SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: April 15, 1998
SIERRAWEST BANCORP
(Exact Name of Registrant as Specified in its Charter)
California
(State of Incorporation)
File No. 0-15450
(Commission File No.)
68-0091859
(IRS Employer
Identification No.)
10181 Truckee-Tahoe Airport Road, Truckee, CA 96160-9010
(Address of Principal Executive Offices)
Registrant's Telephone Number: (530) 582-3000
1
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Item 2. Acquisition or Disposition of Assets
At the close of business on April 15, 1998, California Community Bancshares
Corporation (CCBC) and its wholly owned subsidiary Continental Pacific Bank
(CPB) was merged into SierraWest Bancorp ("Bancorp") and its wholly owned
subsidiary SierraWest Bank (SWB). The merger, which was announced on November
13, 1997, was approved by a majority of the Bancorp's and of CCBC shareholders
on March 26, 1998 and March 16, 1998, respectively. Federal Reserve Board
approval was received on February 6, 1998 and the Federal Deposit Insurance
Corporation (FDIC) approved the application for merger on March 3, 1998. By
virtue of the merger, Bancorp acquired all of the assets of CCBC and SWB
acquired all of the assets of CPB. The consolidated assets are detailed in the
financial statements in Item 7 below.
Under the terms of the Plan of Acquisition and Merger dated November 13, 1997,
shareholders of CCBC received shares of Bancorp's common stock at an exchange
ratio of 0.8283 which was based upon the average of the closing price of $37.94
for Bancorp's stock from March 11, 1998 to April 7, 1998. Approximately 1,178
thousand Bancorp common shares are expected to be issued pursuant to the
transaction. Of this total approximately 321 thousand shares represent shares to
be issued related to the future conversion of debentures and the exercise of
stock options. This transaction has been accounted for under the
pooling-of-interests accounting method. No gain or loss for tax purposes will be
recognized by CCBC shareholders, except with respect to cash received in lieu of
fractional shares. The value of the acquisition, based upon an average price of
$37.94 per share totaled approximately $44.7 million. There were no material
relationships between CCBC and Bancorp nor any subsidiaries, at the date of the
merger. In addition, there were no material relationships between any directors
or officers of the Bancorp or any directors or officers of CCBC.
Principal consolidated assets of CCBC include cash and cash equivalents,
investment securities, loans and other extensions of credit, premises and
equipment, investment in real estate development and other assets. Those assets
which constitute plant equipment and other physical property will continue to be
used in the same manner as by CCBC. The branches of CPB will continue to operate
as branches of SWB. See the financial statements in Item 7.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
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CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Financial Statements as of December 31, 1997 and
1996 and for each of the Three Years in the Period Ended December
31, 1997 and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
California Community Bancshares Corporation
Vacaville, California
We have audited the accompanying consolidated balance sheets of
California Community Bancshares Corporation and subsidiary
(Company) as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, on November
13, 1997 the Company entered into a Plan of Acquisition and
Merger with SierraWest Bancorp.
