke your proxy at any time prior to the voting at the Annual Meeting.
By Order of the Board of Directors,
Barbara J. Thilo, Secretary
Yuba City, California
April 6, 1995
<PAGE>
Mailed to shareholders on or about April 6, 1995
PROXY STATEMENT
OF
SUTTER BUTTES SAVINGS BANK, F.S.B.
700 Plumas Street
Yuba City, California 95991
(916) 673-7283
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
the enclosed proxy by, and on behalf of, the Board of Directors of Sutter Buttes
Savings Bank, F.S.B. (the "Bank"), for use only at the 1995 Annual Meeting of
Shareholders of the Bank (the "Annual Meeting") to be held at Sutter Buttes
Savings Bank, F.S.B., 700 Plumas Street, Yuba City, California, at 5:30 p.m. on
Tuesday, April 25, 1995 and at all adjournments thereof. Only shareholders of
record on March 22, 1995 (the "Record Date") will be entitled to notice of and
to vote at the Annual Meeting. At the close of business on the Record Date, the
Bank had outstanding 581,193 shares of its $.01 par value Common Stock (the
"Common Stock"), 232,200 shares of its $5.00 par value Series A Preferred Stock
(the "Preferred Stock") and 175 Warrants to purchase a total of 95,265 shares of
Bank Common Stock.
Shareholders of the Bank's Preferred and Common Stock are entitled to
one vote for each share held except that in the election of directors each
shareholder has cumulative voting rights and is entitled to as many votes as
shall equal the number of shares held by such shareholder multiplied by the
number of directors to be elected and such shareholder may cast all his or her
votes for a single candidate or distribute such votes among any or all of the
candidates he or she chooses. An opportunity will be given at the Annual Meeting
prior to the voting for any shareholder who desires to do so to announce his or
her intention to cumulate his or her votes. The proxy holders are given
discretionary authority, under the terms of the proxy, to cumulate votes
represented by shares for which they are named in the proxy.
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to its exercise. It is revocable prior to the
Annual Meeting by an instrument revoking it or by a duly executed proxy bearing
a later date delivered to the Secretary of the Bank. Such proxy is also revoked
if the shareholder is present at the Annual Meeting and elects to vote in
person.
First Interstate Bank of California will assist the Bank in tabulation
of votes for the Annual Meeting. Abstentions and broker non-votes are counted
for purposes of determining the presence or absence of a quorum for the conduct
of business but are not counted for purposes of determining whether a proposal
has been approved.
Unless otherwise noted herein, each of the Bank's proposals described in
this Proxy Statement requires the affirmative vote of the holders of a majority
of the shares of the Bank represented and voting at the Annual Meeting, assuming
a quorum is present, with the Preferred and Common Stock each entitled to one
vote per share and voting collectively. Unless otherwise instructed, each valid
returned proxy which is not revoked will be voted in the election of directors
"FOR" the nominees of the Board of Directors and "FOR" Proposal No. 2, as
described in this Proxy Statement and, at the proxy holders' discretion, on such
other matters, if any, which may properly come before the Annual Meeting
(including any proposal to adjourn the Annual Meeting).
The Bank will bear the entire cost of preparing, assembling, printing
and mailing proxy materials furnished by the Board of Directors to shareholders.
Copies of proxy materials will be furnished to brokerage houses, fiduciaries and
custodians to be forwarded to the beneficial owners of the Preferred and Common
Stock. In addition to the solicitation of proxies by use of the mail, some of
the officers, directors and regular employees of the Bank may (without
additional compensation) solicit proxies, on behalf of the Board of Directors of
the Bank, by telephone or personal interview, the costs of which the Bank will
bear.
<PAGE>
PRINCIPAL SHAREHOLDERS
Common Stock
As of the Record Date, no person or group known to the Bank owned
beneficially more than five percent (5%) of the outstanding shares of its Common
Stock, except as described below:
Percentage of
Name of Beneficial Number of Shares Outstanding
Owner Beneficially Owned Common Stock
Lee 'B' Colby 67,644 (1) 11.22%
72 Fairway Drive
Chico, CA 95926
Woodland Tractor and 30,000 (2) 5.16%
Equipment Co., Inc.
Profit-Sharing Plan
P.O. Box 65
Woodland, CA 95695
- -----------------------------------
(1) Includes 3,360 shares held of record in the name of Mr. Colby's children and
1440 shares held of record in the name of Mr. Colby's grandchildren, over
which Mr. Colby has voting power pursuant to a power of attorney, 1,709
shares issuable upon exercise of a Warrant and 20,000 shares issuable upon
exercise of options granted pursuant to the Bank's Directors' Stock Option
Plan (the "Directors' Plan").
