<PAGE>
REGISTRATION NO. 33-88388
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VENTURA COUNTY NATIONAL BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
CALIFORNIA 77-0038387
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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500 ESPLANADE DRIVE
OXNARD, CALIFORNIA 93030
(805) 981-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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RICHARD S. CUPP
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VENTURA COUNTY NATIONAL BANCORP
500 ESPLANADE DRIVE
OXNARD, CALIFORNIA 93030
(805) 981-2600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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WILLIAM T. QUICKSILVER OMER S. J. WILLIAMS
MANATT, PHELPS & PHILLIPS THACHER PROFFITT & WOOD
11355 W. OLYMPIC BOULEVARD TWO WORLD TRADE CENTER
LOS ANGELES, CA 90064 NEW YORK, NEW YORK 10048
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [_]
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VENTURA COUNTY NATIONAL BANCORP
CROSS-REFERENCE SHEET
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ITEM REGISTRATION STATEMENT
NO. ITEM AND HEADING CAPTION IN PROSPECTUS
---- ---------------------- ---------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.................... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................. The Rights Offering
6. Dilution......................................... Risk Factors; The Rights Offering
7. Selling Security Holders......................... *
8. Plan of Distribution............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; The Rights Offering; Plan
of Distribution
9. Description of Securities to be Registered....... Prospectus Summary; The Rights Offering;
Description of Capital Stock
10. Interests of Named Experts and Counsel........... *
11. Information with Respect to the Registrant....... Available Information; Documents Incorporated
by Reference; Prospectus Summary; Risk
Factors; The Company; Capitalization; Market
Price of Common Stock and Dividends;
Management's Discussion and Analysis
of Financial Condition; Supervision and
Regulation and Results of Operations;
Business; Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference....................................... Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. *
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* Item not applicable.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to an offering
(the "Rights Offering") to holders of record of Ventura County National
Bancorp's Common Stock, no par value ("Common Stock"), pursuant to transferable
rights to purchase shares of Common Stock, together with a Prospectus relating
to an offering of shares of Common Stock to potential Standby Purchasers.
<PAGE>
PROSPECTUS
VENTURA COUNTY NATIONAL BANCORP
[LOGO OF VENTURA COUNTY
NATIONAL BANCORP
APPEARS HERE]
COMMON STOCK, NO PAR VALUE
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
Ventura County National Bancorp (on an unconsolidated basis, "Parent" and on
a consolidated basis, the "Company") is hereby distributing to the holders of
record at the close of business on May 10, 1995 (the "Record Date")
transferable rights (the "Rights") to subscribe for and purchase up to
$4,502,500 (2,001,111 shares) of common stock, no par value ("Common Stock")
for a cash price of $2.25 per share (the "Subscription Price"), subject to
reduction by the Company under certain circumstances. Holders of Rights
("Rights Holders") will be able to exercise their Rights until 5:00 p.m.,
Pacific time, on June 21, 1995, unless extended by the Company (the
"Expiration Time").
Each holder of Common Stock on the Record Date ("Record Date Holder") will
receive one right for each 3.17 shares of Common Stock held of record on the
Record Date. In lieu of fractional Rights, the aggregate number of Rights
issuable by the Company to a shareholder will be rounded up to the next whole
number. Each Right entitles the Rights Holder to subscribe for one share (the
"Underlying Shares") of Common Stock (the "Basic Subscription Privilege").
Each Record Date Holder who fully exercises the Basic Subscription Privilege
will also be eligible to subscribe for additional shares of Common Stock (the
"Excess Shares") that are not otherwise subscribed for pursuant to the
exercise of the Basic Subscription Privilege, subject to availability,
proration and reduction by the Company under certain circumstances (the
"Oversubscription Privilege"). The Oversubscription Privilege is not
transferable. A Rights Holder's election to exercise the Oversubscription
Privilege must be made at the time the Basic Subscription Privilege is
exercised. Once a Rights Holder has exercised the Basic Subscription Privilege
or the Oversubscription Privilege, such exercise may not be revoked. The
Rights will be evidenced by transferable certificates.
The Company has entered into Standby Purchase Agreements, pursuant to which
certain institutional investors and high net worth individuals (the "Standby
Purchasers") have severally agreed, subject in each case to a maximum standby
commitment and certain conditions, to acquire from the Company at the
Subscription Price $4,500,000 (2,000,000 shares) of Common Stock, if any,
available after the exercise of the Basic Subscription Privilege and the
Oversubscription Privilege. Such Standby Purchasers have agreed to purchase
and the Company has agreed to sell, and has guaranteed the availability of, an
aggregate minimum of $2,000,000 (888,889 shares) of Common Stock ("Additional
Shares") to such persons at the Subscription Price if a sufficient number of
shares of Common Stock is not available after the exercise of the Basic
Subscription Privilege and the Oversubscription Privilege to satisfy the
purchase commitments of the Standby Purchasers (the "Minimum Standby
Obligation"). The Additional Shares are being offered to Standby Purchasers
only.
(continued on next page)
THE PURCHASE OF COMMON STOCK IN THE OFFERING INVOLVES A SIGNIFICANT DEGREE OF
INVESTMENT RISK. HOLDERS OF RIGHTS AND PROSPECTIVE PURCHASERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK
FACTORS." THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC") OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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===============================================================================
SUBSCRIPTION UNDERWRITERS' PROCEEDS
PRICE COMMISSIONS(1) TO COMPANY(2)
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Minimum(3):
Price Per Share..... $2.25 $.14 $2.11
Total............... $4,500,000 $291,596 $4,208,404
Maximum(4):
Price Per Share..... $2.25 $.12 $2.13
Total............... $6,502,500 $351,596 $6,150,904
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(1) Sandler O'Neill & Partners L.P. ("Sandler O'Neill") will receive 1.5% of
the gross proceeds for Common Stock sold in the Offering pursuant to the
exercise of Rights by directors and officers of the Company and principals
and officers of Sandler O'Neill ("Interested Persons"), 3% of the gross
proceeds of the Offering pursuant to the exercise of Rights by persons
other than Interested Persons and 5% of the aggregate value of funds
committed by Standby Purchasers. In addition, Sandler O'Neill has received
a nonrefundable financial advisory fee of $25,000. In addition, the
Company has agreed to reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses, including fees of counsel, and has agreed to indemnify
Sandler O'Neill against certain liabilities under the Securities Act of
1933.
(2) Before deducting expenses of this Offering payable by the Company
estimated at $502,000.
(3) The Total Minimum Subscription Price, Underwriters' Commissions and Total
Minimum Proceeds to Company assumes the purchase of 2,000,000 shares as
follows: 249,027 by Interested Persons, 862,084 by Rights Holders other
than Interested Persons and 888,889 by Standby Purchasers.
(4) The Total Maximum Subscription Price, Underwriters' Commissions and Total
Maximum Proceeds to Company assumes the purchase of 2,890,000 shares as
follows: 249,027 by Interested Persons, 1,752,084 by Rights Holders other
than Interested Persons and 888,889 by Standby Purchasers.
SANDLER O'NEILL & PARTNERS, L.P.
THE DATE OF THIS PROSPECTUS IS MAY 12, 1995
<PAGE>
The primary purpose of this Offering is to increase the capital bases of the
Company and each of its subsidiaries to permit growth in a post recessionary
environment. Additional capital will enable Ventura County National Bank
("Ventura"), a subsidiary of Parent, to meet the requirements of the Formal
Agreement between Ventura and the Office of the Comptroller of the Currency
(the "OCC"). The Formal Agreement requires that Ventura achieve and maintain a
7.0% leverage capital ratio and a 12.0 % Tier 1 risk-based capital ratio. As of
December 31, 1994, approximately $1.4 million additional capital was necessary
for Ventura to meet the capital requirements of the Formal Agreement. The
Formal Agreement also requires Ventura to seek reimbursement of approximately
$3.4 million in interest paid in connection with deposits of funds from
commercial paper sold by Parent ("Reimbursement of Interest").
The Offering is conditioned upon the receipt by the Company of minimum
Offering proceeds of $4,500,000 (the "Minimum Condition"). Parent intends to
use the proceeds of this Offering to satisfy Ventura's requirement to seek
Reimbursement of Interest and to retire Parent's outstanding notes payable in
the principal amount of $125,000 (the "Notes"). The Reimbursement of Interest
by Parent will also result in an increase in Ventura's capital to levels which
will comply with the capital requirements of the Formal Agreement. To the
extent that there are net offering proceeds in excess of the amount necessary
to satisfy the Reimbursement of Interest requirement and to retire the Notes,
the first $500,000 of such additional funds will be retained by the Parent for
its liquidity needs and, thereafter, Parent may make additional capital
contributions to Ventura or the Company's other bank subsidiary, Frontier Bank,
N.A. ("Frontier"), or both. The Company anticipates that the net proceeds, if
any, contributed to Ventura or Frontier will ultimately be invested in earning
assets. In the event the Minimum Condition is not achieved, any funds that have
been deposited with the Subscription Agent will be returned, without interest.
See "Use of Proceeds."
The Common Stock is traded in the over-the-counter market and included for
quotation in the National Association of Securities Dealers Automated Quotation
System National Market System (the "Nasdaq National Market") under the symbol
"VCNB". On May 5, 1995, the closing sales price of the Common Stock, as quoted
through the NASDAQ National Market, was $2.75. It is anticipated that the
Rights will be quoted through the NASDAQ National Market under the symbol
"VCNBR" through the close of trading on the day prior to the Expiration Time.
There has been no prior market for the Rights and no assurance can be given
that a market will develop or, if a market develops, that such market will
remain through the Rights Offering. After the Expiration Time, the Rights will
no longer be exercisable and will have no value. Accordingly, Rights Holders
are strongly urged either to exercise or sell their Rights.
<PAGE>
Ventura County National Bancorp
CORPORATE HEADQUARTERS
500 Esplanade Drive
Oxnard, CA 93030
[MAP]
Location of Offices
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Ventura County National Bank Frontier Bank
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Oxnard Branch Ventura Branch La Palma Headquarters
500 Esplanade Drive 4730 Telephone Road One Centerpointe Drive
Oxnard, CA 93030 Ventura, CA 93003 La Palma, CA 90623
Camarillo Branch Westlake Village Wilmington Branch
502 North La Posas Road 2655 Townsgate Road 1000 Avalon Boulevard
Camarillo, CA 93010 Westlake Village, CA 91361 Wilmington, CA 90744
<PAGE>
IN CONNECTION WITH THIS OFFERING, SANDLER O'NEILL MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND THE RIGHTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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AVAILABLE INFORMATION
The Company is subject to the information, reporting and proxy statement
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's Regional Offices located at Room 1228, 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form S-
2 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth or
incorporated by reference in the Registration Statement and the exhibits and
schedules relating thereto as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto. Items of information omitted from this Prospectus, but
contained in the Registration Statement, may be obtained at prescribed rates or
inspected without charge at the offices of the Commission set forth above. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference and made a part hereof; (i)
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as amended by a Form 10K/A filed April 15, 1995, and (ii) all other
reports filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act by the Company after December 31, 1994.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which is also incorporated by
reference modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge
to each person to whom a copy of this Prospectus is delivered, upon the written
or oral request of such person, a copy of any or all of the documents
incorporated by reference herein other than exhibits to such documents.
Requests should be directed to Ventura County National Bancorp, 500 Esplanade
Drive, Oxnard, California 93030, Attention: Nancy Jackson, Senior Vice
President/Administration and Investor Relations, (805) 981-2744.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to, and
should be read in conjunction with, the detailed information and consolidated
financial statements and notes thereto set forth elsewhere in this Prospectus.
THE COMPANY
The Company is a registered bank holding company conducting business through
its two subsidiary banks, Ventura County National Bank ("Ventura") and Frontier
Bank, N.A. ("Frontier"). (Ventura and Frontier are sometimes collectively
referred to herein as the "Banks.") At December 31, 1994, the Company had total
consolidated assets of $257.8 million, total consolidated deposits of 236.3
million and total consolidated shareholders' equity of $19.1 million. The
principal executive offices of the Company are located at 500 Esplanade Drive,
Oxnard, California 93030, and its telephone number at that address is (805)
981-2600.
THE BANKS
The Banks are both national banking associations operating in Southern
California. Ventura conducts its banking operations through four branch offices
located in Ventura County, California, approximately 60 miles northwest of
downtown Los Angeles. Ventura's headquarters are located in Oxnard, California,
and its branch offices are located in Oxnard, Ventura, Camarillo and Westlake
Village. Frontier is based in La Palma in northwestern Orange County and has a
branch office in Wilmington in southern Los Angeles County. The Banks provide
commercial banking services to small to medium sized businesses, professional
firms and individuals in their market areas.
BACKGROUND
During the 1980s, the Company grew substantially, internally and through
mergers, to a high of $400.2 million of assets at December 31, 1992. In
addition to its core lending business, the Company organized subsidiaries (all
of which are now inactive and in the process of being dissolved) for a variety
of purposes, including providing data processing services to third parties,
insurance premium financing, venture capital, leasing and commercial financing.
Beginning in 1991, the Company experienced significant declines in earnings,
culminating with a net loss of $12.1 million for 1993. In addition, the
Company's nonperforming assets increased from $3.1 million at December 31, 1990
to a high of $25.2 million at March 31, 1994. Frontier consented to the
issuance of a Consent Order by the Office of the Comptroller of the Currency
(the "OCC") in March 1993 which replaced a Memorandum of Understanding ("MOU")
entered into between Frontier and the OCC in January 1992 (the "1992 MOU"), and
Ventura entered into a Formal Agreement with the OCC in March 1993. As a result
of the deterioration in the financial condition of the Banks, Parent entered
into a Memorandum of Understanding ("MOU") with the Federal Reserve Bank of San
Francisco (the "Reserve Bank") in December 1993. These regulatory actions have
affected virtually every area of Parent's and the Banks' operations, imposed on
the Banks higher minimum regulatory capital requirements than would otherwise
be applicable and restricted the ability of the Company to pay dividends. See
"Risk Factors--Regulatory Agreements and Capital Requirements," "The Company"
and "Supervision and Regulation--Potential and Existing Enforcement Actions."
RESPONSIVE MEASURES
In September 1993, new management brought in by the Board of Directors
developed and began to implement a plan to address the major concerns
confronting the Banks and restore core profitability. This plan consisted of
(1) improving management, (2) reducing nonperforming and classified assets, (3)
improving
4
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asset quality, (4) reducing other expenses, (5) improving liquidity and (6)
increasing capital ratios. Management believes that the Company has made
significant progress in implementing the plan, each of which is summarized
below:
. Improved Management. Parent and the Banks have experienced a complete
change in senior management since 1992, including the hiring of Richard
S. Cupp as President and Chief Executive Officer of Parent and Ventura
in July 1993 and the hiring of Kathleen L. Kellogg as President and
Chief Executive Officer of Frontier in November 1994. These new
management teams, at the direction of the Parent's and the Banks' Boards
of Directors and pursuant to the Consent Order, the Formal Agreement and
the MOU, have undertaken a revision of policies, procedures and
reporting mechanisms in practically every area of operation.
. Reduced Nonperforming and Classified Assets. Management has sought to
reduce the level of nonperforming assets through collections, writedowns
and sales of other real estate owned ("REO") and nonperforming loans. To
aid in that objective, in May 1994, the Company completed a bulk sale of
$14.1 million in nonperforming loans. The result has been a reduction in
nonperforming assets from $25.2 million or 7.96% of total assets at
March 31, 1994 to $11.2 million or 4.33% of total assets at December 31,
1994. See "Business--Classified Assets and Nonperforming Assets."
. Improved Asset Quality. The Company has reorganized and strengthened
credit administration and internal asset review and supplemented its
internal activities by hiring an external loan review firm to evaluate
and review the risk grades of loans. In addition, the Company has
adopted new or revised policies, procedures and systems with respect to
all aspects of lending and has curtailed lending to finance income-
producing properties, the type of lending that represents the greatest
component of the Company's classified assets at December 31, 1994.
Moreover, the OCC completed examinations of Ventura as of September 30,
1994 and Frontier as of June 30, 1994. The results of these examinations
displayed improvement in the Banks' condition. In addition, the OCC
indicated that Ventura's loan loss reserves were adequate at the time of
its examination. In connection with its examination of Frontier, the OCC
required changes in the risk grading of certain credits which resulted
in an additional provision for loan losses of $200,000 during 1994. See
"Business--Underwriting and Origination," "Business--Loan Portfolio" and
"Business--Classified Assets and Nonperforming Assets."
. Reduced Other Expenses. In 1994, the Company eliminated certain
nonstrategic aspects of its business, including the sale of its mortgage
origination and servicing departments, and outsourced its data
processing and courier functions. As a result, the Company reduced its
overall staff from 199 at December 31, 1993 to 141 at December 31, 1994.
The Company has reduced its occupancy expenses by subletting portions of
its administrative and headquarters offices, negotiating a favorable
renewal of the lease for its Central Operations allowing the lease for
one of its properties to expire in 1995, and consolidating two
operational units of Ventura and Frontier in the first quarter of 1995.
Prior to taking such actions, the Company expended $1.3 million with
respect to such items during 1993 and 1994, which the Company does not
anticipate that it will incur in the future. See "Managements'
Discussion and Analysis of Financial Condition and Results of
Operations."
. Improved Liquidity. During 1993 and 1994, the Company has undergone
significant balance sheet restructuring, experiencing substantial
reductions in assets, loans and deposits, which had the dual effects of
increasing core deposits as a percentage of total deposits and improving
liquidity. In order to improve the diversity of the Company's funding
sources, management reduced title and escrow deposits and institutional
certificates of deposit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
. Improved Capital Ratios. Primarily because of balance sheet
restructuring, the Company and the Banks have recently improved their
regulatory capital ratios. As of December 31, 1994, the Company, Ventura
and Frontier had leverage capital ratios of 7.53%, 7.21% and 8.32%,
respectively, Tier 1 risk-based capital ratios of 11.32%, 10.92% and
12.29%, respectively, and total
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risk-based capital ratios of 12.61%, 12.21% and 13.57%, respectively.
Although Ventura has satisfied the requirement of the Formal Agreement
to maintain a leverage capital ratio of 7.00%, it has not yet satisfied
the Tier 1 risk-based capital ratio requirement of 12.00%. The OCC has
agreed to extend until June 30, 1995 the date by which Ventura must be
in full compliance with the capital requirements of the Formal
Agreement. Management believes that Ventura will be able to comply with
such requirements, either through operations or as a result of the
capital raised in this Offering. See "The Rights Offering--Minimum
Condition."
Through management's efforts the Company's net loss was reduced to $262,000
for the year ended December 31, 1994 and nonperforming assets were reduced to
$11.2 million at December 31, 1994. The Company returned to profitability
beginning in the third quarter of 1994, and had net income for the second half
of 1994 of $615,000, compared to a net loss of $877,000 for the first six
months of the year. Earnings improvement in the second half was due to a $1.9
million decrease in the provision for loan losses, a $1.2 million decrease in
other expenses and a $143,000 decrease in income tax provision, which were
offset by a decline in other income of $2.1 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management believes the Company is positioned to take advantage of new
opportunities as they may arise in 1995.
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to pursue a unique opportunity to
build market share in its target markets created by the acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California in February 1995. Ventura is now the largest
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong relationships with
business, civic and community organizations. Management believes that this
marketing and service approach enables both Banks to compete effectively with
the money-center, superregional and regional banks which dominate their market
areas.
Ventura and Frontier will market to businesses in representative industries,
including durable and nondurable manufacturing, distribution, professional
services and agriculture, in their respective markets. The principal loan
products include working capital loans and lines of credit, asset based loans
and lines of credit, term loans secured by real property, plant and equipment
and, through Frontier, loans to small businesses through programs sponsored by
the United States Small Business Administration ("SBA"). Ventura also
anticipates continuing a limited amount of construction lending to experienced
builders for construction of single family home projects in selected areas of
Ventura County. Such loans would generally not exceed 15% of the portfolio at
any one time during 1995. See "Business."
The Company's strategic plan also requires continuing implementation of each
action item of its responsive measures. See "The Company." The foregoing should
be considered in light of the factors described under the heading "Risk
Factors."
USE OF PROCEEDS
The primary purpose of this Offering is to increase the Company's and the
Banks' capital bases to permit growth in a post-recessionary environment.
Moreover, additional capital will enable Ventura to meet the requirements of
the Formal Agreement. The Formal Agreement requires that Ventura achieve and
maintain
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a 7.0% leverage capital ratio and a 12.0% Tier 1 risk-based capital ratio. As
of December 31, 1994, approximately $1.4 million additional capital was
necessary for Ventura to meet the capital requirements of the Formal Agreement.
The Formal Agreement also requires Ventura to seek reimbursement of
approximately $3.4 million in interest paid in connection with deposits of
funds from commercial paper sales by Parent ("Reimbursement of Interest").
Parent intends to use the proceeds of this Offering to satisfy Ventura's
requirement to seek Reimbursement of Interest and to retire Parent's
outstanding notes payable in the principal amount of $125,000 (the "Notes").
The Reimbursement of Interest by Parent will also result in an increase in the
capital levels of Ventura. To the extent that there are net offering proceeds
in excess of the amount necessary to satisfy the Reimbursement of Interest
requirement and to retire the Notes, the first $500,000 will be retained by
Parent for its liquidity needs and, thereafter, Parent may make additional
capital contributions to Ventura or Frontier, or both. The Company anticipates
that the net proceeds, if any, contributed to Ventura and Frontier will
ultimately be invested in earning assets.
THE OFFERING
Securities Offered.............. The Company is offering a minimum of
2,000,000 shares ("Minimum Shares") and a
maximum of 2,890,000 shares ("Maximum
Shares") of Common Stock. A total of
2,001,111 Underlying Shares are being offered
in the Rights Offering pursuant to the
exercise of Rights, which include the Basic
Subscription Privilege and the
Oversubscription Privilege, and to the
Standby Purchasers. In addition, in the event
that there is not a sufficient number of
Underlying Shares remaining upon completion
of the Rights Offering to satisfy the
purchase commitments of the Standby
Purchasers, up to 888,889 Additional Shares
will be issued to the Standby Purchasers. See
"The Rights Offering."
Once the Rights are distributed and until the
Expiration Time, the Company will not effect
a reclassification of the Company's equity
securities which could have the effect of
materially altering the value of the Rights
during the pendency of the Offering.
Basic Subscription Privilege.... Shareholders of record of the Company at the
close of business on the Record Date (each a
"Record Date Holder") will receive one
transferable subscription right ("Rights")
for each 3.17 shares of Common Stock owned of
record at the close of business on such date.
Each Right will entitle the holder thereof
("Rights Holder") to subscribe for one
Underlying Share at the Subscription Price.
No fractional Rights will be issued.
Fractional Rights will be "rounded up" to the
next nearest whole number. ONCE A RIGHT HAS
BEEN PROPERLY EXERCISED, IT CANNOT BE
REVOKED.
Oversubscription Privilege...... Each Record Date Holder who elects to
exercise the Basic Subscription Privilege in
full may also subscribe at the Subscription
Price for Excess Shares, subject to
availability proration and reduction by the
Company under certain circumstances. If an
insufficient number of Excess Shares is
7
<PAGE>
available to satisfy fully all exercises of
the Oversubscription Privilege, then the
available Excess Shares will be prorated
among Record Date Holders who exercise their
Oversubscription Privilege based upon the
respective number of shares of Common Stock
each such Record Date Holder subscribes for
pursuant to the Basic Subscription Privilege
and all excess payments shall be returned by
mail without interest or deduction promptly
after the Expiration Time and after all
prorations and adjustments contemplated by
the Rights Offering have been effected.
Oversubscription Privileges are not
transferable.
Transferability of Rights....... The Rights are transferable only with respect
to the Basic Subscription Privilege. It is
anticipated that the Rights will be quoted
through the Nasdaq National Market under the
symbol "VCNBR" through the close of trading
on the date prior to the expiration of the
Rights Offering. There has been no prior
market for the Rights and there can be no
assurance that a market for the Rights will
develop or, if a market develops, that such
market will be maintained throughout the
Rights Offering. The Subscription Agent will
endeavor to sell Rights on behalf of Rights
Holders who have so requested and have
delivered a Subscription Rights Certificate,
with the instruction for sale properly
executed, to the Subscription Agent at or
prior to 5:00 p.m, Pacific time on June 13,
1995. See "The Rights Offering--Method of
Transferring Rights."
Record Date..................... May 10, 1995
Subscription Price.............. $2.25 per share.
Expiration Time................. The Rights will expire if not exercised prior
to 5:00 p.m., Pacific time, on June 21, 1995
unless extended for up to 30 days in the sole
discretion of the Company. The number and
length of any such extensions will be set at
the time of any such extension. See "THE
RIGHTS OFFERING--Expiration Time." Rights not
exercised prior to the Expiration Time will
expire and become worthless.
Common Stock Outstanding........ 6,337,835 shares of Common Stock were
outstanding as of the Record Date. A total of
8,337,835 shares of Common Stock will be
outstanding after the completion of the
Offering if the Minimum Shares are sold; and
a total of 9,227,835 shares of Common Stock
if the Maximum Shares are sold. Record Date
Holders may experience substantial dilution
of their equity ownership interest and voting
power in the Company if they do not exercise
the Basic Subscription Privilege or if
Additional Shares are issued to the Standby
Purchasers. See "Risk Factors--Dilution."
Subscription Agent.............. First Interstate Bank of California
Information Agent............... Chemical Bank
8
<PAGE>
Financial Advisor............... The Company and Sandler O'Neill have entered
into an Agency Agreement pursuant to which
Sandler O'Neill is acting as the Company's
financial advisor in connection with the
Offering. The Company has agreed to pay
certain fees to, and expenses of, Sandler
O'Neill for its services in the Offering. See
"The Rights Offering--Financial Advisor."
Procedure for Exercising
Rights.......................... The Basic Subscription Privilege and the
Oversubscription Privilege may be exercised
by properly completing the Subscription Right
Certificate and forwarding it (or following
the Guaranteed Delivery Procedures), with
payment of the Subscription Price for each
Underlying Share subscribed for pursuant to
the Basic Subscription Privilege and
Oversubscription Privilege, to the
Subscription Agent, which must receive such
Subscription Right Certificate or Notice of
Guaranteed Delivery and payment at or prior
to the Expiration Time. If Subscription Right
Certificates are sent by mail, Rights Holders
are urged to use insured, registered mail,
return receipt requested. See "The Rights
Offering--Method of Subscription."
If the aggregate Subscription Price paid by
an exercising Rights holder is insufficient
to purchase the number of Underlying Shares
that the Rights Holder indicates are being
subscribed for, of if no number of Underlying
Shares to be purchased is specified, then the
Rights Holder will be deemed to have
exercised the Basic Subscription Privilege to
purchase Underlying Shares to the full extent
of the payment price tendered. If the
aggregate Subscription Price paid by an
exercising Record Date Holder exceeds the
amount necessary to purchase the number of
underlying shares for which the Record Date
Holder has indicated an intention to
subscribe, then the Record Date Holder will
be deemed to have exercised the
Oversubscription Privilege to the full extent
of the excess payment tendered.
ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE OR THE OVER-SUBSCRIP-
TION PRIVILEGE, SUCH EXERCISE MAY NOT BE RE-
VOKED. RIGHTS NOT EXERCISED PRIOR TO THE EX-
PIRATION DATE WILL EXPIRE AND BECOME WORTH-
LESS.
Persons Holding Common Stock,
or Wishing to Exercise Rights,
Through Others.................. Persons holding shares of Common Stock
beneficially and receiving the Rights
issuable with respect thereto, through a
broker, dealer, commercial bank, trust
company or other nominee, as well as persons
holding certificates for Common Stock
directly who would prefer to have such
institutions effect transactions relating to
the Rights on their behalf should contact the
appropriate institution or nominee and
request it to effect such transaction for
them. See "The Rights Offering--Exercise of
Rights."
9
<PAGE>
Procedure for Exercising Rights
by Foreign Shareholders......... Subscription Rights Certificates will not be
mailed to holders of Common Stock whose
addresses are outside the United States or
who have an Army Post Office ("APO") or a
Fleet Post Office ("FPO") address, but will
be held by the Subscription Agent for their
accounts. To exercise the Rights represented
thereby, such holders must notify the
Subscription Agent and take all other steps
which are necessary to exercise the Rights on
or prior to 5:00 p.m. Pacific time on June
13, 1995. If no contrary instructions have
been received by that time, the Rights of
such holders will be sold, if feasible, and
the proceeds, less any applicable brokerage
commissions, taxes and other expenses, will
be promptly remitted to the holder of such
Rights by mail. See "The Rights Offering--
Foreign and Certain Other Shareholders."
Minimum Condition............... The Offering is conditioned upon the receipt
of minimum Offering proceeds of $4,500,000.
In the event the Minimum Condition is not
achieved, any funds that have been deposited
with the Subscription Agent will be returned,
without interest. As a result of the Standby
Purchase Agreements (pursuant to which the
Standby Purchasers have agreed to acquire up
to 2,000,000 shares of Common Stock), the
Company believes that the Minimum Condition
will be satisfied.
Standby Purchase Agreements..... The Company has entered into Standby Purchase
Agreements pursuant to which the Standby
Purchasers have severally agreed to acquire
from the Company at the Subscription Price up
to 2,000,000 Underlying Shares ($4,500,000)
remaining after exercise of the Basic
Subscription Privilege and Oversubscription
Privilege by all Rights Holders, subject, in
each case, to a maximum standby purchase
commitment and certain conditions. Each
Standby Purchase Agreement requires that the
Company sell a minimum number of shares to
the related Standby Purchaser if sufficient
Underlying Shares are not available after
issuance of all Underlying Shares subscribed
for by the exercise of the Basic Subscription
Privilege and the Oversubscription Privilege
(the "Minimum Standby Obligation"). In any
such case, the Company will issue in the
aggregate up to 888,889 Additional Shares to
satisfy the Minimum Standby Obligation, but
in no event will this result in shares being
issued in excess of the Maximum Shares
offered hereby.
Federal Income Tax
Consequences.................... For United States federal income tax
purposes, receipt of Rights by a Record Date
Holder pursuant to the Offering should be
treated as a nontaxable distribution with
respect to the Common Stock. See "Certain
Federal Income Tax Consequences."
10
<PAGE>
Issuance of Common Stock........ Subject to satisfaction of the Minimum
Condition, certificates representing shares
of Common Stock purchased pursuant to the
exercise of the Rights will be delivered to
subscribers as soon as practicable after the
Expiration Time and after all prorations and
adjustments contemplated by the terms of the
Offering have been effected.
The Regulatory Limitation....... The Company will not be required to issue
Common Stock pursuant to the exercise of the
Basic Subscription Privilege or the
Oversubscription Privilege to any Rights
Holder or to any Standby Purchaser who, in
the opinion of the Company, could be required
to obtain prior clearance or approval from or
submit a notice to any state or federal bank
regulatory authority to acquire, own or
control such shares if, at the Expiration
Time for the exercise of Rights, such
clearance or approval has not been obtained
and/or any required waiting period has not
expired. If the Company elects not to issue
shares of Common Stock in such case, such
shares will become available to satisfy
oversubscription by other Rights Holders and
will be available to the Standby Purchasers.
See "The Rights Offering--The Regulatory
Limitation."
The Tax Limitation.............. The number of Underlying Shares issuable by
the Company as a result of exercises of
Rights (pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege)
in the aggregate or to any Rights Holder or
the issuance of shares to any Standby
Purchaser may be limited by the Company, if
necessary, in the sole judgment and
discretion of the Company, to reduce the risk
that certain tax benefits will be subject to
limitation under Section 382 of the Internal
Revenue Code of 1986, as amended, or the risk
of any other adverse tax consequences to the
Company, either at the time of the Offering
or at any subsequent time. Based on current
circumstances, the Company does not
anticipate that it will have to reduce the
number of shares to any Rights Holder or any
Standby Purchaser in order to avoid an
adverse effect upon the Company's ability to
utilize certain federal and state income tax
benefits. See "The Rights Offering--Tax
Limitations."
Intentions of Directors and
Executive Officers.............. The directors and executive officers of the
Company as a group (16 persons) have
indicated their intention to exercise Rights
to purchase, in the aggregate, 107,882 shares
of Common Stock. These indications of intent
are based upon each director's and officer's
evaluation of his or her own financial and
other circumstances. Upon their acquisition
of such shares, the directors and executive
officers, as a group, will own beneficially
1,100,388 shares or a minimum of 11.8% and a
maximum of 13.1% of the outstanding Common
Stock after completion of the Offering.
11
<PAGE>
The Company's 401(k)/ESOP....... The Trustee of the Ventura County National
Bancorp 401(k)/Employee Stock Ownership Plan
(the "401(k)/ESOP") shall, in its sole
discretion, determine the manner in which
Rights issued to the ESOP portion of the
401(k)/ESOP are to be disposed of. Given that
the ESOP does not have any uninvested assets
with which to fund a purchase of Common
Stock, it is anticipated that the Trustee may
attempt to sell the Rights issued to the ESOP
portion of the 401(k)/ESOP. Participants in
the 401(k) portion of the 401(k)/ESOP who
have invested a portion of their pre-tax
deferrals and employer matching contributions
in Common Stock will be given the opportunity
to direct the Trustee whether to exercise or
attempt to sell Rights allocable to such
participants' investment in Common Stock. See
"The Rights Offering--The Company's
401(k)/ESOP."
No Board or Financial Advisor
Recommendations................. An investment in the Common Stock must be
made pursuant to each investor's evaluation
of such investor's best interests.
ACCORDINGLY, NEITHER THE BOARD OF DIRECTORS
OF THE COMPANY NOR SANDLER O'NEILL MAKE ANY
RECOMMENDATION TO RIGHTS HOLDERS OR OTHERS
REGARDING WHETHER THEY SHOULD EXERCISE THEIR
RIGHTS OR PURCHASE COMMON STOCK.
Nasdaq National Market Symbol
for Common Stock................ "VCNB"
Nasdaq National Market Symbol
for the Rights.................. "VCNBR"
Right to Terminate Offering..... The Company expressly reserves the right, in
its sole discretion, at any time prior to
delivery of the shares of Common Stock
offered hereby, to terminate the Offering if
the Offering is prohibited by law or
regulation or the Board of Directors
concludes, in its judgment, that it is not in
the best interests of the Company, and its
shareholders, to complete the Offering under
the circumstances. If the Offering is
terminated, all funds received pursuant to
the Rights Offering or from Standby
Purchasers will be promptly refunded, without
interest.
12
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents selected consolidated financial and other data
of the Company as of and for each of the years in the five years ended December
31, 1994. The data as of and for each of the five years in the period ended
December 31, 1994 should be read in conjunction with, and is qualified in its
entirety by, the more detailed information included elsewhere in this
Prospectus, including the Company's audited Consolidated Financial Statements
and the Notes thereto.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PERIOD END BALANCE SHEET
DATA:
Assets.................. $ 257,755 $ 340,529 $ 400,195 $ 364,734 $ 384,385
Securities held-to-
maturity (approximate
market value of $17,963
in 1994)................ 18,775 -- 33,168 13,590 24,407
Securities available-
for-sale............... 31,859 40,775 -- -- --
Net loans and leases.... 159,673 253,201 307,847 296,422 299,666
Loan loss reserve....... 8,261 14,313 3,854 2,845 2,285
Deposits
Interest-bearing
demand............... 67,177 99,502 106,108 93,651 82,649
Non interest-bearing
demand............... 80,646 101,224 100,688 94,364 82,835
Time.................. 88,519 117,563 141,791 136,471 165,058
Shareholders' equity.... 19,052 20,370 30,388 29,179 27,642
Shares of capital stock
outstanding............ 6,333,835 6,333,835 5,614,255 5,282,301 4,802,520
Period end book value
per share(1)........... $ 3.01 $ 3.22 $ 5.41 $ 5.21 $ 4.94
ASSET QUALITY:
Nonperforming loans..... $ 7,945(2) $ 19,839 $ 3,254 $ 9,454 $ 3,119
Nonperforming assets.... 11,169(2) 22,068 7,194 11,660 3,119
ASSET QUALITY RATIOS:
Nonperforming loans to
total loans............ 4.73% 7.41% 1.04% 3.16% 1.03%
Nonperforming assets to
total assets........... 4.33 6.48 1.79 3.15 0.81
Loan loss reserves to
nonperforming loans.... 103.98 72.15 118.44 30.09 73.26
Loan loss reserves to
nonperforming assets... 73.96 64.86 53.57 24.78 73.26
Classified assets to
loan loss reserve plus
shareholders' equity... 113.27 186.27 84.71 67.45 47.63
OTHER DATA:
Full time equivalent
employees.............. 141 199 198 221 249
STATEMENT OF OPERATIONS
DATA:
Net interest income..... $ 15,868 $ 16,912 $ 17,586 $ 17,931 $ 18,552
Provision for loan
losses................. 3,825 16,213 3,404 2,537 743
Other income............ 4,064 4,820 5,512 5,364 4,555
Other expenses.......... 16,084 20,839 18,438 19,239 16,551
Income (loss) before
income taxes and
cumulative effect of
change in accounting
method................. 23 (15,320) 1,256 1,519 5,813
Applicable income taxes
(benefit).............. 285 (3,233) 571 713 2,476
Cumulative effect of
change in accounting
method................. -- -- -- -- 286
Net income (loss)....... (262) (12,087) 685 806 3,623
PER SHARE DATA:(1)
Income (loss) per share
before income taxes and
cumulative effect of
change in accounting
method................. $ (0.04) $ (2.73) $ .22 $ .27 $ 1.03
Net income (loss) per
share.................. (0.04) (2.15) .12 .14 .64
SELECTED PERFORMANCE
RATIOS:
Return on average
equity................. (1.29)% (45.12)% 2.30% 2.79% 14.18%
Return on average
assets................. (0.09) (3.18) 0.18 0.22 1.01
Efficiency ratio(3)..... 80.71 95.89 79.83 82.59 71.63
Noninterest expense to
average assets......... 5.45 5.47 4.74 5.14 4.62
Net interest margin..... 5.68 4.81 4.95 5.34 5.77
Net interest spread..... 4.80 3.96 4.27 3.99 4.13
</TABLE>
- --------
(1) All per share data included herein and throughout this Prospectus have been
adjusted to reflect the stock splits and stock dividends to shareholders of
record on February 7, 1990, March 7, 1991 and March 9, 1992.
(2) Does not include $1,966,000 in troubled debt restructuring that were
performing at December 31, 1994. See "Business--Classified Assets and
Nonperforming Assets--Troubled Debt Restructurings ("TDRs")."
(3) The efficiency ratio is other expenses divided by the sum of net interest
income before provision for loan losses plus other income.
13
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The following tables set forth certain unaudited financial data at March 31,
1995 and for the three months ended March 31, 1995 and 1994. The data at March
31, 1995 and for the three months ended March 31, 1995 and 1994 is derived from
the unaudited financial statements of the Company. In the opinion of
management, such unaudited financial statements have been prepared on the same
basis as the audited financial statements, and include all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. Results for the
three months ended March 31, 1995 should not be considered necessarily
indicative of the results to be expected for the full year. The information
presented below is qualified in its entirety by the detail information and
financial statements included elsewhere in this Prospectus and should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the audited consolidated
financial statements of the Company and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Assets.............................................. $ 253,512 $ 257,755
Loans and leases, net............................... 154,279 159,673
Loan loss reserve................................... 8,314 8,261
Deposits:
Noninterest bearing demand........................ 62,390 67,177
Interest bearing demand and savings............... 87,488 80,646
Time.............................................. 82,402 88,519
Shareholders' equity................................ 19,683 19,052
Shares of common stock outstanding.................. 6,333,835 6,333,835
Period end book value per share..................... $ 3.11 $ 3.01
ASSET QUALITY:
Nonperforming loans................................. 10,267 7,945
Nonperforming assets................................ 13,508 11,169
ASSET QUALITY RATIOS:
Nonperforming loans to total loans.................. 6.31% 4.73%
Nonperforming assets to total assets................ 5.33% 4.33%
Loan loss reserves to nonperforming loans........... 80.98% 103.98%
Loan loss reserves to nonperforming assets.......... 61.55% 73.96%
Classified assets to loan loss reserve plus share-
holders' equity.................................... 120.20% 113.27%
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income ................................. $3,643 3,730
Provision for loan losses............................ 355 800
Other income......................................... 606 1,143
Other expenses....................................... 3,621 4,187
Income (loss) before income taxes.................... 273 (114)
Applicable income taxes (benefit).................... -- --
Net income (loss).................................... $ 273 $ (114)
Net income (loss) per share.......................... $ .04 $ (.02)
SELECTED PERFORMANCE RATIOS:(1)
Return on average equity............................. 5.70% (2.31)%
Return on average assets............................. .44% (.14)%
Efficiency ratio..................................... 85.22% 85.92%
Noninterest expense to average assets................ 5.78% 5.25%
Net interest margin.................................. 6.18% 5.34%
Net interest spread.................................. 5.97% 4.93%
</TABLE>
- --------
(1) Ratios for the three months ended March 31, 1995 and 1994 have been
annualized.
14
<PAGE>
GENERAL
The Company had net income of $273,000 for the first quarter of 1995,
compared with a net loss of $114,000 for the first quarter of 1994. The
improvement in earnings in 1995 was primarily attributable to reduced other
expenses, a significant decrease in the provision for loan losses and improved
net interest margin.
Total nonperforming assets increased to $13,508,000 at March 31, 1995 from
$11,169,000 at December 31, 1994, due primarily to the addition of one
nonaccrual loan in the amount of $2.2 million. This loan, while performing and
current at December 31, 1994, began to show considerable weakness in the first
quarter. The property had a sudden loss of tenants thereby reducing its cash
flow and forcing the borrower to negotiate with Ventura in hopes of rate and
principal forgiveness. Management elected to take a deed in lieu of foreclosure
with a principal pay-down. This loan was taken into REO subsequent to March 31,
1995, at which time a portion of the loan balance was charged off to its
estimated fair value. The Company is currently negotiating the sale of the REO,
which the Company anticipates will be completed during the second quarter of
1995. There can be no assurances, however, that these negotiations will lead to
a sale of the REO in the second quarter. The Company continues to aggressively
pursue strategies for reducing nonperforming and classified assets.
NET INTEREST INCOME
For the first quarter of 1995, net interest income decreased $87,000, or
2.3%, over the first quarter of 1994. Net interest income decreased primarily
due to the decrease in interest income exceeding the decrease in interest
expense. Interest income decreased $203,000, or 3.77%, due primarily to a 33.7%
decrease in average loans. The decrease was partially offset by increased
average balances of investment securities, together with higher yields on
earning assets in the current rising rate environment. The impact on earnings
of reduced interest income was partially offset by a $116,000, or 7.0%,
decrease in interest expense the first quarter of 1995, compared with 1994. The
decrease resulted primarily from a $48.1 million, or 22.0%, decrease in average
interest bearing deposits. Despite the decrease in interest income, net
interest margin improved from 5.34% to 6.18%, due primarily to the reduction in
the volume of average interest earning assets and the decrease in average
interest bearing liabilities noted above.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses during the first quarter of 1995 was
$355,000, compared to $800,000 during the first quarter of 1994, reflecting the
significant reductions in the level of classified assets. Classified assets at
March 31, 1995 were $33.7 million, compared with $62.1 million at March 31,
1994, a decrease of 45.7%.
OTHER INCOME
Other income decreased $527,000 in the first quarter of 1995 compared with
the first quarter of 1994, primarily because of a reduction in mortgage loan
processing income and gains on the sale of mortgage loans. In addition, service
charges on deposits and other fee income decreased $88,000 and $53,000,
respectively, due to the reduction in total deposits.
OTHER EXPENSES
Other expenses decreased $566,000 in the first quarter of 1995 compared with
the first quarter of 1994, primarily due to a $381,000 decrease in salaries and
benefits, a $66,000 decrease in occupancy costs, a $64,000 decrease in
appraisal fees and a $59,000 decrease in FDIC assessments.
INCOME TAXES
During the first quarter of 1995, the amount of income tax provisions that
would have been necessary was fully offset by a reduction of the valuation
allowance. Deferred tax assets totaling $3.1 million are reserved by this
valuation allowance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--1994 Compared with
1993--Income Taxes."
15
<PAGE>
DEPOSITS
The Company experienced a shift in the mix of deposits since year end.
Interest bearing demand deposits increased $8,839,000, or 14.9%, while all
other categories of deposits decreased. Noninterest bearing demand deposits
decreased $4,787,000, or 7.7%, savings deposits decreased $1,997,000, or 7.1%,
and time deposits decreased $6,117,000, or 7.4%. This shift was largely the
result of marketing programs designed to increase core deposits. Overall, total
deposits decreased $4,062,000, or 1.7%, from year end.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, Ventura's Tier 1 risk based capital ratio was 11.48%, its
total risk based capital ratio was 12.78% and its leverage ratio was 7.86%.
Although Ventura was in compliance with the requirement of the Formal Agreement
that it maintain a leverage ratio of 7.00%, Ventura has not yet satisfied the
requirement to achieve and maintain a Tier 1 risk based capital ratio of
12.00%. As of March 31, 1995, $623,000 additional capital was necessary for
Ventura to meet the capital requirements of the Formal Agreement. See "Risk
Factors--Regulatory Agreements and Capital Requirements." At March 31, 1995,
Frontier's Tier 1 risk based capital ratio was 12.88%, its total risk based
capital ratio was 14.17% and its leverage ratio was 9.06%. Frontier was in full
compliance with the capital requirements of the Consent Order at March 31,
1995.
16
<PAGE>
RISK FACTORS
THE PURCHASE OF COMMON STOCK IN THE OFFERING INVOLVES A SIGNIFICANT DEGREE OF
INVESTMENT RISK. IN DETERMINING WHETHER OR NOT TO MAKE AN INVESTMENT IN THE
COMMON STOCK, RIGHTS HOLDERS AND POTENTIAL INVESTORS SHOULD CAREFULLY CONSIDER
THE MATTERS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED HEREIN.
RISK OF CONTINUING LOSSES. During the 1980s, the Company grew substantially,
internally and through mergers, to a high of $400.2 million of assets at
December 31, 1992. During the late 1980s and through early 1993, the Company
made a substantial amount of loans to land developers and subdividers and loans
secured by first trust deeds on investment properties. Beginning in 1991, the
economic recession and substantial declines in real estate values in Southern
California began to adversely affect collateral values and the ability of
certain borrowers to repay their obligations to the Company. This led to high
levels of nonperforming assets and net chargeoffs in 1993, which adversely
affected the Company's asset quality and results of operations. The foregoing
factors significantly contributed to the decline in earnings experienced by the
Company since 1990, culminating with a net loss of $12.1 million ($2.15 per
share) for the year ended December 31, 1993. For the years ended December 31,
1992, 1991 and 1990, the Company's net income was $685,000 ($.12 per share),
$806,000 ($.14 per share) and $3.6 million ($0.64 per share), respectively. The
Company's loss in 1993 was primarily due to a significant increase in the
provision for loan losses, together with lower net interest income due
primarily to declining interest rates and increased other expenses due
primarily to the writeoff of certain intangibles, increased REO expenses and
professional fees.
The Company suffered a significant increase in nonperforming assets to $22.1
million at December 31, 1993 from levels of $7.2 million, $11.7 million and
$3.1 million at December 31, 1992, 1991 and 1990. In addition, net loan charge-
offs increased to $5.8 million for 1993, compared to $2.4 million, $2.0 million
and $321,000 for 1992, 1991 and 1990, respectively. This decline in asset
quality and increase in net loan charge-offs resulted in provisions for loan
losses of $16.2 million during 1993, significantly contributing to the net loss
realized that year.
Although during the year ended December 31, 1994 the Company's loss was
reduced to $262,000 and its classified assets were reduced by $33.7 million to
$30.9 million at December 31, 1994, classified assets continue to be high. The
ability of the Company to reverse the downward earnings trend and to become
profitable in the future is largely dependent on its ability to continue to
reduce the level of its classified assets, maintain the adequacy of its loan
loss reserve, reduce its ratio of other expenses to average earning assets and
to successfully implement its strategic plan. See "The Company--Business
Strategy."
Management of the Company is continuing its efforts to improve the quality of
the Company's assets and to reduce other expenses. No assurances can be given,
however, that management will be successful in reducing the Company's
nonperforming assets and other expenses or that the Company will sustain
profitable operations in the future.
HIGH LEVEL OF NONPERFORMING ASSETS AND OTHER LOANS WITH RISK. As of December
31, 1994, a significant portion of the Company's loan portfolio consisted of
nonperforming assets, and during 1993, 1992 and 1991, significant provisions
for loan losses were made. Nonperforming assets increased from $3.1 million, or
1.03% of total loans and REO, at December 31, 1990 to a high of $25.2 million,
or 10.29% of total loans and REO at March 31, 1994. Since then, nonperforming
assets have decreased to $11.2 million, or 6.6% of total loans and REO, at
December 31, 1994. Total nonperforming assets at December 31, 1994 were
comprised of $7.6 million in nonaccrual loans, $331,000 in loans delinquent for
90 days or more but still accruing interest, $2,000 in restructured loans and
$2.3 million in REO, compared with $18.9 million in nonaccrual loans, $552,000
in loans delinquent for 90 days or more but still accruing interest, $348,000
in restructured loans and $2.2 million in REO at December 31, 1993. At December
31, 1994, the Company also had $1,966,000 in TDRs that were performing. See
"Business--Classified Assets and Nonperforming Assets."
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The increase in the Company's nonperforming assets between 1989 and March
1994 surfaced as economic conditions worsened which brought on substantial
declines in real estate values. The significant decrease in nonperforming
assets during 1994 was largely due to a bulk sale of $14.1 million in
nonperforming loans in May 1994, which resulted in a $5.0 million charge-off
and a $1.5 million provision for loan losses, the payoff or restoration to
performing status of other credits and the migration of certain assets to REO.
The real estate market in Southern California and the overall economy in the
areas where the Company operates are likely to continue to have a significant
effect on the quality of the Company's assets in the future.
At December 31, 1994, the Company's loan portfolio reflected a concentration
of credits in medium term commercial real estate loans of $88.7 million or 52%
of the total loan portfolio. Approximately 50% of such loans were originated
for the financing of commercial or industrial buildings where the property has
income derived from tenants ("investment properties"), 35% of such loans were
for use by the owner for business purposes ("owner-user properties") and 15%
were SBA loans for the construction, refinancing or acquisition of owner-user
properties. The Company has significantly curtailed the origination of new
medium term commercial real estate loans and is not soliciting new loans for
investment properties. Twenty-two medium term commercial real estate loans
aggregating $10.3 million at December 31, 1994 are scheduled to mature during
1995, of which six loans in the aggregate amount of $3.2 million have been
classified. All such classified loans have been reevaluated for collateral
value within the past six months and additional loan loss reserves have been
taken where appropriate. Of the $10.3 million in medium term commercial real
estate loans maturing in 1995, thirteen loans aggregating $7.2 million were
loans for investment properties. Of that amount, the Company anticipates that
nine loans aggregating $5.9 million will be refinanced or fully repaid during
1995. The remaining $1.3 million consists of four loans, none of which exceeded
$570,000 principal balance at December 31, 1994. None of such loans were
classified at December 31, 1994, and based upon current information, management
does not anticipate that additional loan loss reserves will be assessed with
respect to such loans. See "Business--Loan Portfolio--Commercial, Financial and
Agricultural Loans--Medium Term Commercial Real Estate Loans," and "Risk
Factors--Monetary Policy and Economic Conditions."
ADEQUACY OF LOAN LOSS RESERVE. The substantial provisions for loan losses
during 1993 were necessitated by high levels of nonperforming loans and loan
charge-offs. During 1993, the Company's net charge-offs were $5.8 million,
compared with $2.4 million net charge-offs in 1992 and $2.0 million in 1991. In
1994, the Company's net charge-offs were $9.9 million, of which $5.0 million
was attributable to the discounting of loans sold in the bulk sale.
At December 31, 1994, the loan loss reserve was $8.3 million, or 4.9%, of
total loans and leases. The Company's loan loss reserve totalled $14.3 million,
or 5.35%, of total loans and leases at December 31, 1993. The Company's ratio
of classified assets (loans that have been graded substandard and doubtful
according to the Company's grading policy and REO) to loan loss reserve plus
shareholders' equity was 113.27% at December 31, 1994 and 186.27% at December
31, 1993. The Board of Directors reviews the adequacy of the loan loss reserve
on a quarterly basis. Management utilizes its best judgment in providing for
possible loan losses and establishing the loan loss reserve. However, the
reserve is established based on information that exists at any given point in
time and may require substantial additions depending on future events. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the adequacy of the Company's loan loss reserve.
Such agencies may require the Company to recognize additions to the loan loss
reserve based upon their judgment of the information available to them at the
time of their examination. In connection with its examination of Frontier, the
OCC required changes in the risk grading of certain credits which resulted in
an additional provision for loan losses of $200,000 during 1994.
Adverse economic conditions and a declining real estate market in California
during the early 1990s have adversely affected certain borrowers' ability to
repay loans. A continuation of these conditions or a further decline in the
California economy could result in further deterioration in the quality of the
loan portfolio and continuing high levels of nonperforming assets and charge-
offs, which would adversely effect the financial condition and results of
operations of the Company and the Banks. See "Risk Factors--Economic Conditions
in the Company's Market Area."
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REGULATORY AGREEMENTS AND CAPITAL REQUIREMENTS. Following supervisory
examinations of Ventura conducted as of June 30, 1992 and Frontier as of July
30, 1992, Ventura entered into a Formal Agreement with the OCC on March 19,
1993 and Frontier entered into a Consent Order with the OCC on March 29, 1993.
The Consent Order replaced the 1992 MOU between Frontier and the OCC. The
significant common requirements of the Formal Agreement and the Consent Order
for Ventura and Frontier include conducting a program to evaluate and improve
board supervision and management, developing a program designed to improve the
lending staff and loan administration, obtaining current credit information on
any loans lacking such information, reviewing and revising loan policies,
establishing an independent loan review program including periodic reports to
the Board, developing and implementing a program to collect or strengthen
criticized assets, reviewing and maintaining an adequate loan loss reserve,
developing a new long range strategic plan and annual budget, developing a
three-year capital plan, developing and revising liquidity and funds management
policies, correcting violations of law cited by the OCC and obtaining approval
from the OCC to declare or pay a dividend.
The Consent Order requires that Frontier achieve as of May 31, 1993 and
maintain thereafter a Tier 1 risk based capital ratio of 9.50% and a leverage
capital ratio of 7.00%. At December 31, 1994, Frontier's Tier 1 risk based
capital ratio was 12.29% and its leverage capital ratio was 8.32%. The Consent
Order also required Frontier to retain a new president and to continue to
develop a program of asset diversification.
Based upon an examination of Ventura conducted as of July 31, 1993, the
Formal Agreement was amended on February 3, 1994 to require Ventura to achieve
a Tier 1 risk based capital ratio of 12.00% and a leverage capital ratio of
7.00% by September 30, 1994. At December 31 1994, Ventura's Tier 1 risk based
capital ratio was 10.92% and its leverage capital ratio was 7.21%. Although
Ventura has satisfied the requirement of the Formal Agreement to maintain a
leverage capital ratio of 7.00%, it has not yet satisfied the Tier 1 risk-based
capital ratio of 12.00%. As of December 31, 1994, approximately $1.4 million
additional capital was necessary for Ventura to meet the capital requirements
of the Formal Agreement. As required by the Formal Agreement, on October 18,
1994, Ventura submitted to the OCC its revised plan for restoring capital and
the OCC did not object to implementation of the plan as proposed. In addition,
Ventura applied for and received an extension of the date by which such ratios
are required to be achieved to June 30, 1995, provided that the subscription
period for this Offering is no longer than six weeks. This Offering is being
undertaken in part to ensure that Ventura meets all applicable capital
requirements. However, there can be no assurance that after the Offering,
Ventura or Frontier will continue to be in compliance with all of their
regulatory capital requirements. See "Capitalization."
The amendment to the Formal Agreement also requires Ventura to seek
Reimbursement of Interest relating to interest paid on a deposit account at
Ventura. The deposit account held funds generated by Parent through the sales
of commercial paper to Ventura customers. Ventura categorized this account as a
savings account, and as such paid interest on such account. However, the OCC
concluded that the account should have been categorized as a demand deposit
account on which the payment of interest is not permitted. As a result, the OCC
has required Ventura to seek Reimbursement of Interest. Furthermore, Parent has
been required by the Reserve Bank to cease all such commercial paper sales,
which Parent did in December 1993.
Parent entered into the MOU with the Reserve Bank on March 19, 1994. The
significant requirements of the MOU include submitting a program to improve the
financial condition of the Banks, evaluating and improving board supervision
and management, exiting the commercial paper market, complying with Federal
Reserve Board policy regarding management or service fees assessed by Parent
and paid by the Banks and implementing steps to improve the effectiveness of
the audit and credit review functions. The MOU further restricts Parent from
declaring or paying a dividend, incurring any debt, adding or replacing a
director or senior executive or repurchasing Common Stock without notice to and
nondisapproval of the Reserve Bank. The MOU also requires the Parent's Board of
Directors to establish a committee to monitor compliance with the MOU and
ensure that quarterly written progress reports detailing the form and manner of
all actions taken to attain compliance with the MOU are submitted. For a
discussion of the Company's responsive measures to the Formal Agreement,
Consent Order and MOU, see "The Company--Responsive Measures."
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The OCC conducted a consumer compliance and Community Reinvestment Act
("CRA") examination of Frontier as of December 13, 1994. Under the CRA,
regulated financial institutions are required to help meet the credit needs of
their communities, including those of low and moderate income individuals. The
CRA generally requires the federal banking agencies to evaluate the record of a
financial institution in meeting the credit needs of their local communities,
including low and moderate income neighborhoods. The federal banking agencies
may take compliance with CRA into account when regulating and supervising other
activities. As a result of the examination, the OCC concluded that Frontier is
in satisfactory compliance with consumer protection laws and regulations;
however, the OCC indicated that Frontier's performance under the CRA needs
improvement. A "needs to improve" rating may result in the denial of regulatory
applications by Frontier or the Company, although no such applications are
currently pending. Management of the Company and Frontier have taken action to
address the OCC's findings, including commissioning a consultant to help
Frontier develop its marketing strategy in its delineated communities and
developing a CRA action plan to improve Frontier's CRA performance.
Parent intends to use the proceeds of this Offering to reimburse interest
paid by Ventura. The Reimbursement of Interest by Parent will also result in an
increase in the capital levels of Ventura. The OCC recently completed a
regularly scheduled examination of Ventura and, based upon this examination,
indicated that Ventura was in full or partial compliance with the other
requirements of the amended Formal Agreement. Frontier and Parent are in full
or partial compliance with or in the process of complying with all of the other
items required under the Consent Order and MOU, respectively. Notwithstanding
the foregoing, however, Parent, Ventura and Frontier have not yet fully
implemented their new policies and will continue the implementation process as
part of their efforts to come into full compliance with the requirements of the
Formal Agreement, Consent Order and MOU.
POTENTIAL ADDITIONAL REGULATORY ACTIONS. Bank holding companies and banks,
such as the Parent and the Banks, and their institution-affiliated parties are
subject to potential enforcement actions by the OCC or the Reserve Bank for any
unsafe or unsound practices in conducting their business or for violations of
any law, rule or regulation, any cease-and-desist or consent order, any
condition imposed in writing by the agency or any written agreement with the
agency, such as the Formal Agreement, Consent Order and MOU. Enforcement
actions may include cease-and-desist orders and written agreements, the
imposition of civil money penalties and removal or prohibition orders against
institution-affiliated parties and, in the most severe instances, the
termination of insurance of deposits and/or the imposition of a conservator or
receiver for an insured depository institution. Even if Parent and the Banks
achieve full compliance with all regulatory capital and other operating
requirements, including the higher capital ratios required by the Formal
Agreement and the Consent Order, it is possible that at some date thereafter
they may not continue to be in compliance with such requirements as a result of
future losses or otherwise. Thus, it is possible that the Offering could be
consummated and Parent and the Banks might nonetheless become subject to
enforcement actions by regulators for capital deficiencies or other matters,
including noncompliance with the Formal Agreement, the Consent Order, the MOU
or any subsequent agreement. In addition, the inability or failure of Parent to
serve as a "source of strength" to the Banks could lead to further regulatory
action against Parent. Any deficiency in compliance with the requirements of
the Formal Agreement, Consent Order or MOU could result in penalties or further
regulatory restrictions that would have a material adverse effect on the
Company. See "Supervision and Regulation--Prompt Corrective Action and Other
Enforcement Mechanisms" and "Supervision and Regulation--Potential and Existing
Enforcement Actions."
ECONOMIC CONDITIONS IN THE COMPANY'S MARKET AREA. The Company's business is
subject to fluctuations in interest rates, general national and local economic
conditions and consumer and institutional confidence in the Company. For
example, the national and local economies, and the real estate market on the
local level, suffered from the effects of a prolonged recession that has
adversely affected the ability of certain borrowers of the Company to meet
their obligations to the Company. The effects of the recession have resulted in
an increase in the level of nonperforming assets, charge-offs of loans and
write-downs of REO and an erosion in the value of the Company's real estate
collateral and REO. According to the Center for Continuing Study of the
California Economy, The Outlook for the California Economy, November 1994
Report, (the "CCSCE
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Report") California's economic condition has improved in 1994. Retail spending
in California is up 5%, income is up nearly 4%, exports are up 13.5%,
construction is up nearly 15%, and new revised data are showing that job gains
have been occurring for more than a year. According to the CCSCE Report,
although the outlook for 1995 is for continued growth with substantial gains in
construction and additional gains in retail spending, the major threat to the
California economy, as well as the U.S. economy, is rising interest rates.
According to the CCSCE Report, the economic recovery in California will
continue in 1995 if the U.S. economy continues to grow.
In addition to general economic conditions, certain additional risks are
present in Ventura County. A major source of revenues and jobs in Ventura
County is in agriculture. Ventura County is California's largest producer of
lemons and oranges and the second largest producer of strawberries and
avocados, and contributes $848 million to California's $19.9 billion farming
industry. At December 31, 1994, approximately 7% of Ventura's loan portfolio
was directly or indirectly tied to agricultural or agricultural support
businesses. In September 1994, Mediterranean fruit flies (an insect that causes
severe damage to fruits and vegetables, also known as the "medfly") were
discovered in Ventura County and, although eradication efforts have begun, the
success of such efforts cannot be determined. Nonetheless, recent published
reports indicate that citrus growers in Ventura County have entered into
contracts with Japanese companies which have agreed to purchase fruit grown in
quarantined areas within the region. Although management does not believe that
appearance of the medfly will ultimately have a significant impact, there can
be no assurance that failure to stem the spread of the medfly would not have an
adverse effect on the economy of Ventura County, which in turn would have an
adverse effect on the Company.
Orange and Los Angeles counties, where Frontier's offices are located, each
have separate and distinct factors affecting their economies. Los Angeles
County's unemployment rate remains above the unemployment rate of the rest of
the state, which in turn was significantly higher than the national
unemployment rate. Economists at California State University, Fullerton have
predicted that Orange County's economic recovery will lag behind the national
pace, particularly due to reductions in the defense industry and slow
construction activity. Although the Banks have made no direct loans to Orange
County and management believes that Orange County's recent declaration of
bankruptcy will have no direct impact on the Company, there can be no
assurances that a direct or indirect impact will not be experienced.
Fluctuations in economic conditions are neither predictable nor controllable
and may have materially adverse consequences upon the operations and financial
condition of the Company, even if other favorable events occur. Such adverse
effects could include further deterioration in the quality of the loan
portfolio, continuing high levels of nonaccrual loans and charge-offs, and
increased provisions for loan losses.
EQUITY MARKET CONSIDERATIONS. There can be no assurance that the market price
of the Common Stock will not decline during or after the subscription period or
that, following the issuance of the Rights and the sale of the shares of Common
Stock upon exercise of Rights or otherwise, a subscribing Rights Holder will be
able to sell shares purchased in the Offering at a price equal to or greater
than the Subscription Price. The election of a Rights Holder to exercise Rights
in the Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Rights Holders and other Purchasers may not be able to sell the
shares of Common Stock that they have purchased in the Offering. In addition,
the Company reserves the right to extend the period for the Rights Offering to
a date not later than July 21, 1995. Subject to satisfaction of the Minimum
Condition, certificates representing shares of Common Stock purchased in the
Offering will be delivered as soon as practicable after the Expiration Time and
after all reductions contemplated by the Offering have been effected. There can
be no assurance that the market price of the Common Stock purchased pursuant to
the Offering will not decline below the Subscription Price before the
certificates representing such shares have been delivered. No interest will be
paid to any subscriber in the Rights Offering.
Consummation of the Offering is contingent upon satisfaction of the Minimum
Condition. If the Minimum Condition is not fulfilled or cannot be fulfilled,
the Offering will not be consummated and all funds received pursuant to the
Rights Offering or from Standby Purchasers will be promptly refunded, without
interest.
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OFFERING PRICE. The Subscription Price for the Common Stock was set by the
Board of Directors in consultation with Sandler O'Neill, taking into
consideration factors which the Board believes relevant to a determination of
the value of the Common Stock. Among the factors considered by the Board in
determining the Subscription Price were (i) the market value of the Common
Stock; (ii) the present and projected operating results and financial condition
of the Company; (iii) an assessment of the Company's management and
management's analysis of the growth potential of the Company and of the
Company's market area; (iv) the aggregate size of the Offering; (v) the price
at which the Board believes investors would readily pay to purchase all of the
available shares of Common Stock offered under the current economic
circumstances; (vi) the amount the Standby Purchasers were willing to commit;
and (vii) the amount of capital necessary for the Reimbursement of Interest to
Ventura to satisfy the Formal Agreement. As of the date of this Prospectus,
members of the Board of Directors and executive officers beneficially owned, in
the aggregate, 992,506 shares, or 15.52% of the outstanding Common Stock.
Directors and executive officers of the Company will have the same ability as
others to purchase additional shares of Common Stock in the Offering. The
directors and executive officers of the Company as a group (16 persons) have
indicated their intention to exercise Rights to purchase, in the aggregate,
107,882 shares of Common Stock. These indications are based upon each
director's and officer's evaluation of his or her own financial and other
circumstances. An investment in Common Stock must be made pursuant to each
investor's evaluation of such investor's best interests. Accordingly, neither
the Board of Directors nor Sandler O'Neill make any recommendation to Rights
Holders or others regarding whether they should exercise their Rights or
purchase Common Stock. See "The Rights Offering--Financial Advisor."
DILUTION. Record Date Holders may experience substantial dilution of their
percentage of equity ownership interest and voting power in the Company if they
do not exercise the Basic Subscription Privilege. Even if Record Date Holders
exercise their Basic Subscription in full, they may nevertheless still
experience substantial dilution in their voting rights and in their
proportional interest in any future net earnings of the Company if Additional
Shares are purchased by Standby Purchasers. See "Standby Purchase Agreements."
In addition, it is possible that additional capital may be necessary or
appropriate and shares of Common Stock may be offered for sale in the future.
In that event, the relative voting power and equity interests of persons
purchasing Common Stock in this Offering could be reduced, as the Common Stock
has no preemptive rights. See "Description of Capital Stock." No assurance can
be given that such future sale will not occur, and, if it did, at what price or
other terms.
DIVIDEND RESTRICTIONS. Parent has never paid a cash dividend on the Common
Stock and there can be no assurance that Parent will generate earnings in the
future which would permit the declaration of dividends. Parent is prohibited by
the terms of the MOU from declaring or paying a dividend without fifteen days'
prior notice to the Reserve Bank. In addition, the source of such dividends is
likely to be dividends from Ventura or Frontier, both of which are currently
prohibited from paying dividends by the Formal Agreement and the Consent Order,
respectively, without the consent of the OCC. Furthermore, it is anticipated
that for the foreseeable future any earnings which may be generated will be
retained for the purpose of increasing the Company's and the Banks' capital and
reserves in order to facilitate growth. See "Risk Factors--Regulatory
Agreements and Capital Requirements."
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS. The financial institutions
industry is subject to significant regulation, which has materially affected
the financial institutions industry in the past and will do so in the future.
Such regulations, which affect the Company on a daily basis, may be changed at
any time, and the interpretation of the relevant law and regulations are also
subject to interpretive change by the authorities who examine Parent and the
Banks and interpret those laws and regulations. For a description of the
potentially significant regulatory changes which have been enacted and
proposals which have recently been put forward, see "Supervision and
Regulation--Effect of Governmental Policies and Recent Legislation." There can
be no assurance that any present or future changes in the laws or regulations
or in their interpretation will not adversely and materially affect the
Company.
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MONETARY POLICY AND ECONOMIC CONDITIONS. The operating income and net income
of the Company depends to a great extent on the difference between the interest
paid by the Company on its deposits and its other borrowings and the interest
received by the Company on its loans, securities and other interest earning
assets. These rates are highly sensitive to many factors that are beyond the
control of the Company, including general economic conditions and the monetary
and fiscal policies of the federal government and the policies of regulatory
agencies, particularly the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). The nature and impact of any future changes in
monetary policies cannot be predicted. Adverse economic conditions could result
in smaller net interest margin, increased nonperforming assets, increased
charge-offs and higher provision for loan losses, any of which could adversely
affect the Company's net income.
FLUCTUATIONS IN INTEREST RATES AND RELIANCE ON VOLATILE LIABILITIES. To
reduce exposure to interest rate fluctuations, the Company attempts to match
its interest rate sensitive assets with its interest rate sensitive liabilities
and maintain the maturity and repricing of these assets and liabilities at
appropriate levels. One method the Company uses to monitor interest rate
sensitivity is by comparing interest rate sensitive assets to interest rate
sensitive liabilities over several time periods, or by using what is called gap
analysis. Net repriceable assets exist when interest rate sensitive assets
exceed interest rate sensitive liabilities. At December 31, 1994, the Company
had net repriceable assets (a positive gap) that reprice within one year of
8.3% of total assets. The net repriceable assets over a five year time horizon
totaled approximately 20.3% of total assets. With a positive one year gap, the
Company would anticipate higher net interest margin over the near term in a
rising rate environment and lower net interest margin in a declining rate
environment. The Banks have established floors on 47% of the variable rate
loans to mitigate the effect on net interest margin if interest rates decline.
The Company would also anticipate, to a lesser extent, lower net margins in a
stable rate environment that immediately follows a rising rate environment as
interest bearing liabilities reprice. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Rate Sensitive Assets/Rate
Sensitive Liabilities."
Increases in interest rates may reduce the amount of demand for loans and,
thus, the amount of loan and commitment fees. In addition, fluctuations in
interest rates may also result in disintermediation, which is the flow of funds
away from depository institutions into direct investments which pay a higher
rate of return, and may affect the value of the Company's investment securities
and other interest earning assets.
As a result of the Company's assets consisting of a substantial number of
loans with interest rates which change in accordance with changes in prevailing
market rates, if interest rates rise sharply, many of the Company's borrowers
would be required to make higher interest payments on their loans. Thus,
increases in interest rates may cause the Company to experience an increase in
delinquent loans and defaults to the extent that borrowers were unable to meet
their increased debt servicing obligations.
Although the Banks do not currently purchase brokered deposits, in the past,
both Ventura and Frontier have, to a certain degree, funded growth in their
assets with demand deposits from title and escrow companies and by the issuance
of certificates of deposit to persons, including other financial institutions,
not otherwise having banking relationships with the Banks. Such liabilities are
potentially unstable sources of deposits because they are generally attracted
to the financial institution based primarily upon the interest rate paid by the
institution and the general financial condition of the institution and may be
withdrawn on relatively short notice. Furthermore, the proceeds of such
liabilities are generally invested in relatively low yielding shortterm
investment securities rather than higher yielding loans. In order to stabilize
its funding sources, the Company has taken action to reduce title and escrow
deposits and institutional deposits as a percentage of total deposits. Demand
deposits owned by title and escrow companies represented 1.2% and 11.3% of
total deposits at December 31, 1994 and 1993, respectively. Certificates of
deposit held by other financial institutions represented 9.4% and 11.4% of
total deposits at December 31, 1994 and 1993, respectively, and brokered CDs
represented 0% and 1.3% of total deposits at December 31, 1994 and 1993,
respectively. There can be no assurances that the Company will be able to
replace such deposits with core deposits in the future.
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COMPETITION. The Company faces substantial competition for loans and deposits
throughout its market areas. The Company competes on a daily basis with other
commercial banks, savings institutions, thrifts and loans, credit unions, money
market and mutual funds and other investment alternatives. The Company faces
competition throughout its market area from local institutions, which have a
large presence in the Company's market areas, as well as from out-of-state
financial institutions which have offices in the Company's market areas. Many
of these other institutions offer services which the Company does not offer,
including trust and investment services. Furthermore, banks with a larger
capital base and financial intermediaries not subject to the restrictions
imposed by bank regulation have larger lending limits and can therefore serve
the needs of larger customers.
RIGHT TO TERMINATE OFFERING. The Company expressly reserves the right, in its
sole discretion, at any time prior to delivery of any shares of Common Stock
offered hereby, to terminate the Offering by giving oral or written notice
thereof to the Subscription Agent and making a public announcement thereof. If
the Rights Offering is so terminated, all funds received from Rights Holders
subscribing pursuant to the Rights Offering or persons placing orders under the
Standby Purchase Agreement will be promptly refunded, without interest.
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THE COMPANY
GENERAL
Ventura County National Bancorp is a California corporation, incorporated on
February 22, 1984, and is a registered multi-bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company's
principal executive offices are located at 500 Esplanade Drive, Oxnard,
California.
The Company currently conducts business through its two subsidiary banks,
Ventura and Frontier. The Banks are both national banking associations
operating in Southern California. Ventura conducts its banking operations
through four branch offices located in Ventura County, California,
approximately 60 miles northwest of downtown Los Angeles, situated on the coast
between Los Angeles and Santa Barbara counties. Ventura's headquarters are
located in Oxnard, California, and its branch offices are located in Ventura,
Camarillo and Westlake Village. Frontier is based in La Palma in northwestern
Orange County and has a branch office in Wilmington in southern Los Angeles
County.
BACKGROUND
During the 1980s, the Company grew substantially, both in earnings and asset
size, internally and through mergers. In addition to its core lending business,
the Company organized subsidiaries (all of which are now inactive) for a
variety of purposes, including providing data processing services to third
parties, insurance premium financing, venture capital, leasing and commercial
financing. Assets ultimately grew to a high of $400.2 million in 1992.
During the late 1980s and through early 1993, the Company made a substantial
amount of loans to land developers and subdividers and loans secured by first
trust deeds on investment properties. Beginning in 1991, the economic recession
and substantial declines in real estate values in Southern California began to
adversely affect collateral values and the ability of certain borrowers to
repay their obligations to the Company. A disproportionate amount of the
Company's charge-offs during 1991, 1992 and 1993 occurred as a result of the
concentration in these types of commercial real estate loans and because of the
substantial declines in real estate values brought on by the recession.
The foregoing factors significantly contributed to the Company's increased
provisions for loan losses in 1991, 1992 and 1993. The high level of
nonperforming assets, combined with a significantly lower level of average
earning assets due to balance sheet shrinkage also negatively affected the
Company's net interest income. Other expenses increased, reflecting increased
REO expenses as the real estate market destabilized. In addition, in 1993, the
Company incurred nonrecurring charges associated with the write-off of goodwill
at Frontier and certain tax assets. The net result of these and other factors
was a sustained downward trend in earnings since 1990, culminating with a net
loss of $12.1 million ($2.15 per share) for the year ended December 31, 1993.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Due to the foregoing, in March 1993 Frontier agreed to the issuance of a
Consent Order by the OCC (which replaced the 1992 MOU) and Ventura entered into
a Formal Agreement with the OCC, both of which addressed the need to improve
management, staffing, policies, procedures, reporting mechanisms, Board
oversight and compliance. In addition, both the Consent Order and the Formal
Agreement (as amended in February 1994) require the Banks to maintain
regulatory capital ratios at levels substantially higher than the levels
generally applicable to other national banks and restrict the payment of
dividends to Parent without the prior approval of the OCC. As a result of the
deterioration of the financial condition of the Banks, Parent entered into the
MOU with the Reserve Bank. See "Supervision and Regulation--Potential and
Existing Enforcement Actions" and "Risk Factors--Regulatory Agreements and
Capital Requirements."
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RESPONSIVE MEASURES
In September 1993, new management and the Board of Directors developed and
began to implement a plan to address the major concerns confronting the Banks
and restore core profitability. The plan consisted of (1) improving management,
(2) reducing nonperforming and classified assets, (3) improving asset quality,
(4) reducing other expenses, (5) improving liquidity and (6) increasing capital
ratios. Prior to the commencement of this Offering, the Company's Board of
Directors from time to time considered various strategic alternatives,
including having discussions with others concerning possible business
combinations involving the Banks. All such discussions have terminated.
Management believes that the Company has made significant progress in
implementing each action item of the plan, each of which is discussed below:
. Improved Management. The Company and the Banks have experienced a
complete change in management since 1992. In July 1993, the Company and
Ventura retained Richard S. Cupp as their new President and Chief
Executive Officer and, in November 1994, Frontier retainedKathleen L.
Kellogg as its new President and Chief Executive Officer. The Banks have
each hired new Chief Credit Officers and Ventura has hired a new Chief
Operating Officer and a Chief Lending Officer. See "Shareholdings of
Certain Beneficial Owners and Management--Executive Officers." The
Company has retained Simone Lagomarsino as its Chief Financial Officer.
These new management teams, under the direction of the Company's and the
Banks' Boards of Directors, have undertaken a sweeping revision of
policies, procedures and reporting mechanisms in practically every area
of operation.
. Reduced Nonperforming and Classified Assets. Management has sought to
reduce the level of nonperforming assets through collections, writedowns
and sales of REO and nonperforming loans. To aid in that objective, in
May 1994, the Company completed a bulk sale of $14.1 million in
nonperforming loans. In connection with the bulk sale, an additional
provision for loan losses of $1.5 million and charge-offs of $5.0
million were taken to expedite the disposition of such assets. The
result has been a reduction in nonperforming assets from $22.1 million
at December 31, 1993 to $11.2 million at December 31, 1994 and a
reduction of classified assets from $64.6 million to $30.9 million over
the same period. At December 31, 1994, the ratio of classified assets to
the loan loss reserve plus shareholders' equity was 113.27%, compared
with 186.27% at December 31, 1993. See "Business--Classified Assets and
Nonperforming Assets." On a pro forma basis, the ratio of classified
assets to loan loss reserve plus shareholders' equity as of December 31,
1994 would have been 99.74%, if the Minimum Shares were sold, and
93.86%, if the Maximum Shares were sold, as of such date.
. Improved Asset Quality. Management has reorganized and strengthened
credit administration and internal asset review and supplemented its
internal activities by hiring an external loan review firm to evaluate
and review the risk grades of both nonperforming and performing loans on
a quarterly basis. The portfolios have been reviewed for nine
consecutive quarters by the external loan review firm and all loans over
$250,000 have been reviewed at least once. Moreover, the OCC completed
examinations of Ventura as of September 30, 1994 and Frontier as of June
30, 1994. The results of these examinations displayed improvement in the
Banks' condition. In addition, the OCC indicated that Ventura's loan
loss reserves were adequate at the time of its examination. In
connection with its examination of Frontier, the OCC required changes in
the risk grading of certain credits which resulted in an additional
provision for loan losses of $200,000 during 1994. The Company has also
restructured its staff to strengthen commercial lending, financial
accounting and reporting. Management has emphasized continuing training
and risk identification at the loan officer level. The Company has also
developed and adopted new or revised policies, procedures and systems
that are designed to improve credit origination and documentation,
review and classification procedures, real estate and equipment
appraisals.
Although the Company's loan portfolio at December 31, 1994 continues
to reflect a concentration of medium term real estate commercial loans,
current underwriting policies emphasize commercial loans for customers
with whom the Banks also have deposit relationships.
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In general, the Company has significantly curtailed the origination of
medium term commercial real estate and is not soliciting new loans to
finance investment properties. It is management's intention that future
medium term commercial real estate loans, to the extent made, will be
limited to loans to finance owner-user properties. Twenty-two medium
term commercial real estate loans aggregating $10.3 million at December
31, 1994 are scheduled to mature during 1995, of which six loans in the
aggregate amount of $3.2 million have been classified. All such
classified loans have been reevaluated for collateral value within the
past six months and additional loan loss reserves have been taken where
appropriate. Of the $10.3 million in medium term commercial real estate
loans maturing in 1995, thirteen loans aggregating $7.2 million were
loans for investment properties. Of that amount, the Company
anticipates that nine loans aggregating $5.9 million will be refinanced
or fully repaid during 1995. The remaining $1.3 million consists of
four loans, none of which exceeded $570,000 principal balance at
December 31, 1994. None of such loans were classified at December 31,
1994, and based upon current information, management does not
anticipate that additional loan loss reserves will be assessed with
respect to such loans. See "Business--Loan Portfolio."
. Reduced Other Expenses. Management made a decision to eliminate certain
nonstrategic aspects of the Company's business. In 1994, the Company
sold its mortgage servicing portfolio and eliminated its mortgage
origination and servicing departments. In addition, in 1994, the Company
completed the outsourcing of its data processing and courier functions.
As a result, the Company was able to reduce its staff from 199 at
December 31, 1993 to 141 at December 31, 1994. The Company has reduced
its occupancy expenses by subletting portions of its administrative and
headquarters offices, negotiating a favorable renewal of the lease for
its Central Operations office, and allowing the lease for one of its
properties to expire in 1995. Prior to taking such actions, the Company
expended $1.3 million with respect to the additional staff, employee
benefit and occupancy expenses during 1993 and 1994, which the Company
does not anticipate that it will incur in the future. As a result of
such actions during 1994, the Company had an efficiency ratio of 80.71%,
compared to 95.89% during 1993. In addition, the Company consolidated
two operational units of Frontier and Ventura during the first quarter
of 1995, which management anticipates will result in additional cost
savings of approximately $200,000.
. Improved Liquidity. During 1993 and 1994, the Company has undergone
significant balance sheet restructuring, experiencing substantial
reductions in assets, loans and deposits, which had the dual effects of
increasing core deposits as a percentage of total deposits and improving
liquidity. In order to improve the diversity of the Company's funding
sources, management reduced title and escrow deposits from $36.1 million
at December 31, 1993 to $2.7 million at December 31, 1994 and
institutional and brokered certificates of deposit from $40.2 million at
December 31, 1993 to $22.2 million at December 31, 1994. In addition,
the loan to deposit ratio improved from 79.6% at December 31, 1993 to
67.6% at December 31, 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
. Improved Capital Ratios. Primarily because of balance sheet
restructuring, the Company and the Banks have recently improved their
regulatory capital ratios. During 1993, the Company raised$1.7 million
from a private placement of Common Stock and notes payable. As
ofDecember 31, 1994, the Company, Ventura and Frontier had leverage
capital ratios of 7.53%, 7.21% and 8.32%, respectively, Tier 1 risk-
based capital ratios of 11.32%, 10.92% and 12.29%, respectively, and
total risk-based capital ratios of 12.61%, 12.21% and 13.57%,
respectively. These ratios comply fully with all minimum regulatory
requirements applicable to bank holding companies and national banks
generally and comply with the higher requirements imposed on Frontier by
the Consent Order. Although Ventura has satisfied the requirement of the
Formal Agreement to maintain a leverage capital ratio of 7.00%, it has
not yet satisfied the Tier 1 risk-based capital ratio requirement of
12.00%. The OCC has agreed to extend until June 30, 1995 the date by
which Ventura must be in full compliance with the capital requirements
of the Formal Agreement. Management believes that Ventura will be able
to comply with such requirements, either through
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results of continuing operations or as a result of the capital raised in
this Offering. The Offering is conditioned upon the receipt by Parent of
minimum Offering proceeds of $4,500,000. See "The Rights Offering--
Minimum Condition."
Through management's efforts, the Company's net loss was reduced to $262,000
during 1994 and nonperforming assets were reduced to $11.2 million at December
31, 1994. The Company returned to profitability beginning in the third quarter
of 1994, and had net income for the second half of 1994 of $615,000, compared
to a net loss of $877,000 for the first six months of the year. Earnings
improvement in the second half was due to a $1.9 million decrease in the
provision for loan losses, $1.2 million decrease in other expenses and a
$143,000 decrease in income tax provision, which were offset by a decline in
other income of $2.1 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Management believes the Company
is positioned to take advantage of new opportunities as they may arise in 1995.
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to pursue a unique opportunity to
build market share in its target markets created by the acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California in February 1995. Ventura is now the largest
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong relationships with
business, civic and community organizations. The Company has reallocated its
resources in a renewed marketing effort to position both Ventura and Frontier
as the leading community banks in their respective market areas. Management
believes that this marketing and service approach enables both Banks to compete
effectively with the money center, superregional and regional banks which
dominate their market areas.
The Ventura, Los Angeles and Orange County economies support a broad range of
industries including durable and nondurable manufacturing, public
administration and the military, business and health services, retail and
wholesale trade, high technology, agriculture, construction, and tourism
related sectors. According to Dun & Bradstreet, there are more than 3,000
businesses operating in Ventura County with revenues ranging from $1 million to
$25 million, the majority of which have headquarters locally. The same source
indicates that Frontier's market area includes over 11,000 businesses with
revenues in the $1 million to$25 million range. The most recent data available
indicates that Ventura's market share of bank deposits in Ventura County is
approximately 5.0%, while Frontier's market share of deposits in Los Angeles
and Orange counties is insignificant.
Ventura provides deposits and loan products to businesses in representative
industries in Ventura County, including manufacturing, distribution,
professional services and agriculture. Ventura's principal loan products will
include working capital loans and lines of credit, asset based loans and lines
of credit, term loans secured by properties, plants and equipment and, through
Frontier, SBA loans. Ventura also anticipates continuing a limited amount of
construction lending to experienced builders for construction of single family
home projects in selected areas of Ventura County. Such loans would generally
not exceed 15% of the portfolio at any one time during 1995. Deposit and fee
products are designed to meet the needs of small businesses and professional
firms, including the firms targeted for loan products. See "Business."
Frontier's target market is small and medium sized businesses, professionals
and individuals. Frontier also intends to expand the Wilmington branch's
commercial lending business in its surrounding communities. In addition to the
types of loans offered by Ventura, Frontier's principal loan products include
commercial
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loans to small businesses secured by first trust deeds on owner-user commercial
real estate. Frontier also offers unsecured small business loans and, through
its SBA Division, loans for equipment, inventory, real estate acquisition and
construction, and working capital under both the 504 and 7(a) programs. See
"Business--Loan Portfolio--SBA Lending." The SBA Division intends to focus its
marketing efforts on developing and strengthening existing relationships with
real estate brokers who refer owner-user commercial and industrial real estate
purchasers to Frontier.
Both Banks have developed programs to solicit minority, principally Hispanic,
business customers with existing products. For example, Ventura sponsors a
county wide Minority Business Group with over 400 minority businesses and
professionals as members. Management believes minority businesses represent a
traditionally underserviced segment of the market that places a high priority
on the type of personalized service delivered by the Banks.
Both Banks offer fee based cash management products for business customers
and will expand and enhance these products for future growth. Deposit products
include business and personal checking, interest bearing money market, NOW and
savings accounts and certificates of deposit. Although neither Ventura nor
Frontier intends to compete with the larger regional, superregional or money
center banks for the broad based retail consumer customer, the Company has
designed and implemented certain competitive retail deposit products in order
to diversify and stabilize its funding sources.
Finally, the Company's strategic plan also requires continuing implementation
of each action item of its responsive measures.
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THE RIGHTS OFFERING
THE RIGHTS
The Company is hereby issuing transferable Rights at no cost to each record
holder of Common Stock ("Record Date Holder") as of the close of business on
May 10, 1995 (the "Record Date"). The Company will issue one Right for each
3.17 shares of Common Stock held on the Record Date. The Rights will be
evidenced by transferable Subscription Right Certificates, which are being
distributed to each Record Date Holder contemporaneously with the delivery of
this Prospectus.
The Company, with the assistance of Sandler O'Neill, determined the ratio of
one Right for each 3.17 shares of Common Stock. Factors affecting the
determination of the ratio of one Right for each 3.17 shares of Common Stock
include the amount of proceeds sought to be raised, pricing and dilution
characteristics of other rights offerings, negotiations with the Standby
Purchasers and the current market price of the Common Stock. See "The Rights
Offering--Determination of Subscription Price."
No fractional Rights or cash in lieu thereof will be issued or paid. Instead,
the number of Rights issued to a Record Date Holder will be rounded up to the
nearest whole number. A depository, bank, trust company or securities broker or
dealer holding shares of Common Stock on the Record Date for more than one
beneficial owner may, upon delivery to the Subscription Agent of the
Certification and Request for Additional Rights form available from the
Information Agent, exchange its Subscription Right Certificate to obtain a
Subscription Right Certificate for the number of Rights to which all such
beneficial owners in the aggregate would have been entitled had each been a
holder on the Record Date; no other Subscription Right Certificate may be so
divided as to increase the number of Rights to which the original recipient was
entitled. The Company reserves the right to refuse to issue any Subscription
Right Certificate if such issuance would be inconsistent with the principle
that each beneficial owner's holdings will be rounded up to the nearest whole
number of Rights. The Subscription Agent must receive the Certification and
Request for Additional Rights no later than 5:00 p.m., Pacific time, on June
16, 1995 after which time no new Subscription Right Certificates will be
issued.
Because the number of Rights issued to each Record Date Holder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the Record Date Holder of their shares will receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
Record Date Holders of their shares and who do not obtain (or cause the Record
Date Holder of their shares of Common Stock to obtain) a separate Subscription
Right Certificate with respect to the shares beneficially owned by them,
including shares held in an investment advisory or similar account. To the
extent that Record Date Holders or beneficial owners of Common Stock who obtain
a separate Subscription Right Certificate receive more Rights, they will be
able to subscribe for more shares pursuant to the Basic Subscription Privilege.
Beneficial owners of Common Stock who are not Record Date Holders may obtain a
separate Subscription Right Certificate upon request to the nominee Record Date
Holder. See "The Rights Offering--Exercise of Rights."
Once the Rights are distributed and until the Expiration Time, the Company
will not effect a reclassification of the Company's equity securities which
could have the effect of materially altering the value of the Rights during the
pendency of the Offering.
EXPIRATION TIME
The Rights will expire at the Expiration Time, 5:00 p.m., Pacific time, on
June 21, 1995, subject to extension in the discretion of the Company. The
Company does not currently contemplate any extensions. After the Expiration
Time, unexercised Rights will be null and void. The Company will not be
obligated to honor any purported exercise of Rights received by the
Subscription Agent after the Expiration Time, regardless of when the documents
relating to that exercise were sent, except pursuant to the Guaranteed
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Delivery Procedures described below. The Company may extend the Expiration Time
by giving oral or written notice to the Subscription Agent on or before the
Expiration Time, followed by a press release no later than 9:00 a.m. Pacific
time on the next business day after the previously scheduled Expiration Time.
The Offering will not be extended to a time later than 5:00 p.m., Pacific time,
on July 21, 1995.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the holder thereof to
purchase at the Subscription Price one Underlying Share, subject to reduction
by the Company under certain circumstances (the "Basic Subscription
Privilege"). See "The Rights Offering--Tax Limitation" and "The Rights
Offering--Regulatory Limitation." Each Rights Holder is entitled to subscribe
for all, or any portion of, the Underlying Shares which may be acquired through
the exercise of Rights. Payment of the Subscription Price will be held in an
escrow account to be maintained by First Interstate Bank of California as
Subscription Agent and will be applied to the purchase of Common Stock or
promptly returned without interest following the Expiration Time. Subject to
satisfaction of the Minimum Condition, the certificates representing Underlying
Shares purchased pursuant to the Basic Subscription Privilege will be delivered
to subscribers as soon as practicable after the Expiration Time and all
prorations and reductions contemplated by the Offering have been effected.
Oversubscription Privilege. Subject to the allocation and possible reduction
described below and elsewhere in this Prospectus (see "The Rights Offering--Tax
Limitation" and "The Rights Offering--also "Regulatory Limitation"), Record
Date Holders who fully exercise the Basic Subscription Privilege issued to them
by the Company will be eligible to subscribe, at the Subscription Price, for
additional shares of Common Stock available after satisfaction of all
subscriptions pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"). Only Record Date Holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise this
Oversubscription Privilege which must be exercised at the same time as the
Basic Subscription Privilege is exercised. The Oversubscription Privilege is
not transferable.
Shares of Common Stock will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are
not subscribed for through exercise of the Basic Subscription Privilege. If the
Underlying Shares not subscribed for through the Basic Subscription Privilege
(the "Excess Shares") are not sufficient to satisfy all subscriptions pursuant
to the Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among the Record Date Holders
who exercise their Oversubscription Privilege in proportion to the respective
number of shares of Common Stock each such Record Date Holder subscribes for
pursuant to the Basic Subscription Privilege; provided, however, that if such
pro rata allocation results in any Rights Holder being allocated a greater
number of Excess Shares than such holder subscribed for pursuant to the
exercise of the Oversubscription Privilege, then each Rights Holder will be
allocated only that number of Excess Shares for which such holder
oversubscribed, and the remaining Excess Shares will be allocated among all
other Rights Holders exercising the Oversubscription Privilege on the same pro
rata basis outlined above; such proration will be repeated until all Excess
Shares have been allocated to the full extent of the Oversubscription Privilege
exercised. Payments for oversubscriptions will be deposited upon receipt by the
Subscription Agent and held in a segregated account with the Subscription Agent
pending a final determination of the number of Underlying Shares to be issued
pursuant to such Oversubscription Privilege. THEREFORE, RIGHTS HOLDERS WHO
PLACE OVER-SUBSCRIPTION ORDERS PRIOR TO THE EXPIRATION TIME WILL LOSE ACCESS TO
FUNDS TENDERED FOR AN INDETERMINATE PERIOD OF TIME UP TO 30 DAYS AFTER THE
EXPIRATION TIME AND MAY NOT ACTUALLY ACQUIRE SHARES OF COMMON STOCK SUBSCRIBED
FOR. If a proration of the Excess Shares results in a Rights Holder receiving
fewer Excess Shares than such Rights Holder subscribed for pursuant to the
Oversubscription Privilege, then the excess funds paid by that holder at the
Subscription Price for shares not issued will be returned without interest or
deduction. Subject to satisfaction of the Minimum Condition, certificates
representing Underlying Shares purchased pursuant to the Oversubscription
Privilege will be delivered to subscribers as soon as practicable after the
Expiration Time and after all prorations and reductions contemplated by the
terms of the Offering have been effected.
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To exercise the Oversubscription Privilege, banks, brokers and other nominee
Record Date Holders who exercise the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company the aggregate number of Rights as to which the
Oversubscription Privilege has been exercised and the number of Underlying
Shares thereby subscribed for by each beneficial owner of Rights on whose
behalf such nominee holder is acting.
REGULATORY LIMITATION
The Company will not be required to issue shares of Common Stock pursuant to
the Offering to any Rights Holder or Standby Purchaser who, in the Company's
sole judgment and discretion, is required to obtain prior clearance, approval
or nondisapproval from any state or federal bank regulatory authority to own or
control such shares unless, prior to the Expiration Time, evidence of such
clearance, approval or nondisapproval has been provided to the Company. If the
Company elects not to issue shares in such case, such shares will become
available to satisfy subscriptions pursuant to the Oversubscription Privilege
or to Standby Purchasers as to whom such conditions do not apply.
The Change in Bank Control Act of 1978 prohibits a person or group of persons
"acting in concert" from acquiring "control" of a bank holding company unless
the Federal Reserve Board has been given60 days' prior written notice of such
proposed acquisition and within that time period the Federal Reserve Board has
not issued a notice disapproving the proposed acquisition or extending for up
to another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to the expiration of the disapproval period if
the Federal Reserve Board issues written notice of its intent not to disapprove
the action. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of more than 10% of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act (such as the Common Stock) would, under the circumstances set
forth in the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
("BHC Act"), before acquiring 25% (5% in the case of an acquiror that is, or is
deemed to be, a bank holding company) or more of the outstanding Common Stock
of, or such lesser number of shares as constitute control over, the Company.
SUBSCRIPTION PRICE
The Subscription Price is $2.25 per Underlying Share subscribed for pursuant
to the Basic Subscription Privilege and the Oversubscription Privilege, payable
in cash. Shares purchased by Standby Purchasers pursuant to the Standby
Purchase Agreements shall be at the same price of $2.25.
NO BOARD OR FINANCIAL ADVISOR RECOMMENDATION
An investment in the Common Stock must be made pursuant to each investor's
evaluation of such investor's best interests. Accordingly, neither the Board of
Directors of the Company nor Sandler O'Neill makes any recommendation to Rights
Holders or other prospective purchasers regarding whether they should exercise
their Rights or otherwise subscribe for shares of Common Stock.
STANDBY PURCHASE AGREEMENTS
The Company has entered into Standby Purchase Agreements pursuant to which an
aggregate of seven accredited investors as Standby Purchasers have severally
agreed to acquire from the Company at the Subscription Price up to 2,000,000 of
the Underlying Shares, if any, remaining after the exercise of the Basic
Subscription Privilege and the Oversubscription Privilege, subject in each case
to a maximum standby commitment and possible reduction under certain
circumstances. See "Regulatory Limitation" and "Tax Limitation." The Standby
Purchase Agreements require that the Company sell up to 888,889 Additional
Shares in the aggregate to the Standby Purchasers if sufficient Underlying
Shares are not available after completion of the Rights Offering. The
Additional Shares are being offered to the Standby Purchasers only.
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The Company has guaranteed the availability to the Standby Purchasers of an
aggregate minimum of 888,889 shares of Common Stock. See "Standby Purchase
Agreements."
TAX LIMITATION
As of December 31, 1994, the Company had NOL carryforwards of $1.5 million
and $3.5 million for federal and state purposes, respectively. The acquisition
of Underlying Shares as a result of the exercise of Rights pursuant to the
Basic Subscription Privilege or the Oversubscription Privilege, or the issuance
of shares to Standby Purchasers, could result in an "ownership change" within
the meaning of Section 382 of the Code. If the Offering were to cause such an
ownership change, or if future trading in the Company's shares were to cause
such an ownership change, the Company's ability to use its NOLs in the future
could be adversely affected (the "Section 382 Limitation"). The Company has
reserved the right in its sole judgment and discretion to limit the number of
Underlying Shares issued as a result of exercises of Rights or under the
Standby Agreement to reduce the risk that the Section 382 Limitation will
apply. The Company will determine whether to exercise this discretion by
comparing the benefits of a successful offering with any tax detriments
associated with an ownership change.
An "ownership change" will occur if the aggregate percentage point ownership
increase for all 5% shareholders for a "testing period" exceeds 50 percentage
points. For this purpose, a "5% shareholder" is any direct or indirect holder,
taking certain attribution rules into account, of 5% or more of a corporation's
stock. For this purpose, all holders of less than 5% are collectively treated
as a single 5% shareholder. In general, the "testing period" is the three-year
period ending on the date an ownership change has occurred. Such period may be
less than three years and will begin the first day of the most recent taxable
year from which a net operating loss or excess credit is carried forward. Once
an "ownership change" has occurred, as of that date, only subsequent ownership
changes are tested. In determining the amount by which 5% shareholders have
increased their percentage, the percentage interest of each 5% shareholder on
the testing date is compared to the lowest percentage interest of such
shareholder at any time during the testing period. For example, a shareholder
whose percentage ownership increased from 6% to 20% during the testing period
will be considered to have had an increase of 14 percentage points. If the
aggregate change of all 5% shareholders exceeds 50 percentage points as of the
end of the "testing period," then an "ownership change" will have occurred. If
the Offering is successful, there may be an "ownership change" as a result.
This would impose an annual Section 382 limitation on the ability of the
Company to use its net operating losses beginning in the year in which the
"ownership change" has occurred. The amount of the net operating loss
carryovers that could be used by the Company annually would be determined by
multiplying the value of the Company as of the "ownership change" date by the
long term tax-exempt bond rate at that time, a rate that is currently 6.83%.
The Company retains the discretion to reduce the number of shares of Common
Stock to be received by a Rights Holder or a Standby Purchaser. It will
exercise this discretion by comparing the benefits of a successful offering
with any tax detriments associated with a ownership change.
Under the Standby Purchase Agreement, the Company has the right to receive
notice of, and to review a Standby Purchaser's proposed future acquisition of
shares of Company "stock" (as defined under Section 382 of the Code and the
regulation promulgated thereunder) and to limit the number of shares so
acquired in order to prevent the application of the Section 382 Limitation.
Each Standby Purchaser has agreed to give the Company sufficient prior written
notice of any proposed acquisition of additional shares of Common Stock, so
that the Company may determine in its reasonable judgment whether such proposed
purchase could reasonably by expected to result in an ownership change. In the
event the Company makes such a determination, each Standby Purchaser has agreed
to limit its purchase of additional shares of Common Stock or interests therein
as the Company may request to avoid such an ownership change.
Each Standby Purchaser has also agreed that during the three year period
commencing on the day after the Closing Date, it will not bid for, purchase,
contract to purchase or otherwise acquire, directly or indirectly, any shares
of Common Stock or interests therein if, after such acquisition, its percentage
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ownership, together with that of its affiliates, of the total number of shares
of the Company stock would exceed 4.9%. With the written permission of the
Company, each Standby Purchaser may increase such percentage ownership above
4.9%, but in no event in excess of 9.9%.
No other restrictions on future acquisitions of shares exist in the Company's
charter or otherwise that are designed to prevent the occurrence of an
ownership change, although certain regulatory constraints on the acquisition of
controlling interests in a bank holding company or national bank may make it
somewhat less likely that an ownership change will occur due to future
acquisitions of Company stock.
METHOD OF SUBSCRIPTION--BY EXISTING SHAREHOLDERS AS RIGHTS HOLDERS
EXERCISE OF RIGHTS
Rights Holders may exercise their Rights by delivering to the Subscription
Agent, at the addresses specified below, at or prior to the Expiration Time,
the properly completed and executed Subscription Rights Certificate(s)
evidencing those Rights, with any signatures guaranteed as required, together
with payment in full of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. Payment may be made only (i) by check or bank draft
drawn upon a U.S. bank, or postal, telegraphic or express money order, payable
to First Interstate Bank of California, as Subscription Agent; or (ii) by wire
transfer of funds to the escrow account maintained by the Subscription Agent
for the purpose of accepting subscriptions at Mellon Bank, Pittsburgh,
Pennsylvania #17, ABA No. 043000261, Reorganization Account 100-2331-VCNB,
Attention: Evelyn O'Connor (with Subscriber's name) (the "Subscription
Account"). The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check; (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order; or (iii)
receipt of collected funds in the Subscription Agent's account designated
above. Funds paid by uncertified personal check may take up to five business
days to clear. Accordingly, Rights Holders who wish to pay the Subscription
Price by means of uncertified personal check are urged to make payment
sufficiently in advance of the Expiration Time to ensure that such payment is
received and clears by such time and are urged to consider in the alternative
payment by means of certified check, bank draft, money order or wire transfer
of funds. All funds received in payment of the Subscription Price shall be held
by the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or any agency thereof or money market mutual funds investing in
the foregoing instruments. Subscription funds paid to exercise the
Oversubscription Privilege will be returned to the Rights Holder in the event
there are insufficient Excess Shares to fulfill any Oversubscription. See "The
Rights Offering--Subscription Privileges." The account in which such funds will
be held will not be insured by the FDIC. Any interest earned on such funds will
be retained by the Company.
The Subscription Right Certificates and payment of the Subscription Price or,
if applicable, Notices of Guaranteed Delivery or DTC Participant
Oversubscription Exercise Forms, as defined below, must be delivered to the
Subscription Agent, by mail, hand delivery, overnight or other courier service,
at the following address:
By Mail:
First Interstate Bank of California
Ventura County National Bancorp Rights Offering Account
Post Office Box 4177
Woodland Hills, California 91365
Telephone number: 1-800-522-6645
Facsimile number: 1-201-296-4062
By Hand Delivery:
15821 Ventura Boulevard 120 Broadway
Suite 670 13th Floor
Encino, California 91436 New York, New York
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The Company will absorb the costs of the fees and expenses of the
Subscription Agent and has also agreed to indemnify the Subscription Agent from
certain liabilities which it may incur in connection with the Offering. Except
for fees absorbed by the Company, and transfer taxes, if any, which shall be
paid by the Company, all commissions, fees and other expenses (including
brokerage commissions) incurred in connection with the exercise of Rights will
be for the account of the Rights Holder, and none of such commissions, fees or
expenses will be paid by the Company.
If a Rights Holder wishes to exercise Rights, but time will not permit such
Rights Holder to cause the Subscription Right Certificate(s) evidencing those
Rights to reach the Subscription Agent prior to the Expiration Time, such
Rights may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) the Rights Holder has caused payment in full of the Subscription
Price for each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and, if applicable, the Oversubscription Privilege
to be received (in the manner set forth above) by the Subscription Agent at
or prior to the Expiration Time;
(ii) the Subscription Agent receives, at or prior to the Expiration Time,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Ventura County
National Bancorp Subscription Rights Certificates (the "Instructions")
distributed with the Subscription Right Certificates, guaranteed by a
member firm of an approved Signature Guarantee Medallion Program, stating
the name of the exercising Rights Holder, the number of Underlying Shares
being subscribed for pursuant to the Basic Subscription Privilege, and, if
any, pursuant to the Oversubscription Privilege, and guaranteeing the
delivery to the Subscription Agent of the Subscription Right Certificate(s)
evidencing those Rights within two (2) business days following the date of
the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Right Certificate(s) evidencing
the Rights being exercised, with any signatures guaranteed as required, is
received by the Subscription Agent within two (2) business days following
the date of the Notice of Guaranteed Delivery relating thereto. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Right Certificates at the address set forth
above or may be transmitted to the Subscription Agent by telegram or
facsimile transmission. Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Information Agent
whose address and telephone number are set forth below.
If an exercising Rights Holder does not indicate the number of Rights being
exercised, or does not forward full payment of the aggregate Subscription Price
for the number of Rights that the Rights Holder indicates are being exercised,
then the Rights Holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of Rights that may be exercised
for the aggregate payment delivered by the Rights Holder and, to the extent
that the aggregate payment delivered by the Rights Holder exceeds the product
of the Subscription Price multiplied by the number of Rights evidenced by the
Subscription Right Certificates delivered by the Rights Holder (such excess
being the "Subscription Excess"), the Rights Holder will be deemed to have
exercised the Oversubscription Privilege to purchase, to the extent available,
that number of whole Excess Shares equal to the quotient obtained by dividing
the Subscription Excess by the Subscription Price. Any amount remaining after
application of the foregoing procedures shall be returned to the Rights Holder
promptly by mail without interest or deduction.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
Subscription Account and segregated from its other accounts pending issuance of
the Excess Shares. If a Rights Holder exercising the Oversubscription Privilege
is allocated less than all of the Excess Shares for which that Rights Holder
subscribed pursuant to the Oversubscription Privilege, then the excess funds
paid by the Rights Holder as the Subscription Price for shares not allocated to
such Rights Holder shall be returned by mail as soon as practicable after the
Expiration Time and after all prorations contemplated by the terms of the
Offering have been effected.
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Subject to satisfaction of the Minimum Condition, certificates representing
shares of Common Stock subscribed for and issued pursuant to the Rights will be
mailed as soon as practicable after the Expiration Time and after all
prorations and reductions contemplated by the terms of the Offering have been
effected. Certificates for shares of Common Stock issued pursuant to the
exercise of Rights will be registered in the same of the Rights Holder
exercising such Rights. There can be no assurance that the value of the Common
Stock will not decline below the Subscription Price before such shares of
Common Stock are delivered.
A Rights Holder who subscribes for fewer than all of the shares represented
by its Subscription Right Certificates may, under certain circumstances, (i)
direct the Subscription Agent to attempt to sell the remaining Rights, (ii)
receive from the Subscription Agent a new Subscription Right Certificate
representing the remaining Rights or (iii) transfer the remaining Rights to a
designated transferee. See "The Rights Offering--Method of Transferring
Rights." A Rights Holder's election to exercise the Oversubscription Privilege
must be made at the time the Basic Subscription Privilege is exercised.
Unless a Subscription Right Certificate (i) provides that the Underlying
Shares to be issued pursuant to the exercise of the Rights represented thereby
are to be issued to the Rights Holder; or (ii) is submitted for the account of
an Eligible Institution, signatures on each Subscription Right Certificate must
be guaranteed by a member firm of an approved Signature Guarantee Medallion
Program.
Record Date Holders who hold shares of Common Stock for the account of
others, such as brokers, trustees or depositories for securities, should
contact the respective beneficial owners of such shares as soon as possible to
ascertain these beneficial owners' intentions and to obtain instructions with
respect to their Rights. If a beneficial owner so instructs, the Record Date
Holder of that beneficial owners' Rights should complete appropriate
Subscription Right Certificates and submit them to the Subscription Agent with
the proper payment. In addition, beneficial owners of Rights through such a
nominee holder should contact the nominee holder and request the nominee holder
to effect transactions in accordance with the beneficial owners' instructions.
If a beneficial owner wishes to obtain a separate Subscription Right
Certificate, he, she or it should contact the nominee as soon as possible and
request that a separate Subscription Right Certificate be issued. A Nominee may
request any Subscription Right Certificate held by it to be split into such
smaller denominations as it wishes, provided that the Subscription Right
Certificate is received by the Subscription Agent, properly endorsed, no later
than 5:00 p.m., Pacific time, on June 16, 1995.
The Instructions accompanying the Subscription Right Certificates should be
read carefully and followed in detail. SUBSCRIPTION RIGHT CERTIFICATES SHOULD
BE SENT WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION RIGHT
CERTIFICATES TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION RIGHT CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS. IF SUBSCRIPTION RIGHT CERTIFICATES AND PAYMENTS ARE SENT
BY MAIL, RIGHTS HOLDERS ARE URGED TO SEND SUCH MATERIALS BY REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND ARE URGED TO ALLOW A
SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND
CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME. BECAUSE UNCERTIFIED CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, RIGHTS HOLDERS ARE STRONGLY
URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED CHECK, BANK DRAFT,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
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Certain directors and officers of the Company will assist the Company in the
Offering by, among other things, participating in informational meetings
regarding the Offering, generally being available to answer questions of
potential subscribers and soliciting orders in the Rights Offering. None of
such directors and officers will receive additional compensation for such
services. None of such directors and officers are registered as securities
brokers or dealers under the Federal or applicable state securities laws, nor
are any of such persons affiliated with any broker or dealer. Because none of
such persons are in the business of either effecting securities transactions
for others or buying and selling securities for their own account, they are not
required to register as brokers or dealers under the Federal securities laws.
In addition, the proposed activities of such directors and officers are
exempted from registration pursuant to a specific safe-harbor provision under
Rule 3a4-1 under the Exchange Act. Substantially similar exemptions from
registration are available under applicable state securities laws.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determination
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscription Right Certificates will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as the Company determines, in its sole discretion. Neither the Subscription
Agent or the Company will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Right
Certificates or incur any liability for failure to give such notification. The
Company reserves the right to reject any exercise if such exercise is not in
accordance with the terms of the Offering or not in proper form or if the
acceptance thereof or the issuance of the Common Stock pursuant thereto could
be deemed unlawful. See "The Rights Offering--Regulatory Limitation" and "The
Rights Offering--Tax Limitation."
All questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Information
Agent at Chemical Bank (telephone (800) 421-0708).
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels, including
banks and brokers. It is anticipated that the Rights will trade on the Nasdaq
National Market until the close of business on the last trading day prior to
the Expiration Time. There has been no prior trading in the Rights and no
assurance can be given that a trading market for the Rights will develop or, if
a market develops, that such market will be maintained throughout the Offering.
The Rights evidenced by a single Subscription Right Certificate may be
transferred in whole by endorsing the Subscription Right Certificate for
transfer in accordance with the accompanying Instructions. A portion of the
Rights evidenced by a single Subscription Right Certificate (but not fractional
Rights) may be transferred by delivering to the Subscription Agent a
Subscription Right Certificate properly endorsed for transfer, with
instructions to register that portion of the Rights indicated therein in the
name of the transferee and to issue a new Subscription Right Certificate to the
transferee evidencing the transferred Rights. In that event, a new Subscription
Right Certificate evidencing the balance of the Rights will be issued to the
Rights Holder or, if the Rights Holder so instructs, to an additional
transferee, or will be sold by the Subscription Agent in the manner described
below upon appropriate instruction from the Rights Holder.
Rights Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) other than through the Subscription Agent should allow a
sufficient amount of time prior to the Expiration Time for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) new
Subscription Right Certificates to be issued and transmitted to the transferee
or transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by the new
Subscription Right Certificates to be exercised or sold by the recipients
thereof. Such amount of time could
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range from four to six business days, depending upon the method by which
delivery of the Subscription Right Certificates and payment is made and the
number of transactions which the Rights Holder instructs the Subscription Agent
to effect. Neither the Company nor the Subscription Agent shall have any
liability to a transferee or transferor of Rights if Subscription Right
Certificates are not received in time for exercise or sale prior to the
Expiration Time.
A new Subscription Right Certificate will be issued to a submitting Rights
Holder upon the partial exercise or sale of Rights only if the Subscription
Agent receives a properly endorsed Subscription Right Certificate no later than
5:00 p.m., Pacific time, on June 16, 1995, the fourth business day prior to the
Expiration Time. After such time and date no new Subscription Rights
Certificates will be issued. Accordingly, after such time and date a Rights
Holder exercising less than all of its Rights will lose the power to sell or
exercise its remaining Rights. A new Subscription Right Certificate will be
sent by first class mail to the submitting Rights Holder if the Subscription
Agent receives the properly completed Subscription Right Certificate by 5:00
p.m. Pacific time, on June 13, 1995. Unless the submitting Rights Holder makes
other arrangements with the Subscription Agent, a new Subscription Right
Certificate received by the Subscription Agent after 5:00 p.m. Pacific time, on
June 13, 1995 will be held for pick-up by submitting Rights Holder at the
Subscription Agent's hand delivery address provided above. All deliveries of
newly issued Subscription Right Certificates will be at the risk of the
submitting Rights Holder.
The Rights evidenced by a Subscription Right Certificate may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent prior to June 13, 1995 the Subscription Right Certificate
properly executed for sale by the Subscription Agent. If only a portion of the
Rights evidenced by a single Subscription Right Certificate are to be sold by
the Subscription Agent, that Subscription Right Certificate must be accompanied
by instructions setting forth the action to be taken with respect to the Rights
that are not to be sold.
Promptly following sale, the Subscription Agent will send the Rights Holder a
check for the proceeds from the sale of any Rights sold, less any applicable
brokerage commissions, taxes and other direct expenses of sale. A Rights Holder
for which the Subscription Agent sells Rights on any given day will receive for
each of its Rights the weighted average net sale price of all Rights sold on
that day by the Subscription Agent. The weighted average net sale price will be
calculated by dividing the total proceeds from all sales realized by the
Subscription Agent on the day of sale, net of any applicable brokerage
commissions, taxes and other expenses, by the total number of Rights sold by
the Subscription Agent on that day. No assurance, however, can be given that
the Subscription Agent will be able to sell any Rights. Rights offered pursuant
to the Oversubscription Privilege may not be transferred. The Company will pay
the fees charged by the Subscription Agent for effecting such sales. Orders to
sell Rights must be received by the Subscription Agent at or prior to 5:00
p.m., Pacific time, on June 13, 1995. The Subscription Agent's obligation to
execute orders is subject to its ability to find buyers. If the direct expenses
of sale would exceed the sale price on a given day, the Subscription Agent will
not sell the Rights. If the Rights cannot be sold by the Subscription Agent by
the Expiration Time, they will expire unsold.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer terms) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by the Company or the Subscription Agent.
PROCEDURES FOR DTC PARTICIPANTS
It is anticipated that the Rights will be eligible for transfer through, and
that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"; Rights which the holder exercises through DTC
are referred to as "DTC Rights"). A holder of DTC Rights may exercise the
Oversubscription Privilege in respect thereof by properly exercising and
delivering to the Subscription Agent, at or prior to the Expiration Time, a DTC
Participant Oversubscription Exercise Form, together with payment of the
appropriate Subscription Price
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for the number of Excess Shares for which the Oversubscription Privilege is
exercised. Copies of the DTC Participant Oversubscription Exercise Form may be
obtained from the Information Agent or the Subscription Agent.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price has been determined by the Company, in consultation
with Sandler O'Neill. Among the factors considered by the Board in determining
the Subscription Price were (i) the market value of the Common Stock; (ii) the
present and projected operating results and financial condition of the Company;
(iii) an assessment of the Company's management and management's analysis of
the growth potential of the Company and of the Company's market area; (iv) the
aggregate size of the Offering; (v) the price at which the Board believes
investors would readily pay to purchase all of the available shares of Common
Stock offered under the current economic circumstances; (vi) the amount the
Standby Purchasers were willing to commit; and (vii) the amount of capital
necessary for the Reimbursement of Interest to Ventura to satisfy the Formal
Agreement. See "Capitalization," "Risk Factors--Dilution" and "Risk Factors--
Regulatory Agreements and Capital Requirements."
There can be no assurance, however, that the market price of the Common Stock
will not decline during the subscription period to a level equal to or below
the Subscription Price, or that, following the issuance of the Rights and of
the Common Stock upon exercise of Rights or pursuant to Standby Purchase
Agreements, a subscribing Rights Holder or Standby Purchaser will be able to
sell shares purchased in the Offering at a price equal to or greater than the
Subscription Price. An investment in Common Stock must be made pursuant to each
investor's evaluation of such investor's best interests. Accordingly, neither
the Board of Directors of the Company nor Sandler O'Neill make any
recommendation to Rights Holders or other regarding whether they should
exercise the Rights or purchase Common Stock.
FINANCIAL ADVISOR
The Company has engaged Sandler O'Neill as its financial advisor in
connection with the Offering pursuant to an Agency Agreement between the
Company and Sandler O'Neill. Sandler O'Neill is a nationally recognized
investment banking firm whose principal business specialty is banks and savings
institutions and is regularly engaged in the valuation of such businesses and
their securities in connection with mergers and acquisitions and other
corporate transactions.
In its capacity as financial advisor, Sander O'Neill provided advice to the
Company regarding the structure of the Offering as well as with respect to
marketing the shares of Common Stock to be issued in the Offering. Sandler
O'Neill will identify potential standby purchasers and will assist the Company
in negotiating Standby Purchase Agreements with the Standby Purchasers. Sandler
O'Neill expects to make a market in the Rights. However, no assurance can be
given that an active or liquid market in the Rights will develop or if
developed will continue.
Sandler O'Neill has not prepared any report or opinion constituting a
recommendation or advice to the Company or its shareholders, nor has Sandler
O'Neill prepared an opinion as to the fairness of the Subscription Price or the
terms of the Offering to the Company or its current shareholders. Sandler
O'Neill expresses no opinion and makes no recommendation to holders of Rights
as to the purchase by any person of Underlying Shares or the Additional Shares.
Sandler O'Neill also expresses no opinion as to the prices at which shares to
be distributed in connection with the Offering may trade if and when they are
issued or at any future time. See "The Rights Offering--Determination of
Subscription Price."
As compensation for its services, the Company agreed to pay Sander O'Neill:
(i) a $25,000 financial advisory fee, which has been paid; (ii) upon completion
of the Offering, a fee of 1.5% of the aggregate purchase price of the shares of
Common Stock sold in the Offering pursuant to the exercise of Rights by
directors and officers of the Company and principals and officers of Sandler
O'Neill (collectively, "Interested
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Parties"); (iii) upon completion of the Offering, a fee of 3% of the aggregate
purchase price of the shares of Common Stock sold in the Offering pursuant to
the exercise of Rights by persons other than Interested Parties; and (iv) upon
completion of the Offering, a fee of 5% of the aggregate value of funds
committed by Standby Purchasers. The fees set forth in clauses (i) through (iv)
are subject to Sandler O'Neill receiving minimum aggregate compensation upon
closing of the Offering of $225,000. The Company has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses pertaining to its
engagement, including legal fees, in an aggregate amount not to exceed
$100,000. As of April 17, 1995, the Company has reimbursed Sandler O'Neill for
$44,471 in out-of-pocket expenses. The Company has agreed to indemnify Sandler
O'Neill against certain liabilities arising out of its engagement, including
certain liabilities arising under the Securities Act.
Certain principals and officers of Sandler O'Neill own shares of Common Stock
and, accordingly, will be Record Date Holder of Rights. The shares were
purchased by each such person in his or her individual capacity using personal
funds with no agreement among or between any of such persons to act together
with respect to the Company or its securities except for the purpose of
facilitating the purchase of such shares in the private placement in which such
shares were acquired. The shares owned by such persons, when taken together,
amount to 447,422 shares, or 7.1% of the outstanding Common Stock as of March
24, 1995. As Record Date Holders, each such person may, in their individual
capacity, exercise or transfer the rights such person receives. In addition,
certain of such persons may be requested by the Company to be Standby
Purchasers. The Company is not aware to what extent, if any, that any such
person intends to exercise and/or transfer his or her Rights or become a
Standby Purchaser. To the extent any Common Stock is acquired by any such
person in the Offering, whether through the exercise of Rights or pursuant to a
Standby Purchase Agreement, such acquisition would be made by such persons in
his or her individual capacity using personal funds with no agreement among or
between any of such persons to act together and would be for investment
purposes only. Such acquisitions, if made, will not result in Sandler O'Neill
receiving any compensation from the Company other than in accordance with the
compensation arrangement set forth above.