/S/ DELOITTE & TOUCHE LLP
- --------------------------
February 20, 1998
Sacramento, California
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<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- ----------------------------------------------------------------
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 10,289,000 $ 10,825,000
Federal funds sold 8,775,000 6,115,000
------------ ------------
Total cash and cash equivalents 19,064,000 16,940,000
Securities available for sale,
at fair value 48,465,000 52,569,000
Loans receivable 121,062,000 113,625,000
Less: Allowance for loan losses 1,242,000 1,101,000
Deferred loan fees 498,000 599,000
------------ ------------
Net loans receivable 119,322,000 111,925,000
------------ ------------
Premises and equipment,
net of accumulated depreciation 2,049,000 2,284,000
Investment in real estate
development 4,324,000 4,483,000
Other real estate owned 96,000 150,000
Goodwill 504,000 540,000
Accrued interest receivable
and other assets 3,167,000 2,938,000
------------ ------------
TOTAL ASSETS $196,991,000 $191,829,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 32,120,000 $ 26,882,000
Interest-bearing 142,612,000 143,461,000
------------ ------------
Total deposits 174,732,000 170,343,000
Securities sold under
repurchase agreements 588,000 992,000
Accrued interest payable
and other liabilities 800,000 785,000
Other borrowed funds 2,650,000 2,650,000
Convertible subordinated debentures 2,468,000 3,690,000
------------ ------------
Total liabilities 181,238,000 178,460,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
Series A, authorized 1,000,000
shares; none outstanding
Common stock, $.10 par value;
authorized 2,000,000 shares;
outstanding, 1,110,036 and
994,519 in 1997 and 1996 12,561,000 11,135,000
Retained earnings 3,317,000 2,510,000
Net unrealized loss on
securities available for sale,
net of tax effect (125,000) (276,000)
------------ ------------
Total shareholders' equity 15,753,000 13,369,000
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $196,991,000 $191,829,000
============ ============
See notes to consolidated financial statements
- ---------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------
1997 1996 1995
INTEREST INCOME:
<S> <C> <C> <C>
Loans and loan fees $11,026,000 $10,704,000 $10,370,000
Securities:
Taxable 2,826,000 1,869,000 1,126,000
Exempt from federal taxes 238,000 346,000 698,000
Federal funds sold and securities
purchased under
repurchase agreements 165,000 183,000 116,000
----------- ----------- -----------
Total interest income 14,255,000 13,102,000 12,310,000
INTEREST EXPENSE:
Deposits 5,638,000 4,957,000 5,063,000
Federal funds and repurchase
agreements purchased 31,000 54,000 72,000
Convertible subordinated debentures 223,000 308,000 346,000
Other borrowed funds 230,000 146,000
----------- ----------- -----------
Total interest expense 6,122,000 5,465,000 5,481,000
----------- ----------- -----------
NET INTEREST INCOME 8,133,000 7,637,000 6,829,000
PROVISION FOR LOAN LOSSES 319,000 411,000 324,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,814,000 7,226,000 6,505,000
----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 908,000 843,000 819,000
Net gain on sale of securities
available for sale 42,000 83,000 481,000
Other fees and charges 467,000 564,000 397,000
Income from real estate development 503,000 542,000 481,000
----------- ----------- -----------
Total noninterest income 1,920,000 2,032,000 2,178,000
----------- ----------- -----------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,476,000 3,342,000 3,137,000
Occupancy 1,473,000 1,366,000 1,374,000
Business development 139,000 176,000 137,000
Data processing 131,000 118,000 106,000
Expenses from real estate development 377,000 300,000 268,000
Other 1,733,000 1,479,000 1,608,000
----------- ----------- -----------
Total noninterest expenses 7,329,000 6,781,000 6,630,000
----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,405,000 2,477,000 2,053,000
PROVISION FOR INCOME TAXES 966,000 918,000 648,000
----------- ----------- -----------
NET INCOME $1,439,000 $1,559,000 $1,405,000
=========== =========== ===========
EARNINGS PER SHARE:
Basic $1.36 $1.59 $1.46
=========== =========== ===========
Diluted $1.15 $1.32 $1.22
=========== =========== ===========
See notes to consolidated financial statements.