(2) Jeffrey A. Huckins is one of three trustees of the Woodland Tractor and
Equipment Co., Inc. Profit-Sharing Plan; additionally, Mr. Huckins owns
6,000 shares of Common Stock for his own account.
Preferred Stock
As of the Record Date, no person or group known to the Bank owned
beneficially more than five percent (5%) of the outstanding shares of its
Preferred Stock, except as follows:
Percentage
Name of Number of Shares of Outstanding
Beneficial Owner Beneficially Owned Preferred Stock
Jon Beard 20,000 (1) 8.61%
Jill Schaefer
P. O. Box 280
Meridian, CA 95957
Rodney P. Beard 53,000 (2) 22.83%
P.O. Box 700
Empire, CA 95319
The Allen J. & 12,000 (3) 5.17%
Pauline B. Clause Family Trust
72-377 Magnesia Falls Rd.
Rancho Mirage, CA 92270
James L. Harrison 23,980 (4) 10.33%
875 Murray Court
Yuba City, CA 95991
2
<PAGE>
George Murray 20,000 (5)(6) 8.61%
3433 Lessey Drive
Yuba City, CA 95993
M.B. Consultants Inc. 20,000 (7) 8.61%
Profit-Sharing Trust
1787 Tribute Rd., Ste. J
Sacramento, CA 95815
- -----------------------------------
(1) Does not include one (1) immediately-exercisable Warrant to purchase 3,418
shares of Common Stock.
(2) Includes 40,000 shares and 13,000 shares held in the names of Environmental
Filtration Trust and Tulelake Environmental Trust, respectively, of which
Mr. Beard is sole trustee. Does not include six (6) immediately-exercisable
Warrants to purchase 29,262 shares of Common Stock.
(3) Does not include two (2) immediately-exercisable Warrants to purchase 4,090
shares of Common Stock.
(4) Held with his wife, Patricia J. Harrison. Does not include one (1)
immediately-exercisable Warrant to purchase 4,099 shares of Common Stock.
(5) Includes 2,000 shares held with his wife, Shirley Murray, 2,000 shares held
by Mr. Murray's son and 16,000 shares held by the George Murray Inc. Money
Purchase Pension and Profit Sharing Plan.
(6) Does not include three (3) immediately-exercisable Warrants to purchase a
total of 3,417 shares of Common Stock.
(7) Does not include four(4)immediately-exercisable Warrants to purchase a
total of 16,423 shares of Common Stock.
Each share of Preferred Stock is entitled to receive annually a cash
dividend in the amount of 12% of the par value of the Preferred Stock, or $.60
(the "12% Cash Dividend"). Alternatively, the 12% Cash Dividend may be paid in
the form of immediately-exercisable non-transferable five (5)-year warrants to
purchase a number of shares of Bank Common Stock determined by dividing the cash
value of the 12% Cash Dividend by the book value of the underlying Common Stock
per share as of the end of the year in which the 12% Cash Dividend was earned
(the "Warrants"). At December 31, 1994, the book value of the Common Stock was
$3.51 per share for determining the Warrants. Accordingly, on February 15, 1995,
the Board of Directors of the Bank declared a dividend in Warrants to purchase a
total of 39,658 shares of Common Stock to shareholders of record on March 15,
1995. The Warrants will be issued on April 7, 1995 to the holders of the
Preferred Stock.
3
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS OF THE BANK
The Bylaws of the Bank provide a procedure for nomination for election of
members of the Board of Directors, which procedure is printed in full in the
Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
NOMINATIONS NOT MADE IN ACCORDANCE THEREWITH MAY BE DISREGARDED BY THE CHAIRMAN
OF THE MEETING AND, UPON HIS INSTRUCTION, THE INSPECTOR OF ELECTION SHALL
DISREGARD ALL VOTES CAST FOR SUCH NOMINEE(S).
The number of directors to be elected at the Annual Meeting is four (4). In
accordance with applicable law, the directors of the Bank are elected for a
three-year term on a staggered basis. Thus, at each annual meeting, one class of
directors is elected for a term of three years. The term of the Class B
directors to be elected expires at the Annual Meeting, and, if elected, the
directors will serve for a term expiring in 1998 and until their successors are
elected and qualified. The nominees for Class B directors are James L. Harrison,
George Murray and Lonny L. Renfrow. In addition, directors appointed to the
Board of Directors since the last Annual Meeting also must be elected.