In late 1993, the Company retained Sandler O'Neill to provide financial and
strategic advice to the Company including, but not limited to, exploring
possible business combinations involving the Banks. As compensation for its
services, the Company has paid to Sandler O'Neill as of April 17, 1995 an
aggregate of $155,424 representing financial advisory fees and reimbursement of
out-of-pocket expenses. In addition, Ventura retained Sandler O'Neill Mortgage
Finance Corp, an affiliate of Sandler O'Neill, in connection with two sales of
whole loans and the sale of Ventura's mortgage loan servicing rights, all of
which were completed in 1994. As compensation for its services, Ventura has
paid to Sandler O'Neill Mortgage Finance Corp an aggregate of $97,915,
representing marketing fees and reimbursement of out-of-pocket expenses.
INFORMATION AGENT
The Company has appointed Chemical Bank as Information Agent for the
Offering. Any questions or requests for assistance concerning the method of
subscribing for shares of Common Stock or for additional copies of this
Prospectus, the Instructions, the Notice of Guaranteed Delivery or the DTC
Participant Oversubscription Exercise Form may be directed to the Information
Agent at the address and telephone number below:
Chemical Bank
450 West 33rd Street, Fifteenth Floor
New York, New York 10001
Telephone No.: (800) 421-0708
Banks and Brokers call: (212) 946-7618
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The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities which
it may incur in connection with the Offering.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Right Certificates will not be mailed to Record Date Holders
whose addresses are outside the United States and Canada or who have an APO or
FPO address, but will be held by the Subscription Agent for each Record Date
Holders' accounts. To exercise their Rights, such persons must notify the
Subscription Agent at or prior to 5:00 p.m., Pacific time, on June 13, 1995, at
which time (if no contrary instructions have been received) the Rights
represented thereby will be sold, subject to the Subscription Agent's ability
to find a purchaser. Any such sales will be at prevailing market prices. If the
Rights are sold, a check for the proceeds from the sale of any Rights, less any
applicable brokerage commissions, taxes and other expenses, will be remitted to
such holders by mail. The proceeds, if any, resulting from sales of Rights
pursuant to the Basic Subscription Privilege of holders whose addresses are not
known by the Subscription Agent or to whom delivery cannot be made will be held
in a noninterest-bearing account at First Interstate Bank of California. Any
amount remaining unclaimed on the second anniversary of the Expiration Time
will be turned over to the Company and, after such date, any person claiming
such proceeds will, as an unsecured general creditor of the Company, be able to
look only to the Company for payment thereof. Such Holder's Rights expire at
the Expiration Time.
NO REVOCATION
Once a Rights Holder has properly exercised the Basic Subscription Privilege
or the Oversubscription Privilege, such exercise may not be revoked.
LATE DELIVERY OF SUBSCRIPTION RIGHTS CERTIFICATES
If the Subscription Agent has received prior to 5:00 p.m., Pacific time, on
the Expiration Time full payment as specified above for the total number of
shares of Common Stock subscribed for, together with a letter, telegram or
facsimile transmission from a bank or trust company or a member of a recognized
securities exchange in the United States stating the name of the subscriber,
the number of Rights represented by the Subscription Rights Certificate and the
number of Underlying Shares of Common Stock subscribed for and guaranteeing
that the Subscription Rights Certificate will be delivered promptly to the
Subscription Agent, such subscription will be deemed to be received prior to
the Expiration Time, subject to withholding of the stock certificates
representing the Underlying Shares pending receipt of the duly executed
Subscription Rights Certificate. RIGHTS HOLDERS WHO FAIL TO DELIVER THEIR
SUBSCRIPTION RIGHTS CERTIFICATE AND FULL PAYMENT TO THE COMPANY OR PAYMENT WITH
GUARANTY OF DELIVERY AS SET FORTH ABOVE PRIOR TO THE EXPIRATION TIME WILL BE
DEEMED TO HAVE WAIVED THEIR SUBSCRIPTION RIGHTS IN THIS OFFERING IN THEIR
ENTIRETY.
DILUTION
Rights Holders may experience substantial dilution of their percentage of
equity ownership interest and voting power in the Company if Rights Holders do
not exercise the Basic Subscription Privilege. If more than the Minimum Shares
are purchased through the Offering, including through the Standby Purchase
Agreements, Rights Holders will suffer further dilution in their equity
ownership interest and voting power in the Company.
INTENTIONS OF DIRECTORS AND OFFICERS
The directors and executive officers of the Company as a group (16 persons)
have indicated their intention to exercise Rights to purchase, in the
aggregate, 107,882 shares of Common Stock. These indications of intent are
based upon each director's and officer's evaluation of his or her own financial
and other
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circumstances. Upon their acquisition of such shares, the directors and
executive officers, as a group, will own beneficially 1,100,388 shares or a
minimum of 11.8% and a maximum of 13.1% of the Company's outstanding Common
Stock after completion of the Offering.
THE COMPANY'S 401(K)/ESOP
The Company maintains a qualified retirement plan for the benefit of its
employees which consists of a 401(k) plan and an employee stock ownership plan.
At December 31, 1994, the 401(k)/ESOP was the record holder of 415,854 shares
of Common Stock.
Under the 401(k) portion of the 401(k)/ESOP, participants have the ability to
direct the investment of pre-tax deferrals and employer matching contributions
in one or more investments, including Common Stock. Participants who have
invested a portion of their pre-tax deferrals in Common Stock shall have the
ability to direct the Trustee to exercise or sell Rights allocable to such
participants' investment in Common Stock. In the event a participant fails to
instruct the Trustee or submits an invalid instruction, the Trustee shall,
pursuant to the terms of the 401(k)/ESOP, be required to sell the Rights
allocable to such participant's account.
With respect to the ESOP portion of the 401(k)/ESOP, the Trustee shall, in
its sole discretion, determine the manner in which Rights issued to the ESOP
portion of the 401(k)/ESOP are to be disposed of, taking into consideration the
Trustee's fiduciary duties to act prudently with respect to plan investments
and to invest plan assets in the best and exclusive interests of plan
participants and their beneficiaries. Given that the ESOP portion of the
401(k)/ESOP does not have any uninvested assets with which to fund a purchase
of Common Stock, it is anticipated that the Trustee may attempt to sell the
Rights issued to the ESOP portion of the 401(k)/ESOP.
MINIMUM CONDITION
The Offering is conditioned upon the receipt by the Company of minimum
Offering proceeds of $4,500,000. In the event the Minimum Condition is not
achieved, any funds that have been deposited with the Subscription Agent will
be returned, without interest. As a result of the Standby Purchase Agreements
(pursuant to which the Standby Purchasers have agreed to acquire up to 888,889
shares of Common Stock), the Company believes that the Minimum Condition will
be satisfied.
RIGHT TO TERMINATE OFFERING
The Company expressly reserves the right, in its sole discretion, at any time
prior to delivery of the shares of Common Stock offered hereby, to terminate
the Offering if the Offering is prohibited by law or regulation or the Board of
Directors concludes, in its judgment, that it is not in the best interests of
the Company, and its shareholders, to complete the Offering under the
circumstances. If the Offering is terminated, all funds received pursuant to
the Rights Offering or from Standby Purchasers will be promptly refunded,
without interest.
42
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the anticipated
federal income tax consequences of the issuance, exercise, transfer or lapse of
the Rights and purchase and disposition of the Common Stock. The following does
not consider federal income tax consequences of the Offering to any particular
shareholder or federal income tax consequences of the Offering that may be
relevant to particular classes of shareholders, such as banks, insurance
companies and foreign individuals and entities. The following summary does not
address the federal income tax consequences with respect to the Rights for any
transferee of such Rights. This summary is not intended as tax advice, and is
based on the Company's understanding of federal income tax laws as currently
interpreted. No representation is made regarding the continuation of such laws
or of such interpretations, and no discussion is contained herein regarding the
possible effects of any applicable state, local or foreign tax laws, or taxes
other than federal income taxes. EACH RIGHTS HOLDER, STANDBY PURCHASER AND
OTHER SUBSCRIBER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH RIGHTS HOLDER OR SUBSCRIBER (INCLUDING
THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS) OF THE ISSUANCE, EXERCISE, TRANSFER OR LAPSE
OF RIGHTS AND THE PURCHASE AND DISPOSITION OF COMMON STOCK PURSUANT TO THE
OFFERING.
SUBSCRIPTION OFFER
Section 305(a) of the Internal Revenue Code of 1986, (the "Code"), generally
provides that gross income does not include the amount of any distribution by a
corporation to its shareholders of stock or rights to acquire stock of that
corporation. Although there are exceptions to the general rule of Section
305(a), this discussion assumes that the general rule of Section 305(a) applies
to the distribution of Rights to the shareholders of the Company. Under Section
307 of the Code, the tax basis of the Rights in the hands of a shareholder of
the Company to whom the Rights were issued will be determined by allocating the
tax basis of the Common Stock with respect to which the distribution was made
between the existing shares of Common Stock the shareholder holds (the "Old
Stock") and the Rights in proportion to their relative fair market values on
the date of distribution. If the fair market value of the Rights on the date of
distribution is less than 15% of the fair market value of the Old Stock, the
tax basis of the Rights will be zero and the tax basis of the Old Stock will be
unchanged unless a shareholder makes an irrevocable election to compute the
basis of all Rights received in the manner described in the preceding sentence.
This election is made by attaching a statement to such shareholder's federal
income tax return filed for the taxable year in which the Rights are received
by a shareholder. The Company has not obtained an independent appraisal of the
valuation of the Old Stock or the Rights and, therefore, each shareholder
individually must determine how the rules of Section 307 of the Code will apply
in that shareholder's particular situation. In either case, the holding period
of such Rights will include the period during which the shareholder has held
the Old Stock.
STANDBY PURCHASE AGREEMENTS
Standby Purchasers will not be taxable as a result of entering into Standby
Purchase Agreements. Since Standby Purchasers pay nothing for entering into
Standby Purchase Agreements, they have no tax basis for such Agreements as a
result of entering into them.
EXERCISE OF RIGHTS
No gain or loss will be recognized by shareholders upon exercise of Rights
pursuant to the Offering. The holding period of the Common Stock acquired by a
shareholder upon exercise of the Rights will commence upon the exercise of the
Rights by the holder thereof. The tax basis of such shares will be equal to the
sum of
43
<PAGE>
the basis of the Rights exercised, if any, and the exercise price paid for such
shares. Persons who acquire Common Stock as Standby Purchasers will take a
basis for the shares equal to the Subscription Price and will have a holding
period that commences with the purchase.
TRANSFER OF THE RIGHTS
A Record Date Holder who sells or exchanges Rights will recognize gain or
loss equal to the differences between the amount realized and the basis, if
any, of the Rights sold or exchanged. Such gain or loss will be capital gain or
loss if the Common Stock obtainable upon the exercise of the Rights would be a
capital asset in the hands of the Record Date Holder and will be long-term
capital gain or loss if the Rights are deemed to have been held for more than
one year at the time of the sale.
EXPIRATION OF THE RIGHTS AND STANDBY PURCHASE AGREEMENTS
Record Date Holders who allow the Rights received by them on the date of
distribution to expire unexercised will not recognize any gain or loss, and no
adjustment will be made to the basis of their common stock. Standby Purchasers
have no tax basis in their Standby Purchase Agreements and, accordingly, will
not recognize any gain or loss if those Agreements expire.
SALE OF COMMON STOCK
A shareholder selling Common Stock will recognize gain or loss equal to the
difference between the proceeds of sale and the basis of the Common Stock. Such
gain or loss will be capital gain or loss if the Common Stock is a capital
asset in the hands of the shareholder, and will be long term or short term
depending upon whether the shareholder's holding period is more than one year.
STANDBY PURCHASE AGREEMENTS
The Company has entered into Standby Purchase Agreements with certain
institutional investors and high net worth individuals ("Standby Purchasers").
The Standby Purchasers have severally agreed, subject in each case to a maximum
standby commitment and to certain conditions, to acquire from the Company at
the Subscription Price of $2.25 per share up to 2,000,000 Underlying Shares, if
any, remaining after the exercise of Rights, including those purchased pursuant
to the Oversubscription Privilege (the "Maximum Standby Commitment"). In
addition, the Standby Purchase Agreements provide that the Company must sell up
to 888,889 shares of Common Stock in the aggregate ("Additional Shares") to the
Standby Purchasers if such amount of Underlying Shares are not available for
sale after the exercise of Rights, (the "Minimum Standby Commitment"). The
obligations of the Standby Purchasers are not subject to the purchase of any
minimum number of shares pursuant to the exercise of the Rights, but are
subject to certain conditions, including that the Offering shall have been
conducted substantially in the manner described in this Prospectus.
Each Standby Purchase Agreement provides that it may be terminated by the
Standby Purchaser only upon the occurrence of the following events: (i) a
material adverse change in the Company's financial condition prior to the
expiration of the Offering from that existing at December 31, 1994 except as
specifically disclosed in the Prospectus ; (ii) a suspension in the trading in
the Common Stock, a general suspension of trading or establishment of limited
or minimum prices on the Nasdaq National Market System, any banking moratorium,
any suspension of payments with respect to banks in the United States or a
declaration of war or a national emergency by the United States; (iii) under
any circumstances which would result in the Standby Purchaser, individually or
together with any other person or entity, being required to register as a
depository institution holding company under federal or state laws or
regulations, or to submit an application, or notice, to a federal bank
regulatory authority to acquire or retain control of a depository institution
or depository institution holding company; or (iv) if the Offering, including
sales of Common Stock to Standby Purchasers, is not completed by July 31, 1995
through no fault of the Standby Purchaser.
44
<PAGE>
If the Company believes that the number of Underlying Shares and Additional
Shares issuable by the Company pursuant to the Standby Purchase Agreements,
both in the aggregate and to any individual Standby Purchaser, will have an
adverse effect upon the Company's ability to utilize certain federal income tax
benefits, then the Company may reduce the number of shares issuable to the
Standby Purchasers, either pro rata or individually to each Standby Purchaser
whose standby purchase may create such an adverse effect. Such reduction will
be made to the minimum extent necessary, if the sole opinion and discretion of
the Company after consultation with its tax advisor, to accomplish avoidance of
such adverse effect. Any such reduction will be made, if possible, before any
reduction is made in the number of shares of Underlying Shares to be purchased
pursuant to the Oversubscription Privilege. Based on current circumstances, the
Company does not anticipate that it will have to reduce the number of shares
issued to Standby Purchasers in order to avoid an adverse effect upon the
Company's ability to utilize certain federal income tax benefits. See "Risk
Factors--Possible Limitation of Tax Benefits."
In the event that the number of Underlying Shares remaining after the
exercise of Rights is less than the Standby Purchasers' aggregate Maximum
Standby Commitment (subject to the limitation set forth in the preceding
paragraph), such Underlying Shares will first be allocated among the Standby
Purchasers in satisfaction of the Minimum Standby Commitments and any remaining
Underlying Shares will be allocated pro rata among the Standby Purchasers
according to their respective Maximum Standby Commitments (also subject in each
case to the limitation set forth in the preceding paragraph). In the event that
such number of Underlying Shares is less than the Company's aggregate Minimum
Standby Commitment, the Company will issue and sell, at the Subscription Price,
to the relevant Standby Purchasers sufficient Additional Shares to satisfy the
aggregate Minimum Standby Commitment.
The following table sets forth certain information relating to the Standby
Purchasers.
<TABLE>
<CAPTION>
MAXIMUM MINIMUM
STANDBY STANDBY
NAME COMMITMENT COMMITMENT
---- ---------- ----------
(IN SHARES)
<S> <C> <C>
Keefe Managers, Inc. .............................. 355,556 158,025
Lenient & Company -- on behalf of John Hancock Bank
and Thrift Opportunity Fund(1).................... 355,556 158,025
Tidal Insurance Limited(2)......................... 355,556 158,025
Bay Pond Partners, L.P.(3)......................... 295,111 131,160
Basswood Partners, L.P. ........................... 288,888 128,395
Joseph D. Stilwell................................. 288,888 128,395
The Common Fund(3)................................. 60,445 26,864
--------- -------
Total............................................ 2,000,000 888,889
========= =======
</TABLE>
- --------
(1) The John Hancock Bank and Thrift Opportunity Fund is an investment company
managed by John Hancock Advisers, Inc., a registered investment advisor.
(2) Tidal Insurance Limited is an affiliate of First Banks, Inc., a registered
bank holding company. The voting stock of First Banks, Inc. is owned by
various trusts which were created by and are administered for the benefit
of Mr. James F. Dierberg and members of his immediate family. Accordingly,
Mr. Dierberg controls management and the policies of First Banks, Inc. and
the election of its directors.
(3) Wellington Management Company, a registered investment advisor, is the
investment manager for Bay Pond Partners, L.P. and The Common Fund.
Each Standby Purchaser has agreed with the Company that (i) until the
Expiration Time, it will not offer, sell, contract to sell or otherwise dispose
of, or bid for, purchase, contract to purchase or otherwise acquire, any shares
of Common Stock or interest therein without the prior written consent of the
Company and (ii) for three years thereafter, it will not bid for, purchase,
contract to purchase or otherwise acquire, directly or indirectly, any shares
of Common Stock or interests therein without the prior written consent of the
Company if, after consummation of such acquisition, its percentage ownership,
together with that of its affiliates, of the total number of shares of Common
Stock of the Company at the time outstanding would exceed a specified
percentage ownership level. In addition, each Standby Purchaser has agreed for
a period of five years to limit its purchases of additional shares of Common
Stock at the Company's request to the extent that any such purchase could
reasonably be expected to result in an "ownership change" under Section 382 of
the Code and regulations promulgated thereunder.
45
<PAGE>
REASONS FOR THE OFFERING AND USE OF PROCEEDS
The primary purpose of this Offering is to increase the Company's and Banks'
capital bases to permit growth in a post recessionary environment. Additional
capital will also enable Ventura to meet the requirements of the Formal
Agreement between Ventura and the OCC. The Formal Agreement requires that
Ventura achieve and maintain a 7.0% leverage capital ratio and a 12.0 % Tier 1
risk-based capital ratio. As of December 31, 1994, approximately $1.4 million
additional capital was necessary for Ventura to meet the capital requirements
of the Formal Agreement. The Formal Agreement also requires Ventura to seek
reimbursement of approximately $3.4 million in interest paid in connection with
deposits of funds from commercial paper sales by Parent. Parent intends to use
the proceeds of this Offering to satisfy Ventura's requirement to seek the
Reimbursement of Interest and to retire Parent's outstanding Notes. The
Reimbursement of Interest by Parent will also result in an increase in the
capital levels of Ventura which will ensure compliance with the capital
requirements of the Formal Agreement. To the extent that there are net offering
proceeds in excess of the amount necessary to satisfy the Reimbursement of
Interest requirement and to retire the Notes, the first $500,000 will be
retained by Parent for its liquidity needs and, thereafter, Parent may make
additional capital contributions to Ventura or Frontier, or both. The Company
anticipates that the net proceeds, if any, contributed to Ventura and Frontier
will ultimately be invested in earning assets. See "The Company--Business
Strategy."
46
<PAGE>
CAPITALIZATION
The following tables set forth the capitalization of the Company (i) at
December 31, 1994, and (ii) as adjusted to give effect to the issuance and sale
of the Minimum Shares and Maximum Shares offered hereby, assuming expenses
associated with the Offering of $793,596, if the Minimum Shares are sold and
$853,596, if the Maximum Shares are sold:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------------
AS ADJUSTED(1)
PRIOR TO ---------------------
OFFERING MINIMUM(2) MAXIMUM(3)
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Contributed capital, including common stock
of no par value. Authorized 20,000,000
shares; issued 6,333,835 shares; issued
8,333,835 shares and 9,223,835 shares, as
adjusted(4)................................. $ 30,949 $ 34,655 $ 36,598
Unrealized loss on securities.................. (1,178) (1,178) (1,178)
Retained earnings (deficit).................... (10,719) (10,719) (10,719)
-------- -------- --------
Total shareholders' equity................... $ 19,052 $ 22,758 $ 24,701
======== ======== ========
Book value per share......................... $ 3.01 $ 2.73 $ 2.68
</TABLE>
- --------
(1) Assumes a Subscription Price of $2.25 per share.
(2) Assumes the sale of 2,000,000 shares.
(3) Assumes the sale of 2,890,000 shares.
(4) Does not include 657,813 shares that may be issued pursuant to the exercise
of stock options pursuant to the 1991 Stock Option Plan and the Ventura
County National Bancorp Stock Option Plan.
47
<PAGE>
The following tables set forth the minimum capital ratios required by federal
regulations with respect to the Company, by federal regulations and the Consent
Order, with respect to Frontier, and by federal regulations and the Formal
Agreement, with respect to Ventura, the Company's and Banks' actual ratios as
of December 31, 1994 and the Company's and Ventura's capital ratios as adjusted
to give effect to the net proceeds of this Offering estimated to be $3,706,404,
if the Minimum Shares are sold, and $5,648,904, if the Maximum Shares are sold,
and the Reimbursement of Interest by the Company to Ventura. Solely for the
purpose of the following tables, it is assumed that the remaining net proceeds
of the Offering in excess of the amounts for which the use of proceeds has been
designated, will be contributed to Ventura. See "Use of Proceeds." Ratios do
not reflect unrealized losses on investment securities available-for-sale.
<TABLE>
<CAPTION>
THE COMPANY
AT DECEMBER 31, 1994
-----------------------------------------
AS ADJUSTED(1)
---------------
REQUIRED ACTUAL(3) EXCESS MINIMUM MAXIMUM
-------- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based capital ratio....... 4.00% 11.32% 7.32% 13.06% 13.94%
Total risk-based capital ratio........ 8.00% 12.61% 4.61% 14.35% 15.23%
Leverage capital ratio(2)............. 4.00% 7.53% 3.53% 8.74% 9.37%
</TABLE>
<TABLE>
<CAPTION>
FRONTIER
AT DECEMBER 31, 1994
-------------------------
REQUIRED ACTUAL(3) EXCESS
-------- --------- ------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio....................... 4.00% 12.29% 8.29%
Total risk-based capital ratio........................ 8.00% 13.57% 5.57%
Leverage capital ratio(2)............................. 4.00% 8.32% 4.32%
Consent Order--Leverage capital ratio................. 7.00% 8.32% 1.32%
Consent Order--Tier 1 risk based capital ratio........ 9.50% 12.29% 2.79%
</TABLE>
<TABLE>
<CAPTION>
VENTURA
AT DECEMBER 31, 1994
------------------------------------------
AS ADJUSTED(1)
EXCESS ---------------
REQUIRED ACTUAL (DEFICIT) MINIMUM MAXIMUM
-------- ------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based capital ratio...... 4.00% 10.92% 6.92% 13.05% 14.33%
Total risk-based capital ratio....... 8.00% 12.21% 4.21% 14.34% 15.63%
Leverage capital ratio(2)............ 4.00% 7.21% 3.21% 8.70% 9.61%
Formal Agreement--leverage capital
ratio............................... 7.00% 7.21% 0.21% 8.70% 9.61%
Formal Agreement--Tier 1 risk based
capital ratio....................... 12.00% 10.92% (1.08)% 13.05% 14.33%
</TABLE>
- --------
(1) Assumes the investment of such funds in 100% risk-weighted assets (loans).
(2) The Federal Reserve Board and the OCC have adopted a minimum leverage ratio
of Tier 1 capital to average total assets of 3% for the highest rated
banks. This leverage ratio is only a minimum. Institutions experiencing or
anticipating significant growth or those with other than minimum risk
profiles are expected to maintain a leverage ratio at least 100 to 200
basis points above the minimum level. Furthermore, higher leverage ratios
are required to be considered well capitalized or adequately capitalized
under the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act".)
To be considered well capitalized under the prompt corrective action
provisions of the FDIC Improvement Act, a national bank must maintain a
Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital
ratio of at least 10% and a leverage capital ratio of at least 5% and not
be subject to a regulatory order or agreement. See "Supervision and
Regulation--Effect of Governmental Policies and Recent Legislation--FDIC
Improvement Act--Prompt Corrective Regulatory Action."
(3) In accordance with recent guidance from the Federal Financial Institutions
Examination Council regulatory capital includes $756,000, which represents
a $792,000 cumulative effect adjustment to reduce the balance of SBA loans,
a portion of which was offset by income recognized under generally accepted
accounting principles. This adjustment is not reflected in the accompanying
financial statements prepared in accordance with generally accepted
accounting principles.
48
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
The Common Stock is included for quotation on the Nasdaq National Market. The
following table sets forth the high and low sales prices for each of the nine
quarters ended March 31, 1995, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
March 31, 1993................................................ $6.50 $3.50
June 30, 1993................................................. 5.00 2.50
September 30, 1993............................................ 3.63 2.00
December 31, 1993............................................. 2.63 1.63
March 31, 1994................................................ 2.38 1.88
June 30, 1994................................................. 3.25 1.75
September 30, 1994............................................ 3.13 2.75
December 31, 1994............................................. 2.94 2.00
March 31, 1995................................................ 2.63 2.13
</TABLE>
As of May 5, 1995, the closing sales price of the Common Stock, as quoted
through the Nasdaq National Market, was $2.75. There were 1,027 shareholders of
record of the Common Stock at April 29, 1995.
Parent has never paid a cash dividend on the Common Stock and there can be no
assurance that Parent will generate earnings in the future which would permit
the declaration of dividends. Parent is prohibited by the terms of the MOU from
declaring or paying a dividend without fifteen days' prior notice to the
Reserve Bank, which may prohibit the payment of dividends.
In addition, the source of any such dividends is likely to be dividends from
Ventura or Frontier. The Banks are also limited in the amount of dividends
which they may distribute according to the terms of the Formal Agreement and
the Consent Order. Pursuant to the Formal Agreement, in the case of Ventura,
and the Consent Order, as it pertains to Frontier, the Board of Directors of
each Bank may declare or pay dividends only: (i) when their Bank is in
compliance with 12 U.S.C. sections 56, 60, and 1831o(d)(1); (ii) when their
Bank is in compliance with the capital program developed pursuant to the Formal
Agreement and Consent Order; (iii) when such dividend payment is consistent
with the capital levels specified in paragraph (1) of the Formal Agreement and
Consent Order; and (iv) with prior written approval of the Director of Special
Supervision of the OCC, pursuant to the Formal Agreement, and the District
Administrator of the OCC, pursuant to the Consent Order. See "Supervision and
Regulation--Restrictions on Transfers of Funds to Parent by the Banks."
Furthermore, it is anticipated that for the foreseeable future any earnings
which may be generated will be retained for the purpose of increasing the
Company's capital and reserves in order to facilitate growth.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following presents management's discussion and analysis of the
consolidated financial condition and operating results of the Company as of and
for the years ended December 31, 1994, 1993 and 1992. The discussion should be
read in conjunction with the Company's consolidated financial statements.
OVERVIEW
In September 1993, new management began taking actions to address the major
concerns confronting the Banks. The Company's net loss was reduced to $262,000
or $0.04 per share for 1994, compared with a net loss of $12.1 million in 1993.
The significant improvement over 1993 was due a significant decrease in the
provision for loan losses, reduced other expenses, gains on the sale of
mortgage servicing rights and the merchant card portfolio totaling $1.4 million
and $174,000, respectively, and improved net interest margin in 1994. The
Company returned to profitability beginning in the third quarter of 1994, and
had net income for the second half of 1994 of $615,000, compared to a net loss
of $877,000 for the first six months of the year. The Company's net loss for
the first two quarters of 1994 was offset by the $1.4 million and $174,000
nonrecurring gains noted above. Earnings improvement in the second half
compared to the first half of 1994 was due to a $1.9 million decrease in the
provision for loan losses, $1.2 million decrease in other expenses and a
$143,000 decrease in income tax provision, which were offset by a decline in
other income of $2.1 million. The provision for loan losses was decreased
during the second half due to the significant reduction in the level of
classified and nonperforming loans in conjunction with the discounted loan
sale, the marketing of loan participations and the tightening of underwriting
criteria. The decrease in other expenses during the second half was due to the
closing of the Company's mortgage origination, mortgage servicing and data
processing departments, as well as the replacement during 1994 of ESOP expense
with lower 401(k) matching contributions. For these departments, salaries and
benefits and occupancy expenses decreased $597,000 and $122,000, respectively,
from the first half of 1994 to the second half of 1994. Additionally, the
Company experienced retirement benefits savings of $586,000 for 1994 compared
with 1993. Of the decrease in other income, $1.6 million was due to the gain on
sale of mortgage servicing rights and the gain on sale of the merchant card
portfolio during the first half of the year. In addition, service charges, loan
fees and other fee income decreased during the second half as a result of
reduced mortgage activities. Total assets at December 31, 1994 decreased 24.3%
from December 31, 1993, as a result of management's efforts to reduce the loan
to deposit ratio, increase capital ratios and improve liquidity by tightening
underwriting criteria, selling nonperforming loans at a discount and marketing
loan participations. Additionally, the Company allowed significant runoff of
title and escrow and institutional certificates of deposit during 1994.
During the two years ended December 31, 1993, the Company's net income
declined significantly, culminating with a net loss of $12.1 million during
1993. The reductions in earnings during 1992 and the loss experienced during
1993 reflect substantial increases in the provision for loan losses
necessitated by increased levels of nonperforming assets and net charge-offs.
The Company's nonperforming assets were $22.1 million at December 31, 1993,
compared with $7.2 million at December 31, 1992. Net charge-offs were $5.8
million for 1993, compared to $2.4 million for 1992. Other expenses also
increased during the two year period ended December 31, 1993. The increase in
other expenses during 1993 was primarily due to increased expenses associated
with REO, increased legal costs related to nonperforming assets and regulatory
matters, and the write-off of goodwill at Frontier. Furthermore, during the two
year period ended December 31, 1993, net interest income decreased primarily
due to reductions in earning assets.
In January 1995, Southern California experienced major flooding, with Ventura
County being one of the areas to incur the greatest amount of rainfall.
Although the Company's operations and customers are located in the most
seriously affected areas, based upon surveys of customers and employees,
management believes that there will be no significant impact on the Company's
operations or loan collateral as a result of these natural disasters.
50
<PAGE>
FINANCIAL CONDITION
Total assets at December 31, 1994 decreased $82.8 million, or 24.3%, from
December 31, 1993. Average interest earning assets decreased from $355,090,000
for 1992 to $351,686,000 for 1993, to $277,612,000 for 1994, decreases of 1.0%
and 21.1%, respectively. During 1993 and 1994, the balance sheet was reduced
for liquidity purposes as well as to achieve compliance with the capital
requirements of the Banks' regulatory agreements. Although management does not
presently intend to further reduce the balance sheet, and anticipates that the
additional capital raised as a result of this Offering will be used to support
an increase in assets in the post-recessionary environment, no assurances can
be given that management will be successful in such efforts. Net loans and
leases decreased $93.5 million or 37.0% from year end 1993, primarily due to
the sale of nonperforming loans and the payoff of other loans that funded
deposit outflows. Average loans and leases, net of unearned income, decreased
8.2% to $289,675,000 during 1993 and 26.8% to $212,029,000 during 1994. These
decreases were partially offset by increases in average federal funds sold of
$8.1 million, or 44.0%, and cash and cash equivalents of $180,000, or 11.0%.
At December 31, 1994, the Company had $2,346,000 in REO comprised of three
commercial properties with carrying values totaling $2,196,000, one single
family residence totaling $100,000 and land zoned for residential purposes of
$50,000. The Company sold $4,835,000 of REO during 1994 and incurred REO write
down and property maintenance expense of $641,000. At December 31, 1993, the
Company had $2,229,000 in REO comprised of seven commercial properties totaling
$1,149,000, three single family residences totaling $687,000, land zoned for
multi-family purposes of $325,000 and land zoned for residential purposes of
$68,000. REO is carried at cost or current fair market value less estimated
selling costs, whichever is lower. There were no loans to facilitate the sale
of REO during 1994. The Company sold $833,000 of REO during 1993 and incurred
REO write down and property maintenance expenses of $1,733,000. As of December
31, 1994, all REO properties held at December 31, 1993 with the exception of
one residential lot, had been sold. Loans to facilitate the sale of REO during
1993 totaled $603,000. These loans were made in accordance with the Company's
credit policies and under similar terms extended to creditworthy borrowers.
Fixed assets, net of depreciation, increased from $1,687,000 at December 31,
1993 to $1,917,000 at December 31, 1994 due to capitalized costs associated
with the Company's data processing conversion. Average fixed assets, net of
depreciation, decreased from $3,210,000 in 1992 to $2,273,000 in 1993 and
$1,862,000 in 1994. The decreases since 1992 have resulted from accumulated
depreciation charges and the acceleration of depreciation related to data
processing equipment and leaseholds.
Total deposits at December 31, 1994 decreased $81.9 million or 25.7% from
December 31, 1993, due primarily to the planned run-off of $33.4 million of
title and escrow deposits and $18.0 million of institutional and brokered
certificates of deposit designed to improve the core deposit base and reduce
potentially volatile liabilities. Average deposits during 1994, 1993 and 1992
were $272,928,000, $333,462,000 and $331,592,000, respectively. The 0.6%
increase in average deposits from 1992 to 1993 was a result of increased title
and escrow deposits to fund increased mortgage origination activity and
marketing programs designed to attract interest bearing demand deposits and
savings deposits which were offset by a decrease in time certificates of
deposit. Average interest-bearing deposits increased from $242,294,000 for 1992
to $246,079,000 for 1993, an increase of 1.6%, then decreased to $197,361,000
for 1994, a decrease of 19.8%. Other categories of deposits also decreased.
During 1994, 1993 and 1992, average noninterest bearing deposits totaled
$75,568,000, $87,383,000, and $89,298,000, respectively, which represented
27.7%, 26.2%, 26.9%, respectively, of total average deposits. During 1994,
average noninterest bearing demand deposits decreased 13.5%, average interest-
bearing demand and savings accounts decreased 10.9%, and average time
certificates of deposit decreased 26.3%. During 1993, average noninterest
bearing demand deposits decreased 2.1% while average interest bearing demand
and savings accounts increased 7.2% and average time certificates of deposit
decreased 2.2%, compared to 1992. Management believes the reduction in time
deposits was also attributable to depositors seeking higher yields on their
funds than the Company was offering as a result of the lower interest rate
environment. Management believes the 20.3% reduction in savings deposits during
1994 was attributable to customers moving their banking relationships to other
institutions when the Company restructured its loan portfolio to reduce
concentrations, as well as to the public's reaction to adverse publicity
51
<PAGE>
about the Company's losses, management changes and regulatory orders. The
Company has taken steps to improve the public's perception of the Banks'
financial condition, including marketing campaigns and enhanced business
development efforts designed to generate core deposit growth and a renewed
expansion of total banking relationships. No assurances can be given, however,
that such efforts will be successful.
The Company discontinued the issuance of commercial paper on December 31,
1993. Average commercial paper sold in 1993 was $6,987,000. Average federal
funds purchased in 1994 declined to $44,000, compared to $1,376,000 in 1993, a
decrease of 96.8%. In 1993, the Company raised $1,555,555 from a private
placement of Common Stock and issued the Notes, the proceeds of which were used
to retired the remaining principal on a loan to fund the Company's ESOP.
Principal outstanding on the Notes was $125,000 at December 31, 1994.
Shareholders' equity totalled $19.1 million at December 31, 1994, a decrease
of 6.5% from the $20.4 million at December 31, 1993.
On December 31, 1993, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." See "New Accounting
Pronouncements." Prior to the adoption of SFAS No. 115, all investment
securities were stated at cost, with the exception of investments in mutual
funds, which were deemed equity investments, based upon the Company's intent
and ability to hold such securities to maturity. At December 31, 1992, the
Company did not have a plan or need to sell such securities. Subsequently,
however, and in anticipation of the adoption of SFAS No. 115, the Company
determined to restructure the investment portfolio. During 1993, the Company
sold most of the securities previously identified as held to maturity,
substantially all of which were sold in the third or fourth quarter of 1993. In
addition, certain securities were purchased and sold during 1993. In connection
with the adoption of SFAS No. 115, the Company classified all of its investment
securities as available for sale and recorded unrealized losses of $122,000,
net of tax effect. During 1994, the Company purchased securities which were
classified as either available-for-sale or held-to-maturity at the time of
purchase, based on management's intent and ability to hold certain investments
to maturity. In addition, the Company transferred mortgage backed securities
with unrealized losses of $472,000 from available-for-sale to held-to-maturity
during 1994 due to a change in intent to hold the securities to maturity. The
unrealized losses will be accreted to shareholders' equity over the average
life of the securities. Due to a decline in the market value of investment
securities classified as available-for-sale and the unrealized losses on the
securities transferred, in accordance with SFAS No. 115, the Company recorded
an unrealized loss totaling $1,178,000 in shareholders' equity at December 31,
1994, an increase of $1,056,000, or 865.6%, from December 31, 1993. The Company
had no trading securities at December 31, 1994 or 1993. Mortgage-backed
securities consisted entirely of Federal Home Loan Mortgage Corporation backed
securities. The Company did not have structured notes, CMOs or other derivative
products in the portfolio at December 31, 1994 or 1993.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net Interest Income and Net Interest Margin
Net interest income decreased by $1,045,000, or 6.2%, to $15,868,000 during
1994 compared to 1993, primarily due to a significant decrease in average
interest earning assets. These decreases reflect overall balance sheet
shrinkage, beginning in 1993, to improve liquidity as well as to achieve
compliance with the capital requirements of the Bank's regulatory agreements.
See "Financial Condition."
Interest income for 1994 decreased $3,775,000, or 14.6%, over 1993 to
$22,136,000 while interest expense decreased $2,732,000, or 30.4%, for the same
period to $6,268,000.
The decrease in interest income during 1994 was primarily attributable to a
significant decrease in interest earning assets, primarily loans. Average
interest earning assets were $277,612,000 during 1994, a 21.1% decrease from
the average balance of $351,686,000 for 1993. The Company reduced average
interest
52
<PAGE>
earning assets to fund a planned reduction of volatile deposits, particularly
title and escrow deposits and institutional certificates of deposit. Loans, the
largest and highest yielding component of earning assets, decreased 26.8%
during 1994. The decrease in interest income was slightly offset by an increase
in the yield on interest earning assets to 7.97% for 1994 versus a 7.37% yield
on interest earning assets for 1993, which reflects increases in market
interest rates beginning in 1994 and a change in the mix of assets due to the
declining asset base. Average interest earning assets as a percent of total
average assets increased from 92.3% for 1993 to 94.0% for 1994.
The decrease in interest expense during 1994 was primarily attributable to a
19.8% decrease in average interest bearing deposits from $246,079,000 for 1993
to $197,360,000 for 1994. In addition, the decrease in interest expense was
affected by a change in the mix of interest-bearing liabilities. Average
noninterest bearing deposits as a percent of total average deposits increased
from 26.2% for 1993 to 27.7% for 1994. Average deposits decreased from
$333,462,000 for 1993 to $272,928,000 for 1994, a decrease of 18.2%. Average
certificates of deposit greater than $100,000 decreased from 16.27% of average
total deposits for 1993 to 12.34% of average total deposits for 1994. As a
result of the shift in the mix of liabilities, the average cost of funds
declined to 3.17% during 1994 compared to a 3.41% cost of funds for 1993,
despite increases in market interest rates.
As a result of the foregoing, net interest margin increased from 4.81% for
1993 to 5.68% for 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Rate Sensitive Assets/Rate Sensitive
Liabilities."
53
<PAGE>
The following tables summarize average balances and for interest earning
assets and interest bearing liabilities, the amounts of interest earned or paid
and the yields or rates for the periods indicated. The average balances in the
following table and elsewhere in this Prospectus have been calculated on the
basis of the daily account balances.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans(1)............... $212,029 $18,740 8.84% $289,675 $23,190 8.01% $315,659 $26,892 8.52%
Investment Securities.. 37,736 2,169 5.75 37,935 1,916 5.06 18,438 1,178 6.39
Interest Bearing
Deposits with other
Banks................. 1,311 67 5.11 5,645 263 4.66 5,195 256 4.93
Federal Funds Sold 26,536 1,160 4.37 18,431 542 2.94 15,798 625 3.96
-------- ------- -------- ------- -------- -------
Total Interest Earning
Assets................. 277,612 22,136 7.97 351,686 25,911 7.37 355,090 28,951 8.52
Noninterest Earning As-
sets:
Cash and Due from
Banks.................. 19,353 25,717 23,649
Premises and Equipment,
Net................... 1,862 2,273 3,210
Other Assets........... 7,704 10,594 9,938
Less: Loan Loss Re-
serves (11,237) (9,309) (3,263)
-------- -------- --------
Total Assets........... $295,294 $380,961 $388,624
======== ======== ========
Interest Bearing
Liabilities:
Demand Deposits........ $ 58,114 $ 1,540 2.65 $ 66,167 $ 1,805 2.73 $ 58,254 $ 1,949 3.35
Savings Deposit........ 34,575 821 2.37 37,892 1,052 2.78 38,838 1,404 3.62
Time Deposits.......... 104,671 3,892 3.72 142,020 5,515 3.88 145,202 6,983 4.81
FHLB Borrowings........ 129 5 3.88 7,447 285 3.83 9,431 410 4.35
Federal Funds
Purchased............. 44 1 2.27 1,376 44 3.20 265 8 3.02
Commercial Paper Sold.. -- -- -- 6,987 186 2.66 12,805 438 3.42
Notes Payable.......... 125 9 7.20 1,908 112 5.87 2,474 173 6.99
-------- ------- -------- ------- -------- -------
Total Interest Bearing
Liabilities........... 197,658 6,268 3.17 263,797 8,999 3.41 267,269 11,365 4.25
-------- ------- -------- ------- -------- -------
Noninterest Bearing
Liabilities:
Demand Deposit......... 75,568 87,383 89,298
Other.................. 1,965 2,992 2,279
-------- -------- --------
77,533 90,374 91,577
-------- -------- --------
Shareholders' Equity.... 20,103 26,789 29,778
-------- -------- --------
Total Liabilities and
Shareholders' Equity.. $295,294 $380,961 $388,624
======== ======== ========
Net Interest Income..... $15,868 $16,912 $17,586
======= ======= =======
Net Interest Margin..... 5.68 4.81 4.95
</TABLE>
- --------
(1) Average balances exclude nonaccrual loans.
54
<PAGE>
<TABLE>
<CAPTION>
1994 COMPARED TO 1993 1993 COMPARED TO 1992
--------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO: (1) DUE TO: (1)
--------------------- --------------------
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
---------- --------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans (2).............. $ (6,832) $ 2,412 $(4,451) $ (2,081) $ (1,621) $(3,702)
Investment Securities.. (11) 262 251 987 (247) 740
Interest Bearing Depos-
its with other Banks.. (221) 26 (195) 21 (16) 5
Federal Funds Sold..... 354 264 618 77 (160) (83)
---------- --------- ------- --------- --------- -------
Total................. $ (6,710) $ 2,964 $(3,777) $ (996) $ (2,044) $(3,040)
---------- --------- ------- --------- --------- -------
Interest Paid On:
Demand Deposits........ $ (213) $ (52) $ (265) $ 216 $ (360) $ (144)
Savings Deposits....... (79) (152) (231) (26) (326) (352)
Time Deposits.......... (1,388) (236) (1,624) (123) (1,345) (1,468)
Federal Funds Pur-
chased................ (30) (13) (43) 36 0 36
Other Short Term
Borrowings............ (284) 4 (280) (76) (49) (125)
Commercial Paper....... 0 (186) (186) (155) (97) (252)
Notes Payable.......... (128) 25 (103) (33) (28) (61)
---------- --------- ------- --------- --------- -------
Total................. $ (2,122) $ (610) $(2,732) $ (161) $ (2,205) $(2,366)
---------- --------- ------- --------- --------- -------
Net interest income..... $ (4,588) $ 3,573 $(1,045) $ (835) $ (161) $ (674)
========== ========= ======= ========= ========= =======
</TABLE>
- --------
(1) The changes due to simultaneous rate and volume changes have been allocated
to rate and volume changes in proportion to the relationship between their
absolute dollar amounts.
(2) The above table does not include interest income that would have been
earned on nonaccrual loans.
Other Income
Other income decreased $756,000, or 15.7%, during 1994, primarily due to a
lower level of mortgage activity. Loan fees decreased 60.6% from $1,192,000 in
1993 to $470,000 in 1994, reflecting a significant decrease in income resulting
from mortgage loan originations and servicing during the year. Net mortgage
servicing fees were $317,000 in 1994, compared with $618,000 in 1993, a
decrease of 48.7%. The Company sold its mortgage servicing rights for a net
gain of $1,443,000 in May 1994 was offset by a write-off of $320,000, and also
sold its mortgage origination unit in June 1994 in return for residual income
on future loan originations by the acquiror. However, due to significant
reductions in mortgage origination activity subsequent to the sale, the
acquiror closed the mortgage origination unit, and no residual income will be
generated. Other income increased in 1994, due to the gain on sale of mortgage
servicing and a gain of $174,000 on the sale of the merchant credit card
operation in March 1994. These increases were offset by a 21.0% decrease in
gains on the sale of SBA loans during 1994. The decreases in gain on sale of
SBA loans were due primarily to reduced volume of sales and the deferral of
income recognition due to the timing of such sales. Service charges on deposit
accounts decreased during 1994 as a result of customers maintaining higher
average balances to offset service charge assessments and lower deposit levels.
Miscellaneous fee income decreased 40.0% from $590,000 in 1993 to $354,000 in
1994 due to the elimination of the merchant card portfolio during 1994 and
certain other recordkeeping services for customers during 1993 and 1994.
Miscellaneous fees include merchant card income, cash management service
charges, safe deposit box rentals, charges for items such as money orders,
cashiers' checks and ATM transactions, and reflect usage and transaction
volume. Merchant card income represented 13.0% and 24.9% of total miscellaneous
fees during 1994 and 1993, respectively.
55
<PAGE>
Other income in the future is anticipated to be lower due to the
discontinuance of mortgage activities. Combined net mortgage servicing fees
and gains on sale of mortgage loans included in total other income were
$589,000, $1,694,000 and $1,806,000 in 1994, 1993 and 1992, respectively.
Other Expenses
The following table sets forth the Company's other expenses for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................ $ 6,423 $ 7,082 $ 6,797
Net occupancy................................. 2,087 2,578 2,809
Equipment..................................... 830 1,241 1,102
Professional services......................... 1,928 1,878 1,391
Real Estate Owned............................. 641 1,733 479
Amortization of goodwill...................... -- 1,266 105
Customer services............................. 286 382 687
Office supplies and office expense............ 612 800 1,000
FDIC assessments.............................. 878 921 789
Amortization of core deposits................. -- -- 513
Business development and advertising.......... 364 271 371
Other......................................... 2,035 2,687 2,395
---------- ---------- ----------
Total Other Expense......................... $ 16,084 $ 20,839 $ 18,438
========== ========== ==========
</TABLE>
Other expense decreased $4,755,000, or 22.8%, in 1994, due primarily to a
decrease in REO expense, the writeoff of goodwill during 1993, and decreased
salaries and employee benefits, occupancy and equipment expenses.
REO expense declined $1,092,000 during 1994. The Company incurred writedowns
on REO of $1,408,000 during 1993 due to declining market values on properties
that were principally raw land and commercial real estate. REO writedowns in
1994 totaled $959,000, which reflects a stabilizing market for distressed
properties. The majority of the $1.4 million in writedowns during 1993 were
taken approximately at the time that the loans were placed in REO. When a
property is taken into REO, if the fair market value of the property is less
than the Company's carrying costs, a writedown is taken immediately. However,
during 1993, when a property values were continuing to decline, the fair
market value of a foreclosed property was not always available at the time of
the foreclosure. In all cases, upon foreclosure, the Company obtains an
appraisal on a timely basis, generally within 30 to 60 days. To the extent the
apprisal indicates further reduction in fair market value, additional
writedowns are taken. These writedowns were partially offset by gains on sale
of REO of $1,000 in 1993 and $511,000 in 1994.
Salary and employee benefit expense decreased by $659,000, or 9.3%, during
1994 primarily as a result of staff reductions. Total full time equivalent
employees declined from 199 at December 31, 1993 to 141 at December 31, 1994.
The decrease in employee benefits expense during 1994 reflected reduced
employee health benefits and the savings of $635,000 compensation expense
related to the ESOP loan, which was partially offset by $49,000 in 401(k)
matching contributions. The ESOP loan, which remains outstanding, is secured
by 185,840 shares of Common Stock held in a suspense account which would be
released and allocated to the accounts of participants to the extent the
Company makes future ESOP contributions. The Company also adopted Statement of
Position ("SOP") 93-6 in 1994 which provides that future ESOP contributions,
if any, shall be expensed at fair market value of the Common Stock at the time
of the contribution rather than the historical cost of $9.00 per share.
Adoption of SOP 93-6 had no impact on results of operations during 1994. The
extent to which the adoption of SOP 93-6 will affect the Company's results of
operations depends on the level of future ESOP contributions, if any, and the
market value of the Common Stock, neither of which can be determined at
56
<PAGE>
this time. These salary and employee benefit expense reductions were partially
offset by decreased deferred loan origination costs. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 91, the Company
defers loan origination costs and amortizes them into loan interest income
over the life of each loan. These deferred costs were $457,000 and $207,000 as
of December 31, 1994 and 1993, respectively.
In addition, occupancy expense decreased $491,000, or 19.0%, during 1994, as
a result of a decrease in amortization expense related to leased space and an
increase in income from subleases. During 1993 and 1994, the Company sublet or
terminated leases for office space formerly housing its commercial lending
department, mortgage origination department and administrative personnel.
Equipment expense decreased $411,000, or 33.1%, during 1994, primarily due to
a significant decrease in depreciation expense. The Company outsourced its
data processing in May 1994 with monthly cost savings of approximately
$52,000. The Company outsourced its courier service in September 1993,
resulting in monthly reductions of approximately $8,000.
Total other expense expressed as a percentage of net interest income plus
other income, commonly referred to as the efficiency ratio, was 80.71% for
1994 and 95.89% for 1993.
Provision For Loan Losses and Nonperforming Loans
The Company maintains a loan loss reserve which it considers adequate to
cover the risk of losses in the loan and lease portfolio. The charge to
expense is based on management's evaluation of the quality of the loan and
lease portfolio, the level of classified loans and leases, total outstanding
loans and leases, losses previously charged against the reserve, and current
and anticipated economic conditions. Management also considers certain
elements in the portfolio and the grading systems used to measure the quality
of the portfolio. These factors include industry concentrations and collateral
concentrations. In response to the recession in Southern California and the
decline in real estate values, the Company assessed the value of collateral
for loans, particularly those secured by real estate. If during this process a
shortfall ensued, the Company then recorded a charge-off or provided a
specific reserve to reflect current market value of the loan. During 1994, the
Company expanded the Loan Administration and Special Assets Departments to
improve overall asset quality through problem loan management and risk and
collateral value identification.
57
<PAGE>
The following table summarizes the Company's loan loss reserves and loan loss
experience for the years indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period... $14,313 $ 3,854 $ 2,845 $2,285 $1,863
Charge-offs
Commercial, financial and
agricultural.................. 8,705 4,026 1,818 1,696 428
Real estate construction....... 603 67 -- 100 --
Real estate mortgage........... 254 1,476 -- -- --
Installment.................... 808 570 722 243 39
Lease financing................ 69 52 3 29 86
------- ------- ------- ------ ------
Total charge-offs................ 10,439(1) 6,191 2,543 2,068 553
Recoveries
Commercial, financial and
agricultural.................. 428 409 111 56 199
Real estate construction....... -- -- -- -- --
Real estate mortgage........... 4 1 -- -- --
Installment.................... 117 16 38 35 11
Lease financing................ 13 11 -- -- 22
------- ------- ------- ------ ------
Total recoveries................. 562 437 148 91 232
Net charge-offs.................. 9,877 5,754 2,395 1,977 321
Adjustment due to acquisition.... -- -- -- -- 309
Provision charged to operations.. 3,825 16,213 3,404 2,537 743
------- ------- ------- ------ ------
Balance at end of period......... $ 8,261 $14,313 $ 3,854 $2,845 $2,285
======= ======= ======= ====== ======
Ratio of net charge-offs to
average loans outstanding....... 4.66% 1.99% .76% .68% .12%
Loan loss reserves to
nonperforming loans............. 103.98%(2) 72.15% 118.44% 30.09% 73.26%
Loan loss reserves to
nonperforming assets............ 73.96%(2) 64.86% 53.57% 24.78% 73.26%
Classified assets to loan loss
reserves plus shareholder's
equity.......................... 113.27% 186.27% 84.71% 67.45% 47.63%
</TABLE>
- --------
(1) Of this amount, $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(2) Does not include $1,966,000 of TDRs that were performing at December 31,
1994.
Over the five year period ended December 31, 1994, the allocation of the
allowance for loan losses for commercial, financial and agricultural loans
increased steadily to correspond with increases in the total volume of loans
and the level of loans losses in this category. The Company's current practice
is to make specific allocations to large loans and unspecific allocations to
each loan category based on management's risk assessment. The following table
sets forth the allocation of the allowance for loan losses by loan category as
of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- ---------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
TOTAL TOTAL TOTAL TOTAL TOTAL
BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
and Agriculture........ $6,704 3.99% $11,361 4.25% $3,132 1.00% $1,925 0.64% $1,427 0.47%
Real Estate--
Construction........... 265 0.16 1,916 0.72 242 0.08 254 0.08 436 0.14
Real Estate--Mortgage... 964 0.57 420 0.16 70 0.02 238 0.08 338 0.11
Installment............. 325 0.19 555 0.21 362 0.12 399 0.13 34 0.01
Lease Financing......... 3 0.00 61 0.02 48 0.02 29 0.01 50 0.02
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
Total Allocated........ $8,261 4.92% $14,313 5.35% $3,854 1.24% $2,845 0.95% $2,285 0.76%
====== ==== ======= ==== ====== ==== ====== ==== ====== ====
</TABLE>
58
<PAGE>
In 1994 and 1993, the provision for loan losses was $3,825,000 and
$16,213,000, respectively. Loans charged off in 1994 and 1993 were $10,439,000
and $6,191,000, respectively, or 4.92% and 2.13% of average outstanding loans
and leases, respectively. Of the 1994 chargeoffs, $5.0 million are attributable
to the bulk loan sale which occurred in May 1994. In 1994 and 1993, loan and
lease recoveries totaled $562,000 and $437,000, respectively, constituting 9%
and 17% of the total loans charged off in the respective prior years. The
reduction of loan loss provision from 1993 to 1994 is due to a significant
decline in the migration of loans to nonaccrual status or REO during 1994.
Twenty-two medium term commercial real estate loans aggregating $10.3 million
are scheduled to mature during 1995, of which six loans in the aggregate amount
of $3.2 million have been classified. All such classified loans have been
reevaluated for collateral value within the past six months and additional loan
loss reserves have been taken where appropriate. Of the $10.3 million, thirteen
loans aggregating $7.2 million were loans for investment properties. Of that
amount, the Company anticipates that nine loans aggregating $5.9 million will
be refinanced or repaid during 1995. The remaining $1.3 million consists of
four loans, none of which exceeds $570,000 principal balance. None of such
loans were classified at December 31, 1994, and based upon current information,
management does not anticipate that additional loan loss reserves will be
assessed with respect to such loans.
At December 31, 1994, the loan loss reserve decreased to $8,261,000 compared
to $14,313,000 at December 31, 1993. The ratio of the loan loss reserves to
outstanding loans and leases at December 31, 1994 and 1993 was 4.92% and 5.35%,
respectively.
Nonperforming loans are those on which the borrower fails to perform under
the original terms of the obligation. The Company's nonperforming loans fall
within three categories: loans past due 90 days and still accruing, loans on
nonaccrual status and restructured loans. The coverage ratio, or the ratio of
loan loss reserves to nonperforming loans, was 103.98% and 72.15%, at December
31, 1994 and 1993, respectively. Loans past due 90 days or more and still
accruing totaled $331,000 and $552,000 at December 31, 1994 and 1993,
respectively. The decrease in loans past due 90 days and still accruing was
primarily attributable to the migration of certain of these loans to nonaccrual
status.
Loans are automatically placed on nonaccrual status when principal or
interest payments are past due greater than 90 days. If a loan is an SBA
guaranteed loan and a deferral period has been negotiated or if the loan is in
the process of imminent collection in the normal course of business, the
Company may remove the loan from nonaccrural status and continue to accrue
interest. Loans are placed on nonaccrual status earlier if there is doubt as to
the collectibility any amounts due according to the contractual terms of the
loan agreement. At December 31, 1994, loans totaling $7,612,000 were on
nonaccrual status, compared with $18,939,000 at December 31, 1993.
As of December 31, 1994, the Company had restructured loans in the amount of
$2,000, compared to $348,000 at December 31, 1993.
Total nonperforming loans as a percent of total loans outstanding were 4.73%
and 7.41% at December 31, 1994 and 1993, respectively.
Income Taxes
The Company recorded income tax expense of $285,000 in 1994. Applicable tax
expense for 1994 was offset by the utilization of a tax valuation allowance.
The charge of $285,000 was taken to increase the tax valuation allowance in
accordance with the provisions of SFAS No. 109 and to reflect the filing of the
Company's 1993 tax returns. The Company recorded income tax benefit of
$3,233,000 in 1993, reflecting available carryback to tax years 1990 through
1992. The Company had a tax asset of $794,000 at December 31, 1994,
representing the remaining benefit from the 1994 net operating loss carryback
to 1992 and other refundable taxes. In addition, the Company had a net deferred
tax asset of $3,115,000 which was fully offset
59
<PAGE>
by a tax valuation allowance. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income. Management considers projected future taxable income and tax
planning strategies in making this assessment. If future taxable income were
deemed probable, the necessity for the valuation allowance would be reassessed,
and all or a portion of the valuation allowance could be reversed in future
periods, resulting in income recognition. No assurances may be given, however,
as to the likelihood of any such future profitability or the timing or amount
of any such income recognition.
1993 COMPARED WITH 1992
Net Interest Income
Interest income for the Company decreased 10.5%, from $28,951,000 in 1992 to
$25,911,000 in 1993, due to a decline and a change in the mix of interest
earning assets. The proportion of interest income contributed by the loan
portfolio decreased from 92.9% during 1992 to 89.5% during 1993. The yield on
interest earning assets decreased from 8.15% in 1992 to 7.37% in 1993,
reflecting increases in lower yielding investment securities as a percentage of
total interest-earning assets and decreased interest rates over the two year
period.
Interest expense decreased 20.8%, from $11,365,000 in 1992 to $8,999,000 in
1993, due to a decline in deposit pay rates. Total deposits decreased 8.7% at
December 31, 1993 as compared to December 31, 1992, while average deposits
increased .6% from $331,592,000 in 1992 to $333,462,000 in 1993. Average
interest bearing deposits increased to 73.8% of average total deposits in 1993
from 73.1% of average total deposits in 1992. The cost of total deposits
decreased from 3.1% in 1992 to 2.5% in 1993 due to declines in interest rates
during 1993.
The cost of other borrowed funds decreased to 3.2% in 1993 from 3.8% in 1992.
Average commercial paper sold decreased from $12,805,000 at 3.4% in 1992 to
$6,987,000 at 2.7% in 1993. The Company utilized a line of credit with the
Federal Home Loan Bank during 1993 resulting in average borrowings of
$7,447,000 at 3.8%.
In November 1989, the Company borrowed $4,000,000 to fund the ESOP. In 1993,
the Company raised $1,555,000 from a private placement of 719,580 shares of
Common Stock and the issuance of $125,000 in notes payable and used the
proceeds to retire the remaining principal on the ESOP loan. In 1993 and 1992,
the Company paid $112,000 and $173,000, respectively, in interest expense on
the ESOP loan.
The yield on interest earning assets decreased from 8.2% in 1992 to 7.4% in
1993, while the cost of interest bearing liabilities decreased from 4.3% in
1992 to 3.4% in 1993. The net interest margin decreased from 5.0% in 1992 to
4.8% in 1993. Declines in interest rates during 1993 accounted for the decrease
in yields and rates on interest sensitive balances from 1992, while the
decrease in the net interest margin was a result of a lower ratio of higher
yielding assets (loans) to average interest earning assets. Interest foregone
on nonaccrual loans in 1993 and 1992 totaled $2,214,000 and $728,000,
respectively.
Other Income
Other income in 1993 totaled $4,820,000, a 12.6% decrease compared to 1992.
Service charges on deposits totaled $1,521,000 in 1993, an 11.9% increase over
the $1,359,000 total in 1992. The increase in service charges on deposits in
1993 was a result of increased deposits subject to in-depth analyses of funds
availability and peer group standards performed by the Company.
Loan fees of $1,192,000 in 1993 represented a 23.7% decrease from loan fees
in 1992 due to decreasing mortgage origination volume and increased mortgage
servicing premium amortization.
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Miscellaneous fees decreased 6.5% to $590,000 in 1993 from $631,000 in 1992,
as a result of the elimination of certain recordkeeping services for customers.
Miscellaneous fees include cash management service charges, safe deposit box
rentals, charges for items such as money orders, cashiers checks and ATM
transactions.
Included in the "Other" category in "Other Income" are premiums and fees
collected on sales of mortgage loans, SBA loans less gains on sale, student
loans and investments. Other income in 1993 totaled $1,131,000, a 24.6%
increase over 1992.
Other Expenses
Total other expense was $20,839,000 in 1993, a 13.0% increase over the 1992
total of $18,438,000. The increase from 1992 to 1993 is primarily due to
increased expenses associated with REO of $1.3 million, increased legal costs
of $434,000 related to increased nonperforming assets and regulatory matters,
and the complete write-off of $1,266,000 of goodwill as a result of the
Company's decision to consider the sale of Frontier.
Salary and employee benefit expense increased 4.2%, from $6,797,000 in 1992
to $7,082,000 in 1993, due to lower deferred loan origination costs. At
December 31, 1993, the Company had 199 full-time equivalent employees, compared
to 198 employees at December 31, 1992.
Occupancy expense decreased from $2,809,000 in 1992 to $2,578,000 in 1993,
due to reduced space occupied by the Company.
Equipment expense increased from $1,102,000 in 1992 to 1,241,000 in 1993, as
the Company accelerated depreciation on data processing equipment that would
not be in use in 1994 as a result of its decision to outsource data processing
services.
Professional fees increased $487,000, or 35.0%, in 1993 compared to 1992, due
to increased legal fees associated with increased levels of nonperforming
assets.
Other miscellaneous expenses increased from $6,339,000 in 1992 to $8,060,000
in 1993. The significant increase in other miscellaneous expenses from 1992 to
1993 resulted from the write-off of goodwill, increased REO expense and legal
costs, and higher FDIC assessment rates. See "Supervision and Regulation--
Premiums for Deposit Insurance." Other miscellaneous expenses in 1992 included
a nonrecurring charge of $513,000 to decrease core deposit premiums related to
the Westco acquisition. The Company wrote off the core deposit premium as an
analysis of these deposits showed significant run off of Westco deposits due,
in part, to the closing of a former Westco branch during 1992. Due to the
significant impairment of this intangible asset, the Company did not feel it
was prudent to continue carrying such an asset in the financial statements.
Provision For Loan Losses and Nonperforming Loans
At December 31, 1993, the loan loss reserve increased to $14,313,000 compared
to $3,854,000 at December 31, 1992. The ratio of the loan loss reserve to
outstanding loans and leases at December 31, 1993 and 1992 was 5.35% and 1.24%,
respectively.
Loans past due 90 days or more and still accruing totaled $552,000 and
$410,000, at December 31, 1993 and 1992, respectively. The decrease in loans
past due 90 days and still accruing was primarily attributable to the placement
of certain of these loans on nonaccrual status.
At December 31, 1993, loans totaling $18,939,000 were on nonaccrual status,
compared with nonaccrual loans of $2,464,000 at December 31, 1992.
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The Company had restructured loans in the amount of $348,000 at December 31,
1993, compared with $380,000 at December 31, 1992.
Total nonperforming loans as a percent of total loans outstanding at December
31, 1993 and 1992 were 7.42% and 1.04%, respectively.
Income Taxes
The Company recorded income tax benefit of $3,233,000 in 1993, reflecting
available carryback to tax years 1990 through 1992. Income tax expense totaled
$571,000 for the year ended December 31, 1992. The effective combined tax rate
for 1992 was 45.5%.
INFLATION
The assets and liabilities of the Company, except for fixed assets, are
virtually all monetary items. Since the Company maintains a small portion of
its total assets in fixed assets, 0.7% at December 31, 1994 and 0.5% at
December 31, 1993, respectively, the potential for inflated earnings resulting
from understated depreciation charges is minimal. High inflation rates could
impact other expense items, such as salaries and occupancy expense.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity management for banks requires that funds be available to pay all
deposit withdrawals and maturing financial obligations and meet credit funding
requirements promptly and fully in accordance with their terms. Over a very
short time frame, for most banks, including the Banks, maturing assets provide
only a limited portion of the funds required to pay maturing liabilities. The
balance of the funds required is provided by liquid assets and the acquisition
of additional liabilities, making liability management integral to liquidity
management in the short term.
The Banks maintain levels of liquidity that they consider adequate to meet
their current needs. The Banks' principal sources of cash include incoming
deposits, the repayment of loans and conversion of investment securities. When
cash requirements increase faster than cash is generated, either through
increased loan demand or withdrawal of deposited funds, the Banks can arrange
for the sale of loan participations and liquidate investments and access their
Federal Funds lines of credit with correspondent banks or other lines of credit
with federal agencies. Ventura has credit totaling $5.0 million with an
unaffiliated financial institution which enables it to borrow federal funds on
an unsecured basis. In addition, the Banks have available lines of credit with
the Federal Home Loan Bank of San Francisco equal to 15% of Ventura's assets
and 10% of Frontier's assets which enables them to borrow funds on a secured
basis. At December 31, 1994, the Banks where not obligated to any entity in
connection with their federal funds lines of credit. In addition, the Banks
could engage in other borrowings, including reverse repurchase agreements.
Management of the Company has set a minimum liquidity level of 20% as a
target. The Company's average liquid assets (cash and cash equivalents, federal
funds sold, interest bearing deposits with other financial institutions and
investment securities available for sale, less securities pledged as collateral
and outgoing cash letters) as a percentage of average assets of the Company
during 1994, 1993, and 1992 was 18.6%, 13.6%, and 15.1%, respectively. Average
liquidity for 1994, 1993 and 1992, expressed as a percent of average
liabilities, was 20.0%, 16.6% and 16.5%, respectively. From 1992 to 1994, the
Company underwent significant balance sheet restructuring, as evidenced by the
substantial reductions in assets, loans, and deposits, which accounts for the
improved liquidity. The Company's strategic plan is to build its core business
by generating and maintaining banking relationships with small and medium sized
businesses, professional firms, and individuals within its market area. The
loan to deposit ratios for the Company at December 31, 1994, 1993, and 1992
were 67.6%, 79.6%, and 88.3%.
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Although the Banks do not currently purchase brokered deposits, in the past,
both Ventura and Frontier have, to a certain degree, funded growth in their
assets through demand deposits of title and escrow companies and by the
issuance of certificates of deposit to persons, including other financial
institutions, not otherwise having banking relationships with the Banks. Such
liabilities are potentially unstable sources of deposits because they are
generally attracted to the financial institution based primarily upon the
interest rate paid by the institution and the general financial condition of
the institution and may be withdrawn on relatively short notice. Furthermore,
the proceeds of such liabilities are generally invested in relatively low
yielding short term investment securities rather than higher yielding loans. In
order to stabilize its funding sources, the Company has taken action to reduce
title and escrow deposits and institutional deposits as a percentage of total
deposits. Demand deposits owned by title and escrow companies represented 1.2%
and 11.3% of total deposits at December 31, 1994 and 1993, respectively.
Certificates of deposit held by other financial institutions represented 9.4%
and 11.4% of total deposits at December 31, 1994 and 1993, respectively and
brokered CDs represented 0% and 1.3% of total deposits at December 31, 1994 and
1993, respectively. There can be no assurances that the Company will be able to
replace such deposits with core deposits in the future.
Although liability management is the key to liquidity management in the
short-term, long-term planning of both assets and liabilities is necessary to
manage net yields. To the extent maturities of assets and liabilities do not
match in a changing rate environment, net yields may be affected.
Parent is a legal entity, separate and distinct from its subsidiaries, and it
must separately meet its liquidity needs. Aside from raising capital on its own
behalf or borrowing from outside sources, Parent may receive additional funds
through dividends paid by, and fees from services provided to its subsidiaries.
Future cash dividends paid to Parent by its subsidiaries will depend on each
subsidiary's future profitability, capital requirements, restrictions imposed
by regulatory agreements and other factors. See "Market Price of Common Stock
and Dividends" and "Risk Factors--Dividend Restrictions." In addition, the
Formal Agreement requires Ventura to seek reimbursement of $3.4 million in
connection with interest paid to Parent on deposits of funds generated by
commercial paper sales. See "Risk Factors--Regulatory Agreements and Capital
Requirements." At December 31, 1994, Parent had notes payable in the amount of
$125,000, scheduled to mature in December 1995, upon which Parent pays interest
quarterly. Parent has sufficient cash available to meet its interest
obligations during 1995. However, Parent does not presently have sufficient
cash to repay the notes payable at maturity. A portion of the net proceeds of
this Offering will be utilized to repay the notes payable at maturity. Should
this Offering not be successful, Parent would attempt to renegotiate such
notes. No assurances can be given that Parent would be successful in any such
effort. See "Use of Proceeds."
RATE SENSITIVE ASSETS/RATE SENSITIVE LIABILITIES
The objective of asset/liability management is to provide stable growth in
net interest income while minimizing the impact on earnings due to changes in
interest rates. To reduce exposures to interest rate fluctuations, the Company
attempts to match its interest sensitive assets with its interest sensitive
liabilities, and maintain the maturity and repricing of these assets and
liabilities at appropriate levels. Rate sensitive assets and liabilities are
those instruments on which interest rates can be adjusted within a short period
of time. In recent years, assets and liabilities have become more interest rate
sensitive as a result of deregulation and increased volatility in interest
rates.
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One method the Company uses to monitor interest rate sensitivity is by
attempting to match rate sensitive assets to rate sensitive liabilities over
several time periods by using what is called GAP analysis. Set forth in the
table below is the interest rate sensitivity or GAP position of the Company at
December 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
OVER
LESS ONE YEAR OVER
THAN ONE THROUGH FIVE NONINTEREST
YEAR FIVE YEARS YEARS BEARING TOTAL
-------- ---------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.. $ -- $ -- $ -- $11,442 $ 11,442
Interest-bearing deposits
with other financial
institutions............ 694 -- -- -- 694
Federal funds sold....... 27,000 -- -- -- 27,000
Securities held-to-
maturity................ -- 14,922 4,286 -- 19,208(1)
Securities available-for-
sale.................... 14,749 8,475 9,380 -- 32,604(1)
Loans, net fixed rate.... 9,489 15,989 4,277 -- 29,755
Loans, net floating rate. 130,567 -- -- 7,612 138,179
Noninterest bearing
assets.................. -- -- -- 8,312 8,312
Less loan loss reserve... -- -- -- (8,261) (8,261)
-------- ------- ------- ------- --------
Total assets........... $182,499 $39,386 $17,943 $19,105 $258,933
======== ======= ======= ======= ========
LIABILITIES AND
SHAREHOLDER'S EQUITY
Noninterest bearing
deposits................ $ -- $ -- $ -- $67,177 $ 67,177
Interest-bearing demand
and savings deposits.... 80,646 -- -- -- 80,646
Time certificates of
deposit................. 80,344 8,131 44 -- 88,519
Notes payable............ 125 -- -- -- 125
Other liabilities........ -- -- -- 2,236 2,236
Shareholders' equity..... -- -- -- 20,230 20,230(1)
-------- ------- ------- ------- --------
Total liabilities and
shareholders' equity.. $161,115 $ 8,131 $ 44 $89,643 $258,933
======== ======= ======= ======= ========
Interest rate-sensitivity
gap..................... $ 21,384 $31,255 $17,899
Cumulative interest rate-
sensitivity gap......... $ 21,384 $52,639 $70,538
Cumulative interest rate-
sensitivity gap as a
percent of total assets. 8.3% 20.3% 27.2%
</TABLE>
- --------
(1) Excludes unrealized losses of $745,000 on securities available for sale
and $433,000 on securities previously available for sale and transferred
to securities held to maturity in 1994.
At December 31, 1994, the Company had net repriceable assets (a "positive"
gap) as measured at one year of 8.26% of total assets. The net repriceable
assets over a five-year time horizon totalled approximately $52.6 or 20.3% of
total assets. A positive gap implies that the Company is asset sensitive, and
therefore subject to a decline in net interest income as interest rates
decline. In a relatively stable interest rate environment that follows a rise
in interest rates, variable rate liabilities will continue to reprice upward
while variable rate assets, particularly those indexed to prime rate, remain
relatively constant, thereby narrowing net interest margin. As interest rates
decline, variable rate assets reprice at lower rates immediately, while the
variable rate liabilities reprice gradually, resulting in a narrowing of the
net interest margin. The 1994 results reflect the situation in which net
interest margin grew as rates increased, whereas, the 1993 and 1992 results
reflect the opposite situation, with declines in net interest margin as rates
declined.
To measure the earnings impact due to asset sensitivity, the Company has
purchased software to simulate the effect of interest rate changes on the
balance sheet. The Asset/Liability Committee ("ALCO") of the Company analyzes
data produced by this software monthly to determine the most appropriate
manner to counter interest rate risk. Based on the recommendations from ALCO,
the Company has implemented strategies to counter the impact of changing
interest rates, including the establishment of interest rate floors on 47% of
the variable rate loans at December 31, 1994 to mitigate the effect on net
interest margin if rates
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decline, and also by investing in fixed rate investment securities. Management
believes that these strategies are effective in minimizing the impact on
earnings from changes in interest rates.
CAPITAL RESOURCES
The FDIC Improvement Act requires that for banks to be considered "well
capitalized", they must maintain a leverage ratio of 5.0%, a Tier 1 capital
ratio of 6.0% and a risk-based capital ratio of 10.0% and not be under a
written agreement or capital directive. Banks will be considered "adequately
capitalized" if they maintain a leverage ratio of 4.0%, a Tier 1 risk-based
capital ratio of 4.0%, and a total risk-based capital ratio of 8.0%. The
Consent Order and the Formal Agreement require the Banks to maintain capital
ratios at levels substantially higher than the levels generally applicable to
other national banks. Frontier is required to maintain a Tier 1 risk-based
capital ratio of 9.50% and a leverage capital ratio of 7.00%. Ventura is
required to maintain a Tier 1 risk-based capital ratio of 12.00% and a leverage
capital ratio of 7.00%. See "Supervision and Regulation--Potential and Existing
Enforcement Actions". Tier 1 capital consists primarily of common stock,
retained earnings and perpetual preferred stock, less goodwill and other
ineligible items. Tier 2 capital is comprised limited life preferred stock,
subordinated debt and loan loss reserves limited to 1.25% of total risk
weighted assets. Total risk-based capital is Tier 1 plus Tier 2 capital;
however, at least 50% of total capital must be comprised of Tier 1 capital. The
capital standards specify that assets, including certain off-balance items be
assigned risk weights based on credit and liquidity risk which range from 0%
risk weight for cash to 100% risk weight for commercial loans and certain other
assets. The leverage ratio is Tier 1 capital to adjusted average assets. The
Tier 1 capital ratio is Tier 1 capital to risk weighted assets. The total risk-
based capital ratio is Tier 1 plus Tier 2 capital to risk weighted assets. The
following sets forth the capital ratios for the Company and the Banks at
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Company(1)
Risk-based Capital Ratio............ 12.61% 8.73%
Tier 1 Capital Ratio................ 11.32% 7.43%
Leverage Ratio...................... 7.53% 6.02%
Ventura
Risk-based Capital Ratio............ 12.21% 7.83%
Tier 1 Capital Ratio................ 10.92% 6.52%
Leverage Ratio...................... 7.21% 5.49%
Frontier(1)
Risk-based Capital Ratio............ 13.57% 11.31%
Tier 1 Capital Ratio................ 12.29% 10.03%
Leverage Ratio...................... 8.32% 7.30%
</TABLE>
- --------
(1) In accordance with recent guidance from the Federal Financial Institutions
Examination Council, regulatory capital includes $756,000, which represents
a $792,000 cumulative effect adjustment to reduce the balance of SBA loans,
a portion of which was offset by income recognized pursuant to generally
accepted accounting principles. This amount is not reflected in the
accompanying financial statements prepared in accordance with generally
accepted accounting principles.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 109, "Accounting for Income Taxes," superseded SFAS No. 96, both of
which changed the method of accounting for income taxes from the deferred
method previously required by Accounting Principles Board Opinion No. 11, to
the asset/liability method. The asset/liability method primarily emphasizes the
valuation of current and deferred tax assets and liabilities. The
asset/liability method focuses first on the balance sheet, and the amount of
income tax expense is determined by changes in the elements of the balance
sheet. The amount of income tax expense for a period is the amount of income
taxes currently
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payable or refundable, plus or minus the change in aggregate deferred tax
assets and liabilities. A deferred tax asset or liability is computed based on
the differences between the book and tax bases of an asset or liability and the
reversal of these differences in future years applying current tax laws. The
Company adopted SFAS No. 96 as of January 1, 1990, but elected not to restate
any prior periods. The effect of the change on total income tax provision was
not significant. The Company adopted SFAS No. 109 as of January 1, 1992. The
effect on the financial statements of adopting SFAS No. 109 was not material.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of the Loan." SFAS No. 114 prescribes the recognition criterion for
loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled debt restructurings. SFAS No. 114
states that a loan is impaired when it is probable that a creditor will be
unable to collect all principal and interest amounts due according to the
contracted terms of the loan agreement.A creditor is required to measure
impairment by discounting expected future cash flows at the loan's effective
interest rate, or by reference to an observable market price, or by determining
that foreclosure is probable. SFAS No. 114 also clarifies the existing
accounting for in-substance foreclosures by stating that a collateral-dependent
real estate loan would be reported as real estate owned only if the lender had
taken possession of collateral.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. To accomplish that
it eliminated the provisions in SFAS No. 114 that described how a creditor
should report income on an impaired loan. SFAS No. 118 did not change the
provisions in SFAS No. 114 that require a creditor to measure impairment based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the observable market
price of the loan or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends the disclosure requirements in SFAS No. 114 to
require information about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those impaired
loans. SFAS No. 114 is effective for financial statements issued for fiscal
years beginning after December 15, 1994. Although earlier application is
encouraged, it is not required. SFAS No. 118 is effective concurrent with the
effective date of SFAS No. 114. Although earlier application is encouraged, it
is not required. The Company will adopt SFAS No. 114 during the first quarter
of 1995 and management's preliminary studies reveal that the impact upon
adoption should be immaterial.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted SFAS No. 115 as
of December 31, 1993. SFAS No. 115 addresses accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Those investments are to be classified
in three categories and accounted for as follows: (1) debt securities for which
the Company has the positive intent and ability hold to maturity are classified
as held-to-maturity securities and reported at amortized cost; (2) debt and
equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings; and (3) debt
and equity securities not classified as either held-to-maturity securities or
trading securities are classified as available for sale securities and reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. Accreted discounts
and amortized premiums on investment securities are included as interest
income, and unrealized gains or losses relating to holding or selling
securities are calculated using the specific identification method.
Effective January 1, 1994, the Company adopted the provisions of SOP 93-6,
"Employer's Accounting for Employee Stock Ownership Plans." This SOP requires
the Company to record compensation expense upon release of shares to employees
at the current fair value of shares released. Prior to adoption of SOP 93-6,
the Company recorded compensation expense for released shares based on the
historical cost of the shares of $9.00. The adoption of SOP 93-6 had no effect
on the reported results of operations of the Company, as the Company made no
contributions to the ESOP during 1994, and no shares were released to
participants.
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BUSINESS
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to take advantage of a unique
opportunity to build market share in its target markets. The acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California has positioned Ventura as the largest independent
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong support of
business, civic and community organizations. The Company has reallocated its
resources in a renewed marketing effort to position both Ventura and Frontier
as the leading independent community banks in their respective market areas.
Management believes that both Banks are well-positioned to take advantage of
the generally lower level of personal service offered by the money center,
superregional and regional banks which dominate their markets. The most recent
data available indicates that Ventura's market share of bank deposits in
Ventura County is approximately 5.0%, while Frontier's market share of deposits
in Los Angeles and Orange counties is insignificant.
Ventura provides deposit and loan products to businesses in representative
industries in Ventura County including manufacturing, distribution,
professional services and agriculture. Ventura's principal loan products will
include working capital loans and lines of credit, asset based lines of credit
and loans, term loans secured by properties, plants and equipment and, through
Frontier, SBA loans. Ventura also anticipates continuing a limited amount of
construction lending to experienced builders, for construction of single family
home projects in selected areas of Ventura County. Such loans would generally
not exceed 15% of the portfolio at any one time during 1995. Deposit and fee
products are designed to meet the needs of small businesses and professional
firms, including the firms targeted for loan products.
Frontier's target market is small and medium sized businesses, professionals
and individuals. Frontier also intends to expand the Wilmington branch's
commercial lending business in its surrounding communities. In addition to the
types of loans offered by Ventura, Frontier's principal loan products include
commercial loans to small businesses secured by first trust deeds on owner-user
commercial real estate. Frontier also offers unsecured small business loans
and, through its SBA Division, loans for equipment, inventory, real estate
acquisition and construction, and working capital under both the 504 and 7(a)
programs. See "Business--Loan Portfolio--SBA Lending." The SBA Division intends
to focus its marketing efforts on developing and strengthening existing
relationships with real estate brokers who refer owner-user commercial and
industrial real estate purchasers to Frontier.
Both Banks offer fee based cash management products for business customers
and will expand and enhance these products for future growth. Deposit products
include business and personal checking accounts, interest bearing money market,
NOW, savings and certificates of deposit. Although neither Ventura nor Frontier
intends to compete with the larger regional, superregional or money center
banks for the broad based retail consumer customer, the Company has designed
and implemented certain competitive retail products in order to provide greater
diversity and stability to its funding sources.
Both Banks have developed programs to solicit minority, principally Hispanic,
business customers with existing products. For example, Ventura sponsors a
county wide Minority Business Group with over 400 minority businesses and
professionals as members. Management believes minority businesses represent a
traditionally underserviced segment of the market that places a high priority
on the type of personalized service delivered by the Banks.
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MARKET AREA
The Banks concentrate on marketing their services to small to medium sized
businesses with revenues from $1 million to $25 million, the principals who own
and operate those businesses and professional firms in Ventura County, southern
Los Angeles County and northern Orange County. The Ventura, Orange and Los
Angeles county economies support a broad range of industries including durable
and nondurable manufacturing, public administration and the military, business
and health services, retail and wholesale trade, high technology, agriculture,
construction, and tourism related sectors. Frontier's market area encompasses
the Ports of Long Beach and Los Angeles. The only deep water port between Los
Angeles and San Francisco is located in Ventura County.
Ventura's market area includes all of Ventura County, which has a population
of 708,200. Population growth has slowed in recent years from rates averaging
2.5% per year in the 1980s to under 2% in the 1990s. Based on California
Department of Finance estimates, there were 230,224 households in Ventura
County as of January 1994, and the median household income was $50,771. The
median home price in Ventura County in September 1994 was $206,500. Employment
in Ventura County totals 237,400 jobs, with service industries accounting for
25% of the workforce, wholesale and retail trade 22%, manufacturing 18%,
government 16%, agriculture 6%, construction 4% and other accounting for 9% of
the workforce. The unemployment rate as of September 1994 was 8.9% which
reflects a 5.1% nonfarm job loss from the peak employment period of November
1990. Based on 1992 data supplied by the California Employment Development
Department, there are 3,407 businesses operating in Ventura County which have
10 to 100 employees. According to information provided by Dun & Bradstreet,
there are more than 3,000 businesses operating in Ventura County with revenues
ranging from $1 million to $25 million, the majority of which have headquarters
locally.
Frontier's market area is a 7 mile delineated community surrounding its two
offices that includes the communities of Carson, Cerritos, Long Beach, Los
Alamitos, Norwalk, Santa Fe Springs, San Pedro, Torrance, Paramount and
Wilmington in Los Angeles County and Anaheim, Buena Park, Cypress and La Palma
in Orange County. The communities that make up Frontier's market area are in
well established industrial and commercial areas. Dun & Bradstreet data
indicates that Frontier's market area includes over 11,000 businesses with
revenues in the $1 million to $25 million range. Approximately 75% of
Frontier's loans and deposits are with businesses and individuals located in
Los Angeles County, the largest county in the United States. Many of the
businesses located in Frontier's Los Angeles County market emphasize trade
related to the Ports of Long Beach and Los Angeles. Orange County has a
population of 2.6 million, the fifth largest county in the nation. The 1994
median family income for Orange County was $58,800. The median home price in
Orange County in August 1994 was $217,750. Orange County's unemployment rate
was 5.1%, compared with a statewide rate of 7.4%. On December 6, 1994, Orange
County filed a Chapter 9 petition under the Bankruptcy Code. Although the Banks
have made no direct loans to Orange County and management believes that Orange
County's recent bankruptcy declaration will have no direct impact on the
Company, there can be no assurances that a direct or indirect impact will not
be experienced.
UNDERWRITING AND ORIGINATION PROCESS
The lending activities of the Banks are guided by the basic lending policies
established by the Board of Directors. Each loan must meet minimum underwriting
criteria established in the Banks' lending policies and must fit within the
Banks strategies for yield and portfolio enhancement. The minimum underwriting
criteria include: cash flow capacity; purpose of the loan; capital; existing
debt of the borrower; and collateral, if deemed necessary. In light of the
heavy chargeoffs in 1992 and 1993, new management revised the Banks'
underwriting policies and procedures. The key emphasis of the new policies is
on basic commercial and small business lending products with higher minimum
qualifications. A major emphasis of the revised lending policy is for each
credit to have both primary and secondary sources of repayment, as well as a
demonstration of sustainable cash flow to service the proposed loan.
Additionally, the revised policy emphasizes evaluation of real estate
collateral and lower loan to value guidelines to increase the borrower's equity
portion.
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<PAGE>
LOAN PORTFOLIO
The following table sets forth the amounts of loans outstanding, according to
the type of loan, at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, Financial and
Agriculture...................... $138,193 $197,384 $221,553 $190,076 $154,630
Real Estate--Construction......... 7,734 23,559 31,264 40,860 66,323
Real Estate--Mortgage............. 11,993 31,202 36,775 37,045 51,449
Installment....................... 9,897 14,961 21,242 30,068 28,627
Lease Financing, net of unearned
income........................... 117 408 867 1,218 922
-------- -------- -------- -------- --------
Total Loans....................... $167,934 $267,514 $311,701 $299,267 $301,951
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the amounts and categories (by purpose) of
loans outstanding at December 31, 1994 for each of the Banks and the Company:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------
VENTURA FRONTIER COMPANY
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, Financial and Agricultural:
Unsecured commercial loans.......................... $ 4,490 $ 1,995 $ 6,485
Asset based loans................................... 5,666 3,316 8,982
Loans to developers................................. 9,051 161 9,212
Secured commercial loans............................ 21,615 4,578 26,193
-------- ------- --------
Medium term commercial real estate loans:
Investment properties.............................. 33,810 9,734 43,544
Owner-user properties.............................. 17,168 13,771 30,939
SBA loans.......................................... 911 11,927 12,838
-------- ------- --------
Total medium term commercial real estate loans:..... 51,889 35,432 87,321
-------- ------- --------
Total Commercial, Financial and Agricultural......... 92,711 45,482 138,193
-------- ------- --------
Real Estate--Construction............................ 6,750 984 7,734
Real Estate--Mortgage................................ 4,969 7,024 11,993
Leases, net of unearned income....................... 116 1 117
Installments......................................... 6,879 3,018 9,897
-------- ------- --------
Total Loans......................................... $111,425 $56,509 $167,934
======== ======= ========
</TABLE>
Commercial, Financial and Agricultural
This category includes unsecured commercial loans, asset based loans, loans
to developers, secured commercial loans, and medium term commercial real estate
loans, each of which is discussed in more detail below. The number of notes in
the commercial, financial and agricultural category at December 31, 1994 was
1,202. The average loan size for such loans was $139,000.
Unsecured Commercial Loans. Although this category, which includes term loans
and lines of credit, represents only a small portion of the portfolio, it is a
customary product provided for the Company's business customers. The Company's
underwriting guidelines include low levels of existing debt of the borrower,
working capital sufficient to cover the loan and a history of earnings. Lines
of credit are required to be unused for a continuous 30 day period to
demonstrate the borrower's ability to have sufficient funds to carry its
operations on an annual basis. These lines are generally used for short term
cash needs and do not represent
69
<PAGE>
permanent working capital requirements. Generally, these loans do not exceed
the lesser of 50% to 100% of borrower's verified liquid assets, or 10% to 20%
of the borrower's tangible net worth.
Asset Based Loans. Asset based loans are commercial lines of credit secured
and controlled by a borrowing base usually determined by the amount of eligible
accounts receivable. The Company rarely lends against inventory. The Company's
policy requires that loan advances not exceed 80% of eligible receivables
(accounts that are less than 90 days past due) and the borrower's other
receivables are not concentrated in a single or a few customers. The borrower
submits an ageing schedule and borrowing base certificate that are reviewed and
monitored by the Company for conformity and accuracy. The Company will
generally audit the borrower's reporting accuracy on a quarterly basis. These
lines revolve depending on the varying levels of receivables. Asset based
borrowers may have higher ratios of existing debt to net worth, which is
typical of growing companies with limited capital. However, the borrower's
leverage ratio generally is limited to no more than 3:1, and controls are
maintained over the collateral in order to mitigate risk. To compensate for a
higher degree of monitoring, asset based loans generally pay higher rates.
Loans to Developers. These loans consist of short term loans for the
development of raw land into construction grade property. The Company has
experienced a high level of losses in this category of loans. These loans are
the riskiest in terms of repayment sources as it takes a great deal of effort
to convert a piece of raw land to an income producing property. In most cases,
the borrower's exit strategy is to sell the underlying collateral and retire
the loan in full. During the early 1990s, prior management lent a significant
amount to investors without prior development experience. As a result, the
Company wrote down many of these loans as the real estate market decreased in
value. At December 31, 1994, approximately 25% of such loans were classified,
all of which were secured by real estate. Except for classified loans,
management believes the underlying collateral is sufficient to support
repayment of the loan in full. In cases where the loan is classified and the
underlying collateral value is below the loan balance, specific reserves have
been taken. At December 31, 1994, the Company had commitments to lend
(primarily standby letters of credit) of $2 million, most of which were
guaranteed by principals with liquidity substantially in excess of the
commitment amount. The Company's current lending policy only permits these
types of loans to developers with demonstrated experience.
Secured Commercial Loans. This category constitutes the core business of the
Company's revised business plan, and management intends to develop these types
of credits with its new marketing strategies. Included in this category are
commercial loans made to medium sized businesses which include revolving lines
of credit, term loans for working capital or short term commercial needs.
Management will generally require that the borrower pledges all of the borrower
assets to support the credit with terms limited to one year or less.
The Company underwrites its commercial loans on the basis of the borrower's
cash flow and ability to service debt from earnings rather than on the basis of
the underlying collateral value, and seeks to structure such loans to have more
than one source of repayment. The borrower is required to provide the Company
with sufficient information to allow a loan decision to be made. This generally
includes three years of financial statements, projected cash flows, current
financial information on any and all guarantors, and other reports that show
trends in the current assets (ageing, etc.). While most loans do not exceed one
year, those in excess of one year have covenants which generally require
quarterly financial reporting.
Medium term commercial real estate loans. Medium term commercial real estate
loans are those credits made for the financing of a commercial or industrial
building where the property has income derived from tenants ("investment
properties") or used by the owner for business purposes ("owner-user
properties"). Medium term commercial real estate loans represented a
concentration of credit at September 30, 1994.
Most of the medium term commercial real estate loans were originated for
investment properties by investors that have owned the property for over four
to five years with the underlying notes seasoned for the same period of time.
Management intends to reduce these loans through aggressive exit strategies as
such loans mature.
70
<PAGE>
The Company has significantly curtailed the origination of new medium term
commercial real estate loans and is not soliciting new loans for investment
properties. The Company's current loan policies for renewal of medium term
commercial real estate loans require that the principal balance of the loan to
be no more than 70% of the stabilized appraised value of the underlying real
estate collateral. The Company's loan policy also requires that the loan be
written for no more than five years with a 30 year amortization schedule. Most
of these loans have floating rates tied to a prime rate index. Exceptions to
any of these policies will be made only in limited circumstances and for
borrowers with a strong credit history with the Company. In addition, any such
exceptions require approval by the Board of Directors. The Company's current
loan policy requires borrowers to supply quarterly and annual information on
the income production of the property and the individual owner's financial
condition. These include rent rolls, financial statements and signed leases of
tenants residing in the building.
For all medium term commercial real estate loans, the Company makes an annual
evaluation of the property's value based on several factors. These include the
property's sustainable cash flow, expenses, quality of tenants and market
factors such as the capitalization ratio which contribute to the property's
value. The annual evaluation is reviewed with management if the loan to value
ratio exceeds 90%. Management then closely follows the property and market
trends to determine if it should reserve additional funds in the loan loss
reserve. Should the loan become collateral dependent, that is, the debt service
and/or the loan to value is less than one to one, management classifies the
assets and begins to immediately assess additional reserves in the loan loss
reserve.
With the decline in real estate values, the loan to value ratio on some
medium term commercial real estate loans has increased over the 70% maximum at
origination. Management has individually reviewed each of these loans to
determine if the cash flow is sufficient to cover the credit on a renewal basis
and has taken additional collateral, where available, to cover the portion over
the maximum. Twenty two medium term commercial real estate loans aggregating
$10.3 million are scheduled to mature during 1995, of which six loans in the
aggregate amount of $3.2 million have been classified. All such classified
loans have been reevaluated for collateral value within the past six months and
additional loan loss reserves have been taken where appropriate. Of the $10.3
million, thirteen loans aggregating $7.2 million were loans for investment
properties. Of that amount, the Company anticipates that nine loans aggregating
$5.9 million will be refinanced or fully repaid during 1995. The remaining $1.3
million consists of four loans, none of which exceeded $570,000 principal
balance at December 31, 1994. None of such loans were classified at December
31, 1994, and based upon current information, management does not anticipate
that additional loan loss reserves will be assessed with respect to such loans.
While no assurances can be given, management believes that it has identified
and reserved for weaknesses in such loans based on current market and economic
conditions. However, if real estate values were to decline further, there may
be additional potential for losses in such loans.
It is management's intention that future medium term commercial real estate
loans, to the extent made, will be limited to owner-user properties or for
companies that also have other banking relationships with the Company and will
be made using the same underwriting criteria described above for renewals.
Management believes these medium term commercial real estate loans have less
risk as the Company has a broader knowledge and better control over the overall
borrowing relationship. For this reason, the Company anticipates that it will
continue to provide this type of loan as an accommodation for its borrowers.
Real Estate--Construction
Ventura has maintained a construction lending department since 1989. The
construction loans provided by Ventura were used for custom residential and
residential tract development projects, as well as commercial developments.
Since 1989, Ventura has originated approximately $120 million in construction
loans, of which not more than $550,000 was charged off during that time. The
Company intends to continue to originate construction loans, but will limit the
aggregate amount of outstanding construction loans to 10%-15% of the total
portfolio.
71
<PAGE>
Real Estate--Mortgage
The Company sold its residential mortgage origination operations in 1994,
which substantially reduced the volume of mortgage loans available for sale. At
December 31, 1994, the Company had a limited amount of mortgage loans in its
portfolio. Included in this category are loans for single family residences
(conforming loans) and home equity loans. With the sale of the mortgage
operations, the Company no longer originates residential mortgages for the
acquisition of homes unless it is for the sole purpose of accommodating an
existing business borrower. However, terms for these loans still require
conventional underwriting criteria.
Installment
Installment loans consist mainly of fully amortizing credits extended for the
purchase of capital goods and consumer purchases. The Company's underwriting
criteria require minimum down payments and repayment schedules consistent with
market terms. Generally, the Company's loan policies require that the borrower
demonstrate a fixed charge coverage (net income divided by monthly obligations)
of 2.5 to 1.
Leases
The Company had $129,000 in leases at December 31, 1994. Unearned income on
leases totaled $12,000 at December 31, 1994. These leases are scheduled to
mature within the next two years. At present, management does not intend to
make any more of these leases.
SBA Lending
Through its SBA Division, Frontier offers loans for equipment, working
capital, debt repayment and construction, and acquisition of owner-user
commercial real estate. Frontier originates loans under both the 7(a) and 504
loan programs described below, with a particular emphasis on the 7(a) program.
Frontier has been authorized by SBA to make 7(a) loans since 1983. At December
31, 1994, the gross portfolio (including guaranteed and unguaranteed portions)
was $61.7 million and is almost entirely made up of loans funded since early
1990 when Frontier determined to dedicate more resources to its SBA Division.
Because owner-user real estate acquisition loans offer higher profitability and
higher credit-quality than other 7(a) loans, Frontier has emphasized these
loans in its marketing efforts. Greater than 95% of its existing SBA loans are
owner-user real estate acquisition, refinance or construction loans, most of
which are secured by first trust deeds. The average loan pricing for such loans
is prime rate plus 2.0%, adjustable quarterly. Some loans have a 5% lifetime
interest rate ceiling and floor. The average remaining term of the SBA
portfolio is approximately 20 years. The Company's two year average historical
loan loss experience of SBA loans was 0.8% through December 31, 1994.
The SBA designates lenders as General Program ("GP"), Certified Lender
Program ("CLP") and Preferred Lender Program ("PLP"). Frontier has been
designated as a participant in SBA's PLP through the Los Angeles District
Office. This designation will apply to all 7(a) loans made to borrowers located
in Los Angeles, Ventura, and Santa Barbara counties, where the large majority
of Frontier's SBA portfolio is currently located. A GP lender must submit a
loan application for complete analysis by SBA, which can take up to six weeks,
prior to a guaranty being granted. A CLP lender must submit the same loan
application for a cursory review by SBA, which is generally completed in five
working days, prior to a guaranty being granted. A PLP lender is authorized to
approve the guaranty request on behalf of SBA and is only required to send SBA
a streamlined informational loan file. The SBA designates lenders as CLP or PLP
only after several years of high-quality lending, servicing and liquidating
performance in the 7(a) program. Fewer than 1% of all SBA lenders nationwide
are designated PLP. Management believes that participation in the PLP program
offers a distinct marketing advantage because the approval time is minimal and
the lender achieves a higher degree of credibility with referral sources.
For SBA loans made under the 7(a) program, a portion of the principal amount
of the loan is guaranteed by the SBA. The guaranteed amount ranges from 70% to
90%, depending on the size of the loan and other
72
<PAGE>
factors. In addition to meeting other eligibility guidelines, a business must
fall below SBA's maximum size standard (which varies by SIC code of the
borrower) in order to be eligible for a 7(a) loan.
Effective January 1, 1995, 7(a) loans are limited in size to a maximum of
$500,000. For transactions requiring more than $500,000 financing, Frontier
will structure secured, non-SBA commercial loans in conjunction with a $500,000
SBA 7(a) loan to accommodate qualified borrowers.
The guaranteed portions of SBA 7(a) loans are normally sold by Frontier to
secondary market investors at a premium. The Company's sales premiums averaged
approximately 12.08% of the sold portion in 1993 and 8.19% of the sold portion
in 1994. However, due to market conditions, the Company does not anticipate
that premiums on the sold portion of SBA loans will continue at the same levels
in the future. Frontier continues to service the whole loan, however, remitting
the investors' portions of loan payments monthly through Colson Services, the
sole fiscal transfer agent for sold SBA loans. As the servicer, Frontier is
required by SBA to maintain a minimum of 1.0% servicing spread on the sold
portion. Of the existing gross 7(a) loan portfolio in the amount of $61.7
million, Frontier earns average service fee income of 1.04% on the SBA-
guaranteed sold portfolio of approximately $48.9 million. Because the
guaranteed portion is sold into the secondary market, Frontier realizes gain on
sale related to the initial sale premium, as well as servicing income on the
sold portfolio for which there are no recourse, liquidity or capital
requirements.
Under the 504 loan program, use of loan proceeds is limited to fixed asset
acquisition and owner-user commercial real estate construction and acquisition.
This program is limited to businesses with net income of less than $2.0 million
and a combined net worth of less than $6.0 million. Loans generated under the
504 program are not guaranteed by the SBA. Instead, the SBA directly funds up
to 40% of the project and takes a subordinate lien position on the assets being
financed, leaving the lender with a relatively low loan to value ratio (usually
50%). The SBA's participation in the project is limited to $750,000 for most
borrowers and $1,000,000 for exporters and projects located in redevelopment
zones. The 504 program is designed to accommodate larger businesses and larger
loan sizes than the 7(a) program. Loans originated under the 504 program also
may be sold in the secondary market. In general, however, the Company does not
sell SBA loans originated under the 504 program in the secondary market because
the sales premiums and servicing spread are much less attractive than for loans
originated under the 7(a) program.
MATURITY OF LOANS AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth by category of loan (including fixed and
variable rate loans) the amounts of loans outstanding as of December 31, 1994
which are, based on remaining scheduled repayment of principal, due in less
than one year, due in one to five years, or due in more than five years. Loan
maturities are based on contractual maturities.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
------------------------------------
LOANS MATURING IN
---------------------------
BETWEEN
ONE- GREATER
LESS THAN FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
--------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural......................... $44,853 $72,042 $21,298 $138,193
Real Estate:
Construction......................... 7,511 223 0 7,734
Mortgage............................. 688 1,651 9,654 11,993
Installment........................... 6,702 3,084 111 9,897
Lease Financing....................... 33 84 0 117
------- ------- ------- --------
Total............................... $59,787 $77,084 $31,063 $167,934
======= ======= ======= ========
Loans with fixed interest rates....... $ 9,489 $15,989 $ 4,277 $ 29,755
Loans with variable interest rates.... 50,298 61,095 28,786 138,179
------- ------- ------- --------
Total............................... $59,787 $77,084 $31,063 $167,934
======= ======= ======= ========
</TABLE>
73
<PAGE>
RISK MANAGEMENT
The Board of Directors, through its revised policies and procedures, has
directed the new management team to be proactive in its risk management. This
process involves the implementation of systems that promote the identification
of credit risk and actions that mitigate the same. Management plays an active
role in promoting a credit culture in which all lending employees are expected
to manage the risk in his or her loan portfolio with systems that provide
management with important information on a frequent basis.
Approval Process
In general, the Company utilizes a committee process to approve its loans.
Loans over $250,000 and up to and including $750,000 must be authorized by
executive management, including the Chief Credit Officer. Loans over $750,000
are submitted to the Executive Loan Committee, which consists of the CEO and a
quorum of Board committee members, for approval. If any proposed loan has an
exception it requires the Chief Credit Officer's or Executive Loan Committee
approval. The Executive Loan Committee meets every other week to approve loans
and review reports pertaining to the portfolio's performance.
Management may also delegate loan authority to certain senior loan officers
who are Vice Presidents, whereby the designated officer may lend up to $50,000,
provided that the loan meets minimum underwriting criteria and is documented
according to the Company's normal procedures.
Credit Administration Oversight
Credit Administration uses various systems to monitor the loan portfolio and
lending activity. These include reports generated by the Company's data
processing systems to monitor loan performance.
Credit Administration also monitors for exceptions to loan policies and
accuracy of loan grades (described below) by reviewing all loans after approval
has been obtained. If a grade deviation is detected, the loan grade is promptly
revised. If documentation exceptions are noted, the approving loan officer is
given an established period of time to cure the exception, depending on the
nature of the exception. Credit Administration tracks and monitors all
exceptions until resolved and reflects the same in the loan officer's
performance appraisals.
Grading System
The Board of Directors requires that all loans be classified on a grading
system according to measurable elements of risk. The system used is standard
throughout the banking industry and recognized by the Banks' primary
regulatory, the OCC. This system allows management to track pools of similar
credits for potential risk of loss. These pools consist of same grade credits
that have similar levels of risk and establish a framework for migration
analysis used to determine the levels of loan loss reserves.
The grading system assigns loan pools to seven categories ranging from "pass"
to "loss." There are three pools in the "pass" category, which consists of
credits found to be of acceptable risk. Generally, loans in this category are
to companies which have profit records, adequate capital for normal operations
and cash flow sufficient to service the loan. When a loan shows signs of
potential weaknesses that may affect repayment of the loan or the collateral,
the loan is reclassified "especially mentioned." A loan which has further
deterioration and exhibits defined weaknesses in the borrower's capacity to
repay is reclassified "substandard." Loans that exhibit signs of doubted
repayment are labeled "doubtful" and loans that show signs of partial or full
loss are charged off immediately.
Management provides its lenders with training and systems to monitor the risk
of credits and requires a formal process in order to change the risk grade.
When a credit is downgraded, or the risk element has increased due to some
potential repayment weaknesses, the credit is given more attention in order to
protect the Company's ability to collect the loan.
74
<PAGE>
Quarterly Portfolio Reviews
The Company uses a "loan officer driven" grading system, whereby all loans
are periodically reviewed by loan officers as well as management and the
Company's external credit review firm for common risk trends. The loan officers
prepare a quarterly report for management that reviews all of the loans for
changes in risk and identifies areas for growth opportunities. This process
allows management to proactively monitor the portfolio for problems and, if
needed, take action to mitigate risk.
The Company's external credit review firm with the grading system
periodically reviews the loan grades of the portfolio to determine if the
lenders are accurately grading loans according to the established grading
system. The Company's external credit review firm has reviewed the loan
portfolio nine times since early 1993. Eighty percent of the portfolio, and all
loans over $250,000, have been reviewed at least once by the external credit
review firm in 1993 and 1994.
SAC Management
All classified assets and especially mentioned credits that are currently
outstanding or recently downgraded are generally reported to management
monthly, but in any case not less frequently than quarterly, through Special
Attention Credit ("SAC") Reports. These reports are prepared by the handling
loan officer and draw attention to the credit problems, strategies to correct
the same, and dates for accomplishing the strategies. The reports also point
out projected weaknesses or strengths that could cause the credit to be
downgraded or upgraded.
When evaluating the SAC Reports, management determines if certain specific
reserves should be set up on the relevant credit, depending on the nature of
the problem and the underlying collateral. During the entire SAC Report
process, management evaluates the borrower's cash flow and underlying
collateral value. If there is erosion in either case, prompt action is taken to
protect the Company's position. Such actions may include taking additional
collateral, obtaining further guaranties, declaring a default and accelerating
the loan, and such other legal remedies as may be available to the Company
pursuant to the loan documents in order to take control of the collateral.
After management has reviewed the SAC Reports, the same are submitted to the
Board of Directors for review and comment. The SAC Reports are summarized on a
tracking system used to monitor the activity of the credits both in terms of
changing loan balances and required reporting based on the initial target dates
set by management.
Concentrations of Credit
With the exception of medium term commercial real estate loans, there were no
concentrations of loans exceeding 10% of total loans. Management's intention is
to reduce the number of medium term commercial real estate loans for investment
properties through aggressive exit strategies and repayment programs.
Management takes a proactive role in measuring concentration risk, through a
monthly review of the portfolio for concentrations in business types,
collateral and market demographics. Management reactions to concentrations
include limiting growth, adding controls and assessing additional loss reserves
to mitigate the potential for loss due to concentrations.
75
<PAGE>
Loss Analysis
Credit Administration analyzes risk trends in the loan portfolio, including
types of borrowers where trends suggest the need for additional underwriting
controls.
Nonresidential buildings, which includes office and industrial buildings,
accounted for the Company's largest losses by borrower type during the year
ended December 31, 1993, while developers accounted for the Company's largest
losses during the year ended December 31, 1994.
Similarly, developers, operators of commercial buildings, a subsegment of
nonresidential buildings, and borrowers involved in construction trades
constituted the three largest segments of nonperforming loans at December 31,
1993 and December 31, 1994.
Because of the high levels of losses in these categories, management revised
the Company's underwriting policies with respect to real estate related
industries and has curtailed the origination of new medium term commercial real
estate loans for investment properties and loans to developers. See "Business--
Loan Portfolio."
CLASSIFIED ASSETS AND NONPERFORMING ASSETS
Classified Assets
Classified assets are assets that have defined weaknesses in the borrower's
ability to repay the loan or in the underlying collateral, and are assigned a
loan grading of "substandard", "doubtful" or "loss" in accordance with the
Company's grading policy described above. Classified assets include
nonperforming assets. Classified assets are generally handled by the Company's
Special Asset Department. The staff of the Special Asset Department are trained
to handle such loans and to identify assets or cash flow that may strengthen
the Company's potential for repayment.
The Bank's problem loan portfolio grew significantly during 1993 and early
1994. Management implemented specific programs to address these riskier loans
(Special Attention Credits or SAC) and focused on reducing these problem
assets. The programs focus on identifying exit strategies including taking
higher levels of cash flow from the borrower's sources, taking additional
collateral to protect the Bank's position and selling the borrower's assets to
reduce the overall indebtedness. At December 31, 1994, the Company had an
aggregate of $30.9 million in classified assets compared to $64.6 million at
December 31, 1993. Classified assets grew significantly during 1993 and peaked
in the first quarter of 1994. Through SAC management, these assets were reduced
through exit strategies and a bulk note sale that occurred in May 1994. As
shown in the table below, the combined activities have reduced the problem
loans by $33.7 million. Although management uses all available resources to
collect principal and interest, certain chargeoffs were sustained, particularly
with respect to the bulk sale. However, management proactively monitors the
loan loss reserve in anticipation of such chargeoffs and adds to the loan loss
reserve through provisions for loan losses.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning Balance......................... $64,603 $29,007
Additions................................. 18,599 67,714
Reductions:
Upgrades................................ 10,732 5,010
Collections............................. 32,606(1) 21,424
Chargeoffs.............................. 8,926(2) 5,684
------- -------
Ending Balance............................ $30,938(3) $64,603
======= =======
</TABLE>
76
<PAGE>
- --------
(1) Of this amount, $9.1 million was attributable to proceeds recognized in as
a result of the bulk loan sale completed in May 1994.
(2) Of this amount $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(3) Of this amount, $29,387,000 was classified substandard and $1,550,000 was
classified doubtful.
Nonperforming Assets
Nonperforming assets consists of nonperforming loans plus REO. Nonperforming
loans consist of loans classified as TDRs, loans 90 days past due and still
accruing and nonaccrual loans. As of December 31, 1994 the Company had $7.6
million in nonaccrual loans, compared with $18.9 million at December 31, 1993.
The reduction during 1994 was due to a $14.1 million bulk sale, of which the
greater part was nonperforming assets, and the collection of loans through exit
strategies.
Nonaccrual Loans. Loans are automatically placed on nonaccrual status when
principal or interest payments are past due greater than 90 days. If the loan
is an SBA guaranteed loan and a deferral period has been negotiated or if the
loan is in the process of imminent collection or renewal in accordance with the
Company's standard underwriting policies in the normal course of business, the
Company may remove the loan from nonaccrual status and continue to accrue
interest. Loans are placed on nonaccrual status earlier, if there is doubt as
to the collectability of any amounts due according to the contractual terms of
the loan agreement.
Interest income on nonaccrual loans is subsequently recognized when the loan
becomes contractually current for a period of six months or more. Accounts
which are deemed uncollectible by management for which no payment has been
received for six months are charged off in full or for the amount that exceeds
the net realizable value of the underlying real estate collateral.
Troubled Debt Restructurings ("TDRs"). A TDR is a loan on which the Company
reduces the rate of interest to a below market rate or forgives all or part of
the interest income due and part of the principal balance of the loan due to
the borrower's financial condition, including reduced cash flow, reduced
collateral value or other conditions that impair the borrower's ability to
repay the loan according to the original terms. Management reports TDRs for the
first six months as nonperforming loans and does not recognize interest during
that period. After the borrower has demonstrated capacity for the first six
months, the loan is restored to accrual status and then removed from the
nonperforming category. After twelve months of demonstrated payments, in
accordance with OCC policy the loan is removed from the classified grade
status. At December 31, 1994, the Company had one loan with a principal balance
totaling $2,000 that was categorized as a TDR.
Real Estate Owned ("REO"). Real estate secured loans upon which the Company
has foreclosed are recognized as REO. The Company's general policy is to
initiate foreclosure proceedings when loans are more than 90 days past due.
Some loans that are more than 90 days past due are never actually foreclosed,
however, because the borrower brings the account current before a formal notice
of default is filed. Assets classified as REO include properties upon which the
Company has foreclosed on the borrower's real estate collateral or a deed has
been offered in lieu of foreclosure. At December 31, 1994, the Company's REO
totalled $2,346,000. The Company has entered into contracts for the sale of
each of the three properties in this category, which are currently in escrow.
The sales prices for such properties were equal to or exceeded the Company's
carrying value of such assets.
The Company obtains updated third party appraisals for problem loans that are
secured by real estate on an as needed basis. When loans have been determined
to be "collateral dependent," that is, no other sources of repayment are
available, the property is appraised immediately upon becoming a problem loan.
In addition to the appraisals, management actively determines the value of the
real estate collateral based upon market conditions and the cash flow from the
property if it is income producing. Management's policies
77
<PAGE>
require all collateral dependent loans to be written down to the net realizable
value of the property, with the difference charged off or reserved for in the
loan loss reserve.
The following table sets forth nonaccrual loans, loans which were delinquent
for 90 days or more but still accruing, loan that are accounted for as
"troubled debt restructurings," and REO at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............ $ 7,612 $ 18,939 $ 2,464 $ 2,142 $ 485
Accruing loans which are 90
days or more past due as to
interest or principal....... 331 552 410 7,296 2,167
TDR's........................ 2(1) 348 380 16 467
-------- -------- ------- -------- -------
Total nonperforming loans.... 7,945 19,839 3,254 9,454 3,119
-------- -------- ------- -------- -------
Foreclosed personalty........ 878 -- -- -- --
REO.......................... 2,346 2,229 3,940 2,206 --
-------- -------- ------- -------- -------
Total nonperforming assets... $ 11,169 $ 22,068 $ 7,194 $ 11,660 $ 3,119
======== ======== ======= ======== =======
Nonperforming loans to total
loans....................... 4.73% 7.41% 1.04% 3.16% 1.03%
Nonperforming assets to total
assets...................... 4.33% 6.48% 1.79% 3.15% .81%
Loan loss reserves to
nonperforming assets........ 73.96% 64.86% 53.57% 24.78% 73.26%
Classified assets to loan
loss reserves and
shareholders' equity........ 113.27% 186.27% 84.71% 67.45% 47.63%
</TABLE>
- --------
(1) Does not include loans which have been restructured and which were
previously on nonaccrual status but have been performing in accordance with
their restructured terms for some minimum period of time, typically at
least six months. At December 31, 1994 the Company had one such loan in the
amount of $1,966,000.
Potential Problem Loans. In addition to the loans disclosed in the above
table, at December 31, 1994, the Company had loans in the aggregate amount of
$19,769,000 where known information about possible credit problems of the
borrowers caused management to have serious concerns about the ability of such
borrowers to comply with the present loan repayment terms.
Foregone Interest Income. If nonaccrual, past due and restructured loans had
been current and performing according to original terms, gross interest income
for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 would have
increased by $1,609,000, $2,214,000, $728,000, $429,000 and $23,000,
respectively. The following summarizes foregone interest income for 1994:
<TABLE>
<S> <C>
Interest income at original terms........... $2,321,000
Less: Interest income included in 1994
income..................................... (712,000)
----------
Foregone interest income.................... $1,609,000
==========
</TABLE>
78
<PAGE>
The following table sets forth certain information regarding nonperforming
assets during the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning Balance......................... $22,068 $ 7,194
Additions................................. 32,653(1) 30,833
Reductions:
Chargeoffs.............................. 8,913(2) 6,191
REO Writedowns.......................... 104 941
Collections............................. 34,535(3) 8,827
------- -------
Total Reductions........................ 43,552 15,859
------- -------
Ending Balance............................ $11,169 $22,068
======= =======
</TABLE>
- --------
(1) Excludes $1,966,000 of restructured loans which are performing.
(2) Of this amount, $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(3) Of this amount, $9.2 million was attributable to proceeds recognized as a
result of the bulk loan sale completed in May 1994.
A summary of certain significant classified assets with balances in excess of
$750,000 at December 31, 1994, follows.
A combination of loans totaling $1,730,923 to a common borrowing entity in
the nursery business. The Company experienced losses in 1991 and 1992 which
placed the loans on a SAC status. However, the borrowing entity has experienced
a profitable year in 1993 and continues to be profitable in 1994 with
projections showing a larger profit for 1995. This credit was upgraded to pass
in March 1995. Management only upgrades the risk of a credit if there is
documented sustainable evidence of profitability, cash flow or other means of
repaying the original loan.
A loan for $1,867,027 to a food service provider. The borrower's revenues
have fallen during the last two years, primarily due to the recession, forcing
a review of the upcoming loan renewal. The loan is currently classified. The
underlying real estate collateral has dropped in value and the borrower may not
be able to service or repay the entire debt. Negotiations are under way to form
a plan based on the collateral value and the borrower's cash flow which may
include the sale of assets. Management has placed a specific reserve for this
classified loan.
Combined loans to the same borrowing entity for $1,395,481 to a government
contractor. This loan is nonperforming. The borrower has lost money over the
last two years due to cutbacks in government spending. The Company is assisting
the borrower in liquidating the assets. Management anticipates recovery of 75%
of principal. A specific reserve equal to 50% of these loans has been
established. The loan balances were reduced to $871,877 as of March 31, 1995.
Other asset owned for $878,000. This nonperforming loan was originally
unsecured. During the fourth quarter of 1994, Ventura agreed (1) to take an
assignment of the borrowers' co-tenancy interest in a promissory trust
representing residual rights to 17 1/2 acres of land in Ventura County as
payment in kind for an existing option contract to acquire a 158-acre parcel by
a third party and (2) to a transfer of the borrowers' combined 49% limited
partnership interest in a lemon grove in Ventura County in lieu of foreclosure
in satisfaction of the debt, subject to a repurchase option of either, but not
both, property by the borrowers. The repurchase option is exercisable for a
period of two years. Should the borrowers fail to exercise the repurchase
option in such time frame, Ventura would attempt to liquidate the interests.
A loan for $1,284,313 made to a real estate investor that had filed
bankruptcy. This nonperforming loan was restructured in June 1994 as a result
of reorganization in the bankruptcy proceedings which are now
79
<PAGE>
complete. Because the Company forgave interest and a limited amount of
principal the loan is a TDR. This loan was placed on accrual status as of
December 1994 and will be removed from the classified category in June 1995,
provided payments are timely made.
A combination of loans totalling $1,934,434 used to finance three commercial
buildings. These loans are currently nonperforming. Two of the buildings
continue to have high vacancy levels, although the County of Riverside has
leased the other building. The borrower continues to make payments from outside
sources, and has listed the buildings for sale.
Combined loans for $845,319 made to a small business to finance real estate
($591,095) and accounts receivable, inventory and equipment ($254,224). The
$254,224 loan is nonperforming. The loans were classified due to an operating
loss in 1992. The borrower has shown profits since and continues to make
payments. This loan will be upgraded to the extent that 1994 year-end financial
statements validate continued profitability.
LOAN LOSS RESERVES
The calculation of the adequacy of the loan loss reserve is based on a
variety of factors, including loan classifications and underlying cash flow and
collateral values. Management uses both a migration factor and specific loan
reserves to determine the reserve level necessary to allow for potential
losses. Migration analysis is a method by which specific chargeoffs are related
to the prior life of the same loan compared to the total loan pools in which
the loan was graded. This method allows for management to use historical trends
that are relative to the Company's portfolio rather than use outside factors
that may not take into consideration trends relative to the specific loan
portfolio. In addition to migration and specific reserve analysis, management
takes into consideration other trends that are qualitative relative to the
Company's marketplace, demographic trends, amount and trends in nonperforming
assets and concentration factors.
Based on evaluations of the aforementioned economic considerations, the
Company establishes its allowance for loan losses. The loan loss reserve
expressed as a percentage of total net loans was 5.17% at December 31, 1994,
5.65% at December 31, 1993, 1.24% at December 31, 1992, and .95% at December
31, 1991.
The Board of Directors reviews the adequacy of the loan loss reserve on a
quarterly basis. Management utilizes its best judgment in providing for
possible loan losses and establishing the loan loss reserve. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's loan loss reserve. Such agencies may require
the Company to recognize additions to the reserve based upon their judgment of
the information available to them at the time of their examination. The OCC did
not require management to record material additional loan loss provisions or
net charge-offs as a result of the examination of Ventura concluded during the
fourth quarter of 1994.
Adverse economic conditions and a declining real estate market in California
have adversely affected certain borrowers' ability to repay loans. A
continuation of these conditions or a further decline in the California economy
could result in further deterioration in the quality of the loan portfolio and
continuing high levels of nonperforming assets and chargeoffs, which would
adversely effect the financial condition and results of operations of the
Company.
INVESTMENT PORTFOLIO
The Company invests a portion of its available funds in a variety of short to
medium term instruments. The investment portfolio provides a measure of
liquidity through proceeds from scheduled maturities and is utilized for
pledging requirements on public deposits. At December 31, 1994, securities
carried at approximately $4,390,000 were pledged as collateral for public funds
and other purposes as required by law. The market value of these securities was
$4,264,000.
80
<PAGE>
The Company's investment policy permits investments in direct obligations of
the U.S. government (limited to 65% of liquid assets); obligations of federal
agencies fully guaranteed by the U.S. government (limited to 50% of liquid
assets); obligations of federal agencies sponsored by but not necessarily
guaranteed by the U.S. government (limited to 30% of liquid assets); mortgage-
backed securities which are fully collateralized by securities issued by a
government-sponsored agency (limited to 30% of liquid assets); general
obligation and revenue municipal bonds that are A+ rated or insured by reliable
guaranty agencies (limited to 10% of liquid assets); and corporate bonds rated
A or better (limited to 10% of liquid assets).