- ---------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------
Net
Unrealized
Common Stock Loss on
------------------------ Securities
Number Available
of Shares Retained for Sale, Shareholders'
Outstanding Amount Earnings Net of Taxes Equity
--------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 955,467 $10,700,000 $ 588,000 $(562,000) $10,726,000
Stock options exercised 10,686 114,000 114,000
Cash dividend on common stock (480,000) (480,000)
Net change in net unrealized
loss on securities
available for sale,
net of taxes 497,000 497,000
Net income 1,405,000 1,405,000
--------- ----------- ----------- ---------- -----------
Balance at December 31, 1995 966,153 10,814,000 1,513,000 (65,000) 12,262,000
Stock options exercised 2,094 14,000 14,000
Common stock issued on
conversion of debentures 26,272 307,000 307,000
Cash dividend on common stock (562,000) (562,000)
Net change in net unrealized
loss on securities
available for sale, net of taxes (211,000) (211,000)
Net income 1,559,000 1,559,000
--------- ----------- ----------- ---------- -----------
Balance at December 31, 1996 994,519 11,135,000 2,510,000 (276,000) 13,369,000
Stock options exercised 19,678 294,000 294,000
Common stock issued on
conversion of debentures 95,839 1,132,000 1,132,000
Cash dividend on common stock (632,000) (632,000)
Net change in net unrealized
loss on securities
available for sale, net of taxes 151,000 151,000
Net income 1,439,000 1,439,000
--------- ----------- ----------- ---------- -----------
Balance at December 31, 1997 1,110,036 $12,561,000 $ 3,317,000 $(125,000) $15,753,000
========= =========== =========== ========== ===========
See notes to consolidated financial statements.
- ---------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,439,000 $1,559,000 $1,405,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 689,000 523,000 516,000
Provision for loan losses 319,000 411,000 324,000
Provision for deferred income taxes (68,000) 132,000 (268,000)
Net gain on sale of available
for sale securities (42,000) (83,000) (481,000)
Net loss (gain) on sale of
other real estate owned 24,000 17,000 (8,000)
Gain on sale of premises and
equipment (6,000)
Effect of changes in:
Interest receivable and
other assets (234,000) (541,000) (294,000)
Interest payable and
other liabilities 15,000 (112,000) 390,000
----------- ----------- -----------
Net cash provided by operating
activities 2,136,000 1,906,000 1,584,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for
sale securities (12,328,000) (34,275,000) (23,721,000)
Proceeds from sales of available
for sale securities 6,015,000 6,635,000 18,468,000
Proceeds from maturities, calls
or repayments of available
for sale securities 10,494,000 4,416,000 6,558,000
Purchases of held to maturity
securities (1,493,000)
Proceeds from maturities or
calls of held to maturity securities 1,735,000
Net change in loans receivable (7,716,000) (3,192,000) (710,000)
Proceeds from sales of other real
estate owned 30,000 105,000 500,000
Purchases of premises and equipment (244,000) (592,000) (194,000)
Proceeds from sales of premises
and equipment 21,000 14,000 17,000
Change in investment in real
estate development 159,000 124,000 111,000
----------- ----------- -----------
Net cash (used by) provided by
investing activities (3,569,000) (26,765,000) 1,271,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits:
Noninterest bearing 5,238,000 4,982,000 475,000
Interest bearing (849,000) 23,127,000 1,032,000
Net change in securities sold
under repurchase agreements (404,000) 327,000 (82,000)
Net change in other borrowed funds 2,650,000
Cash dividends paid (632,000) (562,000) (480,000)
Cash proceeds from stock options
exercised 204,000 14,000 114,000
----------- ----------- -----------
Net cash provided by financing
activities 3,557,000 30,538,000 1,059,000
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,124,000 5,679,000 3,914,000
CASH AND CASH EQUIVALENTS:
Beginning of year 16,940,000 11,261,000 7,347,000
----------- ----------- -----------
End of year $19,064,000 $16,940,000 $11,261,000
----------- ----------- -----------
See notes to consolidated financial statements.
(Continued)
- ---------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Concluded)
- ---------------------------------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
ADDITIONAL INFORMATION:
Common stock issued on conversion
of debentures net of debenture
offering costs of $90,000 and $28,000
in 1997 and 1996, respectively $1,132,000 $ 307,000
========== ==========
Transfer of securities from held
to maturity to available for sale $12,087,000
===========
Transfer of foreclosed loans
from loans receivable
to other real estate owned $ 437,000 $ 100,000 $ 341,000
========== ========== ===========
Cash Payments:
Income tax payments $1,228,000 $ 738,000 $ 896,000
========== ========== ===========
Interest payments $6,121,000 $5,443,000 $ 5,465,000
========== ========== ===========
See notes to consolidated financial statements.