Accordingly, W. R. Hagstrom, a Class A director, has been nominated for election
at the Annual Meeting.
All proxies will be voted "FOR" the election of the nominees recommended by
the Board of Directors, unless authority to vote for the election of such
directors is withheld. If a nominee should unexpectedly decline or be unable to
act as a director, the proxies may be voted for a substitute nominee to be
designated by the Board of Directors. Any substitute or additional nominee will
be designated to the class accorded the original nominee and any such nominee
elected as a director shall hold office for the term accorded such class. The
Board of Directors has no reason to believe that any nominee will become
unavailable and has no present intention to nominate persons in addition to or
in lieu of the persons named below.
The following table sets forth certain information with respect to the
persons nominated by the Board of Directors for election as directors, the two
(2) other directors continuing in office, as well as all directors and officers
of the Bank as a group. All of the shares shown in the following table are owned
both of record and beneficially and the person named possesses sole voting
power, except as otherwise noted in the table.
4
<PAGE>
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS
Shares of Preferred Stock Shares of Common Stock
Beneficially Owned as of Beneficially Owned as of
March 22, 1995 March 22, 1995(1)
------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Directors and Positions and Offices Percent Percent
Nominees Held with the Bank Amount of Class Amount of Class
Lee 'B' Colby Chairman of the 10,000 4.31% 67,644(2) 11.22%(2)
(Class A) Board of Directors
W. R. Hagstrom President, Chief -0- -0- 400 .07%
(Nominee Class A) Executive Officer
and Director
James L. Harrison Director 23,980 10.33% 22,072(3) 3.76%(3)
(Nominee Class B)
George Murray Director 20,000(4) 8.61%(4) 17,418(5) 2.97%(5)
(Nominee Class B)
Lonny L. Renfrow Director 4,000 1.72% 23,883(6) 4.02%(6)
(Nominee Class B)
Don J. Strachan(7) Director 6,200 2.67% 11,887(8) 2.01%(8)
(Class C)
All directors,
nominees and executive
officers of the
Bank as a group
(8 in number) 64,980 27.98% 153,459(9) 23.85%(9)
====== ===== ======= =====
</TABLE>
- -------------------------
(1) Includes shares of Common Stock issuable upon exercise of Warrants and
presently exercisable options outstanding under the Bank's 1992 Employee
Stock Option Plan (the "Employee Plan") and the Directors' Plan.
(2) See Note 1 to "Principal Shareholders - Common Stock."
(3) Includes 1,000 shares of Common Stock issuable upon exercise of options
granted pursuant to the Directors' Plan. Also includes Warrants to
purchase a total of 4,099 shares of Common Stock. See Note 3 to
"Principal Shareholders - Preferred Stock."
(4) See Note 5 to "Principal Shareholders - Preferred Stock."
(5) Includes 1,000 shares of Common Stock issuable upon exercise of options
granted pursuant to the Directors' Plan and Warrants to purchase a
total of 3,417 shares of Common Stock. See Note 6 to "Principal
Shareholders - Preferred Stock."
(6) Includes 11,000 shares subject to options granted pursuant to the
Directors' Plan and one Warrant to purchase 1,362 shares.
(7) Held in the name of Strachan Apiaries, Inc., of which Mr. Strachan is
President.
(8) Includes 3,800 shares of Common Stock issuable upon exercise of options
granted pursuant to the Directors' Plan and Warrants to purchase a
total of 5,087 shares.
(9) Includes 36,800 shares of Common Stock issuable upon exercise of
options granted pursuant to the Directors' Plan, 9,500 shares of Common
Stock issuable upon exercise of options granted pursuant to the
Employee Plan and Warrants to purchase 15,810 shares of Common Stock.
5
<PAGE>
Mr. W. R. Hagstrom, Mr. Philip E. Safran and Ms. Barbara J. Thilo are
the sole executive officers of the Bank. Executive officers of the Bank serve
on an annual basis and are selected each year by the Board of Directors
pursuant to the Bylaws of the Bank.
The following information with respect to the principal occupation and
employment of each director, executive officer and nominee as director and
executive officer, the name and principal business of the corporation or other
organization in which such occupation and employment is carried on, and in
regard to other affiliations and business experience during the past five (5)
years, has been furnished to the Bank by the respective directors, nominees for
director and executive officers. None of the corporations or organizations
discussed below is an affiliate of the Bank.