Overall, the Company's investment portfolio is high grade. Mortgage backed
securities consisted entirely of Federal Home Loan Mortgage Corporation backed
securities. The Company does not have any mortgage backed securities that fall
within the "high risk" provisions of the Federal Financial Institutions
Examination Council. The Company did not have structured notes, CMOs or other
derivative products in the portfolio at December 31, 1994.
The Company adopted SFAS No. 115 "Accounting for Certain Investment in Debt
and Equity Securities" as of December 31, 1993. In connection with such
adoption, the Company classified all investments as available for sale due
primarily to the Company's policy requiring such classification for securities
required to maintain a liquidity to average assets ratio of 20%. These
securities are carried at their respective fair market values. The cumulative
effect of the adoption of SFAS No. 115 at December 31, 1993 resulted in
recording an unrealized loss of $122,000. See Note 5 of Notes to Consolidated
Financial Statements.
Reductions in market value of available for sale securities at December 31,
1994 reflect the current interest rate environment and are deemed temporary in
nature. Management has no plans to restructure the investment portfolio other
than to capitalize on current and future interest rate increases by moderately
lengthening the maturity of the portfolio.
The following table sets forth book and market value of investment securities
at the dates indicated.
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
BOOK MARKET BOOK MARKET BOOK MARKET
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities..... $22,935 $22,706 $38,597 $38,475 $ -- $ --
U.S. Government Agency
securities.................... -- -- -- -- -- --
Mortgage-backed securities..... 8,067 7,551 -- -- -- --
Federal Reserve Bank and FHLB
Stock......................... 1,602 1,602 2,300 2,300 -- --
Other equity securities........ -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total investment securities.. $32,604 $31,859 $40,897 $40,775 $ -- $ --
======= ======= ======= ======= ======= =======
SECURITIES HELD-TO-MATURITY
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
BOOK MARKET BOOK MARKET BOOK MARKET
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities..... $ 1,250 $ 1,222 $ -- $ -- $ 3,140 $ 3,209
U.S. Government Agency
securities.................... -- -- -- -- 4,124 4,030
Mortgage-backed securities..... 17,525 16,741 -- -- 21,256 19,919
Federal Reserve Bank and FHLB
Stock......................... -- -- -- -- 1,825 1,825
Other equity securities........ -- -- -- -- 2,823 2,823
------- ------- ------- ------- ------- -------
Total........................ $18,775 $17,963 $ -- $ -- $33,168 $31,806
======= ======= ======= ======= ======= =======
</TABLE>
81
<PAGE>
The following table sets forth the maturity distribution of the investment
portfolio at December 31, 1994:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------
WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES:
Within one year.................................... $14,707 $14,648 5.54%
After one but within five years.................... 9,478 9,280 5.92
After five but within ten years.................... -- -- --
After ten years.................................... -- -- --
------- -------
Total U.S. Government securities................. $24,185 $23,928 5.71
======= =======
MORTGAGE-BACKED SECURITIES:
Within one year.................................... $ -- $ -- --
After one but within five years.................... 13,696 12,992 5.44
After five but within ten years.................... 11,896 11,300 6.55
After ten years.................................... -- -- --
------- -------
Total mortgage-backed securities................. $25,592 $24,292 6.40
======= =======
FEDERAL RESERVE BANK AND FHLB STOCK:
Within one year.................................... $ -- $ -- --
After one but within five years.................... -- -- --
After five but within ten years.................... -- -- --
After ten years.................................... 1,602 1,602 7.35
------- -------
Total Federal Reserve Bank and FHLB Stock........ $ 1,602 $ 1,602 7.35
======= =======
</TABLE>
DEPOSITS
The Company competes for deposits principally by providing quality customer
service at the Banks' branch offices. In order to stabilize its funding
sources, the Company has taken action to reduce title and escrow deposits and
institutional certificates of deposits as a percentage of total deposits. The
Banks are prohibited from purchasing brokered deposits by virtue of their
regulatory agreements with the OCC. See "Supervision and Regulation."
The following table sets forth information regarding the average monthly
deposits and the average rate paid for certain deposit categories for each of
the periods indicated. Average balances are computed using daily average
balances for each month in the period divided by the number of months in the
period.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits:
Interest bearing............ $ 58,114 2.65% $ 66,167 2.73% $ 58,254 4.56%
Noninterest bearing......... 75,568 -- 87,383 -- 89,298 --
Savings deposits............. 34,575 2.37% 37,892 2.78% 38,838 3.62%
Time deposits................ 104,671 3.72% 142,020 3.88% 145,202 4.81%
-------- -------- --------
Total deposits............... $272,928 2.29% $333,462 2.51% $331,592 3.12%
======== ======== ========
</TABLE>
82
<PAGE>
With respect to the Company's time certificates of deposit of $100,000 or
more, at December 31, 1994, such deposits had the following schedule of
maturity:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Three months or less................................. $10,594
Three to six months.................................. 4,811
Six to twelve months................................. 8,663
Over twelve months................................... 1,265
-------
Total.............................................. $25,333
=======
</TABLE>
OTHER BORROWINGS
The following table sets forth certain information with respect to the
Company's commercial paper activities. As of December 31, 1993, the Company had
ceased all commercial paper activity.
<TABLE>
<CAPTION>
1994 1993 1992
------------- --------
(DOLLARS
IN
THOUSANDS)
<S> <C> <C> <C>
Balance at December 31:.......................... $ -- $ -- $ 8,860
Maximum month end balance
outstanding during the year..................... $ -- $8,616 $22,048
Average amount outstanding
during the year................................. $ -- $6,987 $12,805
Weighted average interest rate................... N/A 2.66% 3.42%
</TABLE>
The Company utilized credit lines with FHLB during 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at December 31:................................... $ -- $ --
Maximum amount outstanding during the year................ 5,000 8,000
Average amount outstanding during the year................ 129 7,447
Weighted average interest rate............................ 3.55% 3.83%
</TABLE>
COMPETITION
In an environment of heightened regulatory scrutiny with respect to insured
depository institutions such as Ventura and Frontier and expanded bank-like
services provided by limited service financial institutions and by nonbank
financial service providers, banking and bank related services continue to be
an industry of rapid change and intense competition, thereby creating a highly
competitive environment for the Company. Large money center banks,
superregional banks, regional banks, multinational banks and mutual funds are
the Company's primary competitors. Higher lending limits, wide-reaching
advertising campaigns, and access to international money markets allows these
organizations greater flexibility in meeting the needs of their customers. The
Company competes for deposits and loans with these organizations as well as
with local banks, savings and loans, savings banks, credit unions, thrift
associations, and mortgage and finance companies. The Company believes its
marketing niche to be small and medium sized businesses with revenues less than
$25 million. In order to compete with the other financial institutions in its
service areas, the Company principally relies upon local promotional
activities, personal relationships established by officers, directors and
employees with its customers, and specialized services tailored to meet its
customers' needs. In those instances where the Company is unable to accommodate
all of a customer's needs because of regulatory restrictions, the Company will
arrange for those services to be provided by its correspondent banks or other
companies with whom it has a relationship.
Bank of America, N.T. & S.A. and First Interstate Bank of California are the
dominant competitors in both Ventura and Frontier's market areas. The most
recent data available indicates that Ventura had
83
<PAGE>
approximately 5.0% of total bank deposits in Ventura County while Frontier's
market share of total bank deposits in Orange County and in Los Angeles County
is insignificant.
EMPLOYEES
At December 31, 1994, the Company had 141 full-time employees. None of the
employees are covered by a collective bargaining agreement. In addition to cash
compensation, the Company compensates its employees with health and accident
insurance, vacation and sick leave, and other normal fringe benefits.
EFFECTS OF ENVIRONMENTAL PROTECTION LAWS
The Company, to the best of its knowledge, is not aware of any facts relating
to its present loan portfolio that reasonably indicates that compliance by the
Banks with Federal, state or local provisions relating to the protection of the
environment will have a material adverse effect on the financial resources,
earnings or competitive position of the Company.
PROPERTIES
Since October 1987, Company headquarters have been located at 500 Esplanade
Drive in Oxnard, California. The Company and Ventura's main offices share
31,097 square feet of leased space. The lease which expires in 2002, requires
the Company to pay for any allocated property tax or utility cost increases and
to adjust the monthly rent annually, based on consumer price index changes. The
Company does not have an option to renew this lease. The Company subleased
9,335 square feet of office space in December 1994, which will provide monthly
sublease income of $11,202 commencing May 1, 1995.
Ventura leases a 3,100 square foot building at 4730 Telephone Road in Ventura
under a lease expiring December 1995. The lessor of the premises is T & H
Enterprises, a partnership of which W.E. Hartman, a director of Ventura, is a
managing partner. Ventura does not have an option to renew this lease. The
Company anticipates that it will attempt to negotiate a renewal of this lease
in the third quarter of 1995.
Ventura also leases 6,640 square feet at 502 Las Posas Road, Camarillo and
4,000 square feet at 2655 Townsgate Road in Westlake Village. The Camarillo
lease expires in June 1997, with one ten year and two five year options to
renew. The Westlake Village lease expires in 2006, with one five year option to
renew. Ventura pays its pro rata share of utilities, taxes, common area
maintenance and insurance on all branch locations. The base rent is subject to
annual adjustments tied to the consumer price index. Ventura pays an additional
amount annually on the Westlake Village property in lieu of constructing an
additional 7,000 square foot building, adjusted annually based on the consumer
price index, which amounted to $12,000 in 1994.
Ventura's Data Processing was and Central Operations is housed in 8,105
square feet at 2125 Knoll Drive in Ventura. The Company negotiated a renewal of
the lease, which expires on March 31, 2000. The Company has the option of
terminating the lease without penalty during the final year. As a result of the
renegotiation of the lease, the Company's monthly lease payments were reduced
by $4,455 commencing April 1, 1995. The lease provides for annual increases in
the rent.
Frontier's main office occupies 17,588 square feet at One Centerpointe Drive
in La Palma, California. The Company has subsequently subleased an additional
8,559 square feet. Frontier leased an additional 1,668 square feet at One
Centerpointe Drive in La Palma under an amendment to the original lease. The
lease for the main office expires in December 2006 and the lease for the
additional space expires in July 1998. Frontier does not have an option to
renew these leases.
Frontier also has a branch totaling 9,600 square feet located at 100 Avalon
Boulevard in Wilmington subject to a month to month lease. Frontier intends to
vacate this property and is in the process of negotiating to purchase a
building in the vicinity of its current branch location, which is anticipated
to occur in the second quarter of 1995.
84
<PAGE>
The Company believes its present facilities are adequate for its present
needs and anticipated future growth. The Company believes that, if necessary,
it could secure suitable alternative facilities on similar terms without
adversely affecting operations.
LEGAL PROCEEDINGS
There are no material legal proceedings pending other than ordinary routine
litigation incidental to the business of the Company to which the Company or
its subsidiaries is a party or of which any of their property is a subject,
except as described below.
Sharon Tillis, Karen Tillis, et al v. Bank of America, N.T. & S.A., et al. On
January 26 1993, plaintiffs filed a class action lawsuit in Los Angeles County
Superior Court, Case No. BC 073448, against Wilshire Computer College ("WCC"),
its proprietor Peter Chung, Bank of America, N.T. & S.A. ("Bank of America")
and the California Student Aid Commission ("CSAC"). The Complaint was
subsequently amended to add Ventura, Marine Midland Bank, N.A. ("Marine
Midland") and Educational Funding Services, Inc. ("EFSI"). (Bank of America,
Marine Midland, EFSI and Ventura are collectively referred to as the "Bank
Defendants.") This action arises out of loans made to students of WCC, which
plaintiffs contend were made to induce them to enroll at WCC. CSAC and the Bank
Defendants filed a joint demurrer and motion to strike portions of the First
Amended Complaint, which was sustained on November 17, 1993, eliminating
several theories of liability against the Bank Defendants.
Plaintiffs filed a Second Amended Complaint, alleging the following seven
causes of action against the Bank Defendants: (1) violations of Business and
Professions Code (S)17500 regarding allegations of untrue or misleading
statements to prospective students to induce them to enroll at WCC; (2)
violations of the Unruh Act, Civil Code (S)1801 regarding allegations that the
student loan agreements constituted retail installment sales contracts; (3)
violations of Business and Professions Code (S)17200 regarding allegations that
defendants engaged in unfair business practices, including unfair advertising,
acting without permits and making false representations to students and
agencies; (4) fraud, misrepresentation and negligent misrepresentation
regarding allegations that employees and representatives of WCC made
misrepresentations to students to induce them to enroll at the WCC; (5) breach
of contract, breach of the implied covenant of good faith based on the
contracts entered into between plaintiffs and Bank Defendants; (6) rescission
and restitution based on the contracts entered into between plaintiffs and Bank
Defendants; and (7) secondary theories of liability based on causes (1), (3)
and (4) regarding allegations of agency, joint venture, aiding and abetting and
close connection.
CSAC and the Bank Defendants filed a joint demurrer to all causes of action
in the Second Amended Complaint which was sustained without leave to amend as
to the Bank Defendants and with leave to amend as to CSAC. Plaintiffs did not
amend their Second Amended Complaint, however, and the court issued an Order
and Judgment of Dismissal of all defendants on October 12, 1994. Notice of
Entry of Judgment in this matter was served on October 25, 1994.
On December 7, 1994, plaintiffs filed a Notice of Appeal with the Court of
Appeal of the State of California. Following preparation of the record for
appeal, the court clerk will notify the parties of the filing which will
determine the briefing schedule. On February 28, 1995, a Stipulation Extending
Time for Filing Appellant's Opening Brief was filed, extending to April 28,
1995 the time in which Plaintiff's must file their opening brief. That date may
further be extended by 15 days pursuant to a Rule of Court. As of the date of
this Prospectus, no briefs on appeal have been received. Plaintiffs and CSAC
and certain of the Bank Defendants have engaged in settlement negotiations but
no settlement has been reached between Ventura and Plaintiffs. Based upon the
advice of counsel, management does not believe that plaintiffs will prevail in
this lawsuit. No assurances can be given, however, as to the outcome of
plaintiffs' appeal. In the event plaintiffs ultimately were to prevail,
management is currently unable to estimate the amount or range of potential
loss.
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SUPERVISION AND REGULATION
THE COMPANY
The Company, as a registered bank holding company, is subject to regulation
under the BHC Act. The Company is required to file with the Federal Reserve
Board quarterly and annual reports and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve
Board may conduct examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity
or terminate control of or liquidate or divest certain nonbank subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
or the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. Under
certain circumstances, the Company must file written notice and obtain approval
from the Federal Reserve Board prior to purchasing or redeeming its equity
securities.
Under the BHC Act and regulations adopted by the Federal Reserve Board, a
bank holding company and its nonbanking subsidiaries are prohibited from
requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, the
Company is required by the Federal Reserve Board to maintain certain levels of
capital. See "Supervision and Regulation--Capital Standards."
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any
class of voting securities or substantially all of the assets of any bank or
bank holding company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company with another bank
holding company.
The Company is prohibited by the BHC Act, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company may, subject to the prior
approval of the Federal Reserve Board, engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making any such determination, the Federal Reserve
Board is required to consider whether the performance of such activities by the
Company or an affiliate can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by acquisition,
in whole or in part, of a going concern and is currently prohibited from
approving an application by a bank holding company to acquire voting shares of
any bank in another state unless such acquisition is expressly authorized by
the laws of such other state. Beginning September 29, 1995, a bank holding
company that is adequately capitalized and managed may obtain approval under
the BHCA to acquire an existing bank located in another state without regard to
state law. See "Supervision and Regulation--Interstate Banking and Branching."
The Company is also a bank holding company within the meaning of California
Financial Code Section 3700. As such, the Company and its subsidiaries are
subject to examination by, and may be required to file reports with, the
California Superintendent of Banks. Regulations have not yet been adopted to
implement the Superintendent's power under this statute.
Finally, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, including but not limited to,
filing annual, quarterly and other current reports with the Securities and
Exchange Commission.
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THE BANKS
As national banking associations, the Banks are subject to primary
supervision, periodic examination and regulation by the OCC. If, as a result of
an examination of a bank, the OCC should determine that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, or other aspects of either Bank's operations are unsatisfactory or
that either Bank or its management is violating or has violated any law or
regulation, various remedies are available to the OCC. Such remedies include
the power to enjoin "unsafe or unsound" practices, to require affirmative
action to correct any conditions resulting from any violation or practice, to
issue an administrative order that can be judicially enforced, to direct an
increase in capital, to restrict the growth of the bank, to assess civil
monetary penalties and to remove officers and directors. FDICIA has provided
the FDIC with similar enforcement authority, in addition to its authority to
terminate a bank's deposit insurance in the absence of action by the OCC and
upon a finding that a bank is in an unsafe or unsound condition, is engaging in
unsafe or unsound activities, or that its conduct poses a risk to the deposit
insurance fund or may prejudice the interest of its depositors.
The Banks are insured by the FDIC, which currently insures deposits of each
member bank to a maximum of $100,000 per depositor as determined under FDIC
regulations. For this protection, each bank pays a semi-annual statutory
assessment and is subject to certain of the rules and regulations of the FDIC.
See "Supervision and Regulation--Premiums for Deposit Insurance." The Banks are
also subject to certain regulations of the Federal Reserve Board.
Various requirements and restrictions under the laws of the United States
affect the operations of the Banks. See "Supervision and Regulation--Effect of
Governmental Policies and Recent Legislation." Federal statutes and regulations
relate to many aspects of the Banks' operations, including reserves against
deposits, deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices and capital requirements.
The OCC's statement of policy on risk-based capital requires that banks
maintain a ratio of qualifying total capital to risk-weighted assets of not
less than 8.00% (at least 4.00% of which must be in the form of Tier 1
capital). The regulations set forth minimum requirements, and OCC has reserved
the power to require that banks maintain higher capital ratios. Among other
powers, the OCC's regulations provide that capital requirements may be enforced
by the issuance of a directive. The OCC's capital adequacy regulations also
require that banks maintain a minimum leverage ratio of 3.00% Tier 1 capital to
total assets for the most highly rated banks. This ratio is only a minimum.
Institutions experiencing or anticipating significant growth or those with
other than minimum risk profiles are expected to maintain a leverage ratio of
at least 100 to 200 basis points above the minimum level. In addition, higher
leverage ratios are required to be considered well-capitalized or adequately
capitalized under the prompt corrective action provisions of the FDIC
Improvement Act. For a more complete description of the OCC's risk-based
capital regulations, see "Supervision and Regulation--Capital Standards" and
"Supervision and Regulation--Prompt Corrective Action and Other Enforcement
Mechanisms."
RESTRICTIONS ON TRANSFERS OF FUNDS TO PARENT BY THE BANKS
Federal Reserve Board policy prohibits a bank holding company from declaring
or paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowings or other
arrangements that might adversely affect the holding company's financial
position. The policy further declares that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. Other Federal Reserve Board policies forbid the
payment by bank subsidiaries to their parent companies of management fees which
are unreasonable in amount or exceed the fair market value of the services
rendered (or, if no market exists, actual cost plus a reasonable profit).
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Parent is a legal entity separate and distinct from the Banks. At present,
substantially all of Parent's revenues, including funds available for the
payments of dividends and other operating expenses, would be dividends paid to
Parent from the Banks. The Banks, however, are currently prohibited from paying
any dividends without the consent of the OCC. See "Supervision and Regulation--
Potential and Existing Enforcement Actions."
There are also statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Banks. Sections 56 and 60 of
Title 12 of the United States Code contain the major limitations on the payment
of dividends by national banks. Section 56 generally prohibits national banks
from paying dividends out of capital, and Section 60 further limits dividends,
absent the OCC's approval, to the amount of a national bank's recent earnings.
Under the prompt corrective action rules of FDICIA, no depository institution,
such as the Banks, may issue a dividend or pay a management fee if it would
cause the institution to become undercapitalized. Additionally, a bank holding
company controlling a significantly undercapitalized institution may not make
any capital distributions without the prior approval of the Federal Reserve
Board. Other supervisory actions may be taken against institutions that are
significantly undercapitalized, as well as undercapitalized institutions that
fail to submit an acceptable capital restoration plan as required by law or
that fail in any material respect to implement an accepted plan. See
"Supervision and Regulation--Prompt Corrective Action and Other Enforcement
Mechanisms."
The OCC also has authority to prohibit the Banks from engaging in what, in
the OCC's opinion, constitutes an unsafe or unsound practice in conducting its
business. It is possible, depending upon the financial condition of the bank in
question and other factors, that the OCC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines could limit the amount of
dividends which the Banks or the Company may pay.
The Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, Parent or other affiliates, the purchase of or investment in stock
or other securities thereof, the taking of such securities as collateral for
loans and the purchase of assets from Parent or other affiliates. Such
restrictions prevent Parent and such other affiliates from borrowing from the
Banks unless the loans are secured by marketable obligations of specified
amounts. Further, such secured loans, investments and other transactions
between either of the Banks and Parent or any other affiliate are limited to
10% of either Bank's capital and surplus (as defined by federal regulations)
and such secured loans, investments and other transactions are limited, in the
aggregate, to 20% of either Bank's capital and surplus (as defined by federal
regulations). Such transactions must also comply with regulations prohibiting
terms that would be preferential to Parent other affiliates of the Banks.
There have been no intercompany transactions between Parent and either of the
Banks which would implicate these provisions.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Banks on their deposits and
their other borrowings and the interest rate received by the Banks on loans
extended to their customers and securities held in the Banks' portfolio
comprise the major portion of the Banks' earnings. These rates are highly
sensitive to many factors that are beyond the control of the Bank. Accordingly,
the earnings and growth of the Banks are subject to the influence of local,
domestic and foreign economic conditions, including recession, unemployment and
inflation.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory
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agencies, particularly the Federal Reserve Board. The Federal Reserve Board
implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in United
States Government securities, by adjusting the required level of reserves for
financial intermediaries subject to its reserve requirements and by varying the
discount rates applicable to borrowings by depository institutions. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
intermediaries. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Bank are impossible to predict. Certain of the potentially significant changes
which have been enacted and proposals which have been made recently are
discussed below.
CAPITAL STANDARDS
The OCC has adopted risk-based minimum capital guidelines intended to provide
a measure of capital that reflects the degree of risk associated with a banking
organization's operations for both transactions reported on the balance sheet
as assets and transactions, such as letters of credit and recourse
arrangements, which are recorded as off balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. Treasury securities, to 100% for assets with relatively higher
credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators
measure risk-adjusted assets, which includes off balance sheet items, against
both total qualifying capital (the sum of Tier 1 capital and limited amounts of
Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock,
retained earnings, noncumulative perpetual preferred stock and minority
interests in certain subsidiaries, less most intangible assets. Tier 2 capital
may consist of a limited amount of the allowance for possible loan and lease
losses, cumulative preferred stock, term preferred stock, term subordinated
debt and certain other instruments with some characteristics of equity. The
inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies, including the
limitation that Tier 2 capital may not exceed Tier 1 capital for determining an
institution's capital ratios. The federal banking agencies require a minimum
ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum
ratio of Tier 1 capital to risk-adjusted assets of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets
must be 3%. For all banking organizations not rated in the highest category,
the minimum leverage ratio must be at least 100 to 200 basis points above the
3% minimum, or 4% to 5%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
The federal banking regulators have issued a proposed rule to take account of
interest rate risk in calculating risk-based capital. The proposed rule
includes a supervisory model for taking account of interest rate risk. Under
that model, institutions would report their assets, liabilities and off balance
sheet positions in time bands based upon their remaining maturities. The
federal banking agencies would then calculate a net risk weighted interest rate
exposure. If that interest rate risk exposure was in excess of a certain
threshold
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(1% of assets), the institution could be required to hold additional capital
proportionate to that excess risk. Alternatively, the agencies have proposed
making interest rate risk exposure a subjective factor in considering capital
adequacy. Exposures would be measured in terms of the change in the present
value of an institution's assets minus the change in the present value of its
liabilities and off-balance sheet positions for an assumed 100 basis point
parallel shift in market interest rates. However, the federal banking agencies
have proposed to let banks use their own internal measurement of interest rate
risk if it is declared adequate by examiners.
Effective January 17, 1995, the federal banking agencies issued a final rule
relating to capital standards and the risks arising from the concentration of
credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The federal
banking agencies have not imposed any quantitative assessment for determining
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
directs an assessment of an institution's loan loss reserves. Examiners are
directed to assess the reasonableness of an institution's loan loss reserves by
comparison to (a) the sum of 50 percent of assets classified doubtful; (b) 15
percent of assets classified substandard; and (c) estimated credit losses on
other assets over the upcoming 12 months.
Federally supervised banks and savings associations are currently required to
report deferred tax assets in accordance with SFAS No. 109. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--New
Accounting Pronouncements." The federal banking agencies recently issued final
rules governing banks and bank holding companies, which become effective April
1, 1995, which limit the amount of deferred tax assets that are allowable in
computing an institutions regulatory capital. The standard has been in effect
on an interim basis since March 1993. Deferred tax assets that can be realized
from taxes paid in prior carryback years and from future reversals of existing
taxable temporary differences are generally not limited. Deferred tax assets
that can only be realized through future taxable earnings are limited for
regulatory capital purposes to the lesser of (i) the amount that can be
realized within one year of the quarter-end report date, or (ii) 10% of Tier 1
Capital. The amount of any deferred tax in excess of this limit would be
excluded from Tier 1 Capital and total assets and regulatory capital
calculations.
Future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including
but not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
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In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal
law. An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:
<TABLE>
<CAPTION>
"WELL CAPITALIZED" "ADEQUATELY CAPITALIZED"
- ------------------ ------------------------
<S> <C>
Total risk-based capital
of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital
of 6%; Tier 1 risk-based capital of 4%; and Leverage ratio
and Leverage ratio of of 4% (or less than 3% if rated CAMEL 1 under
5%. the composite rating system.)
<CAPTION>
"UNDERCAPITALIZED" "SIGNIFICANTLY UNDERCAPITALIZED"
- ------------------ --------------------------------
<S> <C>
Total risk-based capital
less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital
less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than Leverage ratio less than 3%.
4% (or less than 3%
if rated CAMEL 1 under
the composite
rating system.)
<CAPTION>
"CRITICALLY
UNDERCAPITALIZED"
- -----------------
<S> <C>
Tangible equity to total
assets less than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management fees
to any controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at
the time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that
such action will further the purpose of the prompt correction action
provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital
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or, if grounds exist for appointment of a receiver or conservator, a forced
merger; (ii) restrictions on transactions with affiliates; (iii) further
limitations on interest rates paid on deposits; (iv) further restrictions on
growth or required shrinkage; (v) modification or termination of specified
activities; (vi) replacement of directors or senior executive officers; (vii)
prohibitions on the receipt of deposits from correspondent institutions; (viii)
restrictions on capital distributions by the holding companies of such
institutions; (ix) required divestiture of subsidiaries by the institution; or
(x) other restrictions as determined by the appropriate federal banking agency.
The appropriate federal banking agency has discretion to determine which of the
foregoing restrictions or sanctions it will seek to impose. In addition,
without the prior written approval of the appropriate federal banking agency, a
significantly undercapitalized institution may not pay any bonus to its senior
executive officers or provide compensation to any of them at a rate that
exceeds such officer's average rate of base compensation during the 12 calendar
months preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository
institution would not be liable to the institution's shareholders or creditors
for consenting in good faith to the appointment of a receiver or conservator or
to an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement
actions by the federal regulators for unsafe or unsound practices in conducting
their businesses or for violations of any law, rule, regulation or any
condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
SAFETY AND SOUNDNESS STANDARDS
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are
expected to be issued in the near future.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
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Appraisals for "real estate related financial transactions" must be conducted
by either state certified or state licensed appraisers for transactions in
excess of certain amounts. Appraisals by state certified appraisers are not
required for transactions of less than $100,000 if certain criteria are met. In
such cases, the real property collateral must be evaluated in accordance with
the OCC's Guidelines for Real Estate Appraisal Policies and Review Procedures.
State certified appraisers are required for all transactions with a transaction
value of $1,000,000 or more; for all nonresidential transactions valued at
$250,000 or more; and for "complex" 1-4 family residential properties of
$250,000 or more. A state licensed appraiser is required for all other
appraisals. However, appraisals performed in connection with "federally related
transactions" must now comply with the agencies' appraisal standards. Federally
related transactions include the sale, lease, purchase, investment in, or
exchange of, real property or interests in real property, the financing or
refinancing of real property, and the use of real property or interests in real
property as security for a loan or investment, including mortgage-backed
securities.
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits.
The FDIC has adopted final regulations implementing a risk-based premium
system required by federal law. Under the regulations, which cover the
assessment periods commencing on and after January 1, 1994, insured depository
institutions are required to pay insurance premiums currently within a range of
23 cents per $100 of deposits to 31 cents per $100 of deposits depending on
their risk classification. On January 31, 1995, the FDIC issued proposed
regulations that would establish a new assessment rate schedule of 4 cents per
$100 of deposits to 31 cents per $100 of deposits applicable to members of BIF.
There can be no assurance that the final regulations will be adopted as
proposed. To determine the risk-based assessment for each institution, the FDIC
will categorize an institution as well capitalized, adequately capitalized or
undercapitalized based on its capital ratios. A well-capitalized institution is
one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-
based capital ratio and a 5% Tier 1 leverage capital ratio. An adequately
capitalized institution will have at least an 8% total risk-based capital
ratio, a 4% Tier 1 risk-based capital ratio and a 4% Tier 1 leverage capital
ratio. An undercapitalized institution will be one that does not meet either of
the above definitions. The FDIC will also assign each institution to one of
three subgroups based upon reviews by the institution's primary federal or
state regulator, statistical analyses of financial statements and other
information relevant to evaluating the risk posed by the institution.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the President signed into law the Riegel-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
Under the Interstate Act, beginning one year after the date of enactment, a
bank holding company that is adequately capitalized and managed may obtain
approval under the BHCA to acquire an existing bank located in another state
without regard to state law. A bank holding company would not be permitted to
make such an acquisition if, upon consummation, it would control (a) more than
10% of the total amount of deposits of insured depository institutions in the
United States or (b) 30% or more of the deposits in the state in which the bank
is located. A state may limit the percentage of total deposits that may be held
in that state by any one bank or bank holding company if application of such
limitation does not discriminate against out-of-state banks. An out-of-state
bank holding company may not acquire a state bank in existence for less than a
minimum length of time that may be prescribed by state law except that a state
may not impose more than a five year existence requirement.
93
<PAGE>
The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the
acquired bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the
laws of that state, subject to the same requirements and conditions as for a
merger transaction.
The Interstate Act is likely to increase competition in the Company's market
areas especially from larger financial institutions and their holding
companies. It is difficult to assess the impact such likely increased
competition will have on the Company's operations.
In 1986, California adopted an interstate banking law. The law allows
California banks and bank holding companies to be acquired by banking
organizations in other states on a "reciprocal" basis (i.e., provided the other
state's laws permit California banking organizations to acquire banking
organizations in that state on substantially the same terms and conditions
applicable to banking organizations solely within that state). The law took
effect in two stages. The first stage allowed acquisitions on a "reciprocal"
basis within a region consisting of 11 western states. The second stage, which
became effective January 1, 1991, allows interstate acquisitions on a national
"reciprocal" basis. California has also adopted similar legislation applicable
to savings associations and their holding companies.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and CRA activities.
Under the CRA, regulated financial institutions are required to help meet the
credit needs of their communities, including those of low and moderate income
individuals. The CRA generally requires the federal banking agencies to
evaluate the record of a financial institution in meeting the credit needs of
their local communities, including low and moderate income neighborhoods. In
addition to substantial penalties and corrective measures that may be required
for a violation of certain fair lending laws, the federal banking agencies may
take compliance with such laws and CRA into account when regulating and
supervising other activities. The OCC conducted a consumer compliance and CRA
examination of Frontier as of December 31, 1994. As a result of the
examination, the OCC concluded that Frontier is in satisfactory compliance with
consumer protection laws and regulations; however, the OCC indicated that
Frontier's performance under the CRA needs improvement. A "needs to improve"
rating may result in the denial of regulatory applications by Frontier and the
Company, although no such applications are currently pending. Management of the
Company and Frontier have taken action to address the OCC's findings, including
commissioning a consultant to help Frontier develop its marketing strategy in
its delineated communities and developing a CRA action plan to improve
Frontier's CRA performance.
On May 3, 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending, service and
investment performance, rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued a
policy statement on discrimination in lending. The policy statement describes
the three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment and evidence of
disparate impact.
POTENTIAL AND EXISTING ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Banks, and their institution-
affiliated parties, which include the Company, are subject to potential
enforcement actions by the Federal Reserve Board, the FDIC and the OCC for any
unsafe or unsound practices in conducting their businesses or for violations of
any law, rule, regulation or any condition imposed in writing by the agency or
any written agreement with the agency.
94
<PAGE>
Enforcement actions may include the imposition of a conservator or receiver,
the issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of the Banks), the imposition
of civil money penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the imposition of
restrictions and sanctions under the prompt corrective action provisions of the
FDIC Improvement Act. Additionally, a holding company's inability to serve as a
source of strength to its subsidiary banking organizations could serve as an
additional basis for a regulatory action against the holding company.
Following supervisory examinations of Ventura conducted as of June 30, 1992
and Frontier as of July 30, 1992, Ventura entered into a Formal Agreement with
the OCC on March 19, 1993 and Frontier entered into a Consent Order with the
OCC on March 29, 1993. The Consent Order replaced the 1992 MOU previously
entered into between the OCC and Frontier. The significant common requirements
of the Formal Agreement and the Consent Order for Ventura and Frontier include
conducting a program to evaluate and improve board supervision and management,
developing a program designed to improve the lending staff and loan
administration, obtaining current credit information on any loans lacking such
information, reviewing and revising loan policies, establishing an independent
loan review program including periodic reports to the Board, developing and
implementing a program to collect or strengthen criticized assets, reviewing
and maintaining an adequate loan loss reserve, developing a new long range
strategic plan and annual budget, developing a three-year capital plan,
developing and revising liquidity and funds management policy, correcting
violations of law cited by the OCC and obtaining approval from the OCC to
declare or pay a dividend.
The Consent Order requires that Frontier maintain as of May 31, 1993 and
beyond a Tier 1 risk based capital ratio of 9.50% and a leverage capital ratio
of 7.00%. At December 31, 1994, Frontier's Tier 1 risk based capital ratio was
12.29% and its leverage capital ratio was 8.32%. The Consent Order also
requires Frontier to retain a new president and to continue to develop a
program of asset diversification.
Based upon an examination of Ventura conducted as of July 31, 1993, the
Formal Agreement was amended on February 3, 1994 to require Ventura to achieve
a Tier 1 risk based capital ratio of 12.00% and a leverage ratio of 7.00% by
September 30, 1994. As of September 30, 1994, Ventura's Tier 1 risk based
capital ratio was 9.44% and its leverage ratio was 6.88%, which did not meet
the higher leverage and Tier 1 Capital ratios required by the Formal Agreement.
As of December 31, 1994, approximately $1.4 million additional capital was
necessary for Ventura to meet the capital requirements of the Formal Agreement.
As required by the Formal Agreement on October 18, 1994, Ventura submitted to
the OCC its plan for restoring capital and the OCC did not object to
implementation of the plan as proposed. In addition, Ventura applied for and
received an extension of the date by which such ratios are required to be
achieved to June 30, 1995, provided that the subscription period for this
Offering is no longer than six weeks. This Offering is being undertaken in part
to ensure that Ventura meets all applicable capital requirements. However,
there can be no guarantee that after the Offering, Ventura or Frontier will be
continue to be in compliance with all of their regulatory requirements.
The amendment to the Formal Agreement also requires Ventura to seek
Reimbursement of Interest relating to interest paid on a deposit account at
Ventura. The deposit account held funds generated by Parent through the sales
of commercial paper to Ventura customers. Ventura categorized this account as a
savings account, and as such paid interest on such account. However, the OCC
concluded that the account should have been categorized as a demand deposit
account, on which the payment of interest is not permitted. As a result, the
OCC has required Ventura to seek Reimbursement of Interest. Furthermore, Parent
has been required by the Reserve Bank to cease all such commercial paper sales,
which Parent did in December 1993.
Parent entered into the MOU with the Reserve Bank on March 19, 1994. The
significant requirements of the MOU include submitting a program to improve the
financial condition of the Banks, evaluate and improve board supervision and
management, exit the commercial paper market, comply with Federal Reserve Board
policy regarding management or service fees assessed by the Company and paid by
the Banks and
95
<PAGE>
implement steps to improve the effectiveness of the audit and credit review
functions. The MOU further restricts the Company from declaring or paying a
dividend, incurring any debt, adding or replacing a director or senior
executive or repurchasing Company stock without notice to and nondisapproval of
the Reserve Bank. The MOU also requires the Company's Board of Directors to
establish a committee to monitor compliance with the MOU and ensure that
quarterly written progress reports detailing the form and manner of all actions
taken to attain compliance with the MOU are submitted.
Parent intends to use the proceeds of this Offering to reimburse interest to
Ventura. The Reimbursement of Interest will also result in an increase in the
capital levels of Ventura. The OCC recently completed a regularly scheduled
examination of Ventura and, based upon this examination, indicated in that
Ventura was in full or partial compliance with the other requirements of the
amended Formal Agreement. Frontier and Parent are in full or partial compliance
with or in the process of complying with all of the other items required under
the Consent Order and MOU, respectively. Notwithstanding the foregoing,
however, Parent, Ventura and Frontier continue their efforts to implement the
policies developed to meet the requirements of the MOU, Formal Agreement and
Consent Order.
96
<PAGE>
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of the Company knows of no person, other than Mr. Raymond E.
Swift, a director of the Company and the Company's ESOP, who owns, beneficially
or of record, either individually or together with associates, 5% or more of
the outstanding shares of the Company's Common Stock. Mr. Swift's business
address is 400 South B Street, Oxnard, CA 93030. The address of the ESOP is in
care of the Company, 500 Esplanade Drive, Oxnard, California 93030. The
following table sets forth, as of December 31, 1994, the number and percentage
of shares of the Company's outstanding Common Stock beneficially owned,
directly or indirectly, by each of the Company's directors and executive
officers, principal shareholders and by the directors and officers of the
Company as a group. In general, beneficial ownership includes shares over which
the director, principal shareholder or officer has sole or shared voting or
investment power and shares which such person has the right to acquire within
60 days of December 31, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
DIRECTORS AND MANAGEMENT:
Michael Antin................................ 77,211(1) 1.21%
Ralph R. Bennett............................. 85,592(2) 1.34%
Richard S. Cupp.............................. 25,578(3) *
James M. Davis............................... 17,394(4) *
Bart M. Hackley, Jr.......................... 18,484(5) *
W. E. Hartman................................ 205,104(6) 3.21%
James B. Hussey.............................. 122,852(7) 1.92%
Richard A. Lagomarsino(8).................... 100,007(9) 1.56%
Zella A. Rushing............................. 6,993(10) *
Raymond E. Swift............................. 327,793(11) 5.12%
Nancy Jackson................................ 5,898(12) *
Francis J. Kahawai........................... -- *
Kathleen L. Kellogg.......................... -- *
Simone Lagomarsino(8)........................ -- *
Carl W. Raggio............................... -- *
Carol Ward................................... -- *
Total for Directors and Officers (numbering
16)......................................... 992,506(13) 15.52%
Trustee of the 401(k)/ESOP................... 415,854(14) 6.34%
</TABLE>
- --------
* Less than 1%
(1) Mr. Antin has sole voting and investment powers as to 72,839 shares. The
number of shares includes 4,372 shares acquirable by the exercise of stock
options.
(2) Mr. Bennett has sole voting and investment power as to 5,693 shares and
shared voting and investment power as to 77,649 shares. The number of
shares includes 2,250 shares acquirable by the exercise of stock options.
(3) Mr. Cupp has sole voting and investment power as to 3,016 shares. The
number of shares includes 22,562 shares acquirable by the exercise of stock
options. Mr. Cupp's option agreement contains antidilution provisions
pursuant to which the number of shares of Common Stock that are issuable
upon the exercise of such option would be increased as a result of the
issuance of additional shares in this Offering.
(4) Mr. Davis has sole voting and investment power as to 13,022 shares. The
number of shares includes 4,372 shares acquirable by the exercise of stock
options.
(5) Mr. Hackley has sole voting and investment powers as to 11,423 shares and
shared voting and investment power as to 3,484 shares. The number of shares
includes 3,577 shares acquirable by the exercise of stock options.
97
<PAGE>
(6) Mr. Hartman has sole voting and investment powers as to 50,314 shares and
shared voting and investment powers as to 148,430 shares. The number of
shares includes 6,360 shares acquirable by the exercise of stock options.
(7) Mr. Hussey has sole voting and investment power as to 62,046 shares and
shared voting and investment power as to 56,434 shares. The number of
shares includes 4,372 shares acquirable by the exercise of stock options.
(8) Mr. Lagomarsino and Ms. Lagomarsino are not related.
(9) Mr. Lagomarsino has shared voting and investment power as to 93,647 shares.
The number of shares includes 6,360 shares acquirable by the exercise of
stock options.
(10) Ms. Rushing has sole voting and investment power as to 4,873 shares. The
number of shares includes 2,120 shares acquirable by the exercise of stock
options.
(11) Mr. Swift has sole voting and investment power as to 315,825 shares and
shared voting and investment power as to 4,412 shares. The number of
shares includes 6,360 shares acquirable by the exercise of stock options.
(12) Ms. Jackson has shared voting and investment power as to 622 shares. The
number of shares includes 5,276 shares allocated to Ms. Jackson's account
under 401(k)/ESOP.
(13) Includes 62,046 shares acquirable by the exercise of stock options.
(14) Under the terms of the 401(k)/ESOP, shares of the Common Stock of the
Company are held in trust by the trustee under the ESOP Trust ("Trustee"),
for the exclusive benefit of the participants. At December 31, 1994, the
Trustee held 185,840 shares of Common Stock in a suspense account as
collateral for a loan to the Trustee (the "ESOP Loan"), the proceeds of
which were used to fund part of the purchase of shares of Common Stock for
the ESOP, and 230,014 shares of Common Stock have been allocated to the
accounts of the participants or for which shares were purchased pursuant
to the investment instructions of participants in the 401(k) portion of
the ESOP.
98
<PAGE>
BOARD OF DIRECTORS
The following table sets forth as of January 1, 1995, the names of and
certain information concerning the Company's board of directors.
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED PRINCIPAL OCCUPATION
NAME AND TITLE AGE DIRECTOR DURING THE PAST FIVE YEARS
-------------- --- ---------- --------------------------
<C> <C> <C> <S>
Michael Antin 56 1986 Attorney, with the law firm of
Director Antin & Taylor, a law corporation
Ralph R. Bennett 66 1992 Insurance broker and Vice
Director President with Andreini and Co
Richard S. Cupp 54 1993 President/CEO of the Company;
President/Chief Executive President/CEO of Ventura County
Officer and Director National Bank; Director, Frontier
Bank, N.A.; all since July, 1993;
independent bank consultant.
Executive Vice President at
CalFed, Inc. 1983-1991
James M. Davis 56 1986 Certified Public Accountant and
Director 50% owner of accountancy firm of
Davis and LeGate
Bart M. Hackley, Jr. 50 1987 Certified Public Accountant and
Director partner in the accountancy firm
of Hackley and Ormsby, CPA's
W. E. Hartman 61 1984 President of Taft Electric Co.,
Director (electrical contractors)
James B. Hussey 58 1986 Owner, Jim Hussey Insurance
Chairman
Richard A. Lagomarsino 63 1984 President, Lagomarsino's (beer
Director and wine distributor)
Zella A. Rushing 54 1993 Retired. Previously Chairman of
Director the Board, H & H Oil Tool Co.,
Inc., oil tool maintenance
company Previously a director
from 1984 to 1992
Raymond E. Swift 64 1989 Self-employed; Owner, Swift
Director Ranch; President, Swift Financial
Corp., (investments); President,
Swiftwood Corp., (real estate
investments)
</TABLE>
- --------
(1) Ms. Rushing was appointed to fill the director position that was vacant
after the resignation of W. E. McAleer in 1993.
None of the directors were selected pursuant to any arrangement or
understanding other than with the directors and officers of the Company acting
within their capacities as such. There are no family relationships between any
of the directors and executive officers of the Company. None of the directors
or officers of the Company serve as directors of any company which has a class
of securities registered under, or which is subject to the periodic reporting
requirements of, the Securities Exchange Act of 1934 or any investment company
registered under the Investment Company Act of 1940.
99
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information concerning executive officers of
the Company and certain executive officers of Ventura and Frontier.
<TABLE>
<CAPTION>
POSITION AND PRINCIPAL OCCUPATION
NAME AGE FOR THE PAST 5 YEARS
---- --- ---------------------------------
<C> <C> <S>
Richard S. Cupp 54 President and CEO of the Company and President and CEO of
Ventura since July, 1993. Mr. Cupp was an Independent Bank
Consultant from 1992 to 1993. Mr. Cupp was formerly an
Executive Vice President at CalFed, Inc. from 1983 to
1991.
Nancy Jackson 54 Senior Vice President/Administration and Investor
Relations of the Company. Ms. Jackson is also Corporate
Secretary of the Company and has been with Ventura since
1982 and with the Company since September, 1984.
Francis J. Kahawai 53 Chief Credit Officer of Frontier. Prior to joining
Frontier, Mr. Kahawai had been Senior Vice President/Chief
Credit Officer of One Central Bank since 1989.
Kathleen L. Kellogg 41 President and CEO of Frontier since November 1994. Ms.
Kellogg was formerly Senior Vice President and Division
Manager--Commercial and Business Lending of California
Federal Bank from 1989 to March 1994.
Simone Lagomarsino 33 Senior Vice President/Chief Financial Officer of the
Company since March 1995. Prior to joining the Company,
Ms. Lagomarsino was a financial consultant for Prudential
Securities from September 1993 to March 1995; an
independent bank consultant from April 1993 to September
1993; Chief Executive Officer of Premier Bank from April
1991 to April 1993; Chief Financial Officer of Premier
Bank from December 1990 to April 1991; Senior Vice
President-Budgets and Financial Planning of City National
Bank from June 1990 to December 1990; and Chief Financial
Officer of Warner Center Bank from April 1988 to June 1990
when it was merged into City National Bank.
Carl W. Raggio 42 Executive Vice President/Chief Credit Officer with Ventura
since September 1994. Mr. Raggio was Executive Vice
President, Chief Operating Officer and Director of CUB
Funding Corporation from July 1993 to June 1994. Prior to
that, Mr. Raggio was Executive Vice President and Chief
Credit Officer of California United Bank, N.A. from
October 1990 to July 1993, Senior Vice President and
Assistant Manager, Commercial Banking of Mercantile
National Bank from March 1990 to October 1990 and Regional
Vice President of Bank of the West, Banque Nationale de
Paris from December 1986 to March 1990.
Carol Ward 40 Chief Operating Officer of Parent and Ventura. Senior Vice
President/General Auditor from November, 1993 to December
1994. Ms. Ward was formerly Sr. Vice President/General
Auditor at Community Bank from 1990 to 1993 and Vice
President/General Auditor at National Bank of Long Beach
from 1988 to 1990.
</TABLE>
100
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation, as amended, authorize the issuance
of 20,000,000 shares of no par value Common Stock. As of the date of this
Prospectus, there were 6,337,835 shares of the Common Stock issued and
outstanding.
Holders of Common Stock are entitled to cast one vote for each share held of
record and to cumulate votes for the election of directors, to receive such
dividends as may be declared by the Board of Directors out of legally available
funds and to share ratably in any distribution of the Company's assets after
payment of all debts and other liabilities, upon liquidation, dissolution or
winding up of the Company. Shareholders do not have preemptive rights or other
rights to subscribe for additional shares, and the Common Stock is not subject
to conversion or redemption. The outstanding shares of Common Stock are, and
the shares of Common Stock to be issued in the Offering, will be, upon delivery
and payment therefor in accordance with the terms of the Offering, fully paid
and nonassessable.
First Interstate Bank of California, Los Angeles, California is the transfer
agent and registrar for the Common Stock.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Manatt, Phelps & Phillips, a partnership including professional
corporations, Los Angeles, California. Thacher Proffitt & Wood, New York, New
York, is acting as counsel for Sandler O'Neill in connection with certain legal
matters related to the securities offered hereby.
EXPERTS
The financial statements as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994 included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is included herein (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to noncompliance with
regulatory capital requirements), and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
AUDITED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1993. F-3
Consolidated Statements of Operations for the Years ended December 31,
1994, 1993 and 1992...................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
ended December 31, 1994, 1993 and 1992................................... F-5
Consolidated Statements of Cash Flows for the Years ended December 31,
1994, 1993 and 1992...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ventura County National Bancorp:
We have audited the accompanying consolidated balance sheets of Ventura
County National Bancorp and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ventura County National Bancorp
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 18 to the consolidated financial statements, Frontier
Bank N.A. and Ventura County National Bank (VCNB) have entered into agreements
with the Office of the Comptroller of the Currency (OCC). The agreement between
VCNB and the OCC, as amended, requires VCNB to meet prescribed capital
requirements by no later than June 30, 1995. Currently, VCNB has not achieved
such capital requirements. Failure on the part of VCNB to meet the terms of the
agreement may subject VCNB to significant regulatory sanctions. The financial
statement impact, if any, that might result from the failure of VCNB to comply
with the agreement and, ultimately, the capital requirements prescribed by the
OCC cannot presently be determined. Accordingly, no adjustments that may result
from the ultimate resolution of this uncertainty have been made in the
accompanying financial statements.
Deloitte & Touche LLP
February 17, 1995
Los Angeles, California
F-2
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1994 1993
------ -------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Cash and cash equivalents.................................. $ 11,442 $ 15,943
Federal funds sold......................................... 27,000 18,000
Interest-bearing deposits with other financial
institutions.............................................. 694 2,180
Securities available-for-sale, at market (cost of $32,604
and $40,897, respectively)................................ 31,859 40,775
Securities held-to-maturity, at cost (market value of
$17,963 in 1994).......................................... 18,775 --
Loans and leases, net of unearned income................... 167,934 267,514
Less loan loss reserve..................................... 8,261 14,313
Net Loans and Leases..................................... 159,673 253,201
Premises and equipment, net................................ 1,917 1,687
Other assets............................................... 6,395 8,743
-------- --------
Total Assets............................................. $257,755 $340,529
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Deposits:
Non-interest-bearing demand.............................. $ 67,177 $ 99,502
Interest-bearing demand and savings...................... 80,646 101,224
Time..................................................... 88,519 117,563
-------- --------
Total Deposits........................................... 236,342 318,289
Notes payable.............................................. 125 125
Other liabilities.......................................... 2,236 1,745
-------- --------
Total Liabilities........................................ 238,703 320,159
Commitments and Contingencies:
Shareholders' Equity:
Contributed Capital, including common stock of no par
value. Authorized 20,000,000 shares; issued 6,333,835 in
1994 and in 1993........................................ 30,949 30,949
Unrealized loss on securities............................ (1,178) (122)
Retained deficit......................................... (10,719) (10,457)
-------- --------
Total Shareholders' Equity............................... 19,052 20,370
-------- --------
Total Liabilities and Shareholders' Equity............... $257,755 $340,529
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------- -------- -------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Interest Income
Loans and leases.................................. $18,740 $ 23,190 $26,892
Deposits with financial institutions.............. 67 263 256
Investment securities............................. 2,169 1,916 1,178
Federal funds sold................................ 1,160 542 625
------- -------- -------
Total Interest Income........................... 22,136 25,911 28,951
======= ======== =======
Interest Expense
Deposits.......................................... 6,253 8,372 10,336
Other borrowings.................................. 15 627 1,029
------- -------- -------
Total Interest Expense.......................... 6,268 8,999 11,365
------- -------- -------
Net Interest Income............................... 15,868 16,912 17,586
Provision for loan losses......................... 3,825 16,213 3,404
------- -------- -------
Net Interest Income After Provision for Loan
Losses......................................... 12,043 699 14,182
======= ======== =======
Other Income
Service charges on deposit accounts............... 1,217 1,521 1,359
Loan fees......................................... 470 1,192 1,563
Miscellaneous fees................................ 354 590 631
Gain on sale of loan servicing rights............. 1,443 -- 46
Gain on sale of SBA loans......................... 305 386 875
Other............................................. 275 1,131 1,038
------- -------- -------
Total Other Income.............................. 4,064 4,820 5,512
======= ======== =======
Other Expense
Salaries and employee benefits.................... 6,423 7,082 6,797
Net occupancy..................................... 2,087 2,578 2,809
Equipment......................................... 830 1,241 1,102
Professional services............................. 1,928 1,878 1,391
Other............................................. 4,816 8,060 6,339
------- -------- -------
Total Other Expense............................. 16,084 20,839 18,438
======= ======== =======
Income (Loss) Before Income Taxes................. 23 (15,320) 1,256
Income Taxes...................................... 285 (3,233) 571
------- -------- -------
Net Income (Loss)................................. $ (262) $(12,087) $ 685
======= ======== =======
Per share:
Net Income (Loss)................................. (.04) $ (2.15) $ .12
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
SHARES CONTRIBUTED LOSS ON EARNINGS
OUTSTANDING CAPITAL SECURITIES (DEFICIT) TOTAL
----------- ----------- ---------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARES OF STOCK)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1992................... 5,282,301 $26,941 $ (53) $ 2,291 $ 29,179
Net Income--1992...... -- -- -- 685 685
--------- ------- ------- -------- --------
Increase in unrealized
loss on securities..... -- -- (73) -- (73)
Decrease in unearned
compensation related to
ESOP................... -- 572 -- -- 572
Stock options exercised. 15,263 25 -- -- 25
Stock Dividend.......... 316,691 1,346 -- (1,346) --
--------- ------- ------- -------- --------
Balance at December 31,
1992................... 5,614,255 $28,884 $ (126) $ 1,630 $ 30,388
Net Loss--1993........ -- -- -- (12,087) (12,087)
Decrease in unrealized
loss on securities..... -- -- 4 -- 4
Decrease in unearned
compensation related to
ESOP................... -- 635 -- -- 635
Sale of common stock.... 719,580 1,430 -- -- 1,430
--------- ------- ------- -------- --------
Balance at December 31,
1993................... 6,333,835 $30,949 $ (122) $(10,457) $ 20,370
Net Loss--1994........ -- -- -- (262) (262)
Increase in unrealized
loss on securities..... -- -- (1,056) -- (1,056)
Balance at December 31,
1994................... 6,333,835 $30,949 $(1,178) $(10,719) $ 19,052
========= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $ (262) $(12,087) $ 685
Adjustments to reconcile net income (loss) to
cash flows (applied to) provided by operating
activities:
Depreciation and amortization................... 739 2,446 1,692
Provision for loan losses....................... 3,825 16,213 3,404
Change in deferred loan fees.................... (250) (271) 122
Accretion of investment discount, net of
amortization of investment premium............. 39 322 (36)
Loss on sale of investment securities available
for sale....................................... 195 -- --
Gain on sale of investment securities........... -- (56) --
Gain on sale of loan servicing rights........... (1,443) -- (46)
Gain on sale of merchant card portfolio......... (174) -- --
Gain on sale of SBA loans....................... (305) (386) (875)
Gain on sale of fixed assets.................... (9) (11) (26)
(Gain)/loss on sale of REO...................... (511) (1) 346
REO write-downs................................. 959 1,408 --
Provision for deferred income taxes............. (1,200) (1,133) (261)
Change in other assets.......................... (2,465) (1,515) (1,937)
Change in other liabilities..................... 491 (427) 1,142
Decrease in deferred compensation related to
ESOP........................................... -- 635 572
-------- -------- --------
Net Cash (Applied To) Provided By Operating
Activities..................................... (371) 5,137 4,782
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities..... -- 44,930 --
Proceeds from sales of investment securities
available-for-sale.............................. 8,732 -- --
Proceeds from maturities of investment
securities...................................... -- 31,834 12,913
Proceeds from maturities of investment securities
held-to-maturity................................ 3,466 -- --
Proceeds from maturities of investment securities
available-for-sale.............................. 2,625 -- --
Purchase of investment securities................ -- (84,633) (32,528)
Purchase of investment securities held-to-
maturity........................................ (3,194) -- --
Purchase of investment securities available-for-
sale............................................ (22,778) -- --
Purchase of premises and equipment............... (996) (373) (483)
Proceeds from sale of premises and equipment..... 36 366 56
Payoff of senior obligations on REO.............. -- -- (1,377)
Proceeds from sale of REO properties............. 5,345 833 1,130
Net change in loans.............................. 80,589 39,376 (15,207)
Proceeds from the sale of SBA loans.............. 513 605 1,131
Proceeds from the sale of non-performing loans... 9,056 -- --
Change in Federal funds sold..................... (9,000) (18,000) 10,800
Change in deposits with other financial
institutions.................................... 1,486 4,955 (5,053)
Proceeds from sale of loan servicing rights...... 1,763 -- 46
Proceeds from sale of merchant card portfolio.... 174 -- --
-------- -------- --------
Net Cash Provided By (Applied To) Investing
Activities..................................... 77,817 19,893 (28,572)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand and savings deposits............ (52,903) (6,070) 18,781
Change in time deposits.......................... (29,044) (24,228) 5,320
Change in short-term borrowings.................. -- (16,860) 9,842
Issuance of common stock......................... -- 1,430 25
Repayment of note payable........................ -- (2,188) (572)
Issuance of notes payable........................ -- 125 --
Net Cash (Applied To) Provided By Financing
Activities..................................... (81,947) (47,791) 33,396
Net (Decrease) Increase In Cash and Cash
Equivalents.................................... (4,501) (22,761) 9,606
Cash and Cash Equivalents at Beginning of Year... 15,943 38,704 29,098
-------- -------- --------
Cash and Cash Equivalents at End of Year......... $ 11,442 $ 15,943 $ 38,704
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Ventura County National Bank, a national banking organization (VCNB), was
organized on February 17, 1982 and commenced business on October 25, 1982.
Ventura County National Bancorp (separately "Ventura," and with its
subsidiaries on a consolidated basis, the "Company") was organized and
incorporated on February 22, 1984 for the purpose of becoming a bank holding
company by acquiring all of the outstanding common stock of VCNB. Accordingly,
on September 12, 1984, all of the Shareholders of VCNB exchanged their common
stock for an equal number of shares of the Company's common stock.
During 1989, the Company acquired all of the outstanding shares of Frontier
Group, Incorporated, the parent holding company of Frontier Bank, N. A., in
exchange for cash. The acquisition was accounted for as a purchase.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company balances and transactions have
been eliminated in consolidation.
VCNB conducts its banking operations through four branch offices located in
Ventura County, California, approximately 60 miles northwest of downtown Los
Angeles. VCNB's four branch offices are positioned in Ventura, Camarillo,
Oxnard, and Westlake Village. Frontier is based in La Palma in northwestern
Orange County and has a branch office in Wilmington in southern Los Angeles
County. Ventura's headquarters are located in Oxnard, California.
NOTE 2. ACCOUNTING POLICIES
The Company and its subsidiaries follow generally accepted accounting
principles and reporting practices applicable to the banking industry, the most
significant of which are summarized below:
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and amounts due from banks.
Investment Securities
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company adopted the
provisions of the new standard in its financial statements as of December 31,
1993. SFAS No. 115 addresses accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Those investments are to be classified in three categories
and accounted for as follows: 1) debt securities for which the Company has the
positive intent and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost; 2) debt and equity
securities that are bought and held principally for the purpose of selling in
the near term are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; and 3) debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available for sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in
a separate component of shareholders' equity.
F-7
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consistent with the provisions of No. SFAS 115, the Company classified its
investment securities as available for sale upon adoption at December 31, 1993,
and recorded an unrealized loss of $122,000, net of tax effect. No portion of
such unrealized losses was previously recognized in operating results prior to
the adoption of SFAS No. 115. Prior to the adoption of SFAS No. 115, all
investment securities were stated at cost, with the exception of investments in
mutual funds, which were deemed equity investments, with adjustments to lower
of cost or market being recorded as a component of equity. During 1994, the
Company purchased securities which were classified as either available for sale
or held to maturity categories at the time of purchase, based on management's
intent and ability to hold certain securities to maturity. Previously recorded
unrealized losses of $433,000 on securities transferred from held to maturity
to available for sale during 1994 are being amortized over the securities'
remaining lives. Ventura had no trading securities at December 31, 1993 or
1994. Mortgage-backed securities consist entirely of Federal Home Loan Mortgage
Corporation (FHLMC) backed securities; there are no stuctured notes, CMOs, or
other derivative products in the investment portfolio.
Accreted discounts and amortized premiums on investment securities are
included in interest income, and unrealized and realized gains or losses
relating to holding or selling securities are calculated using the specific
identification method.
Interest and Fees on Loans
Interest on loans is accrued and credited to operations based on the
principal amount outstanding, except that accruals are normally discontinued
whenever payment of principal or interest is in doubt. When a loan is
classified as non-accrual, all previously accrued interest is reversed. Loan
origination fees and initial direct costs of loan origination are deferred and
amortized over the life of the loan as an adjustment of yield throughout the
life of the related loan. Such fees and costs related to loans held for sale
are deferred and recognized in income as a component of gain on sale of loans
when the related loans are sold.
Gains on Sale of SBA Loans and Servicing Income
Gains on sale of the guaranteed portion of SBA Loans are recognized to the
extent sales proceeds less amounts necessary to provide required yield
enhancement to the Company for retaining the unguaranteed portion of the loan
exceed the carrying value of the guaranteed portion sold. Gains are determined
using the specific identification method for loans sold and are deferred for 90
days (the recourse period), at which time they are recorded as Other Income.
The Company sells SBA loans with servicing retained. At the time of the sale,
an evaluation is made of the contractual servicing fee which is represented by
the differential between the contractual interest rate of the loan and the
interest rate payable to the investor. The present value of the amount by which
the contractual servicing fee exceeds a nornal servicing fee, or the Company's
cost of servicing such loans plus a normal profit, whichever is greater, after
evaluation of estimated prepayments on such loans, is considered to be an
adjustment of the sales proceeds, which in turn increases the gain recognized
at the time of the sale. Such gains are only recognized to the extent they do
not exceed the amount deferred as yield enhancement on the unguaranteed portion
of the SBA loan sold. The resultant amount of deferred loan sales proceeds is
amortized using a method which approximates a level yield over the estimated
remaining lives of such loans. The contractual servicing fee is recognized as
income over the lives of the related loans, net of the estimated normal
amortization of the deferred loan sales proceeds. Loan servicing costs are
charged to expense as incurred. When actual loan repayment experience differs
from original estimates, amortization is adjusted accordingly through
operations.
F-8
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Loss Reserve
The loan loss reserve is maintained at a level believed adequate by
management to absorb potential losses on the loan and lease portfolios.
Management's determination of that adequacy is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, composition of the portfolio and other relevant factors. In addition,
regulatory authorities have recently required many California financial
institutions to substantially increase their loan loss reserve in recognition
of the inherent risk in the existing economic environment. Management also
considers this factor in calculating the loan loss reserve. Although management
believes the level of the loan loss reserve as of December 31, 1994 is adequate
to absorb losses inherent in the loan portfolio, additional declines in the
local economy may result in increasing losses that cannot be reasonably
predicted at this time. The reserve is increased by provisions for loan losses
charged against income. Loans and leases are charged against the loan loss
reserve when management determines that collectibility of the principal is
unlikely. Recoveries on loans previously charged off are credited to the
reserve.
In May, 1993, the Financial Accounting Standards Board issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. SFAS No. 114 prescribes the
recognition criterion for loan impairment and the measurement methods for
certain impaired loans and loans whose terms are modified in troubled debt
restructurings. SFAS No. 114 states that a loan is impaired when it is probable
that a creditor will be unable to collect all principal and interest amounts
due according to the contracted terms of the loan agreement.
A creditor is required to measure impairment by discounting expected future
cash flows at the loan's effective interest rate, or by reference to an
observable market price, or by fair value of collateral, if collateral
dependent . SFAS No. 114 also clarifies the existing accounting for in-
substance foreclosures by stating that a collateral-dependent real estate loan
would be reported as real estate owned only if the lender had taken possession
of collateral. SFAS No. 114 is effective for financial statements issued for
fiscal years beginning after December 15, 1994. Although earlier application is
encouraged, it is not required. The Company will adopt SFAS No. 114 on January
1, 1995. The Company's preliminary study of loan impairment under SFAS 114
revealed that the impact upon adoption is not anticipated to be material to the
financial statements.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. It eliminated the
provisions in SFAS No. 114 which described how a creditor should report income
on an impaired loan. SFAS No. 118 amends the disclosure requirements in SFAS
No. 114 to require information about the recorded investment in certain
impaired loans and about how a creditor recognizes interest income related to
those impaired loans. SFAS No. 118 is effective concurrent with the effective
date of SFAS No. 114, for financial statements issued for fiscal years
beginning after December 15, 1994.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provisions for depreciation are generally computed on a straight-line basis,
based upon the term of the lease or the estimated useful life of the related
asset. Leasehold improvements are amortized over an average life of
approximately eleven years, or the lease term, whichever is shorter. Furniture,
fixtures and equipment are amortized over an average life of 5 years.
Real Estate Owned
Real estate acquired through foreclosure or deed-in-lieu-of foreclosure, is
carried at cost or fair value less estimated costs to sell, whichever is lower.
At the time of acquisition, any excess of cost over fair value is charged to
the loan loss reserve. Gains and losses realized on sale are included in other
income or expense, respectively, in the consolidated statements of operations.
F-9
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The financial statements reflect the adoption in 1992 of the liability method
of accounting as prescribed by Statement of Financial Accounting Standards
(SFAS) No. 109, which superseded SFAS No. 96. The effect on the financial
statements of adopting SFAS No. 109 was not material.
Income (Loss) Per Share
Income (Loss) per share data is computed using the weighted-average number of
shares of common stock and common stock equivalents outstanding. Stock options
and warrants are considered to be common stock equivalents, except when their
effect is antidilutive. Shares of Common Stock held by the Trustee of the
Employee Stock Ownership Plan, in suspense as collateral for a loan, are not
accounted for as common stock equivalents until such time as they are released
to participants. The weighted-average number of shares outstanding has been
retroactively adjusted for stock dividends and stock splits. The weighted-
average number of shares used to compute income per share were 6,333,835,
5,635,941 and 5,610,792 in 1994, 1993 and 1992, respectively.
Servicing Rights
For the years ended December 31, 1992 and 1993, and for the first half of
1994, the cost of acquired loan servicing rights was capitalized and amortized
over the estimated remaining term of the underlying loan portfolio. During May,
1994, the Company sold its mortgage loan servicing department and the related
capitalized loan servicing rights.
Reclassifications
Certain reclassifications have been made to 1993 and 1992 amounts to conform
to 1994 presentation.
NOTE 3. STATEMENT OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992, the Company paid
approximately $6,276,000, $9,124,000 and $11,445,000 in interest and $nil,
$300,000 and $1,155,000 in income taxes, respectively. The Company acquired
$6,197,000,$664,000 and $6,508,000 in real estate owned through foreclosures
during the years ended December 31, 1994, 1993 and 1992, respectively. No loans
were extended to buyers of Company-owned real estate during the year ended
December 31, 1994. Loans of $603,000 were extended to buyers of Company-owned
real estate during the year ended December 31, 1993. Securities with an
amortized cost totaling $16,263,000, and with a fair value of $15,830,000, at
December 31, 1994 were transferred from the available for sale to the held to
maturity category during 1994.
NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Company is required to maintain cash reserve balances on transaction
accounts and non-personal time deposits with the Federal Reserve Bank. These
reserve requirements can be offset by cash balances held at the Company. The
average amount of these reserve balances for the year ended December 31, 1994
was $2,475,000.
NOTE 5. INVESTMENT SECURITIES
As a result of a temporary decline in the market value of securities-
available-for-sale, the Company recorded unrealized losses totaling $1,178,000
and $122,000, which are included in shareholders' equity on the consolidated
balance sheet at December 31, 1994 and 1993, respectively. Several mortgage-
backed securities with a market value of $16,724,000 and an amortized cost of
$17,196,000, at the time of transfer, were transferred from the available for
sale to the held to maturity. Previously recorded unrealized losses with a
balance of $433,000 at December 31, 1994 are included in shareholder's equity
and are being amortized over the securities' remaining lives. The decline in
the market value of the portfolio reflects the current interest rate
environment; such decline is deemed temporary in nature. Accreted discounts and
amortized premiums on investment securities are included in interest income.
Unrealized and realized gains and losses related to holding or selling
securities are calculated using the specific identification method.
F-10
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FHLB stock of $1,067,000 at December 31, 1994 is not deemed a marketable
equity security, as it is not traded on a registered security exchange, and is
carried at cost. Securities held-to-maturity carried at amortized cost of
approximately $4,390,000, and with a fair value of $4,264,000, on December 31,
1994 were pledged as required by law.
The amortized cost basis, gross unrealized holding gains and losses and
estimated market values of securities-available-for-sale at December 31, 1994
were as follows:
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING MARKET
1994 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
U.S. Government securities........ $22,935 $ -- $229 $22,706
Mortgage-backed securities........ 8,067 -- 516 7,551
Federal Reserve Bank and
FHLB Stock....................... 1,602 -- -- 1,602
------- ------- ---- -------
Total........................... $32,604 $ -- $745 $31,859
======= ======= ==== =======
</TABLE>
The amortized cost, gross unrealized gains and losses and estimated market
value of securities held-to-maturity at December 31, 1994 are as follows:
SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
U.S. Government securities........ $ 1,250 $ -- $ 28 $ 1,222
Mortgage-backed securities........ 17,525 -- 784 16,741
------- ------- ---- -------
Total........................... $18,775 $ -- $812 $17,963
======= ======= ==== =======
</TABLE>
Securities available-for-sale as of December 31, 1993 included Federal
Reserve Bank stock carried at $588,000, which approximates market. FHLB stock
of $1,712,000 at December 31, 1993 is not deemed a marketable equity security,
as it is not traded on a registered security exchange, and is carried at cost.
Securities available for sale carried at approximately $4,142,000 and with a
market value of $4,130,000 at December 31, 1993 were pledged as required by
law.
The amortized cost, gross unrealized holding gains and losses and estimated
market values of securities available-for-sale at December 31, 1993 are as
follows:
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
1993 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Mortgage-backed securities....... $38,597 $56 $178 $38,475
Federal Reserve Bank and FHLB
Stock........................... 2,300 -- -- 2,300
------- --- ---- -------
Total.......................... $40,897 $56 $178 $40,775
======= === ==== =======
</TABLE>
F-11
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Losses from the sale of available for sale debt securities in 1994 were
$195,000. Net gains from the sale of debt and equity securities in 1993 were
$56,000. No investment securities were sold during 1992.
At December 31, 1994, the average life of mortgage-backed securites
classified as available-for-sale was approximately 3.5 years, and the average
maturity was approximately 10 years. At December 31, 1994, the scheduled
maturities of debt securities available for sale were as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------- ------------
(IN THOUSANDS OF DOLLARS)
<C> <S> <C> <C>
U.S. Goverment
Within one year Obligations............. $ 14,707 $ 14,648
U.S. Goverment
After one year through five years Obligations............. 8,228 8,058
Mortgage-backed
After five years through ten years Securities.............. 8,067 7,551
------------ ------------
Total................................................... $ 31,002 $ 30,257
============ ============
</TABLE>
At December 31, 1994, the scheduled maturities of debt securities held to
maturity were as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------- ------------
(IN THOUSANDS OF DOLLARS)
<C> <S> <C> <C>
Mortgage-backed
After one year through five years Securities.............. $ 13,696 $ 12,992
U.S. Goverment Obliga-
tions.................. 1,250 1,222
Mortgage-backed
After five years through ten years Securities.............. 3,829 3,749
------------ ------------
Total................................................... $ 18,775 $ 17,963
============ ============
</TABLE>
NOTE 6. LOANS AND LEASES
The following is a summary of the loan and lease portfolio on December 31:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Commercial, financial and agricultural................. $138,193 $197,384
Real estate--Mortgage.................................. 11,993 31,202
Real estate--Construction.............................. 7,734 23,559
Installment............................................ 9,897 14,961
Lease financing........................................ 129 447
-------- --------
Subtotal............................................. 167,946 267,553
Less unearned income................................... 12 39
-------- --------
Loans and leases, net of unearned income............. $167,934 $267,514
======== ========
</TABLE>
Included in the loan portfolio are loans on which the Company has ceased the
accrual of interest or renegotiated the terms to provide for a reduction or
deferral of interest. At December 31, 1994 and 1993, such loans amounted to
approximately $7,614,000 and $19,287,000, respectively. Interest foregone on
nonaccrual loans in 1994, 1993 and 1992 totaled $1,609,000, $2,214,000 and
$728,000, respectively.
F-12
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Loss Reserve
Following is a summary of the activity in the loan loss reserve:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Balance at beginning of year.................... $14,313 $ 3,854 $2,845
Provision charged to expense.................... 3,825 16,213 3,404
Loans charged off(1)............................ (10,439) (6,191) (2,543)
Recoveries on loans previously charged off...... 562 437 148
Balance at end of year.......................... $ 8,261 $14,313 $3,854
</TABLE>
- --------
(1) $5.0 million of total Charge-offs for the year ended December 31, 1994 were
due to the discounted sale of $14.1 million in non-performing loans.
NOTE 7. PREMISES AND EQUIPMENT
Following is a summary of the premises and equipment accounts at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Leasehold improvements......................... $ 1,962 $ 1,949
Furniture, fixtures and equipment.............. 4,723 4,214
------------ ------------
6,684 6,163
============ ============
Less accumulated depreciation and amortization. 4,767 4,476
------------ ------------
Premises and equipment, net.................... $ 1,917 $ 1,687
============ ============
</TABLE>
Depreciation and amortization expense related to property and leasehold
improvements was $739,000, $948,000 and $1,555,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
NOTE 8. REAL ESTATE OWNED
At December 31, 1994 and 1993, other assets include approximately $2,346,000
and $2,229,000, respectively, of real estate owned. Additionally, at December
31, 1994, other assets include approximately $878,000 of other foreclosed
personalty.
NOTE 9. TIME CERTIFICATES OF DEPOSIT, OTHER SHORT-TERM BORROWINGS AND INTEREST
EXPENSE
The following summarizes time certificates of deposit outstanding at December
31:
<TABLE>
<CAPTION>
1994 1993
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Time certificates of deposit under $100,000... $ 63,186 $ 74,830
Time certificates of deposit, $100,000 and
over......................................... 25,333 42,733
------------ -------------
Total....................................... $ 88,519 $ 117,563
============ =============
</TABLE>
The Company terminated the issuance of commercial paper and retired advances
from the Federal Home Loan Bank in December, 1993. During 1994, the Company
made immaterial borrowings on its FHLB advance line and repaid them promptly.
F-13
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense relating to deposits and other borrowed funds for each of
the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Time certificates of deposit under $100,000......... $2,638 $3,337 $ 3,839
Time certificates of deposit, $100,000 and over..... 1,254 2,178 3,144
Other deposits...................................... 2,361 2,857 3,353
Short-term borrowings............................... 6 515 856
Note payable........................................ 9 112 173
------ ------ -------
Total Interest Expense............................ $6,268 $8,999 $11,365
====== ====== =======
</TABLE>
NOTE 10. OTHER INCOME AND OTHER EXPENSES
December 31, 1994, 1993, and 1992 other loan fee income includes net mortgage
servicing fees of $317,000, $618,000 and $812,000, respectively, and other loan
processing fees and late charges. Miscellaneous fees include credit card fee
income and other account servicing fees. The "other" category of other income
includes the gain on the sale of the merchant card portfolio of $174,000 in
1994. Other income for 1994, 1993 and 1992, includes net gains related to the
sale of mortgage loans of $272,000, $1,076,000 and $994,000 for the years ended
December 31, 1994, 1993 and 1992, respectively, in addition to net losses on
the sale of securities and fixed assets.
The following is included in other expenses in the accompanying consolidated
statements of operations at December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
FDIC assessments.................................... $ 878 $ 921 $ 789
Office supplies and office expense.................. 612 800 1,000
Real estate owned................................... 641 1,733 479
Business development and advertising................ 364 271 371
Appraisal fees...................................... 309 257 57
Customer services................................... 286 382 687
Courier service..................................... 280 255 256
Amortization of goodwill............................ -- 1,266 105
Amortization of core deposits....................... -- -- 513
Other............................................... 1,446 2,175 2,082
------ ------ ------
Total Other Expenses.............................. $4,816 $8,060 $6,339
====== ====== ======
</TABLE>
F-14
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. INCOME TAXES
The components of consolidated income tax (benefit) expense, for the three
years ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Current:
Federal......................................... $ (923) $(2,100) $ 610
State........................................... 8 -- 222
------ ------- -----
$ (915) $(2,100) $ 832
====== ======= =====
Deferred:
Federal......................................... $1,202 $(1,352) $(193)
State........................................... (2) 219 (68)
------ ------- -----
1,200 (1,133) (261)
====== ======= =====
$ 285 $(3,233) $ 571
====== ======= =====
</TABLE>
Deferred income taxes for 1994, 1993 and 1992 reflect the impact of
"temporary differences" between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations.
Principal items making up the deferred income tax provisions follow.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Financial statement income from leases different
from amounts recognized for tax................. $ 18 $ (93) $(134)
Depreciation recognized for tax different from
amount recognized for financial statement
depreciation.................................... 86 (162) (33)
Financial statement bad debt deduction different
than tax bad debt deduction..................... 1,477 (2,488) (378)
Financial statement deferred loan fees and costs
different from amounts recognized for tax....... (293) 79 135
Prepaid expense recognized for tax different from
amounts recognized for financial statement
purposes........................................ (34) -- 293
Financial statement other real estate owned
deduction different from tax other real estate
owned deduction................................. 78 (629) --
State income tax benefit recognized for tax
different from amounts recognized for financial
statement purposes.............................. (413) (416) --
Other items, net................................. 261 (52) (144)
Less: net deferred tax valuation allowance....... 20 2,628 --
------ ------- -----
$1,200 $(1,133) $(261)
====== ======= =====
</TABLE>
F-15
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reasons for the difference between income tax benefit and expense and the
amount computed by applying the statutory Federal income tax rate to the loss
or income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ------- ----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
35% of pre-tax (loss) income......................... $ 8 $(5,362) $440
State income taxes, net of Federal Tax benefit....... 4 (1,686) 91
Goodwill and other................................... (6) 771 40
State income tax limitation of net operating loss.... 259 416 --
Provision for deferred tax asset valuation allowance. 20 2,628 --
---- ------- ----
$285 $(3,233) $571
==== ======= ====
</TABLE>
Net deferred tax asset and liabilities reflect the cumulative inventory of
"temporary differences" resulting from the differences of assets and
liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations which will result in taxable or deductible amounts in
future years when the reported amount of the asset or liability is recovered or
settled, respectively. As of December 31, 1994 the Company's gross deferred
assets, deferred liabilities, and tax asset valuation allowance totaled
$3,916,000, $801,000 and $3,115,000, respectively as compared to gross deferred
assets, deferred liabilities, and tax asset valuation allowance of $4,978,000,
$995,000 and $2,783,000, respectively, as of December 31, 1993.
At December 31, the principal items making up the net deferred income tax
(assets) and liabilities are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Financial statement income from leases dif-
ferent from amounts recognized for tax..... $ 0 $ (9)
Depreciation recognized for tax different
from amount recognized for financial state-
ment depreciation.......................... 434 164
Financial statement bad debt deduction dif-
ferent than tax bad debt deduction......... (2,276) (3,182)
Financial statement deferred loan fees and
costs different from amounts recognized for
tax........................................ 294 652
Prepaid expense recognized for tax different
from amounts recognized for financial
statement purposes......................... 73 179
Financial statement other real estate owned
deduction difference from tax other real
estate owned deduction..................... (136) (629)
Financial statement occupancy expense deduc-
tion difference from tax occupancy expense
deduction.................................. (390) (406)
State income tax benefit recognized for tax
different from amounts recognized for fi-
nancial statement purposes................. (393) (416)
Other items, net............................ (254) (288)
Unrealized loss on available for sale secu-
rities..................................... (467) (48)
Less: net deferred tax valuation allowance.. 3,115 2,783
------------ ------------
Net deferred tax asset...................... $ 0 $ (1,200)
============ ============
</TABLE>
The net deferred tax asset for the year ended December 31, 1993, is included
in other assets of the consolidated balance sheets.
F-16
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMON STOCK AND STOCK OPTIONS
On February 20, 1992, the Company declared a 6% stock dividend for
Shareholders of record on March 9, 1992. The weighted average number of shares
outstanding at December 31, 1992 has been restated to reflect the 6% stock
dividend in 1992.
Under a stock option plan approved by the Board of Directors in 1982,
options have been granted to key personnel for a term of ten years
exerciseable at 25% annually at the fair market value at the date of grant.
During 1991, the Company's Board of Directors adopted the Ventura County
National Bancorp 1991 Stock Option Plan (1991 Plan). The 1991 Plan provides
that incentive stock options be granted to full-time salaried officers and
management level employees of the Company or its subsidiaries for a term of 10
years exerciseable at 20% annually at the fair market value at the date of the
grant. The 1991 Plan also provides that non-qualified stock options be granted
to directors, key full-time salaried officers and management level employees
of the Company or its subsidiaries for a term of 10 years, exerciseable at 25%
annually at the fair market value at the date of grant.
Under the 1982 stock option plan, there were 21,813, 46,741 and 49,648
options outstanding at December 31, 1994, 1993 and 1992, respectively. At
December 31, 1994, there were 4,362 shares which were exercisable under the
1982 stock option plan at a price of $4.81 per share. During 1991, 46,640
options were granted while no options were granted during 1992, 1993, and
1994. During 1992, 15,263 options were exercised, while no options were
exercised during 1994, 1993 or 1991. In 1994, 1993 and 1992 respectively,
24,928, 2,907 and 59,104 options expired.
Under the 1991 Plan, there were 171,588, 167,418 and 136,730 options
outstanding at December 31, 1994, 1993 and 1992, respectively, which are
exerciseable at prices ranging from $2.13 to $6.84 per share. During 1994,
1993 and 1992, 25,000, 104,888 and 9,000 options were granted, respectively.
At December 31, 1994, 69,955 of these options were exerciseable. Option prices
and number of shares under option have been restated for stock dividends and
stock splits. A total of 20,830 and 74,200 options were canceled in 1994 and
1993.
In October 1989, the Company established an Employee Stock Ownership Plan
(ESOP), for which all full-time employees who have completed one year of
service at the Plan year end and all part-time employees who work at least
1,000 hours per year and have completed one year of service at the Plan year
end are eligible. The ESOP was funded by a $4,000,000 loan to the Company from
an independent third party. These debt proceeds were lent to the ESOP which
used the proceeds to acquire 444,444 newly issued shares of the Company's
common stock. The Company raised $1,555,000 from a private placement of
719,580 shares of common stock and issued $125,000 in notes payable during
1993 and used the proceeds to retire the remaining principal on the ESOP note
payable to a third party. At December 31, 1994, there were 230,014, 185,840,
and 28,590 shares released, held in suspense, and issued to individuals who
are no longer employees of the Company, respectively. The fair market value of
shares held in suspense at December 31, 1994 was $406,525.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Position 93-6, "Employers Accounting for Employee Stock Ownership Plans."
This SOP requires the Company to record compensation expense upon release of
shares to employees at the current fair value of shares released. Prior to
adoption of SOP 93-6, the Company recorded compensation expense for allocated
shares based on the historical cost of $9.00 per share. The adoption of SOP
93-6 had no effect on the reported results of operations of the Company, as
the Company made no contributions to the Plan in 1994 and no shares were
released to participants.
Unallocated shares held in a suspense account by the ESOP are released to
the Plan participants in proportion to contributions required to service the
debt between the Company and the Plan, in relation to the total debt
outstanding, as specified in the debt agreement, within the limitations of
Internal Revenue Code Section 415 and deductibility of ESOP contributions by
the Company for tax purposes.
F-17
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, 1993 and 1992, the Company incurred $nil, $635,000, and
$571,000 of compensation expense and $nil, $112,000, and $173,000 of interest
expense, respectively, related to the ESOP and note payable.
During 1989 the Company issued 649,647 shares of common stock and 295,294
warrants to purchase common stock under a common stock subscription rights
offering. The warrants entitled the holder to purchase one share of common
stock at $7.41 and expired on June 6, 1994.
NOTE 13. 401(K) PLAN
The Company established a 401(k) plan on July 1, 1994 for which all full-
time employees who have completed 90 consecutive days of service and all part-
time employees who work at least 1000 hours per year and have completed 90
consecutive days of service are eligible for enrollment. Employees may
contribute a percentage of their salary pursuant to IRS regulatory maximums,
and under the plan, the Company matches 50% of employee contributions up to
3%. During 1994, the Company contributed $48,844 to the 401(k) plan.
NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial instruments is
made in accordance with SFAS No. 107. The estimates have been determined by
the Company using available market information and appropriate valuation
methodologies. The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -----
(IN THOUSANDS OF (IN THOUSANDS OF
DOLLARS) DOLLARS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............... $ 11,442 $ 11,442 $ 15,943 $ 15,943
Federal funds sold...................... 27,000 27,000 18,000 18,000
Interest bearing deposits with other
financial institutions................. 694 694 2,180 2,180
Investment securities................... 50,634 49,822 40,775 40,775
Net loans and leases.................... 159,673 148,692 233,582 233,437
Liabilities:
Demand deposits and savings............. 147,823 147,823 200,726 200,726
Time deposits........................... 88,519 88,366 117,563 117,194
Other borrowings........................ 125 125 125 125
Off-balance-sheet instruments (unrealized
gains (losses)):
Commitments to extend credit............ 0 0 0 0
Standby letters of credit............... 0 0 0 0
</TABLE>
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate
of fair value.
F-18
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Bearing Deposits with Other Financial Institutions
The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the current market rates for deposits
with similar remaining maturities.
Investment Securities
For securities held as investments, fair value equals quoted market prices.
Estimated fair value for mortgage-backed securities issued by quasi-
governmental agencies is based on quoted market prices.
Net Loans and Leases
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. During the second
quarter of 1994, $14.1 million in non-performing loans were sold in a bulk sale
at 67% of book value. As such, management utilized this valuation factor in
placing a fair value on non-performing loans of $7,945,000 at December 31,
1994. It was not practicable to reasonably assess the credit adjustment that
would be applied in the marketplace for non-performing loans at December 31,
1993. Therefore, non-performing loans of $19,619,000 are excluded at December
31, 1993. Interest rates on such loans ranged from 7-10%, maturities ranged
from zero to four and one half years, and approximately 95% were real estate
secured.
Demand Deposits, Savings and Time Deposits
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Other Borrowings and Notes Payable
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. Fair
value approximates carrying value in 1993 as other borrowings and notes payable
had variable interest rates that adjust with the market. At December 31, 1994,
the differential between the current note payable's carrying value and its
discounted value is insignificant.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is 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 counter-parties. The
fair value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counter-parties at the reporting date. Current rates have
increased since the commitments were made, yet the fee applied to the balance
of commitments outstanding resulted in values which are insignificant for 1994
and 1993.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994. Considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-19
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to certain financial instruments in the normal course
of business with a degree of off-balance sheet risk. These instruments include
commitments to extend credit, standby, and commercial letters of credit, which
are designed to meet the needs of the banks' customers.
Commitments to extend credit and standby and commercial letters of credit are
evaluated on a case-by-case basis dependent on each customer's credit
worthiness. The Company has a rating process which is applied to each customer.
The resulting rating establishes varying levels of required credit approvals
and limits of lending. Monitoring procedures include, but are not limited to,
monthly review of customer accounts by a management committee. The agreements
with the customers normally require collateral and provide restrictive
covenants under generally the same conditions as other lending activities of
the Company. Such collateral varies but may include accounts receivable,
inventories, property and equipment, and real property. The policy of the
Company is to limit lending to 75% of the market value of the collateral. The
Company's exposure to credit loss in the event of non-performance by the party
related to these instruments is represented by the contractual amount of these
instruments in the case of commitments to extend credit. As of December 31,
1994, the Company did not have commitments to borrowers that have additional
borrowings which have been classified as nonperforming loans and/or as
potential problem loans.
The Company conducts business primarily in Southern California and the
ability of the Company's customers to honor their loan agreements is dependent
on the economic health of this service area. Although the Company generally
provides loans and financial instruments to a broad variety of industries and
customers, at December 31, 1994 and 1993, approximately $67.1 million and $91
million, respectively represented loans, commitments and letters of credit to
individuals and companies in the real estate industry (of which, $6.7 million
and $13 million, respectively, consisted of mortgage loans to individuals).
Further, a substantial portion of the collateral for commercial, financial and
agricultural loans is real estate.
Commitments to Extend Credit
Commitments to extend credit represent agreements to lend, on demand and
subject to the restrictive covenants, moneys to a customer up to a designated
limit. The commitments generally have fixed expiration dates, variable interest
rates, and normally require payment of an annual fee. Since many of the
commitments historically expire without being fully drawn upon and are subject
to regular monitoring and certain restrictions, the total commitment amounts
outstanding do not necessarily represent future cash requirements. The total
amount of commitments to extend credit at December 31, 1994 was $30,880,000,
compared with $46,029,000 at December 31, 1993.
Standby and Commercial Letters of Credit
Standby and commercial letters of credit are conditional commitments issued
by the Company to guarantee the performance of their customers to a third
party. Such letters of credit are normally issued to support performance bonds
and private borrowing arrangements, which include guarantees to suppliers
outside of the United States. Standby and commercial letters of credit
amounting to $2,898,000 were outstanding at December 31, 1994, all of which are
expected to expire by December 31, 1995. Standby and commercial letters of
credit amounted to $5,147,000 as of December 31, 1993, all of which expired by
December 31, 1994.
F-20
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company leases office premises and certain equipment under operating
leases which expire at various dates through 2006. Total rental expense, net of
sublease income, for all non-cancelable operating leases amounted to
approximately $1,528,000, $1,682,000 and $1,645,000 for the three years ended
December 31, 1994, 1993 and 1992, respectively. Future minimum commitments
under these leases of premises and equipment as of December 31, 1994, net of
sublease income and including estimated CPI increases, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
OF DOLLARS
------------
<S> <C>
1995......................................................... $1,234
1996......................................................... 984
1997......................................................... 958
1998......................................................... 1,068
1999......................................................... 1,108
Thereafter................................................... 5,634
</TABLE>
Litigation
In the normal course of business, the Company is subject to various legal
actions. It is the opinion of management, based upon the opinion of legal
counsel, that such litigation will not have a material impact on the financial
position or results of operations of the Company.
NOTE 16. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries have granted loans to certain officers and
directors of the Company, and to businesses with which they are associated, in
the ordinary course of business. These loans are made under terms which are
consistent with the Company's normal lending policies. The amounts of these
loans were approximately $7,730,000 and $12,775,000 at December 31, 1994 and
1993, respectively. During 1994, new loans totaling $4,608,000 were made, and
net repayments of approximately $9,653,000 were received. During 1993, new
loans totaling $6,093,000 were made, and net repayments of approximately
$5,624,000 were received. Interest and fees earned on these loans approximated
$762,000, $1,111,000 and $1,176,000 in 1994, 1993 and 1992, respectively.
NOTE 17. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES
Certain restrictions exist regarding the ability of the subsidiaries to
transfer funds to the Company in the form of cash dividends, loans or advances.
See Note 18 for discussion regarding restrictions placed on the Company per the
Formal Agreement and Consent Order. Generally, the approval of the Comptroller
of the Currency is required to pay dividends in excess of earnings retained in
the current year plus retained net profits for the two preceding years. Also,
under Federal Reserve regulation, a bank subsidiary is limited in the amount it
may loan to affiliates, including the Company, unless such loans are
collateralized by specific obligations.
At December 31, 1994 and 1993, the Company had no loans to affiliates.
NOTE 18. CAPITAL RESOURCES AND REGULATORY MATTERS
The Company is required by federal regulation to meet certain capital
standards. The risk-based capital standards require a minimum total capital of
8.0% of "risk-adjusted assets," as defined by the standard. At
F-21
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
least half of the required capital must contain Tier 1 capital, which consists
primarily of common stock and retained earnings, less goodwill. As of December
31, 1994 and 1993, the Company was in compliance with the requirements.
At December 31, 1994 and 1993, the Company's risk-based capital ratios were
12.61% and 8.73%, respectively. Additionally, the capital standards require the
Company to maintain a minimum leverage ratio of Tier 1 capital to average
assets and a Tier 1 capital to risk-weighted assets ratio of at least 4%. At
December 31, 1994 and 1993, the Company's leverage capital ratios were 7.53%
and 6.02%, respectively, and Tier 1 capital ratios were 11.32% and 7.43%,
respectively.
Regulatory Matters
At periodic intervals, both the Office of the Comptroller of the Currency and
the FDIC routinely examine the bank subsidiaries' financial statements as part
of their legally prescribed oversight of the banking industry. Based on these
examinations, the regulators can direct that the Company's financial statements
be adjusted in accordance with their findings. VCNB entered into a Formal
Agreement (Formal Agreement) with the OCC on March 19, 1993 while Frontier
entered into a Consent Order (Consent Order) with the OCC on March 29, 1993.
The significant common requirements of the Formal Agreement and the Consent
Order with respect to reviewing and correcting certain deficiencies identified
in the OCC examinations of VCNB and Frontier include conducting a program to
evaluate and improve board supervision and management, developing a program
designed to improve loan administration, developing a program regarding asset
diversification, obtaining current credit information on any loans lacking such
information, reviewing and revising loan policy, establishing an independent
loan review program, developing and implementing a program to collect or
strengthen criticized assets, reviewing and maintaining an adequate loan loss
reserve, developing a new long-range strategic plan, developing and
implementing a long-term capital program, reviewing and revising liquidity and
funds management policy, correcting violations of law cited by the OCC and
obtaining approval from the OCC to declare or pay a dividend. In addition, the
Consent Order requires that Frontier appoint a full-time President and Chief
Executive Officer and maintain, as of May 31, 1993 and beyond, a Tier 1 capital
ratio of 9.50% and a leverage ratio of 7.00%. Kathleen L. Kellogg became
President and Chief Executive Officer at Frontier in November 1994, and her
predecessor, Larry Sallinger was hired May 5, 1993. At December 31, 1994,
Frontier's Tier 1 capital and leverage ratios were 12.29% and 8.32%,
respectively.
The Formal Agreement, which was amended on February 3, 1994, required VCNB to
achieve a Tier 1 risk-based capital ratio of 12.00% and a leverage ratio of
7.00% by September 30, 1994. At September 30, 1994, VCNB's Tier 1 risk based
capital ratio was 9.44% and its leverage capital ratio was 6.88%, which did not
meet the higher leverage and Tier 1 capital ratios required by the formal
agreement. On October 18, 1994, VCNB submitted to the OCC its revised plan for
restoring capital and the OCC did not object to the implementation of the plan,
as proposed. VCNB applied for and received an extension of the date by which
such ratios are required to be achieved to June 30, 1995. As of December 31,
1994, VCNB's Tier 1 capital ratio was 10.92%, and its leverage ratio was 7.21%.
The Formal Agreement amendment further requires VCNB to seek reimbursement of
$3.4 million for all interest paid by VCNB to Ventura in connection with a
deposit account at VCNB which was related to the issuance of commercial paper.
The Company has committed to the completion of a rights offering, which is
scheduled to occur during the second quarter of 1995. The primary purpose of
the offering is to increase the capital bases of the Company and each of its
subsidiaries to permit growth in a post recessionary economy and to enable VCNB
to meet the requirements of the Formal Agreement. As of December 31, 1994, VCNB
F-22
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
needed approximately $1.4 million in additional capital to bring its Tier 1
capital ratio to 12.00%. The Company believes that compliance with the 12% Tier
1 capital ratio requirement, if achieved from sources noted above, will satisfy
the reimbursement requirement. Until such time as VCNB is reimbursed, the OCC
must authorize any payment from VCNB to Ventura.
VCNB and Frontier are in compliance with, or are in the process of complying
with, all of the items required under the Formal Agreement and Consent Order,
respectively, and management does not believe the Formal Agreement and Consent
Order will have any adverse material impact on its future operations. However,
any deficiency in compliance with the requirements of the Formal Agreement or
Consent Order could result in further regulatory restrictions.
The FDIC Improvement Act of 1991 (the 1991 Act) provides for a rating system
for insured institutions based on capital adequacy. Institutions are
categorized as critically undercapitalized, significantly undercapitalized,
undercapitalized, adequately capitalized and well capitalized. Regulatory
agencies have adopted definitions of how institutions are ranked for prompt
corrective action purposes and are as follows; (i) a well capitalized
institution is one that has a leverage ratio of 5%, a Tier 1 risk-based capital
ratio of 6%, a total risk-based capital ratio of 10% and is not subject to any
written order or final directive by the regulatory agency to meet and maintain
a specific capital level, (ii) an adequately capitalized institution is one
that meets the minimum required capital adequacy levels but not that of a well
capitalized institution, (iii) an undercapitalized institution is one that
fails to meet any one of the minimum required capital adequacy levels but not
as undercapitalized as a significantly undercapitalized institution, (iv) a
significantly undercapitalized institution is one that has a total risk-based
capital ratio of less than 6% and/or a leverage ratio of less than 3% and (v) a
critically undercapitalized institution is one with a leverage ratio of less
than 2%. Under the "prompt correction" provisions of the 1991 Act, banks that
become significantly undercapitalized are subject to a requirement to
recapitalize, merge with another financial institution, restrict interest rates
paid on deposits, or restrict transactions with affiliates. Critically
undercapitalized financial institutions are subject to appointment of a
receiver by the OCC.
On February 2, 1993, Ventura County National Bancorp entered into a
Memorandum of Understanding with the Federal Reserve Bank. The Memorandum
specified the following actions to be taken: Fifteen days notice to the Reserve
Bank is required prior to the payment of dividends and prior to incurring any
debt for other than operating purposes. The Parent may not repurchase any of
its outstanding stock without prior approval from the Reserve Bank. Within 45
days of each quarter end, the Company shall furnish to the Reserve Bank written
progress reports detailing the form and manner of actions taken to attain
compliance, as well as the Parent company only balance sheet and statement of
operations for the quarter end. Thirty days advance notice must be given to the
Reserve Bank prior to adding or replacing a director, employing a senior
executive officer, or promoting an existing employee to an officer.
Pursuant to the provisions of the Memorandum, the Company submitted a summary
of measures that have or are being taken to improve the financial condition of
the subsidiary banks, a summary of measures taken to improve the director's
supervision of the subsidiary banks, and steps taken to improve the
effectiveness of the audit and credit review functions. Board members were
designated to be responsible for monitoring and coordinating adherence to the
provisions of the Memorandum, which is to remain in effect until the individual
provisions are stayed, modified, terminated, or suspended by the Reserve Bank.
F-23
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following financial information represents the balance sheets of Ventura
County National Bancorp (Parent Company only) as of December 31, 1994 and 1993
and the related statements of income and cash flows for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Assets
Cash......................................... $ 37 $ 90
Equity in Bank subsidiaries.................. 19,143 20,402
Other assets................................. -- 38
------------ ------------
Total assets............................... $ 19,180 $ 20,530
============ ============
Liabilities
Note payable................................. $ 125 $ 125
Other liabilities............................ 3 35
------------ ------------
Total liabilities.......................... 128 160
============ ============
Shareholders' equity........................... 19,052 20,370
------------ ------------
Total liabilities and shareholders' equity. $ 19,180 $ 20,530
============ ============
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1994 1993 1992
------ -------- ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Income
Interest...................................... $ -- $ 193 $ 509
Management fees............................... 1,067 1,729 1,710
------ -------- ------
1,067 1,922 2,219
====== ======== ======
Expense
Interest...................................... 9 199 454
Salaries and benefits......................... 1,059 1,249 1,211
Miscellaneous operating....................... 62 718 425
------ -------- ------
1,130 2,166 2,090
====== ======== ======
Income (loss) before income taxes and undistrib-
uted net income (loss) of subsidiaries......... (63) (244) 129
Income tax expense allocated.................... (2) -- 49
------ -------- ------
(61) (244) 80
====== ======== ======
Equity in undistributed net earnings (deficit)
of Bank subsidiaries........................... (201) (11,843) 605
------ -------- ------
Net income (loss)............................... $ (262) $(12,087) $ 685
====== ======== ======
</TABLE>
F-24
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
----- -------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss).................................. $(262) $(12,087) $ 685
Adjustments to reconcile net income (loss) to cash
flows provided by operating activities:
Earnings (loss) from subsidiaries.................. 201 11,843 (605)
Amortization....................................... -- 231 33
Change in other assets............................. 39 2 146
Change in other liabilities........................ (31) 24 (367)
Decrease in deferred compensation related to ESOP.. -- 635 572
Net cash (applied to) provided by operating
activities........................................ (53) 648 464
Cash flows from investing activities:
Capital Contribution to Subsidiary................. -- (150) --
Change in interest-bearing deposits due from banks. -- 8,875 (1,698)
Proceeds from maturity of investment............... -- -- --
Net cash provided by (applied to) investing activi-
ties................................................ -- 8,725 (1,698)
Cash flows from financing activities:
Change in other short-term borrowings.............. -- (8,860) 1,842
Repayment of note payable.......................... -- (2,188) (572)
Issuance of note payable........................... -- 125 --
Issuance of stock.................................. -- 1,430 25
Net cash (applied to) provided by financing activi-
ties................................................ -- (9,493) 1,295
Net (decrease) increase in cash and cash equivalents. (53) (120) 61
Cash and cash equivalents at beginning of year..... 90 210 149
Cash and cash equivalents at end of year........... $ 37 $ 90 $ 210
Supplemental information:
Cash paid during the year for interest............. $ 9 $ 199 $ 454
Cash paid during the year for income taxes......... $ 3 $ 300 $ 1,155
</TABLE>
NOTE 20. ACQUISITION OF SERVICING RIGHTS
On November 15, 1990, VCNB purchased the rights to service certain loans held
by the RTC for $1,735,000. Amortization expense for 1994 and 1993 was $40,000
and $486,000, respectively. The remaining mortgage servicing rights totaling
$320,000 were written off during 1994 in conjunction with the sale of the
mortgage servicing department.
NOTE 21. INTANGIBLE ASSETS
As a result of the acquisition of Frontier in October 1989, the Company
recorded goodwill representing the difference between the cost of the
acquisition and the fair value of the assets acquired. Goodwill amortization in
1993 includes a write-off in the amount of $1,167,000 based on the Company's
intent to sell Frontier at or near tangible book value. At December 31, 1994,
the Company is no longer actively marketing Frontier.
F-25
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 22. QUARTERLY INFORMATION, 1994 AND 1993
The following table sets forth the Company's unaudited results of operations
for each of the quarters of 1994 and 1993. This information, in the opinion of
management, includes all adjustments necessary to state fairly the information
set forth herein. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1994
----------------------------------
4TH 3RD 2ND 1ST
------- ------- ------- -------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income............................ $ 5,640 $ 5,511 $ 5,593 $ 5,391
Interest Expense........................... 1,554 1,503 1,549 1,661
------- ------- ------- -------
Net Interest Income........................ 4,086 4,008 4,044 3,730
Provision for Loan Losses.................. 550 400 2,075 800
Other Income............................... 374 591 1,956 1,143
Other Expenses............................. 3,864 3,559 4,474 4,187
------- ------- ------- -------
Income (Loss) before taxes................. 46 640 (549) (114)
Income taxes............................... (4) 75 214 0
------- ------- ------- -------
Net Income (Loss).......................... $ 50 $ 565 $ (763) $ (114)
======= ======= ======= =======
Earnings per share:
Net Income (Loss)........................ $ .01 $ .09 $ (.12) $ (.02)
======= ======= ======= =======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1993
----------------------------------
4TH 3RD 2ND 1ST
------- ------- ------- -------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income............................ $ 5,977 $ 6,239 $ 6,816 $ 6,878
Interest Expense........................... 1,976 2,207 2,440 2,376
------- ------- ------- -------
Net Interest Income........................ 4,001 4,032 4,376 4,502
Provision for Loan Losses.................. 1,800 6,062 4,326 4,025
Other Income............................... 1,081 1,000 1,220 1,519
Other Expenses............................. 6,151 4,489 5,542 4,657
------- ------- ------- -------
Total Expense.............................. 7,951 10,551 9,868 8,682
======= ======= ======= =======
Income (Loss) before taxes................. (2,869) (5,519) (4,272) (2,661)
Income taxes............................... 671 (1,218) (1,602) (1,085)
------- ------- ------- -------
Net Income (Loss)........................ $(3,540) $(4,301) $(2,670) $(1,576)
======= ======= ======= =======
Earnings per share:
Net Income (Loss)........................ $ (0.62) $ (0.77) $ (0.48) $ (0.28)
======= ======= ======= =======
</TABLE>
F-26
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION ANY OFFERING MADE HEREBY GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VENTURA COUNTY NATIONAL BANCORP OR
SANDLER O'NEILL & PARTNERS, L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO
ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Documents Incorporated by Reference....................................... 3
Prospectus Summary........................................................ 4
Summary Selected Consolidated Financial and Other Data.................... 13
Summary of Recent Developments............................................ 14
Risk Factors.............................................................. 17
The Company............................................................... 25
The Rights Offering....................................................... 30
Certain Federal Income Tax
Consequences............................................................. 43
Standby Purchase Agreements............................................... 44
Reasons for the Offering and Use of Proceeds.............................. 46
Capitalization............................................................ 47
Market Price of Common Stock and Dividends................................ 49
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 50
Business.................................................................. 67
Supervision and Regulation................................................ 86
Shareholdings of Certain Beneficial Owners and Management................. 97
Description of Capital Stock.............................................. 101
Legal Matters............................................................. 101
Experts................................................................... 101
Index to Financial Statements............................................. F-1
</TABLE>
================================================================================
================================================================================
[LOGO OF VENTURA COUNTY NATIONAL BANCORP APPEARS HERE]
VENTURA COUNTY
NATIONAL BANCORP
COMMON STOCK
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
--------------
PROSPECTUS
--------------
MAY 12, 1995
SANDLER O'NEILL
& PARTNERS, L.P.
================================================================================
<PAGE>
GRAPHICS APPENDIX
<TABLE>
<CAPTION>
PAGE WHERE
GRAPHIC OR IMAGE NARRATIVE DESCRIPTION OR
MATERIAL APPEARS CROSS REFERENCE
- ---------------- ----------------------------------------------------
<C> <S>
PAGE 2 Map of State of California with enlarged inset map of Southern California
showing six branch locations of Registrant's subsidiary banks.
</TABLE>
<PAGE>
PROSPECTUS
[LOGO OF VENTURA COUNTY NATIONAL BANCORP APPEARS HERE]
COMMON STOCK, NO PAR VALUE
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
Ventura County National Bancorp (on an unconsolidated basis, "Parent" and on
a consolidated basis, the "Company") is hereby distributing to the holders of
record at the close of business on May 10, 1995 (the "Record Date")
transferable rights (the "Rights") to subscribe for and purchase up to
$4,502,500 (2,001,111 shares) of common stock, no par value ("Common Stock")
for a cash price of $2.25 per share (the "Subscription Price"), subject to
reduction by the Company under certain circumstances. Holders of Rights
("Rights Holders") will be able to exercise their Rights until 5:00 p.m.,
Pacific time, on June 21, 1995, unless extended by the Company (the
"Expiration Time").
Each holder of Common Stock on the Record Date ("Record Date Holder") will
receive one Right for each 3.17 shares of Common Stock held of record on the
Record Date. In lieu of fractional Rights, the aggregate number of Rights
issuable by the Company to a shareholder will be rounded up to the next whole
number. Each Right entitles the Rights Holder to subscribe for one share (the
"Underlying Shares") of Common Stock (the "Basic Subscription Privilege").
Each Record Date Holder who fully exercises the Basic Subscription Privilege
will also be eligible to subscribe for additional shares of Common Stock (the
"Excess Shares") that are not otherwise subscribed for pursuant to the
exercise of the Basic Subscription Privilege, subject to availability,
proration and reduction by the Company under certain circumstances (the
"Oversubscription Privilege"). The Oversubscription Privilege is not
transferable. A Rights Holder's election to exercise the Oversubscription
Privilege must be made at the time the Basic Subscription Privilege is
exercised. Once a Rights Holder has exercised the Basic Subscription Privilege
or the Oversubscription Privilege, such exercise may not be revoked. The
Rights will be evidenced by transferable certificates.
The Company anticipates that it will enter into Standby Purchase Agreements,
pursuant to which certain institutional investors and high net worth
individuals (the "Standby Purchasers") would severally agree, subject in each
case to a maximum standby commitment and certain conditions, to acquire from
the Company at the Subscription Price $4,500,000 (2,000,000 shares) of Common
Stock, if any, available after the exercise of the Basic Subscription
Privilege and the Oversubscription Privilege. Such Standby Purchasers are
expected to require that the Company agree to sell, and guarantee the
availability of, an aggregate minimum of $2,000,000 (888,889 shares) of Common
Stock ("Additional Shares") to such persons at the Subscription Price if a
sufficient number of shares of Common Stock is not available after the
exercise of the Basic Subscription Privilege and the Oversubscription
Privilege to satisfy the purchase commitments of the Standby Purchasers (the
"Minimum Standby Obligation"). The Additional Shares would be offered to
Standby Purchasers only.
(continued on next page)
THE PURCHASE OF COMMON STOCK IN THE OFFERING INVOLVES A SIGNIFICANT DEGREE OF
INVESTMENT RISK. HOLDERS OF RIGHTS AND PROSPECTIVE PURCHASERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING
"RISK FACTORS." THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSIONER PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
SUBSCRIPTION UNDERWRITERS' PROCEEDS
PRICE COMMISSIONS(1) TO COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum(3):
Price Per Share..................... $2.25 $.14 $2.11
Total............................... $4,500,000 $291,596 $4,208,404
Maximum(4):
Price Per Share..................... $2.25 $.12 $2.13
Total............................... $6,502,500 $351,596 $6,150,904
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Sandler O'Neill & Partners L.P. ("Sandler O'Neill") will receive 1.5% of
the gross proceeds for Common Stock sold in the Offering pursuant to the
exercise of Rights by directors and officers of the Company and principals
and officers of Sandler O'Neill ("Interested Persons"), 3% of the gross
proceeds of the Offering pursuant to the exercise of Rights by persons
other than Interested Persons and 5% of the aggregate value of funds
committed by Standby Purchasers. In addition, Sandler O'Neill has received
a nonrefundable financial advisory fee of $25,000. In addition, the
Company has agreed to reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses, including fees of counsel, and has agreed to indemnify
Sandler O'Neill against certain liabilities under the Securities Act of
1933.
(2) Before deducting expenses of this Offering payable by the Company
estimated at $502,000.
(3) The Total Minimum Subscription Price, Underwriters' Commissions and Total
Minimum Proceeds to Company assumes the purchase of 2,000,000 shares as
follows: 249,027 by Interested Persons, 862,084 by Rights Holders other
than Interested Persons and 888,889 by Standby Purchasers.
(4) The Total Maximum Subscription Price, Underwriters' Commissions and Total
Maximum Proceeds to Company assumes the purchase of 2,890,000 shares as
follows: 249,027 by Interested Persons, 1,752,084 by Rights Holders other
than Interested Persons and 888,889 by Standby Purchasers.
SANDLER O'NEILL & PARTNERS, L.P.
THE DATE OF THIS PROSPECTUS IS MAY 11, 1995
<PAGE>
The primary purpose of this Offering is to increase the capital bases of the
Company and each of its subsidiaries to permit growth in a post recessionary
environment. Additional capital will enable Ventura County National Bank
("Ventura"), a subsidiary of Parent, to meet the requirements of the Formal
Agreement between Ventura and the Office of the Comptroller of the Currency
(the "OCC"). The Formal Agreement requires that Ventura achieve and maintain a
7.0% leverage capital ratio and a 12.0 % Tier 1 risk-based capital ratio. As of
December 31, 1994, approximately $1.4 million additional capital was necessary
for Ventura to meet the capital requirements of the Formal Agreement. The
Formal Agreement also requires Ventura to seek reimbursement of approximately
$3.4 million in interest paid in connection with deposits of funds from
commercial paper sold by Parent ("Reimbursement of Interest").
The Offering is conditioned upon the receipt by the Company of minimum
Offering proceeds of $4,500,000 (the "Minimum Condition"). Parent intends to
use the proceeds of this Offering to satisfy Ventura's requirement to seek
Reimbursement of Interest and to retire Parent's outstanding notes payable in
the principal amount of $125,000 (the "Notes"). The Reimbursement of Interest
by Parent will also result in an increase in Ventura's capital to levels which
will comply with the capital requirements of the Formal Agreement. To the
extent that there are net offering proceeds in excess of the amount necessary
to satisfy the Reimbursement of Interest requirement and to retire the Notes,
the first $500,000 of such additional funds will be retained by the Parent for
its liquidity needs and, thereafter, Parent may make additional capital
contributions to Ventura or the Company's other bank subsidiary, Frontier Bank,
N.A. ("Frontier"), or both. The Company anticipates that the net proceeds, if
any, contributed to Ventura or Frontier will ultimately be invested in earning
assets. In the event the Minimum Condition is not achieved, any funds that have
been deposited with the Subscription Agent will be returned, without interest.
See "Use of Proceeds."
The Common Stock is traded in the over-the-counter market and included for
quotation in the National Association of Securities Dealers Automated Quotation
System National Market System (the "Nasdaq National Market") under the symbol
"VCNB". On May 5, 1995, the closing sales price of the Common Stock, as quoted
through the NASDAQ National Market, was $2.75. It is anticipated that the
Rights will be quoted through the NASDAQ National Market under the symbol
"VCNBR" through the close of trading on the day prior to the Expiration Time.
There has been no prior market for the Rights and no assurance can be given
that a market will develop or, if a market develops, that such market will
remain through the Rights Offering. After the Expiration Time, the Rights will
no longer be exercisable and will have no value. Accordingly, Rights Holders
are strongly urged either to exercise or sell their Rights.
<PAGE>
Ventura County National Bancorp
CORPORATE HEADQUARTERS
500 Esplanade Drive
Oxnard, CA 93030
[MAP]
Location of Offices
- --------------------------------------------------------------------------------
Ventura County National Bank Frontier Bank
- ---------------------------------------------------- ------------------------
Oxnard Branch Ventura Branch La Palma Headquarters
500 Esplanade Drive 4730 Telephone Road One Centerpointe Drive
Oxnard, CA 93030 Ventura, CA 93003 La Palma, CA 90623
Camarillo Branch Westlake Village Wilmington Branch
502 North La Posas Road 2655 Townsgate Road 1000 Avalon Boulevard
Camarillo, CA 93010 Westlake Village, CA 91361 Wilmington, CA 90744
<PAGE>
IN CONNECTION WITH THIS OFFERING, SANDLER O'NEILL MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND THE RIGHTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the information, reporting and proxy statement
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's Regional Offices located at Room 1228, 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form S-
2 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth or
incorporated by reference in the Registration Statement and the exhibits and
schedules relating thereto as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto. Items of information omitted from this Prospectus, but
contained in the Registration Statement, may be obtained at prescribed rates or
inspected without charge at the offices of the Commission set forth above. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference and made a part hereof; (i)
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, as amended by a Form 10K/A filed April 15, 1995, and (ii) all other
reports filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act by the Company after December 31, 1994.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which is also incorporated by
reference modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge
to each person to whom a copy of this Prospectus is delivered, upon the written
or oral request of such person, a copy of any or all of the documents
incorporated by reference herein other than exhibits to such documents.
Requests should be directed to Ventura County National Bancorp, 500 Esplanade
Drive, Oxnard, California 93030, Attention: Nancy Jackson, Senior Vice
President/Administration and Investor Relations, (805) 981-2744.
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to, and
should be read in conjunction with, the detailed information and consolidated
financial statements and notes thereto set forth elsewhere in this Prospectus.
THE COMPANY
The Company is a registered bank holding company conducting business through
its two subsidiary banks, Ventura County National Bank ("Ventura") and Frontier
Bank, N.A. ("Frontier"). (Ventura and Frontier are sometimes collectively
referred to herein as the "Banks.") At December 31, 1994, the Company had total
consolidated assets of $257.8 million, total consolidated deposits of 236.3
million and total consolidated shareholders' equity of $19.1 million. The
principal executive offices of the Company are located at 500 Esplanade Drive,
Oxnard, California 93030, and its telephone number at that address is (805)
981-2600.
THE BANKS
The Banks are both national banking associations operating in Southern
California. Ventura conducts its banking operations through four branch offices
located in Ventura County, California, approximately 60 miles northwest of
downtown Los Angeles. Ventura's headquarters are located in Oxnard, California,
and its branch offices are located in Oxnard, Ventura, Camarillo and Westlake
Village. Frontier is based in La Palma in northwestern Orange County and has a
branch office in Wilmington in southern Los Angeles County. The Banks provide
commercial banking services to small to medium sized businesses, professional
firms and individuals in their market areas.
BACKGROUND
During the 1980s, the Company grew substantially, internally and through
mergers, to a high of $400.2 million of assets at December 31, 1992. In
addition to its core lending business, the Company organized subsidiaries (all
of which are now inactive and in the process of being dissolved) for a variety
of purposes, including providing data processing services to third parties,
insurance premium financing, venture capital, leasing and commercial financing.
Beginning in 1991, the Company experienced significant declines in earnings,
culminating with a net loss of $12.1 million for 1993. In addition, the
Company's nonperforming assets increased from $3.1 million at December 31, 1990
to a high of $25.2 million at March 31, 1994. Frontier consented to the
issuance of a Consent Order by the Office of the Comptroller of the Currency
(the "OCC") in March 1993 which replaced a Memorandum of Understanding ("MOU")
entered into between Frontier and the OCC in January 1992 (the "1992 MOU"), and
Ventura entered into a Formal Agreement with the OCC in March 1993. As a result
of the deterioration in the financial condition of the Banks, Parent entered
into a Memorandum of Understanding ("MOU") with the Federal Reserve Bank of San
Francisco (the "Reserve Bank") in December 1993. These regulatory actions have
affected virtually every area of Parent's and the Banks' operations, imposed on
the Banks higher minimum regulatory capital requirements than would otherwise
be applicable and restricted the ability of the Company to pay dividends. See
"Risk Factors--Regulatory Agreements and Capital Requirements," "The Company"
and "Supervision and Regulation--Potential and Existing Enforcement Actions."
RESPONSIVE MEASURES
In September 1993, new management brought in by the Board of Directors
developed and began to implement a plan to address the major concerns
confronting the Banks and restore core profitability. This plan consisted of
(1) improving management, (2) reducing nonperforming and classified assets, (3)
improving
4
<PAGE>
asset quality, (4) reducing other expenses, (5) improving liquidity and (6)
increasing capital ratios. Management believes that the Company has made
significant progress in implementing the plan, each of which is summarized
below:
. Improved Management. Parent and the Banks have experienced a complete
change in senior management since 1992, including the hiring of Richard
S. Cupp as President and Chief Executive Officer of Parent and Ventura
in July 1993 and the hiring of Kathleen L. Kellogg as President and
Chief Executive Officer of Frontier in November 1994. These new
management teams, at the direction of the Parent's and the Banks' Boards
of Directors and pursuant to the Consent Order, the Formal Agreement and
the MOU, have undertaken a revision of policies, procedures and
reporting mechanisms in practically every area of operation.
. Reduced Nonperforming and Classified Assets. Management has sought to
reduce the level of nonperforming assets through collections, writedowns
and sales of other real estate owned ("REO") and nonperforming loans. To
aid in that objective, in May 1994, the Company completed a bulk sale of
$14.1 million in nonperforming loans. The result has been a reduction in
nonperforming assets from $25.2 million or 7.96% of total assets at
March 31, 1994 to $11.2 million or 4.33% of total assets at December 31,
1994. See "Business--Classified Assets and Nonperforming Assets."
. Improved Asset Quality. The Company has reorganized and strengthened
credit administration and internal asset review and supplemented its
internal activities by hiring an external loan review firm to evaluate
and review the risk grades of loans. In addition, the Company has
adopted new or revised policies, procedures and systems with respect to
all aspects of lending and has curtailed lending to finance income-
producing properties, the type of lending that represents the greatest
component of the Company's classified assets at December 31, 1994.
Moreover, the OCC completed examinations of Ventura as of September 30,
1994 and Frontier as of June 30, 1994. The results of these examinations
displayed improvement in the Banks' condition. In addition, the OCC
indicated that Ventura's loan loss reserves were adequate at the time of
its examination. In connection with its examination of Frontier, the OCC
required changes in the risk grading of certain credits which resulted
in an additional provision for loan losses of $200,000 during 1994. See
"Business--Underwriting and Origination," "Business--Loan Portfolio" and
"Business--Classified Assets and Nonperforming Assets."
. Reduced Other Expenses. In 1994, the Company eliminated certain
nonstrategic aspects of its business, including the sale of its mortgage
origination and servicing departments, and outsourced its data
processing and courier functions. As a result, the Company reduced its
overall staff from 199 at December 31, 1993 to 141 at December 31, 1994.
The Company has reduced its occupancy expenses by subletting portions of
its administrative and headquarters offices, negotiating a favorable
renewal of the lease for its Central Operations allowing the lease for
one of its properties to expire in 1995, and consolidating two
operational units of Ventura and Frontier in the first quarter of 1995.
Prior to taking such actions, the Company expended $1.3 million with
respect to such items during 1993 and 1994, which the Company does not
anticipate that it will incur in the future. See "Managements'
Discussion and Analysis of Financial Condition and Results of
Operations."