- ---------------------------------------------------------------
</TABLE>
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CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- ---------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - California Community Bancshares
Corporation (Company) was incorporated in Delaware on October 5,
1995 for the purpose of becoming a bank holding company
registered under the Bank Holding Company Act of 1956. On
February 29, 1996, pursuant to a plan of reorganization and
agreement of merger, resulting in Continental Pacific Bank (Bank)
becoming the wholly-owned subsidiary of the Company, the Company
issued 967,902 shares of its common stock for all of the
outstanding common stock of the Bank. The Bank commenced banking
operations on November 14, 1983. The merger has been accounted
for as a reorganization of entities under common control (similar
to a pooling-of-interests). Additionally, during 1996, the Bank
purchased from another bank approximately $15,500,000 in
deposits and certain leasehold improvements and equipment and
assumed the building lease of a branch located in Concord,
California, for approximately $820,000. The leasehold
improvements and equipment were recorded at fair value and the
excess of the amounts paid over the fair value was recorded as
goodwill. The Company operates eight branches in Solano and
Contra Costa Counties in Northern California. The Company's
primary source of revenue is through providing loans to
customers, who are predominately small and middle market
businesses and middle income individuals.
General - The accounting and reporting policies of the
Company conform to generally accepted accounting principles and
to prevailing practices within the banking industry.
Use of Estimates in the Preparation of Financial Statements
- - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The more significant accounting and reporting policies are
discussed below.
Consolidation - The consolidated financial statements
include California Community Bancshares Corporation and its
wholly-owned subsidiary, Continental Pacific Bank and its
wholly-owned subsidiary, Conpac Development Corporation. All
material intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents - For purposes of the statements
of cash flows, cash and cash equivalents have been defined as
cash, demand deposits with correspondent banks, cash items in
transit and federal funds sold. Generally, federal funds are
sold for one-day periods. Cash equivalents have remaining terms
to maturity of three months or less from the date of acquisition.
Securities - The Company accounts for securities in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Company's policy with regard to
investments is as follows:
Securities Available for Sale are carried at fair value.
Unrealized gains and losses resulting from changes in fair value
are recorded, net of tax, as a separate component of
shareholders' equity. Gains or losses on disposition are
recorded in other operating income based on the net proceeds
received and the carrying amount of the securities sold, using
the specific identification method.
The Company does not have any investment securities
considered to be held to maturity or held for trading under the
provisions of SFAS 115.
Interest Rate Swap Agreements - The Company enters into
interest rate swap agreements with the Federal Home Loan Bank
(FHLB) as part of its asset/liability management activities to
reduce its exposure to certain lags and fluctuations in interest
rates. The Company accounts for these activities as matched
swaps in accordance with settlement accounting. An interest rate
swap is considered to be a matched swap if it is linked through
9
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designation with an asset or liability, or both, that is on the
balance sheet, provided that it is has the opposite interest
characteristics of such balance sheet items. Under settlement
accounting, periodic net cash settlements under the swap
agreements are recognized as interest income or expense of the
related asset or liability over the lives of the agreements.
Loans Receivable - Loans are reported at the principal
amount outstanding adjusted for any specific charge-offs.
Interest on loans is calculated by using the simple interest
method on the daily balance of the principal amount outstanding.
Loan fees and certain related direct costs to originate loans
are deferred and amortized to income by a method that
approximates a level yield over the contractual life of the
underlying loans.
The accrual of interest on loans is discontinued when
reasonable doubt exists as to the full and timely collection of
interest and principal, or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal
(unless the loan is well secured and in the process of
collection) and such loans are designated as nonaccrual loans.
When a loan is placed on nonaccrual status, all accrued but
unpaid interest revenue is reversed by a charge to earnings.
Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is
determined by management to be probable. Interest accruals are
resumed on such loans when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal
and interest.