LEE 'B' COLBY, 72, has been a director of the Bank since 1982 and is the
Chairman of the Board of Directors of the Bank. Mr. Colby has over forty years'
experience as a residential and commercial land developer and construction
contractor. He presently also serves as President and Chief Executive Officer of
Wynoka Homes, Inc.
W. R. HAGSTROM, 49, was appointed President and CEO and a director of
the Bank on June 20, 1994. He has over thirty years' experience in the savings
and loan business. Prior to becoming President of the Bank, Mr. Hagstrom was
Chairman, President and CEO of Oklahoma Appraisal and Real Estate Services Co,
Inc from 1989 to 1994. From 1977 to 1989 Mr. Hagstrom was with a large savings
and loan in Oklahoma in various executive capacities.
JAMES L. HARRISON, 55, is the owner-operator of Hal's Grubstake. From
1964 to 1990, he was a traffic officer with the California Highway Patrol.
From 1981 to 1989, Mr. Harrison was the President, owner and pilot for
James L. Harrison, Inc., an aircraft crop dusting service. Mr. Harrison has
been a director of the Bank since January 1992.
GEORGE MURRAY, 60, has had over thirty years' experience in the real
estate business. He is the President of Valley Fair Realty Corporation, a
general brokerage business. From April 1984 to present, Mr. Murray has been the
Chairman of the Board for North State Title Company. He is a licensed Real
Estate Broker and CCIM. Mr. Murray has been a director of the Bank since January
1992.
LONNY L. RENFROW, 65, is a certified public accountant with thirty-eight
years' experience. He is presently a partner in the firm of Chipman and
Renfrow Accounting Corporation. He is a member of the American Institute of
Certified Public Accountants, the California Society of Certified Public
Accountants and the National Society of Accountants for Cooperatives.
Mr. Renfrow has served on the Board of Directors since 1982.
DON J. STRACHAN, 69, is the President and owner of Strachan Apiaries,
Inc., which raises bee hives, sells package bees and queen bees and produces
honey. Mr. Strachan has over forty years' experience in beekeeping. Prior to his
present tenure on the Board of Directors which began upon his election at the
Bank's 1991 Annual Meeting, Mr. Strachan previously was a member of the Bank's
Board, serving as a director from the Bank's founding until May 1989 and again
in September and October of 1989.
PHILIP E. SAFRAN, 39, was appointed Senior Vice President and Chief
Financial Officer of the Bank on April 27, 1993. Prior to his employment with
the Bank, Mr. Safran was Vice President and Chief Financial Officer at American
Liberty Bank. From 1988 to 1990, Mr. Safran was Vice President and Chief
Financial Officer at Global Savings Bank.
BARBARA J. THILO, 34, was appointed Senior Vice President and Chie
Administrative Officer of the Bank on February 23, 1993. Ms. Thilo continues
to serve as the Bank's Corporate Secretary. Prior to her employment with the
Bank, which commenced in August 1987, Ms. Thilo worked for the American Pop Corn
Company, Sioux City, Iowa.
6
<PAGE>
No director or executive officer of the Bank has any family relationship
with any other director or executive officer.
No director of the Bank is a director of any other company with a class
of securities registered pursuant to section 12 or subject to the requirements
of section 15 (d) of the Securities Exchange Act of 1934, as amended, or of any
company registered as an investment company under the Investment Company Act of
1940, as amended.
Committees of the Board of Directors
The Board of Directors has established a standing Audit Committee, which
met twice during 1994. The functions of the Audit Committee are to recommend the
appointment of and oversee a firm of independent public accountants whose duty
is to audit the books and records of the Bank for the fiscal year for which they
are appointed, to monitor and analyze the results of internal and regulatory
examinations and to monitor the Bank's financial and accounting organization and
financial reporting. The members of the Audit Committee are: Lonny L. Renfrow
(Chairman), Lee 'B' Colby and James L. Harrison.
The Bank's Loan Committee met on an as-needed basis during 1994. The
functions of the Loan Committee are to supervise and monitor the Bank's lending
activities, to provide prior loan approval and review in accordance with the
Bank's Loan Policy and to recommend specific loan policies to the Board of
Directors. The members of the Loan Committee are: George Murray (Chairman), W.
R. Hagstrom, Don J. Strachan, Lonny L. Renfrow, James L. Harrison and Lana
McBride, Assistant Vice President - Loan Manager.