. Improved Liquidity. During 1993 and 1994, the Company has undergone
significant balance sheet restructuring, experiencing substantial
reductions in assets, loans and deposits, which had the dual effects of
increasing core deposits as a percentage of total deposits and improving
liquidity. In order to improve the diversity of the Company's funding
sources, management reduced title and escrow deposits and institutional
certificates of deposit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
. Improved Capital Ratios. Primarily because of balance sheet
restructuring, the Company and the Banks have recently improved their
regulatory capital ratios. As of December 31, 1994, the Company, Ventura
and Frontier had leverage capital ratios of 7.53%, 7.21% and 8.32%,
respectively, Tier 1 risk-based capital ratios of 11.32%, 10.92% and
12.29%, respectively, and total
5
<PAGE>
risk-based capital ratios of 12.61%, 12.21% and 13.57%, respectively.
Although Ventura has satisfied the requirement of the Formal Agreement
to maintain a leverage capital ratio of 7.00%, it has not yet satisfied
the Tier 1 risk-based capital ratio requirement of 12.00%. The OCC has
agreed to extend until June 30, 1995 the date by which Ventura must be
in full compliance with the capital requirements of the Formal
Agreement. Management believes that Ventura will be able to comply with
such requirements, either through operations or as a result of the
capital raised in this Offering. See "The Rights Offering--Minimum
Condition."
Through management's efforts the Company's net loss was reduced to $262,000
for the year ended December 31, 1994 and nonperforming assets were reduced to
$11.2 million at December 31, 1994. The Company returned to profitability
beginning in the third quarter of 1994, and had net income for the second half
of 1994 of $615,000, compared to a net loss of $877,000 for the first six
months of the year. Earnings improvement in the second half was due to a $1.9
million decrease in the provision for loan losses, a $1.2 million decrease in
other expenses and a $143,000 decrease in income tax provision, which were
offset by a decline in other income of $2.1 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Management believes the Company is positioned to take advantage of new
opportunities as they may arise in 1995.
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to pursue a unique opportunity to
build market share in its target markets created by the acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California in February 1995. Ventura is now the largest
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong relationships with
business, civic and community organizations. Management believes that this
marketing and service approach enables both Banks to compete effectively with
the money-center, superregional and regional banks which dominate their market
areas.
Ventura and Frontier will market to businesses in representative industries,
including durable and nondurable manufacturing, distribution, professional
services and agriculture, in their respective markets. The principal loan
products include working capital loans and lines of credit, asset based loans
and lines of credit, term loans secured by real property, plant and equipment
and, through Frontier, loans to small businesses through programs sponsored by
the United States Small Business Administration ("SBA"). Ventura also
anticipates continuing a limited amount of construction lending to experienced
builders for construction of single family home projects in selected areas of
Ventura County. Such loans would generally not exceed 15% of the portfolio at
any one time during 1995. See "Business."
The Company's strategic plan also requires continuing implementation of each
action item of its responsive measures. See "The Company." The foregoing should
be considered in light of the factors described under the heading "Risk
Factors."
USE OF PROCEEDS
The primary purpose of this Offering is to increase the Company's and the
Banks' capital bases to permit growth in a post-recessionary environment.
Moreover, additional capital will enable Ventura to meet the requirements of
the Formal Agreement. The Formal Agreement requires that Ventura achieve and
maintain
6
<PAGE>
a 7.0% leverage capital ratio and a 12.0% Tier 1 risk-based capital ratio. As
of December 31, 1994, approximately $1.4 million additional capital was
necessary for Ventura to meet the capital requirements of the Formal Agreement.
The Formal Agreement also requires Ventura to seek reimbursement of
approximately $3.4 million in interest paid in connection with deposits of
funds from commercial paper sales by Parent ("Reimbursement of Interest").
Parent intends to use the proceeds of this Offering to satisfy Ventura's
requirement to seek Reimbursement of Interest and to retire Parent's
outstanding notes payable in the principal amount of $125,000 (the "Notes").
The Reimbursement of Interest by Parent will also result in an increase in the
capital levels of Ventura. To the extent that there are net offering proceeds
in excess of the amount necessary to satisfy the Reimbursement of Interest
requirement and to retire the Notes, the first $500,000 will be retained by
Parent for its liquidity needs and, thereafter, Parent may make additional
capital contributions to Ventura or Frontier, or both. The Company anticipates
that the net proceeds, if any, contributed to Ventura and Frontier will
ultimately be invested in earning assets.
THE OFFERING
Securities Offered.............. The Company is offering a minimum of
2,000,000 shares ("Minimum Shares") and a
maximum of 2,890,000 shares ("Maximum
Shares") of Common Stock. A total of
2,001,111 Underlying Shares are being offered
in the Rights Offering pursuant to the
exercise of Rights, which include the Basic
Subscription Privilege and the
Oversubscription Privilege, and to the
Standby Purchasers. In addition, in the event
that there is not a sufficient number of
Underlying Shares remaining upon completion
of the Rights Offering to satisfy the
purchase commitments of the Standby
Purchasers, up to 888,889 Additional Shares
will be issued to the Standby Purchasers. See
"The Rights Offering."
Once the Rights are distributed and until the
Expiration Time, the Company will not effect
a reclassification of the Company's equity
securities which could have the effect of
materially altering the value of the Rights
during the pendency of the Offering.
Basic Subscription Privilege.... Shareholders of record of the Company at the
close of business on the Record Date (each a
"Record Date Holder") will receive one
transferable subscription right ("Rights")
for each 3.17 shares of Common Stock owned of
record at the close of business on such date.
Each Right will entitle the holder thereof
("Rights Holder") to subscribe for one
Underlying Share at the Subscription Price.
No fractional Rights will be issued.
Fractional Rights will be "rounded up" to the
next nearest whole number. ONCE A RIGHT HAS
BEEN PROPERLY EXERCISED, IT CANNOT BE
REVOKED.
Oversubscription Privilege...... Each Record Date Holder who elects to
exercise the Basic Subscription Privilege in
full may also subscribe at the Subscription
Price for Excess Shares, subject to
availability proration and reduction by the
Company under certain circumstances. If an
insufficient number of Excess Shares is
7
<PAGE>
available to satisfy fully all exercises of
the Oversubscription Privilege, then the
available Excess Shares will be prorated
among Record Date Holders who exercise their
Oversubscription Privilege based upon the
respective number of shares of Common Stock
each such Record Date Holder subscribes for
pursuant to the Basic Subscription Privilege
and all excess payments shall be returned by
mail without interest or deduction promptly
after the Expiration Time and after all
prorations and adjustments contemplated by
the Rights Offering have been effected.
Oversubscription Privileges are not
transferable.
Transferability of Rights....... The Rights are transferable only with respect
to the Basic Subscription Privilege. It is
anticipated that the Rights will be quoted
through the Nasdaq National Market under the
symbol "VCNBR" through the close of trading
on the date prior to the expiration of the
Rights Offering. There has been no prior
market for the Rights and there can be no
assurance that a market for the Rights will
develop or, if a market develops, that such
market will be maintained throughout the
Rights Offering. The Subscription Agent will
endeavor to sell Rights on behalf of Rights
Holders who have so requested and have
delivered a Subscription Rights Certificate,
with the instruction for sale properly
executed, to the Subscription Agent at or
prior to 5:00 p.m, Pacific time on June 13,
1995. See "The Rights Offering--Method of
Transferring Rights."
Record Date..................... May 10, 1995
Subscription Price.............. $2.25 per share.
Expiration Time................. The Rights will expire if not exercised prior
to 5:00 p.m., Pacific time, on June 21, 1995
unless extended for up to 30 days in the sole
discretion of the Company. The number and
length of any such extensions will be set at
the time of any such extension. See "THE
RIGHTS OFFERING--Expiration Time." Rights not
exercised prior to the Expiration Time will
expire and become worthless.
Common Stock Outstanding........ 6,337,835 shares of Common Stock were
outstanding as of the Record Date. A total of
8,337,835 shares of Common Stock will be
outstanding after the completion of the
Offering if the Minimum Shares are sold; and
a total of 9,227,835 shares of Common Stock
if the Maximum Shares are sold. Record Date
Holders may experience substantial dilution
of their equity ownership interest and voting
power in the Company if they do not exercise
the Basic Subscription Privilege or if
Additional Shares are issued to the Standby
Purchasers. See "Risk Factors--Dilution."
Subscription Agent.............. First Interstate Bank of California
Information Agent............... Chemical Bank
8
<PAGE>
Financial Advisor............... The Company and Sandler O'Neill have entered
into an Agency Agreement pursuant to which
Sandler O'Neill is acting as the Company's
financial advisor in connection with the
Offering. The Company has agreed to pay
certain fees to, and expenses of, Sandler
O'Neill for its services in the Offering. See
"The Rights Offering--Financial Advisor."
Procedure for Exercising
Rights.......................... The Basic Subscription Privilege and the
Oversubscription Privilege may be exercised
by properly completing the Subscription Right
Certificate and forwarding it (or following
the Guaranteed Delivery Procedures), with
payment of the Subscription Price for each
Underlying Share subscribed for pursuant to
the Basic Subscription Privilege and
Oversubscription Privilege, to the
Subscription Agent, which must receive such
Subscription Right Certificate or Notice of
Guaranteed Delivery and payment at or prior
to the Expiration Time. If Subscription Right
Certificates are sent by mail, Rights Holders
are urged to use insured, registered mail,
return receipt requested. See "The Rights
Offering--Method of Subscription."
If the aggregate Subscription Price paid by
an exercising Rights holder is insufficient
to purchase the number of Underlying Shares
that the Rights Holder indicates are being
subscribed for, of if no number of Underlying
Shares to be purchased is specified, then the
Rights Holder will be deemed to have
exercised the Basic Subscription Privilege to
purchase Underlying Shares to the full extent
of the payment price tendered. If the
aggregate Subscription Price paid by an
exercising Record Date Holder exceeds the
amount necessary to purchase the number of
underlying shares for which the Record Date
Holder has indicated an intention to
subscribe, then the Record Date Holder will
be deemed to have exercised the
Oversubscription Privilege to the full extent
of the excess payment tendered.
ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE OR THE OVER-SUBSCRIP-
TION PRIVILEGE, SUCH EXERCISE MAY NOT BE RE-
VOKED. RIGHTS NOT EXERCISED PRIOR TO THE EX-
PIRATION DATE WILL EXPIRE AND BECOME WORTH-
LESS.
Persons Holding Common Stock,
or Wishing to Exercise Rights,
Through Others.................. Persons holding shares of Common Stock
beneficially and receiving the Rights
issuable with respect thereto, through a
broker, dealer, commercial bank, trust
company or other nominee, as well as persons
holding certificates for Common Stock
directly who would prefer to have such
institutions effect transactions relating to
the Rights on their behalf should contact the
appropriate institution or nominee and
request it to effect such transaction for
them. See "The Rights Offering--Exercise of
Rights."
9
<PAGE>
Procedure for Exercising Rights
by Foreign Shareholders......... Subscription Rights Certificates will not be
mailed to holders of Common Stock whose
addresses are outside the United States or
who have an Army Post Office ("APO") or a
Fleet Post Office ("FPO") address, but will
be held by the Subscription Agent for their
accounts. To exercise the Rights represented
thereby, such holders must notify the
Subscription Agent and take all other steps
which are necessary to exercise the Rights on
or prior to 5:00 p.m. Pacific time on June
13, 1995. If no contrary instructions have
been received by that time, the Rights of
such holders will be sold, if feasible, and
the proceeds, less any applicable brokerage
commissions, taxes and other expenses, will
be promptly remitted to the holder of such
Rights by mail. See "The Rights Offering--
Foreign and Certain Other Shareholders."
Minimum Condition............... The Offering is conditioned upon the receipt
of minimum Offering proceeds of $4,500,000.
In the event the Minimum Condition is not
achieved, any funds that have been deposited
with the Subscription Agent will be returned,
without interest.
Standby Purchase Agreements..... The Company anticipates that it will enter
into Standby Purchase Agreements pursuant to
which the Standby Purchasers will severally
agree to acquire from the Company at the
Subscription Price up to 2,000,000 Underlying
Shares ($4,500,000) remaining after exercise
of the Basic Subscription Privilege and
Oversubscription Privilege by all Rights
Holders, subject, in each case, to a maximum
standby purchase commitment and certain
conditions. It is anticipated that each
Standby Purchase Agreement will require that
the Company sell a minimum number of shares
to the related Standby Purchaser if
sufficient Underlying Shares are not
available after issuance of all Underlying
Shares subscribed for by the exercise of the
Basic Subscription Privilege and the
Oversubscription Privilege (the "Minimum
Standby Obligation"). In any such case, the
Company would issue in the aggregate up to
888,889 Additional Shares to satisfy the
Minimum Standby Obligation, but in no event
will this result in shares being issued in
excess of the Maximum Shares offered hereby.
Federal Income Tax
Consequences.................... For United States federal income tax
purposes, receipt of Rights by a Record Date
Holder pursuant to the Offering should be
treated as a nontaxable distribution with
respect to the Common Stock. See "Certain
Federal Income Tax Consequences."
10
<PAGE>
Issuance of Common Stock........ Subject to satisfaction of the Minimum
Condition, certificates representing shares
of Common Stock purchased pursuant to the
exercise of the Rights will be delivered to
subscribers as soon as practicable after the
Expiration Time and after all prorations and
adjustments contemplated by the terms of the
Offering have been effected.
The Regulatory Limitation....... The Company will not be required to issue
Common Stock pursuant to the exercise of the
Basic Subscription Privilege or the
Oversubscription Privilege to any Rights
Holder or to any Standby Purchaser who, in
the opinion of the Company, could be required
to obtain prior clearance or approval from or
submit a notice to any state or federal bank
regulatory authority to acquire, own or
control such shares if, at the Expiration
Time for the exercise of Rights, such
clearance or approval has not been obtained
and/or any required waiting period has not
expired. If the Company elects not to issue
shares of Common Stock in such case, such
shares will become available to satisfy
oversubscription by other Rights Holders and
will be available to the Standby Purchasers.
See "The Rights Offering--The Regulatory
Limitation."
The Tax Limitation.............. The number of Underlying Shares issuable by
the Company as a result of exercises of
Rights (pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege)
in the aggregate or to any Rights Holder or
the issuance of shares to any Standby
Purchaser may be limited by the Company, if
necessary, in the sole judgment and
discretion of the Company, to reduce the risk
that certain tax benefits will be subject to
limitation under Section 382 of the Internal
Revenue Code of 1986, as amended, or the risk
of any other adverse tax consequences to the
Company, either at the time of the Offering
or at any subsequent time. Based on current
circumstances, the Company does not
anticipate that it will have to reduce the
number of shares to any Rights Holder or any
Standby Purchaser in order to avoid an
adverse effect upon the Company's ability to
utilize certain federal and state income tax
benefits. See "The Rights Offering--Tax
Limitations."
Intentions of Directors and
Executive Officers.............. The directors and executive officers of the
Company as a group (16 persons) have
indicated their intention to exercise Rights
to purchase, in the aggregate, 107,882 shares
of Common Stock. These indications of intent
are based upon each director's and officer's
evaluation of his or her own financial and
other circumstances. Upon their acquisition
of such shares, the directors and executive
officers, as a group, will own beneficially
1,100,388 shares or a minimum of 11.8% and a
maximum of 13.1% of the outstanding Common
Stock after completion of the Offering.
11
<PAGE>
The Company's 401(k)/ESOP....... The Trustee of the Ventura County National
Bancorp 401(k)/Employee Stock Ownership Plan
(the "401(k)/ESOP") shall, in its sole
discretion, determine the manner in which
Rights issued to the ESOP portion of the
401(k)/ESOP are to be disposed of. Given that
the ESOP does not have any uninvested assets
with which to fund a purchase of Common
Stock, it is anticipated that the Trustee may
attempt to sell the Rights issued to the ESOP
portion of the 401(k)/ESOP. Participants in
the 401(k) portion of the 401(k)/ESOP who
have invested a portion of their pre-tax
deferrals and employer matching contributions
in Common Stock will be given the opportunity
to direct the Trustee whether to exercise or
attempt to sell Rights allocable to such
participants' investment in Common Stock. See
"The Rights Offering--The Company's
401(k)/ESOP."
No Board or Financial Advisor
Recommendations................. An investment in the Common Stock must be
made pursuant to each investor's evaluation
of such investor's best interests.
ACCORDINGLY, NEITHER THE BOARD OF DIRECTORS
OF THE COMPANY NOR SANDLER O'NEILL MAKE ANY
RECOMMENDATION TO RIGHTS HOLDERS OR OTHERS
REGARDING WHETHER THEY SHOULD EXERCISE THEIR
RIGHTS OR PURCHASE COMMON STOCK.
Nasdaq National Market Symbol
for Common Stock................ "VCNB"
Nasdaq National Market Symbol
for the Rights.................. "VCNBR"
Right to Terminate Offering..... The Company expressly reserves the right, in
its sole discretion, at any time prior to
delivery of the shares of Common Stock
offered hereby, to terminate the Offering if
the Offering is prohibited by law or
regulation or the Board of Directors
concludes, in its judgment, that it is not in
the best interests of the Company, and its
shareholders, to complete the Offering under
the circumstances. If the Offering is
terminated, all funds received pursuant to
the Rights Offering or from Standby
Purchasers will be promptly refunded, without
interest.
12
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents selected consolidated financial and other data
of the Company as of and for each of the years in the five years ended December
31, 1994. The data as of and for each of the five years in the period ended
December 31, 1994 should be read in conjunction with, and is qualified in its
entirety by, the more detailed information included elsewhere in this
Prospectus, including the Company's audited Consolidated Financial Statements
and the Notes thereto.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PERIOD END BALANCE SHEET
DATA:
Assets.................. $ 257,755 $ 340,529 $ 400,195 $ 364,734 $ 384,385
Securities held-to-
maturity (approximate
market value of $17,963
in 1994)................ 18,775 -- 33,168 13,590 24,407
Securities available-
for-sale............... 31,859 40,775 -- -- --
Net loans and leases.... 159,673 253,201 307,847 296,422 299,666
Loan loss reserve....... 8,261 14,313 3,854 2,845 2,285
Deposits
Interest-bearing
demand............... 67,177 99,502 106,108 93,651 82,649
Non interest-bearing
demand............... 80,646 101,224 100,688 94,364 82,835
Time.................. 88,519 117,563 141,791 136,471 165,058
Shareholders' equity.... 19,052 20,370 30,388 29,179 27,642
Shares of capital stock
outstanding............ 6,333,835 6,333,835 5,614,255 5,282,301 4,802,520
Period end book value
per share(1)........... $ 3.01 $ 3.22 $ 5.41 $ 5.21 $ 4.94
ASSET QUALITY:
Nonperforming loans..... $ 7,945(2) $ 19,839 $ 3,254 $ 9,454 $ 3,119
Nonperforming assets.... 11,169(2) 22,068 7,194 11,660 3,119
ASSET QUALITY RATIOS:
Nonperforming loans to
total loans............ 4.73% 7.41% 1.04% 3.16% 1.03%
Nonperforming assets to
total assets........... 4.33 6.48 1.79 3.15 0.81
Loan loss reserves to
nonperforming loans.... 103.98 72.15 118.44 30.09 73.26
Loan loss reserves to
nonperforming assets... 73.96 64.86 53.57 24.78 73.26
Classified assets to
loan loss reserve plus
shareholders' equity... 113.27 186.27 84.71 67.45 47.63
OTHER DATA:
Full time equivalent
employees.............. 141 199 198 221 249
STATEMENT OF OPERATIONS
DATA:
Net interest income..... $ 15,868 $ 16,912 $ 17,586 $ 17,931 $ 18,552
Provision for loan
losses................. 3,825 16,213 3,404 2,537 743
Other income............ 4,064 4,820 5,512 5,364 4,555
Other expenses.......... 16,084 20,839 18,438 19,239 16,551
Income (loss) before
income taxes and
cumulative effect of
change in accounting
method................. 23 (15,320) 1,256 1,519 5,813
Applicable income taxes
(benefit).............. 285 (3,233) 571 713 2,476
Cumulative effect of
change in accounting
method................. -- -- -- -- 286
Net income (loss)....... (262) (12,087) 685 806 3,623
PER SHARE DATA:(1)
Income (loss) per share
before income taxes and
cumulative effect of
change in accounting
method................. $ (0.04) $ (2.73) $ .22 $ .27 $ 1.03
Net income (loss) per
share.................. (0.04) (2.15) .12 .14 .64
SELECTED PERFORMANCE
RATIOS:
Return on average
equity................. (1.29)% (45.12)% 2.30% 2.79% 14.18%
Return on average
assets................. (0.09) (3.18) 0.18 0.22 1.01
Efficiency ratio(3)..... 80.71 95.89 79.83 82.59 71.63
Noninterest expense to
average assets......... 5.45 5.47 4.74 5.14 4.62
Net interest margin..... 5.68 4.81 4.95 5.34 5.77
Net interest spread..... 4.80 3.96 4.27 3.99 4.13
</TABLE>
- --------
(1) All per share data included herein and throughout this Prospectus have been
adjusted to reflect the stock splits and stock dividends to shareholders of
record on February 7, 1990, March 7, 1991 and March 9, 1992.
(2) Does not include $1,966,000 in troubled debt restructuring that were
performing at December 31, 1994. See "Business--Classified Assets and
Nonperforming Assets--Troubled Debt Restructurings ("TDRs")."
(3) The efficiency ratio is other expenses divided by the sum of net interest
income before provision for loan losses plus other income.
13
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The following tables set forth certain unaudited financial data at March 31,
1995 and for the three months ended March 31, 1995 and 1994. The data at March
31, 1995 and for the three months ended March 31, 1995 and 1994 is derived from
the unaudited financial statements of the Company. In the opinion of
management, such unaudited financial statements have been prepared on the same
basis as the audited financial statements, and include all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
statement of the results for the unaudited interim periods. Results for the
three months ended March 31, 1995 should not be considered necessarily
indicative of the results to be expected for the full year. The information
presented below is qualified in its entirety by the detail information and
financial statements included elsewhere in this Prospectus and should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the audited consolidated
financial statements of the Company and notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Assets.............................................. $ 253,512 $ 257,755
Loans and leases, net............................... 154,279 159,673
Loan loss reserve................................... 8,314 8,261
Deposits:
Noninterest bearing demand........................ 62,390 67,177
Interest bearing demand and savings............... 87,488 80,646
Time.............................................. 82,402 88,519
Shareholders' equity................................ 19,683 19,052
Shares of common stock outstanding.................. 6,333,835 6,333,835
Period end book value per share..................... $ 3.11 $ 3.01
ASSET QUALITY:
Nonperforming loans................................. 10,267 7,945
Nonperforming assets................................ 13,508 11,169
ASSET QUALITY RATIOS:
Nonperforming loans to total loans.................. 6.31% 4.73%
Nonperforming assets to total assets................ 5.33% 4.33%
Loan loss reserves to nonperforming loans........... 80.98% 103.98%
Loan loss reserves to nonperforming assets.......... 61.55% 73.96%
Classified assets to loan loss reserve plus share-
holders' equity.................................... 120.20% 113.27%
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net interest income ................................. $3,643 3,730
Provision for loan losses............................ 355 800
Other income......................................... 606 1,143
Other expenses....................................... 3,621 4,187
Income (loss) before income taxes.................... 273 (114)
Applicable income taxes (benefit).................... -- --
Net income (loss).................................... $ 273 $ (114)
Net income (loss) per share.......................... $ .04 $ (.02)
SELECTED PERFORMANCE RATIOS:(1)
Return on average equity............................. 5.70% (2.31)%
Return on average assets............................. .44% (.14)%
Efficiency ratio..................................... 85.22% 85.92%
Noninterest expense to average assets................ 5.78% 5.25%
Net interest margin.................................. 6.18% 5.34%
Net interest spread.................................. 5.97% 4.93%
</TABLE>
- --------
(1) Ratios for the three months ended March 31, 1995 and 1994 have been
annualized.
14
<PAGE>
GENERAL
The Company had net income of $273,000 for the first quarter of 1995,
compared with a net loss of $114,000 for the first quarter of 1994. The
improvement in earnings in 1995 was primarily attributable to reduced other
expenses, a significant decrease in the provision for loan losses and improved
net interest margin.
Total nonperforming assets increased to $13,508,000 at March 31, 1995 from
$11,169,000 at December 31, 1994, due primarily to the addition of one
nonaccrual loan in the amount of $2.2 million. This loan, while performing and
current at December 31, 1994, began to show considerable weakness in the first
quarter. The property had a sudden loss of tenants thereby reducing its cash
flow and forcing the borrower to negotiate with Ventura in hopes of rate and
principal forgiveness. Management elected to take a deed in lieu of foreclosure
with a principal pay-down. This loan was taken into REO subsequent to March 31,
1995, at which time a portion of the loan balance was charged off to its
estimated fair value. The Company is currently negotiating the sale of the REO,
which the Company anticipates will be completed during the second quarter of
1995. There can be no assurances, however, that these negotiations will lead to
a sale of the REO in the second quarter. The Company continues to aggressively
pursue strategies for reducing nonperforming and classified assets.
NET INTEREST INCOME
For the first quarter of 1995, net interest income decreased $87,000, or
2.3%, over the first quarter of 1994. Net interest income decreased primarily
due to the decrease in interest income exceeding the decrease in interest
expense. Interest income decreased $203,000, or 3.77%, due primarily to a 33.7%
decrease in average loans. The decrease was partially offset by increased
average balances of investment securities, together with higher yields on
earning assets in the current rising rate environment. The impact on earnings
of reduced interest income was partially offset by a $116,000, or 7.0%,
decrease in interest expense the first quarter of 1995, compared with 1994. The
decrease resulted primarily from a $48.1 million, or 22.0%, decrease in average
interest bearing deposits. Despite the decrease in interest income, net
interest margin improved from 5.34% to 6.18%, due primarily to the reduction in
the volume of average interest earning assets and the decrease in average
interest bearing liabilities noted above.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses during the first quarter of 1995 was
$355,000, compared to $800,000 during the first quarter of 1994, reflecting the
significant reductions in the level of classified assets. Classified assets at
March 31, 1995 were $33.7 million, compared with $62.1 million at March 31,
1994, a decrease of 45.7%.
OTHER INCOME
Other income decreased $527,000 in the first quarter of 1995 compared with
the first quarter of 1994, primarily because of a reduction in mortgage loan
processing income and gains on the sale of mortgage loans. In addition, service
charges on deposits and other fee income decreased $88,000 and $53,000,
respectively, due to the reduction in total deposits.
OTHER EXPENSES
Other expenses decreased $566,000 in the first quarter of 1995 compared with
the first quarter of 1994, primarily due to a $381,000 decrease in salaries and
benefits, a $66,000 decrease in occupancy costs, a $64,000 decrease in
appraisal fees and a $59,000 decrease in FDIC assessments.
INCOME TAXES
During the first quarter of 1995, the amount of income tax provisions that
would have been necessary was fully offset by a reduction of the valuation
allowance. Deferred tax assets totaling $3.1 million are reserved by this
valuation allowance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--1994 Compared with
1993--Income Taxes."
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DEPOSITS
The Company experienced a shift in the mix of deposits since year end.
Interest bearing demand deposits increased $8,839,000, or 14.9%, while all
other categories of deposits decreased. Noninterest bearing demand deposits
decreased $4,787,000, or 7.7%, savings deposits decreased $1,997,000, or 7.1%,
and time deposits decreased $6,117,000, or 7.4%. This shift was largely the
result of marketing programs designed to increase core deposits. Overall, total
deposits decreased $4,062,000, or 1.7%, from year end.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, Ventura's Tier 1 risk based capital ratio was 11.48%, its
total risk based capital ratio was 12.78% and its leverage ratio was 7.86%.
Although Ventura was in compliance with the requirement of the Formal Agreement
that it maintain a leverage ratio of 7.00%, Ventura has not yet satisfied the
requirement to achieve and maintain a Tier 1 risk based capital ratio of
12.00%. As of March 31, 1995, $623,000 additional capital was necessary for
Ventura to meet the capital requirements of the Formal Agreement. See "Risk
Factors--Regulatory Agreements and Capital Requirements." At March 31, 1995,
Frontier's Tier 1 risk based capital ratio was 12.88%, its total risk based
capital ratio was 14.17% and its leverage ratio was 9.06%. Frontier was in full
compliance with the capital requirements of the Consent Order at March 31,
1995.
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RISK FACTORS
THE PURCHASE OF COMMON STOCK IN THE OFFERING INVOLVES A SIGNIFICANT DEGREE OF
INVESTMENT RISK. IN DETERMINING WHETHER OR NOT TO MAKE AN INVESTMENT IN THE
COMMON STOCK, RIGHTS HOLDERS AND POTENTIAL INVESTORS SHOULD CAREFULLY CONSIDER
THE MATTERS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED HEREIN.
RISK OF CONTINUING LOSSES. During the 1980s, the Company grew substantially,
internally and through mergers, to a high of $400.2 million of assets at
December 31, 1992. During the late 1980s and through early 1993, the Company
made a substantial amount of loans to land developers and subdividers and loans
secured by first trust deeds on investment properties. Beginning in 1991, the
economic recession and substantial declines in real estate values in Southern
California began to adversely affect collateral values and the ability of
certain borrowers to repay their obligations to the Company. This led to high
levels of nonperforming assets and net chargeoffs in 1993, which adversely
affected the Company's asset quality and results of operations. The foregoing
factors significantly contributed to the decline in earnings experienced by the
Company since 1990, culminating with a net loss of $12.1 million ($2.15 per
share) for the year ended December 31, 1993. For the years ended December 31,
1992, 1991 and 1990, the Company's net income was $685,000 ($.12 per share),
$806,000 ($.14 per share) and $3.6 million ($0.64 per share), respectively. The
Company's loss in 1993 was primarily due to a significant increase in the
provision for loan losses, together with lower net interest income due
primarily to declining interest rates and increased other expenses due
primarily to the writeoff of certain intangibles, increased REO expenses and
professional fees.
The Company suffered a significant increase in nonperforming assets to $22.1
million at December 31, 1993 from levels of $7.2 million, $11.7 million and
$3.1 million at December 31, 1992, 1991 and 1990. In addition, net loan charge-
offs increased to $5.8 million for 1993, compared to $2.4 million, $2.0 million
and $321,000 for 1992, 1991 and 1990, respectively. This decline in asset
quality and increase in net loan charge-offs resulted in provisions for loan
losses of $16.2 million during 1993, significantly contributing to the net loss
realized that year.
Although during the year ended December 31, 1994 the Company's loss was
reduced to $262,000 and its classified assets were reduced by $33.7 million to
$30.9 million at December 31, 1994, classified assets continue to be high. The
ability of the Company to reverse the downward earnings trend and to become
profitable in the future is largely dependent on its ability to continue to
reduce the level of its classified assets, maintain the adequacy of its loan
loss reserve, reduce its ratio of other expenses to average earning assets and
to successfully implement its strategic plan. See "The Company--Business
Strategy."
Management of the Company is continuing its efforts to improve the quality of
the Company's assets and to reduce other expenses. No assurances can be given,
however, that management will be successful in reducing the Company's
nonperforming assets and other expenses or that the Company will sustain
profitable operations in the future.
HIGH LEVEL OF NONPERFORMING ASSETS AND OTHER LOANS WITH RISK. As of December
31, 1994, a significant portion of the Company's loan portfolio consisted of
nonperforming assets, and during 1993, 1992 and 1991, significant provisions
for loan losses were made. Nonperforming assets increased from $3.1 million, or
1.03% of total loans and REO, at December 31, 1990 to a high of $25.2 million,
or 10.29% of total loans and REO at March 31, 1994. Since then, nonperforming
assets have decreased to $11.2 million, or 6.6% of total loans and REO, at
December 31, 1994. Total nonperforming assets at December 31, 1994 were
comprised of $7.6 million in nonaccrual loans, $331,000 in loans delinquent for
90 days or more but still accruing interest, $2,000 in restructured loans and
$2.3 million in REO, compared with $18.9 million in nonaccrual loans, $552,000
in loans delinquent for 90 days or more but still accruing interest, $348,000
in restructured loans and $2.2 million in REO at December 31, 1993. At December
31, 1994, the Company also had $1,966,000 in TDRs that were performing. See
"Business--Classified Assets and Nonperforming Assets."
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The increase in the Company's nonperforming assets between 1989 and March
1994 surfaced as economic conditions worsened which brought on substantial
declines in real estate values. The significant decrease in nonperforming
assets during 1994 was largely due to a bulk sale of $14.1 million in
nonperforming loans in May 1994, which resulted in a $5.0 million charge-off
and a $1.5 million provision for loan losses, the payoff or restoration to
performing status of other credits and the migration of certain assets to REO.
The real estate market in Southern California and the overall economy in the
areas where the Company operates are likely to continue to have a significant
effect on the quality of the Company's assets in the future.
At December 31, 1994, the Company's loan portfolio reflected a concentration
of credits in medium term commercial real estate loans of $88.7 million or 52%
of the total loan portfolio. Approximately 50% of such loans were originated
for the financing of commercial or industrial buildings where the property has
income derived from tenants ("investment properties"), 35% of such loans were
for use by the owner for business purposes ("owner-user properties") and 15%
were SBA loans for the construction, refinancing or acquisition of owner-user
properties. The Company has significantly curtailed the origination of new
medium term commercial real estate loans and is not soliciting new loans for
investment properties. Twenty-two medium term commercial real estate loans
aggregating $10.3 million at December 31, 1994 are scheduled to mature during
1995, of which six loans in the aggregate amount of $3.2 million have been
classified. All such classified loans have been reevaluated for collateral
value within the past six months and additional loan loss reserves have been
taken where appropriate. Of the $10.3 million in medium term commercial real
estate loans maturing in 1995, thirteen loans aggregating $7.2 million were
loans for investment properties. Of that amount, the Company anticipates that
nine loans aggregating $5.9 million will be refinanced or fully repaid during
1995. The remaining $1.3 million consists of four loans, none of which exceeded
$570,000 principal balance at December 31, 1994. None of such loans were
classified at December 31, 1994, and based upon current information, management
does not anticipate that additional loan loss reserves will be assessed with
respect to such loans. See "Business--Loan Portfolio--Commercial, Financial and
Agricultural Loans--Medium Term Commercial Real Estate Loans," and "Risk
Factors--Monetary Policy and Economic Conditions."
ADEQUACY OF LOAN LOSS RESERVE. The substantial provisions for loan losses
during 1993 were necessitated by high levels of nonperforming loans and loan
charge-offs. During 1993, the Company's net charge-offs were $5.8 million,
compared with $2.4 million net charge-offs in 1992 and $2.0 million in 1991. In
1994, the Company's net charge-offs were $9.9 million, of which $5.0 million
was attributable to the discounting of loans sold in the bulk sale.
At December 31, 1994, the loan loss reserve was $8.3 million, or 4.9%, of
total loans and leases. The Company's loan loss reserve totalled $14.3 million,
or 5.35%, of total loans and leases at December 31, 1993. The Company's ratio
of classified assets (loans that have been graded substandard and doubtful
according to the Company's grading policy and REO) to loan loss reserve plus
shareholders' equity was 113.27% at December 31, 1994 and 186.27% at December
31, 1993. The Board of Directors reviews the adequacy of the loan loss reserve
on a quarterly basis. Management utilizes its best judgment in providing for
possible loan losses and establishing the loan loss reserve. However, the
reserve is established based on information that exists at any given point in
time and may require substantial additions depending on future events. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the adequacy of the Company's loan loss reserve.
Such agencies may require the Company to recognize additions to the loan loss
reserve based upon their judgment of the information available to them at the
time of their examination. In connection with its examination of Frontier, the
OCC required changes in the risk grading of certain credits which resulted in
an additional provision for loan losses of $200,000 during 1994.
Adverse economic conditions and a declining real estate market in California
during the early 1990s have adversely affected certain borrowers' ability to
repay loans. A continuation of these conditions or a further decline in the
California economy could result in further deterioration in the quality of the
loan portfolio and continuing high levels of nonperforming assets and charge-
offs, which would adversely effect the financial condition and results of
operations of the Company and the Banks. See "Risk Factors--Economic Conditions
in the Company's Market Area."
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REGULATORY AGREEMENTS AND CAPITAL REQUIREMENTS. Following supervisory
examinations of Ventura conducted as of June 30, 1992 and Frontier as of July
30, 1992, Ventura entered into a Formal Agreement with the OCC on March 19,
1993 and Frontier entered into a Consent Order with the OCC on March 29, 1993.
The Consent Order replaced the 1992 MOU between Frontier and the OCC. The
significant common requirements of the Formal Agreement and the Consent Order
for Ventura and Frontier include conducting a program to evaluate and improve
board supervision and management, developing a program designed to improve the
lending staff and loan administration, obtaining current credit information on
any loans lacking such information, reviewing and revising loan policies,
establishing an independent loan review program including periodic reports to
the Board, developing and implementing a program to collect or strengthen
criticized assets, reviewing and maintaining an adequate loan loss reserve,
developing a new long range strategic plan and annual budget, developing a
three-year capital plan, developing and revising liquidity and funds management
policies, correcting violations of law cited by the OCC and obtaining approval
from the OCC to declare or pay a dividend.
The Consent Order requires that Frontier achieve as of May 31, 1993 and
maintain thereafter a Tier 1 risk based capital ratio of 9.50% and a leverage
capital ratio of 7.00%. At December 31, 1994, Frontier's Tier 1 risk based
capital ratio was 12.29% and its leverage capital ratio was 8.32%. The Consent
Order also required Frontier to retain a new president and to continue to
develop a program of asset diversification.
Based upon an examination of Ventura conducted as of July 31, 1993, the
Formal Agreement was amended on February 3, 1994 to require Ventura to achieve
a Tier 1 risk based capital ratio of 12.00% and a leverage capital ratio of
7.00% by September 30, 1994. At December 31 1994, Ventura's Tier 1 risk based
capital ratio was 10.92% and its leverage capital ratio was 7.21%. Although
Ventura has satisfied the requirement of the Formal Agreement to maintain a
leverage capital ratio of 7.00%, it has not yet satisfied the Tier 1 risk-based
capital ratio of 12.00%. As of December 31, 1994, approximately $1.4 million
additional capital was necessary for Ventura to meet the capital requirements
of the Formal Agreement. As required by the Formal Agreement, on October 18,
1994, Ventura submitted to the OCC its revised plan for restoring capital and
the OCC did not object to implementation of the plan as proposed. In addition,
Ventura applied for and received an extension of the date by which such ratios
are required to be achieved to June 30, 1995, provided that the subscription
period for this Offering is no longer than six weeks. This Offering is being
undertaken in part to ensure that Ventura meets all applicable capital
requirements. However, there can be no assurance that after the Offering,
Ventura or Frontier will continue to be in compliance with all of their
regulatory capital requirements. See "Capitalization."
The amendment to the Formal Agreement also requires Ventura to seek
Reimbursement of Interest relating to interest paid on a deposit account at
Ventura. The deposit account held funds generated by Parent through the sales
of commercial paper to Ventura customers. Ventura categorized this account as a
savings account, and as such paid interest on such account. However, the OCC
concluded that the account should have been categorized as a demand deposit
account on which the payment of interest is not permitted. As a result, the OCC
has required Ventura to seek Reimbursement of Interest. Furthermore, Parent has
been required by the Reserve Bank to cease all such commercial paper sales,
which Parent did in December 1993.
Parent entered into the MOU with the Reserve Bank on March 19, 1994. The
significant requirements of the MOU include submitting a program to improve the
financial condition of the Banks, evaluating and improving board supervision
and management, exiting the commercial paper market, complying with Federal
Reserve Board policy regarding management or service fees assessed by Parent
and paid by the Banks and implementing steps to improve the effectiveness of
the audit and credit review functions. The MOU further restricts Parent from
declaring or paying a dividend, incurring any debt, adding or replacing a
director or senior executive or repurchasing Common Stock without notice to and
nondisapproval of the Reserve Bank. The MOU also requires the Parent's Board of
Directors to establish a committee to monitor compliance with the MOU and
ensure that quarterly written progress reports detailing the form and manner of
all actions taken to attain compliance with the MOU are submitted. For a
discussion of the Company's responsive measures to the Formal Agreement,
Consent Order and MOU, see "The Company--Responsive Measures."
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<PAGE>
The OCC conducted a consumer compliance and Community Reinvestment Act
("CRA") examination of Frontier as of December 13, 1994. Under the CRA,
regulated financial institutions are required to help meet the credit needs of
their communities, including those of low and moderate income individuals. The
CRA generally requires the federal banking agencies to evaluate the record of a
financial institution in meeting the credit needs of their local communities,
including low and moderate income neighborhoods. The federal banking agencies
may take compliance with CRA into account when regulating and supervising other
activities. As a result of the examination, the OCC concluded that Frontier is
in satisfactory compliance with consumer protection laws and regulations;
however, the OCC indicated that Frontier's performance under the CRA needs
improvement. A "needs to improve" rating may result in the denial of regulatory
applications by Frontier or the Company, although no such applications are
currently pending. Management of the Company and Frontier have taken action to
address the OCC's findings, including commissioning a consultant to help
Frontier develop its marketing strategy in its delineated communities and
developing a CRA action plan to improve Frontier's CRA performance.
Parent intends to use the proceeds of this Offering to reimburse interest
paid by Ventura. The Reimbursement of Interest by Parent will also result in an
increase in the capital levels of Ventura. The OCC recently completed a
regularly scheduled examination of Ventura and, based upon this examination,
indicated that Ventura was in full or partial compliance with the other
requirements of the amended Formal Agreement. Frontier and Parent are in full
or partial compliance with or in the process of complying with all of the other
items required under the Consent Order and MOU, respectively. Notwithstanding
the foregoing, however, Parent, Ventura and Frontier have not yet fully
implemented their new policies and will continue the implementation process as
part of their efforts to come into full compliance with the requirements of the
Formal Agreement, Consent Order and MOU.
POTENTIAL ADDITIONAL REGULATORY ACTIONS. Bank holding companies and banks,
such as the Parent and the Banks, and their institution-affiliated parties are
subject to potential enforcement actions by the OCC or the Reserve Bank for any
unsafe or unsound practices in conducting their business or for violations of
any law, rule or regulation, any cease-and-desist or consent order, any
condition imposed in writing by the agency or any written agreement with the
agency, such as the Formal Agreement, Consent Order and MOU. Enforcement
actions may include cease-and-desist orders and written agreements, the
imposition of civil money penalties and removal or prohibition orders against
institution-affiliated parties and, in the most severe instances, the
termination of insurance of deposits and/or the imposition of a conservator or
receiver for an insured depository institution. Even if Parent and the Banks
achieve full compliance with all regulatory capital and other operating
requirements, including the higher capital ratios required by the Formal
Agreement and the Consent Order, it is possible that at some date thereafter
they may not continue to be in compliance with such requirements as a result of
future losses or otherwise. Thus, it is possible that the Offering could be
consummated and Parent and the Banks might nonetheless become subject to
enforcement actions by regulators for capital deficiencies or other matters,
including noncompliance with the Formal Agreement, the Consent Order, the MOU
or any subsequent agreement. In addition, the inability or failure of Parent to
serve as a "source of strength" to the Banks could lead to further regulatory
action against Parent. Any deficiency in compliance with the requirements of
the Formal Agreement, Consent Order or MOU could result in penalties or further
regulatory restrictions that would have a material adverse effect on the
Company. See "Supervision and Regulation--Prompt Corrective Action and Other
Enforcement Mechanisms" and "Supervision and Regulation--Potential and Existing
Enforcement Actions."
ECONOMIC CONDITIONS IN THE COMPANY'S MARKET AREA. The Company's business is
subject to fluctuations in interest rates, general national and local economic
conditions and consumer and institutional confidence in the Company. For
example, the national and local economies, and the real estate market on the
local level, suffered from the effects of a prolonged recession that has
adversely affected the ability of certain borrowers of the Company to meet
their obligations to the Company. The effects of the recession have resulted in
an increase in the level of nonperforming assets, charge-offs of loans and
write-downs of REO and an erosion in the value of the Company's real estate
collateral and REO. According to the Center for Continuing Study of the
California Economy, The Outlook for the California Economy, November 1994
Report, (the "CCSCE
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Report") California's economic condition has improved in 1994. Retail spending
in California is up 5%, income is up nearly 4%, exports are up 13.5%,
construction is up nearly 15%, and new revised data are showing that job gains
have been occurring for more than a year. According to the CCSCE Report,
although the outlook for 1995 is for continued growth with substantial gains in
construction and additional gains in retail spending, the major threat to the
California economy, as well as the U.S. economy, is rising interest rates.
According to the CCSCE Report, the economic recovery in California will
continue in 1995 if the U.S. economy continues to grow.
In addition to general economic conditions, certain additional risks are
present in Ventura County. A major source of revenues and jobs in Ventura
County is in agriculture. Ventura County is California's largest producer of
lemons and oranges and the second largest producer of strawberries and
avocados, and contributes $848 million to California's $19.9 billion farming
industry. At December 31, 1994, approximately 7% of Ventura's loan portfolio
was directly or indirectly tied to agricultural or agricultural support
businesses. In September 1994, Mediterranean fruit flies (an insect that causes
severe damage to fruits and vegetables, also known as the "medfly") were
discovered in Ventura County and, although eradication efforts have begun, the
success of such efforts cannot be determined. Nonetheless, recent published
reports indicate that citrus growers in Ventura County have entered into
contracts with Japanese companies which have agreed to purchase fruit grown in
quarantined areas within the region. Although management does not believe that
appearance of the medfly will ultimately have a significant impact, there can
be no assurance that failure to stem the spread of the medfly would not have an
adverse effect on the economy of Ventura County, which in turn would have an
adverse effect on the Company.
Orange and Los Angeles counties, where Frontier's offices are located, each
have separate and distinct factors affecting their economies. Los Angeles
County's unemployment rate remains above the unemployment rate of the rest of
the state, which in turn was significantly higher than the national
unemployment rate. Economists at California State University, Fullerton have
predicted that Orange County's economic recovery will lag behind the national
pace, particularly due to reductions in the defense industry and slow
construction activity. Although the Banks have made no direct loans to Orange
County and management believes that Orange County's recent declaration of
bankruptcy will have no direct impact on the Company, there can be no
assurances that a direct or indirect impact will not be experienced.
Fluctuations in economic conditions are neither predictable nor controllable
and may have materially adverse consequences upon the operations and financial
condition of the Company, even if other favorable events occur. Such adverse
effects could include further deterioration in the quality of the loan
portfolio, continuing high levels of nonaccrual loans and charge-offs, and
increased provisions for loan losses.
EQUITY MARKET CONSIDERATIONS. There can be no assurance that the market price
of the Common Stock will not decline during or after the subscription period or
that, following the issuance of the Rights and the sale of the shares of Common
Stock upon exercise of Rights or otherwise, a subscribing Rights Holder will be
able to sell shares purchased in the Offering at a price equal to or greater
than the Subscription Price. The election of a Rights Holder to exercise Rights
in the Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Rights Holders and other Purchasers may not be able to sell the
shares of Common Stock that they have purchased in the Offering. In addition,
the Company reserves the right to extend the period for the Rights Offering to
a date not later than July 21, 1995. Subject to satisfaction of the Minimum
Condition, certificates representing shares of Common Stock purchased in the
Offering will be delivered as soon as practicable after the Expiration Time and
after all reductions contemplated by the Offering have been effected. There can
be no assurance that the market price of the Common Stock purchased pursuant to
the Offering will not decline below the Subscription Price before the
certificates representing such shares have been delivered. No interest will be
paid to any subscriber in the Rights Offering.
Consummation of the Offering is contingent upon satisfaction of the Minimum
Condition. If the Minimum Condition is not fulfilled or cannot be fulfilled,
the Offering will not be consummated and all funds received pursuant to the
Rights Offering or from Standby Purchasers will be promptly refunded, without
interest.
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OFFERING PRICE. The Subscription Price for the Common Stock was set by the
Board of Directors in consultation with Sandler O'Neill, taking into
consideration factors which the Board believes relevant to a determination of
the value of the Common Stock. Among the factors considered by the Board in
determining the Subscription Price were (i) the market value of the Common
Stock; (ii) the present and projected operating results and financial condition
of the Company; (iii) an assessment of the Company's management and
management's analysis of the growth potential of the Company and of the
Company's market area; (iv) the aggregate size of the Offering; (v) the price
at which the Board believes investors would readily pay to purchase all of the
available shares of Common Stock offered under the current economic
circumstances; (vi) the amount the Standby Purchasers were willing to commit;
and (vii) the amount of capital necessary for the Reimbursement of Interest to
Ventura to satisfy the Formal Agreement. As of the date of this Prospectus,
members of the Board of Directors and executive officers beneficially owned, in
the aggregate, 992,506 shares, or 15.52% of the outstanding Common Stock.
Directors and executive officers of the Company will have the same ability as
others to purchase additional shares of Common Stock in the Offering. The
directors and executive officers of the Company as a group (16 persons) have
indicated their intention to exercise Rights to purchase, in the aggregate,
107,882 shares of Common Stock. These indications are based upon each
director's and officer's evaluation of his or her own financial and other
circumstances. An investment in Common Stock must be made pursuant to each
investor's evaluation of such investor's best interests. Accordingly, neither
the Board of Directors nor Sandler O'Neill make any recommendation to Rights
Holders or others regarding whether they should exercise their Rights or
purchase Common Stock. See "The Rights Offering--Financial Advisor."
DILUTION. Record Date Holders may experience substantial dilution of their
percentage of equity ownership interest and voting power in the Company if they
do not exercise the Basic Subscription Privilege. Even if Record Date Holders
exercise their Basic Subscription in full, they may nevertheless still
experience substantial dilution in their voting rights and in their
proportional interest in any future net earnings of the Company if Additional
Shares are purchased by Standby Purchasers. See "Standby Purchase Agreements."
In addition, it is possible that additional capital may be necessary or
appropriate and shares of Common Stock may be offered for sale in the future.
In that event, the relative voting power and equity interests of persons
purchasing Common Stock in this Offering could be reduced, as the Common Stock
has no preemptive rights. See "Description of Capital Stock." No assurance can
be given that such future sale will not occur, and, if it did, at what price or
other terms.
DIVIDEND RESTRICTIONS. Parent has never paid a cash dividend on the Common
Stock and there can be no assurance that Parent will generate earnings in the
future which would permit the declaration of dividends. Parent is prohibited by
the terms of the MOU from declaring or paying a dividend without fifteen days'
prior notice to the Reserve Bank. In addition, the source of such dividends is
likely to be dividends from Ventura or Frontier, both of which are currently
prohibited from paying dividends by the Formal Agreement and the Consent Order,
respectively, without the consent of the OCC. Furthermore, it is anticipated
that for the foreseeable future any earnings which may be generated will be
retained for the purpose of increasing the Company's and the Banks' capital and
reserves in order to facilitate growth. See "Risk Factors--Regulatory
Agreements and Capital Requirements."
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS. The financial institutions
industry is subject to significant regulation, which has materially affected
the financial institutions industry in the past and will do so in the future.
Such regulations, which affect the Company on a daily basis, may be changed at
any time, and the interpretation of the relevant law and regulations are also
subject to interpretive change by the authorities who examine Parent and the
Banks and interpret those laws and regulations. For a description of the
potentially significant regulatory changes which have been enacted and
proposals which have recently been put forward, see "Supervision and
Regulation--Effect of Governmental Policies and Recent Legislation." There can
be no assurance that any present or future changes in the laws or regulations
or in their interpretation will not adversely and materially affect the
Company.
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MONETARY POLICY AND ECONOMIC CONDITIONS. The operating income and net income
of the Company depends to a great extent on the difference between the interest
paid by the Company on its deposits and its other borrowings and the interest
received by the Company on its loans, securities and other interest earning
assets. These rates are highly sensitive to many factors that are beyond the
control of the Company, including general economic conditions and the monetary
and fiscal policies of the federal government and the policies of regulatory
agencies, particularly the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). The nature and impact of any future changes in
monetary policies cannot be predicted. Adverse economic conditions could result
in smaller net interest margin, increased nonperforming assets, increased
charge-offs and higher provision for loan losses, any of which could adversely
affect the Company's net income.
FLUCTUATIONS IN INTEREST RATES AND RELIANCE ON VOLATILE LIABILITIES. To
reduce exposure to interest rate fluctuations, the Company attempts to match
its interest rate sensitive assets with its interest rate sensitive liabilities
and maintain the maturity and repricing of these assets and liabilities at
appropriate levels. One method the Company uses to monitor interest rate
sensitivity is by comparing interest rate sensitive assets to interest rate
sensitive liabilities over several time periods, or by using what is called gap
analysis. Net repriceable assets exist when interest rate sensitive assets
exceed interest rate sensitive liabilities. At December 31, 1994, the Company
had net repriceable assets (a positive gap) that reprice within one year of
8.3% of total assets. The net repriceable assets over a five year time horizon
totaled approximately 20.3% of total assets. With a positive one year gap, the
Company would anticipate higher net interest margin over the near term in a
rising rate environment and lower net interest margin in a declining rate
environment. The Banks have established floors on 47% of the variable rate
loans to mitigate the effect on net interest margin if interest rates decline.
The Company would also anticipate, to a lesser extent, lower net margins in a
stable rate environment that immediately follows a rising rate environment as
interest bearing liabilities reprice. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Rate Sensitive Assets/Rate
Sensitive Liabilities."
Increases in interest rates may reduce the amount of demand for loans and,
thus, the amount of loan and commitment fees. In addition, fluctuations in
interest rates may also result in disintermediation, which is the flow of funds
away from depository institutions into direct investments which pay a higher
rate of return, and may affect the value of the Company's investment securities
and other interest earning assets.
As a result of the Company's assets consisting of a substantial number of
loans with interest rates which change in accordance with changes in prevailing
market rates, if interest rates rise sharply, many of the Company's borrowers
would be required to make higher interest payments on their loans. Thus,
increases in interest rates may cause the Company to experience an increase in
delinquent loans and defaults to the extent that borrowers were unable to meet
their increased debt servicing obligations.
Although the Banks do not currently purchase brokered deposits, in the past,
both Ventura and Frontier have, to a certain degree, funded growth in their
assets with demand deposits from title and escrow companies and by the issuance
of certificates of deposit to persons, including other financial institutions,
not otherwise having banking relationships with the Banks. Such liabilities are
potentially unstable sources of deposits because they are generally attracted
to the financial institution based primarily upon the interest rate paid by the
institution and the general financial condition of the institution and may be
withdrawn on relatively short notice. Furthermore, the proceeds of such
liabilities are generally invested in relatively low yielding shortterm
investment securities rather than higher yielding loans. In order to stabilize
its funding sources, the Company has taken action to reduce title and escrow
deposits and institutional deposits as a percentage of total deposits. Demand
deposits owned by title and escrow companies represented 1.2% and 11.3% of
total deposits at December 31, 1994 and 1993, respectively. Certificates of
deposit held by other financial institutions represented 9.4% and 11.4% of
total deposits at December 31, 1994 and 1993, respectively, and brokered CDs
represented 0% and 1.3% of total deposits at December 31, 1994 and 1993,
respectively. There can be no assurances that the Company will be able to
replace such deposits with core deposits in the future.
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COMPETITION. The Company faces substantial competition for loans and deposits
throughout its market areas. The Company competes on a daily basis with other
commercial banks, savings institutions, thrifts and loans, credit unions, money
market and mutual funds and other investment alternatives. The Company faces
competition throughout its market area from local institutions, which have a
large presence in the Company's market areas, as well as from out-of-state
financial institutions which have offices in the Company's market areas. Many
of these other institutions offer services which the Company does not offer,
including trust and investment services. Furthermore, banks with a larger
capital base and financial intermediaries not subject to the restrictions
imposed by bank regulation have larger lending limits and can therefore serve
the needs of larger customers.
RIGHT TO TERMINATE OFFERING. The Company expressly reserves the right, in its
sole discretion, at any time prior to delivery of any shares of Common Stock
offered hereby, to terminate the Offering by giving oral or written notice
thereof to the Subscription Agent and making a public announcement thereof. If
the Rights Offering is so terminated, all funds received from Rights Holders
subscribing pursuant to the Rights Offering or persons placing orders under the
Standby Purchase Agreement will be promptly refunded, without interest.
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THE COMPANY
GENERAL
Ventura County National Bancorp is a California corporation, incorporated on
February 22, 1984, and is a registered multi-bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company's
principal executive offices are located at 500 Esplanade Drive, Oxnard,
California.
The Company currently conducts business through its two subsidiary banks,
Ventura and Frontier. The Banks are both national banking associations
operating in Southern California. Ventura conducts its banking operations
through four branch offices located in Ventura County, California,
approximately 60 miles northwest of downtown Los Angeles, situated on the coast
between Los Angeles and Santa Barbara counties. Ventura's headquarters are
located in Oxnard, California, and its branch offices are located in Ventura,
Camarillo and Westlake Village. Frontier is based in La Palma in northwestern
Orange County and has a branch office in Wilmington in southern Los Angeles
County.
BACKGROUND
During the 1980s, the Company grew substantially, both in earnings and asset
size, internally and through mergers. In addition to its core lending business,
the Company organized subsidiaries (all of which are now inactive) for a
variety of purposes, including providing data processing services to third
parties, insurance premium financing, venture capital, leasing and commercial
financing. Assets ultimately grew to a high of $400.2 million in 1992.
During the late 1980s and through early 1993, the Company made a substantial
amount of loans to land developers and subdividers and loans secured by first
trust deeds on investment properties. Beginning in 1991, the economic recession
and substantial declines in real estate values in Southern California began to
adversely affect collateral values and the ability of certain borrowers to
repay their obligations to the Company. A disproportionate amount of the
Company's charge-offs during 1991, 1992 and 1993 occurred as a result of the
concentration in these types of commercial real estate loans and because of the
substantial declines in real estate values brought on by the recession.
The foregoing factors significantly contributed to the Company's increased
provisions for loan losses in 1991, 1992 and 1993. The high level of
nonperforming assets, combined with a significantly lower level of average
earning assets due to balance sheet shrinkage also negatively affected the
Company's net interest income. Other expenses increased, reflecting increased
REO expenses as the real estate market destabilized. In addition, in 1993, the
Company incurred nonrecurring charges associated with the write-off of goodwill
at Frontier and certain tax assets. The net result of these and other factors
was a sustained downward trend in earnings since 1990, culminating with a net
loss of $12.1 million ($2.15 per share) for the year ended December 31, 1993.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Due to the foregoing, in March 1993 Frontier agreed to the issuance of a
Consent Order by the OCC (which replaced the 1992 MOU) and Ventura entered into
a Formal Agreement with the OCC, both of which addressed the need to improve
management, staffing, policies, procedures, reporting mechanisms, Board
oversight and compliance. In addition, both the Consent Order and the Formal
Agreement (as amended in February 1994) require the Banks to maintain
regulatory capital ratios at levels substantially higher than the levels
generally applicable to other national banks and restrict the payment of
dividends to Parent without the prior approval of the OCC. As a result of the
deterioration of the financial condition of the Banks, Parent entered into the
MOU with the Reserve Bank. See "Supervision and Regulation--Potential and
Existing Enforcement Actions" and "Risk Factors--Regulatory Agreements and
Capital Requirements."
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RESPONSIVE MEASURES
In September 1993, new management and the Board of Directors developed and
began to implement a plan to address the major concerns confronting the Banks
and restore core profitability. The plan consisted of (1) improving management,
(2) reducing nonperforming and classified assets, (3) improving asset quality,
(4) reducing other expenses, (5) improving liquidity and (6) increasing capital
ratios. Prior to the commencement of this Offering, the Company's Board of
Directors from time to time considered various strategic alternatives,
including having discussions with others concerning possible business
combinations involving the Banks. All such discussions have terminated.
Management believes that the Company has made significant progress in
implementing each action item of the plan, each of which is discussed below:
. Improved Management. The Company and the Banks have experienced a
complete change in management since 1992. In July 1993, the Company and
Ventura retained Richard S. Cupp as their new President and Chief
Executive Officer and, in November 1994, Frontier retainedKathleen L.
Kellogg as its new President and Chief Executive Officer. The Banks have
each hired new Chief Credit Officers and Ventura has hired a new Chief
Operating Officer and a Chief Lending Officer. See "Shareholdings of
Certain Beneficial Owners and Management--Executive Officers." The
Company has retained Simone Lagomarsino as its Chief Financial Officer.
These new management teams, under the direction of the Company's and the
Banks' Boards of Directors, have undertaken a sweeping revision of
policies, procedures and reporting mechanisms in practically every area
of operation.
. Reduced Nonperforming and Classified Assets. Management has sought to
reduce the level of nonperforming assets through collections, writedowns
and sales of REO and nonperforming loans. To aid in that objective, in
May 1994, the Company completed a bulk sale of $14.1 million in
nonperforming loans. In connection with the bulk sale, an additional
provision for loan losses of $1.5 million and charge-offs of $5.0
million were taken to expedite the disposition of such assets. The
result has been a reduction in nonperforming assets from $22.1 million
at December 31, 1993 to $11.2 million at December 31, 1994 and a
reduction of classified assets from $64.6 million to $30.9 million over
the same period. At December 31, 1994, the ratio of classified assets to
the loan loss reserve plus shareholders' equity was 113.27%, compared
with 186.27% at December 31, 1993. See "Business--Classified Assets and
Nonperforming Assets." On a pro forma basis, the ratio of classified
assets to loan loss reserve plus shareholders' equity as of December 31,
1994 would have been 99.74%, if the Minimum Shares were sold, and
93.86%, if the Maximum Shares were sold, as of such date.
. Improved Asset Quality. Management has reorganized and strengthened
credit administration and internal asset review and supplemented its
internal activities by hiring an external loan review firm to evaluate
and review the risk grades of both nonperforming and performing loans on
a quarterly basis. The portfolios have been reviewed for nine
consecutive quarters by the external loan review firm and all loans over
$250,000 have been reviewed at least once. Moreover, the OCC completed
examinations of Ventura as of September 30, 1994 and Frontier as of June
30, 1994. The results of these examinations displayed improvement in the
Banks' condition. In addition, the OCC indicated that Ventura's loan
loss reserves were adequate at the time of its examination. In
connection with its examination of Frontier, the OCC required changes in
the risk grading of certain credits which resulted in an additional
provision for loan losses of $200,000 during 1994. The Company has also
restructured its staff to strengthen commercial lending, financial
accounting and reporting. Management has emphasized continuing training
and risk identification at the loan officer level. The Company has also
developed and adopted new or revised policies, procedures and systems
that are designed to improve credit origination and documentation,
review and classification procedures, real estate and equipment
appraisals.
Although the Company's loan portfolio at December 31, 1994 continues
to reflect a concentration of medium term real estate commercial loans,
current underwriting policies emphasize commercial loans for customers
with whom the Banks also have deposit relationships.
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In general, the Company has significantly curtailed the origination of
medium term commercial real estate and is not soliciting new loans to
finance investment properties. It is management's intention that future
medium term commercial real estate loans, to the extent made, will be
limited to loans to finance owner-user properties. Twenty-two medium
term commercial real estate loans aggregating $10.3 million at December
31, 1994 are scheduled to mature during 1995, of which six loans in the
aggregate amount of $3.2 million have been classified. All such
classified loans have been reevaluated for collateral value within the
past six months and additional loan loss reserves have been taken where
appropriate. Of the $10.3 million in medium term commercial real estate
loans maturing in 1995, thirteen loans aggregating $7.2 million were
loans for investment properties. Of that amount, the Company
anticipates that nine loans aggregating $5.9 million will be refinanced
or fully repaid during 1995. The remaining $1.3 million consists of
four loans, none of which exceeded $570,000 principal balance at
December 31, 1994. None of such loans were classified at December 31,
1994, and based upon current information, management does not
anticipate that additional loan loss reserves will be assessed with
respect to such loans. See "Business--Loan Portfolio."
. Reduced Other Expenses. Management made a decision to eliminate certain
nonstrategic aspects of the Company's business. In 1994, the Company
sold its mortgage servicing portfolio and eliminated its mortgage
origination and servicing departments. In addition, in 1994, the Company
completed the outsourcing of its data processing and courier functions.
As a result, the Company was able to reduce its staff from 199 at
December 31, 1993 to 141 at December 31, 1994. The Company has reduced
its occupancy expenses by subletting portions of its administrative and
headquarters offices, negotiating a favorable renewal of the lease for
its Central Operations office, and allowing the lease for one of its
properties to expire in 1995. Prior to taking such actions, the Company
expended $1.3 million with respect to the additional staff, employee
benefit and occupancy expenses during 1993 and 1994, which the Company
does not anticipate that it will incur in the future. As a result of
such actions during 1994, the Company had an efficiency ratio of 80.71%,
compared to 95.89% during 1993. In addition, the Company consolidated
two operational units of Frontier and Ventura during the first quarter
of 1995, which management anticipates will result in additional cost
savings of approximately $200,000.
. Improved Liquidity. During 1993 and 1994, the Company has undergone
significant balance sheet restructuring, experiencing substantial
reductions in assets, loans and deposits, which had the dual effects of
increasing core deposits as a percentage of total deposits and improving
liquidity. In order to improve the diversity of the Company's funding
sources, management reduced title and escrow deposits from $36.1 million
at December 31, 1993 to $2.7 million at December 31, 1994 and
institutional and brokered certificates of deposit from $40.2 million at
December 31, 1993 to $22.2 million at December 31, 1994. In addition,
the loan to deposit ratio improved from 79.6% at December 31, 1993 to
67.6% at December 31, 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
. Improved Capital Ratios. Primarily because of balance sheet
restructuring, the Company and the Banks have recently improved their
regulatory capital ratios. During 1993, the Company raised$1.7 million
from a private placement of Common Stock and notes payable. As
ofDecember 31, 1994, the Company, Ventura and Frontier had leverage
capital ratios of 7.53%, 7.21% and 8.32%, respectively, Tier 1 risk-
based capital ratios of 11.32%, 10.92% and 12.29%, respectively, and
total risk-based capital ratios of 12.61%, 12.21% and 13.57%,
respectively. These ratios comply fully with all minimum regulatory
requirements applicable to bank holding companies and national banks
generally and comply with the higher requirements imposed on Frontier by
the Consent Order. Although Ventura has satisfied the requirement of the
Formal Agreement to maintain a leverage capital ratio of 7.00%, it has
not yet satisfied the Tier 1 risk-based capital ratio requirement of
12.00%. The OCC has agreed to extend until June 30, 1995 the date by
which Ventura must be in full compliance with the capital requirements
of the Formal Agreement. Management believes that Ventura will be able
to comply with such requirements, either through
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results of continuing operations or as a result of the capital raised in
this Offering. The Offering is conditioned upon the receipt by Parent of
minimum Offering proceeds of $4,500,000. See "The Rights Offering--
Minimum Condition."
Through management's efforts, the Company's net loss was reduced to $262,000
during 1994 and nonperforming assets were reduced to $11.2 million at December
31, 1994. The Company returned to profitability beginning in the third quarter
of 1994, and had net income for the second half of 1994 of $615,000, compared
to a net loss of $877,000 for the first six months of the year. Earnings
improvement in the second half was due to a $1.9 million decrease in the
provision for loan losses, $1.2 million decrease in other expenses and a
$143,000 decrease in income tax provision, which were offset by a decline in
other income of $2.1 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Management believes the Company
is positioned to take advantage of new opportunities as they may arise in 1995.
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to pursue a unique opportunity to
build market share in its target markets created by the acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California in February 1995. Ventura is now the largest
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong relationships with
business, civic and community organizations. The Company has reallocated its
resources in a renewed marketing effort to position both Ventura and Frontier
as the leading community banks in their respective market areas. Management
believes that this marketing and service approach enables both Banks to compete
effectively with the money center, superregional and regional banks which
dominate their market areas.
The Ventura, Los Angeles and Orange County economies support a broad range of
industries including durable and nondurable manufacturing, public
administration and the military, business and health services, retail and
wholesale trade, high technology, agriculture, construction, and tourism
related sectors. According to Dun & Bradstreet, there are more than 3,000
businesses operating in Ventura County with revenues ranging from $1 million to
$25 million, the majority of which have headquarters locally. The same source
indicates that Frontier's market area includes over 11,000 businesses with
revenues in the $1 million to$25 million range. The most recent data available
indicates that Ventura's market share of bank deposits in Ventura County is
approximately 5.0%, while Frontier's market share of deposits in Los Angeles
and Orange counties is insignificant.
Ventura provides deposits and loan products to businesses in representative
industries in Ventura County, including manufacturing, distribution,
professional services and agriculture. Ventura's principal loan products will
include working capital loans and lines of credit, asset based loans and lines
of credit, term loans secured by properties, plants and equipment and, through
Frontier, SBA loans. Ventura also anticipates continuing a limited amount of
construction lending to experienced builders for construction of single family
home projects in selected areas of Ventura County. Such loans would generally
not exceed 15% of the portfolio at any one time during 1995. Deposit and fee
products are designed to meet the needs of small businesses and professional
firms, including the firms targeted for loan products. See "Business."
Frontier's target market is small and medium sized businesses, professionals
and individuals. Frontier also intends to expand the Wilmington branch's
commercial lending business in its surrounding communities. In addition to the
types of loans offered by Ventura, Frontier's principal loan products include
commercial
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loans to small businesses secured by first trust deeds on owner-user commercial
real estate. Frontier also offers unsecured small business loans and, through
its SBA Division, loans for equipment, inventory, real estate acquisition and
construction, and working capital under both the 504 and 7(a) programs. See
"Business--Loan Portfolio--SBA Lending." The SBA Division intends to focus its
marketing efforts on developing and strengthening existing relationships with
real estate brokers who refer owner-user commercial and industrial real estate
purchasers to Frontier.
Both Banks have developed programs to solicit minority, principally Hispanic,
business customers with existing products. For example, Ventura sponsors a
county wide Minority Business Group with over 400 minority businesses and
professionals as members. Management believes minority businesses represent a
traditionally underserviced segment of the market that places a high priority
on the type of personalized service delivered by the Banks.
Both Banks offer fee based cash management products for business customers
and will expand and enhance these products for future growth. Deposit products
include business and personal checking, interest bearing money market, NOW and
savings accounts and certificates of deposit. Although neither Ventura nor
Frontier intends to compete with the larger regional, superregional or money
center banks for the broad based retail consumer customer, the Company has
designed and implemented certain competitive retail deposit products in order
to diversify and stabilize its funding sources.
Finally, the Company's strategic plan also requires continuing implementation
of each action item of its responsive measures.
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THE RIGHTS OFFERING
THE RIGHTS
The Company is hereby issuing transferable Rights at no cost to each record
holder of Common Stock ("Record Date Holder") as of the close of business on
May 10, 1995 (the "Record Date"). The Company will issue one Right for each
3.17 shares of Common Stock held on the Record Date. The Rights will be
evidenced by transferable Subscription Right Certificates, which are being
distributed to each Record Date Holder contemporaneously with the delivery of
this Prospectus.
The Company, with the assistance of Sandler O'Neill, determined the ratio of
one Right for each 3.17 shares of Common Stock. Factors affecting the
determination of the ratio of one Right for each 3.17 shares of Common Stock
include the amount of proceeds sought to be raised, pricing and dilution
characteristics of other rights offerings, negotiations with the Standby
Purchasers and the current market price of the Common Stock. See "The Rights
Offering--Determination of Subscription Price."
No fractional Rights or cash in lieu thereof will be issued or paid. Instead,
the number of Rights issued to a Record Date Holder will be rounded up to the
nearest whole number. A depository, bank, trust company or securities broker or
dealer holding shares of Common Stock on the Record Date for more than one
beneficial owner may, upon delivery to the Subscription Agent of the
Certification and Request for Additional Rights form available from the
Information Agent, exchange its Subscription Right Certificate to obtain a
Subscription Right Certificate for the number of Rights to which all such
beneficial owners in the aggregate would have been entitled had each been a
holder on the Record Date; no other Subscription Right Certificate may be so
divided as to increase the number of Rights to which the original recipient was
entitled. The Company reserves the right to refuse to issue any Subscription
Right Certificate if such issuance would be inconsistent with the principle
that each beneficial owner's holdings will be rounded up to the nearest whole
number of Rights. The Subscription Agent must receive the Certification and
Request for Additional Rights no later than 5:00 p.m., Pacific time, on June
16, 1995 after which time no new Subscription Right Certificates will be
issued.
Because the number of Rights issued to each Record Date Holder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the Record Date Holder of their shares will receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
Record Date Holders of their shares and who do not obtain (or cause the Record
Date Holder of their shares of Common Stock to obtain) a separate Subscription
Right Certificate with respect to the shares beneficially owned by them,
including shares held in an investment advisory or similar account. To the
extent that Record Date Holders or beneficial owners of Common Stock who obtain
a separate Subscription Right Certificate receive more Rights, they will be
able to subscribe for more shares pursuant to the Basic Subscription Privilege.
Beneficial owners of Common Stock who are not Record Date Holders may obtain a
separate Subscription Right Certificate upon request to the nominee Record Date
Holder. See "The Rights Offering--Exercise of Rights."
Once the Rights are distributed and until the Expiration Time, the Company
will not effect a reclassification of the Company's equity securities which
could have the effect of materially altering the value of the Rights during the
pendency of the Offering.
EXPIRATION TIME
The Rights will expire at the Expiration Time, 5:00 p.m., Pacific time, on
June 21, 1995, subject to extension in the discretion of the Company. The
Company does not currently contemplate any extensions. After the Expiration
Time, unexercised Rights will be null and void. The Company will not be
obligated to honor any purported exercise of Rights received by the
Subscription Agent after the Expiration Time, regardless of when the documents
relating to that exercise were sent, except pursuant to the Guaranteed
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Delivery Procedures described below. The Company may extend the Expiration Time
by giving oral or written notice to the Subscription Agent on or before the
Expiration Time, followed by a press release no later than 9:00 a.m. Pacific
time on the next business day after the previously scheduled Expiration Time.
The Offering will not be extended to a time later than 5:00 p.m., Pacific time,
on July 21, 1995.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right will entitle the holder thereof to
purchase at the Subscription Price one Underlying Share, subject to reduction
by the Company under certain circumstances (the "Basic Subscription
Privilege"). See "The Rights Offering--Tax Limitation" and "The Rights
Offering--Regulatory Limitation." Each Rights Holder is entitled to subscribe
for all, or any portion of, the Underlying Shares which may be acquired through
the exercise of Rights. Payment of the Subscription Price will be held in an
escrow account to be maintained by First Interstate Bank of California as
Subscription Agent and will be applied to the purchase of Common Stock or
promptly returned without interest following the Expiration Time. Subject to
satisfaction of the Minimum Condition, the certificates representing Underlying
Shares purchased pursuant to the Basic Subscription Privilege will be delivered
to subscribers as soon as practicable after the Expiration Time and all
prorations and reductions contemplated by the Offering have been effected.
Oversubscription Privilege. Subject to the allocation and possible reduction
described below and elsewhere in this Prospectus (see "The Rights Offering--Tax
Limitation" and "The Rights Offering--also "Regulatory Limitation"), Record
Date Holders who fully exercise the Basic Subscription Privilege issued to them
by the Company will be eligible to subscribe, at the Subscription Price, for
additional shares of Common Stock available after satisfaction of all
subscriptions pursuant to the Basic Subscription Privilege (the
"Oversubscription Privilege"). Only Record Date Holders who exercise the Basic
Subscription Privilege in full will be entitled to exercise this
Oversubscription Privilege which must be exercised at the same time as the
Basic Subscription Privilege is exercised. The Oversubscription Privilege is
not transferable.
Shares of Common Stock will be available for purchase pursuant to the
Oversubscription Privilege only to the extent that any Underlying Shares are
not subscribed for through exercise of the Basic Subscription Privilege. If the
Underlying Shares not subscribed for through the Basic Subscription Privilege
(the "Excess Shares") are not sufficient to satisfy all subscriptions pursuant
to the Oversubscription Privilege, the Excess Shares will be allocated pro rata
(subject to the elimination of fractional shares) among the Record Date Holders
who exercise their Oversubscription Privilege in proportion to the respective
number of shares of Common Stock each such Record Date Holder subscribes for
pursuant to the Basic Subscription Privilege; provided, however, that if such
pro rata allocation results in any Rights Holder being allocated a greater
number of Excess Shares than such holder subscribed for pursuant to the
exercise of the Oversubscription Privilege, then each Rights Holder will be
allocated only that number of Excess Shares for which such holder
oversubscribed, and the remaining Excess Shares will be allocated among all
other Rights Holders exercising the Oversubscription Privilege on the same pro
rata basis outlined above; such proration will be repeated until all Excess
Shares have been allocated to the full extent of the Oversubscription Privilege
exercised. Payments for oversubscriptions will be deposited upon receipt by the
Subscription Agent and held in a segregated account with the Subscription Agent
pending a final determination of the number of Underlying Shares to be issued
pursuant to such Oversubscription Privilege. THEREFORE, RIGHTS HOLDERS WHO
PLACE OVER-SUBSCRIPTION ORDERS PRIOR TO THE EXPIRATION TIME WILL LOSE ACCESS TO
FUNDS TENDERED FOR AN INDETERMINATE PERIOD OF TIME UP TO 30 DAYS AFTER THE
EXPIRATION TIME AND MAY NOT ACTUALLY ACQUIRE SHARES OF COMMON STOCK SUBSCRIBED
FOR. If a proration of the Excess Shares results in a Rights Holder receiving
fewer Excess Shares than such Rights Holder subscribed for pursuant to the
Oversubscription Privilege, then the excess funds paid by that holder at the
Subscription Price for shares not issued will be returned without interest or
deduction. Subject to satisfaction of the Minimum Condition, certificates
representing Underlying Shares purchased pursuant to the Oversubscription
Privilege will be delivered to subscribers as soon as practicable after the
Expiration Time and after all prorations and reductions contemplated by the
terms of the Offering have been effected.
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To exercise the Oversubscription Privilege, banks, brokers and other nominee
Record Date Holders who exercise the Oversubscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company the aggregate number of Rights as to which the
Oversubscription Privilege has been exercised and the number of Underlying
Shares thereby subscribed for by each beneficial owner of Rights on whose
behalf such nominee holder is acting.
REGULATORY LIMITATION
The Company will not be required to issue shares of Common Stock pursuant to
the Offering to any Rights Holder or Standby Purchaser who, in the Company's
sole judgment and discretion, is required to obtain prior clearance, approval
or nondisapproval from any state or federal bank regulatory authority to own or
control such shares unless, prior to the Expiration Time, evidence of such
clearance, approval or nondisapproval has been provided to the Company. If the
Company elects not to issue shares in such case, such shares will become
available to satisfy subscriptions pursuant to the Oversubscription Privilege
or to Standby Purchasers as to whom such conditions do not apply.
The Change in Bank Control Act of 1978 prohibits a person or group of persons
"acting in concert" from acquiring "control" of a bank holding company unless
the Federal Reserve Board has been given60 days' prior written notice of such
proposed acquisition and within that time period the Federal Reserve Board has
not issued a notice disapproving the proposed acquisition or extending for up
to another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to the expiration of the disapproval period if
the Federal Reserve Board issues written notice of its intent not to disapprove
the action. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of more than 10% of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act (such as the Common Stock) would, under the circumstances set
forth in the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
("BHC Act"), before acquiring 25% (5% in the case of an acquiror that is, or is
deemed to be, a bank holding company) or more of the outstanding Common Stock
of, or such lesser number of shares as constitute control over, the Company.
SUBSCRIPTION PRICE
The Subscription Price is $2.25 per Underlying Share subscribed for pursuant
to the Basic Subscription Privilege and the Oversubscription Privilege, payable
in cash. Shares purchased by Standby Purchasers pursuant to the Standby
Purchase Agreements shall be at the same price of $2.25.
NO BOARD OR FINANCIAL ADVISOR RECOMMENDATION
An investment in the Common Stock must be made pursuant to each investor's
evaluation of such investor's best interests. Accordingly, neither the Board of
Directors of the Company nor Sandler O'Neill makes any recommendation to Rights
Holders or other prospective purchasers regarding whether they should exercise
their Rights or otherwise subscribe for shares of Common Stock.
STANDBY PURCHASE AGREEMENTS
The Company anticipates that it will enter into Standby Purchase Agreements
pursuant to which an aggregate of seven accredited investors as Standby
Purchasers will severally agree to acquire from the Company at the Subscription
Price up to 2,000,000 of the Underlying Shares, if any, remaining after the
exercise of the Basic Subscription Privilege and the Oversubscription
Privilege, subject in each case to a maximum standby commitment and possible
reduction under certain circumstances. See "Regulatory Limitation" and "Tax
Limitation." The Company expects that the Standby Purchase Agreements will
require that the Company sell up to 888,889 Additional Shares in the aggregate
to the Standby Purchasers if sufficient
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Underlying Shares are not available after completion of the Rights Offering.
The Additional Shares would be offered to the Standby Purchasers only. See
"Standby Purchase Agreements."
TAX LIMITATION
As of December 31, 1994, the Company had NOL carryforwards of $1.5 million
and $3.5 million for federal and state purposes, respectively. The acquisition
of Underlying Shares as a result of the exercise of Rights pursuant to the
Basic Subscription Privilege or the Oversubscription Privilege, or the issuance
of shares to Standby Purchasers, could result in an "ownership change" within
the meaning of Section 382 of the Code. If the Offering were to cause such an
ownership change, or if future trading in the Company's shares were to cause
such an ownership change, the Company's ability to use its NOLs in the future
could be adversely affected (the "Section 382 Limitation"). The Company has
reserved the right in its sole judgment and discretion to limit the number of
Underlying Shares issued as a result of exercises of Rights or under the
Standby Agreement to reduce the risk that the Section 382 Limitation will
apply. The Company will determine whether to exercise this discretion by
comparing the benefits of a successful offering with any tax detriments
associated with an ownership change.
An "ownership change" will occur if the aggregate percentage point ownership
increase for all 5% shareholders for a "testing period" exceeds 50 percentage
points. For this purpose, a "5% shareholder" is any direct or indirect holder,
taking certain attribution rules into account, of 5% or more of a corporation's
stock. For this purpose, all holders of less than 5% are collectively treated
as a single 5% shareholder. In general, the "testing period" is the three-year
period ending on the date an ownership change has occurred. Such period may be
less than three years and will begin the first day of the most recent taxable
year from which a net operating loss or excess credit is carried forward. Once
an "ownership change" has occurred, as of that date, only subsequent ownership
changes are tested. In determining the amount by which 5% shareholders have
increased their percentage, the percentage interest of each 5% shareholder on
the testing date is compared to the lowest percentage interest of such
shareholder at any time during the testing period. For example, a shareholder
whose percentage ownership increased from 6% to 20% during the testing period
will be considered to have had an increase of 14 percentage points. If the
aggregate change of all 5% shareholders exceeds 50 percentage points as of the
end of the "testing period," then an "ownership change" will have occurred. If
the Offering is successful, there may be an "ownership change" as a result.
This would impose an annual Section 382 limitation on the ability of the
Company to use its net operating losses beginning in the year in which the
"ownership change" has occurred. The amount of the net operating loss
carryovers that could be used by the Company annually would be determined by
multiplying the value of the Company as of the "ownership change" date by the
long term tax-exempt bond rate at that time, a rate that is currently 6.83%.
The Company retains the discretion to reduce the number of shares of Common
Stock to be received by a Rights Holder or a Standby Purchaser. It will
exercise this discretion by comparing the benefits of a successful offering
with any tax detriments associated with a ownership change.
Under the Standby Purchase Agreement, the Company will retain the right to
receive notice of, and to review a Standby Purchaser's proposed future
acquisition of shares of Company "stock" (as defined under Section 382 of the
Code and the regulation promulgated thereunder) and to limit the number of
shares so acquired in order to prevent the application of the Section 382
Limitation. It is anticipated that each Standby Purchaser will agree to give
the Company sufficient prior written notice of any proposed acquisition of
additional shares of Common Stock, so that the Company may determine in its
reasonable judgment whether such proposed purchase could reasonably by expected
to result in an ownership change. In the event the Company makes such a
determination, each Standby Purchaser would agree to limit its purchase of
additional shares of Common Stock or interests therein as the Company may
request to avoid such an ownership change.
It is anticipated that each Standby Purchaser will also agree that during the
three year period commencing on the day after the Closing Date, it will not bid
for, purchase, contract to purchase or otherwise
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acquire any shares of Common Stock or interests therein if, after such
acquisition, its percentage ownership, together with that of its affiliates, of
the total number of shares of the Company stock would exceed 4.9%. With the
written permission of the Company, each Standby Purchaser may increase such
percentage ownership above 4.9%, but in no event in excess of 9.9%.
No other restrictions on future acquisitions of shares exist in the Company's
charter or otherwise that are designed to prevent the occurrence of an
ownership change, although certain regulatory constraints on the acquisition of
controlling interests in a bank holding company or national bank may make it
somewhat less likely that an ownership change will occur due to future
acquisitions of Company stock.
METHOD OF SUBSCRIPTION--BY EXISTING SHAREHOLDERS AS RIGHTS HOLDERS
EXERCISE OF RIGHTS
Rights Holders may exercise their Rights by delivering to the Subscription
Agent, at the addresses specified below, at or prior to the Expiration Time,
the properly completed and executed Subscription Rights Certificate(s)
evidencing those Rights, with any signatures guaranteed as required, together
with payment in full of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. Payment may be made only (i) by check or bank draft
drawn upon a U.S. bank, or postal, telegraphic or express money order, payable
to First Interstate Bank of California, as Subscription Agent; or (ii) by wire
transfer of funds to the escrow account maintained by the Subscription Agent
for the purpose of accepting subscriptions at Mellon Bank, Pittsburgh,
Pennsylvania #17, ABA No. 043000261 Reorganization Account 100-2331-VCNB,
Attention: Evelyn O'Connor (with Subscriber's name) (the "Subscription
Account"). The Subscription Price will be deemed to have been received by the
Subscription Agent only upon (i) clearance of any uncertified check; (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order; or (iii)
receipt of collected funds in the Subscription Agent's account designated
above. Funds paid by uncertified personal check may take up to five business
days to clear. Accordingly, Rights Holders who wish to pay the Subscription
Price by means of uncertified personal check are urged to make payment
sufficiently in advance of the Expiration Time to ensure that such payment is
received and clears by such time and are urged to consider in the alternative
payment by means of certified check, bank draft, money order or wire transfer
of funds. All funds received in payment of the Subscription Price shall be held
by the Subscription Agent and invested at the direction of the Company in
short-term certificates of deposit, short-term obligations of the United States
or any state or any agency thereof or money market mutual funds investing in
the foregoing instruments. Subscription funds paid to exercise the
Oversubscription Privilege will be returned to the Rights Holder in the event
there are insufficient Excess Shares to fulfill any Oversubscription. See "The
Rights Offering--Subscription Privileges." The account in which such funds will
be held will not be insured by the FDIC. Any interest earned on such funds will
be retained by the Company.
The Subscription Right Certificates and payment of the Subscription Price or,
if applicable, Notices of Guaranteed Delivery or DTC Participant
Oversubscription Exercise Forms, as defined below, must be delivered to the
Subscription Agent, by mail, hand delivery, overnight or other courier service,
at the following address:
By Mail:
First Interstate Bank of California
Ventura County National Bancorp Rights Offering Account
Post Office Box 4177
Woodland Hills, California 91365
Telephone number: 1-800-522-6645
Facsimile number: 1-201-296-4062
By Hand Delivery:
15821 Ventura Boulevard 120 Broadway
Suite 670 13th Floor
Encino, California 91436 New York, New York
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The Company will absorb the costs of the fees and expenses of the
Subscription Agent and has also agreed to indemnify the Subscription Agent from
certain liabilities which it may incur in connection with the Offering. Except
for fees absorbed by the Company, and transfer taxes, if any, which shall be
paid by the Company, all commissions, fees and other expenses (including
brokerage commissions) incurred in connection with the exercise of Rights will
be for the account of the Rights Holder, and none of such commissions, fees or
expenses will be paid by the Company.
If a Rights Holder wishes to exercise Rights, but time will not permit such
Rights Holder to cause the Subscription Right Certificate(s) evidencing those
Rights to reach the Subscription Agent prior to the Expiration Time, such
Rights may nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) the Rights Holder has caused payment in full of the Subscription
Price for each Underlying Share being subscribed for pursuant to the Basic
Subscription Privilege and, if applicable, the Oversubscription Privilege
to be received (in the manner set forth above) by the Subscription Agent at
or prior to the Expiration Time;
(ii) the Subscription Agent receives, at or prior to the Expiration Time,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Ventura County
National Bancorp Subscription Rights Certificates (the "Instructions")
distributed with the Subscription Right Certificates, guaranteed by a
member firm of an approved Signature Guarantee Medallion Program, stating
the name of the exercising Rights Holder, the number of Underlying Shares
being subscribed for pursuant to the Basic Subscription Privilege, and, if
any, pursuant to the Oversubscription Privilege, and guaranteeing the
delivery to the Subscription Agent of the Subscription Right Certificate(s)
evidencing those Rights within two (2) business days following the date of
the Notice of Guaranteed Delivery; and
(iii) the properly completed Subscription Right Certificate(s) evidencing
the Rights being exercised, with any signatures guaranteed as required, is
received by the Subscription Agent within two (2) business days following
the date of the Notice of Guaranteed Delivery relating thereto. The Notice
of Guaranteed Delivery may be delivered to the Subscription Agent in the
same manner as Subscription Right Certificates at the address set forth
above or may be transmitted to the Subscription Agent by telegram or
facsimile transmission. Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Information Agent
whose address and telephone number are set forth below.
If an exercising Rights Holder does not indicate the number of Rights being
exercised, or does not forward full payment of the aggregate Subscription Price
for the number of Rights that the Rights Holder indicates are being exercised,
then the Rights Holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of Rights that may be exercised
for the aggregate payment delivered by the Rights Holder and, to the extent
that the aggregate payment delivered by the Rights Holder exceeds the product
of the Subscription Price multiplied by the number of Rights evidenced by the
Subscription Right Certificates delivered by the Rights Holder (such excess
being the "Subscription Excess"), the Rights Holder will be deemed to have
exercised the Oversubscription Privilege to purchase, to the extent available,
that number of whole Excess Shares equal to the quotient obtained by dividing
the Subscription Excess by the Subscription Price. Any amount remaining after
application of the foregoing procedures shall be returned to the Rights Holder
promptly by mail without interest or deduction.
Funds received in payment of the Subscription Price for Excess Shares
subscribed for pursuant to the Oversubscription Privilege will be held in a
Subscription Account and segregated from its other accounts pending issuance of
the Excess Shares. If a Rights Holder exercising the Oversubscription Privilege
is allocated less than all of the Excess Shares for which that Rights Holder
subscribed pursuant to the Oversubscription Privilege, then the excess funds
paid by the Rights Holder as the Subscription Price for shares not allocated to
such Rights Holder shall be returned by mail as soon as practicable after the
Expiration Time and after all prorations contemplated by the terms of the
Offering have been effected.
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Subject to satisfaction of the Minimum Condition, certificates representing
shares of Common Stock subscribed for and issued pursuant to the Rights will be
mailed as soon as practicable after the Expiration Time and after all
prorations and reductions contemplated by the terms of the Offering have been
effected. Certificates for shares of Common Stock issued pursuant to the
exercise of Rights will be registered in the same of the Rights Holder
exercising such Rights. There can be no assurance that the value of the Common
Stock will not decline below the Subscription Price before such shares of
Common Stock are delivered.
A Rights Holder who subscribes for fewer than all of the shares represented
by its Subscription Right Certificates may, under certain circumstances, (i)
direct the Subscription Agent to attempt to sell the remaining Rights, (ii)
receive from the Subscription Agent a new Subscription Right Certificate
representing the remaining Rights or (iii) transfer the remaining Rights to a
designated transferee. See "The Rights Offering--Method of Transferring
Rights." A Rights Holder's election to exercise the Oversubscription Privilege
must be made at the time the Basic Subscription Privilege is exercised.
Unless a Subscription Right Certificate (i) provides that the Underlying
Shares to be issued pursuant to the exercise of the Rights represented thereby
are to be issued to the Rights Holder; or (ii) is submitted for the account of
an Eligible Institution, signatures on each Subscription Right Certificate must
be guaranteed by a member firm of an approved Signature Guarantee Medallion
Program.
Record Date Holders who hold shares of Common Stock for the account of
others, such as brokers, trustees or depositories for securities, should
contact the respective beneficial owners of such shares as soon as possible to
ascertain these beneficial owners' intentions and to obtain instructions with
respect to their Rights. If a beneficial owner so instructs, the Record Date
Holder of that beneficial owners' Rights should complete appropriate
Subscription Right Certificates and submit them to the Subscription Agent with
the proper payment. In addition, beneficial owners of Rights through such a
nominee holder should contact the nominee holder and request the nominee holder
to effect transactions in accordance with the beneficial owners' instructions.
If a beneficial owner wishes to obtain a separate Subscription Right
Certificate, he, she or it should contact the nominee as soon as possible and
request that a separate Subscription Right Certificate be issued. A Nominee may
request any Subscription Right Certificate held by it to be split into such
smaller denominations as it wishes, provided that the Subscription Right
Certificate is received by the Subscription Agent, properly endorsed, no later
than 5:00 p.m., Pacific time, on June 16, 1995.
The Instructions accompanying the Subscription Right Certificates should be
read carefully and followed in detail. SUBSCRIPTION RIGHT CERTIFICATES SHOULD
BE SENT WITH PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION RIGHT
CERTIFICATES TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION RIGHT CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS. IF SUBSCRIPTION RIGHT CERTIFICATES AND PAYMENTS ARE SENT
BY MAIL, RIGHTS HOLDERS ARE URGED TO SEND SUCH MATERIALS BY REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND ARE URGED TO ALLOW A
SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND
CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME. BECAUSE UNCERTIFIED CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, RIGHTS HOLDERS ARE STRONGLY
URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED CHECK, BANK DRAFT,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
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Certain directors and officers of the Company will assist the Company in the
Offering by, among other things, participating in informational meetings
regarding the Offering, generally being available to answer questions of
potential subscribers and soliciting orders in the Rights Offering. None of
such directors and officers will receive additional compensation for such
services. None of such directors and officers are registered as securities
brokers or dealers under the Federal or applicable state securities laws, nor
are any of such persons affiliated with any broker or dealer. Because none of
such persons are in the business of either effecting securities transactions
for others or buying and selling securities for their own account, they are not
required to register as brokers or dealers under the Federal securities laws.
In addition, the proposed activities of such directors and officers are
exempted from registration pursuant to a specific safe-harbor provision under
Rule 3a4-1 under the Exchange Act. Substantially similar exemptions from
registration are available under applicable state securities laws.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determination
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscription Right Certificates will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as the Company determines, in its sole discretion. Neither the Subscription
Agent or the Company will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Right
Certificates or incur any liability for failure to give such notification. The
Company reserves the right to reject any exercise if such exercise is not in
accordance with the terms of the Offering or not in proper form or if the
acceptance thereof or the issuance of the Common Stock pursuant thereto could
be deemed unlawful. See "The Rights Offering--Regulatory Limitation" and "The
Rights Offering--Tax Limitation."
All questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Information
Agent at Chemical Bank (telephone (800) 421-0708).
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels, including
banks and brokers. It is anticipated that the Rights will trade on the Nasdaq
National Market until the close of business on the last trading day prior to
the Expiration Time. There has been no prior trading in the Rights and no
assurance can be given that a trading market for the Rights will develop or, if
a market develops, that such market will be maintained throughout the Offering.
The Rights evidenced by a single Subscription Right Certificate may be
transferred in whole by endorsing the Subscription Right Certificate for
transfer in accordance with the accompanying Instructions. A portion of the
Rights evidenced by a single Subscription Right Certificate (but not fractional
Rights) may be transferred by delivering to the Subscription Agent a
Subscription Right Certificate properly endorsed for transfer, with
instructions to register that portion of the Rights indicated therein in the
name of the transferee and to issue a new Subscription Right Certificate to the
transferee evidencing the transferred Rights. In that event, a new Subscription
Right Certificate evidencing the balance of the Rights will be issued to the
Rights Holder or, if the Rights Holder so instructs, to an additional
transferee, or will be sold by the Subscription Agent in the manner described
below upon appropriate instruction from the Rights Holder.
Rights Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) other than through the Subscription Agent should allow a
sufficient amount of time prior to the Expiration Time for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) new
Subscription Right Certificates to be issued and transmitted to the transferee
or transferees with respect to transferred Rights, and to the transferor with
respect to retained Rights, if any, and (iii) the Rights evidenced by the new
Subscription Right Certificates to be exercised or sold by the recipients
thereof. Such amount of time could
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range from four to six business days, depending upon the method by which
delivery of the Subscription Right Certificates and payment is made and the
number of transactions which the Rights Holder instructs the Subscription Agent
to effect. Neither the Company nor the Subscription Agent shall have any
liability to a transferee or transferor of Rights if Subscription Right
Certificates are not received in time for exercise or sale prior to the
Expiration Time.
A new Subscription Right Certificate will be issued to a submitting Rights
Holder upon the partial exercise or sale of Rights only if the Subscription
Agent receives a properly endorsed Subscription Right Certificate no later than
5:00 p.m., Pacific time, on June 16, 1995, the fourth business day prior to the
Expiration Time. After such time and date no new Subscription Rights
Certificates will be issued. Accordingly, after such time and date a Rights
Holder exercising less than all of its Rights will lose the power to sell or
exercise its remaining Rights. A new Subscription Right Certificate will be
sent by first class mail to the submitting Rights Holder if the Subscription
Agent receives the properly completed Subscription Right Certificate by 5:00
p.m. Pacific time, on June 13, 1995. Unless the submitting Rights Holder makes
other arrangements with the Subscription Agent, a new Subscription Right
Certificate received by the Subscription Agent after 5:00 p.m. Pacific time, on
June 13, 1995 will be held for pick-up by submitting Rights Holder at the
Subscription Agent's hand delivery address provided above. All deliveries of
newly issued Subscription Right Certificates will be at the risk of the
submitting Rights Holder.
The Rights evidenced by a Subscription Right Certificate may be sold, in
whole or in part, through the Subscription Agent by delivering to the
Subscription Agent prior to June 13, 1995 the Subscription Right Certificate
properly executed for sale by the Subscription Agent. If only a portion of the
Rights evidenced by a single Subscription Right Certificate are to be sold by
the Subscription Agent, that Subscription Right Certificate must be accompanied
by instructions setting forth the action to be taken with respect to the Rights
that are not to be sold.
Promptly following sale, the Subscription Agent will send the Rights Holder a
check for the proceeds from the sale of any Rights sold, less any applicable
brokerage commissions, taxes and other direct expenses of sale. A Rights Holder
for which the Subscription Agent sells Rights on any given day will receive for
each of its Rights the weighted average net sale price of all Rights sold on
that day by the Subscription Agent. The weighted average net sale price will be
calculated by dividing the total proceeds from all sales realized by the
Subscription Agent on the day of sale, net of any applicable brokerage
commissions, taxes and other expenses, by the total number of Rights sold by
the Subscription Agent on that day. No assurance, however, can be given that
the Subscription Agent will be able to sell any Rights. Rights offered pursuant
to the Oversubscription Privilege may not be transferred. The Company will pay
the fees charged by the Subscription Agent for effecting such sales. Orders to
sell Rights must be received by the Subscription Agent at or prior to 5:00
p.m., Pacific time, on June 13, 1995. The Subscription Agent's obligation to
execute orders is subject to its ability to find buyers. If the direct expenses
of sale would exceed the sale price on a given day, the Subscription Agent will
not sell the Rights. If the Rights cannot be sold by the Subscription Agent by
the Expiration Time, they will expire unsold.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company as described above), all commissions, fees and other expenses
(including brokerage commissions and transfer terms) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by the Company or the Subscription Agent.
PROCEDURES FOR DTC PARTICIPANTS
It is anticipated that the Rights will be eligible for transfer through, and
that the exercise of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected through, the facilities of The
Depository Trust Company ("DTC"; Rights which the holder exercises through DTC
are referred to as "DTC Rights"). A holder of DTC Rights may exercise the
Oversubscription Privilege in respect thereof by properly exercising and
delivering to the Subscription Agent, at or prior to the Expiration Time, a DTC
Participant Oversubscription Exercise Form, together with payment of the
appropriate Subscription Price
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for the number of Excess Shares for which the Oversubscription Privilege is
exercised. Copies of the DTC Participant Oversubscription Exercise Form may be
obtained from the Information Agent or the Subscription Agent.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price has been determined by the Company, in consultation
with Sandler O'Neill. Among the factors considered by the Board in determining
the Subscription Price were (i) the market value of the Common Stock; (ii) the
present and projected operating results and financial condition of the Company;
(iii) an assessment of the Company's management and management's analysis of
the growth potential of the Company and of the Company's market area; (iv) the
aggregate size of the Offering; (v) the price at which the Board believes
investors would readily pay to purchase all of the available shares of Common
Stock offered under the current economic circumstances; (vi) the amount the
Standby Purchasers were willing to commit; and (vii) the amount of capital
necessary for the Reimbursement of Interest to Ventura to satisfy the Formal
Agreement. See "Capitalization," "Risk Factors--Dilution" and "Risk Factors--
Regulatory Agreements and Capital Requirements."
There can be no assurance, however, that the market price of the Common Stock
will not decline during the subscription period to a level equal to or below
the Subscription Price, or that, following the issuance of the Rights and of
the Common Stock upon exercise of Rights or pursuant to Standby Purchase
Agreements, a subscribing Rights Holder or Standby Purchaser will be able to
sell shares purchased in the Offering at a price equal to or greater than the
Subscription Price. An investment in Common Stock must be made pursuant to each
investor's evaluation of such investor's best interests. Accordingly, neither
the Board of Directors of the Company nor Sandler O'Neill make any
recommendation to Rights Holders or other regarding whether they should
exercise the Rights or purchase Common Stock.
FINANCIAL ADVISOR
The Company has engaged Sandler O'Neill as its financial advisor in
connection with the Offering pursuant to an Agency Agreement between the
Company and Sandler O'Neill. Sandler O'Neill is a nationally recognized
investment banking firm whose principal business specialty is banks and savings
institutions and is regularly engaged in the valuation of such businesses and
their securities in connection with mergers and acquisitions and other
corporate transactions.
In its capacity as financial advisor, Sander O'Neill provided advice to the
Company regarding the structure of the Offering as well as with respect to
marketing the shares of Common Stock to be issued in the Offering. Sandler
O'Neill will identify potential standby purchasers and will assist the Company
in negotiating Standby Purchase Agreements with the Standby Purchasers. Sandler
O'Neill expects to make a market in the Rights. However, no assurance can be
given that an active or liquid market in the Rights will develop or if
developed will continue.
Sandler O'Neill has not prepared any report or opinion constituting a
recommendation or advice to the Company or its shareholders, nor has Sandler
O'Neill prepared an opinion as to the fairness of the Subscription Price or the
terms of the Offering to the Company or its current shareholders. Sandler
O'Neill expresses no opinion and makes no recommendation to holders of Rights
as to the purchase by any person of Underlying Shares or the Additional Shares.
Sandler O'Neill also expresses no opinion as to the prices at which shares to
be distributed in connection with the Offering may trade if and when they are
issued or at any future time. See "The Rights Offering--Determination of
Subscription Price."
As compensation for its services, the Company agreed to pay Sander O'Neill:
(i) a $25,000 financial advisory fee, which has been paid; (ii) upon completion
of the Offering, a fee of 1.5% of the aggregate purchase price of the shares of
Common Stock sold in the Offering pursuant to the exercise of Rights by
directors and officers of the Company and principals and officers of Sandler
O'Neill (collectively, "Interested
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Parties"); (iii) upon completion of the Offering, a fee of 3% of the aggregate
purchase price of the shares of Common Stock sold in the Offering pursuant to
the exercise of Rights by persons other than Interested Parties; and (iv) upon
completion of the Offering, a fee of 5% of the aggregate value of funds
committed by Standby Purchasers. The fees set forth in clauses (i) through (iv)
are subject to Sandler O'Neill receiving minimum aggregate compensation upon
closing of the Offering of $225,000. The Company has also agreed to reimburse
Sandler O'Neill for its reasonable out-of-pocket expenses pertaining to its
engagement, including legal fees, in an aggregate amount not to exceed
$100,000. As of April 17, 1995, the Company has reimbursed Sandler O'Neill for
$44,471 in out-of-pocket expenses. The Company has agreed to indemnify Sandler
O'Neill against certain liabilities arising out of its engagement, including
certain liabilities arising under the Securities Act.
Certain principals and officers of Sandler O'Neill own shares of Common Stock
and, accordingly, will be Record Date Holder of Rights. The shares were
purchased by each such person in his or her individual capacity using personal
funds with no agreement among or between any of such persons to act together
with respect to the Company or its securities except for the purpose of
facilitating the purchase of such shares in the private placement in which such
shares were acquired. The shares owned by such persons, when taken together,
amount to 447,422 shares, or 7.1% of the outstanding Common Stock as of March
24, 1995. As Record Date Holders, each such person may, in their individual
capacity, exercise or transfer the rights such person receives. In addition,
certain of such persons may be requested by the Company to be Standby
Purchasers. The Company is not aware to what extent, if any, that any such
person intends to exercise and/or transfer his or her Rights or become a
Standby Purchaser. To the extent any Common Stock is acquired by any such
person in the Offering, whether through the exercise of Rights or pursuant to a
Standby Purchase Agreement, such acquisition would be made by such persons in
his or her individual capacity using personal funds with no agreement among or
between any of such persons to act together and would be for investment
purposes only. Such acquisitions, if made, will not result in Sandler O'Neill
receiving any compensation from the Company other than in accordance with the
compensation arrangement set forth above.
In late 1993, the Company retained Sandler O'Neill to provide financial and
strategic advice to the Company including, but not limited to, exploring
possible business combinations involving the Banks. As compensation for its
services, the Company has paid to Sandler O'Neill as of April 17, 1995 an
aggregate of $155,424 representing financial advisory fees and reimbursement of
out-of-pocket expenses. In addition, Ventura retained Sandler O'Neill Mortgage
Finance Corp, an affiliate of Sandler O'Neill, in connection with two sales of
whole loans and the sale of Ventura's mortgage loan servicing rights, all of
which were completed in 1994. As compensation for its services, Ventura has
paid to Sandler O'Neill Mortgage Finance Corp an aggregate of $97,915,
representing marketing fees and reimbursement of out-of-pocket expenses.
INFORMATION AGENT
The Company has appointed Chemical Bank as Information Agent for the
Offering. Any questions or requests for assistance concerning the method of
subscribing for shares of Common Stock or for additional copies of this
Prospectus, the Instructions, the Notice of Guaranteed Delivery or the DTC
Participant Oversubscription Exercise Form may be directed to the Information
Agent at the address and telephone number below:
Chemical Bank
450 West 33rd Street, Fifteenth Floor
New York, New York 10001
Telephone No.: (800) 421-0708
Banks and Brokers call: (212) 946-7618
40
<PAGE>
The Company will pay the fees and expenses of the Information Agent and has
also agreed to indemnify the Information Agent from certain liabilities which
it may incur in connection with the Offering.
FOREIGN AND CERTAIN OTHER SHAREHOLDERS
Subscription Right Certificates will not be mailed to Record Date Holders
whose addresses are outside the United States and Canada or who have an APO or
FPO address, but will be held by the Subscription Agent for each Record Date
Holders' accounts. To exercise their Rights, such persons must notify the
Subscription Agent at or prior to 5:00 p.m., Pacific time, on June 13, 1995, at
which time (if no contrary instructions have been received) the Rights
represented thereby will be sold, subject to the Subscription Agent's ability
to find a purchaser. Any such sales will be at prevailing market prices. If the
Rights are sold, a check for the proceeds from the sale of any Rights, less any
applicable brokerage commissions, taxes and other expenses, will be remitted to
such holders by mail. The proceeds, if any, resulting from sales of Rights
pursuant to the Basic Subscription Privilege of holders whose addresses are not
known by the Subscription Agent or to whom delivery cannot be made will be held
in a noninterest-bearing account at First Interstate Bank of California. Any
amount remaining unclaimed on the second anniversary of the Expiration Time
will be turned over to the Company and, after such date, any person claiming
such proceeds will, as an unsecured general creditor of the Company, be able to
look only to the Company for payment thereof. Such Holder's Rights expire at
the Expiration Time.
NO REVOCATION
Once a Rights Holder has properly exercised the Basic Subscription Privilege
or the Oversubscription Privilege, such exercise may not be revoked.
LATE DELIVERY OF SUBSCRIPTION RIGHTS CERTIFICATES
If the Subscription Agent has received prior to 5:00 p.m., Pacific time, on
the Expiration Time full payment as specified above for the total number of
shares of Common Stock subscribed for, together with a letter, telegram or
facsimile transmission from a bank or trust company or a member of a recognized
securities exchange in the United States stating the name of the subscriber,
the number of Rights represented by the Subscription Rights Certificate and the
number of Underlying Shares of Common Stock subscribed for and guaranteeing
that the Subscription Rights Certificate will be delivered promptly to the
Subscription Agent, such subscription will be deemed to be received prior to
the Expiration Time, subject to withholding of the stock certificates
representing the Underlying Shares pending receipt of the duly executed
Subscription Rights Certificate. RIGHTS HOLDERS WHO FAIL TO DELIVER THEIR
SUBSCRIPTION RIGHTS CERTIFICATE AND FULL PAYMENT TO THE COMPANY OR PAYMENT WITH
GUARANTY OF DELIVERY AS SET FORTH ABOVE PRIOR TO THE EXPIRATION TIME WILL BE
DEEMED TO HAVE WAIVED THEIR SUBSCRIPTION RIGHTS IN THIS OFFERING IN THEIR
ENTIRETY.
DILUTION
Rights Holders may experience substantial dilution of their percentage of
equity ownership interest and voting power in the Company if Rights Holders do
not exercise the Basic Subscription Privilege. If more than the Minimum Shares
are purchased through the Offering, including through the Standby Purchase
Agreements, Rights Holders will suffer further dilution in their equity
ownership interest and voting power in the Company.
INTENTIONS OF DIRECTORS AND OFFICERS
The directors and executive officers of the Company as a group (16 persons)
have indicated their intention to exercise Rights to purchase, in the
aggregate, 107,882 shares of Common Stock. These indications of intent are
based upon each director's and officer's evaluation of his or her own financial
and other
41
<PAGE>
other circumstances. Upon their acquisition of such shares, the directors and
executive officers, as a group, will own beneficially 1,100,388 shares or a
minimum of 11.8% and a maximum of 13.1% of the Company's outstanding Common
Stock after completion of the Offering.
THE COMPANY'S 401(K)/ESOP
The Company maintains a qualified retirement plan for the benefit of its
employees which consists of a 401(k) plan and an employee stock ownership plan.
At December 31, 1994, the 401(k)/ESOP was the record holder of 415,854 shares
of Common Stock.
Under the 401(k) portion of the 401(k)/ESOP, participants have the ability to
direct the investment of pre-tax deferrals and employer matching contributions
in one or more investments, including Common Stock. Participants who have
invested a portion of their pre-tax deferrals in Common Stock shall have the
ability to direct the Trustee to exercise or sell Rights allocable to such
participants' investment in Common Stock. In the event a participant fails to
instruct the Trustee or submits an invalid instruction, the Trustee shall,
pursuant to the terms of the 401(k)/ESOP, be required to sell the Rights
allocable to such participant's account.
With respect to the ESOP portion of the 401(k)/ESOP, the Trustee shall, in
its sole discretion, determine the manner in which Rights issued to the ESOP
portion of the 401(k)/ESOP are to be disposed of, taking into consideration the
Trustee's fiduciary duties to act prudently with respect to plan investments
and to invest plan assets in the best and exclusive interests of plan
participants and their beneficiaries. Given that the ESOP portion of the
401(k)/ESOP does not have any uninvested assets with which to fund a purchase
of Common Stock, it is anticipated that the Trustee may attempt to sell the
Rights issued to the ESOP portion of the 401(k)/ESOP.
MINIMUM CONDITION
The Offering is conditioned upon the receipt by the Company of minimum
Offering proceeds of $4,500,000. In the event the Minimum Condition is not
achieved, any funds that have been deposited with the Subscription Agent will
be returned, without interest.
RIGHT TO TERMINATE OFFERING
The Company expressly reserves the right, in its sole discretion, at any time
prior to delivery of the shares of Common Stock offered hereby, to terminate
the Offering if the Offering is prohibited by law or regulation or the Board of
Directors concludes, in its judgment, that it is not in the best interests of
the Company, and its shareholders, to complete the Offering under the
circumstances. If the Offering is terminated, all funds received pursuant to
the Rights Offering or from Standby Purchasers will be promptly refunded,
without interest.
42
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the anticipated
federal income tax consequences of the issuance, exercise, transfer or lapse of
the Rights and purchase and disposition of the Common Stock. The following does
not consider federal income tax consequences of the Offering to any particular
shareholder or federal income tax consequences of the Offering that may be
relevant to particular classes of shareholders, such as banks, insurance
companies and foreign individuals and entities. The following summary does not
address the federal income tax consequences with respect to the Rights for any
transferee of such Rights. This summary is not intended as tax advice, and is
based on the Company's understanding of federal income tax laws as currently
interpreted. No representation is made regarding the continuation of such laws
or of such interpretations, and no discussion is contained herein regarding the
possible effects of any applicable state, local or foreign tax laws, or taxes
other than federal income taxes. EACH RIGHTS HOLDER, STANDBY PURCHASER AND
OTHER SUBSCRIBER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH RIGHTS HOLDER OR SUBSCRIBER (INCLUDING
THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE OWNERSHIP RULES AND STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS) OF THE ISSUANCE, EXERCISE, TRANSFER OR LAPSE
OF RIGHTS AND THE PURCHASE AND DISPOSITION OF COMMON STOCK PURSUANT TO THE
OFFERING.
SUBSCRIPTION OFFER
Section 305(a) of the Internal Revenue Code of 1986, (the "Code"), generally
provides that gross income does not include the amount of any distribution by a
corporation to its shareholders of stock or rights to acquire stock of that
corporation. Although there are exceptions to the general rule of Section
305(a), this discussion assumes that the general rule of Section 305(a) applies
to the distribution of Rights to the shareholders of the Company. Under Section
307 of the Code, the tax basis of the Rights in the hands of a shareholder of
the Company to whom the Rights were issued will be determined by allocating the
tax basis of the Common Stock with respect to which the distribution was made
between the existing shares of Common Stock the shareholder holds (the "Old
Stock") and the Rights in proportion to their relative fair market values on
the date of distribution. If the fair market value of the Rights on the date of
distribution is less than 15% of the fair market value of the Old Stock, the
tax basis of the Rights will be zero and the tax basis of the Old Stock will be
unchanged unless a shareholder makes an irrevocable election to compute the
basis of all Rights received in the manner described in the preceding sentence.
This election is made by attaching a statement to such shareholder's federal
income tax return filed for the taxable year in which the Rights are received
by a shareholder. The Company has not obtained an independent appraisal of the
valuation of the Old Stock or the Rights and, therefore, each shareholder
individually must determine how the rules of Section 307 of the Code will apply
in that shareholder's particular situation. In either case, the holding period
of such Rights will include the period during which the shareholder has held
the Old Stock.
STANDBY PURCHASE AGREEMENTS
Standby Purchasers will not be taxable as a result of entering into Standby
Purchase Agreements. Since Standby Purchasers pay nothing for entering into
Standby Purchase Agreements, they have no tax basis for such Agreements as a
result of entering into them.
EXERCISE OF RIGHTS
No gain or loss will be recognized by shareholders upon exercise of Rights
pursuant to the Offering. The holding period of the Common Stock acquired by a
shareholder upon exercise of the Rights will commence upon the exercise of the
Rights by the holder thereof. The tax basis of such shares will be equal to the
sum of
43
<PAGE>
the basis of the Rights exercised, if any, and the exercise price paid for such
shares. Persons who acquire Common Stock as Standby Purchasers will take a
basis for the shares equal to the Subscription Price and will have a holding
period that commences with the purchase.
TRANSFER OF THE RIGHTS
A Record Date Holder who sells or exchanges Rights will recognize gain or
loss equal to the differences between the amount realized and the basis, if
any, of the Rights sold or exchanged. Such gain or loss will be capital gain or
loss if the Common Stock obtainable upon the exercise of the Rights would be a
capital asset in the hands of the Record Date Holder and will be long-term
capital gain or loss if the Rights are deemed to have been held for more than
one year at the time of the sale.
EXPIRATION OF THE RIGHTS AND STANDBY PURCHASE AGREEMENTS
Record Date Holders who allow the Rights received by them on the date of
distribution to expire unexercised will not recognize any gain or loss, and no
adjustment will be made to the basis of their common stock. Standby Purchasers
have no tax basis in their Standby Purchase Agreements and, accordingly, will
not recognize any gain or loss if those Agreements expire.
SALE OF COMMON STOCK
A shareholder selling Common Stock will recognize gain or loss equal to the
difference between the proceeds of sale and the basis of the Common Stock. Such
gain or loss will be capital gain or loss if the Common Stock is a capital
asset in the hands of the shareholder, and will be long term or short term
depending upon whether the shareholder's holding period is more than one year.
STANDBY PURCHASE AGREEMENTS
Prior to commencement of the Offering the Company will seek to enter into
Standby Purchase Agreements with certain institutional investors and high net
worth individuals ("Standby Purchasers") pursuant to which the Standby
Purchasers will severally agree, subject in each case to a maximum standby
commitment and to certain conditions, to acquire from the Company at the
Subscription Price of $2.25 per share up to 2,000,000 Underlying Shares, if
any, remaining after the exercise of Rights, including those purchased pursuant
to the Oversubscription Privilege (the "Maximum Standby Commitment"). In
addition, it is expected that the Standby Purchase Agreements will provide that
the Company must sell up to 888,889 shares of Common Stock in the aggregate
("Additional Shares") to the Standby Purchasers if such amount of Underlying
Shares are not available for sale after the exercise of Rights, (the "Minimum
Standby Commitment"). The Company expects that the obligations of the Standby
Purchasers will not be subject to the purchase of any minimum number of shares
pursuant to the exercise of the Rights, but will be subject to certain
conditions, including that the Offering shall have been conducted substantially
in the manner described in this Prospectus.
Each Standby Purchase Agreement will provide that it may be terminated by the
Standby Purchaser only upon the occurrence of the following events: (i) a
material adverse change in the Company's financial condition prior to the
expiration of the Offering from that existing at December 31, 1994, except as
specifically disclosed in the Prospectus; (ii) a suspension in the trading in
the Common Stock, a general suspension of trading or establishment of limited
or minimum prices on the Nasdaq National Market System, any banking moratorium,
any suspension of payments with respect to banks in the United States or a
declaration of war or a national emergency by the United States; (iii) under
any circumstances which would result in the Standby Purchaser, individually or
together with any other person or entity, being required to register as a
depository institution holding company under federal or state laws or
regulations, or to submit an application, or notice, to a federal bank
regulatory authority to acquire or retain control of a depository institution
or depository institution holding company; or (iv) if the Offering, including
sales of Common Stock to Standby Purchasers, is not completed by July 31, 1995
through no fault of the Standby Purchaser.
44
<PAGE>
If the Company believes that the number of Underlying Shares and Additional
Shares issuable by the Company pursuant to the Standby Purchase Agreements,
both in the aggregate and to any individual Standby Purchaser, will have an
adverse effect upon the Company's ability to utilize certain federal income tax
benefits, then the Company may reduce the number of shares issuable to the
Standby Purchasers, either pro rata or individually to each Standby Purchaser
whose standby purchase may create such an adverse effect. Such reduction will
be made to the minimum extent necessary, if the sole opinion and discretion of
the Company after consultation with its tax advisor, to accomplish avoidance of
such adverse effect. Any such reduction will be made, if possible, before any
reduction is made in the number of shares of Underlying Shares to be purchased
pursuant to the Oversubscription Privilege. Based on current circumstances, the
Company does not anticipate that it will have to reduce the number of shares
issued to Standby Purchasers in order to avoid an adverse effect upon the
Company's ability to utilize certain federal income tax benefits. See "Risk
Factors--Possible Limitation of Tax Benefits."
In the event that the number of Underlying Shares remaining after the
exercise of Rights is less than the Standby Purchasers' aggregate Maximum
Standby Commitment (subject to the limitation set forth in the preceding
paragraph), such Underlying Shares will first be allocated among the Standby
Purchasers in satisfaction of the Minimum Standby Commitments and any remaining
Underlying Shares will be allocated pro rata among the Standby Purchasers
according to their respective Maximum Standby Commitments (also subject in each
case to the limitation set forth in the preceding paragraph). In the event that
such number of Underlying Shares is less than the Company's aggregate Minimum
Standby Commitment, the Company will issue and sell, at the Subscription Price,
to the relevant Standby Purchasers sufficient Additional Shares to satisfy the
aggregate Minimum Standby Commitment.
It is anticipated that each Standby Purchaser will agree with the Company
that (i) until the Expiration Time, it will not offer, sell, contract to sell
or otherwise dispose of, or bid for, purchase, contract to purchase or
otherwise acquire, directly or indirectly, any shares of Common Stock or
interest therein without the prior written consent of the Company and (ii) for
three years thereafter, it will not bid for, purchase, contract to purchase or
otherwise acquire, directly or indirectly, any shares of Common Stock or
interests therein without the prior written consent of the Company if, after
consummation of such acquisition, its percentage ownership, together with that
of its affiliates, of the total number of shares of Common Stock of the Company
at the time outstanding would exceed a specified percentage ownership level. In
addition, each Standby Purchaser will agree for a period of five years to limit
its purchases of additional shares of Common Stock at the Company's request to
the extent that any such purchase could reasonably be expected to result in an
"ownership change" under Section 382 of the Code and regulations promulgated
thereunder.