Allowance for Loan Losses - The allowance for loan losses is
established through a provision for loan losses charged to
operations. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses inherent in
existing loans and commitments to extend credit based on
evaluations of the collectibility and prior loss experience of
loans and commitments to extend credit. In evaluating the
probability of collection, management is required to make
estimates and assumptions that affect the reported amounts of
loans, allowance for loan losses and the provision for loan
losses charged to operations. Actual results could differ
significantly from those estimates. The evaluations take into
consideration such factors as changes in the nature and volume of
the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrowers' ability to
pay.
A loan is considered impaired if, based on current
information and events, it is probable that the Company will be
unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based
on the fair value of the collateral, for all collateral dependent
loans, or the present value of expected future cash flows
discounted at the historical effective interest rate.
Premises and Equipment - Premises and equipment are carried
at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the
estimated useful lives of the respective assets, generally 5 to
10 years for furniture and fixtures and 3 to 7 years for
equipment. Leasehold improvements are amortized on the
straight-line method over the shorter of the estimated useful
lives of the improvements or the terms of the respective leases.
Expenditures for major renewals and betterments of premises and
equipment are capitalized and those for maintenance and repairs
are charged to operations as incurred.
Investments in Real Estate Development - The investment in
real estate development represents the investment in the Pacific
Plaza project by the Bank's wholly-owned consolidated subsidiary,
Conpac Development Corporation. The investment in the land and
building is carried at cost, net of accumulated depreciation
which is computed on the straight-line basis over 31.5 years.
(see Note 6).
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<PAGE>
Other Real Estate Owned - Real estate properties acquired
through, or in lieu of, foreclosure are expected to be sold and
are recorded at the date of foreclosure at the lower of the
recorded investment in the property or its fair value less
estimated selling costs (fair value) establishing a new cost
basis through a charge to allowance for loan losses, if
necessary. After foreclosure, valuations are periodically
performed by management with any subsequent write-downs recorded
as a valuation allowance and charged against operating expenses.
Operating expenses of such properties, net of related income, are
included in other expenses and gains and losses on their
disposition are included in other income and other expenses.
Goodwill - Goodwill consists of the unamortized excess of
the purchase price over the fair value of the assets acquired in
the 1996 purchase of a branch located in Concord, California.
Goodwill recorded was $550,000 and is being amortized on a
straight-line basis over 15 years.
Income Taxes - The Company applies an asset and liability
method in accounting for deferred income taxes. Deferred tax
assets and liabilities are calculated by applying applicable tax
laws to the differences between the financial statement basis and
the tax basis of assets and liabilities. The effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock-Based Compensation - The Company accounts for
stock-based awards to employees using the intrinsic value method
in accordance with Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees. Under the intrinsic
value method, no compensation cost has been recognized for its
stock option grants. SFAS No. 123, Accounting for Stock-Based
Compensation requires disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method
as of the beginning of 1995.
Earnings per Share - The Company has adopted the provisions
of SFAS No. 128, Earnings per Share. This statement replaces
previous standards for reporting earnings per share with basic
and diluted earnings per share. All earnings per share
information has been restated to give effect to the new
standards. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in
the earnings of the entity.