The Bank's Internal Asset Review Committee met four times during 1994. The
function of this committee is to implement procedures to evaluate the risk in
the Bank's loan portfolio, review past due loans, review internal classification
of loans and review and inspect certain loans at random as a matter of course.
The members of the Internal Asset Review Committee are: George Murray
(Chairman), Lee 'B' Colby, W. R. Hagstrom, Lonny L. Renfrow, Don J. Strachan and
Joanne Smith, Assistant Vice President - Loan Service Manager.
The Bank's Compliance Committee met three times during 1994. The function
of this committee is to monitor the Bank's compliance issues. The members of the
Compliance Committee are: Lonny L. Renfrow (Chairman), Lee 'B' Colby, W. R.
Hagstrom, James L. Harrison and Linda Bradfield, Vice President- Compliance
Officer.
The Executive Committee of the Board performs the functions of the
Bank's compensation committee and meets on an as-needed basis. During 1993, the
Bank also formed the Organizational/Research Committee, which meets on an
as-needed basis. The Bank does not have a standing nominating committee. The
Board of Directors performs the function of this committee. The Bylaws provide
for the nomination of directors by the Board of Directors and by shareholders,
which procedure is set forth in the Notice of Annual Meeting of Shareholders
accompanying this Proxy Statement.
The full Board of Directors met thirteen (13) times during 1994. All
directors of the Bank attended at least 75% of the meetings of the Board of
Directors and the committees on which they served.
7
<PAGE>
EXECUTIVE COMPENSATION
The Bank is complying with the disclosure requirements for a Small
Business Issuer in accordance with SEC Regulation S-B.
Summary of Compensation
The following table sets forth a summary of the compensation paid during
the Bank's past fiscal year for services rendered in all capacities to Theodore
W. Lundquist, the Chief Executive Officer of the Bank during 1993 and until June
15, 1994 and W. R. Hagstrom, the Chief Executive of the Bank, from June 20, 1994
through December 31, 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
=================================================================================================================
Annual compensation
-------------------------------------------
Salary ($) Bonus ($) Other Long term All
annual compensation/ other
Name and principal position Year compensa- Awards/ compen-
tion ($) Securities sation ($)
Underlying
Options
(#)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
1994 $49,582 $0 $0 6,000(1)(2) $32,305 3)
- -----------------------------------------------------------------------------------------------------------------
Theodore W. Lundquist, C.E.O. 1993 $93,375 $0 $0 $23,625(4)
- -----------------------------------------------------------------------------------------------------------------
W. R. Hagstrom, C.E.O. 1994 $39,821(5) $0 $0 0 $18,750(6)
=================================================================================================================
</TABLE>
(1) See "Option Grants and Exercises" herein.
(2) Said options expired unexercised September 15, 1994.
(3) Consists of four (4) months' compensation received by Mr. Lundquist
upon his resignation on June 15, 1994.
(4) In the event that Mr. Lundquist was terminated other than for cause
during 1993, he was entitled to receive three (3) months' compensation
under the terms of his employment agreement. See "Employment Contracts,"
herein.
(5) Represents a partial year of service with the Bank, which began
June 20, 1994.
(6) In the event that Mr. Hagstrom is terminated other than for cause during
1995, he would be entitled to receive three (3) months compensation
under the terms of his employment agreement. See "Employment Contracts,"
herein.
Option Grants and Exercises
The Bank has established the 1992 Employee Stock Option Plan (the
"Employee Plan"), in which the Chief Executive Officer and other employees of
the Bank participate. As of the time of his resignation, Mr. Lundquist had been
granted an option to purchase 6,000 shares of Common Stock of which 4,000 shares
of Common Stock were exercisable. Mr. Lundquist had three (3) months from the
date of his resignation to exercise his option for the shares that were
exercisable. Mr. Lundquist did not choose to exercise his option.
At this time no options have been granted to Mr. Hagstrom.
Employment Contracts
Effective March 16, 1994, the Bank extended for a three (3) year term
its employment agreement with Mr. Lundquist as President, Chief Executive
Officer, Chief Operating Officer and Chief Lending Officer of the Bank. Pursuant
to the agreement, Mr. Lundquist's beginning base salary was $94,500, which was
subject to a cost of living increase every year during the three (3) year term.
In addition, the employment agreement provided that in the event that Mr.