45
<PAGE>
REASONS FOR THE OFFERING AND USE OF PROCEEDS
The primary purpose of this Offering is to increase the Company's and Banks'
capital bases to permit growth in a post recessionary environment. Additional
capital will also enable Ventura to meet the requirements of the Formal
Agreement between Ventura and the OCC. The Formal Agreement requires that
Ventura achieve and maintain a 7.0% leverage capital ratio and a 12.0 % Tier 1
risk-based capital ratio. As of December 31, 1994, approximately $1.4 million
additional capital was necessary for Ventura to meet the capital requirements
of the Formal Agreement. The Formal Agreement also requires Ventura to seek
reimbursement of approximately $3.4 million in interest paid in connection with
deposits of funds from commercial paper sales by Parent. Parent intends to use
the proceeds of this Offering to satisfy Ventura's requirement to seek the
Reimbursement of Interest and to retire Parent's outstanding Notes. The
Reimbursement of Interest by Parent will also result in an increase in the
capital levels of Ventura which will ensure compliance with the capital
requirements of the Formal Agreement. To the extent that there are net offering
proceeds in excess of the amount necessary to satisfy the Reimbursement of
Interest requirement and to retire the Notes, the first $500,000 will be
retained by Parent for its liquidity needs and, thereafter, Parent may make
additional capital contributions to Ventura or Frontier, or both. The Company
anticipates that the net proceeds, if any, contributed to Ventura and Frontier
will ultimately be invested in earning assets. See "The Company--Business
Strategy."
46
<PAGE>
CAPITALIZATION
The following tables set forth the capitalization of the Company (i) at
December 31, 1994, and (ii) as adjusted to give effect to the issuance and sale
of the Minimum Shares and Maximum Shares offered hereby, assuming expenses
associated with the Offering of $793,596, if the Minimum Shares are sold and
$853,596, if the Maximum Shares are sold:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------------
AS ADJUSTED(1)
PRIOR TO ---------------------
OFFERING MINIMUM(2) MAXIMUM(3)
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Shareholders' equity:
Contributed capital, including common stock
of no par value. Authorized 20,000,000
shares; issued 6,333,835 shares; issued
8,333,835 shares and 9,223,835 shares, as
adjusted(4)................................. $ 30,949 $ 34,655 $ 36,598
Unrealized loss on securities.................. (1,178) (1,178) (1,178)
Retained earnings (deficit).................... (10,719) (10,719) (10,719)
-------- -------- --------
Total shareholders' equity................... $ 19,052 $ 22,758 $ 24,701
======== ======== ========
Book value per share......................... $ 3.01 $ 2.73 $ 2.68
</TABLE>
- --------
(1) Assumes a Subscription Price of $2.25 per share.
(2) Assumes the sale of 2,000,000 shares.
(3) Assumes the sale of 2,890,000 shares.
(4) Does not include 657,813 shares that may be issued pursuant to the exercise
of stock options pursuant to the 1991 Stock Option Plan and the Ventura
County National Bancorp Stock Option Plan.
47
<PAGE>
The following tables set forth the minimum capital ratios required by federal
regulations with respect to the Company, by federal regulations and the Consent
Order, with respect to Frontier, and by federal regulations and the Formal
Agreement, with respect to Ventura, the Company's and Banks' actual ratios as
of December 31, 1994 and the Company's and Ventura's capital ratios as adjusted
to give effect to the net proceeds of this Offering estimated to be $3,706,404,
if the Minimum Shares are sold, and $5,648,904, if the Maximum Shares are sold,
and the Reimbursement of Interest by the Company to Ventura. Solely for the
purpose of the following tables, it is assumed that the remaining net proceeds
of the Offering in excess of the amounts for which the use of proceeds has been
designated, will be contributed to Ventura. See "Use of Proceeds." Ratios do
not reflect unrealized losses on investment securities available-for-sale.
<TABLE>
<CAPTION>
THE COMPANY
AT DECEMBER 31, 1994
-----------------------------------------
AS ADJUSTED(1)
---------------
REQUIRED ACTUAL(3) EXCESS MINIMUM MAXIMUM
-------- --------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based capital ratio....... 4.00% 11.32% 7.32% 13.06% 13.94%
Total risk-based capital ratio........ 8.00% 12.61% 4.61% 14.35% 15.23%
Leverage capital ratio(2)............. 4.00% 7.53% 3.53% 8.74% 9.37%
</TABLE>
<TABLE>
<CAPTION>
FRONTIER
AT DECEMBER 31, 1994
-------------------------
REQUIRED ACTUAL(3) EXCESS
-------- --------- ------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio....................... 4.00% 12.29% 8.29%
Total risk-based capital ratio........................ 8.00% 13.57% 5.57%
Leverage capital ratio(2)............................. 4.00% 8.32% 4.32%
Consent Order--Leverage capital ratio................. 7.00% 8.32% 1.32%
Consent Order--Tier 1 risk based capital ratio........ 9.50% 12.29% 2.79%
</TABLE>
<TABLE>
<CAPTION>
VENTURA
AT DECEMBER 31, 1994
------------------------------------------
AS ADJUSTED(1)
EXCESS ---------------
REQUIRED ACTUAL (DEFICIT) MINIMUM MAXIMUM
-------- ------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based capital ratio...... 4.00% 10.92% 6.92% 13.05% 14.33%
Total risk-based capital ratio....... 8.00% 12.21% 4.21% 14.34% 15.63%
Leverage capital ratio(2)............ 4.00% 7.21% 3.21% 8.70% 9.61%
Formal Agreement--leverage capital
ratio............................... 7.00% 7.21% 0.21% 8.70% 9.61%
Formal Agreement--Tier 1 risk based
capital ratio....................... 12.00% 10.92% (1.08)% 13.05% 14.33%
</TABLE>
- --------
(1) Assumes the investment of such funds in 100% risk-weighted assets (loans).
(2) The Federal Reserve Board and the OCC have adopted a minimum leverage ratio
of Tier 1 capital to average total assets of 3% for the highest rated
banks. This leverage ratio is only a minimum. Institutions experiencing or
anticipating significant growth or those with other than minimum risk
profiles are expected to maintain a leverage ratio at least 100 to 200
basis points above the minimum level. Furthermore, higher leverage ratios
are required to be considered well capitalized or adequately capitalized
under the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act".)
To be considered well capitalized under the prompt corrective action
provisions of the FDIC Improvement Act, a national bank must maintain a
Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital
ratio of at least 10% and a leverage capital ratio of at least 5% and not
be subject to a regulatory order or agreement. See "Supervision and
Regulation--Effect of Governmental Policies and Recent Legislation--FDIC
Improvement Act--Prompt Corrective Regulatory Action."
(3) In accordance with recent guidance from the Federal Financial Institutions
Examination Council regulatory capital includes $756,000, which represents
a $792,000 cumulative effect adjustment to reduce the balance of SBA loans,
a portion of which was offset by income recognized under generally accepted
accounting principles. This adjustment is not reflected in the accompanying
financial statements prepared in accordance with generally accepted
accounting principles.
48
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
The Common Stock is included for quotation on the Nasdaq National Market. The
following table sets forth the high and low sales prices for each of the nine
quarters ended March 31, 1995, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
March 31, 1993................................................ $6.50 $3.50
June 30, 1993................................................. 5.00 2.50
September 30, 1993............................................ 3.63 2.00
December 31, 1993............................................. 2.63 1.63
March 31, 1994................................................ 2.38 1.88
June 30, 1994................................................. 3.25 1.75
September 30, 1994............................................ 3.13 2.75
December 31, 1994............................................. 2.94 2.00
March 31, 1995................................................ 2.63 2.13
</TABLE>
As of May 5, 1995, the closing sales price of the Common Stock, as quoted
through the Nasdaq National Market, was $2.75. There were 1,027 shareholders of
record of the Common Stock at April 29, 1995.
Parent has never paid a cash dividend on the Common Stock and there can be no
assurance that Parent will generate earnings in the future which would permit
the declaration of dividends. Parent is prohibited by the terms of the MOU from
declaring or paying a dividend without fifteen days' prior notice to the
Reserve Bank, which may prohibit the payment of dividends.
In addition, the source of any such dividends is likely to be dividends from
Ventura or Frontier. The Banks are also limited in the amount of dividends
which they may distribute according to the terms of the Formal Agreement and
the Consent Order. Pursuant to the Formal Agreement, in the case of Ventura,
and the Consent Order, as it pertains to Frontier, the Board of Directors of
each Bank may declare or pay dividends only: (i) when their Bank is in
compliance with 12 U.S.C. sections 56, 60, and 1831o(d)(1); (ii) when their
Bank is in compliance with the capital program developed pursuant to the Formal
Agreement and Consent Order; (iii) when such dividend payment is consistent
with the capital levels specified in paragraph (1) of the Formal Agreement and
Consent Order; and (iv) with prior written approval of the Director of Special
Supervision of the OCC, pursuant to the Formal Agreement, and the District
Administrator of the OCC, pursuant to the Consent Order. See "Supervision and
Regulation--Restrictions on Transfers of Funds to Parent by the Banks."
Furthermore, it is anticipated that for the foreseeable future any earnings
which may be generated will be retained for the purpose of increasing the
Company's capital and reserves in order to facilitate growth.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following presents management's discussion and analysis of the
consolidated financial condition and operating results of the Company as of and
for the years ended December 31, 1994, 1993 and 1992. The discussion should be
read in conjunction with the Company's consolidated financial statements.
OVERVIEW
In September 1993, new management began taking actions to address the major
concerns confronting the Banks. The Company's net loss was reduced to $262,000
or $0.04 per share for 1994, compared with a net loss of $12.1 million in 1993.
The significant improvement over 1993 was due a significant decrease in the
provision for loan losses, reduced other expenses, gains on the sale of
mortgage servicing rights and the merchant card portfolio totaling $1.4 million
and $174,000, respectively, and improved net interest margin in 1994. The
Company returned to profitability beginning in the third quarter of 1994, and
had net income for the second half of 1994 of $615,000, compared to a net loss
of $877,000 for the first six months of the year. The Company's net loss for
the first two quarters of 1994 was offset by the $1.4 million and $174,000
nonrecurring gains noted above. Earnings improvement in the second half
compared to the first half of 1994 was due to a $1.9 million decrease in the
provision for loan losses, $1.2 million decrease in other expenses and a
$143,000 decrease in income tax provision, which were offset by a decline in
other income of $2.1 million. The provision for loan losses was decreased
during the second half due to the significant reduction in the level of
classified and nonperforming loans in conjunction with the discounted loan
sale, the marketing of loan participations and the tightening of underwriting
criteria. The decrease in other expenses during the second half was due to the
closing of the Company's mortgage origination, mortgage servicing and data
processing departments, as well as the replacement during 1994 of ESOP expense
with lower 401(k) matching contributions. For these departments, salaries and
benefits and occupancy expenses decreased $597,000 and $122,000, respectively,
from the first half of 1994 to the second half of 1994. Additionally, the
Company experienced retirement benefits savings of $586,000 for 1994 compared
with 1993. Of the decrease in other income, $1.6 million was due to the gain on
sale of mortgage servicing rights and the gain on sale of the merchant card
portfolio during the first half of the year. In addition, service charges, loan
fees and other fee income decreased during the second half as a result of
reduced mortgage activities. Total assets at December 31, 1994 decreased 24.3%
from December 31, 1993, as a result of management's efforts to reduce the loan
to deposit ratio, increase capital ratios and improve liquidity by tightening
underwriting criteria, selling nonperforming loans at a discount and marketing
loan participations. Additionally, the Company allowed significant runoff of
title and escrow and institutional certificates of deposit during 1994.
During the two years ended December 31, 1993, the Company's net income
declined significantly, culminating with a net loss of $12.1 million during
1993. The reductions in earnings during 1992 and the loss experienced during
1993 reflect substantial increases in the provision for loan losses
necessitated by increased levels of nonperforming assets and net charge-offs.
The Company's nonperforming assets were $22.1 million at December 31, 1993,
compared with $7.2 million at December 31, 1992. Net charge-offs were $5.8
million for 1993, compared to $2.4 million for 1992. Other expenses also
increased during the two year period ended December 31, 1993. The increase in
other expenses during 1993 was primarily due to increased expenses associated
with REO, increased legal costs related to nonperforming assets and regulatory
matters, and the write-off of goodwill at Frontier. Furthermore, during the two
year period ended December 31, 1993, net interest income decreased primarily
due to reductions in earning assets.
In January 1995, Southern California experienced major flooding, with Ventura
County being one of the areas to incur the greatest amount of rainfall.
Although the Company's operations and customers are located in the most
seriously affected areas, based upon surveys of customers and employees,
management believes that there will be no significant impact on the Company's
operations or loan collateral as a result of these natural disasters.
50
<PAGE>
FINANCIAL CONDITION
Total assets at December 31, 1994 decreased $82.8 million, or 24.3%, from
December 31, 1993. Average interest earning assets decreased from $355,090,000
for 1992 to $351,686,000 for 1993, to $277,612,000 for 1994, decreases of 1.0%
and 21.1%, respectively. During 1993 and 1994, the balance sheet was reduced
for liquidity purposes as well as to achieve compliance with the capital
requirements of the Banks' regulatory agreements. Although management does not
presently intend to further reduce the balance sheet, and anticipates that the
additional capital raised as a result of this Offering will be used to support
an increase in assets in the post-recessionary environment, no assurances can
be given that management will be successful in such efforts. Net loans and
leases decreased $93.5 million or 37.0% from year end 1993, primarily due to
the sale of nonperforming loans and the payoff of other loans that funded
deposit outflows. Average loans and leases, net of unearned income, decreased
8.2% to $289,675,000 during 1993 and 26.8% to $212,029,000 during 1994. These
decreases were partially offset by increases in average federal funds sold of
$8.1 million, or 44.0%, and cash and cash equivalents of $180,000, or 11.0%.
At December 31, 1994, the Company had $2,346,000 in REO comprised of three
commercial properties with carrying values totaling $2,196,000, one single
family residence totaling $100,000 and land zoned for residential purposes of
$50,000. The Company sold $4,835,000 of REO during 1994 and incurred REO write
down and property maintenance expense of $641,000. At December 31, 1993, the
Company had $2,229,000 in REO comprised of seven commercial properties totaling
$1,149,000, three single family residences totaling $687,000, land zoned for
multi-family purposes of $325,000 and land zoned for residential purposes of
$68,000. REO is carried at cost or current fair market value less estimated
selling costs, whichever is lower. There were no loans to facilitate the sale
of REO during 1994. The Company sold $833,000 of REO during 1993 and incurred
REO write down and property maintenance expenses of $1,733,000. As of December
31, 1994, all REO properties held at December 31, 1993 with the exception of
one residential lot, had been sold. Loans to facilitate the sale of REO during
1993 totaled $603,000. These loans were made in accordance with the Company's
credit policies and under similar terms extended to creditworthy borrowers.
Fixed assets, net of depreciation, increased from $1,687,000 at December 31,
1993 to $1,917,000 at December 31, 1994 due to capitalized costs associated
with the Company's data processing conversion. Average fixed assets, net of
depreciation, decreased from $3,210,000 in 1992 to $2,273,000 in 1993 and
$1,862,000 in 1994. The decreases since 1992 have resulted from accumulated
depreciation charges and the acceleration of depreciation related to data
processing equipment and leaseholds.
Total deposits at December 31, 1994 decreased $81.9 million or 25.7% from
December 31, 1993, due primarily to the planned run-off of $33.4 million of
title and escrow deposits and $18.0 million of institutional and brokered
certificates of deposit designed to improve the core deposit base and reduce
potentially volatile liabilities. Average deposits during 1994, 1993 and 1992
were $272,928,000, $333,462,000 and $331,592,000, respectively. The 0.6%
increase in average deposits from 1992 to 1993 was a result of increased title
and escrow deposits to fund increased mortgage origination activity and
marketing programs designed to attract interest bearing demand deposits and
savings deposits which were offset by a decrease in time certificates of
deposit. Average interest-bearing deposits increased from $242,294,000 for 1992
to $246,079,000 for 1993, an increase of 1.6%, then decreased to $197,361,000
for 1994, a decrease of 19.8%. Other categories of deposits also decreased.
During 1994, 1993 and 1992, average noninterest bearing deposits totaled
$75,568,000, $87,383,000, and $89,298,000, respectively, which represented
27.7%, 26.2%, 26.9%, respectively, of total average deposits. During 1994,
average noninterest bearing demand deposits decreased 13.5%, average interest-
bearing demand and savings accounts decreased 10.9%, and average time
certificates of deposit decreased 26.3%. During 1993, average noninterest
bearing demand deposits decreased 2.1% while average interest bearing demand
and savings accounts increased 7.2% and average time certificates of deposit
decreased 2.2%, compared to 1992. Management believes the reduction in time
deposits was also attributable to depositors seeking higher yields on their
funds than the Company was offering as a result of the lower interest rate
environment. Management believes the 20.3% reduction in savings deposits during
1994 was attributable to customers moving their banking relationships to other
institutions when the Company restructured its loan portfolio to reduce
concentrations, as well as to the public's reaction to adverse publicity
51
<PAGE>
about the Company's losses, management changes and regulatory orders. The
Company has taken steps to improve the public's perception of the Banks'
financial condition, including marketing campaigns and enhanced business
development efforts designed to generate core deposit growth and a renewed
expansion of total banking relationships. No assurances can be given, however,
that such efforts will be successful.
The Company discontinued the issuance of commercial paper on December 31,
1993. Average commercial paper sold in 1993 was $6,987,000. Average federal
funds purchased in 1994 declined to $44,000, compared to $1,376,000 in 1993, a
decrease of 96.8%. In 1993, the Company raised $1,555,555 from a private
placement of Common Stock and issued the Notes, the proceeds of which were used
to retired the remaining principal on a loan to fund the Company's ESOP.
Principal outstanding on the Notes was $125,000 at December 31, 1994.
Shareholders' equity totalled $19.1 million at December 31, 1994, a decrease
of 6.5% from the $20.4 million at December 31, 1993.
On December 31, 1993, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." See "New Accounting
Pronouncements." Prior to the adoption of SFAS No. 115, all investment
securities were stated at cost, with the exception of investments in mutual
funds, which were deemed equity investments, based upon the Company's intent
and ability to hold such securities to maturity. At December 31, 1992, the
Company did not have a plan or need to sell such securities. Subsequently,
however, and in anticipation of the adoption of SFAS No. 115, the Company
determined to restructure the investment portfolio. During 1993, the Company
sold most of the securities previously identified as held to maturity,
substantially all of which were sold in the third or fourth quarter of 1993. In
addition, certain securities were purchased and sold during 1993. In connection
with the adoption of SFAS No. 115, the Company classified all of its investment
securities as available for sale and recorded unrealized losses of $122,000,
net of tax effect. During 1994, the Company purchased securities which were
classified as either available-for-sale or held-to-maturity at the time of
purchase, based on management's intent and ability to hold certain investments
to maturity. In addition, the Company transferred mortgage backed securities
with unrealized losses of $472,000 from available-for-sale to held-to-maturity
during 1994 due to a change in intent to hold the securities to maturity. The
unrealized losses will be accreted to shareholders' equity over the average
life of the securities. Due to a decline in the market value of investment
securities classified as available-for-sale and the unrealized losses on the
securities transferred, in accordance with SFAS No. 115, the Company recorded
an unrealized loss totaling $1,178,000 in shareholders' equity at December 31,
1994, an increase of $1,056,000, or 865.6%, from December 31, 1993. The Company
had no trading securities at December 31, 1994 or 1993. Mortgage-backed
securities consisted entirely of Federal Home Loan Mortgage Corporation backed
securities. The Company did not have structured notes, CMOs or other derivative
products in the portfolio at December 31, 1994 or 1993.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net Interest Income and Net Interest Margin
Net interest income decreased by $1,045,000, or 6.2%, to $15,868,000 during
1994 compared to 1993, primarily due to a significant decrease in average
interest earning assets. These decreases reflect overall balance sheet
shrinkage, beginning in 1993, to improve liquidity as well as to achieve
compliance with the capital requirements of the Bank's regulatory agreements.
See "Financial Condition."
Interest income for 1994 decreased $3,775,000, or 14.6%, over 1993 to
$22,136,000 while interest expense decreased $2,732,000, or 30.4%, for the same
period to $6,268,000.
The decrease in interest income during 1994 was primarily attributable to a
significant decrease in interest earning assets, primarily loans. Average
interest earning assets were $277,612,000 during 1994, a 21.1% decrease from
the average balance of $351,686,000 for 1993. The Company reduced average
interest
52
<PAGE>
earning assets to fund a planned reduction of volatile deposits, particularly
title and escrow deposits and institutional certificates of deposit. Loans, the
largest and highest yielding component of earning assets, decreased 26.8%
during 1994. The decrease in interest income was slightly offset by an increase
in the yield on interest earning assets to 7.97% for 1994 versus a 7.37% yield
on interest earning assets for 1993, which reflects increases in market
interest rates beginning in 1994 and a change in the mix of assets due to the
declining asset base. Average interest earning assets as a percent of total
average assets increased from 92.3% for 1993 to 94.0% for 1994.
The decrease in interest expense during 1994 was primarily attributable to a
19.8% decrease in average interest bearing deposits from $246,079,000 for 1993
to $197,360,000 for 1994. In addition, the decrease in interest expense was
affected by a change in the mix of interest-bearing liabilities. Average
noninterest bearing deposits as a percent of total average deposits increased
from 26.2% for 1993 to 27.7% for 1994. Average deposits decreased from
$333,462,000 for 1993 to $272,928,000 for 1994, a decrease of 18.2%. Average
certificates of deposit greater than $100,000 decreased from 16.27% of average
total deposits for 1993 to 12.34% of average total deposits for 1994. As a
result of the shift in the mix of liabilities, the average cost of funds
declined to 3.17% during 1994 compared to a 3.41% cost of funds for 1993,
despite increases in market interest rates.
As a result of the foregoing, net interest margin increased from 4.81% for
1993 to 5.68% for 1994. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Rate Sensitive Assets/Rate Sensitive
Liabilities."
53
<PAGE>
The following tables summarize average balances and for interest earning
assets and interest bearing liabilities, the amounts of interest earned or paid
and the yields or rates for the periods indicated. The average balances in the
following table and elsewhere in this Prospectus have been calculated on the
basis of the daily account balances.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------------- -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans(1)............... $212,029 $18,740 8.84% $289,675 $23,190 8.01% $315,659 $26,892 8.52%
Investment Securities.. 37,736 2,169 5.75 37,935 1,916 5.06 18,438 1,178 6.39
Interest Bearing
Deposits with other
Banks................. 1,311 67 5.11 5,645 263 4.66 5,195 256 4.93
Federal Funds Sold 26,536 1,160 4.37 18,431 542 2.94 15,798 625 3.96
-------- ------- -------- ------- -------- -------
Total Interest Earning
Assets................. 277,612 22,136 7.97 351,686 25,911 7.37 355,090 28,951 8.52
Noninterest Earning As-
sets:
Cash and Due from
Banks.................. 19,353 25,717 23,649
Premises and Equipment,
Net................... 1,862 2,273 3,210
Other Assets........... 7,704 10,594 9,938
Less: Loan Loss Re-
serves (11,237) (9,309) (3,263)
-------- -------- --------
Total Assets........... $295,294 $380,961 $388,624
======== ======== ========
Interest Bearing
Liabilities:
Demand Deposits........ $ 58,114 $ 1,540 2.65 $ 66,167 $ 1,805 2.73 $ 58,254 $ 1,949 3.35
Savings Deposit........ 34,575 821 2.37 37,892 1,052 2.78 38,838 1,404 3.62
Time Deposits.......... 104,671 3,892 3.72 142,020 5,515 3.88 145,202 6,983 4.81
FHLB Borrowings........ 129 5 3.88 7,447 285 3.83 9,431 410 4.35
Federal Funds
Purchased............. 44 1 2.27 1,376 44 3.20 265 8 3.02
Commercial Paper Sold.. -- -- -- 6,987 186 2.66 12,805 438 3.42
Notes Payable.......... 125 9 7.20 1,908 112 5.87 2,474 173 6.99
-------- ------- -------- ------- -------- -------
Total Interest Bearing
Liabilities........... 197,658 6,268 3.17 263,797 8,999 3.41 267,269 11,365 4.25
-------- ------- -------- ------- -------- -------
Noninterest Bearing
Liabilities:
Demand Deposit......... 75,568 87,383 89,298
Other.................. 1,965 2,992 2,279
-------- -------- --------
77,533 90,374 91,577
-------- -------- --------
Shareholders' Equity.... 20,103 26,789 29,778
-------- -------- --------
Total Liabilities and
Shareholders' Equity.. $295,294 $380,961 $388,624
======== ======== ========
Net Interest Income..... $15,868 $16,912 $17,586
======= ======= =======
Net Interest Margin..... 5.68 4.81 4.95
</TABLE>
- --------
(1) Average balances exclude nonaccrual loans.
54
<PAGE>
<TABLE>
<CAPTION>
1994 COMPARED TO 1993 1993 COMPARED TO 1992
--------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO: (1) DUE TO: (1)
--------------------- --------------------
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
---------- --------- ---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Loans (2).............. $ (6,832) $ 2,412 $(4,451) $ (2,081) $ (1,621) $(3,702)
Investment Securities.. (11) 262 251 987 (247) 740
Interest Bearing Depos-
its with other Banks.. (221) 26 (195) 21 (16) 5
Federal Funds Sold..... 354 264 618 77 (160) (83)
---------- --------- ------- --------- --------- -------
Total................. $ (6,710) $ 2,964 $(3,777) $ (996) $ (2,044) $(3,040)
---------- --------- ------- --------- --------- -------
Interest Paid On:
Demand Deposits........ $ (213) $ (52) $ (265) $ 216 $ (360) $ (144)
Savings Deposits....... (79) (152) (231) (26) (326) (352)
Time Deposits.......... (1,388) (236) (1,624) (123) (1,345) (1,468)
Federal Funds Pur-
chased................ (30) (13) (43) 36 0 36
Other Short Term
Borrowings............ (284) 4 (280) (76) (49) (125)
Commercial Paper....... 0 (186) (186) (155) (97) (252)
Notes Payable.......... (128) 25 (103) (33) (28) (61)
---------- --------- ------- --------- --------- -------
Total................. $ (2,122) $ (610) $(2,732) $ (161) $ (2,205) $(2,366)
---------- --------- ------- --------- --------- -------
Net interest income..... $ (4,588) $ 3,573 $(1,045) $ (835) $ (161) $ (674)
========== ========= ======= ========= ========= =======
</TABLE>
- --------
(1) The changes due to simultaneous rate and volume changes have been allocated
to rate and volume changes in proportion to the relationship between their
absolute dollar amounts.
(2) The above table does not include interest income that would have been
earned on nonaccrual loans.
Other Income
Other income decreased $756,000, or 15.7%, during 1994, primarily due to a
lower level of mortgage activity. Loan fees decreased 60.6% from $1,192,000 in
1993 to $470,000 in 1994, reflecting a significant decrease in income resulting
from mortgage loan originations and servicing during the year. Net mortgage
servicing fees were $317,000 in 1994, compared with $618,000 in 1993, a
decrease of 48.7%. The Company sold its mortgage servicing rights for a net
gain of $1,443,000 in May 1994 was offset by a write-off of $320,000, and also
sold its mortgage origination unit in June 1994 in return for residual income
on future loan originations by the acquiror. However, due to significant
reductions in mortgage origination activity subsequent to the sale, the
acquiror closed the mortgage origination unit, and no residual income will be
generated. Other income increased in 1994, due to the gain on sale of mortgage
servicing and a gain of $174,000 on the sale of the merchant credit card
operation in March 1994. These increases were offset by a 21.0% decrease in
gains on the sale of SBA loans during 1994. The decreases in gain on sale of
SBA loans were due primarily to reduced volume of sales and the deferral of
income recognition due to the timing of such sales. Service charges on deposit
accounts decreased during 1994 as a result of customers maintaining higher
average balances to offset service charge assessments and lower deposit levels.
Miscellaneous fee income decreased 40.0% from $590,000 in 1993 to $354,000 in
1994 due to the elimination of the merchant card portfolio during 1994 and
certain other recordkeeping services for customers during 1993 and 1994.
Miscellaneous fees include merchant card income, cash management service
charges, safe deposit box rentals, charges for items such as money orders,
cashiers' checks and ATM transactions, and reflect usage and transaction
volume. Merchant card income represented 13.0% and 24.9% of total miscellaneous
fees during 1994 and 1993, respectively.
55
<PAGE>
Other income in the future is anticipated to be lower due to the
discontinuance of mortgage activities. Combined net mortgage servicing fees
and gains on sale of mortgage loans included in total other income were
$589,000, $1,694,000 and $1,806,000 in 1994, 1993 and 1992, respectively.
Other Expenses
The following table sets forth the Company's other expenses for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................ $ 6,423 $ 7,082 $ 6,797
Net occupancy................................. 2,087 2,578 2,809
Equipment..................................... 830 1,241 1,102
Professional services......................... 1,928 1,878 1,391
Real Estate Owned............................. 641 1,733 479
Amortization of goodwill...................... -- 1,266 105
Customer services............................. 286 382 687
Office supplies and office expense............ 612 800 1,000
FDIC assessments.............................. 878 921 789
Amortization of core deposits................. -- -- 513
Business development and advertising.......... 364 271 371
Other......................................... 2,035 2,687 2,395
---------- ---------- ----------
Total Other Expense......................... $ 16,084 $ 20,839 $ 18,438
========== ========== ==========
</TABLE>
Other expense decreased $4,755,000, or 22.8%, in 1994, due primarily to a
decrease in REO expense, the writeoff of goodwill during 1993, and decreased
salaries and employee benefits, occupancy and equipment expenses.
REO expense declined $1,092,000 during 1994. The Company incurred writedowns
on REO of $1,408,000 during 1993 due to declining market values on properties
that were principally raw land and commercial real estate. REO writedowns in
1994 totaled $959,000, which reflects a stabilizing market for distressed
properties. The majority of the $1.4 million in writedowns during 1993 were
taken approximately at the time that the loans were placed in REO. When a
property is taken into REO, if the fair market value of the property is less
than the Company's carrying costs, a writedown is taken immediately. However,
during 1993, when a property values were continuing to decline, the fair
market value of a foreclosed property was not always available at the time of
the foreclosure. In all cases, upon foreclosure, the Company obtains an
appraisal on a timely basis, generally within 30 to 60 days. To the extent the
apprisal indicates further reduction in fair market value, additional
writedowns are taken. These writedowns were partially offset by gains on sale
of REO of $1,000 in 1993 and $511,000 in 1994.
Salary and employee benefit expense decreased by $659,000, or 9.3%, during
1994 primarily as a result of staff reductions. Total full time equivalent
employees declined from 199 at December 31, 1993 to 141 at December 31, 1994.
The decrease in employee benefits expense during 1994 reflected reduced
employee health benefits and the savings of $635,000 compensation expense
related to the ESOP loan, which was partially offset by $49,000 in 401(k)
matching contributions. The ESOP loan, which remains outstanding, is secured
by 185,840 shares of Common Stock held in a suspense account which would be
released and allocated to the accounts of participants to the extent the
Company makes future ESOP contributions. The Company also adopted Statement of
Position ("SOP") 93-6 in 1994 which provides that future ESOP contributions,
if any, shall be expensed at fair market value of the Common Stock at the time
of the contribution rather than the historical cost of $9.00 per share.
Adoption of SOP 93-6 had no impact on results of operations during 1994. The
extent to which the adoption of SOP 93-6 will affect the Company's results of
operations depends on the level of future ESOP contributions, if any, and the
market value of the Common Stock, neither of which can be determined at
56
<PAGE>
this time. These salary and employee benefit expense reductions were partially
offset by decreased deferred loan origination costs. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 91, the Company
defers loan origination costs and amortizes them into loan interest income
over the life of each loan. These deferred costs were $457,000 and $207,000 as
of December 31, 1994 and 1993, respectively.
In addition, occupancy expense decreased $491,000, or 19.0%, during 1994, as
a result of a decrease in amortization expense related to leased space and an
increase in income from subleases. During 1993 and 1994, the Company sublet or
terminated leases for office space formerly housing its commercial lending
department, mortgage origination department and administrative personnel.
Equipment expense decreased $411,000, or 33.1%, during 1994, primarily due to
a significant decrease in depreciation expense. The Company outsourced its
data processing in May 1994 with monthly cost savings of approximately
$52,000. The Company outsourced its courier service in September 1993,
resulting in monthly reductions of approximately $8,000.
Total other expense expressed as a percentage of net interest income plus
other income, commonly referred to as the efficiency ratio, was 80.71% for
1994 and 95.89% for 1993.
Provision For Loan Losses and Nonperforming Loans
The Company maintains a loan loss reserve which it considers adequate to
cover the risk of losses in the loan and lease portfolio. The charge to
expense is based on management's evaluation of the quality of the loan and
lease portfolio, the level of classified loans and leases, total outstanding
loans and leases, losses previously charged against the reserve, and current
and anticipated economic conditions. Management also considers certain
elements in the portfolio and the grading systems used to measure the quality
of the portfolio. These factors include industry concentrations and collateral
concentrations. In response to the recession in Southern California and the
decline in real estate values, the Company assessed the value of collateral
for loans, particularly those secured by real estate. If during this process a
shortfall ensued, the Company then recorded a charge-off or provided a
specific reserve to reflect current market value of the loan. During 1994, the
Company expanded the Loan Administration and Special Assets Departments to
improve overall asset quality through problem loan management and risk and
collateral value identification.
57
<PAGE>
The following table summarizes the Company's loan loss reserves and loan loss
experience for the years indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period... $14,313 $ 3,854 $ 2,845 $2,285 $1,863
Charge-offs
Commercial, financial and
agricultural.................. 8,705 4,026 1,818 1,696 428
Real estate construction....... 603 67 -- 100 --
Real estate mortgage........... 254 1,476 -- -- --
Installment.................... 808 570 722 243 39
Lease financing................ 69 52 3 29 86
------- ------- ------- ------ ------
Total charge-offs................ 10,439(1) 6,191 2,543 2,068 553
Recoveries
Commercial, financial and
agricultural.................. 428 409 111 56 199
Real estate construction....... -- -- -- -- --
Real estate mortgage........... 4 1 -- -- --
Installment.................... 117 16 38 35 11
Lease financing................ 13 11 -- -- 22
------- ------- ------- ------ ------
Total recoveries................. 562 437 148 91 232
Net charge-offs.................. 9,877 5,754 2,395 1,977 321
Adjustment due to acquisition.... -- -- -- -- 309
Provision charged to operations.. 3,825 16,213 3,404 2,537 743
------- ------- ------- ------ ------
Balance at end of period......... $ 8,261 $14,313 $ 3,854 $2,845 $2,285
======= ======= ======= ====== ======
Ratio of net charge-offs to
average loans outstanding....... 4.66% 1.99% .76% .68% .12%
Loan loss reserves to
nonperforming loans............. 103.98%(2) 72.15% 118.44% 30.09% 73.26%
Loan loss reserves to
nonperforming assets............ 73.96%(2) 64.86% 53.57% 24.78% 73.26%
Classified assets to loan loss
reserves plus shareholder's
equity.......................... 113.27% 186.27% 84.71% 67.45% 47.63%
</TABLE>
- --------
(1) Of this amount, $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(2) Does not include $1,966,000 of TDRs that were performing at December 31,
1994.
Over the five year period ended December 31, 1994, the allocation of the
allowance for loan losses for commercial, financial and agricultural loans
increased steadily to correspond with increases in the total volume of loans
and the level of loans losses in this category. The Company's current practice
is to make specific allocations to large loans and unspecific allocations to
each loan category based on management's risk assessment. The following table
sets forth the allocation of the allowance for loan losses by loan category as
of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- ---------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
TOTAL TOTAL TOTAL TOTAL TOTAL
BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS BALANCE LOANS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
and Agriculture........ $6,704 3.99% $11,361 4.25% $3,132 1.00% $1,925 0.64% $1,427 0.47%
Real Estate--
Construction........... 265 0.16 1,916 0.72 242 0.08 254 0.08 436 0.14
Real Estate--Mortgage... 964 0.57 420 0.16 70 0.02 238 0.08 338 0.11
Installment............. 325 0.19 555 0.21 362 0.12 399 0.13 34 0.01
Lease Financing......... 3 0.00 61 0.02 48 0.02 29 0.01 50 0.02
------ ---- ------- ---- ------ ---- ------ ---- ------ ----
Total Allocated........ $8,261 4.92% $14,313 5.35% $3,854 1.24% $2,845 0.95% $2,285 0.76%
====== ==== ======= ==== ====== ==== ====== ==== ====== ====
</TABLE>
58
<PAGE>
In 1994 and 1993, the provision for loan losses was $3,825,000 and
$16,213,000, respectively. Loans charged off in 1994 and 1993 were $10,439,000
and $6,191,000, respectively, or 4.92% and 2.13% of average outstanding loans
and leases, respectively. Of the 1994 chargeoffs, $5.0 million are attributable
to the bulk loan sale which occurred in May 1994. In 1994 and 1993, loan and
lease recoveries totaled $562,000 and $437,000, respectively, constituting 9%
and 17% of the total loans charged off in the respective prior years. The
reduction of loan loss provision from 1993 to 1994 is due to a significant
decline in the migration of loans to nonaccrual status or REO during 1994.
Twenty-two medium term commercial real estate loans aggregating $10.3 million
are scheduled to mature during 1995, of which six loans in the aggregate amount
of $3.2 million have been classified. All such classified loans have been
reevaluated for collateral value within the past six months and additional loan
loss reserves have been taken where appropriate. Of the $10.3 million, thirteen
loans aggregating $7.2 million were loans for investment properties. Of that
amount, the Company anticipates that nine loans aggregating $5.9 million will
be refinanced or repaid during 1995. The remaining $1.3 million consists of
four loans, none of which exceeds $570,000 principal balance. None of such
loans were classified at December 31, 1994, and based upon current information,
management does not anticipate that additional loan loss reserves will be
assessed with respect to such loans.
At December 31, 1994, the loan loss reserve decreased to $8,261,000 compared
to $14,313,000 at December 31, 1993. The ratio of the loan loss reserves to
outstanding loans and leases at December 31, 1994 and 1993 was 4.92% and 5.35%,
respectively.
Nonperforming loans are those on which the borrower fails to perform under
the original terms of the obligation. The Company's nonperforming loans fall
within three categories: loans past due 90 days and still accruing, loans on
nonaccrual status and restructured loans. The coverage ratio, or the ratio of
loan loss reserves to nonperforming loans, was 103.98% and 72.15%, at December
31, 1994 and 1993, respectively. Loans past due 90 days or more and still
accruing totaled $331,000 and $552,000 at December 31, 1994 and 1993,
respectively. The decrease in loans past due 90 days and still accruing was
primarily attributable to the migration of certain of these loans to nonaccrual
status.
Loans are automatically placed on nonaccrual status when principal or
interest payments are past due greater than 90 days. If a loan is an SBA
guaranteed loan and a deferral period has been negotiated or if the loan is in
the process of imminent collection in the normal course of business, the
Company may remove the loan from nonaccrural status and continue to accrue
interest. Loans are placed on nonaccrual status earlier if there is doubt as to
the collectibility any amounts due according to the contractual terms of the
loan agreement. At December 31, 1994, loans totaling $7,612,000 were on
nonaccrual status, compared with $18,939,000 at December 31, 1993.
As of December 31, 1994, the Company had restructured loans in the amount of
$2,000, compared to $348,000 at December 31, 1993.
Total nonperforming loans as a percent of total loans outstanding were 4.73%
and 7.41% at December 31, 1994 and 1993, respectively.
Income Taxes
The Company recorded income tax expense of $285,000 in 1994. Applicable tax
expense for 1994 was offset by the utilization of a tax valuation allowance.
The charge of $285,000 was taken to increase the tax valuation allowance in
accordance with the provisions of SFAS No. 109 and to reflect the filing of the
Company's 1993 tax returns. The Company recorded income tax benefit of
$3,233,000 in 1993, reflecting available carryback to tax years 1990 through
1992. The Company had a tax asset of $794,000 at December 31, 1994,
representing the remaining benefit from the 1994 net operating loss carryback
to 1992 and other refundable taxes. In addition, the Company had a net deferred
tax asset of $3,115,000 which was fully offset
59
<PAGE>
by a tax valuation allowance. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income. Management considers projected future taxable income and tax
planning strategies in making this assessment. If future taxable income were
deemed probable, the necessity for the valuation allowance would be reassessed,
and all or a portion of the valuation allowance could be reversed in future
periods, resulting in income recognition. No assurances may be given, however,
as to the likelihood of any such future profitability or the timing or amount
of any such income recognition.
1993 COMPARED WITH 1992
Net Interest Income
Interest income for the Company decreased 10.5%, from $28,951,000 in 1992 to
$25,911,000 in 1993, due to a decline and a change in the mix of interest
earning assets. The proportion of interest income contributed by the loan
portfolio decreased from 92.9% during 1992 to 89.5% during 1993. The yield on
interest earning assets decreased from 8.15% in 1992 to 7.37% in 1993,
reflecting increases in lower yielding investment securities as a percentage of
total interest-earning assets and decreased interest rates over the two year
period.
Interest expense decreased 20.8%, from $11,365,000 in 1992 to $8,999,000 in
1993, due to a decline in deposit pay rates. Total deposits decreased 8.7% at
December 31, 1993 as compared to December 31, 1992, while average deposits
increased .6% from $331,592,000 in 1992 to $333,462,000 in 1993. Average
interest bearing deposits increased to 73.8% of average total deposits in 1993
from 73.1% of average total deposits in 1992. The cost of total deposits
decreased from 3.1% in 1992 to 2.5% in 1993 due to declines in interest rates
during 1993.
The cost of other borrowed funds decreased to 3.2% in 1993 from 3.8% in 1992.
Average commercial paper sold decreased from $12,805,000 at 3.4% in 1992 to
$6,987,000 at 2.7% in 1993. The Company utilized a line of credit with the
Federal Home Loan Bank during 1993 resulting in average borrowings of
$7,447,000 at 3.8%.
In November 1989, the Company borrowed $4,000,000 to fund the ESOP. In 1993,
the Company raised $1,555,000 from a private placement of 719,580 shares of
Common Stock and the issuance of $125,000 in notes payable and used the
proceeds to retire the remaining principal on the ESOP loan. In 1993 and 1992,
the Company paid $112,000 and $173,000, respectively, in interest expense on
the ESOP loan.
The yield on interest earning assets decreased from 8.2% in 1992 to 7.4% in
1993, while the cost of interest bearing liabilities decreased from 4.3% in
1992 to 3.4% in 1993. The net interest margin decreased from 5.0% in 1992 to
4.8% in 1993. Declines in interest rates during 1993 accounted for the decrease
in yields and rates on interest sensitive balances from 1992, while the
decrease in the net interest margin was a result of a lower ratio of higher
yielding assets (loans) to average interest earning assets. Interest foregone
on nonaccrual loans in 1993 and 1992 totaled $2,214,000 and $728,000,
respectively.
Other Income
Other income in 1993 totaled $4,820,000, a 12.6% decrease compared to 1992.
Service charges on deposits totaled $1,521,000 in 1993, an 11.9% increase over
the $1,359,000 total in 1992. The increase in service charges on deposits in
1993 was a result of increased deposits subject to in-depth analyses of funds
availability and peer group standards performed by the Company.
Loan fees of $1,192,000 in 1993 represented a 23.7% decrease from loan fees
in 1992 due to decreasing mortgage origination volume and increased mortgage
servicing premium amortization.
60
<PAGE>
Miscellaneous fees decreased 6.5% to $590,000 in 1993 from $631,000 in 1992,
as a result of the elimination of certain recordkeeping services for customers.
Miscellaneous fees include cash management service charges, safe deposit box
rentals, charges for items such as money orders, cashiers checks and ATM
transactions.
Included in the "Other" category in "Other Income" are premiums and fees
collected on sales of mortgage loans, SBA loans less gains on sale, student
loans and investments. Other income in 1993 totaled $1,131,000, a 24.6%
increase over 1992.
Other Expenses
Total other expense was $20,839,000 in 1993, a 13.0% increase over the 1992
total of $18,438,000. The increase from 1992 to 1993 is primarily due to
increased expenses associated with REO of $1.3 million, increased legal costs
of $434,000 related to increased nonperforming assets and regulatory matters,
and the complete write-off of $1,266,000 of goodwill as a result of the
Company's decision to consider the sale of Frontier.
Salary and employee benefit expense increased 4.2%, from $6,797,000 in 1992
to $7,082,000 in 1993, due to lower deferred loan origination costs. At
December 31, 1993, the Company had 199 full-time equivalent employees, compared
to 198 employees at December 31, 1992.
Occupancy expense decreased from $2,809,000 in 1992 to $2,578,000 in 1993,
due to reduced space occupied by the Company.
Equipment expense increased from $1,102,000 in 1992 to 1,241,000 in 1993, as
the Company accelerated depreciation on data processing equipment that would
not be in use in 1994 as a result of its decision to outsource data processing
services.
Professional fees increased $487,000, or 35.0%, in 1993 compared to 1992, due
to increased legal fees associated with increased levels of nonperforming
assets.
Other miscellaneous expenses increased from $6,339,000 in 1992 to $8,060,000
in 1993. The significant increase in other miscellaneous expenses from 1992 to
1993 resulted from the write-off of goodwill, increased REO expense and legal
costs, and higher FDIC assessment rates. See "Supervision and Regulation--
Premiums for Deposit Insurance." Other miscellaneous expenses in 1992 included
a nonrecurring charge of $513,000 to decrease core deposit premiums related to
the Westco acquisition. The Company wrote off the core deposit premium as an
analysis of these deposits showed significant run off of Westco deposits due,
in part, to the closing of a former Westco branch during 1992. Due to the
significant impairment of this intangible asset, the Company did not feel it
was prudent to continue carrying such an asset in the financial statements.
Provision For Loan Losses and Nonperforming Loans
At December 31, 1993, the loan loss reserve increased to $14,313,000 compared
to $3,854,000 at December 31, 1992. The ratio of the loan loss reserve to
outstanding loans and leases at December 31, 1993 and 1992 was 5.35% and 1.24%,
respectively.
Loans past due 90 days or more and still accruing totaled $552,000 and
$410,000, at December 31, 1993 and 1992, respectively. The decrease in loans
past due 90 days and still accruing was primarily attributable to the placement
of certain of these loans on nonaccrual status.
At December 31, 1993, loans totaling $18,939,000 were on nonaccrual status,
compared with nonaccrual loans of $2,464,000 at December 31, 1992.
61
<PAGE>
The Company had restructured loans in the amount of $348,000 at December 31,
1993, compared with $380,000 at December 31, 1992.
Total nonperforming loans as a percent of total loans outstanding at December
31, 1993 and 1992 were 7.42% and 1.04%, respectively.
Income Taxes
The Company recorded income tax benefit of $3,233,000 in 1993, reflecting
available carryback to tax years 1990 through 1992. Income tax expense totaled
$571,000 for the year ended December 31, 1992. The effective combined tax rate
for 1992 was 45.5%.
INFLATION
The assets and liabilities of the Company, except for fixed assets, are
virtually all monetary items. Since the Company maintains a small portion of
its total assets in fixed assets, 0.7% at December 31, 1994 and 0.5% at
December 31, 1993, respectively, the potential for inflated earnings resulting
from understated depreciation charges is minimal. High inflation rates could
impact other expense items, such as salaries and occupancy expense.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity management for banks requires that funds be available to pay all
deposit withdrawals and maturing financial obligations and meet credit funding
requirements promptly and fully in accordance with their terms. Over a very
short time frame, for most banks, including the Banks, maturing assets provide
only a limited portion of the funds required to pay maturing liabilities. The
balance of the funds required is provided by liquid assets and the acquisition
of additional liabilities, making liability management integral to liquidity
management in the short term.
The Banks maintain levels of liquidity that they consider adequate to meet
their current needs. The Banks' principal sources of cash include incoming
deposits, the repayment of loans and conversion of investment securities. When
cash requirements increase faster than cash is generated, either through
increased loan demand or withdrawal of deposited funds, the Banks can arrange
for the sale of loan participations and liquidate investments and access their
Federal Funds lines of credit with correspondent banks or other lines of credit
with federal agencies. Ventura has credit totaling $5.0 million with an
unaffiliated financial institution which enables it to borrow federal funds on
an unsecured basis. In addition, the Banks have available lines of credit with
the Federal Home Loan Bank of San Francisco equal to 15% of Ventura's assets
and 10% of Frontier's assets which enables them to borrow funds on a secured
basis. At December 31, 1994, the Banks where not obligated to any entity in
connection with their federal funds lines of credit. In addition, the Banks
could engage in other borrowings, including reverse repurchase agreements.
Management of the Company has set a minimum liquidity level of 20% as a
target. The Company's average liquid assets (cash and cash equivalents, federal
funds sold, interest bearing deposits with other financial institutions and
investment securities available for sale, less securities pledged as collateral
and outgoing cash letters) as a percentage of average assets of the Company
during 1994, 1993, and 1992 was 18.6%, 13.6%, and 15.1%, respectively. Average
liquidity for 1994, 1993 and 1992, expressed as a percent of average
liabilities, was 20.0%, 16.6% and 16.5%, respectively. From 1992 to 1994, the
Company underwent significant balance sheet restructuring, as evidenced by the
substantial reductions in assets, loans, and deposits, which accounts for the
improved liquidity. The Company's strategic plan is to build its core business
by generating and maintaining banking relationships with small and medium sized
businesses, professional firms, and individuals within its market area. The
loan to deposit ratios for the Company at December 31, 1994, 1993, and 1992
were 67.6%, 79.6%, and 88.3%.
62
<PAGE>
Although the Banks do not currently purchase brokered deposits, in the past,
both Ventura and Frontier have, to a certain degree, funded growth in their
assets through demand deposits of title and escrow companies and by the
issuance of certificates of deposit to persons, including other financial
institutions, not otherwise having banking relationships with the Banks. Such
liabilities are potentially unstable sources of deposits because they are
generally attracted to the financial institution based primarily upon the
interest rate paid by the institution and the general financial condition of
the institution and may be withdrawn on relatively short notice. Furthermore,
the proceeds of such liabilities are generally invested in relatively low
yielding short term investment securities rather than higher yielding loans. In
order to stabilize its funding sources, the Company has taken action to reduce
title and escrow deposits and institutional deposits as a percentage of total
deposits. Demand deposits owned by title and escrow companies represented 1.2%
and 11.3% of total deposits at December 31, 1994 and 1993, respectively.
Certificates of deposit held by other financial institutions represented 9.4%
and 11.4% of total deposits at December 31, 1994 and 1993, respectively and
brokered CDs represented 0% and 1.3% of total deposits at December 31, 1994 and
1993, respectively. There can be no assurances that the Company will be able to
replace such deposits with core deposits in the future.
Although liability management is the key to liquidity management in the
short-term, long-term planning of both assets and liabilities is necessary to
manage net yields. To the extent maturities of assets and liabilities do not
match in a changing rate environment, net yields may be affected.
Parent is a legal entity, separate and distinct from its subsidiaries, and it
must separately meet its liquidity needs. Aside from raising capital on its own
behalf or borrowing from outside sources, Parent may receive additional funds
through dividends paid by, and fees from services provided to its subsidiaries.
Future cash dividends paid to Parent by its subsidiaries will depend on each
subsidiary's future profitability, capital requirements, restrictions imposed
by regulatory agreements and other factors. See "Market Price of Common Stock
and Dividends" and "Risk Factors--Dividend Restrictions." In addition, the
Formal Agreement requires Ventura to seek reimbursement of $3.4 million in
connection with interest paid to Parent on deposits of funds generated by
commercial paper sales. See "Risk Factors--Regulatory Agreements and Capital
Requirements." At December 31, 1994, Parent had notes payable in the amount of
$125,000, scheduled to mature in December 1995, upon which Parent pays interest
quarterly. Parent has sufficient cash available to meet its interest
obligations during 1995. However, Parent does not presently have sufficient
cash to repay the notes payable at maturity. A portion of the net proceeds of
this Offering will be utilized to repay the notes payable at maturity. Should
this Offering not be successful, Parent would attempt to renegotiate such
notes. No assurances can be given that Parent would be successful in any such
effort. See "Use of Proceeds."
RATE SENSITIVE ASSETS/RATE SENSITIVE LIABILITIES
The objective of asset/liability management is to provide stable growth in
net interest income while minimizing the impact on earnings due to changes in
interest rates. To reduce exposures to interest rate fluctuations, the Company
attempts to match its interest sensitive assets with its interest sensitive
liabilities, and maintain the maturity and repricing of these assets and
liabilities at appropriate levels. Rate sensitive assets and liabilities are
those instruments on which interest rates can be adjusted within a short period
of time. In recent years, assets and liabilities have become more interest rate
sensitive as a result of deregulation and increased volatility in interest
rates.
63
<PAGE>
One method the Company uses to monitor interest rate sensitivity is by
attempting to match rate sensitive assets to rate sensitive liabilities over
several time periods by using what is called GAP analysis. Set forth in the
table below is the interest rate sensitivity or GAP position of the Company at
December 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
OVER
LESS ONE YEAR OVER
THAN ONE THROUGH FIVE NONINTEREST
YEAR FIVE YEARS YEARS BEARING TOTAL
-------- ---------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.. $ -- $ -- $ -- $11,442 $ 11,442
Interest-bearing deposits
with other financial
institutions............ 694 -- -- -- 694
Federal funds sold....... 27,000 -- -- -- 27,000
Securities held-to-
maturity................ -- 14,922 4,286 -- 19,208(1)
Securities available-for-
sale.................... 14,749 8,475 9,380 -- 32,604(1)
Loans, net fixed rate.... 9,489 15,989 4,277 -- 29,755
Loans, net floating rate. 130,567 -- -- 7,612 138,179
Noninterest bearing
assets.................. -- -- -- 8,312 8,312
Less loan loss reserve... -- -- -- (8,261) (8,261)
-------- ------- ------- ------- --------
Total assets........... $182,499 $39,386 $17,943 $19,105 $258,933
======== ======= ======= ======= ========
LIABILITIES AND
SHAREHOLDER'S EQUITY
Noninterest bearing
deposits................ $ -- $ -- $ -- $67,177 $ 67,177
Interest-bearing demand
and savings deposits.... 80,646 -- -- -- 80,646
Time certificates of
deposit................. 80,344 8,131 44 -- 88,519
Notes payable............ 125 -- -- -- 125
Other liabilities........ -- -- -- 2,236 2,236
Shareholders' equity..... -- -- -- 20,230 20,230(1)
-------- ------- ------- ------- --------
Total liabilities and
shareholders' equity.. $161,115 $ 8,131 $ 44 $89,643 $258,933
======== ======= ======= ======= ========
Interest rate-sensitivity
gap..................... $ 21,384 $31,255 $17,899
Cumulative interest rate-
sensitivity gap......... $ 21,384 $52,639 $70,538
Cumulative interest rate-
sensitivity gap as a
percent of total assets. 8.3% 20.3% 27.2%
</TABLE>
- --------
(1) Excludes unrealized losses of $745,000 on securities available for sale
and $433,000 on securities previously available for sale and transferred
to securities held to maturity in 1994.
At December 31, 1994, the Company had net repriceable assets (a "positive"
gap) as measured at one year of 8.26% of total assets. The net repriceable
assets over a five-year time horizon totalled approximately $52.6 or 20.3% of
total assets. A positive gap implies that the Company is asset sensitive, and
therefore subject to a decline in net interest income as interest rates
decline. In a relatively stable interest rate environment that follows a rise
in interest rates, variable rate liabilities will continue to reprice upward
while variable rate assets, particularly those indexed to prime rate, remain
relatively constant, thereby narrowing net interest margin. As interest rates
decline, variable rate assets reprice at lower rates immediately, while the
variable rate liabilities reprice gradually, resulting in a narrowing of the
net interest margin. The 1994 results reflect the situation in which net
interest margin grew as rates increased, whereas, the 1993 and 1992 results
reflect the opposite situation, with declines in net interest margin as rates
declined.
To measure the earnings impact due to asset sensitivity, the Company has
purchased software to simulate the effect of interest rate changes on the
balance sheet. The Asset/Liability Committee ("ALCO") of the Company analyzes
data produced by this software monthly to determine the most appropriate
manner to counter interest rate risk. Based on the recommendations from ALCO,
the Company has implemented strategies to counter the impact of changing
interest rates, including the establishment of interest rate floors on 47% of
the variable rate loans at December 31, 1994 to mitigate the effect on net
interest margin if rates
64
<PAGE>
decline, and also by investing in fixed rate investment securities. Management
believes that these strategies are effective in minimizing the impact on
earnings from changes in interest rates.
CAPITAL RESOURCES
The FDIC Improvement Act requires that for banks to be considered "well
capitalized", they must maintain a leverage ratio of 5.0%, a Tier 1 capital
ratio of 6.0% and a risk-based capital ratio of 10.0% and not be under a
written agreement or capital directive. Banks will be considered "adequately
capitalized" if they maintain a leverage ratio of 4.0%, a Tier 1 risk-based
capital ratio of 4.0%, and a total risk-based capital ratio of 8.0%. The
Consent Order and the Formal Agreement require the Banks to maintain capital
ratios at levels substantially higher than the levels generally applicable to
other national banks. Frontier is required to maintain a Tier 1 risk-based
capital ratio of 9.50% and a leverage capital ratio of 7.00%. Ventura is
required to maintain a Tier 1 risk-based capital ratio of 12.00% and a leverage
capital ratio of 7.00%. See "Supervision and Regulation--Potential and Existing
Enforcement Actions". Tier 1 capital consists primarily of common stock,
retained earnings and perpetual preferred stock, less goodwill and other
ineligible items. Tier 2 capital is comprised limited life preferred stock,
subordinated debt and loan loss reserves limited to 1.25% of total risk
weighted assets. Total risk-based capital is Tier 1 plus Tier 2 capital;
however, at least 50% of total capital must be comprised of Tier 1 capital. The
capital standards specify that assets, including certain off-balance items be
assigned risk weights based on credit and liquidity risk which range from 0%
risk weight for cash to 100% risk weight for commercial loans and certain other
assets. The leverage ratio is Tier 1 capital to adjusted average assets. The
Tier 1 capital ratio is Tier 1 capital to risk weighted assets. The total risk-
based capital ratio is Tier 1 plus Tier 2 capital to risk weighted assets. The
following sets forth the capital ratios for the Company and the Banks at
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Company(1)
Risk-based Capital Ratio............ 12.61% 8.73%
Tier 1 Capital Ratio................ 11.32% 7.43%
Leverage Ratio...................... 7.53% 6.02%
Ventura
Risk-based Capital Ratio............ 12.21% 7.83%
Tier 1 Capital Ratio................ 10.92% 6.52%
Leverage Ratio...................... 7.21% 5.49%
Frontier(1)
Risk-based Capital Ratio............ 13.57% 11.31%
Tier 1 Capital Ratio................ 12.29% 10.03%
Leverage Ratio...................... 8.32% 7.30%
</TABLE>
- --------
(1) In accordance with recent guidance from the Federal Financial Institutions
Examination Council, regulatory capital includes $756,000, which represents
a $792,000 cumulative effect adjustment to reduce the balance of SBA loans,
a portion of which was offset by income recognized pursuant to generally
accepted accounting principles. This amount is not reflected in the
accompanying financial statements prepared in accordance with generally
accepted accounting principles.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 109, "Accounting for Income Taxes," superseded SFAS No. 96, both of
which changed the method of accounting for income taxes from the deferred
method previously required by Accounting Principles Board Opinion No. 11, to
the asset/liability method. The asset/liability method primarily emphasizes the
valuation of current and deferred tax assets and liabilities. The
asset/liability method focuses first on the balance sheet, and the amount of
income tax expense is determined by changes in the elements of the balance
sheet. The amount of income tax expense for a period is the amount of income
taxes currently
65
<PAGE>
payable or refundable, plus or minus the change in aggregate deferred tax
assets and liabilities. A deferred tax asset or liability is computed based on
the differences between the book and tax bases of an asset or liability and the
reversal of these differences in future years applying current tax laws. The
Company adopted SFAS No. 96 as of January 1, 1990, but elected not to restate
any prior periods. The effect of the change on total income tax provision was
not significant. The Company adopted SFAS No. 109 as of January 1, 1992. The
effect on the financial statements of adopting SFAS No. 109 was not material.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of the Loan." SFAS No. 114 prescribes the recognition criterion for
loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled debt restructurings. SFAS No. 114
states that a loan is impaired when it is probable that a creditor will be
unable to collect all principal and interest amounts due according to the
contracted terms of the loan agreement.A creditor is required to measure
impairment by discounting expected future cash flows at the loan's effective
interest rate, or by reference to an observable market price, or by determining
that foreclosure is probable. SFAS No. 114 also clarifies the existing
accounting for in-substance foreclosures by stating that a collateral-dependent
real estate loan would be reported as real estate owned only if the lender had
taken possession of collateral.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. To accomplish that
it eliminated the provisions in SFAS No. 114 that described how a creditor
should report income on an impaired loan. SFAS No. 118 did not change the
provisions in SFAS No. 114 that require a creditor to measure impairment based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the observable market
price of the loan or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends the disclosure requirements in SFAS No. 114 to
require information about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those impaired
loans. SFAS No. 114 is effective for financial statements issued for fiscal
years beginning after December 15, 1994. Although earlier application is
encouraged, it is not required. SFAS No. 118 is effective concurrent with the
effective date of SFAS No. 114. Although earlier application is encouraged, it
is not required. The Company will adopt SFAS No. 114 during the first quarter
of 1995 and management's preliminary studies reveal that the impact upon
adoption should be immaterial.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted SFAS No. 115 as
of December 31, 1993. SFAS No. 115 addresses accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. Those investments are to be classified
in three categories and accounted for as follows: (1) debt securities for which
the Company has the positive intent and ability hold to maturity are classified
as held-to-maturity securities and reported at amortized cost; (2) debt and
equity securities that are bought and held principally for the purpose of
selling in the near term are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings; and (3) debt
and equity securities not classified as either held-to-maturity securities or
trading securities are classified as available for sale securities and reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. Accreted discounts
and amortized premiums on investment securities are included as interest
income, and unrealized gains or losses relating to holding or selling
securities are calculated using the specific identification method.
Effective January 1, 1994, the Company adopted the provisions of SOP 93-6,
"Employer's Accounting for Employee Stock Ownership Plans." This SOP requires
the Company to record compensation expense upon release of shares to employees
at the current fair value of shares released. Prior to adoption of SOP 93-6,
the Company recorded compensation expense for released shares based on the
historical cost of the shares of $9.00. The adoption of SOP 93-6 had no effect
on the reported results of operations of the Company, as the Company made no
contributions to the ESOP during 1994, and no shares were released to
participants.
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<PAGE>
BUSINESS
BUSINESS STRATEGY
The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market
areas. The primary purpose of this Offering is to increase the Company's and
the Banks' capital bases to permit growth in the post recessionary environment.
The additional capital will enable Ventura to take advantage of a unique
opportunity to build market share in its target markets. The acquisition of
Ventura's most significant community bank competitor, Bank of A. Levy, by First
Interstate Bank of California has positioned Ventura as the largest independent
community bank headquartered in Ventura County.
As community banks, Ventura and Frontier stress personal service, local
decisionmaking, effective customer response time and strong support of
business, civic and community organizations. The Company has reallocated its
resources in a renewed marketing effort to position both Ventura and Frontier
as the leading independent community banks in their respective market areas.
Management believes that both Banks are well-positioned to take advantage of
the generally lower level of personal service offered by the money center,
superregional and regional banks which dominate their markets. The most recent
data available indicates that Ventura's market share of bank deposits in
Ventura County is approximately 5.0%, while Frontier's market share of deposits
in Los Angeles and Orange counties is insignificant.
Ventura provides deposit and loan products to businesses in representative
industries in Ventura County including manufacturing, distribution,
professional services and agriculture. Ventura's principal loan products will
include working capital loans and lines of credit, asset based lines of credit
and loans, term loans secured by properties, plants and equipment and, through
Frontier, SBA loans. Ventura also anticipates continuing a limited amount of
construction lending to experienced builders, for construction of single family
home projects in selected areas of Ventura County. Such loans would generally
not exceed 15% of the portfolio at any one time during 1995. Deposit and fee
products are designed to meet the needs of small businesses and professional
firms, including the firms targeted for loan products.
Frontier's target market is small and medium sized businesses, professionals
and individuals. Frontier also intends to expand the Wilmington branch's
commercial lending business in its surrounding communities. In addition to the
types of loans offered by Ventura, Frontier's principal loan products include
commercial loans to small businesses secured by first trust deeds on owner-user
commercial real estate. Frontier also offers unsecured small business loans
and, through its SBA Division, loans for equipment, inventory, real estate
acquisition and construction, and working capital under both the 504 and 7(a)
programs. See "Business--Loan Portfolio--SBA Lending." The SBA Division intends
to focus its marketing efforts on developing and strengthening existing
relationships with real estate brokers who refer owner-user commercial and
industrial real estate purchasers to Frontier.
Both Banks offer fee based cash management products for business customers
and will expand and enhance these products for future growth. Deposit products
include business and personal checking accounts, interest bearing money market,
NOW, savings and certificates of deposit. Although neither Ventura nor Frontier
intends to compete with the larger regional, superregional or money center
banks for the broad based retail consumer customer, the Company has designed
and implemented certain competitive retail products in order to provide greater
diversity and stability to its funding sources.
Both Banks have developed programs to solicit minority, principally Hispanic,
business customers with existing products. For example, Ventura sponsors a
county wide Minority Business Group with over 400 minority businesses and
professionals as members. Management believes minority businesses represent a
traditionally underserviced segment of the market that places a high priority
on the type of personalized service delivered by the Banks.
67
<PAGE>
MARKET AREA
The Banks concentrate on marketing their services to small to medium sized
businesses with revenues from $1 million to $25 million, the principals who own
and operate those businesses and professional firms in Ventura County, southern
Los Angeles County and northern Orange County. The Ventura, Orange and Los
Angeles county economies support a broad range of industries including durable
and nondurable manufacturing, public administration and the military, business
and health services, retail and wholesale trade, high technology, agriculture,
construction, and tourism related sectors. Frontier's market area encompasses
the Ports of Long Beach and Los Angeles. The only deep water port between Los
Angeles and San Francisco is located in Ventura County.
Ventura's market area includes all of Ventura County, which has a population
of 708,200. Population growth has slowed in recent years from rates averaging
2.5% per year in the 1980s to under 2% in the 1990s. Based on California
Department of Finance estimates, there were 230,224 households in Ventura
County as of January 1994, and the median household income was $50,771. The
median home price in Ventura County in September 1994 was $206,500. Employment
in Ventura County totals 237,400 jobs, with service industries accounting for
25% of the workforce, wholesale and retail trade 22%, manufacturing 18%,
government 16%, agriculture 6%, construction 4% and other accounting for 9% of
the workforce. The unemployment rate as of September 1994 was 8.9% which
reflects a 5.1% nonfarm job loss from the peak employment period of November
1990. Based on 1992 data supplied by the California Employment Development
Department, there are 3,407 businesses operating in Ventura County which have
10 to 100 employees. According to information provided by Dun & Bradstreet,
there are more than 3,000 businesses operating in Ventura County with revenues
ranging from $1 million to $25 million, the majority of which have headquarters
locally.
Frontier's market area is a 7 mile delineated community surrounding its two
offices that includes the communities of Carson, Cerritos, Long Beach, Los
Alamitos, Norwalk, Santa Fe Springs, San Pedro, Torrance, Paramount and
Wilmington in Los Angeles County and Anaheim, Buena Park, Cypress and La Palma
in Orange County. The communities that make up Frontier's market area are in
well established industrial and commercial areas. Dun & Bradstreet data
indicates that Frontier's market area includes over 11,000 businesses with
revenues in the $1 million to $25 million range. Approximately 75% of
Frontier's loans and deposits are with businesses and individuals located in
Los Angeles County, the largest county in the United States. Many of the
businesses located in Frontier's Los Angeles County market emphasize trade
related to the Ports of Long Beach and Los Angeles. Orange County has a
population of 2.6 million, the fifth largest county in the nation. The 1994
median family income for Orange County was $58,800. The median home price in
Orange County in August 1994 was $217,750. Orange County's unemployment rate
was 5.1%, compared with a statewide rate of 7.4%. On December 6, 1994, Orange
County filed a Chapter 9 petition under the Bankruptcy Code. Although the Banks
have made no direct loans to Orange County and management believes that Orange
County's recent bankruptcy declaration will have no direct impact on the
Company, there can be no assurances that a direct or indirect impact will not
be experienced.
UNDERWRITING AND ORIGINATION PROCESS
The lending activities of the Banks are guided by the basic lending policies
established by the Board of Directors. Each loan must meet minimum underwriting
criteria established in the Banks' lending policies and must fit within the
Banks strategies for yield and portfolio enhancement. The minimum underwriting
criteria include: cash flow capacity; purpose of the loan; capital; existing
debt of the borrower; and collateral, if deemed necessary. In light of the
heavy chargeoffs in 1992 and 1993, new management revised the Banks'
underwriting policies and procedures. The key emphasis of the new policies is
on basic commercial and small business lending products with higher minimum
qualifications. A major emphasis of the revised lending policy is for each
credit to have both primary and secondary sources of repayment, as well as a
demonstration of sustainable cash flow to service the proposed loan.
Additionally, the revised policy emphasizes evaluation of real estate
collateral and lower loan to value guidelines to increase the borrower's equity
portion.
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<PAGE>
LOAN PORTFOLIO
The following table sets forth the amounts of loans outstanding, according to
the type of loan, at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, Financial and
Agriculture...................... $138,193 $197,384 $221,553 $190,076 $154,630
Real Estate--Construction......... 7,734 23,559 31,264 40,860 66,323
Real Estate--Mortgage............. 11,993 31,202 36,775 37,045 51,449
Installment....................... 9,897 14,961 21,242 30,068 28,627
Lease Financing, net of unearned
income........................... 117 408 867 1,218 922
-------- -------- -------- -------- --------
Total Loans....................... $167,934 $267,514 $311,701 $299,267 $301,951
======== ======== ======== ======== ========
</TABLE>
The following table sets forth the amounts and categories (by purpose) of
loans outstanding at December 31, 1994 for each of the Banks and the Company:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------
VENTURA FRONTIER COMPANY
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, Financial and Agricultural:
Unsecured commercial loans.......................... $ 4,490 $ 1,995 $ 6,485
Asset based loans................................... 5,666 3,316 8,982
Loans to developers................................. 9,051 161 9,212
Secured commercial loans............................ 21,615 4,578 26,193
-------- ------- --------
Medium term commercial real estate loans:
Investment properties.............................. 33,810 9,734 43,544
Owner-user properties.............................. 17,168 13,771 30,939
SBA loans.......................................... 911 11,927 12,838
-------- ------- --------
Total medium term commercial real estate loans:..... 51,889 35,432 87,321
-------- ------- --------
Total Commercial, Financial and Agricultural......... 92,711 45,482 138,193
-------- ------- --------
Real Estate--Construction............................ 6,750 984 7,734
Real Estate--Mortgage................................ 4,969 7,024 11,993
Leases, net of unearned income....................... 116 1 117
Installments......................................... 6,879 3,018 9,897
-------- ------- --------
Total Loans......................................... $111,425 $56,509 $167,934
======== ======= ========
</TABLE>
Commercial, Financial and Agricultural
This category includes unsecured commercial loans, asset based loans, loans
to developers, secured commercial loans, and medium term commercial real estate
loans, each of which is discussed in more detail below. The number of notes in
the commercial, financial and agricultural category at December 31, 1994 was
1,202. The average loan size for such loans was $139,000.
Unsecured Commercial Loans. Although this category, which includes term loans
and lines of credit, represents only a small portion of the portfolio, it is a
customary product provided for the Company's business customers. The Company's
underwriting guidelines include low levels of existing debt of the borrower,
working capital sufficient to cover the loan and a history of earnings. Lines
of credit are required to be unused for a continuous 30 day period to
demonstrate the borrower's ability to have sufficient funds to carry its
operations on an annual basis. These lines are generally used for short term
cash needs and do not represent
69
<PAGE>
permanent working capital requirements. Generally, these loans do not exceed
the lesser of 50% to 100% of borrower's verified liquid assets, or 10% to 20%
of the borrower's tangible net worth.
Asset Based Loans. Asset based loans are commercial lines of credit secured
and controlled by a borrowing base usually determined by the amount of eligible
accounts receivable. The Company rarely lends against inventory. The Company's
policy requires that loan advances not exceed 80% of eligible receivables
(accounts that are less than 90 days past due) and the borrower's other
receivables are not concentrated in a single or a few customers. The borrower
submits an ageing schedule and borrowing base certificate that are reviewed and
monitored by the Company for conformity and accuracy. The Company will
generally audit the borrower's reporting accuracy on a quarterly basis. These
lines revolve depending on the varying levels of receivables. Asset based
borrowers may have higher ratios of existing debt to net worth, which is
typical of growing companies with limited capital. However, the borrower's
leverage ratio generally is limited to no more than 3:1, and controls are
maintained over the collateral in order to mitigate risk. To compensate for a
higher degree of monitoring, asset based loans generally pay higher rates.
Loans to Developers. These loans consist of short term loans for the
development of raw land into construction grade property. The Company has
experienced a high level of losses in this category of loans. These loans are
the riskiest in terms of repayment sources as it takes a great deal of effort
to convert a piece of raw land to an income producing property. In most cases,
the borrower's exit strategy is to sell the underlying collateral and retire
the loan in full. During the early 1990s, prior management lent a significant
amount to investors without prior development experience. As a result, the
Company wrote down many of these loans as the real estate market decreased in
value. At December 31, 1994, approximately 25% of such loans were classified,
all of which were secured by real estate. Except for classified loans,
management believes the underlying collateral is sufficient to support
repayment of the loan in full. In cases where the loan is classified and the
underlying collateral value is below the loan balance, specific reserves have
been taken. At December 31, 1994, the Company had commitments to lend
(primarily standby letters of credit) of $2 million, most of which were
guaranteed by principals with liquidity substantially in excess of the
commitment amount. The Company's current lending policy only permits these
types of loans to developers with demonstrated experience.
Secured Commercial Loans. This category constitutes the core business of the
Company's revised business plan, and management intends to develop these types
of credits with its new marketing strategies. Included in this category are
commercial loans made to medium sized businesses which include revolving lines
of credit, term loans for working capital or short term commercial needs.
Management will generally require that the borrower pledges all of the borrower
assets to support the credit with terms limited to one year or less.
The Company underwrites its commercial loans on the basis of the borrower's
cash flow and ability to service debt from earnings rather than on the basis of
the underlying collateral value, and seeks to structure such loans to have more
than one source of repayment. The borrower is required to provide the Company
with sufficient information to allow a loan decision to be made. This generally
includes three years of financial statements, projected cash flows, current
financial information on any and all guarantors, and other reports that show
trends in the current assets (ageing, etc.). While most loans do not exceed one
year, those in excess of one year have covenants which generally require
quarterly financial reporting.
Medium term commercial real estate loans. Medium term commercial real estate
loans are those credits made for the financing of a commercial or industrial
building where the property has income derived from tenants ("investment
properties") or used by the owner for business purposes ("owner-user
properties"). Medium term commercial real estate loans represented a
concentration of credit at September 30, 1994.
Most of the medium term commercial real estate loans were originated for
investment properties by investors that have owned the property for over four
to five years with the underlying notes seasoned for the same period of time.
Management intends to reduce these loans through aggressive exit strategies as
such loans mature.
70
<PAGE>
The Company has significantly curtailed the origination of new medium term
commercial real estate loans and is not soliciting new loans for investment
properties. The Company's current loan policies for renewal of medium term
commercial real estate loans require that the principal balance of the loan to
be no more than 70% of the stabilized appraised value of the underlying real
estate collateral. The Company's loan policy also requires that the loan be
written for no more than five years with a 30 year amortization schedule. Most
of these loans have floating rates tied to a prime rate index. Exceptions to
any of these policies will be made only in limited circumstances and for
borrowers with a strong credit history with the Company. In addition, any such
exceptions require approval by the Board of Directors. The Company's current
loan policy requires borrowers to supply quarterly and annual information on
the income production of the property and the individual owner's financial
condition. These include rent rolls, financial statements and signed leases of
tenants residing in the building.
For all medium term commercial real estate loans, the Company makes an annual
evaluation of the property's value based on several factors. These include the
property's sustainable cash flow, expenses, quality of tenants and market
factors such as the capitalization ratio which contribute to the property's
value. The annual evaluation is reviewed with management if the loan to value
ratio exceeds 90%. Management then closely follows the property and market
trends to determine if it should reserve additional funds in the loan loss
reserve. Should the loan become collateral dependent, that is, the debt service
and/or the loan to value is less than one to one, management classifies the
assets and begins to immediately assess additional reserves in the loan loss
reserve.
With the decline in real estate values, the loan to value ratio on some
medium term commercial real estate loans has increased over the 70% maximum at
origination. Management has individually reviewed each of these loans to
determine if the cash flow is sufficient to cover the credit on a renewal basis
and has taken additional collateral, where available, to cover the portion over
the maximum. Twenty two medium term commercial real estate loans aggregating
$10.3 million are scheduled to mature during 1995, of which six loans in the
aggregate amount of $3.2 million have been classified. All such classified
loans have been reevaluated for collateral value within the past six months and
additional loan loss reserves have been taken where appropriate. Of the $10.3
million, thirteen loans aggregating $7.2 million were loans for investment
properties. Of that amount, the Company anticipates that nine loans aggregating
$5.9 million will be refinanced or fully repaid during 1995. The remaining $1.3
million consists of four loans, none of which exceeded $570,000 principal
balance at December 31, 1994. None of such loans were classified at December
31, 1994, and based upon current information, management does not anticipate
that additional loan loss reserves will be assessed with respect to such loans.
While no assurances can be given, management believes that it has identified
and reserved for weaknesses in such loans based on current market and economic
conditions. However, if real estate values were to decline further, there may
be additional potential for losses in such loans.
It is management's intention that future medium term commercial real estate
loans, to the extent made, will be limited to owner-user properties or for
companies that also have other banking relationships with the Company and will
be made using the same underwriting criteria described above for renewals.
Management believes these medium term commercial real estate loans have less
risk as the Company has a broader knowledge and better control over the overall
borrowing relationship. For this reason, the Company anticipates that it will
continue to provide this type of loan as an accommodation for its borrowers.
Real Estate--Construction
Ventura has maintained a construction lending department since 1989. The
construction loans provided by Ventura were used for custom residential and
residential tract development projects, as well as commercial developments.
Since 1989, Ventura has originated approximately $120 million in construction
loans, of which not more than $550,000 was charged off during that time. The
Company intends to continue to originate construction loans, but will limit the
aggregate amount of outstanding construction loans to 10%-15% of the total
portfolio.
71
<PAGE>
Real Estate--Mortgage
The Company sold its residential mortgage origination operations in 1994,
which substantially reduced the volume of mortgage loans available for sale. At
December 31, 1994, the Company had a limited amount of mortgage loans in its
portfolio. Included in this category are loans for single family residences
(conforming loans) and home equity loans. With the sale of the mortgage
operations, the Company no longer originates residential mortgages for the
acquisition of homes unless it is for the sole purpose of accommodating an
existing business borrower. However, terms for these loans still require
conventional underwriting criteria.
Installment
Installment loans consist mainly of fully amortizing credits extended for the
purchase of capital goods and consumer purchases. The Company's underwriting
criteria require minimum down payments and repayment schedules consistent with
market terms. Generally, the Company's loan policies require that the borrower
demonstrate a fixed charge coverage (net income divided by monthly obligations)
of 2.5 to 1.
Leases
The Company had $129,000 in leases at December 31, 1994. Unearned income on
leases totaled $12,000 at December 31, 1994. These leases are scheduled to
mature within the next two years. At present, management does not intend to
make any more of these leases.
SBA Lending
Through its SBA Division, Frontier offers loans for equipment, working
capital, debt repayment and construction, and acquisition of owner-user
commercial real estate. Frontier originates loans under both the 7(a) and 504
loan programs described below, with a particular emphasis on the 7(a) program.
Frontier has been authorized by SBA to make 7(a) loans since 1983. At December
31, 1994, the gross portfolio (including guaranteed and unguaranteed portions)
was $61.7 million and is almost entirely made up of loans funded since early
1990 when Frontier determined to dedicate more resources to its SBA Division.
Because owner-user real estate acquisition loans offer higher profitability and
higher credit-quality than other 7(a) loans, Frontier has emphasized these
loans in its marketing efforts. Greater than 95% of its existing SBA loans are
owner-user real estate acquisition, refinance or construction loans, most of
which are secured by first trust deeds. The average loan pricing for such loans
is prime rate plus 2.0%, adjustable quarterly. Some loans have a 5% lifetime
interest rate ceiling and floor. The average remaining term of the SBA
portfolio is approximately 20 years. The Company's two year average historical
loan loss experience of SBA loans was 0.8% through December 31, 1994.
The SBA designates lenders as General Program ("GP"), Certified Lender
Program ("CLP") and Preferred Lender Program ("PLP"). Frontier has been
designated as a participant in SBA's PLP through the Los Angeles District
Office. This designation will apply to all 7(a) loans made to borrowers located
in Los Angeles, Ventura, and Santa Barbara counties, where the large majority
of Frontier's SBA portfolio is currently located. A GP lender must submit a
loan application for complete analysis by SBA, which can take up to six weeks,
prior to a guaranty being granted. A CLP lender must submit the same loan
application for a cursory review by SBA, which is generally completed in five
working days, prior to a guaranty being granted. A PLP lender is authorized to
approve the guaranty request on behalf of SBA and is only required to send SBA
a streamlined informational loan file. The SBA designates lenders as CLP or PLP
only after several years of high-quality lending, servicing and liquidating
performance in the 7(a) program. Fewer than 1% of all SBA lenders nationwide
are designated PLP. Management believes that participation in the PLP program
offers a distinct marketing advantage because the approval time is minimal and
the lender achieves a higher degree of credibility with referral sources.
For SBA loans made under the 7(a) program, a portion of the principal amount
of the loan is guaranteed by the SBA. The guaranteed amount ranges from 70% to
90%, depending on the size of the loan and other
72
<PAGE>
factors. In addition to meeting other eligibility guidelines, a business must
fall below SBA's maximum size standard (which varies by SIC code of the
borrower) in order to be eligible for a 7(a) loan.
Effective January 1, 1995, 7(a) loans are limited in size to a maximum of
$500,000. For transactions requiring more than $500,000 financing, Frontier
will structure secured, non-SBA commercial loans in conjunction with a $500,000
SBA 7(a) loan to accommodate qualified borrowers.
The guaranteed portions of SBA 7(a) loans are normally sold by Frontier to
secondary market investors at a premium. The Company's sales premiums averaged
approximately 12.08% of the sold portion in 1993 and 8.19% of the sold portion
in 1994. However, due to market conditions, the Company does not anticipate
that premiums on the sold portion of SBA loans will continue at the same levels
in the future. Frontier continues to service the whole loan, however, remitting
the investors' portions of loan payments monthly through Colson Services, the
sole fiscal transfer agent for sold SBA loans. As the servicer, Frontier is
required by SBA to maintain a minimum of 1.0% servicing spread on the sold
portion. Of the existing gross 7(a) loan portfolio in the amount of $61.7
million, Frontier earns average service fee income of 1.04% on the SBA-
guaranteed sold portfolio of approximately $48.9 million. Because the
guaranteed portion is sold into the secondary market, Frontier realizes gain on
sale related to the initial sale premium, as well as servicing income on the
sold portfolio for which there are no recourse, liquidity or capital
requirements.
Under the 504 loan program, use of loan proceeds is limited to fixed asset
acquisition and owner-user commercial real estate construction and acquisition.
This program is limited to businesses with net income of less than $2.0 million
and a combined net worth of less than $6.0 million. Loans generated under the
504 program are not guaranteed by the SBA. Instead, the SBA directly funds up
to 40% of the project and takes a subordinate lien position on the assets being
financed, leaving the lender with a relatively low loan to value ratio (usually
50%). The SBA's participation in the project is limited to $750,000 for most
borrowers and $1,000,000 for exporters and projects located in redevelopment
zones. The 504 program is designed to accommodate larger businesses and larger
loan sizes than the 7(a) program. Loans originated under the 504 program also
may be sold in the secondary market. In general, however, the Company does not
sell SBA loans originated under the 504 program in the secondary market because
the sales premiums and servicing spread are much less attractive than for loans
originated under the 7(a) program.
MATURITY OF LOANS AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth by category of loan (including fixed and
variable rate loans) the amounts of loans outstanding as of December 31, 1994
which are, based on remaining scheduled repayment of principal, due in less
than one year, due in one to five years, or due in more than five years. Loan
maturities are based on contractual maturities.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
------------------------------------
LOANS MATURING IN
---------------------------
BETWEEN
ONE- GREATER
LESS THAN FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
--------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural......................... $44,853 $72,042 $21,298 $138,193
Real Estate:
Construction......................... 7,511 223 0 7,734
Mortgage............................. 688 1,651 9,654 11,993
Installment........................... 6,702 3,084 111 9,897
Lease Financing....................... 33 84 0 117
------- ------- ------- --------
Total............................... $59,787 $77,084 $31,063 $167,934
======= ======= ======= ========
Loans with fixed interest rates....... $ 9,489 $15,989 $ 4,277 $ 29,755
Loans with variable interest rates.... 50,298 61,095 28,786 138,179
------- ------- ------- --------
Total............................... $59,787 $77,084 $31,063 $167,934
======= ======= ======= ========
</TABLE>
73
<PAGE>
RISK MANAGEMENT
The Board of Directors, through its revised policies and procedures, has
directed the new management team to be proactive in its risk management. This
process involves the implementation of systems that promote the identification
of credit risk and actions that mitigate the same. Management plays an active
role in promoting a credit culture in which all lending employees are expected
to manage the risk in his or her loan portfolio with systems that provide
management with important information on a frequent basis.
Approval Process
In general, the Company utilizes a committee process to approve its loans.
Loans over $250,000 and up to and including $750,000 must be authorized by
executive management, including the Chief Credit Officer. Loans over $750,000
are submitted to the Executive Loan Committee, which consists of the CEO and a
quorum of Board committee members, for approval. If any proposed loan has an
exception it requires the Chief Credit Officer's or Executive Loan Committee
approval. The Executive Loan Committee meets every other week to approve loans
and review reports pertaining to the portfolio's performance.
Management may also delegate loan authority to certain senior loan officers
who are Vice Presidents, whereby the designated officer may lend up to $50,000,
provided that the loan meets minimum underwriting criteria and is documented
according to the Company's normal procedures.
Credit Administration Oversight
Credit Administration uses various systems to monitor the loan portfolio and
lending activity. These include reports generated by the Company's data
processing systems to monitor loan performance.
Credit Administration also monitors for exceptions to loan policies and
accuracy of loan grades (described below) by reviewing all loans after approval
has been obtained. If a grade deviation is detected, the loan grade is promptly
revised. If documentation exceptions are noted, the approving loan officer is
given an established period of time to cure the exception, depending on the
nature of the exception. Credit Administration tracks and monitors all
exceptions until resolved and reflects the same in the loan officer's
performance appraisals.
Grading System
The Board of Directors requires that all loans be classified on a grading
system according to measurable elements of risk. The system used is standard
throughout the banking industry and recognized by the Banks' primary
regulatory, the OCC. This system allows management to track pools of similar
credits for potential risk of loss. These pools consist of same grade credits
that have similar levels of risk and establish a framework for migration
analysis used to determine the levels of loan loss reserves.
The grading system assigns loan pools to seven categories ranging from "pass"
to "loss." There are three pools in the "pass" category, which consists of
credits found to be of acceptable risk. Generally, loans in this category are
to companies which have profit records, adequate capital for normal operations
and cash flow sufficient to service the loan. When a loan shows signs of
potential weaknesses that may affect repayment of the loan or the collateral,
the loan is reclassified "especially mentioned." A loan which has further
deterioration and exhibits defined weaknesses in the borrower's capacity to
repay is reclassified "substandard." Loans that exhibit signs of doubted
repayment are labeled "doubtful" and loans that show signs of partial or full
loss are charged off immediately.
Management provides its lenders with training and systems to monitor the risk
of credits and requires a formal process in order to change the risk grade.
When a credit is downgraded, or the risk element has increased due to some
potential repayment weaknesses, the credit is given more attention in order to
protect the Company's ability to collect the loan.
74
<PAGE>
Quarterly Portfolio Reviews
The Company uses a "loan officer driven" grading system, whereby all loans
are periodically reviewed by loan officers as well as management and the
Company's external credit review firm for common risk trends. The loan officers
prepare a quarterly report for management that reviews all of the loans for
changes in risk and identifies areas for growth opportunities. This process
allows management to proactively monitor the portfolio for problems and, if
needed, take action to mitigate risk.
The Company's external credit review firm with the grading system
periodically reviews the loan grades of the portfolio to determine if the
lenders are accurately grading loans according to the established grading
system. The Company's external credit review firm has reviewed the loan
portfolio nine times since early 1993. Eighty percent of the portfolio, and all
loans over $250,000, have been reviewed at least once by the external credit
review firm in 1993 and 1994.
SAC Management
All classified assets and especially mentioned credits that are currently
outstanding or recently downgraded are generally reported to management
monthly, but in any case not less frequently than quarterly, through Special
Attention Credit ("SAC") Reports. These reports are prepared by the handling
loan officer and draw attention to the credit problems, strategies to correct
the same, and dates for accomplishing the strategies. The reports also point
out projected weaknesses or strengths that could cause the credit to be
downgraded or upgraded.
When evaluating the SAC Reports, management determines if certain specific
reserves should be set up on the relevant credit, depending on the nature of
the problem and the underlying collateral. During the entire SAC Report
process, management evaluates the borrower's cash flow and underlying
collateral value. If there is erosion in either case, prompt action is taken to
protect the Company's position. Such actions may include taking additional
collateral, obtaining further guaranties, declaring a default and accelerating
the loan, and such other legal remedies as may be available to the Company
pursuant to the loan documents in order to take control of the collateral.
After management has reviewed the SAC Reports, the same are submitted to the
Board of Directors for review and comment. The SAC Reports are summarized on a
tracking system used to monitor the activity of the credits both in terms of
changing loan balances and required reporting based on the initial target dates
set by management.
Concentrations of Credit
With the exception of medium term commercial real estate loans, there were no
concentrations of loans exceeding 10% of total loans. Management's intention is
to reduce the number of medium term commercial real estate loans for investment
properties through aggressive exit strategies and repayment programs.
Management takes a proactive role in measuring concentration risk, through a
monthly review of the portfolio for concentrations in business types,
collateral and market demographics. Management reactions to concentrations
include limiting growth, adding controls and assessing additional loss reserves
to mitigate the potential for loss due to concentrations.
75
<PAGE>
Loss Analysis
Credit Administration analyzes risk trends in the loan portfolio, including
types of borrowers where trends suggest the need for additional underwriting
controls.
Nonresidential buildings, which includes office and industrial buildings,
accounted for the Company's largest losses by borrower type during the year
ended December 31, 1993, while developers accounted for the Company's largest
losses during the year ended December 31, 1994.
Similarly, developers, operators of commercial buildings, a subsegment of
nonresidential buildings, and borrowers involved in construction trades
constituted the three largest segments of nonperforming loans at December 31,
1993 and December 31, 1994.
Because of the high levels of losses in these categories, management revised
the Company's underwriting policies with respect to real estate related
industries and has curtailed the origination of new medium term commercial real
estate loans for investment properties and loans to developers. See "Business--
Loan Portfolio."
CLASSIFIED ASSETS AND NONPERFORMING ASSETS
Classified Assets
Classified assets are assets that have defined weaknesses in the borrower's
ability to repay the loan or in the underlying collateral, and are assigned a
loan grading of "substandard", "doubtful" or "loss" in accordance with the
Company's grading policy described above. Classified assets include
nonperforming assets. Classified assets are generally handled by the Company's
Special Asset Department. The staff of the Special Asset Department are trained
to handle such loans and to identify assets or cash flow that may strengthen
the Company's potential for repayment.
The Bank's problem loan portfolio grew significantly during 1993 and early
1994. Management implemented specific programs to address these riskier loans
(Special Attention Credits or SAC) and focused on reducing these problem
assets. The programs focus on identifying exit strategies including taking
higher levels of cash flow from the borrower's sources, taking additional
collateral to protect the Bank's position and selling the borrower's assets to
reduce the overall indebtedness. At December 31, 1994, the Company had an
aggregate of $30.9 million in classified assets compared to $64.6 million at
December 31, 1993. Classified assets grew significantly during 1993 and peaked
in the first quarter of 1994. Through SAC management, these assets were reduced
through exit strategies and a bulk note sale that occurred in May 1994. As
shown in the table below, the combined activities have reduced the problem
loans by $33.7 million. Although management uses all available resources to
collect principal and interest, certain chargeoffs were sustained, particularly
with respect to the bulk sale. However, management proactively monitors the
loan loss reserve in anticipation of such chargeoffs and adds to the loan loss
reserve through provisions for loan losses.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning Balance......................... $64,603 $29,007
Additions................................. 18,599 67,714
Reductions:
Upgrades................................ 10,732 5,010
Collections............................. 32,606(1) 21,424
Chargeoffs.............................. 8,926(2) 5,684
------- -------
Ending Balance............................ $30,938(3) $64,603
======= =======
</TABLE>
76
<PAGE>
- --------
(1) Of this amount, $9.1 million was attributable to proceeds recognized in as
a result of the bulk loan sale completed in May 1994.
(2) Of this amount $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(3) Of this amount, $29,387,000 was classified substandard and $1,550,000 was
classified doubtful.
Nonperforming Assets
Nonperforming assets consists of nonperforming loans plus REO. Nonperforming
loans consist of loans classified as TDRs, loans 90 days past due and still
accruing and nonaccrual loans. As of December 31, 1994 the Company had $7.6
million in nonaccrual loans, compared with $18.9 million at December 31, 1993.
The reduction during 1994 was due to a $14.1 million bulk sale, of which the
greater part was nonperforming assets, and the collection of loans through exit
strategies.
Nonaccrual Loans. Loans are automatically placed on nonaccrual status when
principal or interest payments are past due greater than 90 days. If the loan
is an SBA guaranteed loan and a deferral period has been negotiated or if the
loan is in the process of imminent collection or renewal in accordance with the
Company's standard underwriting policies in the normal course of business, the
Company may remove the loan from nonaccrual status and continue to accrue
interest. Loans are placed on nonaccrual status earlier, if there is doubt as
to the collectability of any amounts due according to the contractual terms of
the loan agreement.
Interest income on nonaccrual loans is subsequently recognized when the loan
becomes contractually current for a period of six months or more. Accounts
which are deemed uncollectible by management for which no payment has been
received for six months are charged off in full or for the amount that exceeds
the net realizable value of the underlying real estate collateral.
Troubled Debt Restructurings ("TDRs"). A TDR is a loan on which the Company
reduces the rate of interest to a below market rate or forgives all or part of
the interest income due and part of the principal balance of the loan due to
the borrower's financial condition, including reduced cash flow, reduced
collateral value or other conditions that impair the borrower's ability to
repay the loan according to the original terms. Management reports TDRs for the
first six months as nonperforming loans and does not recognize interest during
that period. After the borrower has demonstrated capacity for the first six
months, the loan is restored to accrual status and then removed from the
nonperforming category. After twelve months of demonstrated payments, in
accordance with OCC policy the loan is removed from the classified grade
status. At December 31, 1994, the Company had one loan with a principal balance
totaling $2,000 that was categorized as a TDR.
Real Estate Owned ("REO"). Real estate secured loans upon which the Company
has foreclosed are recognized as REO. The Company's general policy is to
initiate foreclosure proceedings when loans are more than 90 days past due.
Some loans that are more than 90 days past due are never actually foreclosed,
however, because the borrower brings the account current before a formal notice
of default is filed. Assets classified as REO include properties upon which the
Company has foreclosed on the borrower's real estate collateral or a deed has
been offered in lieu of foreclosure. At December 31, 1994, the Company's REO
totalled $2,346,000. The Company has entered into contracts for the sale of
each of the three properties in this category, which are currently in escrow.
The sales prices for such properties were equal to or exceeded the Company's
carrying value of such assets.
The Company obtains updated third party appraisals for problem loans that are
secured by real estate on an as needed basis. When loans have been determined
to be "collateral dependent," that is, no other sources of repayment are
available, the property is appraised immediately upon becoming a problem loan.
In addition to the appraisals, management actively determines the value of the
real estate collateral based upon market conditions and the cash flow from the
property if it is income producing. Management's policies
77
<PAGE>
require all collateral dependent loans to be written down to the net realizable
value of the property, with the difference charged off or reserved for in the
loan loss reserve.
The following table sets forth nonaccrual loans, loans which were delinquent
for 90 days or more but still accruing, loan that are accounted for as
"troubled debt restructurings," and REO at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............ $ 7,612 $ 18,939 $ 2,464 $ 2,142 $ 485
Accruing loans which are 90
days or more past due as to
interest or principal....... 331 552 410 7,296 2,167
TDR's........................ 2(1) 348 380 16 467
-------- -------- ------- -------- -------
Total nonperforming loans.... 7,945 19,839 3,254 9,454 3,119
-------- -------- ------- -------- -------
Foreclosed personalty........ 878 -- -- -- --
REO.......................... 2,346 2,229 3,940 2,206 --
-------- -------- ------- -------- -------
Total nonperforming assets... $ 11,169 $ 22,068 $ 7,194 $ 11,660 $ 3,119
======== ======== ======= ======== =======
Nonperforming loans to total
loans....................... 4.73% 7.41% 1.04% 3.16% 1.03%
Nonperforming assets to total
assets...................... 4.33% 6.48% 1.79% 3.15% .81%
Loan loss reserves to
nonperforming assets........ 73.96% 64.86% 53.57% 24.78% 73.26%
Classified assets to loan
loss reserves and
shareholders' equity........ 113.27% 186.27% 84.71% 67.45% 47.63%
</TABLE>
- --------
(1) Does not include loans which have been restructured and which were
previously on nonaccrual status but have been performing in accordance with
their restructured terms for some minimum period of time, typically at
least six months. At December 31, 1994 the Company had one such loan in the
amount of $1,966,000.
Potential Problem Loans. In addition to the loans disclosed in the above
table, at December 31, 1994, the Company had loans in the aggregate amount of
$19,769,000 where known information about possible credit problems of the
borrowers caused management to have serious concerns about the ability of such
borrowers to comply with the present loan repayment terms.
Foregone Interest Income. If nonaccrual, past due and restructured loans had
been current and performing according to original terms, gross interest income
for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 would have
increased by $1,609,000, $2,214,000, $728,000, $429,000 and $23,000,
respectively. The following summarizes foregone interest income for 1994:
<TABLE>
<S> <C>
Interest income at original terms........... $2,321,000
Less: Interest income included in 1994
income..................................... (712,000)
----------
Foregone interest income.................... $1,609,000
==========
</TABLE>
78
<PAGE>
The following table sets forth certain information regarding nonperforming
assets during the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Beginning Balance......................... $22,068 $ 7,194
Additions................................. 32,653(1) 30,833
Reductions:
Chargeoffs.............................. 8,913(2) 6,191
REO Writedowns.......................... 104 941
Collections............................. 34,535(3) 8,827
------- -------
Total Reductions........................ 43,552 15,859
------- -------
Ending Balance............................ $11,169 $22,068
======= =======
</TABLE>
- --------
(1) Excludes $1,966,000 of restructured loans which are performing.
(2) Of this amount, $5.0 million was attributable to the bulk loan sale
completed in May 1994.
(3) Of this amount, $9.2 million was attributable to proceeds recognized as a
result of the bulk loan sale completed in May 1994.
A summary of certain significant classified assets with balances in excess of
$750,000 at December 31, 1994, follows.
A combination of loans totaling $1,730,923 to a common borrowing entity in
the nursery business. The Company experienced losses in 1991 and 1992 which
placed the loans on a SAC status. However, the borrowing entity has experienced
a profitable year in 1993 and continues to be profitable in 1994 with
projections showing a larger profit for 1995. This credit was upgraded to pass
in March 1995. Management only upgrades the risk of a credit if there is
documented sustainable evidence of profitability, cash flow or other means of
repaying the original loan.
A loan for $1,867,027 to a food service provider. The borrower's revenues
have fallen during the last two years, primarily due to the recession, forcing
a review of the upcoming loan renewal. The loan is currently classified. The
underlying real estate collateral has dropped in value and the borrower may not
be able to service or repay the entire debt. Negotiations are under way to form
a plan based on the collateral value and the borrower's cash flow which may
include the sale of assets. Management has placed a specific reserve for this
classified loan.
Combined loans to the same borrowing entity for $1,395,481 to a government
contractor. This loan is nonperforming. The borrower has lost money over the
last two years due to cutbacks in government spending. The Company is assisting
the borrower in liquidating the assets. Management anticipates recovery of 75%
of principal. A specific reserve equal to 50% of these loans has been
established. The loan balances were reduced to $871,877 as of March 31, 1995.
Other asset owned for $878,000. This nonperforming loan was originally
unsecured. During the fourth quarter of 1994, Ventura agreed (1) to take an
assignment of the borrowers' co-tenancy interest in a promissory trust
representing residual rights to 17 1/2 acres of land in Ventura County as
payment in kind for an existing option contract to acquire a 158-acre parcel by
a third party and (2) to a transfer of the borrowers' combined 49% limited
partnership interest in a lemon grove in Ventura County in lieu of foreclosure
in satisfaction of the debt, subject to a repurchase option of either, but not
both, property by the borrowers. The repurchase option is exercisable for a
period of two years. Should the borrowers fail to exercise the repurchase
option in such time frame, Ventura would attempt to liquidate the interests.
A loan for $1,284,313 made to a real estate investor that had filed
bankruptcy. This nonperforming loan was restructured in June 1994 as a result
of reorganization in the bankruptcy proceedings which are now
79
<PAGE>
complete. Because the Company forgave interest and a limited amount of
principal the loan is a TDR. This loan was placed on accrual status as of
December 1994 and will be removed from the classified category in June 1995,
provided payments are timely made.
A combination of loans totalling $1,934,434 used to finance three commercial
buildings. These loans are currently nonperforming. Two of the buildings
continue to have high vacancy levels, although the County of Riverside has
leased the other building. The borrower continues to make payments from outside
sources, and has listed the buildings for sale.
Combined loans for $845,319 made to a small business to finance real estate
($591,095) and accounts receivable, inventory and equipment ($254,224). The
$254,224 loan is nonperforming. The loans were classified due to an operating
loss in 1992. The borrower has shown profits since and continues to make
payments. This loan will be upgraded to the extent that 1994 year-end financial
statements validate continued profitability.
LOAN LOSS RESERVES
The calculation of the adequacy of the loan loss reserve is based on a
variety of factors, including loan classifications and underlying cash flow and
collateral values. Management uses both a migration factor and specific loan
reserves to determine the reserve level necessary to allow for potential
losses. Migration analysis is a method by which specific chargeoffs are related
to the prior life of the same loan compared to the total loan pools in which
the loan was graded. This method allows for management to use historical trends
that are relative to the Company's portfolio rather than use outside factors
that may not take into consideration trends relative to the specific loan
portfolio. In addition to migration and specific reserve analysis, management
takes into consideration other trends that are qualitative relative to the
Company's marketplace, demographic trends, amount and trends in nonperforming
assets and concentration factors.
Based on evaluations of the aforementioned economic considerations, the
Company establishes its allowance for loan losses. The loan loss reserve
expressed as a percentage of total net loans was 5.17% at December 31, 1994,
5.65% at December 31, 1993, 1.24% at December 31, 1992, and .95% at December
31, 1991.
The Board of Directors reviews the adequacy of the loan loss reserve on a
quarterly basis. Management utilizes its best judgment in providing for
possible loan losses and establishing the loan loss reserve. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's loan loss reserve. Such agencies may require
the Company to recognize additions to the reserve based upon their judgment of
the information available to them at the time of their examination. The OCC did
not require management to record material additional loan loss provisions or
net charge-offs as a result of the examination of Ventura concluded during the
fourth quarter of 1994.
Adverse economic conditions and a declining real estate market in California
have adversely affected certain borrowers' ability to repay loans. A
continuation of these conditions or a further decline in the California economy
could result in further deterioration in the quality of the loan portfolio and
continuing high levels of nonperforming assets and chargeoffs, which would
adversely effect the financial condition and results of operations of the
Company.
INVESTMENT PORTFOLIO
The Company invests a portion of its available funds in a variety of short to
medium term instruments. The investment portfolio provides a measure of
liquidity through proceeds from scheduled maturities and is utilized for
pledging requirements on public deposits. At December 31, 1994, securities
carried at approximately $4,390,000 were pledged as collateral for public funds
and other purposes as required by law. The market value of these securities was
$4,264,000.
80
<PAGE>
The Company's investment policy permits investments in direct obligations of
the U.S. government (limited to 65% of liquid assets); obligations of federal
agencies fully guaranteed by the U.S. government (limited to 50% of liquid
assets); obligations of federal agencies sponsored by but not necessarily
guaranteed by the U.S. government (limited to 30% of liquid assets); mortgage-
backed securities which are fully collateralized by securities issued by a
government-sponsored agency (limited to 30% of liquid assets); general
obligation and revenue municipal bonds that are A+ rated or insured by reliable
guaranty agencies (limited to 10% of liquid assets); and corporate bonds rated
A or better (limited to 10% of liquid assets).
Overall, the Company's investment portfolio is high grade. Mortgage backed
securities consisted entirely of Federal Home Loan Mortgage Corporation backed
securities. The Company does not have any mortgage backed securities that fall
within the "high risk" provisions of the Federal Financial Institutions
Examination Council. The Company did not have structured notes, CMOs or other
derivative products in the portfolio at December 31, 1994.
The Company adopted SFAS No. 115 "Accounting for Certain Investment in Debt
and Equity Securities" as of December 31, 1993. In connection with such
adoption, the Company classified all investments as available for sale due
primarily to the Company's policy requiring such classification for securities
required to maintain a liquidity to average assets ratio of 20%. These
securities are carried at their respective fair market values. The cumulative
effect of the adoption of SFAS No. 115 at December 31, 1993 resulted in
recording an unrealized loss of $122,000. See Note 5 of Notes to Consolidated
Financial Statements.
Reductions in market value of available for sale securities at December 31,
1994 reflect the current interest rate environment and are deemed temporary in
nature. Management has no plans to restructure the investment portfolio other
than to capitalize on current and future interest rate increases by moderately
lengthening the maturity of the portfolio.
The following table sets forth book and market value of investment securities
at the dates indicated.
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
BOOK MARKET BOOK MARKET BOOK MARKET
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities..... $22,935 $22,706 $38,597 $38,475 $ -- $ --
U.S. Government Agency
securities.................... -- -- -- -- -- --
Mortgage-backed securities..... 8,067 7,551 -- -- -- --
Federal Reserve Bank and FHLB
Stock......................... 1,602 1,602 2,300 2,300 -- --
Other equity securities........ -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total investment securities.. $32,604 $31,859 $40,897 $40,775 $ -- $ --
======= ======= ======= ======= ======= =======
SECURITIES HELD-TO-MATURITY
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
BOOK MARKET BOOK MARKET BOOK MARKET
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities..... $ 1,250 $ 1,222 $ -- $ -- $ 3,140 $ 3,209
U.S. Government Agency
securities.................... -- -- -- -- 4,124 4,030
Mortgage-backed securities..... 17,525 16,741 -- -- 21,256 19,919
Federal Reserve Bank and FHLB
Stock......................... -- -- -- -- 1,825 1,825
Other equity securities........ -- -- -- -- 2,823 2,823
------- ------- ------- ------- ------- -------
Total........................ $18,775 $17,963 $ -- $ -- $33,168 $31,806
======= ======= ======= ======= ======= =======
</TABLE>
81
<PAGE>
The following table sets forth the maturity distribution of the investment
portfolio at December 31, 1994:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------
WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES:
Within one year.................................... $14,707 $14,648 5.54%
After one but within five years.................... 9,478 9,280 5.92
After five but within ten years.................... -- -- --
After ten years.................................... -- -- --
------- -------
Total U.S. Government securities................. $24,185 $23,928 5.71
======= =======
MORTGAGE-BACKED SECURITIES:
Within one year.................................... $ -- $ -- --
After one but within five years.................... 13,696 12,992 5.44
After five but within ten years.................... 11,896 11,300 6.55
After ten years.................................... -- -- --
------- -------
Total mortgage-backed securities................. $25,592 $24,292 6.40
======= =======
FEDERAL RESERVE BANK AND FHLB STOCK:
Within one year.................................... $ -- $ -- --
After one but within five years.................... -- -- --
After five but within ten years.................... -- -- --
After ten years.................................... 1,602 1,602 7.35
------- -------
Total Federal Reserve Bank and FHLB Stock........ $ 1,602 $ 1,602 7.35
======= =======
</TABLE>
DEPOSITS
The Company competes for deposits principally by providing quality customer
service at the Banks' branch offices. In order to stabilize its funding
sources, the Company has taken action to reduce title and escrow deposits and
institutional certificates of deposits as a percentage of total deposits. The
Banks are prohibited from purchasing brokered deposits by virtue of their
regulatory agreements with the OCC. See "Supervision and Regulation."
The following table sets forth information regarding the average monthly
deposits and the average rate paid for certain deposit categories for each of
the periods indicated. Average balances are computed using daily average
balances for each month in the period divided by the number of months in the
period.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits:
Interest bearing............ $ 58,114 2.65% $ 66,167 2.73% $ 58,254 4.56%
Noninterest bearing......... 75,568 -- 87,383 -- 89,298 --
Savings deposits............. 34,575 2.37% 37,892 2.78% 38,838 3.62%
Time deposits................ 104,671 3.72% 142,020 3.88% 145,202 4.81%
-------- -------- --------
Total deposits............... $272,928 2.29% $333,462 2.51% $331,592 3.12%
======== ======== ========
</TABLE>
82
<PAGE>
With respect to the Company's time certificates of deposit of $100,000 or
more, at December 31, 1994, such deposits had the following schedule of
maturity:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Three months or less................................. $10,594
Three to six months.................................. 4,811
Six to twelve months................................. 8,663
Over twelve months................................... 1,265
-------
Total.............................................. $25,333
=======
</TABLE>
OTHER BORROWINGS
The following table sets forth certain information with respect to the
Company's commercial paper activities. As of December 31, 1993, the Company had
ceased all commercial paper activity.
<TABLE>
<CAPTION>
1994 1993 1992
------------- --------
(DOLLARS
IN
THOUSANDS)
<S> <C> <C> <C>
Balance at December 31:.......................... $ -- $ -- $ 8,860
Maximum month end balance
outstanding during the year..................... $ -- $8,616 $22,048
Average amount outstanding
during the year................................. $ -- $6,987 $12,805
Weighted average interest rate................... N/A 2.66% 3.42%
</TABLE>
The Company utilized credit lines with FHLB during 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at December 31:................................... $ -- $ --
Maximum amount outstanding during the year................ 5,000 8,000
Average amount outstanding during the year................ 129 7,447
Weighted average interest rate............................ 3.55% 3.83%
</TABLE>
COMPETITION
In an environment of heightened regulatory scrutiny with respect to insured
depository institutions such as Ventura and Frontier and expanded bank-like
services provided by limited service financial institutions and by nonbank
financial service providers, banking and bank related services continue to be
an industry of rapid change and intense competition, thereby creating a highly
competitive environment for the Company. Large money center banks,
superregional banks, regional banks, multinational banks and mutual funds are
the Company's primary competitors. Higher lending limits, wide-reaching
advertising campaigns, and access to international money markets allows these
organizations greater flexibility in meeting the needs of their customers. The
Company competes for deposits and loans with these organizations as well as
with local banks, savings and loans, savings banks, credit unions, thrift
associations, and mortgage and finance companies. The Company believes its
marketing niche to be small and medium sized businesses with revenues less than
$25 million. In order to compete with the other financial institutions in its
service areas, the Company principally relies upon local promotional
activities, personal relationships established by officers, directors and
employees with its customers, and specialized services tailored to meet its
customers' needs. In those instances where the Company is unable to accommodate
all of a customer's needs because of regulatory restrictions, the Company will
arrange for those services to be provided by its correspondent banks or other
companies with whom it has a relationship.
Bank of America, N.T. & S.A. and First Interstate Bank of California are the
dominant competitors in both Ventura and Frontier's market areas. The most
recent data available indicates that Ventura had
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approximately 5.0% of total bank deposits in Ventura County while Frontier's
market share of total bank deposits in Orange County and in Los Angeles County
is insignificant.
EMPLOYEES
At December 31, 1994, the Company had 141 full-time employees. None of the
employees are covered by a collective bargaining agreement. In addition to cash
compensation, the Company compensates its employees with health and accident
insurance, vacation and sick leave, and other normal fringe benefits.
EFFECTS OF ENVIRONMENTAL PROTECTION LAWS
The Company, to the best of its knowledge, is not aware of any facts relating
to its present loan portfolio that reasonably indicates that compliance by the
Banks with Federal, state or local provisions relating to the protection of the
environment will have a material adverse effect on the financial resources,
earnings or competitive position of the Company.
PROPERTIES
Since October 1987, Company headquarters have been located at 500 Esplanade
Drive in Oxnard, California. The Company and Ventura's main offices share
31,097 square feet of leased space. The lease which expires in 2002, requires
the Company to pay for any allocated property tax or utility cost increases and
to adjust the monthly rent annually, based on consumer price index changes. The
Company does not have an option to renew this lease. The Company subleased
9,335 square feet of office space in December 1994, which will provide monthly
sublease income of $11,202 commencing May 1, 1995.
Ventura leases a 3,100 square foot building at 4730 Telephone Road in Ventura
under a lease expiring December 1995. The lessor of the premises is T & H
Enterprises, a partnership of which W.E. Hartman, a director of Ventura, is a
managing partner. Ventura does not have an option to renew this lease. The
Company anticipates that it will attempt to negotiate a renewal of this lease
in the third quarter of 1995.
Ventura also leases 6,640 square feet at 502 Las Posas Road, Camarillo and
4,000 square feet at 2655 Townsgate Road in Westlake Village. The Camarillo
lease expires in June 1997, with one ten year and two five year options to
renew. The Westlake Village lease expires in 2006, with one five year option to
renew. Ventura pays its pro rata share of utilities, taxes, common area
maintenance and insurance on all branch locations. The base rent is subject to
annual adjustments tied to the consumer price index. Ventura pays an additional
amount annually on the Westlake Village property in lieu of constructing an
additional 7,000 square foot building, adjusted annually based on the consumer
price index, which amounted to $12,000 in 1994.
Ventura's Data Processing was and Central Operations is housed in 8,105
square feet at 2125 Knoll Drive in Ventura. The Company negotiated a renewal of
the lease, which expires on March 31, 2000. The Company has the option of
terminating the lease without penalty during the final year. As a result of the
renegotiation of the lease, the Company's monthly lease payments were reduced
by $4,455 commencing April 1, 1995. The lease provides for annual increases in
the rent.
Frontier's main office occupies 17,588 square feet at One Centerpointe Drive
in La Palma, California. The Company has subsequently subleased an additional
8,559 square feet. Frontier leased an additional 1,668 square feet at One
Centerpointe Drive in La Palma under an amendment to the original lease. The
lease for the main office expires in December 2006 and the lease for the
additional space expires in July 1998. Frontier does not have an option to
renew these leases.
Frontier also has a branch totaling 9,600 square feet located at 100 Avalon
Boulevard in Wilmington subject to a month to month lease. Frontier intends to
vacate this property and is in the process of negotiating to purchase a
building in the vicinity of its current branch location, which is anticipated
to occur in the second quarter of 1995.
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The Company believes its present facilities are adequate for its present
needs and anticipated future growth. The Company believes that, if necessary,
it could secure suitable alternative facilities on similar terms without
adversely affecting operations.
LEGAL PROCEEDINGS
There are no material legal proceedings pending other than ordinary routine
litigation incidental to the business of the Company to which the Company or
its subsidiaries is a party or of which any of their property is a subject,
except as described below.
Sharon Tillis, Karen Tillis, et al v. Bank of America, N.T. & S.A., et al. On
January 26 1993, plaintiffs filed a class action lawsuit in Los Angeles County
Superior Court, Case No. BC 073448, against Wilshire Computer College ("WCC"),
its proprietor Peter Chung, Bank of America, N.T. & S.A. ("Bank of America")
and the California Student Aid Commission ("CSAC"). The Complaint was
subsequently amended to add Ventura, Marine Midland Bank, N.A. ("Marine
Midland") and Educational Funding Services, Inc. ("EFSI"). (Bank of America,
Marine Midland, EFSI and Ventura are collectively referred to as the "Bank
Defendants.") This action arises out of loans made to students of WCC, which
plaintiffs contend were made to induce them to enroll at WCC. CSAC and the Bank
Defendants filed a joint demurrer and motion to strike portions of the First
Amended Complaint, which was sustained on November 17, 1993, eliminating
several theories of liability against the Bank Defendants.
Plaintiffs filed a Second Amended Complaint, alleging the following seven
causes of action against the Bank Defendants: (1) violations of Business and
Professions Code (S)17500 regarding allegations of untrue or misleading
statements to prospective students to induce them to enroll at WCC; (2)
violations of the Unruh Act, Civil Code (S)1801 regarding allegations that the
student loan agreements constituted retail installment sales contracts; (3)
violations of Business and Professions Code (S)17200 regarding allegations that
defendants engaged in unfair business practices, including unfair advertising,
acting without permits and making false representations to students and
agencies; (4) fraud, misrepresentation and negligent misrepresentation
regarding allegations that employees and representatives of WCC made
misrepresentations to students to induce them to enroll at the WCC; (5) breach
of contract, breach of the implied covenant of good faith based on the
contracts entered into between plaintiffs and Bank Defendants; (6) rescission
and restitution based on the contracts entered into between plaintiffs and Bank
Defendants; and (7) secondary theories of liability based on causes (1), (3)
and (4) regarding allegations of agency, joint venture, aiding and abetting and
close connection.
CSAC and the Bank Defendants filed a joint demurrer to all causes of action
in the Second Amended Complaint which was sustained without leave to amend as
to the Bank Defendants and with leave to amend as to CSAC. Plaintiffs did not
amend their Second Amended Complaint, however, and the court issued an Order
and Judgment of Dismissal of all defendants on October 12, 1994. Notice of
Entry of Judgment in this matter was served on October 25, 1994.
On December 7, 1994, plaintiffs filed a Notice of Appeal with the Court of
Appeal of the State of California. Following preparation of the record for
appeal, the court clerk will notify the parties of the filing which will
determine the briefing schedule. On February 28, 1995, a Stipulation Extending
Time for Filing Appellant's Opening Brief was filed, extending to April 28,
1995 the time in which Plaintiff's must file their opening brief. That date may
further be extended by 15 days pursuant to a Rule of Court. As of the date of
this Prospectus, no briefs on appeal have been received. Plaintiffs and CSAC
and certain of the Bank Defendants have engaged in settlement negotiations but
no settlement has been reached between Ventura and Plaintiffs. Based upon the
advice of counsel, management does not believe that plaintiffs will prevail in
this lawsuit. No assurances can be given, however, as to the outcome of
plaintiffs' appeal. In the event plaintiffs ultimately were to prevail,
management is currently unable to estimate the amount or range of potential
loss.
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SUPERVISION AND REGULATION
THE COMPANY
The Company, as a registered bank holding company, is subject to regulation
under the BHC Act. The Company is required to file with the Federal Reserve
Board quarterly and annual reports and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve
Board may conduct examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity
or terminate control of or liquidate or divest certain nonbank subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
or the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. Under
certain circumstances, the Company must file written notice and obtain approval
from the Federal Reserve Board prior to purchasing or redeeming its equity
securities.
Under the BHC Act and regulations adopted by the Federal Reserve Board, a
bank holding company and its nonbanking subsidiaries are prohibited from
requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, the
Company is required by the Federal Reserve Board to maintain certain levels of
capital. See "Supervision and Regulation--Capital Standards."
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any
class of voting securities or substantially all of the assets of any bank or
bank holding company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company with another bank
holding company.
The Company is prohibited by the BHC Act, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company may, subject to the prior
approval of the Federal Reserve Board, engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board
to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making any such determination, the Federal Reserve
Board is required to consider whether the performance of such activities by the
Company or an affiliate can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by acquisition,
in whole or in part, of a going concern and is currently prohibited from
approving an application by a bank holding company to acquire voting shares of
any bank in another state unless such acquisition is expressly authorized by
the laws of such other state. Beginning September 29, 1995, a bank holding
company that is adequately capitalized and managed may obtain approval under
the BHCA to acquire an existing bank located in another state without regard to
state law. See "Supervision and Regulation--Interstate Banking and Branching."
The Company is also a bank holding company within the meaning of California
Financial Code Section 3700. As such, the Company and its subsidiaries are
subject to examination by, and may be required to file reports with, the
California Superintendent of Banks. Regulations have not yet been adopted to
implement the Superintendent's power under this statute.
Finally, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, including but not limited to,
filing annual, quarterly and other current reports with the Securities and
Exchange Commission.