11
<PAGE>
The following table reconciles the numerator and denominator
used in computing both basic earnings per share and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Calculation of Basic Earnings Per Share
Numerator - net income $1,439,000 $1,559,000 $1,405,000
Denominator - weighted average
common shares outstanding 1,054,457 981,528 962,016
Basic Earnings Per Share $1.36 $1.59 $1.46
========== ========== ==========
Calculation of Diluted Earnings Per Share
Numerator:
Net income $1,439,000 $1,559,000 $1,405,000
Interest expense on convertible
subordinated debentures, net of tax 129,000 178,000 200,000
---------- ---------- ----------
1,568,000 1,737,000 1,605,000
---------- ---------- ----------
Denominator:
Weighted average common shares
outstanding 1,054,457 981,528 962,016
Effect of outstanding stock options 93,161 37,207 37,382
Effect of Convertible Subordinated
Debentures 211,170 302,255 315,686
---------- ---------- ----------
1,358,788 1,320,990 1,315,084
---------- ---------- ----------
Diluted Earnings Per Share $1.15 $1.32 $1.22
========== ========== ==========
- ------------------------------------------
</TABLE>
12
<PAGE>
New Accounting Pronouncements - In June 1997, the Financial
Accounting Standards Board adopted Statements of Financial
Accounting Standards No. 130, Reporting Comprehensive Income,
which requires that an enterprise report, by major components and
as a single total, the change in its net assets during the period
from nonowner sources, and No. 131, Disclosures about Segments of
an Enterprise and Related Information, which establishes annual
and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these
statements will not impact the Company's consolidated financial
position, results of operations or cash flows. Both statements
are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
2. PLAN OF ACQUISITION AND MERGER
On November 13, 1997, the Company entered into a Plan of
Acquisition and Merger (Plan) with SierraWest Bancorp
(SierraWest). Under the terms of the agreement SierraWest will
acquire all the outstanding common stock of the Company in
exchange for shares of SierraWest's common stock at an exchange
ratio defined by a formula in the Plan. The merger, which is
expected to close early in the second quarter of 1998, is subject
to the approval of each company's shareholders and various
regulatory agencies. The transaction is expected to be accounted
for as a pooling of interest.
3. RESTRICTED CASH BALANCES
Aggregate reserves of $616,000 and $750,000 in the form of
deposits with the Federal Reserve Bank were maintained to satisfy
Federal Reserve requirements at December 31, 1997 and 1996.
4. SECURITIES
At December 31, the amortized cost of securities available
for sale and their approximate fair value were as follows:
<TABLE>
<CAPTION>
Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Cost Gains Losses Fair Value)
December 31, 1997:
<S> <C> <C> <C> <C>
Securities of U.S. government
agencies and corporations $43,498,000 $ 67,000 $375,000 $43,190,000
FHLB stock 592,000 592,000
Obligations of states and
political subdivisions 4,590,000 126,000 33,000 4,683,000
----------- -------- -------- -----------
$48,680,000 $193,000 $408,000 $48,465,000
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Cost Gains Losses Fair Value)
December 31, 1996:
<S> <C> <C> <C> <C>
Securities of U.S. government
agencies and corporations $47,887,000 $ 27,000 $519,000 $47,395,000
FHLB stock 490,000 490,000
Obligations of states and
political Subdivisions 4,667,000 65,000 48,000 4,684,000
----------- -------- -------- -----------
$53,044,000 $ 92,000 $567,000 $52,569,000
=========== ======== ======== ===========
</TABLE>
13
<PAGE>
Gross realized gains on sales of securities available for
sale were approximately $42,000 in 1997 and $88,000 in 1996.
Gross realized losses on sales of available for sale securities
were approximately $5,000 in 1996. There were no gross realized
losses on sales of available for sale securities in 1997.
In November 1995, the FASB issued additional implementation
guidance regarding the previously issued SFAS No. 115. In
accordance with this guidance and prior to December 31, 1995,
companies were allowed a one-time reassessment of their
classification of securities and were required to account for any
resulting transfers at fair value. Transfers from the held to
maturity category that result from this one-time reassessment
will not call into question the intent to hold other securities
to maturity in the future. The Company transferred approximately
$12,087,000 of securities from held to maturity to available for
sale to allow the Company greater flexibility in managing its
interest rate risk and liquidity. Available for sale securities
were adjusted to fair value and stockholders' equity was
increased by $274,000 net of income taxes of $198,000.
Scheduled maturities of securities available for sale (other
than FHLB stock with a carrying value of approximately $592,000)
at December 31, 1997, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the
right to prepay with or without penalty.
<TABLE>
<CAPTION>
Available for sale securities
-------------------------------
Approximate
Fair Value
Amortized (Carrying
Cost Amount)
<S> <C> <C>
Due in one year or less $ 6,286,000 $ 6,291,000
Due after one year through five years 12,793,000 12,857,000
Due after five years through 10 years 3,495,000 3,542,000
Due after 10 years 25,514,000 25,183,000
----------- -----------
$48,088,000 $47,873,000
=========== ===========
</TABLE>
At December 31, 1997 and 1996, securities having carrying
amounts of approximately $11,155,000 and $10,171,000 were pledged
to secure public deposits and short-term borrowings and for other
purposes required by law or contract.