Lundquist was terminated other than for cause, the Bank would continue to pay
Mr. Lundquist's salary for a period of three (3) months. On June 15, 1994, the
Board of Directors
8
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accepted the resignation of Mr. Lundquist, at which time he received four (4)
months' compensation along with the payment of his medical, dental and life
insurance benefits. Mr. Lundquist's insurance benefits were terminated on August
31, 1994, at which time he had secured other employment.
On June 20, 1994, the Bank entered into a one (1) year employment
agreement with W. R. Hagstrom as President, Chief Executive Officer, Chief
Operating Officer and Chief Loan Officer of the Bank. Pursuant to the agreement,
Mr. Hagstrom's beginning salary is $75,000. In addition, the employment
agreement provides that in the event Mr. Hagstrom is terminated other than for
cause, the Bank will continue to pay Mr. Hagstrom's salary for a period of three
(3) months. Medical, dental and life insurance benefits may be paid for a period
of up to three (3) months, subject to Mr. Hagstrom finding alternate employment.
Mr. Hagstrom also receives certain benefits provided to other Bank employees.
Director Compensation
Non-employee directors of the Bank receive a monthly retainer of $300.
The Chairman of the Board receives a monthly retainer of $500. Additionally,
directors receive $75 for each Board meeting or committee meeting attended. The
Chairman of a committee receives $100 per meeting attended. A director is
allowed to miss two meetings within a calendar year without loss of the monthly
retainer. If a third meeting within a calendar year is missed, except for
illness, no monthly retainer will be paid for the month in which the third
meeting was missed. During 1994, an aggregate of $34,550 was paid as directors'
fees.
Certain Relationships and Related Transactions
There have been no transactions since January 1, 1994, nor are there any
currently proposed transactions, to which the Bank was or is to be a party, in
which the amount involved exceeds $60,000 and in which any director, executive
officer, nominee to be a director, principal shareholder, or any member of the
immediate family of any of the foregoing persons had, or will have, a direct or
indirect material interest.
Indebtedness of Management
Some of the directors, executive officers and employees of the Bank and
their immediate families and the companies with which they are associated have
been customers of and have had banking transactions with the Bank since January
1, 1994, and may have such banking transactions with the Bank in the future. Any
loans and commitments to loan included in such transactions are and will be made
in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and do not involve more than the
normal risk of collectibility or present other unfavorable features.
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PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP was selected and served the Bank as
independent public accountants for the 1994 fiscal year and has also been
selected by the Board of Directors of the Bank to be its independent public
accountants for the 1995 fiscal year. The Board of Directors recommends a vote
"FOR" ratification of the selection of Deloitte & Touche LLP as the Bank's
independent public accountants for the 1995 fiscal year. All proxies will be
voted "FOR" ratification of such selection unless authority to vote for the
ratification of such selection is withheld or an abstention is noted. If the
nominee should unexpectedly for any reason decline or be unable to act as
independent public accountants, the proxies may be voted for a substitute
nominee to be designated by the Board of Directors.
Representatives from the accounting firm of Deloitte & Touche LLP will
be present at the Annual Meeting, will be afforded the opportunity to make a
statement if they desire to do so, and will be available to respond to
appropriate questions.
ANNUAL REPORT
A copy of the 1994 Annual Report of the Bank for the fiscal year ended
December 31, 1994 accompanies this Proxy Statement.
Additional copies of the Annual Report are available upon request of
Barbara J. Thilo, Secretary of the Bank. The Bank's Annual Report to the Office
of Thrift Supervision on Form 10-KSB may be obtained by any shareholder of the
Bank, without charge, by writing to Barbara J. Thilo, Chief Administrative
Officer, Sutter Buttes Savings Bank, F.S.B., 700 Plumas Street, Yuba City,
California 95991.
SHAREHOLDER PROPOSALS
Next year's Annual Meeting of Shareholders will be held on or about April
23, 1996. The deadline for shareholders to submit proposals for inclusion in the
proxy statement and form of Proxy for the 1996 Annual Meeting of Shareholders is
December 28, 1995. Shareholder proposals should be directed to Mr. W. R.
Hagstrom, President, at the principal office of the Bank.
OTHER MATTERS
The Board of Directors is not aware of any other business which will
come before the Annual Meeting, but if any such matters are properly presented,
proxies solicited hereby will be voted in accordance with the best judgment of
the persons holding the proxies. All shares represented by duly executed proxies
will be voted at the Annual Meeting.
SUTTER BUTTES SAVINGS
BANK, F.S.B.
Yuba City, California
April 6, 1995
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