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THE BANKS
As national banking associations, the Banks are subject to primary
supervision, periodic examination and regulation by the OCC. If, as a result of
an examination of a bank, the OCC should determine that the financial
condition, capital resources, asset quality, earnings prospects, management,
liquidity, or other aspects of either Bank's operations are unsatisfactory or
that either Bank or its management is violating or has violated any law or
regulation, various remedies are available to the OCC. Such remedies include
the power to enjoin "unsafe or unsound" practices, to require affirmative
action to correct any conditions resulting from any violation or practice, to
issue an administrative order that can be judicially enforced, to direct an
increase in capital, to restrict the growth of the bank, to assess civil
monetary penalties and to remove officers and directors. FDICIA has provided
the FDIC with similar enforcement authority, in addition to its authority to
terminate a bank's deposit insurance in the absence of action by the OCC and
upon a finding that a bank is in an unsafe or unsound condition, is engaging in
unsafe or unsound activities, or that its conduct poses a risk to the deposit
insurance fund or may prejudice the interest of its depositors.
The Banks are insured by the FDIC, which currently insures deposits of each
member bank to a maximum of $100,000 per depositor as determined under FDIC
regulations. For this protection, each bank pays a semi-annual statutory
assessment and is subject to certain of the rules and regulations of the FDIC.
See "Supervision and Regulation--Premiums for Deposit Insurance." The Banks are
also subject to certain regulations of the Federal Reserve Board.
Various requirements and restrictions under the laws of the United States
affect the operations of the Banks. See "Supervision and Regulation--Effect of
Governmental Policies and Recent Legislation." Federal statutes and regulations
relate to many aspects of the Banks' operations, including reserves against
deposits, deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices and capital requirements.
The OCC's statement of policy on risk-based capital requires that banks
maintain a ratio of qualifying total capital to risk-weighted assets of not
less than 8.00% (at least 4.00% of which must be in the form of Tier 1
capital). The regulations set forth minimum requirements, and OCC has reserved
the power to require that banks maintain higher capital ratios. Among other
powers, the OCC's regulations provide that capital requirements may be enforced
by the issuance of a directive. The OCC's capital adequacy regulations also
require that banks maintain a minimum leverage ratio of 3.00% Tier 1 capital to
total assets for the most highly rated banks. This ratio is only a minimum.
Institutions experiencing or anticipating significant growth or those with
other than minimum risk profiles are expected to maintain a leverage ratio of
at least 100 to 200 basis points above the minimum level. In addition, higher
leverage ratios are required to be considered well-capitalized or adequately
capitalized under the prompt corrective action provisions of the FDIC
Improvement Act. For a more complete description of the OCC's risk-based
capital regulations, see "Supervision and Regulation--Capital Standards" and
"Supervision and Regulation--Prompt Corrective Action and Other Enforcement
Mechanisms."
RESTRICTIONS ON TRANSFERS OF FUNDS TO PARENT BY THE BANKS
Federal Reserve Board policy prohibits a bank holding company from declaring
or paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowings or other
arrangements that might adversely affect the holding company's financial
position. The policy further declares that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. Other Federal Reserve Board policies forbid the
payment by bank subsidiaries to their parent companies of management fees which
are unreasonable in amount or exceed the fair market value of the services
rendered (or, if no market exists, actual cost plus a reasonable profit).
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Parent is a legal entity separate and distinct from the Banks. At present,
substantially all of Parent's revenues, including funds available for the
payments of dividends and other operating expenses, would be dividends paid to
Parent from the Banks. The Banks, however, are currently prohibited from paying
any dividends without the consent of the OCC. See "Supervision and Regulation--
Potential and Existing Enforcement Actions."
There are also statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Banks. Sections 56 and 60 of
Title 12 of the United States Code contain the major limitations on the payment
of dividends by national banks. Section 56 generally prohibits national banks
from paying dividends out of capital, and Section 60 further limits dividends,
absent the OCC's approval, to the amount of a national bank's recent earnings.
Under the prompt corrective action rules of FDICIA, no depository institution,
such as the Banks, may issue a dividend or pay a management fee if it would
cause the institution to become undercapitalized. Additionally, a bank holding
company controlling a significantly undercapitalized institution may not make
any capital distributions without the prior approval of the Federal Reserve
Board. Other supervisory actions may be taken against institutions that are
significantly undercapitalized, as well as undercapitalized institutions that
fail to submit an acceptable capital restoration plan as required by law or
that fail in any material respect to implement an accepted plan. See
"Supervision and Regulation--Prompt Corrective Action and Other Enforcement
Mechanisms."
The OCC also has authority to prohibit the Banks from engaging in what, in
the OCC's opinion, constitutes an unsafe or unsound practice in conducting its
business. It is possible, depending upon the financial condition of the bank in
question and other factors, that the OCC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines could limit the amount of
dividends which the Banks or the Company may pay.
The Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, Parent or other affiliates, the purchase of or investment in stock
or other securities thereof, the taking of such securities as collateral for
loans and the purchase of assets from Parent or other affiliates. Such
restrictions prevent Parent and such other affiliates from borrowing from the
Banks unless the loans are secured by marketable obligations of specified
amounts. Further, such secured loans, investments and other transactions
between either of the Banks and Parent or any other affiliate are limited to
10% of either Bank's capital and surplus (as defined by federal regulations)
and such secured loans, investments and other transactions are limited, in the
aggregate, to 20% of either Bank's capital and surplus (as defined by federal
regulations). Such transactions must also comply with regulations prohibiting
terms that would be preferential to Parent other affiliates of the Banks.
There have been no intercompany transactions between Parent and either of the
Banks which would implicate these provisions.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Banks on their deposits and
their other borrowings and the interest rate received by the Banks on loans
extended to their customers and securities held in the Banks' portfolio
comprise the major portion of the Banks' earnings. These rates are highly
sensitive to many factors that are beyond the control of the Bank. Accordingly,
the earnings and growth of the Banks are subject to the influence of local,
domestic and foreign economic conditions, including recession, unemployment and
inflation.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory
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agencies, particularly the Federal Reserve Board. The Federal Reserve Board
implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in United
States Government securities, by adjusting the required level of reserves for
financial intermediaries subject to its reserve requirements and by varying the
discount rates applicable to borrowings by depository institutions. The actions
of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
intermediaries. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Bank are impossible to predict. Certain of the potentially significant changes
which have been enacted and proposals which have been made recently are
discussed below.
CAPITAL STANDARDS
The OCC has adopted risk-based minimum capital guidelines intended to provide
a measure of capital that reflects the degree of risk associated with a banking
organization's operations for both transactions reported on the balance sheet
as assets and transactions, such as letters of credit and recourse
arrangements, which are recorded as off balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. Treasury securities, to 100% for assets with relatively higher
credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators
measure risk-adjusted assets, which includes off balance sheet items, against
both total qualifying capital (the sum of Tier 1 capital and limited amounts of
Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock,
retained earnings, noncumulative perpetual preferred stock and minority
interests in certain subsidiaries, less most intangible assets. Tier 2 capital
may consist of a limited amount of the allowance for possible loan and lease
losses, cumulative preferred stock, term preferred stock, term subordinated
debt and certain other instruments with some characteristics of equity. The
inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies, including the
limitation that Tier 2 capital may not exceed Tier 1 capital for determining an
institution's capital ratios. The federal banking agencies require a minimum
ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum
ratio of Tier 1 capital to risk-adjusted assets of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets
must be 3%. For all banking organizations not rated in the highest category,
the minimum leverage ratio must be at least 100 to 200 basis points above the
3% minimum, or 4% to 5%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
The federal banking regulators have issued a proposed rule to take account of
interest rate risk in calculating risk-based capital. The proposed rule
includes a supervisory model for taking account of interest rate risk. Under
that model, institutions would report their assets, liabilities and off balance
sheet positions in time bands based upon their remaining maturities. The
federal banking agencies would then calculate a net risk weighted interest rate
exposure. If that interest rate risk exposure was in excess of a certain
threshold
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(1% of assets), the institution could be required to hold additional capital
proportionate to that excess risk. Alternatively, the agencies have proposed
making interest rate risk exposure a subjective factor in considering capital
adequacy. Exposures would be measured in terms of the change in the present
value of an institution's assets minus the change in the present value of its
liabilities and off-balance sheet positions for an assumed 100 basis point
parallel shift in market interest rates. However, the federal banking agencies
have proposed to let banks use their own internal measurement of interest rate
risk if it is declared adequate by examiners.
Effective January 17, 1995, the federal banking agencies issued a final rule
relating to capital standards and the risks arising from the concentration of
credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The federal
banking agencies have not imposed any quantitative assessment for determining
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
directs an assessment of an institution's loan loss reserves. Examiners are
directed to assess the reasonableness of an institution's loan loss reserves by
comparison to (a) the sum of 50 percent of assets classified doubtful; (b) 15
percent of assets classified substandard; and (c) estimated credit losses on
other assets over the upcoming 12 months.
Federally supervised banks and savings associations are currently required to
report deferred tax assets in accordance with SFAS No. 109. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--New
Accounting Pronouncements." The federal banking agencies recently issued final
rules governing banks and bank holding companies, which become effective April
1, 1995, which limit the amount of deferred tax assets that are allowable in
computing an institutions regulatory capital. The standard has been in effect
on an interim basis since March 1993. Deferred tax assets that can be realized
from taxes paid in prior carryback years and from future reversals of existing
taxable temporary differences are generally not limited. Deferred tax assets
that can only be realized through future taxable earnings are limited for
regulatory capital purposes to the lesser of (i) the amount that can be
realized within one year of the quarter-end report date, or (ii) 10% of Tier 1
Capital. The amount of any deferred tax in excess of this limit would be
excluded from Tier 1 Capital and total assets and regulatory capital
calculations.
Future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including
but not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
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In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal
law. An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:
<TABLE>
<CAPTION>
"WELL CAPITALIZED" "ADEQUATELY CAPITALIZED"
- ------------------ ------------------------
<S> <C>
Total risk-based capital
of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital
of 6%; Tier 1 risk-based capital of 4%; and Leverage ratio
and Leverage ratio of of 4% (or less than 3% if rated CAMEL 1 under
5%. the composite rating system.)
<CAPTION>
"UNDERCAPITALIZED" "SIGNIFICANTLY UNDERCAPITALIZED"
- ------------------ --------------------------------
<S> <C>
Total risk-based capital
less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital
less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than Leverage ratio less than 3%.
4% (or less than 3%
if rated CAMEL 1 under
the composite
rating system.)
<CAPTION>
"CRITICALLY
UNDERCAPITALIZED"
- -----------------
<S> <C>
Tangible equity to total
assets less than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management fees
to any controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at
the time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that
such action will further the purpose of the prompt correction action
provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital
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or, if grounds exist for appointment of a receiver or conservator, a forced
merger; (ii) restrictions on transactions with affiliates; (iii) further
limitations on interest rates paid on deposits; (iv) further restrictions on
growth or required shrinkage; (v) modification or termination of specified
activities; (vi) replacement of directors or senior executive officers; (vii)
prohibitions on the receipt of deposits from correspondent institutions; (viii)
restrictions on capital distributions by the holding companies of such
institutions; (ix) required divestiture of subsidiaries by the institution; or
(x) other restrictions as determined by the appropriate federal banking agency.
The appropriate federal banking agency has discretion to determine which of the
foregoing restrictions or sanctions it will seek to impose. In addition,
without the prior written approval of the appropriate federal banking agency, a
significantly undercapitalized institution may not pay any bonus to its senior
executive officers or provide compensation to any of them at a rate that
exceeds such officer's average rate of base compensation during the 12 calendar
months preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository
institution would not be liable to the institution's shareholders or creditors
for consenting in good faith to the appointment of a receiver or conservator or
to an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement
actions by the federal regulators for unsafe or unsound practices in conducting
their businesses or for violations of any law, rule, regulation or any
condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
SAFETY AND SOUNDNESS STANDARDS
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are
expected to be issued in the near future.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
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Appraisals for "real estate related financial transactions" must be conducted
by either state certified or state licensed appraisers for transactions in
excess of certain amounts. Appraisals by state certified appraisers are not
required for transactions of less than $100,000 if certain criteria are met. In
such cases, the real property collateral must be evaluated in accordance with
the OCC's Guidelines for Real Estate Appraisal Policies and Review Procedures.
State certified appraisers are required for all transactions with a transaction
value of $1,000,000 or more; for all nonresidential transactions valued at
$250,000 or more; and for "complex" 1-4 family residential properties of
$250,000 or more. A state licensed appraiser is required for all other
appraisals. However, appraisals performed in connection with "federally related
transactions" must now comply with the agencies' appraisal standards. Federally
related transactions include the sale, lease, purchase, investment in, or
exchange of, real property or interests in real property, the financing or
refinancing of real property, and the use of real property or interests in real
property as security for a loan or investment, including mortgage-backed
securities.
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits.
The FDIC has adopted final regulations implementing a risk-based premium
system required by federal law. Under the regulations, which cover the
assessment periods commencing on and after January 1, 1994, insured depository
institutions are required to pay insurance premiums currently within a range of
23 cents per $100 of deposits to 31 cents per $100 of deposits depending on
their risk classification. On January 31, 1995, the FDIC issued proposed
regulations that would establish a new assessment rate schedule of 4 cents per
$100 of deposits to 31 cents per $100 of deposits applicable to members of BIF.
There can be no assurance that the final regulations will be adopted as
proposed. To determine the risk-based assessment for each institution, the FDIC
will categorize an institution as well capitalized, adequately capitalized or
undercapitalized based on its capital ratios. A well-capitalized institution is
one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-
based capital ratio and a 5% Tier 1 leverage capital ratio. An adequately
capitalized institution will have at least an 8% total risk-based capital
ratio, a 4% Tier 1 risk-based capital ratio and a 4% Tier 1 leverage capital
ratio. An undercapitalized institution will be one that does not meet either of
the above definitions. The FDIC will also assign each institution to one of
three subgroups based upon reviews by the institution's primary federal or
state regulator, statistical analyses of financial statements and other
information relevant to evaluating the risk posed by the institution.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the President signed into law the Riegel-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
Under the Interstate Act, beginning one year after the date of enactment, a
bank holding company that is adequately capitalized and managed may obtain
approval under the BHCA to acquire an existing bank located in another state
without regard to state law. A bank holding company would not be permitted to
make such an acquisition if, upon consummation, it would control (a) more than
10% of the total amount of deposits of insured depository institutions in the
United States or (b) 30% or more of the deposits in the state in which the bank
is located. A state may limit the percentage of total deposits that may be held
in that state by any one bank or bank holding company if application of such
limitation does not discriminate against out-of-state banks. An out-of-state
bank holding company may not acquire a state bank in existence for less than a
minimum length of time that may be prescribed by state law except that a state
may not impose more than a five year existence requirement.
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The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the
acquired bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the
laws of that state, subject to the same requirements and conditions as for a
merger transaction.
The Interstate Act is likely to increase competition in the Company's market
areas especially from larger financial institutions and their holding
companies. It is difficult to assess the impact such likely increased
competition will have on the Company's operations.
In 1986, California adopted an interstate banking law. The law allows
California banks and bank holding companies to be acquired by banking
organizations in other states on a "reciprocal" basis (i.e., provided the other
state's laws permit California banking organizations to acquire banking
organizations in that state on substantially the same terms and conditions
applicable to banking organizations solely within that state). The law took
effect in two stages. The first stage allowed acquisitions on a "reciprocal"
basis within a region consisting of 11 western states. The second stage, which
became effective January 1, 1991, allows interstate acquisitions on a national
"reciprocal" basis. California has also adopted similar legislation applicable
to savings associations and their holding companies.
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and CRA activities.
Under the CRA, regulated financial institutions are required to help meet the
credit needs of their communities, including those of low and moderate income
individuals. The CRA generally requires the federal banking agencies to
evaluate the record of a financial institution in meeting the credit needs of
their local communities, including low and moderate income neighborhoods. In
addition to substantial penalties and corrective measures that may be required
for a violation of certain fair lending laws, the federal banking agencies may
take compliance with such laws and CRA into account when regulating and
supervising other activities. The OCC conducted a consumer compliance and CRA
examination of Frontier as of December 31, 1994. As a result of the
examination, the OCC concluded that Frontier is in satisfactory compliance with
consumer protection laws and regulations; however, the OCC indicated that
Frontier's performance under the CRA needs improvement. A "needs to improve"
rating may result in the denial of regulatory applications by Frontier and the
Company, although no such applications are currently pending. Management of the
Company and Frontier have taken action to address the OCC's findings, including
commissioning a consultant to help Frontier develop its marketing strategy in
its delineated communities and developing a CRA action plan to improve
Frontier's CRA performance.
On May 3, 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending, service and
investment performance, rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued a
policy statement on discrimination in lending. The policy statement describes
the three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment and evidence of
disparate impact.
POTENTIAL AND EXISTING ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Banks, and their institution-
affiliated parties, which include the Company, are subject to potential
enforcement actions by the Federal Reserve Board, the FDIC and the OCC for any
unsafe or unsound practices in conducting their businesses or for violations of
any law, rule, regulation or any condition imposed in writing by the agency or
any written agreement with the agency.
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Enforcement actions may include the imposition of a conservator or receiver,
the issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of the Banks), the imposition
of civil money penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the imposition of
restrictions and sanctions under the prompt corrective action provisions of the
FDIC Improvement Act. Additionally, a holding company's inability to serve as a
source of strength to its subsidiary banking organizations could serve as an
additional basis for a regulatory action against the holding company.
Following supervisory examinations of Ventura conducted as of June 30, 1992
and Frontier as of July 30, 1992, Ventura entered into a Formal Agreement with
the OCC on March 19, 1993 and Frontier entered into a Consent Order with the
OCC on March 29, 1993. The Consent Order replaced the 1992 MOU previously
entered into between the OCC and Frontier. The significant common requirements
of the Formal Agreement and the Consent Order for Ventura and Frontier include
conducting a program to evaluate and improve board supervision and management,
developing a program designed to improve the lending staff and loan
administration, obtaining current credit information on any loans lacking such
information, reviewing and revising loan policies, establishing an independent
loan review program including periodic reports to the Board, developing and
implementing a program to collect or strengthen criticized assets, reviewing
and maintaining an adequate loan loss reserve, developing a new long range
strategic plan and annual budget, developing a three-year capital plan,
developing and revising liquidity and funds management policy, correcting
violations of law cited by the OCC and obtaining approval from the OCC to
declare or pay a dividend.
The Consent Order requires that Frontier maintain as of May 31, 1993 and
beyond a Tier 1 risk based capital ratio of 9.50% and a leverage capital ratio
of 7.00%. At December 31, 1994, Frontier's Tier 1 risk based capital ratio was
12.29% and its leverage capital ratio was 8.32%. The Consent Order also
requires Frontier to retain a new president and to continue to develop a
program of asset diversification.
Based upon an examination of Ventura conducted as of July 31, 1993, the
Formal Agreement was amended on February 3, 1994 to require Ventura to achieve
a Tier 1 risk based capital ratio of 12.00% and a leverage ratio of 7.00% by
September 30, 1994. As of September 30, 1994, Ventura's Tier 1 risk based
capital ratio was 9.44% and its leverage ratio was 6.88%, which did not meet
the higher leverage and Tier 1 Capital ratios required by the Formal Agreement.
As of December 31, 1994, approximately $1.4 million additional capital was
necessary for Ventura to meet the capital requirements of the Formal Agreement.
As required by the Formal Agreement on October 18, 1994, Ventura submitted to
the OCC its plan for restoring capital and the OCC did not object to
implementation of the plan as proposed. In addition, Ventura applied for and
received an extension of the date by which such ratios are required to be
achieved to June 30, 1995, provided that the subscription period for this
Offering is no longer than six weeks. This Offering is being undertaken in part
to ensure that Ventura meets all applicable capital requirements. However,
there can be no guarantee that after the Offering, Ventura or Frontier will be
continue to be in compliance with all of their regulatory requirements.
The amendment to the Formal Agreement also requires Ventura to seek
Reimbursement of Interest relating to interest paid on a deposit account at
Ventura. The deposit account held funds generated by Parent through the sales
of commercial paper to Ventura customers. Ventura categorized this account as a
savings account, and as such paid interest on such account. However, the OCC
concluded that the account should have been categorized as a demand deposit
account, on which the payment of interest is not permitted. As a result, the
OCC has required Ventura to seek Reimbursement of Interest. Furthermore, Parent
has been required by the Reserve Bank to cease all such commercial paper sales,
which Parent did in December 1993.
Parent entered into the MOU with the Reserve Bank on March 19, 1994. The
significant requirements of the MOU include submitting a program to improve the
financial condition of the Banks, evaluate and improve board supervision and
management, exit the commercial paper market, comply with Federal Reserve Board
policy regarding management or service fees assessed by the Company and paid by
the Banks and
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implement steps to improve the effectiveness of the audit and credit review
functions. The MOU further restricts the Company from declaring or paying a
dividend, incurring any debt, adding or replacing a director or senior
executive or repurchasing Company stock without notice to and nondisapproval of
the Reserve Bank. The MOU also requires the Company's Board of Directors to
establish a committee to monitor compliance with the MOU and ensure that
quarterly written progress reports detailing the form and manner of all actions
taken to attain compliance with the MOU are submitted.
Parent intends to use the proceeds of this Offering to reimburse interest to
Ventura. The Reimbursement of Interest will also result in an increase in the
capital levels of Ventura. The OCC recently completed a regularly scheduled
examination of Ventura and, based upon this examination, indicated in that
Ventura was in full or partial compliance with the other requirements of the
amended Formal Agreement. Frontier and Parent are in full or partial compliance
with or in the process of complying with all of the other items required under
the Consent Order and MOU, respectively. Notwithstanding the foregoing,
however, Parent, Ventura and Frontier continue their efforts to implement the
policies developed to meet the requirements of the MOU, Formal Agreement and
Consent Order.
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SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of the Company knows of no person, other than Mr. Raymond E.
Swift, a director of the Company and the Company's ESOP, who owns, beneficially
or of record, either individually or together with associates, 5% or more of
the outstanding shares of the Company's Common Stock. Mr. Swift's business
address is 400 South B Street, Oxnard, CA 93030. The address of the ESOP is in
care of the Company, 500 Esplanade Drive, Oxnard, California 93030. The
following table sets forth, as of December 31, 1994, the number and percentage
of shares of the Company's outstanding Common Stock beneficially owned,
directly or indirectly, by each of the Company's directors and executive
officers, principal shareholders and by the directors and officers of the
Company as a group. In general, beneficial ownership includes shares over which
the director, principal shareholder or officer has sole or shared voting or
investment power and shares which such person has the right to acquire within
60 days of December 31, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------- -------------------- --------
<S> <C> <C>
DIRECTORS AND MANAGEMENT:
Michael Antin................................ 77,211(1) 1.21%
Ralph R. Bennett............................. 85,592(2) 1.34%
Richard S. Cupp.............................. 25,578(3) *
James M. Davis............................... 17,394(4) *
Bart M. Hackley, Jr.......................... 18,484(5) *
W. E. Hartman................................ 205,104(6) 3.21%
James B. Hussey.............................. 122,852(7) 1.92%
Richard A. Lagomarsino(8).................... 100,007(9) 1.56%
Zella A. Rushing............................. 6,993(10) *
Raymond E. Swift............................. 327,793(11) 5.12%
Nancy Jackson................................ 5,898(12) *
Francis J. Kahawai........................... -- *
Kathleen L. Kellogg.......................... -- *
Simone Lagomarsino(8)........................ -- *
Carl W. Raggio............................... -- *
Carol Ward................................... -- *
Total for Directors and Officers (numbering
16)......................................... 992,506(13) 15.52%
Trustee of the 401(k)/ESOP................... 415,854(14) 6.34%
</TABLE>
- --------
* Less than 1%
(1) Mr. Antin has sole voting and investment powers as to 72,839 shares. The
number of shares includes 4,372 shares acquirable by the exercise of stock
options.
(2) Mr. Bennett has sole voting and investment power as to 5,693 shares and
shared voting and investment power as to 77,649 shares. The number of
shares includes 2,250 shares acquirable by the exercise of stock options.
(3) Mr. Cupp has sole voting and investment power as to 3,016 shares. The
number of shares includes 22,562 shares acquirable by the exercise of stock
options. Mr. Cupp's option agreement contains antidilution provisions
pursuant to which the number of shares of Common Stock that are issuable
upon the exercise of such option would be increased as a result of the
issuance of additional shares in this Offering.
(4) Mr. Davis has sole voting and investment power as to 13,022 shares. The
number of shares includes 4,372 shares acquirable by the exercise of stock
options.
(5) Mr. Hackley has sole voting and investment powers as to 11,423 shares and
shared voting and investment power as to 3,484 shares. The number of shares
includes 3,577 shares acquirable by the exercise of stock options.
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(6) Mr. Hartman has sole voting and investment powers as to 50,314 shares and
shared voting and investment powers as to 148,430 shares. The number of
shares includes 6,360 shares acquirable by the exercise of stock options.
(7) Mr. Hussey has sole voting and investment power as to 62,046 shares and
shared voting and investment power as to 56,434 shares. The number of
shares includes 4,372 shares acquirable by the exercise of stock options.
(8) Mr. Lagomarsino and Ms. Lagomarsino are not related.
(9) Mr. Lagomarsino has shared voting and investment power as to 93,647 shares.
The number of shares includes 6,360 shares acquirable by the exercise of
stock options.
(10) Ms. Rushing has sole voting and investment power as to 4,873 shares. The
number of shares includes 2,120 shares acquirable by the exercise of stock
options.
(11) Mr. Swift has sole voting and investment power as to 315,825 shares and
shared voting and investment power as to 4,412 shares. The number of
shares includes 6,360 shares acquirable by the exercise of stock options.
(12) Ms. Jackson has shared voting and investment power as to 622 shares. The
number of shares includes 5,276 shares allocated to Ms. Jackson's account
under 401(k)/ESOP.
(13) Includes 62,046 shares acquirable by the exercise of stock options.
(14) Under the terms of the 401(k)/ESOP, shares of the Common Stock of the
Company are held in trust by the trustee under the ESOP Trust ("Trustee"),
for the exclusive benefit of the participants. At December 31, 1994, the
Trustee held 185,840 shares of Common Stock in a suspense account as
collateral for a loan to the Trustee (the "ESOP Loan"), the proceeds of
which were used to fund part of the purchase of shares of Common Stock for
the ESOP, and 230,014 shares of Common Stock have been allocated to the
accounts of the participants or for which shares were purchased pursuant
to the investment instructions of participants in the 401(k) portion of
the ESOP.
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BOARD OF DIRECTORS
The following table sets forth as of January 1, 1995, the names of and
certain information concerning the Company's board of directors.
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED PRINCIPAL OCCUPATION
NAME AND TITLE AGE DIRECTOR DURING THE PAST FIVE YEARS
-------------- --- ---------- --------------------------
<C> <C> <C> <S>
Michael Antin 56 1986 Attorney, with the law firm of
Director Antin & Taylor, a law corporation
Ralph R. Bennett 66 1992 Insurance broker and Vice
Director President with Andreini and Co
Richard S. Cupp 54 1993 President/CEO of the Company;
President/Chief Executive President/CEO of Ventura County
Officer and Director National Bank; Director, Frontier
Bank, N.A.; all since July, 1993;
independent bank consultant.
Executive Vice President at
CalFed, Inc. 1983-1991
James M. Davis 56 1986 Certified Public Accountant and
Director 50% owner of accountancy firm of
Davis and LeGate
Bart M. Hackley, Jr. 50 1987 Certified Public Accountant and
Director partner in the accountancy firm
of Hackley and Ormsby, CPA's
W. E. Hartman 61 1984 President of Taft Electric Co.,
Director (electrical contractors)
James B. Hussey 58 1986 Owner, Jim Hussey Insurance
Chairman
Richard A. Lagomarsino 63 1984 President, Lagomarsino's (beer
Director and wine distributor)
Zella A. Rushing 54 1993 Retired. Previously Chairman of
Director the Board, H & H Oil Tool Co.,
Inc., oil tool maintenance
company Previously a director
from 1984 to 1992
Raymond E. Swift 64 1989 Self-employed; Owner, Swift
Director Ranch; President, Swift Financial
Corp., (investments); President,
Swiftwood Corp., (real estate
investments)
</TABLE>
- --------
(1) Ms. Rushing was appointed to fill the director position that was vacant
after the resignation of W. E. McAleer in 1993.
None of the directors were selected pursuant to any arrangement or
understanding other than with the directors and officers of the Company acting
within their capacities as such. There are no family relationships between any
of the directors and executive officers of the Company. None of the directors
or officers of the Company serve as directors of any company which has a class
of securities registered under, or which is subject to the periodic reporting
requirements of, the Securities Exchange Act of 1934 or any investment company
registered under the Investment Company Act of 1940.
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EXECUTIVE OFFICERS
The following table sets forth information concerning executive officers of
the Company and certain executive officers of Ventura and Frontier.
<TABLE>
<CAPTION>
POSITION AND PRINCIPAL OCCUPATION
NAME AGE FOR THE PAST 5 YEARS
---- --- ---------------------------------
<C> <C> <S>
Richard S. Cupp 54 President and CEO of the Company and President and CEO of
Ventura since July, 1993. Mr. Cupp was an Independent Bank
Consultant from 1992 to 1993. Mr. Cupp was formerly an
Executive Vice President at CalFed, Inc. from 1983 to
1991.
Nancy Jackson 54 Senior Vice President/Administration and Investor
Relations of the Company. Ms. Jackson is also Corporate
Secretary of the Company and has been with Ventura since
1982 and with the Company since September, 1984.
Francis J. Kahawai 53 Chief Credit Officer of Frontier. Prior to joining
Frontier, Mr. Kahawai had been Senior Vice President/Chief
Credit Officer of One Central Bank since 1989.
Kathleen L. Kellogg 41 President and CEO of Frontier since November 1994. Ms.
Kellogg was formerly Senior Vice President and Division
Manager--Commercial and Business Lending of California
Federal Bank from 1989 to March 1994.
Simone Lagomarsino 33 Senior Vice President/Chief Financial Officer of the
Company since March 1995. Prior to joining the Company,
Ms. Lagomarsino was a financial consultant for Prudential
Securities from September 1993 to March 1995; an
independent bank consultant from April 1993 to September
1993; Chief Executive Officer of Premier Bank from April
1991 to April 1993; Chief Financial Officer of Premier
Bank from December 1990 to April 1991; Senior Vice
President-Budgets and Financial Planning of City National
Bank from June 1990 to December 1990; and Chief Financial
Officer of Warner Center Bank from April 1988 to June 1990
when it was merged into City National Bank.
Carl W. Raggio 42 Executive Vice President/Chief Credit Officer with Ventura
since September 1994. Mr. Raggio was Executive Vice
President, Chief Operating Officer and Director of CUB
Funding Corporation from July 1993 to June 1994. Prior to
that, Mr. Raggio was Executive Vice President and Chief
Credit Officer of California United Bank, N.A. from
October 1990 to July 1993, Senior Vice President and
Assistant Manager, Commercial Banking of Mercantile
National Bank from March 1990 to October 1990 and Regional
Vice President of Bank of the West, Banque Nationale de
Paris from December 1986 to March 1990.
Carol Ward 40 Chief Operating Officer of Parent and Ventura. Senior Vice
President/General Auditor from November, 1993 to December
1994. Ms. Ward was formerly Sr. Vice President/General
Auditor at Community Bank from 1990 to 1993 and Vice
President/General Auditor at National Bank of Long Beach
from 1988 to 1990.
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation, as amended, authorize the issuance
of 20,000,000 shares of no par value Common Stock. As of the date of this
Prospectus, there were 6,337,835 shares of the Common Stock issued and
outstanding.
Holders of Common Stock are entitled to cast one vote for each share held of
record and to cumulate votes for the election of directors, to receive such
dividends as may be declared by the Board of Directors out of legally available
funds and to share ratably in any distribution of the Company's assets after
payment of all debts and other liabilities, upon liquidation, dissolution or
winding up of the Company. Shareholders do not have preemptive rights or other
rights to subscribe for additional shares, and the Common Stock is not subject
to conversion or redemption. The outstanding shares of Common Stock are, and
the shares of Common Stock to be issued in the Offering, will be, upon delivery
and payment therefor in accordance with the terms of the Offering, fully paid
and nonassessable.
First Interstate Bank of California, Los Angeles, California is the transfer
agent and registrar for the Common Stock.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Manatt, Phelps & Phillips, a partnership including professional
corporations, Los Angeles, California. Thacher Proffitt & Wood, New York, New
York, is acting as counsel for Sandler O'Neill in connection with certain legal
matters related to the securities offered hereby.
EXPERTS
The financial statements as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994 included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is included herein (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to noncompliance with
regulatory capital requirements), and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
AUDITED FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and December 31, 1993. F-3
Consolidated Statements of Operations for the Years ended December 31,
1994, 1993 and 1992...................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
ended December 31, 1994, 1993 and 1992................................... F-5
Consolidated Statements of Cash Flows for the Years ended December 31,
1994, 1993 and 1992...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ventura County National Bancorp:
We have audited the accompanying consolidated balance sheets of Ventura
County National Bancorp and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ventura County National Bancorp
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 18 to the consolidated financial statements, Frontier
Bank N.A. and Ventura County National Bank (VCNB) have entered into agreements
with the Office of the Comptroller of the Currency (OCC). The agreement between
VCNB and the OCC, as amended, requires VCNB to meet prescribed capital
requirements by no later than June 30, 1995. Currently, VCNB has not achieved
such capital requirements. Failure on the part of VCNB to meet the terms of the
agreement may subject VCNB to significant regulatory sanctions. The financial
statement impact, if any, that might result from the failure of VCNB to comply
with the agreement and, ultimately, the capital requirements prescribed by the
OCC cannot presently be determined. Accordingly, no adjustments that may result
from the ultimate resolution of this uncertainty have been made in the
accompanying financial statements.
Deloitte & Touche LLP
February 17, 1995
Los Angeles, California
F-2
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1994 1993
------ -------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Cash and cash equivalents.................................. $ 11,442 $ 15,943
Federal funds sold......................................... 27,000 18,000
Interest-bearing deposits with other financial
institutions.............................................. 694 2,180
Securities available-for-sale, at market (cost of $32,604
and $40,897, respectively)................................ 31,859 40,775
Securities held-to-maturity, at cost (market value of
$17,963 in 1994).......................................... 18,775 --
Loans and leases, net of unearned income................... 167,934 267,514
Less loan loss reserve..................................... 8,261 14,313
Net Loans and Leases..................................... 159,673 253,201
Premises and equipment, net................................ 1,917 1,687
Other assets............................................... 6,395 8,743
-------- --------
Total Assets............................................. $257,755 $340,529
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Deposits:
Non-interest-bearing demand.............................. $ 67,177 $ 99,502
Interest-bearing demand and savings...................... 80,646 101,224
Time..................................................... 88,519 117,563
-------- --------
Total Deposits........................................... 236,342 318,289
Notes payable.............................................. 125 125
Other liabilities.......................................... 2,236 1,745
-------- --------
Total Liabilities........................................ 238,703 320,159
Commitments and Contingencies:
Shareholders' Equity:
Contributed Capital, including common stock of no par
value. Authorized 20,000,000 shares; issued 6,333,835 in
1994 and in 1993........................................ 30,949 30,949
Unrealized loss on securities............................ (1,178) (122)
Retained deficit......................................... (10,719) (10,457)
-------- --------
Total Shareholders' Equity............................... 19,052 20,370
-------- --------
Total Liabilities and Shareholders' Equity............... $257,755 $340,529
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------- -------- -------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Interest Income
Loans and leases.................................. $18,740 $ 23,190 $26,892
Deposits with financial institutions.............. 67 263 256
Investment securities............................. 2,169 1,916 1,178
Federal funds sold................................ 1,160 542 625
------- -------- -------
Total Interest Income........................... 22,136 25,911 28,951
======= ======== =======
Interest Expense
Deposits.......................................... 6,253 8,372 10,336
Other borrowings.................................. 15 627 1,029
------- -------- -------
Total Interest Expense.......................... 6,268 8,999 11,365
------- -------- -------
Net Interest Income............................... 15,868 16,912 17,586
Provision for loan losses......................... 3,825 16,213 3,404
------- -------- -------
Net Interest Income After Provision for Loan
Losses......................................... 12,043 699 14,182
======= ======== =======
Other Income
Service charges on deposit accounts............... 1,217 1,521 1,359
Loan fees......................................... 470 1,192 1,563
Miscellaneous fees................................ 354 590 631
Gain on sale of loan servicing rights............. 1,443 -- 46
Gain on sale of SBA loans......................... 305 386 875
Other............................................. 275 1,131 1,038
------- -------- -------
Total Other Income.............................. 4,064 4,820 5,512
======= ======== =======
Other Expense
Salaries and employee benefits.................... 6,423 7,082 6,797
Net occupancy..................................... 2,087 2,578 2,809
Equipment......................................... 830 1,241 1,102
Professional services............................. 1,928 1,878 1,391
Other............................................. 4,816 8,060 6,339
------- -------- -------
Total Other Expense............................. 16,084 20,839 18,438
======= ======== =======
Income (Loss) Before Income Taxes................. 23 (15,320) 1,256
Income Taxes...................................... 285 (3,233) 571
------- -------- -------
Net Income (Loss)................................. $ (262) $(12,087) $ 685
======= ======== =======
Per share:
Net Income (Loss)................................. (.04) $ (2.15) $ .12
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
SHARES CONTRIBUTED LOSS ON EARNINGS
OUTSTANDING CAPITAL SECURITIES (DEFICIT) TOTAL
----------- ----------- ---------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARES OF STOCK)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1992................... 5,282,301 $26,941 $ (53) $ 2,291 $ 29,179
Net Income--1992...... -- -- -- 685 685
--------- ------- ------- -------- --------
Increase in unrealized
loss on securities..... -- -- (73) -- (73)
Decrease in unearned
compensation related to
ESOP................... -- 572 -- -- 572
Stock options exercised. 15,263 25 -- -- 25
Stock Dividend.......... 316,691 1,346 -- (1,346) --
--------- ------- ------- -------- --------
Balance at December 31,
1992................... 5,614,255 $28,884 $ (126) $ 1,630 $ 30,388
Net Loss--1993........ -- -- -- (12,087) (12,087)
Decrease in unrealized
loss on securities..... -- -- 4 -- 4
Decrease in unearned
compensation related to
ESOP................... -- 635 -- -- 635
Sale of common stock.... 719,580 1,430 -- -- 1,430
--------- ------- ------- -------- --------
Balance at December 31,
1993................... 6,333,835 $30,949 $ (122) $(10,457) $ 20,370
Net Loss--1994........ -- -- -- (262) (262)
Increase in unrealized
loss on securities..... -- -- (1,056) -- (1,056)
Balance at December 31,
1994................... 6,333,835 $30,949 $(1,178) $(10,719) $ 19,052
========= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $ (262) $(12,087) $ 685
Adjustments to reconcile net income (loss) to
cash flows (applied to) provided by operating
activities:
Depreciation and amortization................... 739 2,446 1,692
Provision for loan losses....................... 3,825 16,213 3,404
Change in deferred loan fees.................... (250) (271) 122
Accretion of investment discount, net of
amortization of investment premium............. 39 322 (36)
Loss on sale of investment securities available
for sale....................................... 195 -- --
Gain on sale of investment securities........... -- (56) --
Gain on sale of loan servicing rights........... (1,443) -- (46)
Gain on sale of merchant card portfolio......... (174) -- --
Gain on sale of SBA loans....................... (305) (386) (875)
Gain on sale of fixed assets.................... (9) (11) (26)
(Gain)/loss on sale of REO...................... (511) (1) 346
REO write-downs................................. 959 1,408 --
Provision for deferred income taxes............. (1,200) (1,133) (261)
Change in other assets.......................... (2,465) (1,515) (1,937)
Change in other liabilities..................... 491 (427) 1,142
Decrease in deferred compensation related to
ESOP........................................... -- 635 572
-------- -------- --------
Net Cash (Applied To) Provided By Operating
Activities..................................... (371) 5,137 4,782
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities..... -- 44,930 --
Proceeds from sales of investment securities
available-for-sale.............................. 8,732 -- --
Proceeds from maturities of investment
securities...................................... -- 31,834 12,913
Proceeds from maturities of investment securities
held-to-maturity................................ 3,466 -- --
Proceeds from maturities of investment securities
available-for-sale.............................. 2,625 -- --
Purchase of investment securities................ -- (84,633) (32,528)
Purchase of investment securities held-to-
maturity........................................ (3,194) -- --
Purchase of investment securities available-for-
sale............................................ (22,778) -- --
Purchase of premises and equipment............... (996) (373) (483)
Proceeds from sale of premises and equipment..... 36 366 56
Payoff of senior obligations on REO.............. -- -- (1,377)
Proceeds from sale of REO properties............. 5,345 833 1,130
Net change in loans.............................. 80,589 39,376 (15,207)
Proceeds from the sale of SBA loans.............. 513 605 1,131
Proceeds from the sale of non-performing loans... 9,056 -- --
Change in Federal funds sold..................... (9,000) (18,000) 10,800
Change in deposits with other financial
institutions.................................... 1,486 4,955 (5,053)
Proceeds from sale of loan servicing rights...... 1,763 -- 46
Proceeds from sale of merchant card portfolio.... 174 -- --
-------- -------- --------
Net Cash Provided By (Applied To) Investing
Activities..................................... 77,817 19,893 (28,572)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in demand and savings deposits............ (52,903) (6,070) 18,781
Change in time deposits.......................... (29,044) (24,228) 5,320
Change in short-term borrowings.................. -- (16,860) 9,842
Issuance of common stock......................... -- 1,430 25
Repayment of note payable........................ -- (2,188) (572)
Issuance of notes payable........................ -- 125 --
Net Cash (Applied To) Provided By Financing
Activities..................................... (81,947) (47,791) 33,396
Net (Decrease) Increase In Cash and Cash
Equivalents.................................... (4,501) (22,761) 9,606
Cash and Cash Equivalents at Beginning of Year... 15,943 38,704 29,098
-------- -------- --------
Cash and Cash Equivalents at End of Year......... $ 11,442 $ 15,943 $ 38,704
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Ventura County National Bank, a national banking organization (VCNB), was
organized on February 17, 1982 and commenced business on October 25, 1982.
Ventura County National Bancorp (separately "Ventura," and with its
subsidiaries on a consolidated basis, the "Company") was organized and
incorporated on February 22, 1984 for the purpose of becoming a bank holding
company by acquiring all of the outstanding common stock of VCNB. Accordingly,
on September 12, 1984, all of the Shareholders of VCNB exchanged their common
stock for an equal number of shares of the Company's common stock.
During 1989, the Company acquired all of the outstanding shares of Frontier
Group, Incorporated, the parent holding company of Frontier Bank, N. A., in
exchange for cash. The acquisition was accounted for as a purchase.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company balances and transactions have
been eliminated in consolidation.
VCNB conducts its banking operations through four branch offices located in
Ventura County, California, approximately 60 miles northwest of downtown Los
Angeles. VCNB's four branch offices are positioned in Ventura, Camarillo,
Oxnard, and Westlake Village. Frontier is based in La Palma in northwestern
Orange County and has a branch office in Wilmington in southern Los Angeles
County. Ventura's headquarters are located in Oxnard, California.
NOTE 2. ACCOUNTING POLICIES
The Company and its subsidiaries follow generally accepted accounting
principles and reporting practices applicable to the banking industry, the most
significant of which are summarized below:
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and amounts due from banks.
Investment Securities
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company adopted the
provisions of the new standard in its financial statements as of December 31,
1993. SFAS No. 115 addresses accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Those investments are to be classified in three categories
and accounted for as follows: 1) debt securities for which the Company has the
positive intent and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost; 2) debt and equity
securities that are bought and held principally for the purpose of selling in
the near term are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings; and 3) debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available for sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in
a separate component of shareholders' equity.
F-7
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consistent with the provisions of No. SFAS 115, the Company classified its
investment securities as available for sale upon adoption at December 31, 1993,
and recorded an unrealized loss of $122,000, net of tax effect. No portion of
such unrealized losses was previously recognized in operating results prior to
the adoption of SFAS No. 115. Prior to the adoption of SFAS No. 115, all
investment securities were stated at cost, with the exception of investments in
mutual funds, which were deemed equity investments, with adjustments to lower
of cost or market being recorded as a component of equity. During 1994, the
Company purchased securities which were classified as either available for sale
or held to maturity categories at the time of purchase, based on management's
intent and ability to hold certain securities to maturity. Previously recorded
unrealized losses of $433,000 on securities transferred from held to maturity
to available for sale during 1994 are being amortized over the securities'
remaining lives. Ventura had no trading securities at December 31, 1993 or
1994. Mortgage-backed securities consist entirely of Federal Home Loan Mortgage
Corporation (FHLMC) backed securities; there are no stuctured notes, CMOs, or
other derivative products in the investment portfolio.
Accreted discounts and amortized premiums on investment securities are
included in interest income, and unrealized and realized gains or losses
relating to holding or selling securities are calculated using the specific
identification method.
Interest and Fees on Loans
Interest on loans is accrued and credited to operations based on the
principal amount outstanding, except that accruals are normally discontinued
whenever payment of principal or interest is in doubt. When a loan is
classified as non-accrual, all previously accrued interest is reversed. Loan
origination fees and initial direct costs of loan origination are deferred and
amortized over the life of the loan as an adjustment of yield throughout the
life of the related loan. Such fees and costs related to loans held for sale
are deferred and recognized in income as a component of gain on sale of loans
when the related loans are sold.
Gains on Sale of SBA Loans and Servicing Income
Gains on sale of the guaranteed portion of SBA Loans are recognized to the
extent sales proceeds less amounts necessary to provide required yield
enhancement to the Company for retaining the unguaranteed portion of the loan
exceed the carrying value of the guaranteed portion sold. Gains are determined
using the specific identification method for loans sold and are deferred for 90
days (the recourse period), at which time they are recorded as Other Income.
The Company sells SBA loans with servicing retained. At the time of the sale,
an evaluation is made of the contractual servicing fee which is represented by
the differential between the contractual interest rate of the loan and the
interest rate payable to the investor. The present value of the amount by which
the contractual servicing fee exceeds a nornal servicing fee, or the Company's
cost of servicing such loans plus a normal profit, whichever is greater, after
evaluation of estimated prepayments on such loans, is considered to be an
adjustment of the sales proceeds, which in turn increases the gain recognized
at the time of the sale. Such gains are only recognized to the extent they do
not exceed the amount deferred as yield enhancement on the unguaranteed portion
of the SBA loan sold. The resultant amount of deferred loan sales proceeds is
amortized using a method which approximates a level yield over the estimated
remaining lives of such loans. The contractual servicing fee is recognized as
income over the lives of the related loans, net of the estimated normal
amortization of the deferred loan sales proceeds. Loan servicing costs are
charged to expense as incurred. When actual loan repayment experience differs
from original estimates, amortization is adjusted accordingly through
operations.
F-8
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Loss Reserve
The loan loss reserve is maintained at a level believed adequate by
management to absorb potential losses on the loan and lease portfolios.
Management's determination of that adequacy is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, composition of the portfolio and other relevant factors. In addition,
regulatory authorities have recently required many California financial
institutions to substantially increase their loan loss reserve in recognition
of the inherent risk in the existing economic environment. Management also
considers this factor in calculating the loan loss reserve. Although management
believes the level of the loan loss reserve as of December 31, 1994 is adequate
to absorb losses inherent in the loan portfolio, additional declines in the
local economy may result in increasing losses that cannot be reasonably
predicted at this time. The reserve is increased by provisions for loan losses
charged against income. Loans and leases are charged against the loan loss
reserve when management determines that collectibility of the principal is
unlikely. Recoveries on loans previously charged off are credited to the
reserve.
In May, 1993, the Financial Accounting Standards Board issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. SFAS No. 114 prescribes the
recognition criterion for loan impairment and the measurement methods for
certain impaired loans and loans whose terms are modified in troubled debt
restructurings. SFAS No. 114 states that a loan is impaired when it is probable
that a creditor will be unable to collect all principal and interest amounts
due according to the contracted terms of the loan agreement.
A creditor is required to measure impairment by discounting expected future
cash flows at the loan's effective interest rate, or by reference to an
observable market price, or by fair value of collateral, if collateral
dependent . SFAS No. 114 also clarifies the existing accounting for in-
substance foreclosures by stating that a collateral-dependent real estate loan
would be reported as real estate owned only if the lender had taken possession
of collateral. SFAS No. 114 is effective for financial statements issued for
fiscal years beginning after December 15, 1994. Although earlier application is
encouraged, it is not required. The Company will adopt SFAS No. 114 on January
1, 1995. The Company's preliminary study of loan impairment under SFAS 114
revealed that the impact upon adoption is not anticipated to be material to the
financial statements.
SFAS No. 118 amended SFAS No. 114, to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. It eliminated the
provisions in SFAS No. 114 which described how a creditor should report income
on an impaired loan. SFAS No. 118 amends the disclosure requirements in SFAS
No. 114 to require information about the recorded investment in certain
impaired loans and about how a creditor recognizes interest income related to
those impaired loans. SFAS No. 118 is effective concurrent with the effective
date of SFAS No. 114, for financial statements issued for fiscal years
beginning after December 15, 1994.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
provisions for depreciation are generally computed on a straight-line basis,
based upon the term of the lease or the estimated useful life of the related
asset. Leasehold improvements are amortized over an average life of
approximately eleven years, or the lease term, whichever is shorter. Furniture,
fixtures and equipment are amortized over an average life of 5 years.
Real Estate Owned
Real estate acquired through foreclosure or deed-in-lieu-of foreclosure, is
carried at cost or fair value less estimated costs to sell, whichever is lower.
At the time of acquisition, any excess of cost over fair value is charged to
the loan loss reserve. Gains and losses realized on sale are included in other
income or expense, respectively, in the consolidated statements of operations.
F-9
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The financial statements reflect the adoption in 1992 of the liability method
of accounting as prescribed by Statement of Financial Accounting Standards
(SFAS) No. 109, which superseded SFAS No. 96. The effect on the financial
statements of adopting SFAS No. 109 was not material.
Income (Loss) Per Share
Income (Loss) per share data is computed using the weighted-average number of
shares of common stock and common stock equivalents outstanding. Stock options
and warrants are considered to be common stock equivalents, except when their
effect is antidilutive. Shares of Common Stock held by the Trustee of the
Employee Stock Ownership Plan, in suspense as collateral for a loan, are not
accounted for as common stock equivalents until such time as they are released
to participants. The weighted-average number of shares outstanding has been
retroactively adjusted for stock dividends and stock splits. The weighted-
average number of shares used to compute income per share were 6,333,835,
5,635,941 and 5,610,792 in 1994, 1993 and 1992, respectively.
Servicing Rights
For the years ended December 31, 1992 and 1993, and for the first half of
1994, the cost of acquired loan servicing rights was capitalized and amortized
over the estimated remaining term of the underlying loan portfolio. During May,
1994, the Company sold its mortgage loan servicing department and the related
capitalized loan servicing rights.
Reclassifications
Certain reclassifications have been made to 1993 and 1992 amounts to conform
to 1994 presentation.
NOTE 3. STATEMENT OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992, the Company paid
approximately $6,276,000, $9,124,000 and $11,445,000 in interest and $nil,
$300,000 and $1,155,000 in income taxes, respectively. The Company acquired
$6,197,000,$664,000 and $6,508,000 in real estate owned through foreclosures
during the years ended December 31, 1994, 1993 and 1992, respectively. No loans
were extended to buyers of Company-owned real estate during the year ended
December 31, 1994. Loans of $603,000 were extended to buyers of Company-owned
real estate during the year ended December 31, 1993. Securities with an
amortized cost totaling $16,263,000, and with a fair value of $15,830,000, at
December 31, 1994 were transferred from the available for sale to the held to
maturity category during 1994.
NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Company is required to maintain cash reserve balances on transaction
accounts and non-personal time deposits with the Federal Reserve Bank. These
reserve requirements can be offset by cash balances held at the Company. The
average amount of these reserve balances for the year ended December 31, 1994
was $2,475,000.
NOTE 5. INVESTMENT SECURITIES
As a result of a temporary decline in the market value of securities-
available-for-sale, the Company recorded unrealized losses totaling $1,178,000
and $122,000, which are included in shareholders' equity on the consolidated
balance sheet at December 31, 1994 and 1993, respectively. Several mortgage-
backed securities with a market value of $16,724,000 and an amortized cost of
$17,196,000, at the time of transfer, were transferred from the available for
sale to the held to maturity. Previously recorded unrealized losses with a
balance of $433,000 at December 31, 1994 are included in shareholder's equity
and are being amortized over the securities' remaining lives. The decline in
the market value of the portfolio reflects the current interest rate
environment; such decline is deemed temporary in nature. Accreted discounts and
amortized premiums on investment securities are included in interest income.
Unrealized and realized gains and losses related to holding or selling
securities are calculated using the specific identification method.
F-10
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FHLB stock of $1,067,000 at December 31, 1994 is not deemed a marketable
equity security, as it is not traded on a registered security exchange, and is
carried at cost. Securities held-to-maturity carried at amortized cost of
approximately $4,390,000, and with a fair value of $4,264,000, on December 31,
1994 were pledged as required by law.
The amortized cost basis, gross unrealized holding gains and losses and
estimated market values of securities-available-for-sale at December 31, 1994
were as follows:
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING MARKET
1994 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
U.S. Government securities........ $22,935 $ -- $229 $22,706
Mortgage-backed securities........ 8,067 -- 516 7,551
Federal Reserve Bank and
FHLB Stock....................... 1,602 -- -- 1,602
------- ------- ---- -------
Total........................... $32,604 $ -- $745 $31,859
======= ======= ==== =======
</TABLE>
The amortized cost, gross unrealized gains and losses and estimated market
value of securities held-to-maturity at December 31, 1994 are as follows:
SECURITIES HELD-TO-MATURITY
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
U.S. Government securities........ $ 1,250 $ -- $ 28 $ 1,222
Mortgage-backed securities........ 17,525 -- 784 16,741
------- ------- ---- -------
Total........................... $18,775 $ -- $812 $17,963
======= ======= ==== =======
</TABLE>
Securities available-for-sale as of December 31, 1993 included Federal
Reserve Bank stock carried at $588,000, which approximates market. FHLB stock
of $1,712,000 at December 31, 1993 is not deemed a marketable equity security,
as it is not traded on a registered security exchange, and is carried at cost.
Securities available for sale carried at approximately $4,142,000 and with a
market value of $4,130,000 at December 31, 1993 were pledged as required by
law.
The amortized cost, gross unrealized holding gains and losses and estimated
market values of securities available-for-sale at December 31, 1993 are as
follows:
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
1993 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Mortgage-backed securities....... $38,597 $56 $178 $38,475
Federal Reserve Bank and FHLB
Stock........................... 2,300 -- -- 2,300
------- --- ---- -------
Total.......................... $40,897 $56 $178 $40,775
======= === ==== =======
</TABLE>
F-11
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Losses from the sale of available for sale debt securities in 1994 were
$195,000. Net gains from the sale of debt and equity securities in 1993 were
$56,000. No investment securities were sold during 1992.
At December 31, 1994, the average life of mortgage-backed securites
classified as available-for-sale was approximately 3.5 years, and the average
maturity was approximately 10 years. At December 31, 1994, the scheduled
maturities of debt securities available for sale were as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------- ------------
(IN THOUSANDS OF DOLLARS)
<C> <S> <C> <C>
U.S. Goverment
Within one year Obligations............. $ 14,707 $ 14,648
U.S. Goverment
After one year through five years Obligations............. 8,228 8,058
Mortgage-backed
After five years through ten years Securities.............. 8,067 7,551
------------ ------------
Total................................................... $ 31,002 $ 30,257
============ ============
</TABLE>
At December 31, 1994, the scheduled maturities of debt securities held to
maturity were as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------- ------------
(IN THOUSANDS OF DOLLARS)
<C> <S> <C> <C>
Mortgage-backed
After one year through five years Securities.............. $ 13,696 $ 12,992
U.S. Goverment Obliga-
tions.................. 1,250 1,222
Mortgage-backed
After five years through ten years Securities.............. 3,829 3,749
------------ ------------
Total................................................... $ 18,775 $ 17,963
============ ============
</TABLE>
NOTE 6. LOANS AND LEASES
The following is a summary of the loan and lease portfolio on December 31:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C>
Commercial, financial and agricultural................. $138,193 $197,384
Real estate--Mortgage.................................. 11,993 31,202
Real estate--Construction.............................. 7,734 23,559
Installment............................................ 9,897 14,961
Lease financing........................................ 129 447
-------- --------
Subtotal............................................. 167,946 267,553
Less unearned income................................... 12 39
-------- --------
Loans and leases, net of unearned income............. $167,934 $267,514
======== ========
</TABLE>
Included in the loan portfolio are loans on which the Company has ceased the
accrual of interest or renegotiated the terms to provide for a reduction or
deferral of interest. At December 31, 1994 and 1993, such loans amounted to
approximately $7,614,000 and $19,287,000, respectively. Interest foregone on
nonaccrual loans in 1994, 1993 and 1992 totaled $1,609,000, $2,214,000 and
$728,000, respectively.
F-12
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loan Loss Reserve
Following is a summary of the activity in the loan loss reserve:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Balance at beginning of year.................... $14,313 $ 3,854 $2,845
Provision charged to expense.................... 3,825 16,213 3,404
Loans charged off(1)............................ (10,439) (6,191) (2,543)
Recoveries on loans previously charged off...... 562 437 148
Balance at end of year.......................... $ 8,261 $14,313 $3,854
</TABLE>
- --------
(1) $5.0 million of total Charge-offs for the year ended December 31, 1994 were
due to the discounted sale of $14.1 million in non-performing loans.
NOTE 7. PREMISES AND EQUIPMENT
Following is a summary of the premises and equipment accounts at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Leasehold improvements......................... $ 1,962 $ 1,949
Furniture, fixtures and equipment.............. 4,723 4,214
------------ ------------
6,684 6,163
============ ============
Less accumulated depreciation and amortization. 4,767 4,476
------------ ------------
Premises and equipment, net.................... $ 1,917 $ 1,687
============ ============
</TABLE>
Depreciation and amortization expense related to property and leasehold
improvements was $739,000, $948,000 and $1,555,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
NOTE 8. REAL ESTATE OWNED
At December 31, 1994 and 1993, other assets include approximately $2,346,000
and $2,229,000, respectively, of real estate owned. Additionally, at December
31, 1994, other assets include approximately $878,000 of other foreclosed
personalty.
NOTE 9. TIME CERTIFICATES OF DEPOSIT, OTHER SHORT-TERM BORROWINGS AND INTEREST
EXPENSE
The following summarizes time certificates of deposit outstanding at December
31:
<TABLE>
<CAPTION>
1994 1993
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Time certificates of deposit under $100,000... $ 63,186 $ 74,830
Time certificates of deposit, $100,000 and
over......................................... 25,333 42,733
------------ -------------
Total....................................... $ 88,519 $ 117,563
============ =============
</TABLE>
The Company terminated the issuance of commercial paper and retired advances
from the Federal Home Loan Bank in December, 1993. During 1994, the Company
made immaterial borrowings on its FHLB advance line and repaid them promptly.
F-13
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense relating to deposits and other borrowed funds for each of
the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Time certificates of deposit under $100,000......... $2,638 $3,337 $ 3,839
Time certificates of deposit, $100,000 and over..... 1,254 2,178 3,144
Other deposits...................................... 2,361 2,857 3,353
Short-term borrowings............................... 6 515 856
Note payable........................................ 9 112 173
------ ------ -------
Total Interest Expense............................ $6,268 $8,999 $11,365
====== ====== =======
</TABLE>
NOTE 10. OTHER INCOME AND OTHER EXPENSES
December 31, 1994, 1993, and 1992 other loan fee income includes net mortgage
servicing fees of $317,000, $618,000 and $812,000, respectively, and other loan
processing fees and late charges. Miscellaneous fees include credit card fee
income and other account servicing fees. The "other" category of other income
includes the gain on the sale of the merchant card portfolio of $174,000 in
1994. Other income for 1994, 1993 and 1992, includes net gains related to the
sale of mortgage loans of $272,000, $1,076,000 and $994,000 for the years ended
December 31, 1994, 1993 and 1992, respectively, in addition to net losses on
the sale of securities and fixed assets.
The following is included in other expenses in the accompanying consolidated
statements of operations at December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
FDIC assessments.................................... $ 878 $ 921 $ 789
Office supplies and office expense.................. 612 800 1,000
Real estate owned................................... 641 1,733 479
Business development and advertising................ 364 271 371
Appraisal fees...................................... 309 257 57
Customer services................................... 286 382 687
Courier service..................................... 280 255 256
Amortization of goodwill............................ -- 1,266 105
Amortization of core deposits....................... -- -- 513
Other............................................... 1,446 2,175 2,082
------ ------ ------
Total Other Expenses.............................. $4,816 $8,060 $6,339
====== ====== ======
</TABLE>
F-14
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. INCOME TAXES
The components of consolidated income tax (benefit) expense, for the three
years ended December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Current:
Federal......................................... $ (923) $(2,100) $ 610
State........................................... 8 -- 222
------ ------- -----
$ (915) $(2,100) $ 832
====== ======= =====
Deferred:
Federal......................................... $1,202 $(1,352) $(193)
State........................................... (2) 219 (68)
------ ------- -----
1,200 (1,133) (261)
====== ======= =====
$ 285 $(3,233) $ 571
====== ======= =====
</TABLE>
Deferred income taxes for 1994, 1993 and 1992 reflect the impact of
"temporary differences" between the amount of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws and
regulations.
Principal items making up the deferred income tax provisions follow.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Financial statement income from leases different
from amounts recognized for tax................. $ 18 $ (93) $(134)
Depreciation recognized for tax different from
amount recognized for financial statement
depreciation.................................... 86 (162) (33)
Financial statement bad debt deduction different
than tax bad debt deduction..................... 1,477 (2,488) (378)
Financial statement deferred loan fees and costs
different from amounts recognized for tax....... (293) 79 135
Prepaid expense recognized for tax different from
amounts recognized for financial statement
purposes........................................ (34) -- 293
Financial statement other real estate owned
deduction different from tax other real estate
owned deduction................................. 78 (629) --
State income tax benefit recognized for tax
different from amounts recognized for financial
statement purposes.............................. (413) (416) --
Other items, net................................. 261 (52) (144)
Less: net deferred tax valuation allowance....... 20 2,628 --
------ ------- -----
$1,200 $(1,133) $(261)
====== ======= =====
</TABLE>
F-15
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reasons for the difference between income tax benefit and expense and the
amount computed by applying the statutory Federal income tax rate to the loss
or income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ------- ----
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
35% of pre-tax (loss) income......................... $ 8 $(5,362) $440
State income taxes, net of Federal Tax benefit....... 4 (1,686) 91
Goodwill and other................................... (6) 771 40
State income tax limitation of net operating loss.... 259 416 --
Provision for deferred tax asset valuation allowance. 20 2,628 --
---- ------- ----
$285 $(3,233) $571
==== ======= ====
</TABLE>
Net deferred tax asset and liabilities reflect the cumulative inventory of
"temporary differences" resulting from the differences of assets and
liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations which will result in taxable or deductible amounts in
future years when the reported amount of the asset or liability is recovered or
settled, respectively. As of December 31, 1994 the Company's gross deferred
assets, deferred liabilities, and tax asset valuation allowance totaled
$3,916,000, $801,000 and $3,115,000, respectively as compared to gross deferred
assets, deferred liabilities, and tax asset valuation allowance of $4,978,000,
$995,000 and $2,783,000, respectively, as of December 31, 1993.
At December 31, the principal items making up the net deferred income tax
(assets) and liabilities are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Financial statement income from leases dif-
ferent from amounts recognized for tax..... $ 0 $ (9)
Depreciation recognized for tax different
from amount recognized for financial state-
ment depreciation.......................... 434 164
Financial statement bad debt deduction dif-
ferent than tax bad debt deduction......... (2,276) (3,182)
Financial statement deferred loan fees and
costs different from amounts recognized for
tax........................................ 294 652
Prepaid expense recognized for tax different
from amounts recognized for financial
statement purposes......................... 73 179
Financial statement other real estate owned
deduction difference from tax other real
estate owned deduction..................... (136) (629)
Financial statement occupancy expense deduc-
tion difference from tax occupancy expense
deduction.................................. (390) (406)
State income tax benefit recognized for tax
different from amounts recognized for fi-
nancial statement purposes................. (393) (416)
Other items, net............................ (254) (288)
Unrealized loss on available for sale secu-
rities..................................... (467) (48)
Less: net deferred tax valuation allowance.. 3,115 2,783
------------ ------------
Net deferred tax asset...................... $ 0 $ (1,200)
============ ============
</TABLE>
The net deferred tax asset for the year ended December 31, 1993, is included
in other assets of the consolidated balance sheets.
F-16
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. COMMON STOCK AND STOCK OPTIONS
On February 20, 1992, the Company declared a 6% stock dividend for
Shareholders of record on March 9, 1992. The weighted average number of shares
outstanding at December 31, 1992 has been restated to reflect the 6% stock
dividend in 1992.
Under a stock option plan approved by the Board of Directors in 1982,
options have been granted to key personnel for a term of ten years
exerciseable at 25% annually at the fair market value at the date of grant.
During 1991, the Company's Board of Directors adopted the Ventura County
National Bancorp 1991 Stock Option Plan (1991 Plan). The 1991 Plan provides
that incentive stock options be granted to full-time salaried officers and
management level employees of the Company or its subsidiaries for a term of 10
years exerciseable at 20% annually at the fair market value at the date of the
grant. The 1991 Plan also provides that non-qualified stock options be granted
to directors, key full-time salaried officers and management level employees
of the Company or its subsidiaries for a term of 10 years, exerciseable at 25%
annually at the fair market value at the date of grant.
Under the 1982 stock option plan, there were 21,813, 46,741 and 49,648
options outstanding at December 31, 1994, 1993 and 1992, respectively. At
December 31, 1994, there were 4,362 shares which were exercisable under the
1982 stock option plan at a price of $4.81 per share. During 1991, 46,640
options were granted while no options were granted during 1992, 1993, and
1994. During 1992, 15,263 options were exercised, while no options were
exercised during 1994, 1993 or 1991. In 1994, 1993 and 1992 respectively,
24,928, 2,907 and 59,104 options expired.
Under the 1991 Plan, there were 171,588, 167,418 and 136,730 options
outstanding at December 31, 1994, 1993 and 1992, respectively, which are
exerciseable at prices ranging from $2.13 to $6.84 per share. During 1994,
1993 and 1992, 25,000, 104,888 and 9,000 options were granted, respectively.
At December 31, 1994, 69,955 of these options were exerciseable. Option prices
and number of shares under option have been restated for stock dividends and
stock splits. A total of 20,830 and 74,200 options were canceled in 1994 and
1993.
In October 1989, the Company established an Employee Stock Ownership Plan
(ESOP), for which all full-time employees who have completed one year of
service at the Plan year end and all part-time employees who work at least
1,000 hours per year and have completed one year of service at the Plan year
end are eligible. The ESOP was funded by a $4,000,000 loan to the Company from
an independent third party. These debt proceeds were lent to the ESOP which
used the proceeds to acquire 444,444 newly issued shares of the Company's
common stock. The Company raised $1,555,000 from a private placement of
719,580 shares of common stock and issued $125,000 in notes payable during
1993 and used the proceeds to retire the remaining principal on the ESOP note
payable to a third party. At December 31, 1994, there were 230,014, 185,840,
and 28,590 shares released, held in suspense, and issued to individuals who
are no longer employees of the Company, respectively. The fair market value of
shares held in suspense at December 31, 1994 was $406,525.
Effective January 1, 1994, the Company adopted the provisions of Statement
of Position 93-6, "Employers Accounting for Employee Stock Ownership Plans."
This SOP requires the Company to record compensation expense upon release of
shares to employees at the current fair value of shares released. Prior to
adoption of SOP 93-6, the Company recorded compensation expense for allocated
shares based on the historical cost of $9.00 per share. The adoption of SOP
93-6 had no effect on the reported results of operations of the Company, as
the Company made no contributions to the Plan in 1994 and no shares were
released to participants.
Unallocated shares held in a suspense account by the ESOP are released to
the Plan participants in proportion to contributions required to service the
debt between the Company and the Plan, in relation to the total debt
outstanding, as specified in the debt agreement, within the limitations of
Internal Revenue Code Section 415 and deductibility of ESOP contributions by
the Company for tax purposes.
F-17
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, 1993 and 1992, the Company incurred $nil, $635,000, and
$571,000 of compensation expense and $nil, $112,000, and $173,000 of interest
expense, respectively, related to the ESOP and note payable.
During 1989 the Company issued 649,647 shares of common stock and 295,294
warrants to purchase common stock under a common stock subscription rights
offering. The warrants entitled the holder to purchase one share of common
stock at $7.41 and expired on June 6, 1994.
NOTE 13. 401(K) PLAN
The Company established a 401(k) plan on July 1, 1994 for which all full-
time employees who have completed 90 consecutive days of service and all part-
time employees who work at least 1000 hours per year and have completed 90
consecutive days of service are eligible for enrollment. Employees may
contribute a percentage of their salary pursuant to IRS regulatory maximums,
and under the plan, the Company matches 50% of employee contributions up to
3%. During 1994, the Company contributed $48,844 to the 401(k) plan.
NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial instruments is
made in accordance with SFAS No. 107. The estimates have been determined by
the Company using available market information and appropriate valuation
methodologies. The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -----
(IN THOUSANDS OF (IN THOUSANDS OF
DOLLARS) DOLLARS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............... $ 11,442 $ 11,442 $ 15,943 $ 15,943
Federal funds sold...................... 27,000 27,000 18,000 18,000
Interest bearing deposits with other
financial institutions................. 694 694 2,180 2,180
Investment securities................... 50,634 49,822 40,775 40,775
Net loans and leases.................... 159,673 148,692 233,582 233,437
Liabilities:
Demand deposits and savings............. 147,823 147,823 200,726 200,726
Time deposits........................... 88,519 88,366 117,563 117,194
Other borrowings........................ 125 125 125 125
Off-balance-sheet instruments (unrealized
gains (losses)):
Commitments to extend credit............ 0 0 0 0
Standby letters of credit............... 0 0 0 0
</TABLE>
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate
of fair value.
F-18
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Bearing Deposits with Other Financial Institutions
The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the current market rates for deposits
with similar remaining maturities.
Investment Securities
For securities held as investments, fair value equals quoted market prices.
Estimated fair value for mortgage-backed securities issued by quasi-
governmental agencies is based on quoted market prices.
Net Loans and Leases
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. During the second
quarter of 1994, $14.1 million in non-performing loans were sold in a bulk sale
at 67% of book value. As such, management utilized this valuation factor in
placing a fair value on non-performing loans of $7,945,000 at December 31,
1994. It was not practicable to reasonably assess the credit adjustment that
would be applied in the marketplace for non-performing loans at December 31,
1993. Therefore, non-performing loans of $19,619,000 are excluded at December
31, 1993. Interest rates on such loans ranged from 7-10%, maturities ranged
from zero to four and one half years, and approximately 95% were real estate
secured.
Demand Deposits, Savings and Time Deposits
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Other Borrowings and Notes Payable
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. Fair
value approximates carrying value in 1993 as other borrowings and notes payable
had variable interest rates that adjust with the market. At December 31, 1994,
the differential between the current note payable's carrying value and its
discounted value is insignificant.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is 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 counter-parties. The
fair value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counter-parties at the reporting date. Current rates have
increased since the commitments were made, yet the fee applied to the balance
of commitments outstanding resulted in values which are insignificant for 1994
and 1993.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994. Considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-19
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to certain financial instruments in the normal course
of business with a degree of off-balance sheet risk. These instruments include
commitments to extend credit, standby, and commercial letters of credit, which
are designed to meet the needs of the banks' customers.
Commitments to extend credit and standby and commercial letters of credit are
evaluated on a case-by-case basis dependent on each customer's credit
worthiness. The Company has a rating process which is applied to each customer.
The resulting rating establishes varying levels of required credit approvals
and limits of lending. Monitoring procedures include, but are not limited to,
monthly review of customer accounts by a management committee. The agreements
with the customers normally require collateral and provide restrictive
covenants under generally the same conditions as other lending activities of
the Company. Such collateral varies but may include accounts receivable,
inventories, property and equipment, and real property. The policy of the
Company is to limit lending to 75% of the market value of the collateral. The
Company's exposure to credit loss in the event of non-performance by the party
related to these instruments is represented by the contractual amount of these
instruments in the case of commitments to extend credit. As of December 31,
1994, the Company did not have commitments to borrowers that have additional
borrowings which have been classified as nonperforming loans and/or as
potential problem loans.
The Company conducts business primarily in Southern California and the
ability of the Company's customers to honor their loan agreements is dependent
on the economic health of this service area. Although the Company generally
provides loans and financial instruments to a broad variety of industries and
customers, at December 31, 1994 and 1993, approximately $67.1 million and $91
million, respectively represented loans, commitments and letters of credit to
individuals and companies in the real estate industry (of which, $6.7 million
and $13 million, respectively, consisted of mortgage loans to individuals).
Further, a substantial portion of the collateral for commercial, financial and
agricultural loans is real estate.
Commitments to Extend Credit
Commitments to extend credit represent agreements to lend, on demand and
subject to the restrictive covenants, moneys to a customer up to a designated
limit. The commitments generally have fixed expiration dates, variable interest
rates, and normally require payment of an annual fee. Since many of the
commitments historically expire without being fully drawn upon and are subject
to regular monitoring and certain restrictions, the total commitment amounts
outstanding do not necessarily represent future cash requirements. The total
amount of commitments to extend credit at December 31, 1994 was $30,880,000,
compared with $46,029,000 at December 31, 1993.
Standby and Commercial Letters of Credit
Standby and commercial letters of credit are conditional commitments issued
by the Company to guarantee the performance of their customers to a third
party. Such letters of credit are normally issued to support performance bonds
and private borrowing arrangements, which include guarantees to suppliers
outside of the United States. Standby and commercial letters of credit
amounting to $2,898,000 were outstanding at December 31, 1994, all of which are
expected to expire by December 31, 1995. Standby and commercial letters of
credit amounted to $5,147,000 as of December 31, 1993, all of which expired by
December 31, 1994.
F-20
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company leases office premises and certain equipment under operating
leases which expire at various dates through 2006. Total rental expense, net of
sublease income, for all non-cancelable operating leases amounted to
approximately $1,528,000, $1,682,000 and $1,645,000 for the three years ended
December 31, 1994, 1993 and 1992, respectively. Future minimum commitments
under these leases of premises and equipment as of December 31, 1994, net of
sublease income and including estimated CPI increases, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
OF DOLLARS
------------
<S> <C>
1995......................................................... $1,234
1996......................................................... 984
1997......................................................... 958
1998......................................................... 1,068
1999......................................................... 1,108
Thereafter................................................... 5,634
</TABLE>
Litigation
In the normal course of business, the Company is subject to various legal
actions. It is the opinion of management, based upon the opinion of legal
counsel, that such litigation will not have a material impact on the financial
position or results of operations of the Company.
NOTE 16. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries have granted loans to certain officers and
directors of the Company, and to businesses with which they are associated, in
the ordinary course of business. These loans are made under terms which are
consistent with the Company's normal lending policies. The amounts of these
loans were approximately $7,730,000 and $12,775,000 at December 31, 1994 and
1993, respectively. During 1994, new loans totaling $4,608,000 were made, and
net repayments of approximately $9,653,000 were received. During 1993, new
loans totaling $6,093,000 were made, and net repayments of approximately
$5,624,000 were received. Interest and fees earned on these loans approximated
$762,000, $1,111,000 and $1,176,000 in 1994, 1993 and 1992, respectively.
NOTE 17. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS, OR ADVANCES
Certain restrictions exist regarding the ability of the subsidiaries to
transfer funds to the Company in the form of cash dividends, loans or advances.
See Note 18 for discussion regarding restrictions placed on the Company per the
Formal Agreement and Consent Order. Generally, the approval of the Comptroller
of the Currency is required to pay dividends in excess of earnings retained in
the current year plus retained net profits for the two preceding years. Also,
under Federal Reserve regulation, a bank subsidiary is limited in the amount it
may loan to affiliates, including the Company, unless such loans are
collateralized by specific obligations.
At December 31, 1994 and 1993, the Company had no loans to affiliates.
NOTE 18. CAPITAL RESOURCES AND REGULATORY MATTERS
The Company is required by federal regulation to meet certain capital
standards. The risk-based capital standards require a minimum total capital of
8.0% of "risk-adjusted assets," as defined by the standard. At
F-21
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
least half of the required capital must contain Tier 1 capital, which consists
primarily of common stock and retained earnings, less goodwill. As of December
31, 1994 and 1993, the Company was in compliance with the requirements.
At December 31, 1994 and 1993, the Company's risk-based capital ratios were
12.61% and 8.73%, respectively. Additionally, the capital standards require the
Company to maintain a minimum leverage ratio of Tier 1 capital to average
assets and a Tier 1 capital to risk-weighted assets ratio of at least 4%. At
December 31, 1994 and 1993, the Company's leverage capital ratios were 7.53%
and 6.02%, respectively, and Tier 1 capital ratios were 11.32% and 7.43%,
respectively.
Regulatory Matters
At periodic intervals, both the Office of the Comptroller of the Currency and
the FDIC routinely examine the bank subsidiaries' financial statements as part
of their legally prescribed oversight of the banking industry. Based on these
examinations, the regulators can direct that the Company's financial statements
be adjusted in accordance with their findings. VCNB entered into a Formal
Agreement (Formal Agreement) with the OCC on March 19, 1993 while Frontier
entered into a Consent Order (Consent Order) with the OCC on March 29, 1993.
The significant common requirements of the Formal Agreement and the Consent
Order with respect to reviewing and correcting certain deficiencies identified
in the OCC examinations of VCNB and Frontier include conducting a program to
evaluate and improve board supervision and management, developing a program
designed to improve loan administration, developing a program regarding asset
diversification, obtaining current credit information on any loans lacking such
information, reviewing and revising loan policy, establishing an independent
loan review program, developing and implementing a program to collect or
strengthen criticized assets, reviewing and maintaining an adequate loan loss
reserve, developing a new long-range strategic plan, developing and
implementing a long-term capital program, reviewing and revising liquidity and
funds management policy, correcting violations of law cited by the OCC and
obtaining approval from the OCC to declare or pay a dividend. In addition, the
Consent Order requires that Frontier appoint a full-time President and Chief
Executive Officer and maintain, as of May 31, 1993 and beyond, a Tier 1 capital
ratio of 9.50% and a leverage ratio of 7.00%. Kathleen L. Kellogg became
President and Chief Executive Officer at Frontier in November 1994, and her
predecessor, Larry Sallinger was hired May 5, 1993. At December 31, 1994,
Frontier's Tier 1 capital and leverage ratios were 12.29% and 8.32%,
respectively.
The Formal Agreement, which was amended on February 3, 1994, required VCNB to
achieve a Tier 1 risk-based capital ratio of 12.00% and a leverage ratio of
7.00% by September 30, 1994. At September 30, 1994, VCNB's Tier 1 risk based
capital ratio was 9.44% and its leverage capital ratio was 6.88%, which did not
meet the higher leverage and Tier 1 capital ratios required by the formal
agreement. On October 18, 1994, VCNB submitted to the OCC its revised plan for
restoring capital and the OCC did not object to the implementation of the plan,
as proposed. VCNB applied for and received an extension of the date by which
such ratios are required to be achieved to June 30, 1995. As of December 31,
1994, VCNB's Tier 1 capital ratio was 10.92%, and its leverage ratio was 7.21%.
The Formal Agreement amendment further requires VCNB to seek reimbursement of
$3.4 million for all interest paid by VCNB to Ventura in connection with a
deposit account at VCNB which was related to the issuance of commercial paper.
The Company has committed to the completion of a rights offering, which is
scheduled to occur during the second quarter of 1995. The primary purpose of
the offering is to increase the capital bases of the Company and each of its
subsidiaries to permit growth in a post recessionary economy and to enable VCNB
to meet the requirements of the Formal Agreement. As of December 31, 1994, VCNB
F-22
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
needed approximately $1.4 million in additional capital to bring its Tier 1
capital ratio to 12.00%. The Company believes that compliance with the 12% Tier
1 capital ratio requirement, if achieved from sources noted above, will satisfy
the reimbursement requirement. Until such time as VCNB is reimbursed, the OCC
must authorize any payment from VCNB to Ventura.
VCNB and Frontier are in compliance with, or are in the process of complying
with, all of the items required under the Formal Agreement and Consent Order,
respectively, and management does not believe the Formal Agreement and Consent
Order will have any adverse material impact on its future operations. However,
any deficiency in compliance with the requirements of the Formal Agreement or
Consent Order could result in further regulatory restrictions.
The FDIC Improvement Act of 1991 (the 1991 Act) provides for a rating system
for insured institutions based on capital adequacy. Institutions are
categorized as critically undercapitalized, significantly undercapitalized,
undercapitalized, adequately capitalized and well capitalized. Regulatory
agencies have adopted definitions of how institutions are ranked for prompt
corrective action purposes and are as follows; (i) a well capitalized
institution is one that has a leverage ratio of 5%, a Tier 1 risk-based capital
ratio of 6%, a total risk-based capital ratio of 10% and is not subject to any
written order or final directive by the regulatory agency to meet and maintain
a specific capital level, (ii) an adequately capitalized institution is one
that meets the minimum required capital adequacy levels but not that of a well
capitalized institution, (iii) an undercapitalized institution is one that
fails to meet any one of the minimum required capital adequacy levels but not
as undercapitalized as a significantly undercapitalized institution, (iv) a
significantly undercapitalized institution is one that has a total risk-based
capital ratio of less than 6% and/or a leverage ratio of less than 3% and (v) a
critically undercapitalized institution is one with a leverage ratio of less
than 2%. Under the "prompt correction" provisions of the 1991 Act, banks that
become significantly undercapitalized are subject to a requirement to
recapitalize, merge with another financial institution, restrict interest rates
paid on deposits, or restrict transactions with affiliates. Critically
undercapitalized financial institutions are subject to appointment of a
receiver by the OCC.
On February 2, 1993, Ventura County National Bancorp entered into a
Memorandum of Understanding with the Federal Reserve Bank. The Memorandum
specified the following actions to be taken: Fifteen days notice to the Reserve
Bank is required prior to the payment of dividends and prior to incurring any
debt for other than operating purposes. The Parent may not repurchase any of
its outstanding stock without prior approval from the Reserve Bank. Within 45
days of each quarter end, the Company shall furnish to the Reserve Bank written
progress reports detailing the form and manner of actions taken to attain
compliance, as well as the Parent company only balance sheet and statement of
operations for the quarter end. Thirty days advance notice must be given to the
Reserve Bank prior to adding or replacing a director, employing a senior
executive officer, or promoting an existing employee to an officer.
Pursuant to the provisions of the Memorandum, the Company submitted a summary
of measures that have or are being taken to improve the financial condition of
the subsidiary banks, a summary of measures taken to improve the director's
supervision of the subsidiary banks, and steps taken to improve the
effectiveness of the audit and credit review functions. Board members were
designated to be responsible for monitoring and coordinating adherence to the
provisions of the Memorandum, which is to remain in effect until the individual
provisions are stayed, modified, terminated, or suspended by the Reserve Bank.
F-23
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following financial information represents the balance sheets of Ventura
County National Bancorp (Parent Company only) as of December 31, 1994 and 1993
and the related statements of income and cash flows for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Assets
Cash......................................... $ 37 $ 90
Equity in Bank subsidiaries.................. 19,143 20,402
Other assets................................. -- 38
------------ ------------
Total assets............................... $ 19,180 $ 20,530
============ ============
Liabilities
Note payable................................. $ 125 $ 125
Other liabilities............................ 3 35
------------ ------------
Total liabilities.......................... 128 160
============ ============
Shareholders' equity........................... 19,052 20,370
------------ ------------
Total liabilities and shareholders' equity. $ 19,180 $ 20,530
============ ============
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
------------------------
1994 1993 1992
------ -------- ------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Income
Interest...................................... $ -- $ 193 $ 509
Management fees............................... 1,067 1,729 1,710
------ -------- ------
1,067 1,922 2,219
====== ======== ======
Expense
Interest...................................... 9 199 454
Salaries and benefits......................... 1,059 1,249 1,211
Miscellaneous operating....................... 62 718 425
------ -------- ------
1,130 2,166 2,090
====== ======== ======
Income (loss) before income taxes and undistrib-
uted net income (loss) of subsidiaries......... (63) (244) 129
Income tax expense allocated.................... (2) -- 49
------ -------- ------
(61) (244) 80
====== ======== ======
Equity in undistributed net earnings (deficit)
of Bank subsidiaries........................... (201) (11,843) 605
------ -------- ------
Net income (loss)............................... $ (262) $(12,087) $ 685
====== ======== ======
</TABLE>
F-24
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
----- -------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss).................................. $(262) $(12,087) $ 685
Adjustments to reconcile net income (loss) to cash
flows provided by operating activities:
Earnings (loss) from subsidiaries.................. 201 11,843 (605)
Amortization....................................... -- 231 33
Change in other assets............................. 39 2 146
Change in other liabilities........................ (31) 24 (367)
Decrease in deferred compensation related to ESOP.. -- 635 572
Net cash (applied to) provided by operating
activities........................................ (53) 648 464
Cash flows from investing activities:
Capital Contribution to Subsidiary................. -- (150) --
Change in interest-bearing deposits due from banks. -- 8,875 (1,698)
Proceeds from maturity of investment............... -- -- --
Net cash provided by (applied to) investing activi-
ties................................................ -- 8,725 (1,698)
Cash flows from financing activities:
Change in other short-term borrowings.............. -- (8,860) 1,842
Repayment of note payable.......................... -- (2,188) (572)
Issuance of note payable........................... -- 125 --
Issuance of stock.................................. -- 1,430 25
Net cash (applied to) provided by financing activi-
ties................................................ -- (9,493) 1,295
Net (decrease) increase in cash and cash equivalents. (53) (120) 61
Cash and cash equivalents at beginning of year..... 90 210 149
Cash and cash equivalents at end of year........... $ 37 $ 90 $ 210
Supplemental information:
Cash paid during the year for interest............. $ 9 $ 199 $ 454
Cash paid during the year for income taxes......... $ 3 $ 300 $ 1,155
</TABLE>
NOTE 20. ACQUISITION OF SERVICING RIGHTS
On November 15, 1990, VCNB purchased the rights to service certain loans held
by the RTC for $1,735,000. Amortization expense for 1994 and 1993 was $40,000
and $486,000, respectively. The remaining mortgage servicing rights totaling
$320,000 were written off during 1994 in conjunction with the sale of the
mortgage servicing department.
NOTE 21. INTANGIBLE ASSETS
As a result of the acquisition of Frontier in October 1989, the Company
recorded goodwill representing the difference between the cost of the
acquisition and the fair value of the assets acquired. Goodwill amortization in
1993 includes a write-off in the amount of $1,167,000 based on the Company's
intent to sell Frontier at or near tangible book value. At December 31, 1994,
the Company is no longer actively marketing Frontier.
F-25
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 22. QUARTERLY INFORMATION, 1994 AND 1993
The following table sets forth the Company's unaudited results of operations
for each of the quarters of 1994 and 1993. This information, in the opinion of
management, includes all adjustments necessary to state fairly the information
set forth herein. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1994
----------------------------------
4TH 3RD 2ND 1ST
------- ------- ------- -------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income............................ $ 5,640 $ 5,511 $ 5,593 $ 5,391
Interest Expense........................... 1,554 1,503 1,549 1,661
------- ------- ------- -------
Net Interest Income........................ 4,086 4,008 4,044 3,730
Provision for Loan Losses.................. 550 400 2,075 800
Other Income............................... 374 591 1,956 1,143
Other Expenses............................. 3,864 3,559 4,474 4,187
------- ------- ------- -------
Income (Loss) before taxes................. 46 640 (549) (114)
Income taxes............................... (4) 75 214 0
------- ------- ------- -------
Net Income (Loss).......................... $ 50 $ 565 $ (763) $ (114)
======= ======= ======= =======
Earnings per share:
Net Income (Loss)........................ $ .01 $ .09 $ (.12) $ (.02)
======= ======= ======= =======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
1993
----------------------------------
4TH 3RD 2ND 1ST
------- ------- ------- -------
(IN THOUSANDS OF DOLLARS EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest Income............................ $ 5,977 $ 6,239 $ 6,816 $ 6,878
Interest Expense........................... 1,976 2,207 2,440 2,376
------- ------- ------- -------
Net Interest Income........................ 4,001 4,032 4,376 4,502
Provision for Loan Losses.................. 1,800 6,062 4,326 4,025
Other Income............................... 1,081 1,000 1,220 1,519
Other Expenses............................. 6,151 4,489 5,542 4,657
------- ------- ------- -------
Total Expense.............................. 7,951 10,551 9,868 8,682
======= ======= ======= =======
Income (Loss) before taxes................. (2,869) (5,519) (4,272) (2,661)
Income taxes............................... 671 (1,218) (1,602) (1,085)
------- ------- ------- -------
Net Income (Loss)........................ $(3,540) $(4,301) $(2,670) $(1,576)
======= ======= ======= =======
Earnings per share:
Net Income (Loss)........................ $ (0.62) $ (0.77) $ (0.48) $ (0.28)
======= ======= ======= =======
</TABLE>
F-26
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION ANY OFFERING MADE HEREBY GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VENTURA COUNTY NATIONAL BANCORP OR
SANDLER O'NEILL & PARTNERS, L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO
ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Documents Incorporated by Reference....................................... 3
Prospectus Summary........................................................ 4
Summary Selected Consolidated Financial and Other Data.................... 13
Summary of Recent Developments............................................ 14
Risk Factors.............................................................. 17
The Company............................................................... 25
The Rights Offering....................................................... 30
Certain Federal Income Tax
Consequences............................................................. 43
Standby Purchase Agreements............................................... 44
Reasons for the Offering and Use of Proceeds.............................. 46
Capitalization............................................................ 47
Market Price of Common Stock and Dividends................................ 49
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 50
Business.................................................................. 67
Supervision and Regulation................................................ 86
Shareholdings of Certain Beneficial Owners and Management................. 97
Description of Capital Stock.............................................. 101
Legal Matters............................................................. 101
Experts................................................................... 101
Index to Financial Statements............................................. F-1
</TABLE>
================================================================================
================================================================================
[LOGO OF VENTURA COUNTY NATIONAL BANCORP APPEARS HERE]
VENTURA COUNTY
NATIONAL BANCORP
COMMON STOCK
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
--------------
PROSPECTUS
--------------
MAY 11, 1995
SANDLER O'NEILL
& PARTNERS, L.P.
================================================================================
<PAGE>
GRAPHICS APPENDIX
<TABLE>
<CAPTION>
PAGE WHERE
GRAPHIC OR IMAGE NARRATIVE DESCRIPTION OR
MATERIAL APPEARS CROSS REFERENCE
- ---------------- ----------------------------------------------------
<C> <S>
PAGE 2 Map of State of California with enlarged inset map of Southern California
showing six branch locations of Registrant's subsidiary banks.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the offering
described in this Registration Statement, other than underwriting discounts and
commissions, are as follows (all amounts are estimated except the SEC, Nasdaq
and NASD filing fees):
<TABLE>
<S> <C>
SEC filing fee............................................... $ 3,017.24
Nasdaq listing fees.......................................... 18,500.00
NASD filing fee.............................................. 1,375.00
Printing and engraving fees.................................. 75,000.00
Accounting fees and expenses................................. 75,000.00
Legal fees and expenses...................................... 225,000.00
Blue sky fees and expenses................................... 30,000.00
Transfer agent and registrar's fees and expenses............. 10,000.00
Subscription agent fees and expenses......................... 9,500.00
Information agent fees and expenses.......................... 5,000.00
Miscellaneous................................................ 49,607.76
-----------
Total.................................................... $502,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article Five of the Registrant's Articles of Incorporation, as amended,
provides that the liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. Article Six of the Registrant's Articles of Incorporation provide that the
corporation is authorized to provide for the indemnification of agents (as
defined in Section 317 of the California General Corporation Law) in excess of
that expressly permitted by such Section 317, subject to the limitations set
forth in Section 204 of the California Corporations Code, for breach of duty to
the corporation and its stockholders through bylaw provisions or through
arguments, or both.
Article VI of the Registrant's amended Bylaws provide as follows:
ARTICLE VI
INDEMNIFICATION
Section 1. Definitions. For the purposes of this Article, "agent", includes
any person who is or was a Director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation as a
Director, officer, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise, or was a
Director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" includes any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
pursuant to law.
Section 2. Extent of Indemnification. The corporation shall, to the maximum
extent permitted by the General Corporations Law of California, advance
expenses to and indemnify each of its agents against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact any such person is
or was an agent of the corporation.
II-1
<PAGE>
Section 3. Insurance. The corporation shall have power to purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity of
arising out of the agent's status as such whether or not the corporation would
have the power to indemnify the agent against such liability under the
provisions of this Article.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Agency Agreement
3.1 -- Articles of Incorporation, as amended (1)
3.2 -- Bylaws, as amended (1)
4.1 -- Subscription Rights Certificate
5 -- Opinion of Manatt, Phelps & Phillips
8 -- Tax opinion of Manatt, Phelps & Phillips
10.1 -- 1991 Incentive Stock Option Plan (2)
10.2 -- Incentive Stock Option Plan (3)
10.3 -- Incentive Stock Option Plan of Conejo (former subsidiary of
Ventura) (4)
10.4 -- Non-Qualified Stock Option Plan of Conejo (former subsidiary of
Ventura) (5)
10.5 -- 401(k)/Employee Stock Ownership Plan (6)
10.6 -- Deposit Insurance Transfer and Asset Purchase Agreement among
Resolution Trust Corporation Receiver of Westco Savings Bank, F.S.B.
and Frontier Bank, N.A., (7)
10.7 -- Salary Continuation Agreement for Cupp (1)
10.8 -- Employment Agreement for Kellogg.
10.9 -- Employment Agreement for Raggio.
10.10 -- Employment Agreement for Lagomarsino
11 -- Computation of Per Share Earnings (1)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Manatt, Phelps & Phillips (included within Exhibits 5
and 8)
24 -- Power of Attorney (See page II-5)
27 -- Financial Data Schedule
99.1 -- Instructions as to Use of Subscription Right Certificates
99.2 -- Form of Letter to Shareholders
99.3 -- Form of Letter to Shareholders With Addresses Outside the United
States and
Canada or APO or FPO Address
99.4 -- Form of Letter to Nominee Holders
99.5 -- Form of Certificate and Request for Additional Rights
99.6 -- Form of Nominee Holder Oversubscription Certification
99.7 -- Form of Letter from Nominee Holders to Beneficial Owners
99.8 -- Form of Notice of Guaranteed Delivery
99.9 -- DTC Participant Oversubscription Exercise Form
99.10 -- Form of Standby Purchase Agreement
99.11 -- Form of Information Agent Agreement
99.12 -- Form of Subscription Agent Agreement
99.13 -- Form of Cover Letter to Standby Purchaser
99.14 -- Question and Answer Format Additional Soliciting Materials
99.15 -- Form of Escrow Agreement
99.16 -- Form of Cover Letter to Standby Purchaser
99.17 -- Form of Letter to Standby Purchaser
</TABLE>
- --------
(1) This exhibit is filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
(2) This exhibit is filed as an Exhibit to the Registrant's S-8 Registration
Statement File No. 33-9207 and incorporated herein by reference.
(3) This exhibit is filed as Exhibit 10.6 to Registrant's Statement File No.
33-9207 and incorporated herein by reference.
(4) This exhibit is filed as Exhibit 10.1 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(5) This exhibit is filed as Exhibit 10.2 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(6) This exhibit is filed as Exhibit 10.5 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(7) This exhibit is filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated herein by
reference.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
A. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
B. To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933:
C. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most post-effective
amendment thereof) which, individually or in the aggregate, present a
fundamental change in the information set forth in the registration statement;
D. 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;
Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained
in the periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act that are incorporated by reference
to the registration statement.
E. That, for the 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.
F. To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
G. That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
the registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of the
registration statement as of the time it was declared effective.
H. That, for the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
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 the public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment of
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 of 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Securities
Act of 1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-2 and has duly
caused this Post Effective Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Oxnard,
State of California, on May 11, 1995.
VENTURA COUNTY NATIONAL BANCORP
By: Richard S. Cupp
___________________________________
President and Chief Executive
Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director May 11, 1995
________________________________________
Michael Antin
* Director May 11, 1995
________________________________________
Ralph R. Bennett
Richard S. Cupp Director, President and May 11, 1995
________________________________________ Chief Executive Officer
Richard S. Cupp (Principal Executive
Officer)
* Director May 11, 1995
________________________________________
James M. Davis
Director May , 1995
________________________________________
Bart M. Hackley, Jr.
* Director May 11, 1995
________________________________________
W.E. Hartman
* Director May 11, 1995
________________________________________
James B. Hussey
* Director May 11, 1995
________________________________________
Richard A. Lagomarsino
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director May , 1995
________________________________________
Zella A. Rushing
* Director May 11, 1995
________________________________________
Raymond E. Swift
Simone Lagomarsino Senior Vice President and May 11, 1995
________________________________________ Chief Financial Officer
Simone Lagomarsino (Principal Accounting
Officer)
</TABLE>
Richard S. Cupp
*By __________________________
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 1.1
Maximum of 2,890,000 Shares
VENTURA COUNTY NATIONAL BANCORP
(a California corporation)
Common Stock
(no par value)
AGENCY AGREEMENT
May 11, 1995
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Ventura County National Bancorp, a California corporation (the "Company")
and Ventura County National Bank ("VCNB"), a national bank (the "Bank"), confirm
their agreement with Sandler O'Neill & Partners, L.P. ("Sandler O'Neill" or the
"Agent") with respect to the offer and sale by the Company of up to
2,890,000 shares of Common Stock, no par value of the Company ("Common
Stock").
The Company is offering 2,001,111 shares of Common Stock to the
holders of record of Common Stock ("Record Date Holder") at the close of
business on May 10, 1995 (the "Record Date"), at a subscription price of
$2.25 per share ("Subscription Price") and, subject to the rights of such
holders described below, to certain other purchasers on a standby basis. Each
Record Date Holder will receive one transferable subscription right, ("Rights")
for each 3.17 shares of Common Stock held of record at the close of business on
the Record Date. Each Right will enable the holder thereof to purchase from the
Company one share of Common Stock (an "Underlying Share") at the Subscription
Price (the "Basic Subscription Privilege"). Each Record Date Holder who fully
exercises their Basic Subscription Privilege also will be eligible to subscribe
at the Subscription Price for shares of Common Stock (the "Excess Shares") not
otherwise purchased pursuant to the exercise of the Basic Subscription Privilege
up to the total number of Underlying Shares, subject to availability, proration,
and reduction by the Company in certain circumstances (the "Oversubscription
Privilege"). The Rights are evidenced by transferable certificates.
Oversubscription Privileges, however, are not transferable. The offer and sale
of the Underlying Shares pursuant to the exercise of the Basic
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Subscription Privilege and the Oversubscription Privilege are referred to herein
as the "Rights Offering."
The Company also intends to enter into Standby Purchase Agreements pursuant
to which an aggregate of seven institutional investors and high net worth
individuals (the "Standby Purchasers") have severally agreed, subject in each
case to a maximum standby commitment and certain conditions, to acquire from the
Company at the Subscription Price up to an aggregate of 2,000,000 of the
Underlying Shares remaining upon completion of the Rights Offering. The Standby
Purchase Agreements will require that the Standby Purchasers agree to purchase
and the Company agrees to sell, and thus guarantee the availability of, an
aggregate minimum of 888,889 shares of Common Stock ("Additional Shares") at
the Subscription Price if a sufficient number of Underlying Shares are not
available after the exercise of the Basic Subscription Privilege and the
Oversubscription Privilege to satisfy the purchase commitments of the Standby
Purchasers (the "Minimum Standby Obligation"). The Rights Offering and the
offering to Standby Purchasers are together referred to herein as the
"Offering," and the Underlying Shares and the Additional Shares are together
referred to herein as the "Securities."
Record Date Holders may exercise subscription rights by delivering to the
subscription agent a properly completed and executed subscription rights
certificate together with payment in full of the subscription price for each
share subscribed for. Payment may be made only (i) by check or bank draft drawn
upon a U.S. bank, or postal, telegraphic or express money order payable to First
Interstate Bank of California, as subscription agent or (ii) by wire transfer of
funds to the escrow account maintained by the subscription agent for the purpose
of accepting subscriptions pursuant to the terms of an Escrow Agreement to be
entered into between the Company, the subscription agent and Sandler O'Neill.
Sandler O'Neill will not receive any funds from subscribers or Standby
Purchasers for Securities purchased in the Offering. Also, Sandler O'Neill will
not be responsible for the performance of the subscription agent pursuant to the
Subscription Agent Agreement (as defined in the Prospectus) or for determining
when the conditions of the escrow have been met.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-2 (No. 33-88388) including a
prospectus for the registration of the Securities under the Securities Act of
1933, as amended (the "1933 Act"), has filed such amendments thereto, if any,
and such amended prospectuses as may have been required to the date hereof by
the Commission in order to declare such registration statement effective, and
will file such additional amendments thereto and such amended prospectuses and
prospectus supplements as may hereafter be required. Such registration statement
(as amended to date, if applicable, and as from time to time amended or
supplemented hereafter) and the prospectus constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
by reference therein and the information, if any, deemed to be part thereof
pursuant to the rules and regulations of the Commission under the 1933 Act, as
from time to time amended or supplemented pursuant to the 1933 Act or otherwise
(the "1933 Act Regulations")), are hereinafter referred to as the "Registration
Statement" and the "Prospectus," respectively, except that if any revised
prospectus shall be used by the Company in connection with the Offering which
differs from the Prospectus on file with the Commission at the time the
Registration Statement becomes effective (whether or not such revised prospectus
is required to
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be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus to be used in the Offering.
Such Prospectus contains information with respect to the Company, the Bank and
the Common Stock.
SECTION 1. Representations and Warranties.
(a) The Company and the Bank jointly and severally represent and warrant to
the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by the
Commission, no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the knowledge of the
Company and the Bank, threatened by the Commission. At the time the
Registration Statement became effective and at the Closing Time referred to
in Section 2 hereof, the Registration Statement complied and will comply in
all material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Prospectus,
at the date hereof does not and at the Closing Time referred to in Section
2 hereof will not, include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in
this subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information with respect to the Agent furnished to the
Company in writing by the Agent expressly for use in the Registration
Statement or Prospectus (the "Agent Information," which the Company and the
Bank acknowledge appears only in the section of the Prospectus captioned
"The Rights Offering -- Financial Advisor.")
(ii) The Company will promptly file the Prospectus and any
supplemental sales literature with the Commission. The Prospectus and all
supplemental sales literature, as of the date the Registration Statement
became effective and at the Closing Time referred to in Section 2, complied
and will comply in all material respects with the applicable requirements
of the 1933 Act Regulations and, at or prior to the time of their first
use, will have received all required authorizations of the Commission for
use in final form.
(iii) No order, directive, request or other correspondence has
been received by the Company, the Bank, or Frontier Bank, N.A.
("Frontier"), a wholly owned subsidiary of the Company, from the Federal
Reserve Board ("FRB") and/or the
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Office of Comptroller of the Currency ("OCC") which could have the effect
of delaying or canceling the Offering.
(iv) Except for the reimbursement of approximately $3.4 million
in interest paid in connection with deposits of funds from commercial paper
sales by the Company as set forth in the Prospectus under the caption
"Reasons for the Offering and Use of Proceeds," at the Closing Time
referred to in Section 2, the Company, and the Bank and Frontier will have
satisfied any and all terms, conditions, requirements and provisions
imposed upon the Company, the Bank or Frontier by the OCC, the FRB or any
other regulatory authority in connection with this transaction except for
any post-closing notices or filings which may be required, or appropriate
waivers shall have been obtained.
(v) The accountants who audited the financial statements and
supporting schedules of the Company included in the Registration Statement
are independent public accountants within the meaning of the Code of Ethics
of the AICPA; and such accountants are, with respect to the Company, the
Bank and each subsidiary of the Bank, independent certified public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(vi) The consolidated financial statements and the related notes
thereto included in the Registration Statement and the Prospectus present
fairly the financial position of the Company, the Bank and their
consolidated subsidiaries at the dates indicated and the results of their
operations, retained earnings and cash flows for the periods specified and
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act Regulations; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis; and the supporting schedules and tables included in the
Registration Statement present fairly the information required to be stated
therein.
(vii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (A) there has been no material adverse change in the
financial condition, results of operations, or business of the Company, the
Bank and their subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business, and (B) except for transactions
specifically referred to or contemplated in the Prospectus, there have been
no transactions entered into by the Company, the Bank or any of their
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries, taken as a
whole.
(viii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement; and the
Company is duly qualified as a foreign corporation to
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transact business and is in good standing in the State of California and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not have a material adverse
effect on the financial condition, results of operations, or business of
the Company and its subsidiaries, taken as a whole.
(ix) The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock, no par value, of which 6,337,835 shares
are presently issued and outstanding. As of April 29, 1995, there were
approximately 1,027 holders of record of Common Stock. The Company has
not authorized the issuance of, and has not issued, any other shares of
capital stock. Except for the Rights and for options to acquire 636,362
shares of Common Stock reserved for issuance pursuant to the Company's 1982
Stock Option Plan and 1991 Stock Option Plan, there are no options,
warrants, calls, employee benefit or other plans, preemptive rights or
commitments of any character relating to the authorized but unissued
capital stock or any other equity security of the Company or any securities
or obligations convertible into or exchangeable for or giving any person
any right to subscribe for or acquire from the Company any shares of such
capital stock.
(x) Upon completion of the Offering, the authorized equity
capital of the Company will be within the range set forth in the Prospectus
under the caption "Capitalization." The shares of Common Stock to be sold
in the Offering have been duly and validly authorized for issuance and,
when issued and delivered by the Company against payment of the
consideration therefor, the shares of Common Stock will be duly and validly
issued, fully paid and non-assessable and will be free and clear of any
security interest, pledge, lien, encumbrance, claim or equity other than
created by the purchaser thereof; and the issuance of the shares of Common
Stock will not be in violation of any preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's charter,
bylaws or other governing documents or any agreement, plan or other
instrument to which the Company or the Bank is party or by which it is
bound. The terms and provisions of the shares of Common Stock conform and
will conform in all material respects to the description thereof contained
in the Prospectus and the certificates representing the shares of Common
Stock will conform with the requirements of applicable laws and
regulations.
(xi) Each of the Company, the Bank and Frontier have full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus; the Company, the
Bank and their subsidiaries have obtained all licenses, permits and other
governmental authorizations currently required for the conduct of their
respective businesses; all such licenses, permits and other governmental
authorizations are in full force and effect and the Company, the Bank and
their subsidiaries are in all material respects in compliance therewith;
neither the Company nor the Bank nor their subsidiaries have received
notice of any proceeding or action relating to the revocation or
modification of any such license, permit or other governmental
authorization which, singly or in the aggregate, if the subject of an
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unfavorable decision, ruling or finding, might materially and adversely
affect the conduct of the business or financial condition, results of
operations, or business of the Company, the Bank and their subsidiaries,
taken as a whole; and the Bank and Frontier are in good standing under the
laws of the United States and are not required to qualify as a foreign
corporation in any jurisdiction.
(xii) The deposit accounts of the Bank and Frontier are insured
by the FDIC up to the applicable limits.
(xiii) All of the issued and outstanding capital stock of the
Bank has been duly and validly issued and is fully paid and nonassessable,
and all such capital stock is owned beneficially and of record by the
Company free and clear of any mortgage, pledge, lien, encumbrance, claim or
equity.
(xiv) (A) Each of the Bank and Frontier has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement and Prospectus, and
is duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business except
where the failure to so qualify would not have a material adverse effect on
the financial condition, results of operations, or business of the Company,
the Bank and their subsidiaries, taken as a whole; the activities of each
are permitted to a national bank by the rules, regulations, resolutions and
practices of the OCC; all of the issued and outstanding capital stock of
each has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(B) Except for the Bank and Frontier, the Company has no
direct or indirect subsidiary that is a "significant subsidiary" as defined
in Rule 1-02 of Regulation S-X of the rules and regulations of the
Commission. Venco Mortgage Corporation and Frontier Services Inc., wholly
owned subsidiaries of Frontier, and Ventura Capital Fund, Inc. and Ventura
County Management Services, Inc., wholly owned subsidiaries of the Bank,
each have been duly incorporated and organized under the laws of the State
of California and have each filed an election to wind up and dissolve with
the Secretary of State of the State of California.
(xv) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action of the Company and the Bank,
and this Agreement has been duly executed and delivered by and is the valid
and binding agreement of the Company and the Bank enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
laws affecting the enforceability of the rights of creditors generally and
judicial limitations on the right of specific performance and except as the
enforceability of indemnification and contribution provisions may be
limited by applicable securities laws.
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(xvi) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as otherwise may be indicated or contemplated therein,
none of the Company, the Bank or any subsidiary of the Company or the Bank
will have (A) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, except borrowings in
the ordinary course of business from the same or similar sources indicated
in the Prospectus, or (B) entered into any transaction or series of
transactions which is material in light of the business of the Company, the
Bank and their subsidiaries, taken as a whole, excluding the origination,
purchase and sale of loans or the purchase or sale of investment securities
or mortgaged-backed securities in the ordinary course of business or
otherwise as indicated in the Prospectus.
(xvii) No approval of any regulatory or supervisory or other
public authority including but not limited to the OCC and the FRB is
required in connection with the execution and delivery of this Agreement or
the issuance of the Securities, except for the declaration of effectiveness
of any required post-effective amendment to the Registration Statement by
the Commission and as may be required under the securities laws of various
jurisdictions.
(xviii) Neither the Company nor the Bank nor any of their
subsidiaries is in violation of its charter or bylaws or in default (nor
has any event occurred which, with notice or lapse of time or both, would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Company, the Bank or any of their subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company, the Bank or any of their subsidiaries is subject.
(xix) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein do not and
will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, the Bank or any of their
subsidiaries pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company, the Bank
or any of their subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
of its subsidiaries is subject, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company, the
Bank or any of their subsidiaries, or any applicable law, administrative
regulation or administrative or court decree.
(xx) No labor dispute with the employees of the Company, the Bank
or any of its subsidiaries exists or, to the knowledge of the Company or
the Bank, is imminent; and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal
suppliers or contractors which might be expected to result in any material
adverse change in the financial condition, results
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of operations, or business of the Company, the Bank and their subsidiaries,
taken as a whole.
(xxi) The Company, the Bank and their subsidiaries have good and
marketable title to all properties and assets for which ownership is
material to the business of the Company, the Bank or their subsidiaries and
to those properties and assets described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not material in
relation to the business of the Company, the Bank or their subsidiaries
considered as one enterprise; and all of the leases and subleases material
to the business of the Company, the Bank or their subsidiaries under which
the Company, the Bank or their subsidiaries hold properties, including
those described in the Prospectus, are valid and binding.
(xxii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company or the Bank, threatened, against or
affecting the Company, the Bank or any of their subsidiaries, which is
required to be disclosed in the Registration Statement (other than as
disclosed therein), or which is likely to result in any material adverse
change in the financial condition, results of operations, or business of
the Company, the Bank and their subsidiaries, taken as a whole, or which is
likely to materially and adversely affect the properties or assets thereof
or which is likely to materially and adversely affect the performance of
this Agreement or the consummation of the transactions herein contemplated
or described in the Prospectus; all pending legal or governmental
proceedings to which the Company, the Bank or any subsidiary is a party or
of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, are, considered in the aggregate,
not material; and there are no contracts or documents of the Company or any
of its subsidiaries which are required to be filed as exhibits to the
Registration Statement which have not been so filed.
(xxiii) The Company has obtained opinions of its counsel,
Manatt, Phelps & Phillips, with respect to the legality of the Securities
issued and the federal income tax consequences of the Offering, copies of
which are filed as exhibits to the Registration Statement; all material
aspects of the aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such opinions are
based are truthful, accurate and complete in all material respects, and
neither the Company nor the Bank has taken or will take any action
inconsistent therewith.
(xxiv) Each lease of real property (together with any
improvements thereon) and all material personal property to which the
Company or the Bank is a party has been duly authorized, executed and
delivered, and is the legal, valid and binding agreement of the Company or
the Bank enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditors'
rights, to general principles of equity, and to laws relating to the safety
and soundness of insured
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depository institutions and their institution affiliated parties as set
forth in 12 U.S.C. (S) 1818(b).
(xxv) Except as disclosed in the Prospectus, as of the date of
the Prospectus and the Closing Date, neither the Company nor the Bank or
any of their subsidiaries is in violation of any directive or order
(including any memorandum of understanding) specific to the Company, the
Bank or Frontier from the OCC, the FRB, or any other agency to make any
material change in the method of conducting its business as described in
the Prospectus or as otherwise presently contemplated; there are no
directives or orders specific to the Company, the Bank or Frontier from the
FRB or the OCC or any other regulatory agency other than those disclosed in
the Prospectus; and each of the Company and the Bank is conducting its
business so as to comply in all material respects with all applicable
statutes and regulations.
(xxvi) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock.
(xxvii) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxviii) The Company and the Bank and their subsidiaries are in
compliance in all material respects with the applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transaction Reporting Act of 1970, as amended, and the rules and
regulations thereunder, and the lending practices of the Bank are and have
been, in all material respects, in conformity with the Real Estate
Settlement Procedures Act, as amended, and the rules and regulations
thereunder.
(xxix) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank or
Frontier included in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to lending,
including without limitation truth in lending (including the requirements
of Regulations Z and 12 C.F.R. Part 226 and Section 563.99), consumer
credit protection, equal credit opportunity and all disclosure laws
applicable to such loans, except for violations which, if asserted, would
not have a material adverse effect on the Bank or Frontier.
(xxx) To the knowledge of the Company and the Bank, none of the
Company, the Bank, Frontier or employees of the Bank or Frontier has made
any payment of funds of the Company or the Bank or Frontier as a loan for
the purchase of the Securities or made any other payment of funds
prohibited by law, and no funds have been set aside to be used for any
payment prohibited by law.
(xxxi) Neither the Company, the Bank, any subsidiary of the
Company or the Bank nor any properties owned or operated by the Company,
the Bank
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or any subsidiary of the Company or the Bank is in violation of or liable
under any Environmental Law (as defined below), except for such violations
or liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of operations,
or business the Company, the Bank and their subsidiaries, taken as a whole.
There are no actions, suits or proceedings, or demands, claims, notices or
investigations (including, without limitation, notices, demand letters or
requests for information from any governmental agency) instituted or
pending, or to the knowledge of the Company or the Bank threatened,
relating to the liability of any property owned or operated by the Company,
the Bank or any subsidiary thereof, under any Environmental Law. For
purposes of this subsection, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, order, judgment,
decree, injunction or agreement with any regulatory authority relating to
(i) the protection, preservation or restoration of the environment
(including, without limitation, air, water, vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, whether by type or by
quantity, including any material containing any such substance as a
component.
(xxxii) The Company, the Bank and their subsidiaries have filed
all federal income and state and local franchise tax returns required to be
filed, or have received extensions thereof, and have made timely payments
of all taxes shown as due and payable in respect of such returns, and no
deficiency has been asserted with respect thereto by any taxing authority.
(xxxiii) The Company has received approval, subject to issuance,
to have the Securities and the Rights quoted on the National Market System
of the National Association of Securities Dealers' Automated Quotation
System ("Nasdaq National Market") effective on the Closing Date.
(b) Any certificate signed by any officer of the Company or the Bank
and delivered to either of the Agent or to counsel for the Agent shall be deemed
a representation and warranty by the Company or the Bank to each as to the
matters covered thereby.
SECTION 2. Appointment of Sandler O'Neill; Sale and Delivery of
the Securities; Closing.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its Agent to consult with and advise the Company
regarding the structure of the Offering, as well as to identify Standby
Purchasers and assist the Bank in negotiating Standby Purchase Agreements with
the Standby Purchasers. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth,
Sandler O'Neill accepts such appointment and agrees to provide services to the
Company as to the matters
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described below; provided, however, that the Agent shall not be obligated to
sell any minimum number of shares of Common Stock to any particular category of
purchaser or in the aggregate or take any action which is inconsistent with any
applicable laws, regulations, decisions or orders. The services to be rendered
by Sandler O'Neill pursuant to this appointment include the following: (i)
identifying prospective Standby Purchasers and assisting in the negotiation of
Standby Purchase Agreements with such Standby Purchasers; (ii) assisting the
Company's management in preparing for meetings with existing shareholders and
other potential investors in the Offering; and (iii) providing such other
general advice and assistance as may be requested to promote the successful
completion of the Offering.
If at least the total minimum of Securities, as disclosed on the cover
of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to below. The closing shall be held at the
offices of Manatt, Phelps & Phillips, at 10:00 a.m., local time, or at such
other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions. The
date upon which the Company shall release for delivery all of the Securities, in
accordance with the terms hereof, is herein called the "Closing Date." The hour
on the Closing Date at which the Company shall release for delivery all of the
Securities in accordance with the terms hereof is called the "Closing Time."
Appropriate arrangements for placing the funds received from
subscriptions for Securities or other offers to purchase Securities were made
prior to the commencement of the Rights Offering, with provision for refund to
the purchasers as set forth in Section 9 hereof, or for delivery to the Company
if all Securities are sold. The Company shall not be deemed to have received
any subscription offer or exercise of a Right accompanied by a check or
comparable instrument until final payment has been made on such check or
instrument. The Company will pay any stock issue and transfer taxes which may
be payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 4
hereof, the Agent will receive the following compensation for its services
hereunder:
(a) a non-refundable advisory fee of $25,000, previously paid by the
Company;
(b) one and one-half percent (1.50%) of the aggregate purchase price
of the Common Stock sold in the Offering pursuant to the exercise of
Subscription Rights by directors and officers of the Company and principals
and officers of the Agent ("Interested Parties");
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(c) three percent (3%) of the aggregate purchase price of the Common
Stock sold in the Offering pursuant to the exercise of subscription rights
by persons other than Interested Parties; and
(d) five percent (5%) of the aggregate value of funds committed by
investors who execute standby purchase agreements.
The above fees are subject to a minimum aggregate compensation to the
Agent of $225,000.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Offering is terminated by the Company,
the Company shall pay to Sandler O'Neill the financial advisory fee set forth in
Section 2(a) hereof and reimburse Sandler O'Neill for all of its reasonable out-
of-pocket expenses incurred prior to termination including the reasonable fees
and disbursements of counsel for the Agent, up to an aggregate of $100,000, upon
receipt by the Company or the Bank of a written accounting therefor setting
forth in reasonable detail the expenses incurred by the Agent.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at the Closing Time, or upon the termination of this
Agreement, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with the
Agent as follows:
(a) The Company will prepare and file such amendments or supplements
to the Registration Statement and the Prospectus as may hereafter be
required by the 1933 Act Regulations or as may hereafter be requested by
the Agent. The Company will notify the Agent immediately, and confirm the
notice in writing, (i) of the effectiveness of any post-effective amendment
of the Registration Statement or the filing of any supplement to the
Prospectus, (ii) of the receipt of any comments from the Commission with
respect to the transactions contemplated by this Agreement, (iii) of any
request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional
information, (iv) of the receipt of any order, directive, request or other
correspondence from the FRB or the OCC relating to the Offering, (v) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose, and (vi) of the receipt of any notice with respect to the
suspension of any qualification of the Securities for offering or sale in
any jurisdiction. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain
the withdrawal thereof at the earliest possible moment.
(b) The Company will give the Agent notice of its intention to file or
prepare any amendment to the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use in
connection with the Offering of the Securities which differs from the
prospectus on file at the Commission at the time the Registration
<PAGE>
-13-
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations),
will furnish the Agent with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which the Agent or counsel for the Agent shall object.
(c) The Company will deliver to the Agent as many signed copies and as
many conformed copies of the Registration Statement as originally filed and
of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) as the Agent may reasonably request, and
from time to time such number of copies of the Prospectus as the Agent may
reasonably request.
(d) During the period when the Prospectus is required to be delivered,
the Company will comply, at its own expense, with all requirements imposed
upon it by the Commission, as from time to time in force, and by the 1933
Act, the 1933 Act Regulations, the Securities Exchange Act of 1934 (the
"1934 Act") and the rules and regulations of the Commission promulgated
thereunder, including, without limitation, Rule 10b-6 under the 1934 Act,
so far as necessary to permit the continuance of sales or dealing in shares
of Common Stock during such period in accordance with the provisions hereof
and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it
is necessary, in the opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser, the Company will forthwith amend or supplement the Prospectus
(in form and substance satisfactory to counsel for the Agent) so that, as
so amended or supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not misleading, and
the Company will furnish to the Agent a reasonable number of copies of such
amendment or supplement. For the purpose of this subsection, the Company
will furnish such information with respect to itself as the Agent may from
time to time reasonably request.
(f) The Company will take all necessary action, in cooperation with
the Agent, to qualify the Securities for offering and sale under the
applicable securities laws of such states of the United States and other
jurisdictions as the Agent and the Company have agreed; provided, however,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. In each jurisdiction in
which the Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction
to continue such qualification in effect for a period of not less than six
months from the effective date of the Registration Statement.
<PAGE>
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(g) The Company authorizes Sandler O'Neill to act as agent of the
Company in distributing the Prospectus to persons having record addresses
in the states or jurisdictions set forth in a survey of the securities or
"blue sky" laws of the various jurisdictions in which the Offering will be
made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
(i) During the period of five years hereafter, the Company will
furnish to its stockholders as soon as practicable after the end of each
fiscal year an annual report (including statements of financial condition
and statements of income, stockholders' equity and cash flows of the
Company, the Bank and their subsidiaries, certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement) consolidated
summary financial information of the Company, the Bank and its subsidiaries
for such quarter in reasonable detail. In addition, such annual report and
quarterly consolidated summary financial information shall be made public
through the issuance of appropriate press releases at the same time or
prior to the time of the furnishing thereof to stockholders of the Company.
(j) During the period of five years hereafter, the Company will
furnish to the Agent (i) as soon as available, a copy of each report or
other document of the Company furnished generally to stockholders of the
Company or furnished to or filed with the Commission under the 1934 Act or
any national securities exchange or system on which any class of securities
of the Company is listed, and (ii) from time to time, such other
information concerning the Company as the Agent may reasonably request.
(k) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectus under "Use of
Proceeds."
(l) The Company will file all documents and notices required by the
Nasdaq National Market and will use its best efforts to maintain the
listing of the Common Stock on the Nasdaq National Market.
(m) The Company will take such actions and furnish such information as
are reasonably requested by the Agent in order for the Agent to ensure
compliance with the National Association of Securities Dealers, Inc.'s
"Interpretation Relating to Free-Riding and Withholding" in connection with
the sale of the Securities.
(n) Other than the Prospectus or as permitted by applicable law, the
Company will not distribute any prospectus or other offering material in
connection with the offer
<PAGE>
-15-
and sale of the Securities and will not publish any writing which
constitutes an offer or prospectus.
(o) The Company will use all reasonable efforts to comply with such
requirements as may be necessary for the Agent or other brokerage firms to
make an active market for the Rights and the shares of Common Stock.
(p) The Company will cause to be maintained records of all funds
submitted to the Company's subscription agent in connection with the
Offering and deposited by it in an escrow account to enable the Company to
make appropriate refunds of such funds in the event that such refunds are
required to be made in accordance with the Offering as described in the
Prospectus.
(q) The Company will furnish to you as early as practicable prior to
the Closing Date, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim consolidated
financial statements of the Bank which have been read by Deloitte & Touche
LLP as stated in their letters to be furnished pursuant to subsections (d)
and (e) of Section 5 hereof.
(r) The Company shall not deliver the Securities until the Company has
satisfied or caused to be satisfied each condition set forth in Section 5
hereof, unless such condition is waived by the Agent.
(s) Subsequent to the respective dates as to which information in
given in the Prospectus and prior to the Closing Date, except as otherwise
may be indicated or contemplated therein, the Company will not (i) issue
any securities, other than pursuant to the Company's existing stock option
plans, or incur any liability or obligation, direct or contingent, for
borrowed money, except borrowings from the same or similar sources
indicated in the Prospectus in the ordinary course of business, or (ii)
enter into any transaction, other than in the ordinary course of business
which might result in any material adverse change in the financial
condition, results of operations, or business of the Company, the Bank and
their subsidiaries, taken as a whole.
SECTION 4. Payment of Expenses. The Company shall pay all
expenses incident to the performance of their obligations under this Agreement,
including but not limited to (i) the cost of obtaining all securities and bank
regulatory approvals, (ii) the printing and filing of the Registration Statement
as originally filed and of each amendment thereto, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the purchasers
in the Offering, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees and disbursements of counsel in connection
therewith and in connection with the preparation of the Blue Sky Survey in an
amount not to exceed $25,000, (vi) the printing and delivery to the Agent of
copies of the Registration Statement as originally filed and of each amendment
thereto and the printing and delivery of the Prospectus and any amendments or
supplements thereto to the purchasers in the Offerings and the Agent, (vii) the
printing and delivery to the Agent of copies of a Blue Sky
<PAGE>
-16-
Survey, and (viii) the fees and expenses incurred in connection with the listing
of the Securities on the Nasdaq National Market. In the event the Agent incurs
any such fees and expenses on behalf of the Company, the Company will reimburse
the Agent for such fees and expenses whether or not the Offering is consummated;
provided, however, that the Agent shall not incur any substantial expenses on
behalf of the Company pursuant to this Section without the prior approval of the
Company.
The Company shall pay certain expenses incident to the performance of the
Agent's obligations under this Agreement, including (i) the filing fees paid or
incurred by the Agent in connection with all filings with the National
Association of Securities Dealers, Inc., and (ii) all reasonable out of pocket
expenses incurred by the Agent relating to the Offerings, including, without
limitation, advertising, promotional, and travel expenses and fees and expenses
of the Agent's counsel, up to an aggregate of $100,000. All fees and expenses
to which the Agent is entitled to reimbursement under this paragraph of this
Section 4 shall be due and payable upon receipt by the Company of a written
accounting therefor setting forth in reasonable detail the expenses incurred by
the Agent.
SECTION 5. Conditions of Agent's Obligations. The Company and the
Agent agree that the issuance and the sale of Securities and all obligations of
the Agent hereunder are subject to the accuracy of the representations and
warranties of the Company and the Bank herein contained as of the date hereof
and as of the Closing Date, to the accuracy of the written statements of
officers and directors of the Company made pursuant to the provisions hereof, to
the performance by the Company of their obligations hereunder, and to the
following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, no order suspending the sale of
the Securities in any jurisdiction shall have been issued, and no order,
directive, request or other correspondence has been received by the
Company, the Bank, or Frontier from the FRB or the OCC which could have the
effect of delaying or canceling the Offering.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Manatt,
Phelps & Phillips, counsel for the Company and the Bank, in form and
substance satisfactory to counsel for the Agent, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of California.
(ii) The Company has full corporate power and authority to
own, lease and operate its properties and to conduct its business
as described in the Registration Statement and Prospectus and to
enter into and perform its obligations under this Agreement.
<PAGE>
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(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction
in which such qualification is required except where the failure
to be so qualified would not have a material adverse effect upon
the financial condition, results of operations, or business of
the Company, the Bank and their subsidiaries, taken as a whole.
(iv) The authorized capital stock of the Company is
correctly set forth in the Registration Statement and Prospectus
under the caption "Capitalization" and, to the best of our
knowledge, upon consummation of the Offering, the issued and
outstanding capital stock of the Company will be within the range
set forth in the Registration Statement and Prospectus under the
caption "Capitalization."
(v) The Securities have been duly and validly authorized for
issuance and sale and, when issued and delivered by the Company
pursuant to the terms of the Offering against payment of the
consideration therefor in accordance with the description set
forth in the Prospectus, will be duly and validly issued and
fully paid and non-assessable and will be owned free and clear of
any mortgage, pledge, loan, security interest, encumbrance, or
claim (legal or equitable) other than that created by the
purchaser thereof or by a third party other than the Company with
respect to a purchaser thereof.
(vi) The issuance of the Securities is not subject to
preemptive or other similar rights arising by operation of law
or, to the best of such counsel's knowledge and information,
otherwise.
(vii) Each of the Bank and Frontier has been duly
organized, and is validly existing and in good standing under the
laws of the United States of America as a national bank, with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus; and each of the Bank
and Frontier are duly qualified as a foreign corporation in each
jurisdiction in which such qualification is required.
(viii) The deposit accounts of each of the Bank and
Frontier are insured by the FDIC up to the maximum amount allowed
by law.
(ix) Each direct and indirect subsidiary of the Company, the
Bank and Frontier has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Registration Statement and is
duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such
<PAGE>
-18-
qualification is required; the activities of each such subsidiary
are permitted to subsidiaries of a national bank by the rules,
regulations, resolutions and practices of the OCC; all of the
issued and outstanding capital stock of each such subsidiary has
been duly authorized and validly issued, is fully paid and non-
assessable and is owned by the Bank or Frontier, respectively,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
For purposes of the opinions set forth in this section 5(b)(1)
the term "subsidiaries" refers only to those subsidiaries of the
Company, the Bank or Frontier which would be considered a
"significant subsidiary" within the meaning of Regulation S-X,
Rule 1-02 promulgated by the Commission.
(x) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part
of the Company and this Agreement constitutes the legal, valid
and binding agreement of the Company, enforceable in accordance
with its terms, except as rights to indemnity, contribution and
limitations of liability hereunder may be limited under
applicable law (it being understood that such counsel may avail
itself of customary exceptions concerning the effect of
bankruptcy, insolvency or similar laws and the availability of
equitable remedies); and to the best of such counsel's knowledge
will not conflict with or constitute a breach of, or default
under, and no event has occurred which, with notice or lapse of
time or both, would constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company, the Bank or any of their
subsidiaries pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company,
the Bank or any of their subsidiaries is a party or by which any
of them may be bound, or to which any of the property or assets
of the Company, the Bank or any of their subsidiaries is subject,
nor will such execution or delivery result in any violation of
the provisions of the charter or by-laws of the Company, the Bank
or any of their subsidiaries.
(xi) The Registration Statement is effective under the 1933
Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission.
(xii) No further approval, authorization, consent or other
order of any public board or body is required in connection with
the execution and delivery of this Agreement or the issuance of
the Securities, except as may be required under the securities or
Blue Sky laws of various jurisdictions as to which no opinion
need be rendered.
<PAGE>
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(xiii) At the time the Registration Statement became
effective, the Registration Statement (other than the financial
statements and statistical data included therein, as to which no
opinion need be rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xiv) The Common Stock conforms to the description thereof
contained in the Prospectus, and the form of certificate used to
evidence the Common Stock is in due and proper form and complies
with all applicable statutory requirements.
(xv) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
or affecting the Company, the Bank or their subsidiaries which
are required to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, which would have
a material adverse effect upon the financial condition or results
of operations of the Company and its subsidiaries taken as a
whole.
(xvi) The information in the Prospectus under " Market
Price of Common Stock and Dividends," "Certain Federal Income Tax
Consequences," "Supervision and Regulation," and "Description of
Capital Stock," to the extent that it constitutes matters of law,
summaries of legal matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is correct in all
material respects.
(xvii) To the best of such counsel's knowledge, there are
no contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments required to be described or referred
to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or
filed as exhibits thereto and the descriptions thereof or
references thereto are correct.
(xviii) To the best of such counsel's knowledge, the
Company and the Bank and their subsidiaries have obtained all
licenses, permits and other governmental authorizations currently
required for the conduct of their respective businesses as
described in the Registration Statement and Prospectus, and all
such licenses, permits and other governmental authorizations are
in full force and effect, and the Company and the Bank and their
subsidiaries are in all material respects complying therewith.
(xix) Neither the Company, the Bank nor any of their
subsidiaries is in violation of its charter or bylaws or, to the
best of such counsel's knowledge, in default (nor has any event
occurred which, with notice or lapse of time or both, would
constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained
<PAGE>
-20-
in any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company, the Bank or any of
their subsidiaries is a party or by which the Company, the Bank
or any of their subsidiaries or any of their property may be
bound.
(xx) The Company is not required to be registered as an
investment company under the Investment Company Act of 1940.
(2) The favorable opinion, dated as of Closing Time, of Thacher
Proffitt & Wood, counsel for the Agent, with respect to the matters
set forth in Section 5(b)(1)(i), (iv), (v), (vi) (solely as to
preemptive rights arising by operation of law), (x), (xiii) and (xiv)
and such other matters as the Agent may reasonably require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Manatt, Phelps & Phillips and
Thacher Proffitt & Wood shall each additionally state that nothing has
come to their attention that would lead them to believe that the
Registration Statement (except for financial statements and schedules
and other financial or statistical data included therein, as to which
counsel need make no statement), at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except for
financial statements and schedules and other financial or statistical
data included therein, as to which counsel need make no statement), at
the time the Registration Statement became effective or at Closing
Time, included an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. In giving their opinions, Manatt, Phelps & Phillips
and Thacher Proffitt & Wood may rely as to matters of fact on
certificates of officers and directors of the Company and the Bank and
certificates of public officials, and Thacher Proffitt & Wood may also
rely on the opinion of Manatt, Phelps & Phillips.
(c) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in
the financial condition, results of operations, or business of the Company,
the Bank and their subsidiaries, taken as a whole, whether or not arising
in the ordinary course of business, and the Agent shall have received a
certificate of the President and Chief Executive Officer of the Company,
and the chief financial or chief accounting officer of the Company, dated
as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) there shall have been no material transaction entered
into by the Company, the Bank or Frontier from the date of the latest
statement of financial condition of the Company, the Bank or Frontier as
set forth in the Registration Statement and the Prospectus other than
transactions referred to or contemplated therein and transactions in the
ordinary course of business, (iii) except as previously disclosed in the
Prospectus, neither the Company,
<PAGE>
-21-
the Bank nor Frontier shall have received from the OCC any direction (oral
or written) to make any material change in the method of conducting its
business with which it has not complied (which direction, if any, shall
have been disclosed to the Agent) or which materially and adversely would
affect the business, financial condition or results of operations of the
Company, the Bank or Frontier, (iv) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, except as to any such
representation or warranty which specifically relates to an earlier date,
(v) the Company and the Bank have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at or
prior to Closing Time, (vi) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission, (vii) no
order, directive, request or other correspondence has been received by the
Company, the Bank or Frontier from the FRB or the OCC which could have the
effect of delaying or canceling the Offering, and (viii) neither Venco
Mortgage Corporation, Frontier Services, nor Ventura Capital Fund, Inc. is
a "significant subsidiary" of the Company, the Bank or Frontier within the
meaning of Regulation S-X, Rule 1-02 promulgated by the Commission.
(d) At the time of the execution of this Agreement, the Agent shall
have received from Deloitte & Touche LLP a letter dated such date, in form
and substance satisfactory to the Agent, to the effect that (i) they are
independent certified public accountants with respect to the Company, the
Bank and their subsidiaries within the meaning of the Code of Ethics of the
American Institute of Certified Public Accountants, the 1933 Act and the
1933 Act Regulations; (ii) it is their opinion that the consolidated
financial statements and supporting schedules included in the Registration
Statement and covered by their opinions therein comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations; (iii) based upon limited procedures as
agreed upon by the Agent and Deloitte & Touche LLP and set forth in detail
in such letter, nothing has come to their attention which causes them to
believe that (A) the unaudited financial statements and supporting
schedules of the Bank, Frontier and their subsidiaries included in the
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the 1933
Act Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement
and the Prospectus, (B) the unaudited amounts set forth under "Summary
Selected Consolidated Financial and Other Data" in the Prospectus were not
determined on a basis substantially consistent with that used in
determining the corresponding amounts in the audited financial statements
included in the Registration Statement and the Prospectus, (C) at a
specified date not more than five days prior to the date of this Agreement,
there has been any increase in the consolidated long term or short term
debt of the Company and its subsidiaries or any decrease in consolidated
total assets, allowance for loan losses, total deposits or shareholders
equity of the Company and its subsidiaries, in each case as compared with
the amounts shown in the December 31, 1994 balance sheet included in the
Registration Statement or, (D) during the period from December 31, 1994 to
a specified date not more than five days prior to the date of this
Agreement, there were
<PAGE>
-22-
any decreases, as compared with the corresponding period in the preceding
year, in total interest income, net interest income, net interest income
after provision for loan losses, income before income tax expense or net
income of the Bank and Frontier, except in all instances for increases or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur; and (iv) in addition to the examination referred to
in their opinions and the limited procedures referred to in clause (iii)
above, they have carried out certain specified procedures, not constituting
an audit, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus
and which are specified by the Agent, and have found such amounts,
percentages and financial information to be in agreement with the relevant
accounting, financial and other records of the Company and its subsidiaries
identified in such letter.
(e) At Closing Time, the Agent shall have received from Deloitte &
Touche LLP a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection
(d) of this Section, except that the specified date referred to shall be a
date not more than five days prior to Closing Time.
(f) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
Agent and counsel for the Agent.
(g) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or escalation thereof or
other calamity or crisis the effects of which, in the judgment of the
Agent, are so material and adverse as to make it impracticable to market
the Securities or to enforce contracts, including subscriptions or orders,
for the sale of the Securities, and (ii) trading generally on either the
American Stock Exchange or the New York Stock Exchange shall not have been
suspended, and minimum or maximum prices for trading shall not have been
fixed, or maximum ranges for prices for securities have been required, by
either of said Exchanges or by order of the Commission or any other
governmental authority, and a banking moratorium shall not have been
declared by Federal, New York or California authorities.
SECTION 6. Indemnification.
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless the Agent, each person, if any, who controls the Agent, within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and its
respective partners, directors, officers, employees and agents as follows:
<PAGE>
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(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, related to or arising out of the
Offering or any action taken by the Agent where acting as agent of the
Company or otherwise as described in Section 2 hereof or in the Engagement
Letter dated October 7, 1994 between the Company and the Agent; provided,
however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense found in a final judgment by a court to
have resulted primarily from the bad faith, willful misconduct or gross
negligence of the Agent.
(ii) from and against any and all loss, liability, claim, damage
and expense, as incurred, related to or arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(iii) from and against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
of any claim whatsoever described in clauses (i) or (ii) above, if such
settlement is effected with the written consent of the Company or the Bank,
which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and disbursements of
counsel chosen by the Agent), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation,
proceeding or inquiry by any governmental agency or body, commenced or
threatened, or any pending or threatened claim whatsoever described in
clauses (i) or (ii) above, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
provided, however, that in no event shall the amount payable by the Bank exceed
the product of (i) the total amount of the indemnification obligation under
Section 6(a) and (ii) a fraction the numerator of which is the amount of net
proceeds of the Offering received by the Bank from the Company prior to the time
any action, suit or proceeding is initiated or claim asserted for which
indemnification would be sought under Section 6(a) and the denominator of which
is the amount of the total net proceeds received by the Company from the
Offering; this indemnity will be in addition to any liability which the Bank may
otherwise have, and
provided, further, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact required to be stated therein or necessary to make
not misleading any statements contained in the Registration Statement (or
<PAGE>
-24-
any amendment thereto) or the Prospectus (or any amendment or supplement
thereto), made in reliance upon and in conformity with written information
relating to the Agent furnished to the Company by the Agent expressly for use in
the Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), which information is included in the section
of the Prospectus captioned "The Rights Offering -- Financial Advisor."
(b) The Agent agrees to indemnify and hold harmless the Company its
directors and its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with the Agent
Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder. No indemnification provided
for in Section 6(a) or 6(b) shall be available to any party who shall fail to
give notice as provided in this Section 6(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice but the omission so
to notify such indemnifying party of any such action, suit or proceeding shall
not relieve it from any liability that it may have to any indemnified party for
contribution or otherwise than under this Section 6. An indemnifying party may
participate at its own expense in the defense of any such action. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances.
(d) The Company also agrees that the Agent shall not have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company, its security holders or the Company's creditors relating to or arising
out of the engagement of the Agent pursuant to, or the performance by the Agent
of the services contemplated by, this Agreement, except to the extent that any
loss, claim, damage or liability is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from the Agent's bad faith,
willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
(6)(a)(iv) hereof, in the event that the Agent, any person, if any, who controls
the Agent within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act or any of their respective partners, directors, officers, employees or
agents is requested or required to appear as a witness or otherwise gives
testimony in any action, proceeding, investigation or inquiry brought by or on
behalf of or against the Company, the Agent or any of its respective affiliates
or any participant in the transactions contemplated hereby in which the Agent is
not named as a defendant, the Company agrees to reimburse the Agent for all
reasonable and necessary out-of-
<PAGE>
-25-
pocket expenses incurred by it in connection with preparing or appearing as a
witness or otherwise giving testimony.
SECTION 7. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 hereof is for any reason held to be unenforceable by
the indemnified parties although applicable in accordance with its terms, the
Company and the Agent shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by said indemnity
agreement incurred by the Company and the Agent, as incurred, in such
proportions (i) that the Agent is responsible for that portion represented by
the percentage that the maximum aggregate marketing fees appearing on the cover
page of the Prospectus bears to the maximum aggregate gross proceeds appearing
thereon and the Company is responsible for the balance or (ii) if, but only if,
the allocation provided for in clause (i) is for any reason held unenforceable,
in such proportion as is appropriate to reflect not only the relative benefits
to the Company on the one hand and the Agent on the other, as reflected in
clause (i), but also the relative fault of the Company on the one hand and the
Agent on the other, as well as any other relevant equitable considerations;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls the Agent within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Agent, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. Notwithstanding anything to the contrary set forth
herein, to the extent permitted by applicable law, in no event shall the Agent
be required to contribute an aggregate amount in excess of the aggregate
marketing fees to which the Agent is entitled and actually paid pursuant to this
Agreement. Neither party shall be liable for contribution for claims settled
without such party's consent provided such consent is not unreasonably withheld.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Agent or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities.
SECTION 9. Termination of Agreement.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been, since the date of
this Agreement or since the respective dates as of which information is given in
the Registration Statement, any material adverse change in the financial
condition, results of operations, or business of the Company, the Bank and their
subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business; (ii) if there has occurred any material adverse change in the
financial markets in the United States or elsewhere or any outbreak of
hostilities or escalation
<PAGE>
-26-
thereof or other calamity or crisis the effects of which, in the judgment of the
Agent, are so material and adverse as to make it impracticable to market the
Securities or to enforce contracts, including subscriptions or orders, for the
sale of the Securities; (iii) if trading generally on either the American Stock
Exchange or the New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal, New York or California authorities; (iv) if any
condition specified in Section 5 shall not have been fulfilled when and as
required to be fulfilled; (v) if there shall have been such material adverse
change in the condition or prospects of the Company or the Bank or the
prospective market for the Company's securities as in the Agent's good faith
opinion would make it inadvisable to proceed with the offering, sale or delivery
of the Securities; or (vi) if the Company is unable to sell at least the total
minimum of Securities, as disclosed on the cover of the Prospectus, or if the
Offering is not consummated for any other reason, prior to September 30, 1995.
(b) If this Agreement is terminated pursuant to this Section, the
Company shall refund to any persons who have subscribed for any of the
Securities the full amount which it may have received from them, without
interest, as provided in the Prospectus, such termination shall be without
liability of any party to any other party except that the provisions of Section
4 hereof relating to reimbursement of expenses and the provisions of Sections 6
and 7 hereof shall survive any termination of this Agreement.
SECTION 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Agent
shall be directed to the Agent at Two World Trade Center, 104th Floor, New York,
New York 10048, attention of Thomas W. Killian, Managing Director, with a copy
to Thacher Proffitt & Wood at Two World Trade Center, 39th Floor, New York, New
York 10048, attention of Omer S.J. Williams; notices to the Company shall be
directed to the Company at 500 Esplanade Drive, Oxnard, California 93030,
attention of Richard S. Cupp, President and Chief Executive Officer, with a copy
to Manatt, Phelps & Phillips at 11355 West Olympic Boulevard, Los Angeles,
California 90064, attention of William T. Quicksilver.
SECTION 11. Parties. This Agreement shall inure to the benefit of and
be binding upon the Agent and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Agent and the
Company and their respective successors and the controlling persons and officers
and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the Agent and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation.
<PAGE>
-27-
SECTION 12. Entire Agreement; Amendment. This Agreement represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made other than those specifically mentioned
herein. No waiver, amendment or other modification of this Agreement shall be
effective unless in writing and signed by the parties hereto.
SECTION 13. Governing Law and Time. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said State without regard to the
conflicts of laws provisions thereof. Specified times of day refer to Pacific
time unless otherwise noted herein.
SECTION 14. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 15. Headings. Sections headings are not to be considered part
of this Agreement, are for convenience and reference only, and are not to be
deemed to be full or accurate descriptions of the contents of any paragraph or
subparagraph.
<PAGE>
-28-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
Ventura County National Bancorp
By:
----------------------------------
Name:
Title:
Ventura County National Bank
By:
----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By:
----------------------------------
Name:
Title:
<PAGE>
SUBSCRIPTION RIGHT CERTIFICATE NO.
NUMBER OF RIGHTS:
CUSIP NO. 923 214 118
RIGHTS TO PURCHASE COMMON STOCK OF
VENTURA COUNTY NATIONAL BANCORP
VENTURA COUNTY NATIONAL BANCORP
THE TERMS AND CONDITIONS OF THE OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED MAY 12, 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CHEMICAL
BANK (THE "INFORMATION AGENT"). CAPITALIZED TERMS USED HEREIN WITHOUT DEFINITION
SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN THE PROSPECTUS.
THIS SUBSCRIPTION RIGHT CERTIFICATE (THE "SUBSCRIPTION RIGHT CERTIFICATE")
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY FIRST INTERSTATE BANK
OF CALIFORNIA (THE "SUBSCRIPTION AGENT") WITH PAYMENT IN FULL BY 5:00 P.M.,
PACIFIC TIME, ON JUNE 21, 1995, UNLESS EXTENDED BY THE COMPANY TO A TIME NOT
LATER THAN 5:00 P.M., PACIFIC TIME, ON JULY 21, 1995 (IN EITHER CASE, THE
"EXPIRATION TIME").
- --------------------------------------------------------------------------------
The Rights represented by this Subscription Right Certificate, in whole or
in part, may be (A) exercised by duly completing Form 1, (B) transferred, or
exercised or sold through a bank or broker, by duly completing Form 2, and (C)
sold through the Subscription Agent by duly completing Form 3. Before
exercising or selling Rights, Rights Holders are urged to read carefully and
in their entirety the Prospectus and Instructions as to use of Subscription
Right Certificates (the "Instructions"), additional copies of which are
available from the Information Agent and the Subscription Agent. IMPORTANT:
COMPLETE THE APPROPRIATE FORM AND, IF APPLICABLE, DELIVERY INSTRUCTIONS, AND
SIGN ON REVERSE SIDE.
- --------------------------------------------------------------------------------
SUBSCRIPTION PRICE: $2.25 PER SHARE
REGISTERED HOLDER
The registered owner whose name is inscribed hereon, or assigns, is entitled
to subscribe for and purchase from the Company, at the Subscription Price, one
share of the Company's Common Stock, no par value (the "Common Stock"), for each
Right evidenced hereby (an "Underlying Share") upon the terms and subject to the
conditions set forth in the Prospectus and the Instructions. Underlying Shares
subscribed for pursuant to Rights shall be delivered upon receipt of this
Subscription Right Certificate, duly completed, and upon payment of the
applicable Subscription Price,as soon as practicable after the Expiration Time
and after all prorations and reductions contemplated by the terms of the
Offering have been effected.
By: By:
Richard S. Cupp Nancy Jackson
President and Chief Executive Officer Secretary
THIS SUBSCRIPTION RIGHT CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR
DIVIDED (BUT ONLY INTO SUBSCRIPTION RIGHT CERTIFICATES EVIDENCING A WHOLE NUMBER
OF RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS
THAN ALL OF THE RIGHTS EVIDENCED HEREBY, A NEW SUBSCRIPTION RIGHT CERTIFICATE
MAY NOT BE RECEIVED IN SUFFICIENT TIME TO EXERCISE OR TRANSFER THE REMAINING
RIGHTS EVIDENCED THEREBY. NEITHER THE COMPANY NOR THE SUBSCRIPTION AGENT SHALL
HAVE ANY LIABILITY TO A TRANSFEREE OR TRANSFEROR OF RIGHTS IF SUBSCRIPTION RIGHT
CERTIFICATES ARE NOT RECEIVED IN TIME FOR EXERCISE OR SALE PRIOR TO THE
EXPIRATION TIME.
AN EXERCISE OF RIGHTS EVIDENCED HEREBY IS IRREVOCABLE.
<PAGE>
IMPORTANT: PLEASE READ ALL INSTRUCTIONS CAREFULLY
FORM 1 - EXERCISE AND
SUBSCRIPTION: The undersigned hereby
irrevocably exercises one or more
Rights to subscribe for shares of
Common Stock as indicated below, on
the terms and subject to the
conditions specified in the
Prospectus, receipt of which is
hereby acknowledged.
(a) Number of shares subscribed for
pursuant to the
Basic Subscription Privilege:(a)__
(b) Number of shares subscribed for
pursuant to the Oversubscription
Privilege(1):(b)_________________
(c) Total shares (sum of lines (a)
and (b)):(c)_____________________
(d) Total number of shares subscribed
for pursuant to the Basic
Subscription Privilege multiplied
by the Subscription Price of
$2.25(2):(d) $______________
(e) Total number of shares subscribed
for pursuant to the
Oversubscription Privilege
multiplied by the Subscription
Price of $2.25(2)(e) $______
(f) Total Subscription Price (sum of
lines (d) and (e)):(f) $_________
------
1 To exercise the Oversubscription
Privilege, the undersigned must
fully exercise the Basic
Subscription Privilege. Only
Record Date Holders may exercise
the Oversubscription Privilege.
2 If the aggregate Subscription
Price paid by an exercising Rights
Holder is insufficient to purchase
the number of Underlying Shares
that such holder indicates are
being subscribed for, or if an
exercising Rights Holder does not
specify the number of Underlying
Shares to be purchased, then such
Rights Holder will be deemed to
have exercised first the Basic
Subscription Privilege in full and
second the Oversubscription
Privilege to purchase Underlying
Shares to the full extent of the
payment rendered (subject to
proration under certain
circumstances as described in the
Prospectus). If the aggregate
Subscription Price paid by an
exercising Rights Holder exceeds
the amount necessary to purchase
the number of Underlying Shares
for which the Rights Holder has
indicated an intention to
subscribe, then the Rights Holder
will be deemed to have exercised
first, the Basic Subscription
Privilege (if not already fully
exercised) and second, the
Oversubscription Privilege to the
full extent of the excess payment
tendered.
(e)METHOD OF PAYMENT
(CHECK AND COMPLETE APPROPRIATE BOX(ES))
[_] Check, bank draft or money order
in the amount of $
payable to First Interstate Bank
of California, Subscription
Agent.
[_] Wire transfer in the amount of
$ directed to First
Interstate Bank of California,
Subscription Agent, Mellon Bank,
Pittsburgh, Pa, #17, ABA
#043000261, Reorganization
Account-100-2331-VCNB,
Attention: Evelyn O'Connor.
Indicate name of institution
transferring funds and name of
registered owner:
__________________________________
(f) IF LESS THAN ALL RIGHTS ARE
EXERCISED
If the number of Rights being
exercised pursuant to the Basic
Subscription Privilege is less
than all of the Rights represented
by this Subscription Right
Certificate:
[_] Deliver to the undersigned a new
Subscription Right Certificate
evidencing the remaining Rights
to which the undersigned is
entitled.
[_] Deliver a new Subscription Right
Certificate evidencing the
remaining Rights in accordance
with the undersigned's
instructions in Form 2 below
(which include any required
signature guarantees).
[_] Sell the remaining unexercised
Rights in accordance with the
undersigned's instructions in
Form 3 below.
If the instructions of the Rights
Holder are inconsistent or are
insufficient to delineate the
proper action to be taken with
respect to all of the Rights
evidenced hereby, such Rights
Holder will be delivered a new
Subscription Right Certificate
evidencing the remaining Rights to
which such Rights Holder is
entitled.
(g)NOTICE OF GUARANTEED DELIVERY
[_] CHECK HERE IF RIGHTS ARE BEING
EXERCISED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY DELIVERED
TO THE SUBSCRIPTION AGENT PRIOR
TO THE DATE HEREOF AND COMPLETE
THE FOLLOWING,
Name(s) of Registered Owner(s) ___
Window Ticket Number (if any) ____
Date of Execution of Notice
of Guaranteed Delivery ____________
Name of Eligible Institution which
Guaranteed Delivery ______________
Telephone Number _________________
FORM 2 - TO TRANSFER YOUR
SUBSCRIPTION RIGHT CERTIFICATE OR
SOME OR ALL OF YOUR UNEXERCISED
RIGHTS OR TO EXERCISE OR SELL RIGHTS
THROUGH YOUR BANK OR BROKER: For
value received, Rights
represented by this Subscription
Right Certificate are hereby
assigned to (please print name and
address and tax identification or
social security number of transferee
in full):
Name: _____________________________
(Please Print)
Address: __________________________
___________________________________
(Include Zip Code)
Tax Identification or Social
Security Number: ____________________
If the number of Rights being
transferred is less than all of the
Rights represented by this
Subscription Right Certificate:
[_] For Value received, Rights
represented by this
Subscription Right Certificate
are hereby assigned to (please
print name and address and tax
identification or social
security number of transferee
in full):
Name: _____________________________
(Please Print)
Address: __________________________
___________________________________
(Include Zip Code)
Tax Identification or Social
Security Number: __________________
[_] Deliver to the undersigned a new
Subscription Right Certificate
evidencing remaining Rights to
which the undersigned is
entitled.
[_] Sell Rights in accordance with
the undersigned's instructions in
Form 3 below.
FORM 3 - TO SELL SOME OR ALL OF YOUR
UNEXERCISED RIGHTS THROUGH THE
SUBSCRIPTION AGENT: The undersigned
hereby authorizes the Subscription
Agent to use its best efforts to
sell Rights represented by
the Subscription Right Certificate
but not exercised hereby and to
deliver to the undersigned a check
for the proceeds less any applicable
brokerage commissions, taxes and
other direct expenses of sale. The
Subscription Agent's obligation to
execute orders is subject to its
ability to find buyers for the
Rights. There can be no assurance
that the Subscription Agent will be
successful in executing orders to
sell Rights. Any Rights which the
Subscription Agent is unable to sell
before the Expiration Time will
expire valueless.
FORM 4 - SPECIAL PAYMENT ISSUANCE OR
DELIVERY INSTRUCTIONS: Unless
otherwise indicated below, the
Subscription Agent is hereby
authorized to issue and deliver any
check and certificates for Common
Stock to the undersigned at the
address appearing on the face of
this Subscription Right Certificate.
SPECIAL PAYMENT INSTRUCTIONS (See
paragraph 3 of the Instructions) To
be completed ONLY if the check
evidencing a cash payment is to be
made payable, or the name in which
the certificate represents the
Common Stock is to be issued, as to
someone other than the registered
holder.
Issue and mail to:
Name: _______________________________
(Please Print)
Address: ____________________________
_____________________________________
(Include Zip Code)
_____________________________________
(Tax Identification or Social
Security Number)
SPECIAL DELIVERY INSTRUCTIONS (See
paragraph 3 of the Instructions) To
be completed ONLY if the check
evidencing a cash payment and/or the
certificate representing the Common
Stock, is to be sent to someone
other than the registered holder or
to an address other than that
appearing on the face of this
Subscription Right Certificate. Mail
and deliver check and/or certificate
for Common Stock to:
Name: _______________________________
(Please Print)
Address: ____________________________
_____________________________________
(Include Zip Code)
_____________________________________
(Tax Identification or Social
Security Number)
IMPORTANT:
RIGHTS HOLDERS SIGN HERE AND, IF
RIGHTS ARE BEING SOLD OR
EXERCISED,COMPLETE ATTACHED
SUBSTITUTE FORM W-9
_____________________________________
(Signature(s) of Registered
Holder(s))
Dated: ___________
Must be signed by the registered
holder(s) as name(s) appear(s) on
this Subscription Right Certificate.
If signature is by trustee(s),
executor(s), administrator(s),
guardian(s), attorney(s)-in-fact,
agent(s), officer(s) of a
corporation or another acting in a
fiduciary or representative
capacity, please provide the
following information. See the
Instructions.
_____________________________________
(Please Print)
Capacity (Full Title) _______________
Address _____________________________
_____________________________________
(Include Zip Code)
Area Code and Telephone Number _______
(Home)
_____________________________________
(Business)
Tax Identification or Social
Security Number _____________________
GUARANTEE OF SIGNATURE
NOTE: SEE PARAGRAPH 6 OF THE
INSTRUCTIONS.
Authorized Signature ________________
Name ________________________________
(Please Print)
Title _______________________________
Name of Firm ________________________
Address _____________________________
(Include Zip Code)
Area Code and Telephone Number _______
Dated: __________________________ 199
<PAGE>
- --------------------------------------------------------------------------------
PAYER'S NAME: FIRST INTERSTATE BANK OF CALIFORNIA
- --------------------------------------------------------------------------------
PART 1: PLEASE PROVIDE YOUR TIN AND Social Security Number
CERTIFY BY SIGNING AND DATING OR Employer
BELOW. Identification Number
SUBSTITUTE
-------------------
FORM W-9
---------------------------------------------------------------
PAYER'S REQUEST
FOR TAXPAYER PART 2: For Payees NOT subject to backup withholding under the
IDENTIFICATION provisions of section 3406(a)(1)(C) of the Internal Revenue
NUMBER (TIN) Code, see the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 and complete as
instructed therein.
CERTIFICATION. Under penalty of perjury, I certify that (1) the
number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me and
either (a) I have mailed or delivered an application to receive
a taxpayer identification number to the appropriate IRS center
or Social Security Administration office or (b) I intend to
mail or deliver an application in the near future) and (2) I am
not subject to backup withholding either because I have not
been notified by the IRS that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above
if you have been notified by the IRS that you are subject to
backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified
by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item
(2). (Also see the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.)
---------------------------------------------------------------
PART 3:--
SIGNATURE _________________ DATE ______ Awaiting TIN [_]
Name ___________________________________
(PLEASE PRINT)
Address ________________________________
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 5
Manatt, Phelps & Phillips
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
ATTORNEYS AT LAW
11355 WEST OLYMPIC BOULEVARD 1501 M STREET N.W., SUITE 700
LOS ANGELES, CALIFORNIA 90064-1614 WASHINGTON, D.C. 20005-1702
TELEPHONE (310) 312-4000 FAX (310) 312-4224 TELEPHONE (202) 463-4300
FAX (202) 463-4394
33 MUSIC SQUARE WEST, SUITE 106-B
NASHVILLE, TENNESSEE 37203-3226
TELEPHONE (615) 259-1240
FAX (615) 259-1289
May 4, 1995
Ventura County National Bancorp
500 Esplanade Drive
Oxnard, California 93030
Ladies and Gentlemen:
We have acted as counsel for Ventura County National Bancorp, a California
corporation (the "Company") in connection with the proposed public offering by
the Company of up to 3,500,000 common stock subscription rights (the "Rights")
and up to 3,500,000 shares (the "Shares") of common stock, no par value (the
"Common Stock") issuable upon the exercise of Rights or pursuant to certain
standby purchase agreements to be entered into between the Company and certain
persons as standby purchasers by means of that certain Registration Statement on
Form S-2 (Registration No. 33-88388), as amended and supplemented (the
"Registration Statement") and the Prospectus constituting a part thereof (the
"Prospectus").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. We have also obtained from
officers of the Company such advice as we considered necessary for the purposes
of this opinion, and insofar as our opinion is based on matters of fact upon
which conclusions of law are expressed, we have relied upon such advice.
Based upon the foregoing, we are of the opinion that:
1. The Rights have been duly authorized and when issued and delivered in
accordance with the terms set forth in the Prospectus, will be validly issued,
fully paid and nonassessable.
2. The Shares have been duly authorized and when issued and delivered
against payment therefor will be validly issued, fully paid and nonassessable.
<PAGE>
MANATT, PHELPS & PHILLIPS
Ventura County National Bancorp
May 4, 1995
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-2 which is being filed on behalf of the Company
in connection with the Registration Statement under the Securities Act of 1933,
as amended, and to the reference to this firm under the heading "Legal Matters"
and in the Prospectus.
Very truly yours,
MANATT, PHELPS & PHILLIPS
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS]
EXHIBIT 8
April 17, 1995
Board of Directors
Ventura County National Bancorp
500 Esplanade Drive
Oxnard, California 93030
Ladies and Gentlemen:
We have acted as counsel to Ventura County National Bancorp in connection
with the proposed offering to holders of record of its common stock, no par
value (the "Common Stock"), of transferrable subscription rights (the "Rights")
to subscribe for and purchase shares of Common Stock (the "Rights Offering").
The Rights Offering also includes the purchase of Common Stock by certain
Standby Purchasers. In that capacity, we hereby confirm to you our opinion that
the summaries set forth under the captions "Certain Federal Income Tax
Consequences" and "Tax Limitation" in the Prospectus included in Amendment No. 2
dated April 17, 1995, to the Registration Statement filed by Ventura County
National Bancorp with the Securities and Exchange Commission, in connection with
the Rights Offering, accurately describe the material federal income tax
consequences applicable to holders of the Rights with regard to issuance,
transfer, exercise and expiration of the Rights, the material federal income tax
consequences applicable to Standby Purchasers with regard to the entering into,
exercise and expiration of the Standby Purchase Agreements, and the material
federal income tax consequences relevant to an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
MANATT, PHELPS & PHILLIPS
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into on December 21, 1994 by and
between Frontier Bank, N.A., (hereinafter referred to as "Frontier Bank"), and
Kathleen Kellogg (hereinafter referred to as "Executive").
W I T N E S S E T H
WHEREAS, Ventura County National Bancorp (hereinafter referred to as
"Bancorp") is a holding company which operates Ventura County National Bank,
N.A., and Frontier Bank, N.A., which are organized for the purpose of carrying
on the business of banking, and have been granted authority to conduct the
business of a national bank by the Office of the Comptroller of the Currency
(the "Comptroller"); and
WHEREAS, in order to insure the successful management of Frontier Bank,
N.A., Frontier Bank desires to avail itself of the experience, skills, abilities
and knowledge of Executive; and
WHEREAS, both Frontier Bank and Executive desire to embody the terms and
conditions of Executive's employment in this written agreement which supersedes
all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Executive, and other terms and conditions of employment provided in this
Agreement were duly fixed, stated, approved and authorized for and on behalf of
Frontier Bank, N.A., by action of its Board of Directors.
NOW, THEREFORE, in consideration of the mutual covenants, terms and
conditions hereinafter set forth, the sufficiency of which is acknowledged, the
parties hereto covenant and agree as follows:
1. TERM
Effective November 2, 1994, Frontier Bank agrees to employ Executive as
President and Chief Executive Officer of Frontier Bank, N.A., and Executive
hereby accepts employment with Frontier Bank ("Commencement Date") and shall
continue for a period of one (1) year from and after the Commencement Date.
This term shall be automatically renewed year to year on the anniversary of the
Commencement Date unless sooner terminated pursuant to the provisions of
Sections 6 and 7 hereof. This period of employment shall be referred to herein
as "the Term".
2. DUTIES
2.1 Generally. Executive shall serve as President and Chief Executive
Officer of Frontier Bank, N.A., subject to the
<PAGE>
powers by law vested in the Board of Directors of Frontier Bank, N.A., and in
Frontier Bank's shareholders. Executive shall also serve as a member of the
Board of Directors of Frontier Bank. During the term of this Employment
Agreement, Executive shall perform her duties faithfully, diligently and to the
best of her ability, consistent with the highest and best standards of the
banking industry and in compliance with all applicable laws and Frontier Bank's
Articles of Association and Bylaws.
2.2 Performance. Except as provided in Paragraph 6.1 herein, Executive's
employment after Commencement Date shall devote substantially her full energies,
interest, abilities and productive time to the business of Frontier Bank.
Executive shall at all times loyally and conscientiously perform all of these
duties and obligations hereunder and shall at all times strictly adhere to and
obey, and instruct and require all those working under and with her strictly to
adhere and obey, all applicable federal and state laws, statutes, rules and
regulations to the end that Frontier Bank shall at all times be in full
compliance with such laws, statues, rules and regulations.
3. COMPENSATION
3.1 Operating Period. During the Term, Executive shall receive an annual
base salary in the amount of One Hundred Twenty-Five Thousand Dollars
($125,000.00) payable in accordance with the normal payroll periods at Frontier
Bank, and Executive's reasonable and necessary out-of-pocket expenses.
Executive shall not receive any further compensation for serving as a Director
of Frontier Bank.
3.2 Bonus. In addition to the base salary set forth in Section 3.1
hereof, during the Term, Executive may receive such bonuses, if any, as the
Board, in its sole discretion, may determine. In the event that the Board
installs a management incentive program, Executive will be eligible.
3.3 Signing Bonus. Executive acknowledges receipt of a signing bonus of
Seven Thousand Five Hundred Dollars ($7,500.00) which was received upon non-
objection by the OCC.
4. EXECUTIVE BENEFITS
4.1 Group Medical and Life Insurance Benefits. Frontier Bank shall
provide for Executive, at Frontier Bank's expense, participation in medical,
accident and health, income continuation and life insurance benefits to the same
extent that such benefits are available to other employees of Frontier Bank.
4.2 Business Expense. Executive shall be entitled to reimbursement by
Frontier Bank for any ordinary and necessary business expenses incurred by
Executive in the performance of Executive's duties and in acting for Frontier
Bank during the Term,
<PAGE>
which type of expenditures shall be determined by the Board of Directors,
provided that:
(a) Each such expenditure is of a nature qualifying it as a proper
deduction on the federal and state income tax returns of Frontier Bank as a
business expense and not as deductible compensation to Executive; and
(b) Executive furnishes to Frontier Bank adequate records and other
documentary evidence required by federal and state statutes and regulations
issued by the appropriate taxing authorities for the substantiation of such
expenditures as deductible business expenses of Frontier Bank and not as
deductible compensation to Executive.
4.3 Automobile. Executive shall receive an automobile allowance in the
sum of Seven Hundred Dollars ($700.00) per month during the term of this
agreement.
4.4 Stock Options. Executive shall be entitled to participate in the
Ventura County National Bancorp Stock Option Plan. Attached hereto marked as
Exhibit "A" is the Incentive Stock Option Agreement between Executive and
Bancorp whereby Executive is granted an option for 15,000 shares.
4.5 Vacation. Executive shall be entitled to a vacation each year during
the Term, which vacation shall be four (4) weeks during the first year of the
Term and such vacation shall accrue at the rate of 1.67 days for each month of
service under this Agreement; provided, however, that each year of the Term,
Executive shall be required to and shall take at least two (2) consecutive weeks
of said vacation. Any vacation time not used may be accrued for use in future
years.
4.6 Club Membership. Frontier Bank will provide Executive with a club
membership if such membership appears to the Board of Directors of Frontier Bank
to be reasonably necessary, and Frontier Bank will reimburse Executive for all
reasonable and necessary out-of-pocket documented expenses incurred by Executive
in the use of such membership on behalf of Frontier Bank.
4.7 401(k). Executive shall participate in Frontier Bank's 401(k) Plan
subject to the terms and conditions thereof.
4.8 Sick Leave and Retirement Benefits. Executive shall be entitled to
participate in all Frontier Bank sick and retirement policies and plans if
otherwise eligible.
5. PROPERTY RIGHTS
5.1 Trade Secrets. During the Term, Executive may have access to and
become acquainted with various trade secrets which are owned by the Bancorp and
Frontier Bank and which may
<PAGE>
regularly be used in the operation of Frontier Bank. Executive shall not
disclose any such trade secrets, directly or indirectly, or use them in any way,
during the Term or at any time thereafter, except as required pursuant to the
provisions of this Agreement. All such trade secrets, including, but not by way
of limitation, any and all files, records, documents, specifications, equipment,
customer lists and similar items relating to the business of the Bancorp and
Frontier Bank, whether prepared by Executive or otherwise coming into
Executive's possession, shall remain the exclusive property of the Bancorp and
Frontier Bank and shall not be removed from the premises of the Bancorp and
Frontier Bank under any circumstances whatsoever without the prior written
consent of the Board.
5.2 Other Property. Under termination of this Agreement, Executive shall
immediately deliver to the Board any and all property in Executive's possession
or under Executive's control belonging to the Bancorp and Frontier Bank, in good
condition, ordinary wear and tear and damage by any cause beyond Executive's
reasonable control excepted.
6. ADDITIONAL OBLIGATIONS
6.1 Covenant Not to Compete. During the Term, Executive shall not,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer of director, or in any other
individual or representative capacity, engage or participate in any business or
activity that is in any way in competition in any manner whatsoever with the
business of the Bancorp and Frontier Bank.
7. TERMINATION.
Pursuant to the provisions of 12 U.S.C. Section 24 and California Labor
Code Section 2922 establishing the Executive's employment is "at will", and any
and all other provisions of this Agreement to the contrary notwithstanding,
Executive's employment hereunder may be terminated:
7.1 Without Cause. In the sole and absolute discretion of the Board of
Directors for any cause whatsoever; provided, however, that if such termination
occurs during the Term, and is for any cause other than any more particularly
described in Sections 7.2 or 7.3 hereof, Executive shall receive severance
payment in the amount of the remaining annual salary during the term of this
Agreement or nine (9) months of the then current annual salary as stated in
Section 3.1 above, whichever is greater, in full and complete satisfaction of
any and all rights which Executive may enjoy hereunder other than the right, if
any, to exercise any of the stock options vested prior to such termination.
7.2 Death or Disability. Upon executive's death or medical or legal
disability to continue her duties hereunder as the President and Chief Executive
Officer of Frontier Bank; provided,
<PAGE>
however, that if such termination occurs as a result of such medical disability,
Executive shall receive severance payment in an amount equal to nine (9) months
of the annual base salary in effect hereunder at the date of such termination in
full and complete satisfaction of any and all rights which Executive might enjoy
hereunder other than the right, if any, to exercise any of the stock options
vested prior to such termination.
7.3 With Cause. In the event of Executive's willful breach or habitual
neglect of her duties and obligations under this Agreement, her conviction of a
felony or the closing of Frontier Bank under order of the Comptroller or any
other governmental regulator or competent jurisdiction, in which event Executive
shall not be entitled to receive any severance payment.
7.4 Change in Ownership or Control. In the event of a change in ownership
or control which occurs prior to the Executive's completion of this agreement
and if the Executive's position is either eliminated or materially changed, the
Executive shall receive twelve (12) months of the then current annual salary as
stated in Section 3.1 above in full and complete satisfaction of any and all
rights which Executive may enjoy hereunder other than the right, if any, to
exercise any of the stock options vested prior to such termination. Change of
Ownership shall have occurred on the date when more than fifty percent (50%) of
the then outstanding shares of Frontier Bank are held by a person or group of
persons (whether or not acting in concert) not the holder of more than fifty
percent (50%) of the shares on the Commencement Date of this Agreement.
7.5 General Release of Claims. As a material inducement to the Bank to
enter into this Agreement including payment of severance pay as stated in
Sections 7.1, 7.2 and 7.4, Executive hereby irrevocably and unconditionally
releases, acquits, and forever discharges the Bancorp and Frontier Bank and each
of its owners, shareholders, predecessors, successors, assigns, agents,
directors, officers, employees, representatives, attorneys, divisions,
subsidiaries, affiliates (and agents, directors, officers, employees,
representatives and attorneys of such divisions, subsidiaries and affiliates),
and all persons acting by, through, under or in concert with any of them
(collectively "Releasees"), or any of them, from any and all complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, costs,
losses, debts and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever, including the Age Discrimination in
Employment Act and the Older Workers Benefit Protection Act, known or unknown
("Claim" or "Claims"), which Executive now has, owns, or holds, or claims to
have, own or hold, or which Employee at any time heretofore had, owned, or held,
or claimed to have, own, or hold, or which Employee at any time hereinafter may
have, own, or hold, or claim to have, own, or hold, against each or any of the
Releasees.
<PAGE>
7.6 Civil Code Section 1542. Employee expressly waives and relinquishes
all rights and benefits afforded by Section 1542 of the Civil Code of the State
of California and does so understand and acknowledge the significance and
consequence of such specific waiver of Section 1542. Section 1542 of the Civil
Code of the State of California states as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
7.7 Payment of Severance. The Bank shall pay the Executive nine
(9) months as stated in Sections 7.1, 7.2, 7.4 in a gross amount, not as wages
and not subject to deduction of any state or federal taxes, but subject to
issuance of IRS Form 1099. In the event that any state or federal taxing agency
determines that said sum, or any part thereof, is taxable income, it shall be
the Executive's sole responsibility to pay any and all assessed taxes.
Executive shall hold the Bank harmless to the fullest extent possible pursuant
to law and indemnify the Bank concerning the tax consequences, if any, to the
fullest extent possible.
7.8 Indemnification. The Bank agrees to indemnify Executive
pursuant to California law for any and all acts performed during the course and
scope of Executive's employment. At all times during the employment, the Bank
shall maintain directors and officers liability insurance coverage for
Executive.
7.9 Continuation of Health Insurance Upon Termination. If the
Bank terminates the employment of Executive without cause or upon a change of
control as provided above, the Bank will issue notice of continuation of health
insurance pursuant to federal law, COBRA, and will pay the Executive the
equivalent nine (9) or twelve (12) months of health insurance depending upon the
termination being without cause or change of control.
8. MISCELLANEOUS.
8.1 Notice. Any and all notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or forty-eight (48) hours after being mailed, certified or
registered mail, return receipt requested, postage prepaid, to the addresses set
forth above or to such addresses as may from time to time be designated in
writing.
8.2 Time. Time is of the essence of this Agreement with respect
to each and every provision of this Agreement in which time is a factor.
<PAGE>
8.3 Entire Agreement. This Agreement and attachment "A" sets forth
the entire agreement between Executive and Frontier Bank pertaining to the
subject matter hereof, fully supersedes any and all prior agreements or
understandings between Executive and any other persons on behalf of Frontier
Bank pertaining to the subject matter hereof and no change in modification of or
addition, amendment or supplement to this Agreement shall be valid unless set
forth is writing and signed and dated by Executive and Frontier Bank.
8.4 Further Assurances. Executive and Frontier Bank, without
the necessity of any further consideration, agree to execute and deliver such
other documents and take such other action as may be necessary to consummate
more effectively the purposes and subject matter of this Agreement.
8.5 Applicable Law. The existence, validity, construction and
operational effect of this Agreement, any and all of these covenants,
agreements, representations, warranties, terms and conditions and the rights and
obligations of Executive and Frontier Bank hereunder shall be determined in
accordance with the regulations of the Comptroller provided, however, that any
provision of this Agreement which may be prohibited by law or otherwise held
invalid shall be ineffective only to the extent of such prohibition or
invalidity and shall not invalidate or otherwise render ineffective any or all
of the remaining provisions of this Agreement.
8.6 Controversy. In the event of any controversy, claim, or
dispute between Executive Bancorp and Frontier Bank arising out of or relating
to this Agreement, the prevailing party shall be entitled to recover as costs
from the non-prevailing party reasonable expenses, including, but not by way of
limitation, attorneys' fees and accountant's fees.
8.7 Arbitration. Any dispute regarding any aspect of this
Agreement, including but not limited to its formation, performance or breach
("arbitrable dispute") , shall be submitted to arbitration in Los Angeles
County, California, before a single experienced employment arbitrator licensed
to practice law in California and selected in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association, as the
exclusive forum for resolving such claims or dispute. The arbitrator shall not
have authority to modify or change the Agreement in any respect. The prevailing
party in any such arbitration shall be awarded its costs, expenses, and actual
attorneys' fees incurred in connection with the arbitration. Frontier Bank and
Executive shall each be responsible for payment of one-half the amount of the
arbitrator's fee(s). The arbitrator's decision and/or award will be fully
enforceable and subject to an entry of judgment by the Superior Court of the
State of California for the County of Ventura. Should any part to this
Agreement hereafter institute any legal action or administrative proceeding
against the other with respect to any Claim waived by
<PAGE>
this Agreement or pursue any arbitrable dispute by any method other than
arbitration, the responding party shall recover from the initiating party all
damages, costs, expenses, and attorneys' fees incurred as a result of such
action.
8.8 Headings and Gender. The section headings used in this
Agreement are intended solely for the convenience of reference and shall not in
any way or manner amplify, limit, modify or otherwise be used in the
interpretation of any of the provisions of this Agreement and the masculine,
feminine or neuter gender and the singular or plural number shall be deemed to
include the others whenever the context so indicates or requires.
8.9 Successors. The covenants, agreements, representations,
warranties, terms and conditions contained in this Agreement shall be binding
upon and insure to the benefit of the successors and assigns of Executive and
Frontier Bank; provided, however, that Executive may no assign any or all of her
rights or duties hereunder except upon the prior written consent of the Board in
its sole and absolute discretion.
DATED: December ---, 1994
VENTURA COUNTY NATIONAL BANCORP
By: -------------------------------------
RICHARD S. CUPP
President and Chief Executive Officer
DATED: December ---, 1994
- -----------------------------
KATHLEEN KELLOGG
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into on this --th day of October 1994
by and between Ventura County National Bank (hereinafter referred to as "Bank"),
and Carl Raggio (hereinafter referred to as "Executive").
W I T N E S S E T H
WHEREAS, in order to insure the successful management of its business, Bank
desires to avail itself of the experience, skills, abilities and knowledge of
Executive; and
WHEREAS, both the Bank and the Executive desire to embody the terms and
conditions of Executive's employment in this written agreement which supersedes
all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Executive, and other terms and conditions of employment provided in this
Agreement were duly fixed, stated, approved and authorized for and on behalf of
the Bank by action of its Board of Directors at a meeting held on --------------
- -----, 1994, at which meeting a quorum was present and voted, exclusive of
Executive.
NOW, THEREFORE, in consideration of the mutual covenants, terms and
conditions, hereinafter set forth, the sufficiency of which is acknowledged, the
parties hereto covenant and agree as follows:
1. TERM
----
Upon the approval by the Office of the Comptroller of the Currency, Bank
agrees to employ Executive as Executive Vice President and Chief Credit Officer,
and Executive hereby accepts employment with Bank, for a period commencing on
the date of receipt of all necessary approvals from the Office of the
Comptroller of the Currency ("Commencement Date") and shall continue until such
time as the employment is terminated pursuant to the provisions of Sections 6
and 7 hereof. This period of employment shall be referred to herein as "the
Term".
2. DUTIES
------
2.1 Generally. Executive shall serve as Executive Vice President and
---------
Chief Credit Officer subject to the powers by law vested in the Board of
Directors of Bank and in Bank's shareholders. Executive shall report directly
to the President/Chief Executive Officer of the Bank. During the term of this
Employment Agreement, Executive shall perform his duties faithfully, diligently
and to the best of his ability, consistent
<PAGE>
with the highest and best standards of the banking industry and in compliance
with all applicable laws and the Bank's Articles of Association and Bylaws.
2.2 Performance. Executive shall devote substantially his full energies,
-----------
interest, abilities and productive time to the business of the Bank. Executive
shall at all times loyally and conscientiously perform all of these duties and
obligations hereunder and shall at all times strictly adhere to and obey, and
instruct and require all those working under and with him strictly to adhere and
obey, all applicable federal and state laws, statutes, rules and regulations to
the end that the Bank shall at all times be in full compliance with such laws,
statutes, rules and regulations.
3. COMPENSATION AND STOCK OPTIONS
------------------------------
3.1 Operating Period. During the Term, Executive shall receive an annual
----------------
base salary in the amount of One Hundred Twenty Five Thousand Dollars
($125,000.00) payable in accordance with the normal payroll practices of the
Bank. Annual increases are in sole discretion of the Bank.
3.2 Stock Option. Executive shall participate in the Bank's stock option
------------
plan pursuant to the terms and conditions thereof. Executive shall receive Ten
Thousand (10,000) shares of Ventura County National Bancorp stock pursuant to
the terms and conditions of said plan at an exercise price equivalent to the bid
price at the close of business on the date of approval by the Office of
Comptroller of the Currency.
4. EXECUTIVE BENEFITS
------------------
4.1 Group Medical and Life Insurance Benefits. The Bank shall provide for
-----------------------------------------
Executive, at Bank's expense, participation in medical, dental, accident and
health, income continuation and life insurance benefits to the same extent that
such benefits are available to other executives of Bank.
4.2 Business Expense. Executive shall be entitled to reimbursement by the
----------------
Bank for any ordinary and necessary business expenses incurred by Executive in
the performance of Executive in the performance of Executive's duties and in
acting for the Bank during the Term, which type of expenditures shall be
determined by the Board of Directors, provided that:
(a) Each such expenditure is of a nature qualifying it as a proper
deduction on the federal and state income tax returns of the Bank as a business
expense and not as deductible compensation to Executive; and
(b) Executive furnishes to the Bank adequate records and other documentary
evidence required by federal and state statutes and regulations issued by the
appropriate taxing
<PAGE>
authorities for the substantiation of such expenditures as deductible business
expenses of the Bank and not as deductible compensation to Executive.
4.3 Automobile. Executive shall receive an automobile allowance in the
----------
sum of Five Hundred Dollars ($500.00) per month during the term of this
agreement.
4.4 401(k). Executive shall participate in the Bank's 401(k) Plan subject
------
to the terms and conditions thereof.
4.5 Vacation. Executive shall be entitled to a vacation each year during
--------
the Term, which vacation shall be four (4) weeks during the first year of the
Term and such vacation shall accrue at the rate of ----- days for each month of
service under this Agreement; provided, however, that each year of the Term,
Executive shall be required to and shall take at least two (2) consecutive weeks
of said vacation. Any vacation time not used may be accrued for use in future
years.
4.6 Sick Leave and Retirement Benefits. Executive shall be entitled to
----------------------------------
participate in all Bank sick and retirement policies and plans if otherwise
eligible.
5. PROPERTY RIGHTS
---------------
5.1 Trade Secrets. During the Term, Executive may have access to and
-------------
become acquainted with various trade secrets which are owned by the Bank and
which may regularly be used in the operation of the Bank. Executive shall not
disclose any such trade secrets, directly or indirectly, or use them in any way,
during the Term or at any time thereafter, except as required pursuant to the
provisions of this Agreement. All such trade secrets, including, but not by way
of limitation, any and all files, records, documents, specifications, equipment,
customer lists and similar items relating to the business of the Bank, whether
prepared by Executive or otherwise coming into Executive's possession, shall
remain the exclusive property of the Bank and shall not be removed from the
premises of the Bank under any circumstances whatsoever without the written
consent of the Board.
5.2 Other Property. Under termination of this Agreement, Executive
--------------
shall immediately deliver to the Board any and all property in Executive's
possession or under Executive's control belonging to the Bank in good condition,
ordinary wear and tear and damage by any cause beyond Executive's reasonable
control excepted.
6. ADDITIONAL OBLIGATIONS
----------------------
6.1 Covenant Not to Compete. During the Term, Executive shall not,
-----------------------
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer of director, or in any other
individual or representative capacity, engage or participate in any business or
<PAGE>
activity that is in any way in competition in any manner whatsoever with the
business of the Bank.
7. TERMINATION.
-----------
Pursuant to the provisions of all applicable federal and state statutes and
regulations including California Labor Code Section 2922 it is the specific
intent of the Bank and the Executive that the employment shall be "at will", and
any and all other provisions of this Agreement to the contrary notwithstanding,
Executive's employment hereunder may be terminated as follows:
7.1 Without Cause. In the sole and absolute discretion of the Board for
-------------
any cause whatsoever; provided, however, that if such termination occurs during
the Term, and is for any cause other than any more particularly described in
Sections 7.2 or 7.3 hereof, Executive shall receive severance payment in the
amount of six month (6) months of the then current annual salary in full and
complete satisfaction of any and all rights other than the right, if any, to
exercise any of the stock options vested prior to such termination.
7.2 Death or Disability. Upon Executive's death or medical or
-------------------
psychological disability whereby Executive is unable to continue his duties
hereunder, the employment is terminated. If such termination occurs as a result
of such disability, Executive shall receive severance payment in an amount equal
to six (6) months of the annual base salary in effect hereunder at the date of
such termination in full and complete satisfaction of any and all rights which
executive might enjoy hereunder other than the right, if any, to exercise any of
the stock options vested prior to such termination.
7.3 With Cause. In the event of Executive's willful breach or habitual
----------
neglect of his duties and obligations under this Agreement, his conviction of a
felony or the closing of the Bank under order of the Office of Comptroller of
the Currency or any other governmental regulator or competent jurisdiction, in
which event Executive shall not be entitled to receive any severance payment.
7.4 Change in Ownership or Control. In the event of a Change in ownership
------------------------------
or control occurs prior to the Executive's completion of this agreement, the
Executive shall receive six (6) months of the then current annual salary in full
and complete satisfaction of any and all rights which Executive may enjoy
hereunder other than the right, if any, to exercise any of the stack options
vested prior to such termination. Change of Ownership shall have occurred on
the date when more than fifty percent (50%) of the then outstanding shares of
Bank are held by a person or group of persons (whether or not acting in concert)
not the holder of more than fifty percent (50%) of the shares on the
Commencement Date of this Agreement.
<PAGE>
7.5 General Release of Claims. As a material inducement to the Bank to
-------------------------
enter into this Agreement including payment of six (6) months severance pay as
stated in Sections 7.1, 7.2 and 7.4, Executive hereby irrevocably and
unconditionally releases, acquits, and forever discharges the Bank and each of
the Bank's owners, shareholders, predecessors, successors, assigns, agents,
directors, officers, employees, representatives, attorneys, divisions,
subsidiaries, affiliates (and agents, directors, officers, employees,
representatives and attorneys of such divisions, subsidiaries and affiliates),
and all persons acting by, through, under or in concert with any of them
(collectively "Releasees"), or any of them, from any and all complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, costs,
losses, debts and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever, including the Age Discrimination in
Employment Act and the Older Workers Benefit Protection Act, known or unknown
("Claim" or "Claims"), which Executive now has, owns, or holds, or claims to
have, own or hold, or which Employee at any time heretofore had, owned, or held,
or claimed to have, own, or hold, or which Employee at any time hereinafter may
have, own, or hold, or claim to have, own, or hold, against each or any of the
Releasees.
7.6 Civil Code Section 1542. Employee expressly waives and relinquishes
-----------------------
all rights and benefits afforded by Section 1542 of the Civil Code of the State
of California and does so understand and acknowledge the significance and
consequence of such specific waiver of Section 1542. Section 1542 of the Civil
Code of the State of California states as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
7.7 Payment of Severance. The Bank shall pay the Executive six
--------------------
(6) months as stated in Sections 7.1, 7.2, 7.4 in a gross amount, not as wages
and not subject to deduction of any state or federal taxes, but subject to
issuance of IRS Form 1099. In the event that any state or federal taxing agency
determines that said sum, or any part thereof, is taxable income, it shall be
the Executive's sole responsibility to pay any and all assessed taxes.
Executive shall hold the Bank harmless to the fullest extent possible pursuant
to law and indemnify the Bank concerning the tax consequences, if any, to the
fullest extent possible.
7.8 Indemnification. The Bank agrees to indemnify Executive to
---------------
pursuant to California law for any and all acts performed during the course and
scope of Executive's employment. At all times during the employment, the Bank
shall maintain directors and officers liability insurance coverage for
Executive.
<PAGE>
8. ACKNOWLEDGEMENT.
---------------
Executive hereby acknowledges that this Agreement may be subject to
and contingent upon the prior approval of the Office of Comptroller of the
Currency and only to the extent that any such prior approval is required. If
such approval is not obtained, this contract is null and void and unenforceable.
9. MISCELLANEOUS.
-------------
9.1 Notice. Any and all notices and other communications
------
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or forty-eight (48) hours after being mailed, certified or
registered mail, return receipt requested, postage prepaid, to the addresses set
forth above or to such addresses as may from time to time be designated in
writing.
9.2 Time. Time is of the essence of this Agreement with respect
----
to each and every provision of this Agreement in which time is a factor.
9.3 Entire Agreement. This Agreement sets forth the entire
----------------
agreement between Executive and the Bank pertaining to the subject matter
hereof, fully supersedes any and all prior agreements or understandings between
Executive and any other persons on behalf of the Bank pertaining to the subject
matter hereof and no change in modification of or addition, amendment or
supplement to this Agreement shall be valid unless set forth is writing and
signed and dated by Executive and the Bank.
9.4 Further Assurances. Executive and the Bank, without the
------------------
necessity of any further consideration, agree to execute and deliver such other
documents and take such other action as may be necessary to consummate more
effectively the purposes and subject matter of this Agreement.
9.5 Applicable Law. The existence, validity, construction and
--------------
operational effect of this Agreement, any and all of these covenants,
agreements, representations, warranties, terms and conditions and the rights and
obligations of Executive and the Bank hereunder shall be determined in
accordance with the regulations of the Office of Comptroller of the Currency
provided, however, that any provision of this Agreement which may be prohibited
by law or otherwise held invalid shall be ineffective only to the extent of such
prohibition or invalidity and shall not invalidate or otherwise render
ineffective any or all of the remaining provisions of this Agreement.
9.6 Controversy. In the event of any controversy, claim, or
-----------
dispute between Executive and the Bank arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover as costs from the
non-prevailing party reasonable
<PAGE>
expenses, including, but not by way of limitation, attorney's fees and
accountant's fees.
9.7 Arbitration. Any dispute regarding any aspect of this
-----------
Agreement, including but not limited to its formation, performance or breach
("arbitrable dispute"), shall be submitted to arbitration in Los Angeles County,
California, before a single experienced employment arbitrator licensed to
practice law in California and selected in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association, as the
exclusive forum for resolving such claims or dispute. The arbitrator shall not
have authority to modify or change the Agreement in any respect. The prevailing
party in any such arbitration shall be awarded its costs, expenses, and actual
attorneys' fees incurred in connection with the arbitration. Bank and Executive
shall each be responsible for payment of one-half the amount of the arbitrator's
feels) . The arbitrator's decision and/or award will be fully enforceable and
subject to an entry of judgment by the Superior Court of the State of California
for the County of Los Angeles. Should any part to this Agreement hereafter
institute any legal action or administrative proceeding against the other with
respect to any Claim waived by this Agreement or pursue any arbitrable dispute
by any method other than arbitration, the responding party shall recover from
the initiating party all damages, costs, expenses, and attorneys' fees incurred
as a result of such action.
9.8 Headings and Gender. The section headings used in this
-------------------
Agreement are intended solely for the convenience of reference and shall not in
any way or manner amplify, limit, modify or otherwise be used in the
interpretation of any of the provisions of this Agreement and the masculine,
feminine or neuter gender and the singular or plural number shall be deemed to
include the others whenever the context so indicates or requires.
9.9 Successors. The covenants, agreements, representations,
----------
warranties, terms and conditions contained in this Agreement shall be binding
upon and insure to the benefit of the successors and assigns of Executive and
the Bank; provided, however, that Executive may not assign any or all of his
rights or duties hereunder except upon the prior written consent of the Board in
its sole and absolute discretion.
DATED: October ----, 1994
VENTURA COUNTY NATIONAL BANK
By: ------------------------------
Richard S. Cupp
President and Chief Executive
Officer
- ---------------------------
Carl Raggio
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
W I T N E S S E T H
-------------------
This Employment Agreement is entered into on March 27, 1995 by and between
Ventura County National Bancorp (hereinafter referred to as "Bank"), and Simone
Lagomarsino (hereinafter referred to as "Executive"),
WHEREAS, Ventura County National Bancorp is a holding company which
operates Ventura County National Bank, N.A., and Frontier Bank, N.A., which are
organized for the purpose of carrying on the business of a national bank by the
Office of the Comptroller of the Currency (the "Comptroller"); and
WHEREAS, in order to insure the successful management Ventura County
National Bancorp and Bank desires to avail itself of the experience, skills,
abilities and knowledge of Executive; and,
WHEREAS, both Bank and the Executive desire to embody the term and
conditions of Executive's employment in this written agreement which supersedes
all prior agreements, whether written or oral; and
WHEREAS, the employment, the duration thereof, the compensation to be paid
to Executive, and other terms and conditions of employment provided in this
Agreement were duly fixed, stated, approved and authorized for and on behalf of
Ventura County National Bancorp by action of its Board of Directors.
1. TERM.
-----
Effective March 27, 1995, Bank agrees to employ Executive as Sr. Vice
President/Chief Financial Officer of Ventura County National Bancorp, and
Executive hereby accepts employment with bank ("Commencement Date") and shall
continue for a period of one (1) year from and after the Commencement Date.
This term shall be automatically renewed year to year on the anniversary of the
Commencement Date unless sooner terminated pursuant to the provisions of
Sections 6 and 7 hereof. This period of employment shall be referred to herein
as "the term".
2. DUTIES.
-------
2.1 Generally. Executive shall serve as Senior Vice President and
----------
Chief Financial Officer of Ventura County National Bancorp, subject to powers by
law vested in the Board of Directors of Ventura County National Bancorp, and in
the Bank's
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 2
shareholders. During the term of this Employment Agreement, Executive shall
perform her duties faithfully and diligently and to the best of her ability,
consistent with the highest and best standards of the banking industry and in
compliance with all applicable laws and the Bank's Articles of Association and
Bylaws.
2.2 Performance. Except as provided in Paragraph 6.1 herein,
------------
Executive's employment after Commencement Date shall devote substantially her
full energies, interest, abilities and productive times, loyally and
conscientiously perform all of these duties and obligations hereunder and shall
at all times strictly adhere to and obey, and instruct and require all those
working under and with her strictly to adhere and obey, all applicable federal
and state laws, statutes, rules and regulations to the end that Bank shall at
all times be in full compliance with such laws, statutes, rules and regulations.
3. COMPENSATION
------------
3.1 Operating Period. During the "term," Executive shall receive an
-----------------
annual base raise in the amount of Ninety-Seven Hundred Dollars ($9,700)
payable in accordance with the normal payroll periods at the Bank, and
Executive's reasonable and necessary out-of-pocket expenses.
3.2 Executive Incentive Plan. In the event the Board of Directors
------------------------
installs a management incentive program, Executive will be eligible to
participate.
4. EXECUTIVE BENEFITS
------------------
4.1 Group Medical and Life Insurance Benefits. The Bank shall
-----------------------------------------
provide for Executive participation in medical, life insurance benefits, long
term disability benefits to the same extent that such benefits are available to
other employees of the Bank.
4.2 Business Expense. Executive shall be entitled to reimbursement
----------------
by Bank for any ordinary and necessary business expenses incurred by Executive
in the performance of Executive's duties and in acting for Bank during the Term,
which types of expenditures shall be determined by the Board of Directors,
provided that:
(a) Each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of the
Bank s a business expense and not as deductible compensation to
Executive.
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 3
(b) Executive furnishes to Bank adequate records and other
documentary evidence required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the
substantiation of such expenditures as deductible business expenses of
Bank and not as deductible compensation to Executive.
4.3 Automobile. Executive shall receive an automobile allowance in
----------
the sum of Five Hundred Dollars ($500) per month during the term of this
Agreement.
4.4 Stock Options. Executive shall be entitled to participate in the
-------------
Ventura County National Bancorp Stock Option Plan. Attached hereto marked as
Exhibit "A" is the Incentive Stock Option Agreement between Executive and
Bancorp whereby Executive is granted an option for 10,000 shares.
4.5 Vacation. Executive shall be entitled to a vacation during the
--------
term for which vacation shall be four (4) weeks during the first year of the
Term and such vacation shall accrue at the rate of 1.67 days for each month of
service under this Agreement; provided, however, that each year of the Term,
Executive shall be required to and shall take at least two (2) consecutive weeks
of said vacation. Any vacation time not used by the 75th day of the following
year will be paid out to Executive on the March 15th payroll.
4.6 401K. Executive shall be eligible to participate in the Bank's
----
401K Plan subject to the terms and conditions thereof.
5. PROPERTY RIGHTS
---------------
5.1 Trade Secrets. During the Term, Executive may have access to
-------------
and become acquainted with various trade secrets which are owned by the Bank and
which may regularly be used in the operation of the Bank. Executive shall not
disclose any such trade secrets, directly or indirectly, or use them in any way,
during the Term or at any time thereafter, except as required pursuant to the
provisions of this Agreement. All such trade secrets, including, but not by way
of limitation, any and all files, records, documents, specifications,
equipment, customer lists and similar items relating to the business of the
Bank, whether prepared by Executive or otherwise, coming into Executive's
possession, shall remain the exclusive property of the Bank and shall not be
removed from the premises of the Bank under any circumstances whatsoever without
the prior written consent of the Board.
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 4
5.2 Other Property. Under termination of this Agreement, Executive
--------------
shall immediately deliver to the Board any and all property in Executive's
possession or under Executive's control belonging to the Bank, in good
condition, ordinary wear and tear and damage by any cause beyond Executive's
reasonable control excepted.
6. ADDITIONAL OBLIGATIONS
----------------------
6.1 Covenant Not to Compete. During the Term, Executive shall not
-----------------------
directly or indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder, corporate officer or director, or in any other
individual or representative capacity, engage or participate in any business or
activity that is in any way in competition in any manner whatsoever with the
business of Bancorp.
7. TERMINATION
-----------
Pursuant to the Provisions Of 12 U.S.C. Section 24 and California
Labor Code Section 2922 establishing the Executive's employment is "at will" and
any and all other provisions of this Agreement to the contrary notwithstanding,
Executive's employment hereunder may be terminated.
7.1 Without Cause. In the sole and absolute discretion of the Board
-------------
of Directors for any cause whatsoever; provided, however, that if such
termination occurs during the Term, and is for any cause other than any more
particularly described in Sections 7.2 or 7.3 hereof, Executive shall receive
severance payment of six (6) months of the then current annual salary as stated
in Section 3.1 above, in full and complete satisfaction of any and all rights
which Executive may enjoy hereunder other than the right, if any, to exercise
any of the stock options vested prior to such termination.
7.2 Death or Disability. Upon Executive's death or medical or legal
-------------------
disability to continue her duties hereunder as the Chief Financial Officer of
the Bank, provided, that if such termination occurs as a result of such medical
disability, Executive Shall receive severance payment in an amount equal to six
months of the annual base salary in effect hereunder at the date of such
termination in full and complete satisfaction of any and all rights which
Executive might enjoy hereunder other than the right, if any, to exercise any of
the stock options vested prior to such termination.
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 5
7.3 With Cause. In the event of Executive's willful breach or
----------
habitual neglect of her duties and obligations under this Agreement, her
conviction of a felony or the closing of the Bank under order of the Comptroller
or any other governmental regulator or competent jurisdiction, in which event
Executive shall not be entitled to receive any severance payment.
7.4 Change in Ownership or Control. In the event of a change in
------------------------------
ownership or control occurs prior to the Executive's completion of this
Agreement and if the Executive's position is either eliminated or materially
changed, the Executive shall receive six (6) months of the then current annual
salary as stated in Section 3.1 above in full and complete satisfaction of any
and all rights which Executive may enjoy hereunder other than the right, if any,
to exercise any of the stock options vested prior to such termination. Change
of ownership shall have occurred on the date when more than fifty per cent (50%)
of the then outstanding shares of the Bank are held by a person or group of
persons (whether or not acting in concert) not the holder of more than fifty per
cent (50%) of the shares on the Commencement Date of this Agreement.
7.5 General Release of Claims. As a material inducement to the Bank
-------------------------
to enter into this Agreement, including payment of severance pay as stated in
Sections 7.1, 7.2 and 7.4, Executive hereby irrevocably and unconditionally
releases, acquits
and forever discharges the Bank and each of its owners, shareholders,
predecessors, successors, assigns, agents, directors, officers, employees,
representatives, attorneys, divisions, subsidiaries, affiliates (and agents,
directors, officers, employees, representatives, attorneys, divisions,
subsidiaries, affiliates (and agents, directors, officers, employees,
representatives and attorneys of such divisions, subsidiaries and affiliates),
and all persons acting by, through, under or in concert with any of them,
(collectively "Releases"), or any of them, from any and all complaints, claims
liabilities, obligations, promises, agreements, controversies, damages, costs,
losses, debts and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever, including the Age discrimination in
Employment Act and the Older Workers Benefit Protection Act, known or unknown,
("Claim" or "Claims"), which Executive now has, owns, or holds or claims to
have, own or hold, or which Employee at any time heretofore had, owned, or held,
or claimed to have, own, or hold, or which Employee at any time hereinafter may
have, own or hold, or claim to have, own, or hold, against each or any of the
Releases.
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 6
7.6 Civil Code Section 1542. Executive expressly waives and
-----------------------
relinquishes all rights and benefits afforded by Section 1542 of the Civil Code
of the State of California and does so understand and acknowledge the
significance and consequence of such specific waiver of Section 1542. Section
1542 of the Civil Code of the State of California states as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
releases, which if known by him must have materially affected his
settlement with the debtor."
7.7 Payment of Severance. The Bank shall pay the Executive six (6)
--------------------
months as stated in Sections 7.1, 7.2 and 7.4 in a gross amount, not as wages
and not subject to deduction of any state or federal wages, but subject to
issuance of IRS Form 1090. In the event that any state or federal taxing agency
determines that said sum, or any part thereof, is taxable income, it shall be
the Executive's sole responsibility to pay any and all assessed taxes.
Executive shall hold the Bank harmless to the fullest extent possible pursuant
to law and indemnify the Bank concerning the tax consequences, if any, to the
fullest extent possible.
7.8 The Bank agrees to indemnify Executive to pursuant to California
law for any and all acts performed during the course and scope of Executive's
employment. At all times during the employment, the Bank shall maintain
directors and officers liability insurance coverage for Executive.
7.9 Continuation of Health Insurance Upon Termination. If the Bank
-------------------------------------------------
terminates the employment of Executive without cause or upon a change of control
as provided above, the Bank will issue notice of continuation of health
insurance pursuant to federal law, COBRA, and will pay the Executive the
equivalent of six months of health insurance depending upon whether termination
was without cause or change of control.
8. MISCELLANEOUS
-------------
8.1 Notice. Any and all notices and other communications hereunder
------
shall be in writing and shall be deemed to have been duly given when delivered
personally or forty-eight hours after being mailed or certified or registered
mail, return receipt requested, postage prepaid to the addresses set forth above
or to such addresses as may from time to time be designated in writing.
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 7
8.2 Time. Time is of the essence of this Agreement with respect to each
----
and every provision of this Agreement in which time is a factor.
8.3 Entire Agreement. Agreement and Attachment "A" set forth the
----------------
entire agreement between Executive and Bank pertaining to the subject matter
hereof, fully supersedes any and all or prior agreements or understandings
between Executive and any other persons on behalf of the Bank pertaining to the
subject matter hereof and no change in modification of or addition, amendment or
supplement to this Agreement shall be valid unless set forth in writing and
signed and dated by Executive and Bank.
8.4 Further Assurances. Executive and Bank, without the necessity of
------------------
any further consideration, agree to execute and deliver such other documents and
take such other action as may be necessary to consummate more effectively the
purposes and subject matter of this Agreement.
8.5 Applicable Law. The existence, validity, construction and
--------------
operational effect of this Agreement, any and all of these covenants,
agreements, representations, warranties, terms and conditions and the rights and
obligations of Executive and Bank hereunder shall be determined in accordance
with the regulations of the Comptroller provided, however, that any provision of
this Agreement which my be prohibited by law or otherwise held invalid shall be
ineffective only to the extent of such prohibition or invalidity and shall not
invalidate or otherwise render ineffective any or all of the remaining
provisions of this Agreement.
8.6 Controversy. In the event of any controversy, claim, or dispute
-----------
between Executive, Bank and Bancorp arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover as costs from the
nonprevailing party reasonable expenses, including, but not by way of
limitation, attorneys' fees and accountant fees.
8.7 Arbitration. Any dispute regarding any aspect of this
-----------
Agreement, including but not limited to its formation, performance or breach
("arbitrable dispute"), shall be submitted to arbitration in Los Angeles County,
California, before a single experienced employment arbitrator licensed to
practice law in California and selected in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association, as the
exclusive form for resolving such claim or dispute. The arbitrator shall not
have authority to modify or change the Agreement in any respect. The prevailing
party in any such
<PAGE>
Employment Agreement
Simone Lagomarsino
Page Number 8
arbitration shall be awarded its costs, expenses, and actual attorneys' fees
incurred in connection with the arbitration. The Bank and Executive shall each
be responsible for Payment of one-half the amount of the arbitrator's feels).
The arbitrator's decision and/or award will be fully enforceable and subject to
an entry of judgment by the Superior Court of the State of California for the
County of Ventura. Should any part to this Agreement hereafter institute any
legal action or administrative proceeding against the other with respect to any
claim waived by this Agreement or pursue any arbitrable dispute by any method
other than arbitration the responding party shall recover from the initiating
party all damages, costs, expenses, and attorneys' fees incurred as a result of
such action.
8.8 Headings and Gender. The section headings used in this for the
-------------------
convenience of reference and shall not in any way or amplify, limit, modify or
otherwise be used in the interpretation of any of the provisions of this
Agreement and the masculine, feminine, or neuter gender and the singular or
plural number shall be deemed to include the others whenever the context so
indicates or requires.
8.9 Successors. The covenants, agreements, representations,
----------
warranties, terms and conditions contained in this Agreement shall be binding
upon and inure to the benefit of the successors and assigns of Executive and
Bank, provided however that Executive may not assign any or all of her rights or
duties hereunder except upon the prior written consent of the Board in its sole
and absolute discretion.
DATED:
VENTURA COUNTY NATIONAL BANCORP
By _______________________________
Richard S. Cupp
President and C.E.O.
DATED:
_______________________________
Simone Lagomarsino
Chief Financial Officer
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 33-88388 of Ventura County National Bancorp on Form S-2 of our
report dated February 17, 1995 (which expresses an unqualified opinion and
includes an explanatory paragraph relating to noncompliance with regulatory
capital requirements) appearing in the Prospectus, which is part of this
Registration Statement and to reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 11, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 11,442
<INT-BEARING-DEPOSITS> 694
<FED-FUNDS-SOLD> 27,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,859
<INVESTMENTS-CARRYING> 18,775
<INVESTMENTS-MARKET> 17,963
<LOANS> 167,934
<ALLOWANCE> 8,261
<TOTAL-ASSETS> 257,755
<DEPOSITS> 236,342
<SHORT-TERM> 125
<LIABILITIES-OTHER> 2,236
<LONG-TERM> 0
<COMMON> 30,949
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 257,755
<INTEREST-LOAN> 18,740
<INTEREST-INVEST> 2,169
<INTEREST-OTHER> 1,227
<INTEREST-TOTAL> 22,136
<INTEREST-DEPOSIT> 6,253
<INTEREST-EXPENSE> 6,268
<INTEREST-INCOME-NET> 15,868
<LOAN-LOSSES> 3,825
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,084
<INCOME-PRETAX> 285
<INCOME-PRE-EXTRAORDINARY> 285
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (262)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
<YIELD-ACTUAL> 5.68
<LOANS-NON> 7,612
<LOANS-PAST> 331
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 19,769
<ALLOWANCE-OPEN> 14,313
<CHARGE-OFFS> 10,439
<RECOVERIES> 562
<ALLOWANCE-CLOSE> 8,261
<ALLOWANCE-DOMESTIC> 8,261
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
VENTURA COUNTY NATIONAL BANCORP
INSTRUCTIONS AS TO USE OF
SUBSCRIPTION RIGHT CERTIFICATES
----------------
CONSULT THE INFORMATION AGENT, OR YOUR BANK OR BROKER,
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
----------------
The following instructions relate to the rights offering (the "Offering") by
Ventura County National Bancorp, a California corporation (the "Company"), to
the holders of its Common Stock, no par value (the "Common Stock"), as
described in the Company's Prospectus dated May 12, 1995 (the "Prospectus").
Holders of record (the "Record Date Holder") of Common Stock at the close of
business on May 10, 1995 (the "Record Date") are receiving one transferable
subscription right (each a "Right") for each 3.17 shares of Common Stock held
on the Record Date. Each Right entitles the holder thereof (the "Rights
Holder") to subscribe for and purchase from the Company one share of Common
Stock (the "Basic Subscription Privilege") at the subscription price (the
"Subscription Price") of $2.25. In lieu of fractional Rights, the aggregate
number of Rights issued to a Record Date Holder have been rounded up to the
next whole number. An aggregate number of up to 2,001,111 shares of Common
Stock (the "Underlying Shares") will be distributed in connection with the
Offering.
Subject to the proration and possible reduction described below, each Right
also entitles any Record Date Holder exercising in full the Basic Subscription
Privilege the right to subscribe for additional shares of Common Stock
available after satisfaction of all subscriptions pursuant to the Basic
Subscription Privilege (the "Oversubscription Privilege"). THE OVERSUBSCRIPTION
PRIVILEGE MUST BE EXERCISED AT THE SAME TIME AS THE BASIC SUBSCRIPTION
PRIVILEGE. THE OVERSUBSCRIPTION PRIVILEGE IS NOT TRANSFERABLE. Subject to the
allocation and possible reduction described below, shares of Common Stock will
be available for purchase pursuant to the Oversubscription Privilege only to
the extent that any Underlying Shares are not subscribed for through the Basic
Subscription Privilege. If the Underlying Shares not subscribed for through the
Basic Subscription Privilege (the "Excess Shares") are not sufficient to
satisfy all subscriptions pursuant to the Oversubscription Privilege, the
Excess Shares will be allocated pro rata (subject to the elimination of
fractional shares) among those Record Date Holders exercising the
Oversubscription Privilege in proportion to the respective numbers of shares
each such Record Date Holder subscribes for pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
Record Date Holder being allocated a greater number of Excess Shares than such
Holder subscribed for pursuant to the exercise of the Oversubscription
Privilege, then each Record Date Holder will be allocated only that number of
Excess Shares for which such holder oversubscribed, and the remaining Excess
Shares will be allocated among all other Record Date Holders exercising the
Oversubscription Privilege on the same pro rata basis as described above.
The Subscription Price is payable in cash. See "The Rights Offering" in the
Prospectus.
The Rights will expire at 5:00 p.m. Pacific time on June 21, 1995, unless
extended by the Company to a time not later than 5:00 p.m., Pacific time, on
July 21, 1995 (in either case, the "Expiration Time"). It is anticipated that
the Rights will trade on the Nasdaq National Market System.
The number of Rights to which you are entitled is printed on the face of your
Subscription Right Certificate. You should indicate your wishes with regard to
the exercise, transfer or sale of your Rights by completing the appropriate
form or forms on the reverse side of your Subscription Right Certificate and
returning the Subscription Right Certificate to the Subscription Agent in the
envelope provided. Once a Rights Holder has properly exercised the Basic
Subscription Privilege or the Oversubscription Privilege, such exercise may not
be revoked.
1
<PAGE>
YOUR SUBSCRIPTION RIGHT CERTIFICATE OR NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE SUBSCRIPTION AGENT AND PAYMENT OF THE SUBSCRIPTION PRICE,
INCLUDING FINAL CLEARANCE OF ANY UNCERTIFIED CHECKS, MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT, AT OR BEFORE 5:00 P.M. PACIFIC TIME, ON JUNE 21, 1995. YOU
MAY NOT REVOKE ANY EXERCISE OF A RIGHT.
1. SUBSCRIPTION PRIVILEGES.
To Exercise Rights. To exercise your Rights, complete Form 1 of your
Subscription Right Certificate and send to the Subscription Agent your properly
completed and executed Subscription Right Certificate together with payment in
full of the Subscription Price for each Underlying Share subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription
Privilege. Payment of the Subscription Price must be made for the full number
of Underlying Shares being subscribed for (a) by check or bank draft drawn upon
a U.S. bank, or postal, telegraphic or express money order, in each case,
payable to First Interstate Bank of California, as Subscription Agent, or (b)
by wire transfer of funds to the account maintained by the Subscription Agent
for such purpose of accepting subscriptions at Mellon Bank, Pittsburgh,
Pennsylvania #17, ABA No. 043000261, Reorg. Account-100-2331-VCNB, Attention:
Evelyn O'Connor (with Subscriber's name). The Subscription Price will be deemed
to have been received by the Subscription Agent only upon (i) clearance of any
uncertified check, (ii) receipt by the Subscription Agent of any certified
check or bank draft drawn upon a U.S. bank, or of any postal, telegraphic or
express money order or (iii) receipt of collected funds in the Subscription
Agent's account designated above. IF PAYING BY UNCERTIFIED CHECK, PLEASE NOTE
THAT THE FUNDS PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR.
ACCORDINGLY, RIGHTS HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION TIME TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BEFORE THE
EXPIRATION TIME AND ARE URGED TO CONSIDER, IN THE ALTERNATIVE, PAYMENT BY MEANS
OF CERTIFIED CHECK, BANK DRAFT, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
If you exercise less than all of the Rights evidenced by your Subscription
Right Certificate by so indicating on Form 1 of your Subscription Right
Certificate, the Subscription Agent will either (i) issue to you a new
Subscription Right Certificate representing the remaining Rights, (ii) if you
so indicate on Form 2 of your Subscription Right Certificate, issue a new
Subscription Right Certificate to a designated transferee, or (iii) if you so
indicate on Form 3 of your Subscription Right Certificate, attempt to sell such
unexercised Rights for your account. If no indication is made, the Subscription
Agent will issue to you a new Subscription Right Certificate evidencing the
unexercised Rights. If you choose, however, to have a new Subscription Right
Certificate sent to you or a designated transferee, any such new Subscription
Right Certificate may not be received in sufficient time to permit you or the
designated transferee to sell or exercise the Rights evidenced thereby.
Moreover, a new Subscription Right Certificate will be issued to a submitting
Rights Holder, or to any designated transferee, upon the partial exercise or
sale of Rights only if the Subscription Agent received a properly endorsed
Subscription Right Certificate no later than 5:00 p.m., Pacific time, on June
16, 1995. After such time and date, no new Subscription Right Certificates will
be issued.
A new Subscription Right Certificate will be sent by first class mail to the
submitting Rights Holder, or to any designated transferee, only if the
Subscription Agent receives the properly completed Subscription Right
Certificate by 5:00 p.m Pacific time, on June 16, 1995. Unless the submitting
Rights Holder, or designated transferee, makes other arrangements with the
Subscription Agent, a new Subscription Right Certificate received by the
Subscription Agent after 5:00 p.m. Pacific time on June 13, 1995 will be held
for pick-up by the Submitting Rights Holder, or designated transferee, at the
Subscription Agent's hand delivery address provided in paragraph 2 below. All
deliveries of newly issued Subscription Right Certificates will be at the risk
of the submitting Rights Holder, or designated transferee.
2
<PAGE>
If you have not indicated the number of Rights being exercised, or if you
have not forwarded full payment of the Subscription Price for the number of
Rights that you have indicated are being exercised, then you will be deemed to
have exercised the Basic Subscription Privilege with respect to the maximum
number of Rights which may be exercised for the aggregate payment delivered by
you and, to the extent that the aggregate payment delivered by you exceeds the
product of the Subscription Price multiplied by the number of Rights evidenced
by the Subscription Right Certificate(s) delivered by you (such excess being
the "Subscription Excess"), you will be deemed to have exercised the
Oversubscription Privilege to purchase, to the extent available, that number of
whole Excess Shares equal to the quotient obtained by dividing the Subscription
Excess by the Subscription Price and any amount remaining after such division
shall be returned to you.
To Exercise Rights through a Nominee. If you wish to have your bank, broker
or other nominee exercise some or all of your Rights, you must complete Forms 1
and 2 of your Subscription Right Certificate, providing clear direction as to
how many Rights are to be exercised and what action a should be taken in
regards to any unexercised Rights. Banks, brokers and other nominees who
exercise the Oversubscription Privilege on behalf of the beneficial owners of
Rights will be required to certify to the Subscription Agent and the Company,
by delivery to the Subscription Agent of a Nominee Holder Oversubscription
Certification in the form available from the Subscription Agent or the
Information Agent, the aggregate number of Rights as to which the
Oversubscription Privilege are being exercised and the number of Underlying
Shares thereby subscribed for by each beneficial owner of Rights on whose
behalf such nominee holder is acting.
To Exercise Rights if Subscription Right Certificate Might Not Properly Reach
the Subscription Agent Prior to the Expiration Time. You may cause a written
guarantee substantially in the form of Exhibit A to these Instructions (the
"Notice of Guaranteed Delivery") from a member firm of an approved Signature
Guarantee Medallion Program (an "Eligible Institution"), to be received by the
Subscription Agent at or prior to the Expiration Time; payment in full of the
applicable Subscription Price may be made separately as long as said payment is
also received by the Subscription Agent at or prior to the Expiration Time.
Such Notice of Guaranteed Delivery must state your name, the number of Rights
represented by your Subscription Right Certificate and the number of Underlying
Shares being subscribed for pursuant to the Basic Subscription Privilege and
being subscribed for, if any, pursuant to the Oversubscription Privilege, and
the Eligible Institution must guarantee the delivery to the Subscription Agent
of your properly completed and executed Subscription Right Certificate(s)
evidencing those Rights within two (2) Trading Days following the date of the
Notice of Guaranteed Delivery. If this procedure is followed, your Subscription
Right Certificate(s) must be received by the Subscription Agent within two (2)
Trading Days following the date of the Notice of Guaranteed Delivery relating
thereto. Additional copies of the Notice of Guaranteed Delivery may be obtained
upon request from the Information Agent.
Limitation on Subscription Privileges. The Company will not be required to
issue Underlying Shares pursuant to the Offering to any Rights Holder who, in
the Company's sole judgment and discretion, is required to obtain prior
clearance, approval or nondisapproval from any state or Federal bank regulatory
authority to own or control such shares unless, prior to the Expiration Time,
evidence of such clearance, approval or nondisapproval has been provided to the
Company. Further, the Company will not be required to issue to any Rights
Holder, if in the sole judgment and discretion of the Company, such action is
necessary to reduce the risk that certain tax benefits will be subject to the
limitations under Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code") or to reduce the risk of any other adverse tax consequence to the
Company. If the Company elects not to issue shares in such case, such shares
will become available to satisfy subscriptions pursuant to the Oversubscription
Privilege. See "The Rights Offering--Tax Limitation" and "The Rights Offering--
Regulatory Limitation" in the Prospectus.
3
<PAGE>
2. THE SUBSCRIPTION AGENT AND THE INFORMATION AGENT.
The address and telephone and telecopier numbers of the Subscription Agent
are as follows:
FIRST INTERSTATE BANK OF CALIFORNIA
General Information:
1-800-522-6645
By Mail Facsimile Transmission By Hand or
P.O. Box 4177 Copy Number Overnight Courier:
Woodland Hills, 201-296-4062 15821 Ventura Boulevard
California 91365 Suite 670
Encino, California
or
120 Broadway
13th Floor
New York, New York
The address and telephone number of the Information Agent are as follows:
CHEMICAL BANK
450 West 33rd Street
Fifteenth Floor
New York, New York 10001
1-800-421-0708
3. ISSUANCE AND DELIVERY OF STOCK CERTIFICATES, ETC.
The following issuances, deliveries and payments will be made to you at the
address shown on the face of your Subscription Right Certificate unless you
provide special payment, issuance or delivery instructions to the contrary by
completing the applicable part of Form 4 of your Subscription Right
Certificate. See "The Rights Offering--Subscription Privileges" in the
Prospectus.
Common Stock Certificates. Subject to satisfaction of the Minimum Condition,
the Subscription Agent will issue and mail in accordance with the instruction
of the exercising Rights Holder, a certificate representing Underlying Shares
purchased pursuant to the valid exercise of Rights, as soon as practicable
after the Expiration Time and all prorations and reductions contemplated by the
Offering have been effected. See "The Rights Offering--Subscription Privileges"
in the Prospectus.
Refunding of Excess Payments. As soon as practicable after the Expiration
Time and after all prorations and possible reductions contemplated by the terms
of the Offering have been effected, the Subscription Agent will return by mail
without interest or deduction to each Rights Holder exercising the
Oversubscription Privilege any excess funds received in payment of the
Subscription Price for Underlying Shares that were subscribed for by such
Rights Holder but not allocated to such Rights Holder pursuant to the
Oversubscription Privilege.
Proceeds from the Sale of Rights. Promptly following any sale of the Rights
through the Subscription Agent, the Subscription Agent will send the Rights
Holder a check for the proceeds from the sale of any Rights sold by the
Subscription Agent on behalf of such Rights Holder, less any applicable
brokerage commissions, taxes and other direct expenses of sale. The Company
will pay the fees charged by the Subscription Agent for effecting such sales.
4. TO SELL OR TRANSFER RIGHTS.
Sale of Rights through a Bank, Broker or Other Nominee. To sell or transfer
all Rights evidenced by a Subscription Right Certificate through your bank,
broker or other nominee, so indicate on Form 2 of your
4
<PAGE>
Subscription Right Certificate and deliver your properly completed and executed
Subscription Right Certificate to your bank or broker. Your Subscription Right
Certificate should be delivered to your bank or broker in sufficient time for
the Rights to be sold. If Form 2 of your Subscription Right Certificate is
completed without designating a transferee, the Subscription Agent may
thereafter treat the bearer of the Subscription Right Certificate as the
absolute owner of all of the Rights evidenced by such Subscription Right
Certificate for all purposes, and the Subscription Agent will not be affected
by any notice to the contrary. Because your bank or broker cannot issue
Subscription Right Certificates, if you wish to sell less than all of the
Rights evidenced by a Subscription Right Certificate, either your bank or
broker must instruct the Subscription Agent as to the action to be taken with
respect to the Rights that are not to be sold, or your bank or broker must
first have your Subscription Right Certificate divided into Subscription Right
Certificates evidencing the appropriate numbers of Rights by following the
instructions in Paragraph 5 below.
Transfer of Rights to a Designated Transferee. To sell or transfer all of
your Rights to a transferee other than a bank or broker, you must complete Form
2 of your Subscription Right Certificate in its entirety, execute the
Subscription Right Certificate and have your signature guaranteed by a bank,
broker, dealer, municipal securities dealer, municipal securities broker,
government securities dealer, government securities broker, credit union,
national securities exchange, registered securities association, or clearing
agency or savings association under an approved Signature Guarantee Medallion
Program (an "Eligible Guarantor Institution"). A Subscription Right Certificate
that has been properly transferred in its entirety may be exercised by a new
Rights Holder without having a new Subscription Right Certificate issued. To
exercise, or otherwise take action with respect to, such a transferred
Subscription Right Certificate, the new Rights Holder should deliver the
Subscription Right Certificate, together with payment of the applicable
Subscription Price and complete separate instructions signed by the new Rights
Holder to the Subscription Agent in sufficient time to permit the Subscription
Agent to take the desired action. The new Rights Holder may not exercise the
Oversubscription Privilege. The new Rights Holder may be subject to the
prorations and possible reductions described in paragraph 1 above. Only the
Subscription Agent can issue Subscription Right Certificates. However, you may
transfer a portion of the Rights evidenced by a single Subscription Right
Certificate (but not fractional Rights) by delivering to the Subscription Agent
a Subscription Right Certificate properly endorsed for transfer, with
instructions to register that portion of the Rights indicated therein in the
name of the transferee and to issue a new Subscription Right Certificate to the
transferee evidencing the transferred Rights. In that event, a new Subscription
Right Certificate evidencing the balance of the Rights will be issued to you
or, if you so instruct, to an additional transferee, or will be sold by the
Subscription Agent in the manner described in this Paragraph 4 upon appropriate
instruction from you. Alternatively, you may divide your Subscription Right
Certificate into Subscription Right Certificates evidencing appropriate numbers
of Rights for transfer by following the instructions in Paragraph 5 below.
If you wish to transfer all or a portion of your Rights (but not fractional
Rights), you should allow a sufficient amount of time prior to the Expiration
Time for (i) the transfer instructions to be received and processed by the
Subscription Agent, (ii) new Subscription Right Certificates to be issued and
transmitted to the transferee(s), with respect to transferred Rights, and to
you with respect to retained Rights, if any, and (iii) the Rights evidenced by
the new Subscription Right Certificates to be exercised or sold by the
recipients thereof. Such amount of time could range from four to six business
days, depending upon the method by which delivery of the Subscription Right
Certificates and payment is made and the number of transactions which you
instruct the Subscription Agent to effect. Neither the Company nor the
Subscription Agent will have any liability to a transferee or transferor of
Rights if Subscription Right Certificates are not received in time for exercise
or sale prior to the Expiration Time.
Sale of Rights through the Subscription Agent. To sell some or all of your
Rights evidenced by the Subscription Right Certificate through the Subscription
Agent, you must complete Form 3 of your Subscription Right Certificate in its
entirety, execute the Subscription Right Certificate and deliver the
Subscription Right Certificate to the Subscription Agent. Your Subscription
Right Certificate should be delivered to the Subscription Agent in sufficient
time for it to be sold and exercised. Orders to sell Rights
5
<PAGE>
must be received by the Subscription Agent at or prior to 5:00 p.m., Pacific
time, on June 13, 1995. If only a portion of the Rights evidenced by a single
Subscription Right Certificate is to be sold by the Subscription Agent, that
Subscription Right Certificate must be accompanied by instructions setting
forth the action to be taken with respect to the Rights that are not to be
sold. The Subscription Agent's obligation to execute orders is subject to its
ability to find buyers. If the direct expenses of sale would exceed the sale
price on a given day, the Subscription Agent will not sell the Rights. If the
Rights cannot be sold by the Subscription Agent by the Expiration Time they
will expire unexercised. Promptly following any sale of your Rights through the
Subscription Agent, the Subscription Agent will send a check for the proceeds
from the sale of any Rights sold, less any applicable brokerage commissions,
taxes and other direct expenses of sale. If you wish to sell Rights through the
Subscription Agent, you should also complete the Substitute Form W-9 attached
to the Subscription Right Certificate and referred to in Paragraph 9 below.
THERE CAN BE NO ASSURANCE THAT THE SUBSCRIPTION AGENT WILL BE SUCCESSFUL IN
EXECUTING ORDERS TO SELL RIGHTS. ANY RIGHTS WHICH THE SUBSCRIPTION AGENT IS
UNABLE TO SELL BEFORE THE EXPIRATION TIME WILL EXPIRE VALUELESS.
5. TO DIVIDE A SUBSCRIPTION RIGHT CERTIFICATE.
To have your Subscription Right Certificate divided into two or more
Subscription Right Certificates, evidencing the same aggregate number of
Rights, send your Subscription Right Certificate, together with complete
separate instructions (including specification of the denominations into which
you wish your Rights to be divided) signed by you, to the Subscription Agent,
allowing a sufficient amount of time for new Subscription Right Certificates to
be issued and returned so they can be used prior to the Expiration Time.
Alternatively, you may ask a bank or broker to effect such actions on your
behalf. Your signature must be guaranteed by an Eligible Guarantor Institution
(as defined in paragraph 4) if any of the new Subscription Right Certificates
are to be issued in a name other than that in which the original Subscription
Right Certificate was issued. Subscription Right Certificates may not be
divided into fractional Rights, and any instruction to do so will be rejected.
As a result of delays in the mail, the time of the transmittal, the necessary
processing time and other factors, you or your transferee may not receive such
new Subscription Right Certificates in time to enable the Rights Holder to
complete a sale or exercise by the Expiration Time. Neither the Company nor the
Subscription Agent will be liable to either a transferor or transferee for any
such delays.
6. SIGNATURES.
Execution by Rights Holder. The signature on the Subscription Right
Certificate must correspond with the name of the Rights Holder exactly as it
appears on the face of the Subscription Right Certificate without any
alteration or change whatsoever. Persons who sign the Subscription Right
Certificate in a representative or other fiduciary capacity must indicate their
capacity when signing and, unless waived by the Company in its sole and
absolute discretion, must present to the Subscription Agent satisfactory
evidence of their authority to so act.
Execution by Person Other than Rights Holder. If the Subscription Right
Certificate is executed by a person other than the Rights Holder named on the
face of the Subscription Right Certificate, proper evidence of authority of the
person executing the Subscription Right Certificate must accompany the same
unless, for good cause, the Company dispenses with proof of authority.
Signature Guarantees. Unless your Subscription Right Certificate (i) provides
that the Underlying Shares to be issued pursuant to the exercise of the Rights
represented thereby are to be issued to you or (ii) is submitted for the
account of an Eligible Institution (as defined in paragraph 1), your signature
on each Subscription Right Certificate must be guaranteed by an Eligible
Guarantor Institution (as defined in paragraph 4).
7. METHOD OF DELIVERY.
The method of delivery of Subscription Right Certificates and payment of the
Subscription Price to the Subscription Agent will be at your election and risk,
but, if sent by mail, you are urged to send such materials
6
<PAGE>
by registered mail, properly insured, with return receipt requested, and are
urged to allow a sufficient number of days to ensure delivery to the
Subscription Agent and, if you are paying by uncertified check, the clearance
of payment of the Subscription Price prior to the Expiration Time. Because
uncertified checks may take at least five business days to clear, you are
strongly urged to consider payment by means of certified check, cashier's
check, money order or wire transfer.
8. LOST, STOLEN, DESTROYED OR MUTILATED SUBSCRIPTION RIGHTS CERTIFICATES.
Upon receipt by the Company and the Subscription Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a
Subscription Right Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them, in their sole discretion, and
reimbursement to the Company and the Subscription Agent of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the
Subscription Right Certificate, if mutilated, the Subscription Agent will make
and deliver a new Subscription Right Certificate of like tenor to the
registered Rights Holder in lieu of the Subscription Right Certificate so lost,
stolen, destroyed or mutilated. If required by the Company or the Subscription
Agent, an indemnity bond must be sufficient in the judgment of each party to
protect the Company, the Subscription Agent or any agent thereof from any loss
which any of them may suffer if a lost, stolen, destroyed or mutilated
Subscription Right Certificate is replaced. See Exhibit C.
9. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE
DEPOSITORY TRUST COMPANY.
In the case of Rights that are held of record through The Depository Trust
Company ("DTC"), exercises of the Basic Subscription Privilege (but not the
Oversubscription Privilege) may be effected by instructing DTC to transfer
Rights (such Rights being "DTC Rights") from the DTC account of the Rights
Holder to the DTC account of the Subscription Agent, together with payment of
the Subscription Price for each Underlying Share subscribed for pursuant to the
Basic Subscription Privilege. THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF DTC
RIGHTS MAY NOT BE EXERCISED THROUGH DTC. The holder of DTC Rights may exercise
the Oversubscription Privilege in respect thereof by properly executing and
delivering to the Subscription Agent, at or prior to the Expiration Time, a DTC
Participant Oversubscription Exercise Form, in the form available from the
Information Agent or the Subscription Agent, together with payment of the
appropriate Subscription Price for the number of Excess Shares for which the
Oversubscription Privilege is exercised.
If a Notice of Guaranteed Delivery relates to Rights with respect to which
exercise of the Basic Subscription Privilege will be made through DTC and such
Notice of Guaranteed Delivery also relates to the exercise of the
Oversubscription Privilege, a DTC Participant Oversubscription Exercise Form
must also be received by the Subscription Agent in respect of such exercise of
the Oversubscription Privilege at or prior to the Expiration Time.
10. SUBSTITUTE FORM W-9.
Each Rights Holder who elects either to exercise Rights or to have the
Subscription Agent attempt to sell such Rights Holder's Rights should provide
the Subscription Agent with a correct Taxpayer Identification Number on the
Substitute Form W-9 attached to the Subscription Right Certificate. Additional
copies of Substitute Form W-9 may be obtained upon request from the Information
Agent or Subscription Agent. Failure to provide the information on the
Substitute Form W-9 may subject such Rights Holder to a $50 penalty and to a
31% Federal income tax withholding with respect to (i) dividends that may be
paid by the Company on shares of Common Stock purchased upon the exercise of
Rights (for those Rights Holders exercising Rights) or (ii) funds to be
remitted to Rights Holders in respect of Rights sold by the Subscription Agent
(for those Rights Holders electing to have the Subscription Agent sell their
Rights). For more information see "Important Tax Information" attached as
Exhibit B hereto.
11. TRANSFER TAXES.
Except for the fees charged by the Subscription Agent (which will be paid by
the Company as described in Paragraph 3 above), all commissions, fees and other
expenses (including brokerage commissions and
7
<PAGE>
transfer taxes) incurred in connection with the purchase, sale or exercise of
Rights will be for the account of the Rights Holder, and none of such
commissions, fees or expenses will be paid by the Company or the Subscription
Agent.
12. IRREGULARITIES.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company, in its sole discretion, may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscription Right Certificates will not be deemed to have been received
or accepted until all irregularities have been waived or cured within such time
as the Company determines, in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Right
Certificates or incur any liability for failure to give such notification. The
Company reserves the right to reject any exercise if such exercise is not in
accordance with the terms of the Offering or not in proper form or if the
acceptance thereof or the issuance of the shares of Common Stock pursuant
thereto could be deemed unlawful.
8
<PAGE>
EXHIBIT A
TO
INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION RIGHTS CERTIFICATES
ISSUED BY
VENTURA COUNTY NATIONAL BANCORP
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights Offering described in the Prospectus dated May
12, 1995 (the "Prospectus") of Ventura County National Bancorp, a California
corporation (the "Company"), if a holder of Rights cannot deliver the
Subscription Right Certificate(s) evidencing the Rights (the "Subscription
Right Certificate(s)"), to the Subscription Agent listed below (the
"Subscription Agent") at or prior to 5:00 p.m. Pacific time on June 21, 1995,
unless extended by the Company to a time not later than 5:00 p.m., Pacific
time, on July 21, 1995 (in either case, the "Expiration Time"). This form must
be delivered by hand or sent by facsimile transmission, overnight courier or
mail to the Subscription Agent, and must be received by the Subscription Agent
at or prior to the Expiration Time. Properly completed and executed
Subscription Right Certificate(s) relating to this Notice of Guaranteed
Delivery must be received by the Subscription Agent within two (2) Trading Days
following the date of this Notice of Guaranteed Delivery. See "The Rights
Offering -- Exercise of Rights" in the Prospectus. Payment of the Subscription
Price of $2.25 per share for each Underlying Share subscribed for pursuant to
the Basic Subscription Privilege and the Oversubscription Privilege must be
received by the Subscription Agent in the manner specified in the Instructions
as to Use of Subscription Right Certificates at or prior to the Expiration Time
even if the Subscription Right Certificate evidencing such Right is being
delivered pursuant to the procedure for guaranteed delivery thereof.
The Subscription Agent is:
FIRST INTERSTATE BANK OF CALIFORNIA
General Information: 1-800-522-6645
<TABLE>
<S> <C> <C>
Facsimile Transmission By Hand or
If by Mail: Copy Number: Overnight Courier:
P.O. Box 4177 201-296-4062 15821 Ventura Boulevard
Woodland Hills, California Confirm Facsimile by Telephone: Suite 670
91365 800-522-6645 Encino, California
or
120 Broadway
13th Floor
New York, New York
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN THAT SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
A-1
<PAGE>
Ladies and Gentlemen:
The undersigned represents that he or she is the holder of Subscription Right
Certificate(s) representing Rights and that such Subscription Right
Certificate(s) cannot be delivered to the Subscription Agent at or before 5:00
p.m., Pacific time on June 21, 1995, or such later time to which the Rights
offering has been extended by the Company to a time not later than 5:00 p.m.,
Pacific time, on July 21, 1995 (in either case, the "Expiration Time"). Upon
the terms and subject to the conditions set forth in the Prospectus, receipt of
which is hereby acknowledged, the undersigned hereby elects to exercise (i) the
Basic Subscription Privilege to subscribe for one Share of Common Stock per
Right with respect to Rights represented by such Subscription Right
Certificate and (ii) the Oversubscription Privilege, to the extent that Excess
Shares (as defined in the Prospectus) are available therefor, for an aggregate
of up to Excess Shares. The undersigned understands that payment of
the Subscription Price of $2.25 per share for each share of Common Stock
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege must be received by the Subscription Agent at or
before the Expiration Time, and represents that such payment, in the aggregate
amount of $ , either (check appropriate box(es)):
[_] is being delivered to the Subscription Agent concurrently herewith in
the manner set forth below; or
[_] has been delivered separately to the Subscription Agent in the manner
set forth below. (check appropriate box and complete information relating
thereto):
[_] Wire transfer of funds directed to First Interstate Bank of California,
c/o Mellon Bank, Pittsburgh, PA, #17, ABA # 043000261, Reorg.
Account-100-2331-VCNB, Attn: Evelyn O'Connor
Name of transferor institution ___________________________________________
Date of transfer _________________________________________________________
Federal Reference number (if available) __________________________________
[_] Uncertified check payable to First Interstate Bank of California
(Payment by uncertified check will not be deemed to have been received by
the Subscription Agent until such check has cleared. Rights holders
paying by such means are urged to make payment sufficiently in advance of
the Expiration Time to ensure that such payment clears by such date.)
Name of maker ____________________________________________________________
Date of check ____________________________________________________________
Bank on which check is drawn _____________________________________________
[_] Certified check or bank draft payable to First Interstate Bank of
California
Name of maker ____________________________________________________________
Date of draft ____________________________________________________________
[_] Money order payable to First Interstate Bank of California
Issuer of money order ____________________________________________________
Date of money order ______________________________________________________
Signature(s) _________________________ Address ______________________________
______________________________________ ______________________________________
Name(s) ______________________________ ______________________________________
PLEASE TYPE OR PRINT (INCLUDE ZIP CODE)
______________________________________ ______________________________________
______________________________________ Area Code and Tel. No(s). ____________
(IF SIGNATURE IS BY A TRUSTEE(S),
EXECUTOR(S), ADMINISTRATOR(S),
GUARDIAN(S), ATTORNEY(S)-IN-FACT,
AGENT(S), OFFICER(S), OF A
CORPORATION OR ANOTHER ACTING IN A
FIDUCIARY OR REPRESENTATIVE CAPACITY,
SUCH CAPACITY MUST BE CLEARLY Subscription Right Certificate No(s).
INDICATED ABOVE.) (if available) _______________________
A-2
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SUBSCRIPTION RIGHT CERTIFICATE SIGNATURE GUARANTEE)
THE UNDERSIGNED, A MEMBER FIRM OF AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, GUARANTEES THAT THE UNDERSIGNED WILL DELIVER TO THE SUBSCRIPTION AGENT
THE SUBSCRIPTION RIGHT CERTIFICATE(S) REPRESENTING THE RIGHTS BEING EXERCISED
HEREBY, WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED
DOCUMENTS, ALL WITHIN TWO (2) TRADING DAYS AFTER THE DATE HEREOF.
__________________________________ Date _____________________________ , 1995
(NAME OF FIRM)
Address: ________________________________
__________________________________
(AUTHORIZED SIGNATURE) _________________________________________
(INCLUDE ZIP CODE)
__________________________________
(NAME) _________________________________________
(AREA CODE AND TELEPHONE NUMBER)
__________________________________
(TITLE)
THE INSTITUTION WHICH COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE
SUBSCRIPTION AGENT AND MUST DELIVER THE SUBSCRIPTION RIGHT CERTIFICATE(S) TO
THE SUBSCRIPTION AGENT WITHIN THE TIME PERIOD SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN FINANCIAL LOSS TO SUCH INSTITUTION.
A-3
<PAGE>
EXHIBIT B
TO
INSTRUCTIONS
IMPORTANT TAX INFORMATION
Under the U.S. Federal income tax law, (1) dividend payments that may be made
by the Company on shares of Common Stock issued upon the exercise of Rights,
and (2) payments that may be remitted by the Subscription Agent to Rights
Holders in respect of Rights sold on such Rights Holders' behalf by the
Subscription Agent, may be subject to backup withholding, and each Rights
Holder who either exercises Rights or requests the Subscription Agent to sell
Rights should provide the Subscription Agent (as the Company's agent, in
respect of exercised Rights, and as payer in respect of Rights sold by the
Subscription Agent) with such Rights Holders' correct taxpayer identification
number on the Substitute Form W-9 in the Subscription Right Certificate. If
such Rights Holder is an individual, the taxpayer identification number is his
or her social security number. If the Subscription Agent is not provided with
the correct taxpayer identification number in connection with such payments,
the Rights Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service.
Exempt Rights Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and
information reporting requirements. In general, for a foreign individual to
qualify as an exempt recipient, the Rights Holder must submit a statement,
signed under the penalties of perjury, attesting to that individual's exempt
status. Such statements can be obtained from the Subscription Agent. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company or the Subscription Agent, as the
case may be, will be required to withhold 31% of any such payments made to the
Rights Holder. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the Rights Holder is required to notify the
Subscription Agent of his or her correct taxpayer identification number by
completing the Substitute Form W-9 included as a part of the Subscription Right
Certificate certifying that the taxpayer identification number provided on
Substitute Form W-9 is correct (or that such Rights Holder is awaiting a
taxpayer identification number).
WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT
The Rights Holder is required to furnish the Subscription Agent such Rights
Holder's social security number or employer identification number. If the
Rights are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to
report.
B-1
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help you determine the
number to give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------------------------------------
GIVE THE NAME AND GIVE THE NAME AND
SOCIAL SECURITY EMPLOYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT NUMBER OF-- FOR THIS TYPE OF ACCOUNT NUMBER OF--
- --------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. A valid trust, Legal entity (do not
estate or pension furnish the
2.a. Two or more The actual owner of the trust identification number of
individuals account or, if combined the personal
(joint funds, the first representative or
account) individual on the trustee unless the legal
account(1) entity itself is not
designated in the
3. Custodian The minor(2) account title)(4)
account number
of a minor 7. Corporation The corporation
(Uniform Gift to
Minors Act) 8. Association, The organization
club, religious,
4.a. The usual The grantor-trustee(1) charitable,
revocable educational or
savings trust other tax-exempt
(grantor is organization
also trustee)
9. Partnership The partnership
b. The so-called The actual owner(1)
trust account 10. A broker or The broker or nominee
that is not a registered
legal or valid nominee
trust under
State law 11. Account with the The public entity
Department of
5. Sole The owner(3) Agriculture in
proprietorship the name of a
public entity
(such as a State
or local
government,
school district,
or prison) that
receives
agricultural
program payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. You may also use an Employer Identification
Number.
(4) List first and circle the name of legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
B-2
<PAGE>
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
SS-4, Application for Employer Identification Number, at your local office of
the Social Security Administration or the Internal Revenue Service ("IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation
. A financial institution
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7)
. The United States or any agency or instrumentality thereof
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof
. An international organization or any agency or instrumentality thereof
. A dealer in securities or commodities registered in the United States or
a possession of the United States
. A real estate investment trust
. A common trust fund operated by a bank under section 584(a)
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1)
. An entity registered at all times under the Investment Company Act of
1940
. A foreign central bank of issue
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441
. Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner
. Payments or patronage dividends where the amount received is not paid in
money
. Payments made by certain foreign organizations
. Payments made to a nominee
Payments of interest not generally subject to backup withholding include the
following:
. Payments of tax-exempt interest (including exempt-interest dividends
under section 852)
. Payments described in section 6049(b)(5) to nonresident aliens
. Payments made by certain foreign organizations
. Payments made to a nominee
Exempt payers described above should file the Substitute Form W-9 attached to
the Subscription Right Certificate to avoid erroneous backup withholding. FILE
THE FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE
"EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE
PAYER.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE
Section 6109 requires most recipients of dividends, interest, or other payments
to give taxpayer identification numbers to payers who must report the payments
to the IRS. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. Payers must be given the numbers
whether or not recipients are required to file tax returns. Payers must
generally withhold 31% of taxable interest, dividends, and certain other
payments to a payee who does not furnish a taxpayer identification number.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX ADVISOR OR THE INTERNAL REVENUE
SERVICE
B-3
<PAGE>
EXHIBIT C
TO
INSTRUCTIONS
AFFIDAVIT OF LOST, STOLEN, DESTROYED OR MUTILATED
SUBSCRIPTION RIGHT CERTIFICATE(S)
CERTIFICATE NO(s) ___________ (if available) for ____________ Rights to purchase
Common Stock of Ventura County National Bancorp
I am the lawful owner of the above-described representing Subscription Right
Certificate(s) to purchase shares of Common Stock of Ventura County National
Bancorp (the "Company") at an exercise price of $2.25 per share. The
Subscription Right Certificate(s) has (have) not been exercised, endorsed,
cashed, negotiated, transferred, assigned or otherwise disposed of. I have made
a diligent search for the Subscription Right Certificate(s) and have been
unable to find it (them) and make this affidavit for the purpose of inducing
the Company and First Interstate Bank of California to issue a new Subscription
Right Certificate of like tenor, and hereby agree to surrender the Subscription
Right Certificate(s) for cancellation should I, at any time, find the
Subscription Right Certificate(s). In consideration of the receipt of a new
Subscription Right Certificate(s), I agree to completely indemnify, protect and
hold harmless the Company, First Interstate Bancorp, First Interstate Bank of
California and any other party to the transaction (the "Obligees") from and
against all loss, costs and damages, including court costs and attorneys' fees,
which they may be subject to or liable for in respect of the cancellation of
Subscription Right Certificate(s). The rights accruing to the Obligees under
the preceding sentence shall not be limited by the negligence, inadvertence,
accident, oversight or breach of any duty or obligation on the part of the
Obligees or their respective officers, employees and agents or their failure to
inquire into, contest or litigate any claim, whenever such negligence,
inadvertence, accident, oversight, breach or failure may occur or have
occurred.
PLEASE DATE AND SIGN BELOW:
Dated: ________________________, 1995
_____________________________________
(Signature of Holder)
_____________________________________
(Signature of Holder)
(Must be signed above by registered holder(s) or by person(s) authorized to
receive the cash payments.)
C-1
<PAGE>
EXHIBIT 99.2
[VENTURA COUNTY NATIONAL BANCORP LETTERHEAD]
May 12, 1995
Dear Shareholder(s):
Ventura County National Bancorp (the "Company") has begun an offering (the
"Offering") of up to 2,890,000 shares of its Common Stock, no par value (the
"Common Stock"), to holders of record ("Record Date Holders") of Common Stock
at the close of business on May 10, 1995 (the "Record Date"), pursuant to
transferable subscription rights ("Rights") to subscribe for and purchase
shares of Common Stock at a price of $2.25 per share (the "Subscription
Price"). Each shareholder will receive one Right for each 3.17 shares of Common
Stock held of record by such shareholder on the Record Date, and the aggregate
number of Rights issued by the Company to each shareholder will be rounded up
to the next whole number.
Each Right will entitle the holder thereof (the "Rights Holder") to subscribe
for and purchase at the Subscription Price one share of Common Stock (the
"Basic Subscription Privilege"), subject to proration and reduction by the
Company under certain circumstances. Any Record Date Holder who fully exercises
the Basic Subscription Privilege is entitled to subscribe for and purchase
additional shares of Common Stock that are not otherwise subscribed for by all
Rights Holders pursuant to the exercise of the Basic Subscription Privilege,
subject to proration and reduction by the Company under certain circumstances
(the "Oversubscription Privilege"). The number of Rights to which you are
entitled is printed on the front of your Subscription Right Certificate. Rights
to exercise the Basic Subscription Privilege are freely transferable and may be
sold through normal investment channels. The Oversubscription Privilege,
however, is not transferable. If you desire, you may request the Subscription
Agent, First Interstate Bank of California, to attempt to sell your Rights, as
more fully discussed in the enclosed Prospectus dated May 12, 1995 (the
"Prospectus").
Enclosed for your review is the Prospectus, a transferable Subscription Right
Certificate and related documents concerning the Offering. The Offering will
expire at 5:00 p.m., Pacific time, on June 21, 1995 unless extended by the
Company to a time not later than 5:00 p.m., Pacific time, on July 21, 1995.
Rights not exercised or sold by such time will expire and become worthless. Any
questions or requests for assistance should be directed to Chemical Bank, the
Information Agent for the Offering, at 1-800-421-0708.
The Offering is being made only pursuant to the Prospectus which sets forth
detailed information about the Company and the Offering. Please read these
enclosed materials carefully.
Sincerely,
Richard Cupp
President and Chief Executive
Officer
<PAGE>
EXHIBIT 99.3
SPECIAL NOTICE TO HOLDERS OF
VENTURA COUNTY NATIONAL BANCORP
COMMON STOCK (NO PAR VALUE)
WHOSE ADDRESSES ARE OUTSIDE
THE UNITED STATES AND CANADA
Dear Shareholder(s):
Enclosed you will find materials relating to the rights offering (the
"Offering") of Ventura County National Bancorp (the "Company"). A Subscription
Right Certificate representing Rights to subscribe for shares of the Company's
Common Stock at $2.25 per share is not included in this mailing, but instead is
being held on your behalf by the Subscription Agent, First Interstate Bank of
California. The number of Rights that are being held for you is indicated
above. If you wish to exercise, transfer or sell any or all of these Rights,
you must so instruct the Subscription Agent in the manner described in the
accompanying Prospectus and Instructions as to Use of Subscription Right
Certificates by 5:00 p.m., Pacific time, on June 13, 1995. If the Subscription
Agent does not receive your instructions by such time, the Subscription Agent
will attempt to sell your Rights, and the net proceeds, if any, of such sale
will be remitted to you, unless prohibited by applicable laws and regulations.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO
CHEMICAL BANK
1-800-421-0708
<PAGE>
EXHIBIT 99.4
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
VENTURA COUNTY NATIONAL BANCORP
COMMON STOCK (NO PAR VALUE)
INITIALLY OFFERED PURSUANT TO RIGHTS
DISTRIBUTED TO SHAREHOLDERS
To Securities Dealers, Commercial Banks,
Brokers, Trust Companies and Other Nominees:
Enclosed are a Prospectus, dated May 12, 1995 (the "Prospectus"), and
Instructions as to Use of Subscription Right Certificates (the "Instructions"),
relating to the offering of up to 2,890,000 shares of Common Stock, no par
value (the "Common Stock"), of Ventura County National Bancorp (the "Company"),
at a subscription price of $2.25 per share in cash, pursuant to transferable
subscription rights ("Rights") initially distributed to holders of record
("Record Date Holders") of shares of Common Stock as of the close of business
on May 10, 1995 (the "Record Date"). The Rights are described in the Prospectus
and evidenced by a Subscription Right Certificate (a "Subscription Right
Certificate") registered in your name or the name of your nominee.
Each beneficial owner of Common Stock registered in your name or the name of
your nominee is entitled to one Right for each 3.17 shares of Common Stock so
owned by such beneficial owner on the Record Date. In lieu of fractional
shares, the aggregate number of Rights issued in respect of each beneficial
owner will be rounded up to the next whole number, upon your timely request on
the enclosed Certification and Request for Additional Rights.
We are asking you to contact your clients for whom you hold shares of Common
Stock registered in your name, or in the name of your nominee to obtain
instructions with respect to the Rights. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients. The Company will pay all transfer taxes, if any,
applicable to the sale of shares of Common Stock to a Rights Holder upon
exercise of Rights, subject to certain exceptions described in the Prospectus
and the Subscription Right Certificate.
Enclosed are copies of the following documents:
1. The Prospectus;
2. The Instructions;
3. A form of letter which may be sent to your clients for whose accounts
you hold shares of Common Stock registered in your name or the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Rights;
4. Certification and Request for Additional Rights;
5. A Nominee Holder Oversubscription Certification;
6. A Notice of Guaranteed Delivery.
Your prompt action is requested. The Rights will expire at 5:00 p.m., Pacific
time, on June 21, 1995, unless extended by the Company to a time not later than
5:00 p.m. Pacific time, on July 21, 1995 (in either case, the "Expiration
Time").
<PAGE>
TO EXERCISE RIGHTS, PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION RIGHT
CERTIFICATE(S) (UNLESS THE GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH)
AND PAYMENT IN FULL FOR ALL RIGHTS EXERCISED MUST BE DELIVERED TO THE
SUBSCRIPTION AGENT AS INDICATED IN THE PROSPECTUS PRIOR TO THE EXPIRATION TIME.
EXERCISE OF OVERSUBSCRIPTION PRIVILEGES (AS DEFINED IN THE PROSPECTUS) MUST BE
ACCOMPANIED BY A COMPLETE NOMINEE HOLDER OVERSUBSCRIPTION CERTIFICATION.
Additional copies of the enclosed materials may be obtained from First
Interstate Bank of California. Rights holders requesting assistance or
information may call the Information Agent, Chemical Bank at800-421-0708.
Very truly yours,
VENTURA COUNTY NATIONAL BANCORP
Richard Cupp
President and Chief Executive
Officer
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY, THE SUBSCRIPTION AGENT OR ANY OTHER PERSON
MAKING OR DEEMED TO BE MAKING OFFERS OF THE COMMON STOCK, OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT
TO THE OFFERING, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE
SUBSCRIPTION DOCUMENTS.
<PAGE>
EXHIBIT 99.5
CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS
To the Subscription Agent:
The undersigned securities dealer, commercial bank, broker, trust company or
other nominee holder of Rights (as defined below) hereby certifies that it is
the holder of record ("Record Date Holder") of shares of Common
Stock, no par value (the "Common Stock"), of Ventura County National Bancorp
(the "Company") on behalf of certain beneficial owners as of the close of
business on May 10, 1995, the record date for the offering (the "Record Date")
of up to 2,890,000 shares of Common Stock pursuant to transferable subscription
rights ("Rights"), as described in the Company's Prospectus dated May 12, 1995,
a copy of which the undersigned has received.
The undersigned further certifies that beneficial owners
on whose behalf it held, as of the close of business on the Record Date,
shares of Common Stock registered in the name of the undersigned,
are each entitled to one additional Right as the Company has agreed that, in
lieu of fractional Rights, the number of Rights to which a beneficial owner
would otherwise be entitled will be rounded up to the next whole number and,
accordingly, the undersigned requests that a Subscription Right Certificate
evidencing additional Rights be issued to it. The undersigned
further certifies that each such beneficial owner is a bona fide beneficial
owner of Common Stock, that such beneficial ownership is reflected on the
undersigned's records and that all shares of Common Stock which, to the
undersigned's knowledge, are beneficially owned by any such beneficial owner
through the undersigned have been aggregated in calculating the foregoing. The
undersigned agrees to provide the Company or its designee with such additional
information as the Company deems necessary to verify the foregoing and
acknowledges that the Subscription Agent must receive this Certification and
Request for Additional Rights, properly completed, no later than 5:00 p.m.
Pacific Time, on June 16, 1995, after which time no new Subscription Right
Certificates will be issued.
--------------------------------------------------
Name of Record Date Holder
By: ______________________________________________
Name: ____________________________________________
Title: ___________________________________________
Address: _________________________________________
__________________________________________________
Telephone Number: ________________________________
DTC Participant Number: __________________________
Dated: ___________________________________ , 1995
<PAGE>
EXHIBIT 99.6
VENTURA COUNTY NATIONAL BANCORP
NOMINEE HOLDER OVERSUBSCRIPTION CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of Common Stock, no par value ("Common Stock"), of Ventura
County National Bancorp (the "Company") pursuant to the Rights offering (the
"Offering") described and provided for in the Company's Prospectus dated May
12, 1995 (the "Prospectus"), hereby certifies to the Company and to First
Interstate Bank of California as Subscription Agent for such Offering, that for
each numbered line filled in below the undersigned has exercised, on behalf of
the beneficial owner thereof (which may be the undersigned), the number of
Rights specified on such line pursuant to the Basic Subscription Privilege (as
defined in the Prospectus) and such beneficial owner wishes to subscribe for
the purchase of additional shares of Common Stock pursuant to the
Oversubscription Privilege (as defined in the Prospectus), in the amount set
forth in the second column of such line:
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES SUBSCRIBED FOR
PURSUANT TO BASIC SUBSCRIPTION PURSUANT TO OVERSUBSCRIPTION
PRIVILEGE PRIVILEGE
1.---------------------------------- ----------------------------------
2.---------------------------------- ----------------------------------
3.---------------------------------- ----------------------------------
4.---------------------------------- ----------------------------------
5.---------------------------------- ----------------------------------
6.---------------------------------- ----------------------------------
7.---------------------------------- ----------------------------------
8.---------------------------------- ----------------------------------
9.---------------------------------- ----------------------------------
10.---------------------------------- ----------------------------------
--------------------------------------------------
Name of Nominee Holder
By: ______________________________________________
Name: ____________________________________________
Title: ___________________________________________
Dated: ___________________________________ , 1995
Provide the following information, if applicable
--------------------------------------------------
DEPOSITORY TRUST COMPANY ("DTC") PARTICIPANT
NUMBER
--------------------------------------------------
DTC BASIC SUBSCRIPTION CONFIRMATION NUMBER(S)
<PAGE>
EXHIBIT 99.7
2,000,000 SHARES (MINIMUM)
2,890,000 SHARES (MAXIMUM)
VENTURA COUNTY NATIONAL BANCORP
COMMON STOCK (NO PAR VALUE)
INITIALLY OFFERED PURSUANT TO RIGHTS
DISTRIBUTED TO SHAREHOLDERS
To Our Clients:
Enclosed for your consideration are a Prospectus, dated May 12, 1995
("Prospectus"), and the Instructions as to Use of Subscription Right
Certificates (the "Instructions") relating to the offering (the "Offering") of
up to 2,890,000 shares (the "Underlying Shares") of Common Stock, no par value
(the "Common Stock"), of Ventura County National Bancorp (the "Company"), at a
price of $2.25 per share (the "Subscription Price") pursuant to transferable
subscription rights ("Rights") initially distributed to holders of record
("Record Date Holders") of Common Stock, at the close of business on May 10,
1995 (the "Record Date").
As described in the accompanying Prospectus, you will receive one Right for
each 3.17 shares of Common Stock carried by us in your account as of the Record
Date. Each Right will entitle you to subscribe for and purchase from the
Company one share of Common Stock (the "Basic Subscription Privilege") at the
Subscription Price, subject to proration and reduction as described in the
Prospectus. If you fully exercise the Basic Subscription Privilege you will
also have the right (the "Oversubscription Privilege") to subscribe, at the
Subscription Price, for additional shares of Common Stock available after
satisfaction of all subscriptions pursuant to the Basic Subscription Privilege
(the "Excess Shares"), subject to proration and reduction as described in the
Prospectus. If the number of Excess Shares is not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the Excess Shares
will be allocated pro rata (subject to the elimination of fractional shares)
among those Rights Holders exercising the Oversubscription Privilege in
proportion to the respective number of shares each such Record Date Holder
subscribes for pursuant to the Basic Subscription Privilege; provided, however,
that if such pro rata allocation results in any Rights Holder being allocated a
greater number of Excess Shares than such Holder subscribed for pursuant to the
exercise of the Oversubscription Privilege, then each Rights Holder will be
allocated only that number of Excess Shares for which such holder
oversubscribed, and the remaining Excess Shares will be allocated among all
other Record Date Holders exercising the Oversubscription Privilege on the same
pro rata basis as described above.
Rights to exercise the Basic Subscription Privilege are transferable, and
Rights Holders that wish to sell their Rights may do so. It is anticipated that
the Rights will trade on the Nasdaq National Market System until the close of
business on the last trading day prior to the date or the Expiration Time (as
defined below). There can be no assurance, however, that a trading market in
the Rights will develop.
The materials enclosed are being forwarded to you as the beneficial owner of
shares of Common Stock carried by us in your account but not registered in your
name. Exercises and sales of Rights may only be made by us as the registered
holder of Rights and pursuant to your instructions. Accordingly, we request
instructions as to whether you wish us to elect to subscribe for any Underlying
Shares or attempt to sell (or direct the Subscription Agent to attempt to sell)
any Rights to which you are entitled pursuant to the terms and subject to the
conditions set forth in the enclosed Prospectus and Instructions.
Your instructions to us should be forwarded as promptly as possible to permit
us to exercise or sell Rights on your behalf in accordance with the provisions
of the Offering. The Offering will expire at 5:00 p.m., Pacific time on June
21, 1995, unless extended by the Company, to a date not later than 5:00
<PAGE>
p.m., Pacific time on July 21, 1995 (in either case, the "Expiration Time").
Once a Rights Holder has properly exercised the Basic Subscription Privilege or
the Oversubscription Privilege, such exercise may not be revoked.
If you wish to have us, on your behalf, exercise Rights to purchase any
Underlying Shares to which you are entitled or attempt to sell (or direct the
Subscription Agent to attempt to sell) such Rights, please so instruct us by
completing, executing and returning to us the instruction form on the reverse
side of this letter.
IF WE DO NOT RECEIVE COMPLETE WRITTEN INSTRUCTIONS IN ACCORDANCE WITH THE
PROCEDURES OUTLINED IN THE PROSPECTUS, WE WILL NOT EXERCISE, TRANSFER OR SELL
YOUR RIGHTS, AND YOUR RIGHTS WILL EXPIRE VALUELESS.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO CHEMICAL BANK, 1-800-421-0708.
Very truly yours,
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
INSTRUCTIONS TO RECORD DATE HOLDER
The undersigned acknowledge(s) receipt of your letter and the enclosed
materials referred to therein relating to the offering of shares of Common
Stock.
This will instruct you whether to exercise or attempt to sell (or direct the
Subscription Agent to attempt to sell) Rights to purchase Common Stock
distributed with respect to the Common Stock held by you for the account of the
undersigned, pursuant to the terms and subject to the conditions set forth in
the Prospectus and the related Instructions as to Use of Subscription Right
Certificates.
1. [_] Please DO NOT EXERCISE RIGHTS for shares of Common Stock.
2. [_] Please EXERCISE RIGHTS for shares of Common Stock as set forth
below:
Basic Subscription Right: _____________ X $2.25 = $______ (a)
(NO. OF SHARES)
Oversubscription Right: _____________ X $2.25 = $______ (b)
(NO. OF SHARES)
Total Payment Required = $______ (c)
[_] Payment in the following amount is enclosed: $_______ (d)
[_] Please deduct payment from the following account maintained by you as
follows:
TYPE OF ACCOUNT________ ACCOUNT NO._________
Amount to be deducted: $_____________ (e)
3.[_] Please DIRECT THE SUBSCRIPTION AGENT TO ATTEMPT TO SELL _______________
RIGHTS held for my account.
4.[_] Please attempt to SELL _________ RIGHTS other than through the
Subscription Agent.
- --------------------------------------------------------------------------------
____________________________________
SIGNATURE(S)
PLEASE TYPE OR PRINT NAME(S) BELOW
____________________________________ Date:_________________________ ,1994
____________________________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.8
NOTICE OF GUARANTEED DELIVERY
FOR
SUBSCRIPTION RIGHT CERTIFICATES
ISSUED BY
VENTURA COUNTY NATIONAL BANCORP
This form, or one substantially equivalent hereto, must be used to exercise
Rights pursuant to the Rights offering described in the Prospectus dated May
12, 1995 (the "Prospectus") of Ventura County National Bancorp, a California
corporation (the "Company"), if a holder of Rights cannot deliver the
Subscription Right Certificate(s) evidencing Rights (the "Subscription Right
Certificate(s)"), to the Subscription Agent listed below (the "Subscription
Agent") at or prior to 5:00 p.m. Pacific time on June 21, 1995, unless extended
by the Company, to a time not later than 5:00 p.m., Pacific time, on July 21,
1995 (in either case, the "Expiration Time"). This form must be delivered by
hand or sent by facsimile transmission, overnight courier or mail to the
Subscription Agent and must be received by the Subscription Agent at or prior
to the Expiration Time. Properly completed and executed Subscription Right
Certificate(s) relating to this Notice of Guaranteed Delivery must be received
by the Subscription Agent within two (2) Trading Days following the date of
this Notice of Guaranteed Delivery. See "The Rights Offering--Exercise of
Rights" in the Prospectus. Payment of the Subscription Price of $2.25 per share
for each Underlying Share subscribed for pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege must be received by the
Subscription Agent in the manner specified in the Instructions as to Use of
Subscription Right Certificates at or prior to the Expiration Time even if the
Subscription Right Certificate evidencing such Right is being delivered
pursuant to the procedure for guaranteed delivery thereof.
THE SUBSCRIPTION AGENT IS: FIRST INTERSTATE BANK OF CALIFORNIA
General Information:
1-800-522-6645
Facsimile Transmission By Hand or
By Mail: Copy number: Overnight Courier:
P.O. Box 4177 201-296-4062 15281 Ventura Boulevard
Woodland Hills, California 91365 Suite 670
Encino, California
Confirm Facsimile by Telephone: or
800-522-6645 120 Broadway
13th Floor
New York, New York
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN THAT SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the holder of
Subscription Right Certificate(s) representing ____ Rights and that such
Subscription Right Certificate(s) cannot be delivered to the Subscription Agent
at or before 5:00 p.m., Pacific time on June 21, 1995, or such later time to
which the Rights offering has been extended by the Company to a time not later
than 5:00 p.m. Pacific time, on July 21, 1995 (in either case, the "Expiration
Time"). Upon the terms and subject to the conditions set forth in the
Prospectus, receipt of which is hereby acknowledged, the undersigned hereby
elects to exercise (i) the Basic Subscription Privilege to subscribe for one
share of Common Stock per Right with respect to _____ Rights represented by
such Subscription Right Certificate and (ii) the Oversubscription Privilege, to
the extent that Excess Shares (as defined in the Prospectus) are available
therefor, for an aggregate of up to ____ Excess Shares. The undersigned
understands that payment of the Subscription Price of $2.25 per share for each
share of Common Stock subscribed for pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege must be received by the
Subscription Agent at or before the Expiration Time, and represents that such
payment, in the aggregate amount of $________, either (check appropriate
box(es)):
[_] is being delivered to the Subscription Agent concurrently herewith in the
manner set forth below; or
[_] has been delivered separately to the Subscription Agent in the manner set
forth below.
(CHECK APPROPRIATE BOX AND COMPLETE INFORMATION RELATING THERETO):
[_] Wire transfer of funds directed to First Interstate Bank of California,
c/o Mellon Bank, Pittsburgh, PA #17, ABA #043000261, Reorg. Account-100-
2331-VCNB, Attn: Evelyn O'Connor
Name of transferor institution ___________________________________________
Date of transfer _________________________________________________________
Confirmation number (if available) _______________________________________
[_] Uncertified check payable to First Interstate Bank of California.
(Payment by uncertified check will not be deemed to have been received by
the Subscription Agent until such check has cleared. Rights holders paying
by such means are urged to make payment sufficiently in advance of the
Expiration Time to ensure that such payment clears by such date.)
Name of maker ____________________________________________________________
Date of check ____________________________________________________________
Bank on which check is drawn _____________________________________________
[_] Certified check or bank draft payable to First Interstate Bank of
California
Name of maker ____________________________________________________________
Date of draft ____________________________________________________________
[_] Money order payable to First Interstate Bank of California
Issuer of money order_____________________________________________________
Date of money order_______________________________________________________
Signature(s) _____________________________ Address _________________________
__________________________________________ ____________________________, 1995
Name(s) __________________________________ _________________________________
PLEASE TYPE OR PRINT
_________________________________
__________________________________________ (Include zip code)
__________________________________________ _________________________________
(IF SIGNATURE IS BY A TRUSTEE(S), Area Code and Tel. No(s). _______
EXECUTOR(S), ADMINISTRATOR(S),
GUARDIAN(S), ATTORNEY(S)-IN-FACT, _________________________________
AGENT(S), OFFICER(S), OF A CORPORATION OR
ANOTHER ACTING IN A FIDUCIARY OR Subscription Right Certificate
REPRESENTATIVE CAPACITY, SUCH CAPACITY No(s). (if available) ___________
MUST BE CLEARLY INDICATED ABOVE.)
_________________________________
2
<PAGE>
GUARANTEE OF DELIVERY (NOT TO BE USED FOR SUBSCRIPTION RIGHT CERTIFICATE
SIGNATURE GUARANTEE)
THE UNDERSIGNED, A MEMBER FIRM OF AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, GUARANTEES THAT THE UNDERSIGNED WILL DELIVER TO THE SUBSCRIPTION AGENT
THE SUBSCRIPTION RIGHT CERTIFICATE(S) REPRESENTING THE RIGHTS BEING EXERCISED
HEREBY, WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED
DOCUMENTS, ALL WITHIN TWO (2) TRADING DAYS AFTER THE DATE HEREOF.
__________________________________ Dated ____________________________ , 1995
(NAME OF FIRM)
Address: ________________________________
__________________________________
(AUTHORIZED SIGNATURE) _________________________________________
(INCLUDE ZIP CODE)
__________________________________
(NAME) _________________________________________
(AREA CODE AND TELEPHONE NUMBER)
__________________________________
(TITLE)
THE INSTITUTION WHICH COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE
SUBSCRIPTION AGENT AND MUST DELIVER THE SUBSCRIPTION RIGHT CERTIFICATE(S) TO
THE SUBSCRIPTION AGENT WITHIN THE TIME PERIOD SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN A FINANCIAL LOSS TO SUCH INSTITUTION.
3
<PAGE>
EXHIBIT 99.9
VENTURA COUNTY NATIONAL BANCORP
DTC PARTICIPANT OVERSUBSCRIPTION EXERCISE FORM
This form is to be used only by the Depository Trust Company ("DTC")
participants to exercise the Oversubscription Privilege in respect of Rights
with respect to which the Basic Subscription Privilege was exercised and
delivered through the facilities of DTC. All other exercises of
Oversubscription Privileges must be effected by the delivery of Subscription
Right Certificate(s).
The terms and conditions of the Offering are set forth in the Prospectus
dated May 12, 1995 (the "Prospectus") of Ventura County National Bancorp (the
"Company") and are available upon request from Chemical Bank, the Information
Agent, and First Interstate Bank of California, the Subscription Agent. Terms
used but not defined herein have the meaning ascribed to them in the
Prospectus.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., PACIFIC TIME, ON JUNE 21, 1995, UNLESS EXTENDED BY THE COMPANY TO A TIME
NOT LATER THAN 5:00 P.M., PACIFIC TIME, ON JUNE 21, 1995 (IN EITHER CASE, THE
"EXPIRATION TIME").
----------------
1. The undersigned hereby certifies to the Company and First Interstate Bank
of California as the Subscription Agent, that it is a participant in DTC and
that it has either (i) exercised the Basic Subscription Privilege in respect of
Rights and delivered such exercised Rights to the Subscription Agent by
means of transfer to the DTC account of the Subscription Agent designated in
the Prospectus or (ii) delivered to the Subscription Agent a Notice of
Guaranteed Delivery in respect of the exercise of the Basic Subscription
Privilege and will deliver the Rights called for in such Notice of Guaranteed
Delivery to the Subscription Agent by means of transfer to such DTC account of
the Subscription Agent.
a. The undersigned hereby exercises the Oversubscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to
the Company and the Subscription Agent that such Oversubscription Privilege is
being exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf Rights have been fully exercised pursuant to the
Basic Subscription Privilege. A true and correct Nominee Holder
Oversubscription Certification is attached as Exhibit A hereto.
b. The undersigned understands that payment of the Subscription Price of
$2.25 per Underlying Share subscribed for pursuant to the Oversubscription
Privilege must be received by the Subscription Agent before the Expiration Time
and represents that such payment, in the aggregate amount of $ , either
(check appropriate box):
[_] has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above
or
[_] is being delivered to the Subscription Agent herewith
or
[_] has been delivered separately to the Subscription Agent;
<PAGE>
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete information relating thereto):
[_] Wire transfer of funds directed to First Interstate Bank of California,
c/o Mellon Bank, Pittsburgh, PA #17, ABA #043000261, Reorg. Account-100-
2331-VCNB, Attn: Evelyn O'Connor
[_] Name of transferor institution ___________________________________________
Date of transfer _________________________________________________________
Federal Reference number (if available) _____________________________________
[_] Uncertified check payable to First Interstate Bank of California.
(Payment by uncertified check will not be deemed to have been received by
the Subscription Agent until such check has cleared. Rights holders paying
by such means are urged to make payment sufficiently in advance of the
Expiration Time to ensure that such payment clears by such date.)
Name of maker: ___________________________________________________________
Date of check: ___________________________________________________________
Bank on which check is drawn: ____________________________________________
[_] Certified check or bank draft payable to First Interstate Bank of
California
Name of maker: ___________________________________________________________
Date of draft: ___________________________________________________________
[_] Money order payable to First Interstate Bank of California
Issuer of money order: ___________________________________________________
Date of money order: _____________________________________________________
DATE AND SIGN HERE:
By: ______________________________
-----------------------------------
DTC BASIC SUBSCRIPTION
Name: _____________________________ CONFIRMATION NUMBER
-----------------------------------
Title: ____________________________ DTC PARTICIPANT NUMBER
-----------------------------------
Dated: _____________________ , 1995 NAME OF DTC PARTICIPANT
PARTICIPANTS EXERCISING THE OVERSUBSCRIPTION PRIVILEGE PURSUANT HERETO MUST
ALSO SUBMIT THE NOMINEE HOLDER OVERSUBSCRIPTION CERTIFICATION ATTACHED HERETO
AS EXHIBIT A TO THE SUBSCRIPTION AGENT.
2
<PAGE>
EXHIBIT A
VENTURA COUNTY NATIONAL BANCORP
NOMINEE HOLDER OVERSUBSCRIPTION CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of Common Stock, no par value ("Common Stock"), of Ventura
County National Bancorp (the "Company") pursuant to the Rights offering (the
"Offering") described and provided for in the Company's Prospectus dated May
12, 1995 (the "Prospectus"), hereby certifies to the Company and to First
Interstate Bank of California as Subscription Agent for such Offering, that for
each numbered line filled in below the undersigned has exercised, on behalf of
the beneficial owner thereof (which may be the undersigned), the number of
Rights specified on such line pursuant to the Basic Subscription Privilege (as
defined in the Prospectus) and such beneficial owner wishes to subscribe for
the purchase of additional shares of Common Stock pursuant to the
Oversubscription Privilege (as defined in the Prospectus), in the amount set
forth in the second column of such line:
NUMBER OF RIGHTS EXERCISED NUMBER OF SHARES SUBSCRIBED FOR
PURSUANT TO BASIC SUBSCRIPTION PURSUANT TO OVERSUBSCRIPTION
PRIVILEGE PRIVILEGE
1.---------------------------------- ----------------------------------
2.---------------------------------- ----------------------------------
3.---------------------------------- ----------------------------------
4.---------------------------------- ----------------------------------
5.---------------------------------- ----------------------------------
6.---------------------------------- ----------------------------------
7.---------------------------------- ----------------------------------
8.---------------------------------- ----------------------------------
9.---------------------------------- ----------------------------------
10.---------------------------------- ----------------------------------
--------------------------------------------------
Name of Nominee Holder
By: ______________________________________________
Name: ____________________________________________
Title: ___________________________________________
Dated: ___________________________________ , 1995
Provide the following information, if applicable
--------------------------------------------------
DEPOSITORY TRUST COMPANY ("DTC") PARTICIPANT
NUMBER
--------------------------------------------------
DTC BASIC SUBSCRIPTION CONFIRMATION NUMBER(S)
A-1
<PAGE>
[Letterhead of Company]
[Date]
[Standby Purchaser]
[Address]
Dear [Standby Purchaser]:
This letter confirms our agreement with respect to the intention of
____________________ (the "Company") to raise additional capital through a
rights offering, with oversubscription privileges, of up to __________ shares of
the Company's common stock, par value ____ per share (the "Common Stock"), to
its shareholders of record as of date to be determined ("Rights Offering") with
the participation of standby purchasers for any unsubscribed shares in the
Rights Offering. (The Rights Offering and the offering to standby purchasers
are hereinafter referred to as the "Offering".) Capitalized terms used herein
and not defined herein shall have the meanings set forth in the Prospectus (as
hereinafter defined.)
A REGISTRATION STATEMENT ON FORM S-2 (THE "REGISTRATION STATEMENT")
RELATING TO THE COMPANY'S COMMON STOCK WAS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") ON ________, 19___. NO OFFER TO BUY SECURITIES CAN
BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE
REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN
OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO
NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
1. Purchase and Sale of Unsubscribed Shares.
----------------------------------------
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to issue and
sell to you as a standby purchaser (the "Standby Purchaser") and the Standby
Purchaser agrees to purchase from the Company at the Subscription Price up to
___________ shares of Common Stock (the "Standby Shares") which remain available
for issuance in accordance with the Rights Offering after the issuance of all
shares of Common Stock validly subscribed for through the exercise of Rights
(including the exercise of all oversubscription privileges) in the Rights
Offering (such remaining shares being hereinafter referred to as the
"Unsubscribed Shares").
(b) The Standby Purchaser and the Company acknowledge and agree that the
Company has entered into, or contemplates entering into, one or more other
Standby Purchase Agreements with certain other parties (collectively, the
"Standby Purchasers") on terms
<PAGE>
substantially similar to this Agreement, except that they may provide for the
purchase of a different maximum number of Standby Shares in Section 1(a) and a
different number of Minimum Shares (as defined in Section 1(c)). The
Unsubscribed Shares available for issuance to Standby Purchasers and any
additional shares which the Company shall have elected to issue shall be
allocated (to the extent any allocation thereof is necessary) as nearly as
possible on a pro rata basis among the Standby Purchasers based upon the number
of Standby Shares subscribed for by each such Standby Purchaser, after giving
effect to the limitation set forth in Section 2(a).
(c) Subject to the terms, conditions and limitations herein set forth, in
the event there is not a sufficient number of Unsubscribed Shares remaining upon
completion of the Rights Offering (including the exercise of all
oversubscription privileges) for sale to the Standby Purchasers to allow you to
purchase at least ___________ shares pursuant to Section 1(a) (the "Minimum
Shares"), the Company agrees to issue and sell to the Standby Purchaser, and the
Standby Purchaser agrees to purchase from the Company, at the Subscription Price
and otherwise in accordance with this Agreement, sufficient additional shares so
that the Standby Purchaser shall have purchased the Minimum Shares. The shares
to be issued and sold to the Standby Purchaser (other than the Unsubscribed
Shares) in order that the Standby Purchaser may purchase the Minimum Shares are
hereinafter referred to as the "Additional Shares."
2. Limitations on Issuance of Standby Shares.
-----------------------------------------
(a) IRC 382 Limitation. The Standby Purchaser acknowledges and agrees that
------------------
the shares allocated to the Standby Purchaser (and/or to any other Standby
Purchaser) may be reduced (the "IRC 382 Limitation") to an amount which, in the
sole judgment of the Company after consultation with its tax advisor, would not
likely result in an "ownership change" of the Company under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Maximum Holding. The Standby Purchaser acknowledges and agrees that,
---------------
notwithstanding anything to the contrary herein contained or implied, the
Company will not issue to the Standby Purchaser shares of Common Stock in an
amount which, when aggregated with other shares of Common Stock owned or
controlled by the Standby Purchaser, would exceed 9.9% of the total issued and
outstanding shares of Common Stock upon completion of the Offering, including
shares issued pursuant to any Standby Purchase Agreements.
(c) Failure to Obtain Regulatory Approval. The Standby Purchaser hereby
-------------------------------------
acknowledges and agrees that the Company may decline to issue shares of Common
Stock to the Standby Purchaser hereunder if, in the opinion of the Company, the
Standby Purchaser is required to obtain prior clearance or approval of such
purchase from any state or federal bank regulatory authority and if such
approval or clearance has not been obtained or if satisfactory evidence thereof
has not been presented to the Company prior to the expiration of the Offering.
3. The Closing. As soon as practicable following its determination of the
-----------
number of Unsubscribed Shares, the Company shall notify the Standby Purchaser of
the number of Standby Shares, if any, to be purchased by the Standby Purchaser
pursuant to Section 1(a) and the number of Additional Shares, if any, to be
purchased by the Standby Purchaser pursuant to Section 1(c). The delivery of
and payment for the Standby Shares and the Additional Shares shall take place at
the offices of Manatt, Phelps & Phillips at _____ a.m., Pacific time,
immediately after the closing of the sale of shares of Common Stock pursuant to
the Rights
<PAGE>
Offering, such time and date to be not more than five (5) business days after
the foregoing notification and to be specified therein (such time and date being
referred to as the "Closing Time," the date of the Closing Time being referred
to as the "Closing Date" and the consummation of the transaction being referred
to as the "Closing").
4. Delivery of Standby Shares and Additional Shares. At the Closing, the
------------------------------------------------
Standby Shares and Additional Shares to be purchased by the Standby Purchaser
hereunder, registered in the name of the Standby Purchaser or its nominee(s), as
the Standby Purchaser may specify in writing at least three (3) days prior to
the Closing Date, shall be delivered by or on behalf of the Company to the
Standby Purchaser, for the Standby Purchaser's account, against delivery by the
Standby Purchaser of the Subscription Price therefor in immediately available
funds in the form of one or more federal funds checks or a wire transfer to an
account designated by the Company.
5. Representations and Warranties. The Company and the Standby Purchaser
------------------------------
hereby confirm their agreement as follows:
(a) The Company represents and warrants to, and covenants with, the Standby
Purchaser as follows:
(i) The Company has filed a Registration Statement on Form S-2 with
the SEC and all amendments thereto. Such Registration Statement
as amended at the time it becomes effective (the "Effective
Date"), including all exhibits and all documents incorporated
therein by reference, is herein called the "Registration
Statement." The prospectus filed with the SEC pursuant to the
Securities Act of 1933, as amended (the "Securities Act") and the
regulations promulgated thereunder ("Regulations") and which
constitutes a part of the Registration Statement is herein called
the "Prospectus."
(ii) The Underlying Shares, the Standby Shares and the Additional
Shares have been duly authorized by the Company, and when issued
and delivered by the Company against payment therefor, will be
duly and validly issued, fully paid and non-assessable. The
Rights have been duly authorized by the Company, and when issued
and delivered by the Company, will constitute valid and legally
binding obligations of the Company, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights, to general equity principles and to laws
relating to the safety and soundness of insured depository
institutions as set forth in 12 U.S.C. (S) 1818(b).
(iii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of California,
with corporate power and authority to perform its obligations
under this Agreement.
<PAGE>
(iv) The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action of the Company and this Agreement, when duly
executed and delivered by the Standby Purchaser, will constitute
a valid and legally binding agreement of the Company enforceable
in accordance with its terms, except as may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors' rights, to general equity principles and
to laws relating to the safety and soundness of insured
depository institutions as set forth in 12 U.S.C. (S)1818(b).
(v) On the Effective Date and at the time when the Registration
Statement was first filed with the SEC pursuant to the Securities
Act and the Regulations, the Registration Statement and the
Prospectus complied and will comply in all material respects with
the requirements of the Securities Act and the Regulations and on
the Effective Date neither the Registration Statement nor the
Prospectus will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except
that the foregoing does not apply to statements or omissions in
the Registration Statement or the Prospectus made in reliance
upon and in conformity with information furnished by the Standby
Purchaser to the Company expressly for use therein.
(vi) Neither the Company nor any of its direct or indirect
subsidiaries that is considered to be a "significant subsidiary"
within the meaning of the Regulations ("Subsidiary") is in
violation of its charter or by-laws or in default under any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party, the effect of which violation or
default would be material to the business, properties, financial
condition or results of operations of the Company and its
Subsidiaries, taken as a whole, and the execution, delivery and
performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby will not conflict with,
or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the assets of the Company or its Subsidiaries pursuant to
the terms of any agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party, or result in a
violation of the charter or by-laws of the Company or any of its
Subsidiaries or any order, rule or regulation of any court or
governmental agency having jurisdiction over the Company, any of
its Subsidiaries or any of their property; and, except as
required by the Regulations, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and applicable state securities
law, no consent, authorization or order of, or filing or
registration with, any court or governmental agency is required
for the execution, delivery and performance of this Agreement,
except as has
<PAGE>
been obtained or applied for as of the date hereof, and with
respect to any approvals applied for, the Company has no reason
to believe such approvals will not be granted or obtained.
(vii) The Company has applied to have the shares of Common Stock and
the Rights approved for quotation on the Nasdaq National Market
and will use its best efforts to obtain such approval.
(b) The Standby Purchaser represents and warrants to, and covenants
with, the Company as follows:
(i) (A) If the Standby Purchaser is an individual, he or she has full
power and authority to perform his or her obligations under this
Agreement.
(B) If the Standby Purchaser is a corporation, the Standby
Purchaser is a corporation duly incorporated, validly existing
and in good standing under the laws of ____________, with
corporate power and authority to perform its obligation under
this Agreement.
(C) If the Standby Purchaser is a trust, the Trustee has been
duly appointed as Trustee of the Standby Purchaser with full
power and authority to act on behalf of the Standby Purchaser and
to perform the obligations of the Standby Purchaser under this
Agreement.
(D) If the Standby Purchaser is a partnership or limited
liability company, the Standby Purchaser is a ____________ duly
organized, validly existing and in good standing under the laws
of _____________, with full power and authority to perform its
obligations under this Agreement.
(ii) The Standby Purchaser has received from the Company and has
reviewed carefully a copy of the Prospectus as amended to date as
well as the public documents filed in connection therewith, and
except as set forth in this Agreement and in the Prospectus, the
Standby Purchaser is not relying on any information other than
information contained in this Agreement or the Prospectus.
(iii) The Standby Purchaser is acquiring the shares of Common Stock
pursuant to this Agreement for its own account for investment
only and not with a view to any resale, distribution or other
disposition thereof.
(iv) The execution, delivery and performance of this Agreement by the
Standby Purchaser and the consummation by the Standby Purchaser
of the transactions contemplated hereby have been duly authorized
by all necessary action of the Standby Purchaser; and this
Agreement, when duly executed and delivered by the Standby
Purchaser, will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
<PAGE>
moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(v) The Standby Purchaser is not insolvent and has sufficient cash
funds on hand to purchase the Standby Shares and Additional
Shares on the terms and conditions contained in this Agreement
and will have such funds on the Closing Date. The Standby
Purchaser has simultaneously with the execution and delivery of
this Agreement or prior thereto provided the Company with
evidence or substantiated that such Standby Purchaser has the
financial means to satisfy its financial obligations under this
Agreement and the foregoing evidence and substantiation is a true
and accurate representation of such means.
(vi) No state, federal or foreign regulatory approvals, permits,
licenses or consents or other contractual or legal obligations
are required in order for the Standby Purchaser to enter into
this Agreement or purchase the Standby Shares and the Additional
Shares.
(vii) The execution and delivery of this Agreement, the consummation
by the Standby Purchaser of the transactions herein contemplated
and the compliance by the Standby Purchaser with the terms hereof
do not and will not conflict with, or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Standby
Purchaser is a party or by which any of the Standby Purchaser's
properties or assets are bound, or any applicable law, rule,
regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Standby Purchaser or any of the
Standby Purchaser's properties or assets; and no consent,
approval, authorization, order, registration or qualification of
or with any such government, governmental instrumentality or
court, domestic or foreign, is required for the valid
authorization, execution, delivery and performance by the Standby
Purchaser of this Agreement or the consummation by the Standby
Purchaser of the transactions contemplated by this Agreement.
(viii) The Standby Purchaser has not entered into any contracts,
arrangements, understandings or relationships (legal or
otherwise) with any other person or persons with respect to the
transactions contemplated by this Agreement or any securities of
the Company, including but not limited to transfer or voting of
any of the securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits,
division of profits or loss, or the giving or withholding of
proxies; and the Standby Purchaser does not own any securities of
the Company which are pledged or otherwise subject to a
contingency the occurrence of which would give another person
voting power or investment power of such securities.
<PAGE>
6. Conditions. The respective obligations of the Company and the
----------
Standby Purchaser to purchase shares of Common Stock as set forth in this
Agreement are subject to the following conditions:
(a) No order suspending the effectiveness of the Registration
Statement or any amendment or supplement thereto shall have been issued and no
proceedings for such purpose shall be pending before or threatened by the SEC
and any requests for additional information by the SEC (to be included in the
Registration Statement, in the Prospectus or otherwise) shall have been complied
with in all material respects.
(b) The representations and warranties of the Company and the Standby
Purchaser contained herein shall be true and correct in all material respects as
of the Closing Date and the Company and the Standby Purchaser shall have
performed all covenants and agreements herein required to be performed on its
part at or prior to the Closing Date.
(c) The Company shall have conducted the Rights Offering substantially
in the manner described in the Prospectus.
7. Termination.
-----------
(a) The Standby Purchaser may terminate this Agreement (i) upon the
occurrence of a suspension of trading in the Common Stock, the establishment of
limited or minimum prices for the Common Stock or a general suspension of
trading in or the establishment of limited or minimum prices on any national
securities exchange or the Nasdaq National Market, any banking moratorium, any
suspension of payments with respect to banks in the United States or a
declaration of war or national emergency in the United States, (ii) under any
circumstances which would result in the Standby Purchaser, individually or
together with any other person or entity, being required to register as a
depository institution holding company under federal or state laws or
regulations, or to submit an application, or notice, to acquire or retain
control of a depository institution or depository institution holding company,
to a federal bank regulatory authority, or (iii) prior to the expiration of the
Offering, if the Company experiences a material adverse change in its financial
condition from its financial condition on December 31, 1995.
(b) In the event (x) the Company, in its reasonable judgment,
determines that it is not in the best interests of the Company and its
shareholders to go forward with the Rights Offering or (y) consummation of the
Rights Offering is prohibited by law, rule or regulation and the Company
terminates the Rights Offering, in each case, the Company may terminate this
Agreement without liability.
(c) Either of the parties hereto may terminate this Agreement (i) if
the transactions contemplated hereby are not consummated by July 31, 1995
through no fault of the Standby Purchaser or (ii) in the event that the Company
is unable to obtain any required federal or state approvals for the transactions
contemplated hereby on conditions reasonably satisfactory to it despite its
reasonable efforts to obtain such approvals. In addition, this Agreement shall
terminate upon mutual consent of the parties hereto.
<PAGE>
(d) The Company and the Standby Purchaser hereby agree that any
termination of this Agreement pursuant to Section 7(a) (b) or (c), (other than
termination by one party in the event of a breach of this Agreement by the other
party or misrepresentation of any of the statements made hereby by the other
party) shall be without liability of the Company or the Standby Purchaser.
8. Future Acquisitions.
-------------------
(a) For a period of five (5) years from the Closing Date, the Standby
Purchaser agrees to give the Company sufficient prior written notice of any
proposed acquisition of additional shares of "stock" of the Company (as defined
under Section 382 of the Code and the regulations promulgated thereunder) so
that the Company may determine in its reasonable judgement whether such purchase
of additional shares could reasonably be expected to result in an "ownership
change" under Section 382 of the Code and the regulations promulgated thereunder
and, in the event the Company makes such a determination, the Standby Purchaser
agrees to limit its purchases of additional shares of Common Stock or interests
therein as the Company may request to avoid such an ownership change.
(b) The Standby Purchaser agrees that (i) during the period beginning
on the date hereof and continuing until the Closing Date, it will not offer,
sell, contract to sell or otherwise dispose of, or bid for, purchase, contract
to purchase or otherwise acquire, any shares of Common Stock or interest therein
without the prior written consent of the Company and (ii) during the period
commencing the day after the Closing Date and continuing until the third
anniversary of the Closing Date, it will not bid for, purchase, contract to
purchase or otherwise acquire any shares of Common Stock or interests therein
if, after consummation of such acquisition, its percentage ownership together
with that of its affiliates of the total number of shares of the Common Stock of
the Company would exceed 4.9%. The Standby Purchaser may increase such
percentage ownership above 4.9%, but in no event in excess of 9.9%, within such
three-year period with the written permission of the Company.
9. Continuing Provisions. The representations and warranties of the
---------------------
Company and the Standby Purchaser set forth in this Agreement shall be true and
correct in all material respects only as of the date of this Agreement and as of
the Closing Date. All of the covenants, agreements and obligations of each of
the Company and the Standby Purchaser required to be performed by the Closing
Date shall have been duly performed and complied with by the Closing Date unless
such performance shall have been waived in writing by the Company or the Standby
Purchaser, as the case may be. The respective representations, warranties,
covenants, agreements and obligations of the parties to this Agreement shall
survive the Closing Date.
10. Recapitalization, etc. Other than as disclosed in the
----------------------
Prospectus, prior to Closing, the Company shall not split, combine, reclassify
or repurchase any of its capital stock or declare or pay any extraordinary
dividends on any of its capital stock.
11. Miscellaneous. This Agreement is made solely for the benefit of
-------------
the Standby Purchaser and the Company, and their respective personal
representatives and
<PAGE>
successors, and no other person, partnership, association or corporation shall
acquire or have any right under or by virtue of this Agreement.
12. Assignment. Neither the Company nor the Standby Purchaser may
----------
assign any of its rights under this Agreement without the prior written consent
of the other party hereto.
13. Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding between the Standby Purchaser and the Company, and
supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the provisions contained in this
Agreement, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect under the laws of any jurisdiction, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
affected or impaired thereby or under the laws of any other jurisdiction.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original,
and all such counterparts together constitute but one and the same instrument.
15. Amendments. This Agreement may not be amended, modified or
----------
changed, in whole or in part, except by an instrument in writing signed by the
Company and the Standby Purchaser.
16. Notices. Except as otherwise provided in this Agreement, and
-------
unless otherwise notified by the respective addressee, all notices and
communications hereunder shall be in writing and mailed or delivered or by
facsimile or telephone if subsequently confirmed in writing, to:
If to the Company: Ventura County National Bancorp
500 Esplanade Drive
P.O. Box 5246
Oxnard, California 93031
Attention: Richard S. Cupp, Chief Executive
Officer
Telephone: 805-981-2600
Facsimile: 805-981-2772
With a copy to: Manatt, Phelps & Phillips
11355 W. Olympic Boulevard
Los Angeles, California 90064
Attention: William T. Quicksilver
Telephone: 310-312-4210
Facsimile: 310-312-4224
<PAGE>
If to the Standby Purchaser:__________________________________
__________________________________
__________________________________
Attention:________________________
Telephone:________________________
Facsimile:________________________
17. Applicable Law. This Agreement shall be governed by and
---------------
construed in accordance with the laws of the State of California, without regard
to the conflict of laws rules thereof.
18. Business Day. The term "business day" shall mean a day on
------------
which banking institutions are open generally in New York.
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of
the Standby Purchaser and the Company has signed or caused to be signed its name
as of the day and year first above written.
VENTURA COUNTY NATIONAL BANCORP
By:____________________________
Name:
Title:
Agreed and Accepted as of the
_____ day of _______, 199__:
[STANDBY PURCHASER]
By:_____________________________
<PAGE>
EXHIBIT 99.11
[LOGO OF CHEMICAL GEOSERVE]
Chemical Bank Declan Denehan
450 West 33rd Street Vice President
New York, NY 10001-2697 Corporate Trust Group
Ventura County National BanCorp 17 March, 1995
500 Esplanade Drive
Oxnard, CA 93030
To Whom it May Concern:
This letter of agreement sets forth the terms and conditions by which Chemical
Bank ("we", "our", "us") shall provide to Ventura County National Bank ("you",
"your") our information agent services (the "services").
Services
- --------
(i) Counseling you concerning the operational elements of organization
and timing of the offering.
(ii) Assist in the coordination of printing activities.
(iii) Establishing contacts with brokers, dealers, banks and other
nominees on your behalf.
(iv) Determining the material requirements
(v) Assistance with drafting and reviewing documents
(vi) Facilitate the distribution of materials to the registered and
beneficial owners of Ventura County National Bank common stock.
(vii) Building a file of eligible participants, including registered
holders and beneficial holders identified through our research.
(viii) Establish 800# for incoming calls
(ix) Manage calling campaign. 200 calls are included in our fee.
(x) Status reporting to management
(xi) Payment of all broker forwarding invoices, subject to collection
from you of monies for this purpose.
Fee for Services
- ----------------
The fee for managing this program is $5,000 plus all out-of-pocket expense
incurred by us, including, without limitation, documentation preparation,
telephone, Bank/Broker listings, and postage costs. Such fees shall be payable
upon the execution of this agreement. Invoices for out-of-pocket expenses shall
be rendered monthly as incurred and shall be payable upon receipt. Our services
shall commence upon receipt of a signed copy of this contract and expire thirty
days from the expiration of the offer or October 31, 1995, whichever is sooner.
<PAGE>
Responsibility
- --------------
You shall indemnify and hold us, our directors, officers, employees, agents
harmless from and against any and all claims, liabilities, losses, damages
and/or expenses, including reasonable attorneys' fees, which any of them shall
or may incur or sustain in connection with the performance of the services or
this agreement, except to the extent caused directly by our gross negligence or
willful misconduct. This indemnification obligation shall survive the
termination of this Agreement.
Any liability to you we may incur in connection with our provision of services
hereunder (including any additional services mutually agreed to by you and us)
shall be limited to and not exceed the fees actually paid to us for the
provision of the services described above. Anything in this agreement to the
contrary notwithstanding, in no event shall we be liable for special, indirect
or consequential loss or damage of any kind whatsoever, even if we have been
advised of the likelihood of such loss or damage and regardless of the form of
action.
Miscellaneous
- -------------
This agreement shall be made in, governed by, and construed in accordance with
the laws of the State of New York, without regard to principles of conflicts of
law.
All information shall be sent to your address as above written or such other
address as you may advise us in writing, or orally confirmed in writing.
This agreement represents the entire understanding of the parties with respect
to the subject matter hereof, superseded any and all prior understandings, oral
or written, relating hereto and may not be charged orally. Any waiver or change
of any of the provisions hereof must be in writing and signed by the parties
hereto. The failure of either party hereto at any time to require performance by
the other party of any provision hereof shall not affect the right to require
performance at any time thereafter.
If the foregoing terms and conditions are acceptable to you, please sign and
return to us the counterpart of this letter of agreement.
Very truly yours,
CHEMICAL BANK
By: /s/ Declan Denehan
--------------------------
Title: Vice President
-----------------------
Date: March 17, 1995
------------------------
ACCEPTED
VENTURA COUNTY NATIONAL BANCORP
By: Nancy Jackson
---------------------------
Title: Senior Vice President
------------------------
Date: April 10, 1995
-------------------------
<PAGE>
[LOGO OF CHEMICAL GEOSERVE]
Chemical Bank Declan Denehan
460 West 33rd Street Vice President
New York, NY 10001-2697 Corporate Trust Group
March 23, 1995
Nancy Jackson
Corporate Secretary
Ventura, County National Bancorp
500 Esplanade Drive
Oxnard, CA 93030
Dear Nancy:
Please accept this as confirmation of our conversation regarding phone
calls in connection with your rights offering. Our fee structure is as
follows:
Outgoing calls $4.75 - includes look up of phone number and up to
three additional attempts to contact. Up to 200 calls
are included in our fee of $5,000.
Incoming calls $3.50 per.
Should you have additional questions, please do not hesitate to call me at
212-946-7026.
Sincerely
/s/ Declan Denehan
--------------------
Declan Denehan
<PAGE>
EXHIBIT 99.12
SUBSCRIPTION AGENT AGREEMENT
This SUBSCRIPTION AGENT AGREEMENT (the "Agreement") is made and entered
into as of May 11, 1995, by and between VENTURA COUNTY NATIONAL Bancorp, a
California corporation (the "Company"), and First Interstate Bank of California,
a California banking corporation (the "Subscription Agent"), with reference to
the following:
A. The Company has filed with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder (collectively the "1933 Act"), a
Registration Statement on Form S-2, No. 33-88288 (in the form in which it first
becomes effective under the 1933 Act, and as it may thereafter be amended, the
"Registration Statement"), relating to the proposed distribution by the Company
of transferable subscription rights (the "Rights") to holders of record ("Record
Date Holders") of shares of common stock, no par value, of the Company (the
"Common Stock") as of the close of business on May 10, 1995 (the "Record Date"),
at a rate of one Right for each ____ shares of Common Stock held on the Record
Date, and the proposed sale of up to _________ newly-issued shares (the
"Underlying Shares") of Common Stock upon the exercise of Rights (collectively,
the "Offering").
B. Holders of Rights ("Rights Holders") will be entitled to subscribe to
purchase one Underlying Share for each Right (the "Basic Subscription
Privilege") at a per share price (the "Subscription Price") to be determined on
or about the Record Date, which price will be set forth in the prospectus which
forms a part of the Registration Statement (in the form in which the
Registration Statement first becomes effective, and as thereafter amended or
supplemented, the "Prospectus") by post-effective amendment to the Registration
Statement.
C. Subject to allocation and possible reduction as set forth herein,
Record Date Holders who fully exercise the Basic Subscription Privilege will
also be entitled (the "Oversubscription Privilege") to subscribe at the
Subscription Price to purchase additional Underlying Shares, if any, remaining
after satisfaction of all subscriptions pursuant to the Basic Subscription
Privilege (the "Excess Shares").
D. The Company wishes the Subscription Agent to act on its behalf in
connection with the Offering as set forth herein, and the Subscription Agent is
willing so to act.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. APPOINTMENT OF SUBSCRIPTION AGENT. The Company hereby
appoints the Subscription Agent to act as agent in accordance with the
instructions set forth in this Agreement, and the Subscription Agent hereby
accepts such appointment and shall take such actions as may be necessary to
effectuate the terms of this
1
<PAGE>
Agreement. The Company may from time to time appoint such co-exercise agents as
it may deem necessary or desirable.
SECTION 2. DISTRIBUTION OF RIGHTS. The Company has authorized the
distribution of the Rights and, following the effectiveness of the Registration
Statement and the Record Date, will issue such Rights to Record Date Holders as
contemplated by the Registration Statement and the Prospectus. The Company will
promptly notify the Subscription Agent upon the effectiveness of the
Registration Statement. The Subscription Agent will provide assistance in
distributing the Prospectus, the Subscription Right Certificates evidencing the
Rights (the "Subscription Right Certificates"), the Instructions As to Use of
Subscription Right Certificates (the "Instructions") and all other ancillary
documents relating to the Offering to Record Date Holders. The Subscription
Right Certificates and the Instructions will be substantially in the forms
attached hereto as Exhibits A and B, respectively.
SECTION 3. OVERSUBSCRIPTION PRIVILEGE. If there are insufficient
Excess Shares to satisfy all exercised Oversubscription Privileges, Excess
Shares will be allocated among Rights Holders, including Qualified Financial
Institutions (as defined below) that hold Rights for beneficial owners, who
exercise the Oversubscription Privilege. Subject to the allocation and
possible deduction described in Section 7(i) below, Excess Shares will be
allocated pro rata among such Rights Holders based upon the number of Underlying
Shares subscribed for pursuant to each such Rights Holder's Basic Subscription
Privilege relative to the aggregate Underlying Shares subscribed for pursuant to
the Basic Subscription Privilege by all such Rights Holders. To the extent that
such pro rata allocation results in any Rights Holder being allocated more
Excess Shares than such Rights Holder subscribed for pursuant to the
Oversubscription Privilege, then such Rights Holder will be allocated only the
number of Excess Shares subscribed for, and the remaining Excess Shares will be
similarly and successively reallocated among all other Rights Holders exercising
the Oversubscription Privilege. It will be the responsibility of Rights Holders
to allocate prorated Excess Shares among any beneficial owners for which such
Rights Holders are acting.
SECTION 4. SIGNATURE AND REGISTRATION.
(a) The Subscription Right Certificates will be executed on behalf of
the Company by its President and Chief Executive Officer or Chairman of the
Board and by its Secretary or an Assistant Secretary by facsimile signature.
Any Subscription Right Certificate may be signed on behalf of the Company by any
person who, at the actual date of execution of such facsimile signature, is a
proper officer of the Company to sign such Subscription Right Certificate, even
if at the date of the execution of this Agreement or the date of actual issuance
of such certificate such person is not such an officer.
(b) The Subscription Agent will keep or cause to be kept, at its
principal offices in the State of California, books for registration and
transfer of the Rights
2
<PAGE>
issued hereunder. Such books will show the names and addresses of the
respective Rights Holders and the number of Rights evidenced by each outstanding
Subscription Right Certificate.
SECTION 5. DIVISION, COMBINATION AND EXCHANGE OF SUBSCRIPTION RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN SUBSCRIPTION RIGHT
CERTIFICATES.
(a) Subject to the provisions of Section 9 hereof, any Subscription
Right Certificate, or any two or more Subscription Right Certificates, may be
divided, combined or exchanged for any number of Subscription Right Certificates
or for a single Subscription Right Certificate of different denominations;
PROVIDED, HOWEVER, that the aggregate number of Rights evidenced by the
Subscription Right Certificate or Certificates so issued does not exceed the
aggregate number of Rights evidenced by the Subscription Right Certificate or
Certificates surrendered in exchange therefor. Notwithstanding the foregoing, a
registered broker-dealer, commercial bank or trust company, securities
depository or participant therein, or nominee therefor (each, a "Qualified
Financial Institution") holding shares of Common Stock on the Record Date for
more than one beneficial owner may, upon delivery of a duly completed and
executed certification substantially in the form attached hereto as Exhibit C
to the Subscription Agent on or before 5:00 p.m., California time, on
June 16, 1995, exchange its Subscription Right Certificate to obtain a
Subscription Right Certificate for the number of Rights to which all such
beneficial owners in the aggregate would have been entitled had each been a
Record Date Holder. The Subscription Agent will, upon request, promptly deliver
to each person making a request therefor a form of the certification referred
to in the preceding sentence. No Subscription Right Certificates evidencing
fractional Rights will be issued upon division, combination or exchange of other
Subscription Right Certificates, and any instructions to divide, combine or
exchange Subscription Right Certificates that would result in the issuance of
Subscription Right Certificates evidencing fractional Rights are to be rejected.
(b) Any Rights Holder desiring to divide, combine or exchange any
Subscription Right Certificate or Certificates must make such requests in
writing to the Subscription Agent and surrender the Subscription Right
Certificate or Certificates to be divided, combined or exchanged to the
Subscription Agent. Thereupon the Subscription Agent will deliver to the person
entitled thereto a Subscription Right Certificate or Certificates, as the case
may be, as so requested. In all cases of transfer by an attorney-in-fact, the
original power of attorney, duly approved, or a copy thereof, duly certified,
must be deposited and remain with the Subscription Agent. In case of transfer
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority satisfactory to the Subscription Agent
must be produced and may be required to be deposited and to remain with the
Subscription Agent in its discretion. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any division, combination or exchange of Subscription Right
Certificates.
3
<PAGE>
(c) Upon receipt by the Company and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Subscription Right Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them, in their sole discretion, and
reimbursement to the Company and the Subscription Agent of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the
Subscription Right Certificate, if mutilated, the Subscription Agent will make
and deliver a new Subscription Right Certificate of like tenor to the registered
Rights Holder in lieu of the Subscription Right Certificate so lost, stolen,
destroyed or mutilated. If required by the Company or the Subscription Agent,
an indemnity bond must be sufficient in the judgment of each party to protect
the Company, the Subscription Agent or any agent thereof from any loss which any
of them may suffer if a lost, stolen, destroyed or mutilated Subscription Right
Certificate is replaced.
SECTION 6. SUBSEQUENT ISSUE OF SUBSCRIPTION RIGHT CERTIFICATES.
Subsequent to the original issuance of the Subscription Right Certificates, no
Subscription Right Certificates will be issued except as provided herein.
SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE;
LIMITATIONS.
(a) Subject to the allocation and possible reduction described in
Section 7(i) below, a Rights Holder may exercise Rights held by such Rights
Holder by properly completing, signing and delivering the Subscription Right
Certificate representing such Rights, with any required signature guarantees,
together with payment in full of the Subscription Price for the aggregate number
of Underlying Shares subscribed for pursuant to such Rights Holder's exercise of
the Basic Subscription Privilege and the Oversubscription Privilege, before any
proration or reduction with respect to the Oversubscription Privilege. Subject
to the allocation and possible reduction described in Section 7(i) below, a
Rights Holder may also exercise Basic Subscription Privileges by complying with
the procedures described in Section 7(f), below, with respect to DTC Exercised
Rights (as hereinafter defined). Except as provided in Sections 7(d) and 7(f),
below, and subject to Section 12(b), below, Subscription Right Certificates and
payment of the Subscription Price must be received by the Subscription Agent
before 5:00 p.m., California time, on June 21, 1995, or such later time and date
to which the Rights may be extended by the Company at its option (the
"Expiration Time"), and a Right will not be deemed exercised until the
Subscription Agent receives both payment of the Subscription Price and a duly
executed Subscription Right Certificate (or until the Guaranteed Delivery
Procedures set forth in Section 7(d), below, or the procedures with respect to
DTC Exercised Rights set forth in Section 7(f), below, have been complied with).
A Rights Holder's Oversubscription Privilege must be exercised concurrently with
such Rights Holder's Basic Subscription Privilege, except for DTC Exercised
Rights, as described in Section 7(f), below. Once a Rights Holder has exercised
a Right, such exercise may not be revoked. The Rights will expire at the
Expiration Time. The Company may notify the Subscription Agent either orally or
in writing
4
<PAGE>
of any extension of the Expiration Time. If the Company gives an oral notice of
an extension, it will confirm such extension in writing.
(b) Unless a Subscription Right Certificate (i) provides that the
Underlying Shares to be issued pursuant to the exercise of Rights represented
thereby are to be registered in the name of and delivered to the registered
holder of such Subscription Right Certificate, or (ii) is submitted for the
account of a member firm of a Signature Guarantee Medallion Program (each, an
"Eligible Institution"), signatures on such Subscription Right Certificate must
be guaranteed by an Eligible Guarantor Institution, as defined in Rule 17Ad-
15(a)(2) of the Securities Exchange Act of 1934.
(c) The Subscription Price will be payable in United States dollars
(i) by check, certified check or bank draft drawn upon a United States bank, or
postal, telegraphic or express money order, payable to the order of the
Subscription Agent, or (ii) by wire transfer of funds to the account of the
Subscription Agent, as agent for the Company maintained for such purpose at
Mellon Bank, Pittsburgh, PA, #17, ABA #043000261, Reorg. Account -100-2331-VCNB,
Attn. Evelyn O'Conner, credit to (Subscriber's name, for further credit to
Ventura County National Bancorp Rights Offering). The Subscription Price will be
deemed to have been received by the Subscription Agent only upon (i) clearance
of any uncertified check, (ii) receipt by the Subscription Agent of any
certified check or bank draft drawn upon a United States bank, or any postal,
telegraphic or express money order, or (ii) receipt of collected funds in the
Subscription Agent's account designated above, in payment of the Subscription
Price.
(d) If a Rights Holder wishes to exercise Rights, but time will not
permit such Rights Holder to cause the Subscription Right Certificate or
Certificates evidencing such Rights to reach the Subscription Agent at or prior
to the Expiration Time, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(i) Such Rights Holder has caused payment in full of the
Subscription Price for the aggregate number of Underlying Shares subscribed for
pursuant to such Rights Holder's exercise of the Basic Subscription Privilege
and, if applicable, the Oversubscription Privilege, before any proration or
reduction with respect to the Oversubscription Privilege, to be received as set
forth in Section 7(c) above, by the Subscription Agent at or before the
Expiration Time;
(ii) The Subscription Agent receives, at or prior to the
Expiration Time, a guarantee notice (a "Notice of Guaranteed Delivery"),
substantially in the form distributed with the Subscription Right Certificates,
from an Eligible Institution, stating the name of the exercising Rights Holder,
the number of Rights represented by the Subscription Right Certificate or
Certificates held by such exercising Rights Holder, the number of Underlying
Shares being subscribed for pursuant to the Basic Subscription Privilege and the
number of Underlying Shares, if any, being subscribed for pursuant to the
Oversubscription
5
<PAGE>
Privilege, and guaranteeing the delivery to the Subscription Agent of the
Subscription Right Certificate or Certificates evidencing such Rights within
two (2) trading days following the date of the Notice of Guaranteed Delivery;
and
(iii) The properly completed Subscription Right
Certificate or Certificates evidencing the Rights being exercised, with any
required signatures guarantee, are received by the Subscription Agent within
two (2) Trading Days following the date of the Notice of Guaranteed Delivery
relating thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Subscription Right Certificates, or may
be transmitted to the Subscription Agent by telegram or facsimile transmission
(telecopy no. 201-296-4062).
(e) If a Subscription Right Certificate does not indicate the number
of Underlying Shares subscribed for or if the Subscription Price payment
forwarded to the Subscription Agent is insufficient to purchase the number of
Underlying Shares subscribed for, the Rights Holder will be deemed to have
exercised the Basic Subscription Privilege with respect to the maximum number of
whole Underlying Shares that may be subscribed for based on the Subscription
Price delivered to the Subscription Agent and, to the extent that the payment
delivered by a Record Date Holder exceeds the aggregate Subscription Price with
respect to the Basic Subscription Privilege, the Record Date Holder will be
deemed to have exercised the Oversubscription Privilege with respect to the
maximum number of whole Underlying Shares that may be subscribed for with such
excess amount. If a Rights Holder (other than a Qualified Financial Institution)
exercises an Oversubscription Privilege without exercising its Basic
Subscription Privilege in full, such Rights Holder will be deemed to have
exercised such Basic Subscription Privilege to the fullest possible extent, and
the Oversubscription Privilege will be deemed exercised only to the extent of
payments received from such Rights Holder in excess of the aggregate
Subscription Price applicable to such deemed Basic Subscription Privilege
exercise.
(f) Rights may be transferred, and the exercise of the Basic
Subscription Privilege (but not the Oversubscription Privilege) may be effected,
through the facilities of THE DEPOSITORY TRUST COMPANY, THE MIDWEST SECURITIES
TRUST COMPANY OR THE PHILADELPHIA DEPOSITORY TRUST COMPANY (Rights so exercised
are referred to as "DTC Exercised Rights"). A holder of DTC Exercised Rights
may exercise the Oversubscription Privilege in respect thereof by properly
executing and delivering to the Subscription Agent, at or before the Expiration
Time, a DTC Participant Oversubscription Exercise Form (substantially in the
form attached hereto as Exhibit D), together with payment of the appropriate
Subscription Price for the number of Underlying Shares for which the
Oversubscription Privilege is to be exercised, before any proration or
reduction.
(g) The Subscription Agent will pay to, credit to the account of, or
otherwise transfer to the Company all funds received by the Subscription Agent
in payment
6
<PAGE>
of the Subscription Price for Underlying Shares subscribed for pursuant to the
Basic Subscription Privilege in accordance with the provisions of the Escrow
Agreement entered into concurrently herewith between the Company, First
Interstate Bank of California, as Escrow Agent, and Sandler O'Neill & Partners,
L.P. (the "Escrow Agreement"). Pending satisfaction of the Minimum Condition,
all such funds shall be handled and transmitted in accordance with the
provisions of Rule 15c2-4 under the Securities Exchange Act of 1934 as amended.
(h) Funds received by the Subscription Agent in payment of the
Subscription Price for Excess Shares subscribed for pursuant to the
Oversubscription Privilege will be held in a segregated account pending issuance
of such Excess Shares. The Subscription Agent will pay to, credit to the
account of, or otherwise transfer to the Company all funds received in payment
of the Subscription Price pursuant to the Oversubscription Privilege in
accordance with the provisions of the Escrow Agreement.
(i) The Company may notify the Subscription Agent either orally or in
writing that (1) it will not issue shares of Common Stock to any Rights Holder
who is required, in the Company's sole judgment and discretion, to obtain prior
clearance, approval or nondisapproval from any state or federal bank regulatory
authority to own or control such shares unless, prior to the Expiration Time,
evidence of such clearance, approval or nondisapproval has been provided to the
Company; or (2) it will limit the number of shares issuable to any Rights Holder
if, as a result of exercises of Rights (pursuant to the Basic Subscription
Privilege or the Oversubscription Privilege), in the aggregate or to any Rights
Holder, there exists a risk, in the Company's sole judgment and discretion,
that certain tax benefits will be subject to limitation under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code") or there exists a risk of
any other adverse tax consequence to the Company.
SECTION 8. DELIVERY OF STOCK CERTIFICATES; REFUNDS.
Subject to satisfaction of the Minimum Condition, as defined in the
Prospectus, the Subscription Agent will furnish the Transfer Agent with such
information as the Transfer Agent may reasonably require, and in such form as
the Transfer Agent may reasonably request, to allow the Transfer Agent to issue
certificates representing all Underlying Shares to be issued pursuant to Basic
Subscription Privileges and any Excess Shares purchased pursuant to
Oversubscription Privileges. Unless the Subscription Right Certificate provides
otherwise, certificates for Underlying Shares purchased pursuant to the exercise
of Rights will be registered in the name of the Rights Holder exercising such
Rights. Any refund, without interest, of the Subscription Price for Excess
Shares subscribed for but not sold due to proration or otherwise will be mailed
or delivered by the Subscription Agent to the Rights Holder to whom such refund
is due as soon as practicable after the Expiration Time.
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SECTION 9. FRACTIONAL RIGHTS AND SHARES. No fractional Rights or
cash in lieu thereof will be issued or paid. The number of Rights distributed
to each Record Date Holder or beneficial owner holding through a Qualified
Financial Institution that complies with the procedures set forth in Section
5(a) above will be rounded up to the next whole number. All questions as to
the validity and eligibility of any rounding of fractional Rights (including,
without limitation, in connection with the surrender by a Qualified Financial
Institution of a Subscription Right Certificate, as set forth in Section 5(a)
hereof) will be determined by the Company in its sole discretion, and its
determination will be final and binding.
SECTION 10. TRANSFER OF RIGHTS.
(a) Any Rights Holder may transfer (i) all of the Rights evidenced by
a Subscription Right Certificate by properly endorsing the Subscription Right
Certificate for transfer in accordance with the Instructions or (ii) some of the
Rights evidenced by a Subscription Right Certificate (but not fractional Rights)
by delivering to the Subscription Agent such Subscription Right Certificate
properly endorsed for transfer, with instructions to register the Rights to be
transferred in the name of the transferee and to issue a new Subscription Right
Certificate to the transferee evidencing such transferred Rights. The
Subscription Agent will issue a new Subscription Right Certificate evidencing
any Rights not so transferred to the Rights Holder or, if so instructed, to an
additional transferee. For purposes of this Agreement, the term "properly
endorsed for transfer" means that each and every signature of a registered
Rights Holder or Rights Holders or assigns must be made or guaranteed by an
Eligible Guarantor Institution.
(b) Upon delivery to the Subscription Agent of a Subscription Right
Certificate executed for sale by any Rights Holder, the Subscription Agent will
endeavor to sell the number of such Rights the Rights Holder has elected to
sell, as designated in Form 3 on the Subscription Right Certificate.
Subscription Right Certificates so executed must be received by the
Subscription Agent prior to 5:00 p.m., California time, on June 13, 1995.
If a Rights Holder makes such election with respect to fewer than all of the
Rights evidenced by a Subscription Right Certificate, the Subscription Agent
will deliver to such Rights Holder a new Subscription Right Certificate
evidencing the Rights as to which such election was not so made. Promptly
following the sale, the Subscription Agent will send such Rights Holder a check
for the weighted average net sale price of any Rights sold, calculated as
follows: the total proceeds realized by the Subscription Agent from all sales
pursuant to this Section 10(b) and Section 11 below, on the day such Rights are
sold, net of any applicable brokerage commissions, taxes and other expenses,
divided by the total number of Rights sold by the Subscription Agent on that
day, multiplied by the number of Rights sold for such Rights Holder. In
connection therewith, the Subscription Agent agrees that it (i) is acting solely
on behalf and for the benefit of such Rights Holders who wish to sell their
Rights and not as agent, or on behalf, of the Company, (ii) will not accept any
instruction from the Company with respect to the timing or manner of any such
sales, (iii) will effect all such sales in accordance with applicable law and
(iv) will not
8
<PAGE>
effect any such sales in a manner that would cause a material adverse change in
the market for the Rights.
SECTION 11. FOREIGN AND CERTAIN OTHER SHAREHOLDERS. Subscription
Right Certificates will not be mailed to Record Date Holders whose registered
addresses are outside the United States and Canada or who have an APO or FPO
address (collectively, "Foreign Record Date Holders"). Subscription Right
Certificates evidencing Rights otherwise distributable to Foreign Record Date
Holders will be delivered to the Subscription Agent, which will hold such
Subscription Right Certificates for the account of such Foreign Record Date
Holders and upon notice from such Foreign Record Date Holders will exercise the
Rights on their behalf. To so exercise their Rights, Foreign Record Date
Holders must notify the Subscription Agent not later than 5:00 p.m., California
time, on June 13, 1995. If no such instructions have been received by the
Subscription Agent by such time, the Subscription Agent will endeavor to sell
such Rights for the benefit of such Foreign Record Date Holders. Promptly
following the Expiration Time, the Subscription Agent will remit to such
Foreign Record Date Holders the weighted average net sale price of any Rights
sold, calculated in the manner set forth in Section 10(b), above. If the
Subscription Agent is unable to sell all such Rights, the net proceeds from such
sales as can be made will be allocated PRO RATA among such Foreign Record Date
Holders based on the number of unexercised Rights issued in the name of each
such Foreign Record Date Holder (as represented by the Subscription Right
Certificate delivered to the Subscription Agent) relative to the aggregate
number of all such Rights. In connection with any such sales, the Subscription
Agent (i) is acting solely on behalf and for the benefit of the Foreign Record
Date Holders and not as agent or on behalf, of the Company, (ii) will not accept
any instruction from the Company with respect to the timing or manner of any
such sales, (iii) will effect all such sales in accordance with applicable law,
and (iv) will not effect any such sales in a manner that would cause a material
adverse change in the market for the Rights.
SECTION 12. AMENDMENTS AND WAIVERS; TERMINATION.
(a) The Company reserves the right to extend the Expiration Time, and
to amend the terms and conditions of the Offering, whether the amended terms are
more or less favorable to Rights Holders.
(b) All questions as to the validity, form, eligibility (including
time of receipt and record ownership) and acceptance of any exercise of Rights
will be determined by the Company, in its sole discretion, and Company reserves
the right to reject any exercise if such exercise is not in accordance with the
terms of the Offering or is not in proper form, or if the acceptance thereof or
the issuance of Underlying Shares pursuant thereto could be deemed unlawful.
The Company also reserves the right to waive any deficiency or irregularity
(including, without limitation, any deficiency with respect to time of receipt
of a Subscription Right Certificate or the Subscription Price for all Underlying
Shares subscribed for pursuant thereto) or to permit a defect or irregularity to
be corrected within such time as it may
9
<PAGE>
determine. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of Subscription Right
certificates or incur any liability for failure to give such notification.
(c) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, President and Chief Executive Officer, any Vice President
(including any Senior or Executive Vice President), the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary of the Company, or any other
person designated by any of them, and to apply to such officers for advice or
instructions in connection with its duties, and it will not be liable for any
action taken or suffered to be taken by it in good faith in accordance with the
instructions of any such officer.
SECTION 13. REPORTS. The Subscription Agent will notify the Company
and its designated representatives by telephone each business day during the
period commencing on May 16, 1995, and ending at the Expiration Time (and
in the case of deliveries pursuant to the Guaranteed Delivery Procedure, the
period ending two (2) Trading Days after the Expiration Time), which notice
will thereafter be conformed in writing, of (i) the number of Rights exercised
each day, (ii) the number of Underlying Shares subscribed for pursuant to the
Basic Subscription Privilege each day and the number of such shares for which
payment has been received, (iii) the number of Underlying Shares subscribed for
pursuant to the Oversubscription Privilege each day and the number of such
Underlying Shares for which payment has been received, (iv) the number of Rights
exercised pursuant to the Guaranteed Delivery Procedure each day, (v) the number
of Rights sold each day on behalf of Foreign Record Date Holders, in accordance
with Section 11, above, (vi) the number of Rights requested to be sold and
actually sold by the Subscription Agent each day in accordance with Section
10(b), above, (vii) the number of Rights for which defective Subscription Right
Certificates have been received each day, (viii) the number of requests from
Qualified Financial Institutions holding Rights on behalf of more than one
beneficial holder to effect an exchange of a Subscription Right Certificate or
Certificates so as to obtain additional Rights to which such beneficial holders
are entitled, as set forth in Section 5(a), above, and the increase in the
number of Rights that would result from such exchange, and (ix) cumulative
totals with respect to the information set forth in each of the clauses (i)
through (viii) above. At or before 5:00 p.m., California time, on the first
Trading Day following the Expiration Time, the Subscription Agent will certify
in writing to the Company the cumulative totals through the Expiration Time with
respect to the information set forth in clauses (i) through (iv) above. The
Subscription Agent will also maintain and update a listing of Rights Holders who
have fully or partially exercised their Rights and Rights Holders who have not
exercised their Rights. The Subscription Agent will provide the Company and
their respective designated representatives with the information compiled
pursuant to this Section 13 and any Subscription Right Certificates or other
documents or date from which such information derived,
10
<PAGE>
as any of them may request. The Subscription Agent hereby represents and
warrants that the information contained in each notification referred to in this
Section 13 will be accurate in all material respects.
SECTION 14. PAYMENT OF TAXES. The Company will pay when due all
document, stamp and other taxes, if any, that may be payable with respect to
the issuance or delivery of any Rights or the issuance of any Underlying Shares
upon the exercise of Rights, provided, however, that the Company will not be
liable for any tax arising out of any transaction that results in, or is deemed
to constitute, an exchange of Rights or Underlying Shares or a constructive
dividend with respect to the Rights or Underlying Shares. Except as provided
above, all transfer and other taxes incurred in connection with the purchase,
sale or exercise of Rights will be for the account of the transferor of the
Rights, and no such taxes will be paid by the Company or the Subscription Agent.
If any transfer tax is imposed for any reason other than the issuance of
Underlying Shares to a Rights Holder upon exercise of Rights by such Rights
Holder, the amount of any such transfer taxes (whether imposed on such Rights
Holder or any other person) will be payable by such person and the Subscription
Agent will be entitled to refuse to implement such exercise or other requested
action unless it is furnished with proof satisfactory to it of the payment of
such transfer taxes by such Rights Holder or other person.
SECTION 15. CANCELLATION AND DESTRUCTION OF SUBSCRIPTION RIGHT
CERTIFICATES. All Subscription Right Certificates surrendered for the purpose
of exercise, exchange, substitution or transfer will be cancelled by the
Subscription Agent, and no Subscription Right Certificates will be issued in
lieu thereof, except as expressly permitted by this Agreement. The Company will
deliver to the Subscription Agent for cancellation and retirement, and the
Subscription Agent will so cancel and retire, any Subscription Right
Certificates purchased or acquired by the Company otherwise than upon the
exercise thereof. The Subscription Agent will either deliver all cancelled
Subscription Right Certificates to the Company or, at the written request of the
Company, destroy such cancelled Subscription Right Certificates, and in such
case will deliver a certificate of destruction thereof to the Company.
SECTION 16. FEES OF THE SUBSCRIPTION AGENT; INDEMNIFICATION.
(a) The Company shall pay to the Subscription Agent compensation in
accordance with the fee schedule attached hereto as Exhibit E for all services
rendered by it hereunder and, from time to time, on demand of the Subscription
Agent, its reasonable expenses and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder.
(b) The Company shall indemnify and hold the Subscription Agent
harmless against any losses, claims, damages, liabilities, costs and expenses
(including
11
<PAGE>
reasonable fees and disbursements of legal counsel) which the Subscription Agent
may incur or become subject to arising from or out of any claim or liability
resulting from actions taken as Subscription Agent pursuant to this Agreement;
provided, however, that indemnity does not extend to, and the Subscription Agent
will not be indemnified or held harmless with respect to, such losses, claims,
damages, liabilities, costs and expenses incurred or suffered by the
Subscription Agent as a result, or arising out, of the Subscription Agent's
negligence, misconduct, bad faith or breach of this Agreement. In connection
therewith, (i) in no case will the Company be liable with respect to any claim
against the Subscription Agent unless the Subscription Agent notifies the
Company in writing of the assertion of a claim against it or of any action
commenced against it, promptly after the Subscription Agent has notice of any
such assertion of a claim or has been served with the summons or other first
legal process giving information as to the nature and basis of the claim; (ii)
the Company will be entitled to participate at its own expense in the defense of
any suit brought to enforce any such claim, and if the Company so elects, it
will assume the defense of any such suit, in which event the Company will not
thereafter be liable for the fees and expenses of any additional counsel that
the Subscription Agent may retain, so long as the Company retains counsel
satisfactory to the Subscription Agent, in the exercise of the Subscription
Agent's reasonable judgment, to defend such suit; and (iii) the Subscription
Agent agrees not to settle any litigation in connection with any claim or
liability with respect to which it may seek indemnification from the Company
without the prior written consent of the Company.
(c) The Subscription Agent will be protected and will incur no
liability for or with respect to any action taken, suffered or omitted by it
without negligence and in good faith in connection with its administration of
this Agreement in reliance upon any Subscription Right Certificate, instrument
of assignment or transfer, power of attorney, endorsement, affidavit letter,
notice, direction, consent, certificate, statement or other paper or document
reasonably believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged by the proper person or persons.
(d) Anything in this Agreement to the contrary notwithstanding, in no
event will the Subscription Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Subscription Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
SECTION 17. MERGER OR CONSOLIDATION OF SUBSCRIPTION AGENT. Any
corporation into which the Subscription Agent or any successor Subscription
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Subscription Agent or
any successor Subscription Agent may be a party, or any corporation succeeding
to the corporate trust business of the Subscription Agent or any successor
Subscription Agent, will be the successor to the Subscription Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
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<PAGE>
SECTION 18. CONCERNING THE SUBSCRIPTION AGENT. The Subscription
Agent undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions:
(a) The Subscription Agent may consult with legal counsel acceptable
to the Company (who may be, but is not required to be, legal counsel for the
Company), and the opinion of such counsel will be full and complete
authorization and protection to the Subscription Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Subscription Agent may deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, President and
Chief Executive Officer, any Vice President (including any Senior or Executive
Vice President), the Treasurer or any Assistant Treasurer, or the Secretary of
the Company and delivered to the Subscription Agent, and such certificate will
be full authorization to the Subscription Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Subscription Agent will have no responsibility with respect to
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Subscription Agent), or with respect to the validity
or execution of any Subscription Right Certificate.
(d) Nothing herein precludes the Subscription Agent from acting in
any other capacity for the Company.
(e) The Subscription Agent shall not, and shall not permit any
affiliate to, sell or purchase any Rights (or, from the date hereof to the
Expiration Time, any Common Stock), or establish any short or long position
with respect thereto, for its own account or the account of any affiliate of
the Subscription Agent.
SECTION 19. CERTIFICATE TAX MATTERS.
(a) The Subscription Agent shall comply with the information reporting
and backup withholding requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), including without limitation, where appropriate, on a
timely basis, filing with the Internal Revenue Service and furnishing to Rights
Holders duly completed Forms 1099B. The Subscription Agent will also collect
and duly preserve Forms W-8 and W-9 and other forms or information necessary to
comply with the backup withholding requirement of the Code. The Company will
provide the Subscription Agent with information regarding the fair
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<PAGE>
market value of the Rights as of the date on which trading of the rights
commences on NASDAQ as soon as practicable after the Record Date.
(b) The Subscription Agent shall withhold from payments made to Rights
Holders amounts sufficient to comply with the backup withholding requirements of
the Code.
SECTION 20. Notices to the Company, Rights Holders and Subscription
Agent. All notices and other communication provided for or permitted hereunder
are to be made by hand delivery prepaid first class mail, telex or telecopier:
(a) If to the Company, to:
Richard S. Cupp
President and Chief Executive Officer
Ventura County National Bancorp
500 Esplanade Avenue
Oxnard, California 93030
Telecopier: (805) 981-2762
(b) If to the Subscription Agent:
First Interstate Bank of California
707 Wilshire Boulevard, W11-2
Los Angeles, California 90017
Attention: Sharon Knepper
Telecopier: (213) 614-2467
(c) If to a Rights Holder, to the address shown on the registry
books of the Company.
All such notices and communications will be deemed to have been duly
given when delivered by hand, if personally delivered; two business days after
being deposited in the mail, postage, prepaid, if mailed as aforesaid; when
answered back, if telexed; and when receipt is acknowledged, if telecopied.
SECTION 21. SUPPLEMENTS AND AMENDMENTS. The Company and the
Subscription Agent may from time to time supplement or amend this Agreement
without the approval of any Rights Holders.
SECTION 22. SUCCESSORS. All the covenants and provisions of the
Agreement by or for the benefit of the Company or the Subscription Agent will
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 23. TERMINATION. This Agreement will terminate at 5:00 p.m.,
California time, on the thirtieth day following the Expiration Time.
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<PAGE>
SECTION 24. GOVERNING LAW. This Agreement will be deemed to be a
contract made under the laws of the State of California and for all purposes is
to be construed in accordance with the internal laws of said State.
SECTION 25. BENEFITS OF THIS AGREEMENT. Except as set forth in
Section 13, nothing in this Agreement is to be construed to give to any person
or corporation other than the Company, the Subscription Agent and the Rights
Holders any legal or equitable right, remedy or claim under this Agreement; but
this Agreement is for the sole and exclusive benefit of the Company, the
Subscription Agent and the Rights Holders.
SECTION 26. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts will for all purposes be
deemed to be an original, but all such counterparts will together constitute one
and the same instrument.
SECTION 27. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Section of this Agreement are inserted for convenience only and do not
control or affect the meaning or construction of any of the provision hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused the
Agreement to be duly executed as of the date first above written.
VENTURA COUNTY NATIONAL BANCORP, a California
corporation
By ______________________________________________
Its: ____________________________________________
FIRST INTERSTATE BANK OF CALIFORNIA
By ______________________________________________
Its: ____________________________________________
15
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EXHIBIT 99.13
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P.]
Ventura County National Bancorp
RIGHTS OFFERING
of
COMMON STOCK
April 17, 1995
We are seeking standby investors for Ventura County National Bancorp's Rights
Offering.
. The Company has targeted receiving standby commitments of up to
$4,500,000.
. Each standby investor will be able to standby for up to 4.9% of the
shares to be outstanding after the offering (there may be some
exceptions to this limitation.)
. This would permit a maximum investment of approximately $900,000,
however, the Company is ideally targeting maximum standby commitments in
the range of $400,000 to $900,000.
. A portion of the standby commitment will be guaranteed to each investor.
. The purchase price will be the subscription price to be paid by
shareholders.
. The exact number of shares guaranteed to each purchaser will be
determined by negotiation.
A Registration Statement on Form S-2, as amended, relating to the Company's
Common Stock was filed with the Securities and Exchange Commission on April ,
1995. Please read the enclosed Preliminary Prospectus, which constitutes a part
of the Registration Statement, and Form of Standby Agreement carefully.
No offer to buy securities can be accepted and no part of the purchase price can
be received until the Registration Statement has become effective, and any such
offer may be withdrawn or revoked, without obligation or commitment of any kind,
at any time prior to notice of its acceptance given after the effective date. We
hope to be effective the early part of May.
Please call me if you have any questions at (212) 466-7709.
Sincerely,
Thomas W. Killian
Managing Director
<PAGE>
enclosures:
-- Preliminary Prospectus for Ventura County National Bancorp
-- Form of Standby Agreement
2
<PAGE>
EXHIBIT 99.14
QUESTIONS AND ANSWERS ABOUT
OUR RIGHTS OFFERING
THE OFFERING
Ventura County National Bancorp (the "Company") is distributing 2,000,000
transferable rights (the "Rights") to purchase additional shares of common
stock, no par value ("Common Stock") on a preferential basis to the holders of
record of its Common Stock at the close of business on May 10, 1995 (the
"Record Date"). This offering of Rights to all Record Date Holders is referred
to in the Prospectus as the "Rights Offering."
This pamphlet has been prepared to aid in your understanding of the Rights
Offering. Nonetheless, for a complete explanation of, among other things, the
Rights Offering and the procedure for exercising or selling your Rights, you
should read carefully the Prospectus and the Instructions included in the
package containing your Subscription Rights Certificate.
BACKGROUND
Q. WHAT IS THE COMPANY'S BACKGROUND?
A. Ventura County National Bank was founded in 1982 by a group of local
business men and women to serve the banking people of the County's business and
professional community. In 1984, Ventura County National Bancorp, a California
corporation, was organized to act as the Bank's parent holding company.
In 1986, the holding company acquired Conejo Valley National Bank and merged
that institution into Ventura County National Bank. Frontier Bank, N.A., an
Orange County based independent bank was aquired in October, 1989. Frontier
subsequently acquired Westco Savings and Loan from the Resolution Trust Company
in April, 1990 and was immediately merged into Frontier Bank. Frontier and
Ventura are sometimes collectively referred to as the "Banks" in the Prospectus.
Beginning in mid-year 1993, new management was hired at the Company and both
subsidiary Banks. At December 31, 1994 the Company had total consolidated assets
of $257.8 million, total consolidated deposits of $236.3 million, total
consolidated loans of $159.7 million total consolidated deposits of $169.2
million and total consolidated shareholders' equity of $19.1 million. Summary
Selected Consolidated Financial and Other Data is found at the back of this
booklet and further detailed information is contained in the Prospectus.
In addition to its headquarters offices in Oxnard, Ventura County National
Bank has branches in Ventura, Camarillo and Westlake Village. Frontier Bank
maintains its headquarters in La Palma and has an additional branch in
Wilmington. The Company maintains its offices at the same location as the Oxnard
branch of Ventura County National Bank.
Q. WHY IS THE COMPANY PURSUING THE RIGHTS OFFERING?
A. The primary purpose of this Rights Offering is to increase the Company's
and the Banks' capital base to permit growth. A portion of the proceeds will
also be used to enable Ventura to meet certain requirements of its regulatory
agreement with the Office of the Controller of the Currency.
Q. WHAT IS THE COMPANY'S FINANCIAL PERFORMANCE RECORD?
A. During the two years ended December 31, 1993, the Company's net income
declined significantly, culminating with a net loss of $12.1 million during
1993. The Company's loss in 1993 was primarily due to a significant increase in
the provision for loan losses, lower net interest income and increase other
expenses. The decrease in net interest income was primarily caused by declining
interest rates and lower levels of earning assets. Increased other expenses were
due primarily to the writeoff of certain intangibles, increased REO expenses and
professional
<PAGE>
fees. In September 1993, the new management began taking actions to address the
major concerns confronting the Banks. The Company's net loss was reduced to
$262,000 or $0.04 per share for 1994, compared with a net loss of $12.1 million
in 1993. The significant improvement over 1993 was due a significant decrease
in the provision for loan losses, reduced other expenses and improved net
interest margin in 1994. The Company returned to profitability beginning in the
third quarter of 1994, and had net income for the second half of 1994 of
$615,000, compared to a net loss of $877,000 for the first six months of the
year.
Q. WHAT IS THE COMPANY'S BUSINESS STRATEGY?
A. The Company's strategic plan is to continue to build its core business of
generating and maintaining profitable banking relationships with small and
medium sized businesses, professional firms and individuals in its market areas.
The primary purpose of this Rights Offering is to increase the Company's and the
Banks' capital bases to permit growth. The additional capital will enable
Ventura to pursue a unique opportunity to build market share in its target
markets. This opportunity results from the acquisition of Ventura's most
significant community bank competitor, the Bank of A. Levy, by First Interstate
Bank of California in February 1995. Ventura is now the largest community bank
headquartered in Ventura County. Ventura and Frontier will market to businesses
in representative industries, including durable and nondurable manufacturing,
distribution, professional services and agriculture, in their respective
markets.
OFFERING OVERVIEW
Q. WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
A. The Basic Subscription Privilege entitles you to purchase one share of the
Company's Common Stock for each Right owned.
Q. WHAT IS THE OVERSUBSCRIPTION PRIVILEGE?
A. The Oversubscription Privilege entitles Record Date Holders who fully
exercise the Basic Subscription Privilege to subscribe for additional shares of
Common Stock, subject to availability. THE OVERSUBSCRIPTION PRIVILEGE IS NOT
TRANSFERABLE AND MAY ONLY BE EXERCISED BY PERSONS WHO ARE RECORD DATE HOLDERS.
Thus, if you own 1,000 shares on the Record Date and, therefore, are issued
Rights to purchase 316 shares, you may oversubscribe (purchase more than 316
shares) only if you first subscribe for the full 316 shares to which you are
entitled.
Q. HOW MANY BASIC SUBSCRIPTION RIGHTS ARE BEING ISSUED?
A. Each 3.17 shares of Common Stock held as of the Record Date entitles the
Record Date Holder to receive one transferable Right. No fractional Rights will
be issued. Fractional Rights will be "rounded up" to the next nearest whole
number.
The Subscription Rights Certificate which you received along with this
pamphlet indicates the total number of Basic Subscription Rights that you now
hold and own.
<PAGE>
Q. HOW MUCH WILL IT COST ME TO PURCHASE SHARES OF COMMON STOCK BY EXERCISING
MY BASIC SUBSCRIPTION PRIVILEGE?
A. If you choose to exercise the Basic Subscription Privilege, you must pay
$2.25 for each share of Common Stock that you purchase.
Q. AT WHAT PRICE WAS THE COMMON STOCK TRADING AS OF A RECENT DATE PRIOR TO THE
RECORD DATE?
A. At the close of business on May 5, 1995, the Common Stock was trading
at $2.75 per share.
Q. MUST I PAY A COMMISSION?
A. No. No brokerage commission or fee will be charged to subscribers for the
purchase of Common Stock in the Rights Offering.
Q. AT THIS POINT, HAS ANYONE COMMITTED TO PURCHASE ANY OR ALL OF THE COMMON
STOCK BEING OFFERED?
Certain institutional investors and high net worth individuals have
committed irrevocably to purchase, in the aggregate, 2,000,000 shares of
Common Stock not subscribed for in the Rights Offering (these investors are
known as the "Standby Purchasers"). The Rights Offering is conditioned upon the
receipt of minimum offering proceeds of $4,500,000 (referred to as the "Minimum
Condition"). These commitments by Standby Purchasers should satisfy the Minimum
Condition.
Q. AS A RECORD DATE HOLDER, AM I REQUIRED TO SUBSCRIBE IN THE RIGHTS OFFERING?
A. No. While a Record Date Holder is entitled either to exercise or transfer
all or any portion of his or her Basic Subscription Rights, a Record Date Holder
also may choose to do nothing with his or her Basic Subscription Rights and
allow them to expire.
Q. WHAT HAPPENS TO THOSE SHAREHOLDERS WHO DECIDE NOT TO EXERCISE THEIR RIGHTS
---
TO PURCHASE SHARES IN THE OFFERING?
A. Any time a company issues additional shares, a shareholder's investment in
the company may be "diluted." There are two kinds of dilution: book value
dilution and equity ownership dilution. Book value dilution occurs when the new
shares are issued at a price that is less than the company's book value per
share. Equity ownership dilution can occur when existing shareholders do not
maintain the same percentage interest in a company after an offering. The
Company's Board of Directors considered the potential dilution to current
shareholders, among other things, in determining to proceed with the Rights
Offering. Equity ownership dilution can be minimized by individual shareholders
if they exercise their Rights to purchase all of the shares to which they are
entitled. However, some equity ownership dilution may be experienced if all
shareholders participate and additional shares are issued to Standby Purchasers.
Q. HOW MAY I SUBSCRIBE FOR MORE SHARES OF COMMON STOCK THAN THOSE ALLOCATED TO
ME IN ACCORDANCE WITH MY BASIC SUBSCRIPTION PRIVILEGE?
A. Each Record Date Holder who elects to exercise the Basic Subscription
Privilege in full may also subscribe at the Subscription Price for Excess
Shares, subject to availability. If an insufficient number of Excess Shares is
available to satisfy fully all exercises of the Oversubscription Privilege, then
the available Excess Shares will be prorated among Record Date Holders who
exercise their Oversubscription Privilege.
Q. WHAT IS THE PROCEDURE FOR EXERCISING RIGHTS?
A. Rights may be exercised by properly completing and executing the Subscription
Right Certificate and forwarding it, together with payment in full for each
Share subscribed for (including any Shares for which you are oversubscribing).
<PAGE>
to First Interstate Bank of California (the "Subscription Agent"), at the
addresses specified in the Prospectus. Because uncertified checks may take up to
5 business days to clear, you are urged to pay sufficiently in advance of the
Expiration Time (defined below) to insure that payment is received and your
check clears.
Q. HOW DO I PAY FOR MY SUBSCRIPTION?
A. You may pay for shares of Common Stock by check or bank draft drawn upon a
U.S. bank, or postal, telegraphic or express money order, payable to First
Interstate Bank of California, or by wire transfer. Uncertified personal checks
may take up to five business days to clear. Thus, if you choose to pay by
uncertified personal check, you are urged to pay sufficiently in advance of the
Expiration Time (defined below) to ensure that payment is received and your
check clears.
Q. WHAT IS THE FINAL DATE ON WHICH I MAY EXERCISE MY BASIC SUBSCRIPTION
PRIVILEGE AND MY OVERSUBSCRIPTION PRIVILEGE?
A. The Rights will expire if not exercised prior to 5:00 p.m., Pacific time, on
June 21, 1995 unless extended for up to 30 days in the sole discretion of the
Company (the "Expiration Time").
Q. HOW DO I TRANSFER MY BASIC SUBSCRIPTION RIGHTS?
A. Rights may be sold through a stockbroker or through First Interstate Bank of
California, as Subscription Agent by delivering the Subscription Rights
Certificate, properly executed for sale prior to June 13, 1995, together with
the appropriate form(s) as set forth in the Instructions included in the package
containing your Subscription Rights Certificate. The Rights are transferable
only with respect to the Basic Subscription Privilege. Promptly following any
such sale, First Interstate Bank of California will send you a check for the
proceeds from the sale (less any applicable brokerage commissions, taxes and
other expenses).
There has been no trading in the Rights, and no assurances can be given
that a trading market will develop or, if a market develops, that the market
will remain available through the subscription period. Unless First Interstate
Bank of California is able to sell your Rights for a price in excess of the
direct costs of sale, your Rights will not be sold. If First Interstate Bank of
California is unable to sell your Rights, those Rights will become null and void
after the Expiration Time.
Q. IF I EXERCISE RIGHTS IN THE RIGHTS OFFERING, MAY I RETRACT ALL OR A PART OF
MY SUBSCRIPTION?
A. No. All exercises of Rights are irrevocable.
Q. IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?
A. Yes. All funds received with subscriptions will be held in escrow until the
completion of the Offering. Funds will only be accepted and exchanged for shares
if the Minimum Condition (defined below) is satisfied. If the Minimum Condition
is not achieved, any funds that have been deposited with the Subscription Agent
will be returned, without interest. As a result of the
<PAGE>
Standby Purchase Agreements (pursuant to which the Standby Purchasers have
agreed to acquire up to 2,000,000 shares of Common Stock), the Company believes
that the Minimum Condition will be satisfied.
TERMS AND CONDITIONS
Q. HOW MANY SHARES OF COMMON STOCK ARE BEING OFFERED?
A. The Company is offering a minimum of 2,000,000 shares ("Minimum Shares")
and a maximum of 2,890,000 shares ("Maximum Shares") of Common Stock. A total
of 2,001,111 Underlying Shares are being offered in the Rights Offering
pursuant to the exercise of Rights, which include the Basic Subscription
Privilege and the Oversubscription Privilege, and to the Standby Purchasers. In
addition, in the event that there is not a sufficient number of Underlying
Shares remaining upon completion of the Rights Offering to satisfy the purchase
commitments of the Standby Purchasers, up to 888,889 Additional Shares will
be issued to the Standby Purchasers.
Q. HOW WILL THE NET PROCEEDS OF THE OFFERING BE USED?
A. The Company intends to use the net proceeds of the Offering to take
advantage of unique opportunities to expand in the respective markets of Ventura
and Frontier. A portion of the proceeds will also be used to retire $125,000 of
principal amounts of notes payable. Additionally, a portion of the proceeds will
be used to meet certain requirements of the regulatory agreement between Ventura
and the Office of the Controller of the Currency. A further possible use of
proceeds will be for the Company to retain the first $500,000 for its liquidity
needs and, thereafter, to possibly make additional capital contributions to
Ventura or Frontier or both. It is anticipated that the net proceeds, if any,
contributed to the Banks will ultimately be invested in earning assets, such
as loans and securities, earning assets, such as loans and to retire $125,000 in
Parent company debt and for liquidity purposes at the holding company level.
Q. HOW DO I PURCHASE COMMON STOCK THROUGH AN IRA.
A. You may establish a self-directed IRA through a broker-dealer. If you wish
to use funds currently in an IRA at Ventura or Frontier, you will need to
transfer your IRA to a broker-dealer, who will establish a self-directed IRA.
Call Chemical Bank, as Information Agent, at 1-800-421-0708 for assistance with
IRA orders. Since IRA transactions can take some time, please contact Chemical
Bank as soon as possible.
AFTERMARKET
Q. HOW IS THE COMPANY'S STOCK TRADED?
A. The Company's Common Stock is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (the "Nasdaq National Market
System") under the symbol "VCNB."
Q. HOW WILL THE COMPANY'S RIGHTS BE TRADED?
<PAGE>
A. The Company's Rights will be quoted on the Nasdaq National Market System
under the symbol "VCNBR."
Q. WILL DIVIDENDS BE PAID ON THE COMMON STOCK?
A. The Company has never paid a cash dividend and does not anticipate the
payment of dividends in the near future.
FURTHER INFORMATION
Q. HOW CAN I GET ADDITIONAL INFORMATION ABOUT THE OFFERING?
A. Ventura County National Bancorp will be holding open information sessions in
the following cities at the dates, times and locations specified below:
<TABLE>
<CAPTION>
City Date Time Location
---- ---- ---- --------
<S> <C> <C> <C>
Oxnard May 24, 1995 5:30 p.m. 500 Esplanade Drive
Camarillo May 25, 1995 5:30 p.m. 502 North Las Posas Drive
Westlake Village May 30, 1995 5:30 p.m. 2655 Townsgate Road
</TABLE>
If you are unable to attend any of the above meetings, additional information
concerning the Offering can be obtained by contacting Chemical Bank, as
information agent at 1-800-421-0708.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
these securities. The offer is made only by the Prospectus dated May 11, 1995.
These securities are not savings or deposit accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation (the "FDIC") or any
other governmental agency.
The purchase of Common Stock in the Offering involves a significant degree of
investment risk. Holders of Rights and prospective purchasers are urged to read
and carefully consider the information set forth under the heading "Risk
Factors" in the Prospectus.
Each Rights Holder must determine whether to subscribe for Common Stock based
upon such holder's assessment of his, her or its best interests. Accordingly,
neither the Board of Directors of the Company nor its financial advisor, Sandler
O'Neill & Partners L.P., makes any recommendation to holders regarding their
Rights.
SUMMARY SELECTED FINANCIAL AND OTHER DATA
The following table presents selected consolidated financial and other data of
the Company as of and for each of the years ended December 31, 1994. The data as
of and for each of the three years in the period ended December 31, 1994 should
be read in conjunction with, and is qualified in its entirety by, the more
detailed information included in the Prospectus including the Company's audited
Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At or for the year ended December 31, 1994 1993 1992
- ------------------------------------ ---- ---- ----
<S> <C> <C> <C>
PERIOD END BALANCE SHEET DATA:
Assets $ 257,755 $ 340,529 $ 400,195
Securities held-to-maturity (approximate
market value of $17,963 in 1994) 18,775 33,168
Securities available-for-sale 31,859 40,775 --
Net loans and leases 159,673 253,201 307,847
Loan loss reserve 8,261 14,313 3,854
Deposits
Interest-bearing demand 67,177 99,502 106,108
Non interest-bearing demand 80,646 101,224 100,688
Time 88,519 117,563 141,791
Shareholders' equity 19,052 20,370 30,388
Shares of capital stock outstanding 6,333,835 6,333,835 6,614,255
Period end book value per share $ 3.01 $ 3.22 $ 5.41
STATEMENT OF OPERATIONS DATA:
Net interest income $ 15,868 $ 16,912 $ 17,586
Provision for loan losses 3,825 16,213 3,404
Other income 4,064 4,820 5,512
Other expenses 16,084 20,839 18,438
Income (loss) before income taxes 23 (15,320) 1,256
Applicable income taxes (benefit) 285 (3,233) 571
Net income (loss) $ (262) $ (12,087) 685
PER SHARE DATA:(1)
Net income (loss) per share (0.04) (2.15) 0.12
SELECTED PERFORMANCE RATIOS:
Return on average equity (1.29)% (45.12)% 2.30%
Return on average assets (0.09)% (3.18)% 0.18%
Efficiency ratio(2) 80.71 95.89 79.83
Noninterest expense to average assets 5.45 5.47 4.74
Net interest margin 5.68 4.81 4.95
Net interest spread 4.80 3.96 4.27
</TABLE>
- -------------------------------------------------------------------------------
(1) All per share data included herein have been adjusted to reflect the stock
dividend to shareholders of record on March 9, 1992.
(2) The efficiency ratio is other expenses divided by the sum of net interest
income before provision for loan losses plus other income.
<PAGE>
EXHIBIT 99.15
ESCROW AGREEMENT
----------------
This Escrow Agreement ("Agreement") is made this 11th day of May 1995 by
and among Ventura County National Bancorp ("Company"), First Interstate Bank of
California ("FICAL" or "Escrow Agent") and Sandler O'Neill & Partners, L.P.
("Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has filed a Registration Statement on Form S-2 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to which the Company proposes to issue approximately
_________ Common Stock Purchase Rights ("Rights") to shareholders of record as
of May 10, 1995 and to sell a minimum of _________ shares (the "Minimum Shares")
and a maximum of _________ shares of Common Stock at a price of $____ per share
(the "Offering") pursuant to the exercise of such Rights and Standby Purchase
Agreements to be entered into with certain institutional and high net worth
investors (the "Standby Purchasers").
WHEREAS, in connection with the Offering, it is contemplated that Company
and Agent will enter into an Agency Agreement (the "Agency Agreement"), pursuant
to which Agent will consult with and advise the Company with respect to the
structure of the Offering, and assist the Company in identifying Standby
Purchasers and negotiating the Standby Purchase Agreements.
WHEREAS, the Company and Agent desire to establish an escrow account (the
"Escrow Account") with an unaffiliated financial institution for the purpose of
receiving subscriptions for Common Stock.
WHEREAS, FICAL has agreed to serve as Escrow Agent in accordance with the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, the parties hereto agree as
follows:
A G R E E M E N T
1. Establishment of Escrow and Escrow Account. The parties hereto shall
------------------------------------------
establish, and by execution of this Agreement hereby agree to establish, an
Escrow with the Escrow Agent. The Escrow Agent shall establish an interest-
bearing escrow account which escrow account shall be entitled "Ventura County
National Bancorp Rights Offering Escrow Account/First Interstate Bank of
California, Escrow Agent" (the "Escrow Account"). All checks for subscriptions
will be payable to the Escrow Agent and all wire transfers for subscriptions
will be sent to the Escrow Account. In no event will any payments be made to the
Agent.
<PAGE>
2. Escrow Period.
-------------
(a) The Escrow Period shall begin on the date on which the Registration
Statement is declared effective by the Commission (the "Effective Date").
(b) Unless earlier terminated by the Company and the Agent in writing,
the Escrow Period shall terminate upon the later to occur of:
(i) The opening of business on the closing date of the transaction, or
(ii) July 21, 1995, [30 days after the Scheduled Expiration Time, as
defined in the Prospectus].
During the Escrow Period, the Company is aware and understands that it is
not entitled to any funds received into escrow and no amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
be subject to the debts of the Company or any other entity.
3. Deposits into Escrow Account. All funds received by the Escrow Agent
-----------------------------
during the Escrow Period shall be deposited in the Escrow Account to be held by
the Escrow Agent. All funds deposited in Escrow Account shall constitute the
Escrow Funds.
4. Receipt of Funds Pursuant to Standby Purchase Agreements. Prior to the
-------------------------------------------------------- expiration of
the Escrow Period, the Company shall certify to the Escrow Agent the amount of
funds received from Standby Purchasers pursuant to their Standby Purchase
Agreements.
5. Disbursements from the Escrow Account.
-------------------------------------
(a) In the event that the Escrow Agent and the Company do not receive funds
totaling $4,500,000 (the "Minimum Condition") prior to termination of the Escrow
Period, or if the Escrow Agent receives notification that the Offering has been
terminated, the Escrow Agent shall promptly refund to each subscriber the amount
actually received from such subscriber, without deduction, penalty or expense to
the subscriber, and the Escrow Agent shall notify the Company and the Agent of
its distribution of funds. The purchase money returned to each subscriber shall
be free and clear of any and all claims of the Company or any of its
creditors.
(b) In the event that the Escrow Agent and the Company have received funds
totalling the Minimum Condition within the Escrow Period, the Escrow Agent will
release the Escrow Funds to the Company upon expiration of the Escrow Period.
(c) In the event that the Escrow Agent and the Company receive funds
totaling the Minimum Condition within the Escrow Period, in no event will the
Escrow Funds be released to the Company until such amount is received by the
Escrow Agent in collected
<PAGE>
funds. For purposes of this Agreement, the term "collected funds" shall mean
all funds received by the Escrow Agent which have cleared normal banking
channels and are in the form of cash.
6. Collection Procedure. The Escrow Agent is hereby authorized to forward
--------------------
each check for collection and, upon collection of the proceeds of each check,
deposit the collected proceeds in the Escrow Account. As an alternative, the
Escrow Agent may telephone the bank on which the check is drawn to confirm that
the check has been paid.
Any check returned unpaid to the Escrow Agent shall be returned to the
subscriber that submitted the check. In such cases, the Escrow Agent shall
promptly notify the Company of such return.
If the Company rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent will promptly issue a refund check to
the rejected subscriber. If the Company rejects any subscription for which the
Escrow Agent has not yet collected funds, but has submitted the subscriber's
check for collection, the Escrow Agent shall promptly issue a check in the
amount of the subscriber's check to the rejected subscriber after the Escrow
Agent has cleared such funds. If the Company rejects any subscriber for which
the Escrow Agent has not yet submitted a check for collection, the Escrow Agent
shall promptly return the subscriber's check to the subscriber.
7. Investment of Escrow Funds. The Escrow Agent may invest the Escrow
--------------------------
Funds only in such accounts or investments as the Company may specify by written
notice; provided, however, that the Escrow Agent shall invest funds only in
accordance with the provisions of Rule 15c2-4 of the Rules and Regulations of
the Securities and Exchange Commission promulgated under the Securities Exchange
Act of 1934, as amended. In accordance with Rule 15c2-4, the Company may only
specify investments in (i) bank accounts, (ii) bank money-market accounts, (iii)
short-term certificates of deposit issued by a bank or (iv) short-term
securities issued or guaranteed by the United States Government. In no event
will the Escrow Funds be invested in either Ventura County National Bank or
Frontier Bank, N.A.
8. Compensation of Escrow Agent. The Company shall not pay the Escrow
----------------------------
Agent a separate fee for its escrow services but the Escrow Agent shall be
compensated for its services, hereunder pursuant to the Subscription Agent
Agreement executed concurrently herewith. If it is necessary for the Escrow
Agent to return funds to subscribers, the Company shall pay to the Escrow Agent
an additional amount sufficient to reimburse it for its actual cost in
disbursing such funds. However, no such fee, reimbursement for costs or
expenses, indemnification for damages incurred by Escrow Agent, or any monies
whatsoever shall be paid out of or chargeable to the funds on deposit in the
Escrow Account.
9. Limitation of Liability. In no event will the Agent have any liability
-----------------------
pursuant to the terms of this Agreement to any person in connection with the
collection or disbursement of funds received by the Escrow Agent or the Company
in connection with the Offering.
10. Amendment; Resignation. This Agreement may be altered or amended only
----------------------
with the written consent of the Company, the Agent and the Escrow Agent. The
Escrow Agent may resign as Escrow Agent at any time upon ten (10) days written
notice to the Company and Agent. In the
<PAGE>
case of the Escrow Agent's resignation, its only duty shall be to hold and
dispose of the Escrow Funds in accordance with the original provisions of this
Agreement until a successor Escrow Agent shall be appointed and written notice
of the name and address of such successor Escrow Agent shall be given to the
Escrow Agent by the Company and Agent, whereupon the Escrow Agent's only duty
shall be to pay over to the successor Escrow Agent the Escrow Funds.
11. Governing Law and Assignment. Nothing in this Agreement is intended
----------------------------
to or shall confer upon anyone other than the parties hereto any legal or
equitable right, remedy or claim. This Agreement shall be construed in
accordance with and governed by the laws of the State of California and shall be
binding upon the parties hereto and their respective successors and assigns;
provided however, that no assignment or transfer may be made by any party of its
rights under this Agreement or with respect to the Escrow Funds unless the other
parties shall have consented in writing to such assignment or transfer.
12. Notices. All notices required to be given in connection with this
-------
Agreement must be in writing, may be given by the attorney for such party giving
notice and shall be deemed properly given or served if sent (i) by registered or
certified mail, return receipt requested, (ii) by personal delivery, (iii) by
delivery by a bonded air carrier, or (iv) by facsimile transmission, and
addressed to such party as set forth below:
If to the Company: Ventura County National Bancorp
500 Esplanade Avenue
Oxnard, California 93030
Facsimile: (805) 981-2786
Attention: Richard S. Cupp
If to Agent: Sandler O'Neill & Partners, L.P.
Two World Trade Center
104th Floor
New York, New York 10048
Facsimile: (212) 466-7711
Attention: Thomas W. Killian
If to the Escrow
Agent: First Interstate Bank of California
707 Wilshire Boulevard, W11-2
Los Angeles, California 90017
Facsimile: (213) 614-2460
Attention: Sharon Knepper
13. Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of the Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE>
14. Execution in Several Counterparts. This Agreement may be executed in
---------------------------------
several counterparts or by separate instruments, and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
15. Captions. All captions are for convenience only and shall not limit
--------
or define the text hereof.
<PAGE>
16. Further Assurances. Each of the parties hereto shall execute such
------------------
further documents, instruments and agreements and perform such further acts
as may be reasonably required or desirable to carry out the provisions hereof
and the transactions completed hereby.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
VENTURA COUNTY NATIONAL BANCORP
By:
-----------------------------------------
RICHARD S. CUPP, President
and Chief Executive Officer
SANDLER O'NEILL & PARTNERS, L.P.
By:
-----------------------------------------
Sandler O'Neill & Partners Corp.,
the sole general partner
By:
-----------------------------------------
Vice President
FIRST INTERSTATE BANK OF CALIFORNIA
By:
-----------------------------------------
SHARON KNEPPER
Account Manager
<PAGE>
[Letterhead of Sandler O'Neill]
May ___, 1995
[Standby Purchaser]
[Address]
Dear ____________:
You have previously received the preliminary prospectus of Ventura County
National Bancorp (the "Company") and the form of Standby Purchase Agreement
included in the registration statement filed with the Securities and Exchange
Commission. Enclosed herein is a revised form of Standby Purchase Agreement
which now includes information regarding the proposed maximum and minimum shares
as well as a copy of the form of Standby Purchase Agreement marked to indicate
changes from the previous draft. If applicable for corporations, partnerships
and limited liability companies, please complete the information set forth at
section 5(b)(i) on page 5 of the Standby Purchase Agreement and fax it to Tom
Killian at (212) 466-7711 so we can incorporate it in a final document. It is
our understanding that the form of Standby Purchase Agreement is acceptable to
you.
You have expressed an interest to purchase a maximum of $____ of common
stock of the Company in the offering, if available after the subscription
offering, and the Company has indicated that it would sell to you a minimum of
$____ of common stock as part of the offering.
The pricing and the determination of the actual number of shares
representing your minimum and the maximum standby purchase amounts will be
determined when the pricing occurs. We anticipate a pricing meeting will take
place on Wednesday, May 10, 1995 and that the registration statement will be
declared effective by the SEC on Thursday, May 11, 1995. At the time the
registration statement is declared effective, the Company will send to you by
facsimile a verification of the Subscription Price and pages 1, 2 and the
signature page of the Standby Purchase Agreement which will be fully completed
to indicate the number of shares representing your maximum and minimum purchase
at the Subscription Price.
At that time, if you wish to extend an offer to purchase the securities
described in the prospectus, you will be directed to execute and date the
signature page of the Standby Purchase Agreement and fax it to the Company to
the attention of Richard S. Cupp at facsimile number (805) 981-_____. Upon
receipt of the executed signature page by the Company, your offer will become
binding. Until receipt by the Company of such signature page, your indication of
interest will involve no obligation or commitment of any kind on the part of
either you or the Company.
Please call Tom Killian if you have any questions.
Very truly yours,
Sandler O'Neill & Partners, L.P.
Enclosure
<PAGE>
EXHIBIT 9917
[Letterhead of Ventura County National Bancorp]
May 11, 1995
[Standby Purchaser]
[Address]
To all Standby Investors:
The registration statement relating to a rights offering by Ventura County
National Bancorp was declared effective by the Securities and Exchange
Commission on Thursday, May 11, 1995. The Subscription Price is $2.25 per share.
Attached are pages 1 and 2 and the signature page of the Standby Purchase
Agreement fully completed to indicate the number of shares representing your
minimum and maximum standby purchase amounts.
If you wish to extend an offer to purchase the securities described in the
prospectus please sign, date and fax the signature page of the Standby Purchase
Agreement to the Company, attention of Richard S. Cupp at (805) 981-2786.
The rights offering is expected to terminate at 5:00 p.m. Pacific time on
Wednesday, June 21, 1995.
Richard S. Cupp
President and Chief Executive Officer