5. LOANS RECEIVABLE, IMPAIRED LOANS AND ALLOWANCE FOR LOAN
LOSSES
The Company's loan customers are located primarily in Solano
County and neighboring communities. At December 31, 1997, 75% of
the Company's loan portfolio was for real estate, of which 80%
was for commercial projects and 20% was for residential
properties. Real estate construction loans comprise 5% of the
loan portfolio with consumer and other, and commercial loans
accounting for the remaining 11% and 9%, respectively. The real
estate portfolio consists of approximately 86% variable rate
loans and approximately 14% fixed rate loans. Substantially all
loans are collateralized. Generally, real estate loans are
secured by real property. Commercial and other loans are secured
by bank deposits or business or personal assets. The Company's
policy for requiring collateral reflects the Company's analysis
of the borrower, the borrower's industry and the economic
environment in which the loan would be granted. The loans are
expected to be repaid from cash flows or proceeds from the sale
of selected assets of the borrower.
14
<PAGE>
The major classifications of loans at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commercial $ 10,348,000 $ 8,926,000
Real estate construction 6,042,000 6,408,000
Real estate 90,778,000 82,246,000
Consumer and other 13,894,000 16,045,000
------------ ------------
121,062,000 113,625,000
Less:
Allowance for loan losses 1,242,000 1,101,000
Deferred loan fees 498,000 599,000
------------ ------------
Net loans receivable $119,322,000 $111,925,000
============ ============
</TABLE>
Changes in the allowance for loan losses for the years ended
December 31 are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $1,101,000 $1,158,000 $1,108,000
Provision for loan losses 319,000 411,000 324,000
Loans charged off (224,000) (496,000) (282,000)
Recoveries 46,000 28,000 8,000
---------- ---------- ----------
Balance at end of year $1,242,000 $1,101,000 $1,158,000
========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, the recorded investment in
loans for which impairment has been recognized was $2,454,000 and
$2,648,000. The total allowance for loan losses related to these
loans was $443,000 and $278,000 at December 31, 1997 and 1996.
For the years ended December 31, 1997 and 1996, the average
recorded investment in loans for which impairment has been
recognized was approximately $2,642,000 and $1,218,000. During
the portion of the year that the loans were impaired, the Company
recognized interest income of approximately $104,000 and $28,000
for cash payments received in 1997 and 1996.
Included in the impaired loans are nonperforming loans at
December 31 as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Nonaccrual loans $ 966,000 $ 70,000
Loans 90 days past due but
still accruing interest 194,000 67,000
---------- --------
Total nonaccrual and 90 days
past due loans $1,160,000 $137,000
========== ========
</TABLE>
If interest on nonaccrual loans had been accrued, such
income would have been approximately $74,000, $7,000, and
$203,000 in 1997, 1996 and 1995. At December 31, 1997, there
were no commitments to lend additional funds to borrowers whose
loans were classified as nonaccrual or whose loans have been
modified.
15
<PAGE>
6. PREMISES AND EQUIPMENT
The major classifications of premises and equipment at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Bank premises $ 132,000 $ 132,000
Furniture, fixtures and equipment 2,318,000 2,222,000
Leasehold improvements 2,872,000 2,752,000
---------- ----------
5,322,000 5,106,000
Less accumulated depreciation
and amortization 3,273,000 2,822,000
---------- ----------
$2,049,000 $2,284,000
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1997,
1996 and 1995 amounted to $464,000, $431,000 and $422,000,
respectively.
7. INVESTMENT IN REAL ESTATE DEVELOPMENT
In 1984, the Bank formed a wholly-owned subsidiary, Conpac
Development Corporation (Conpac), to engage in real estate
development activities.
Conpac's current project consists of one commercial property
development, Pacific Plaza, located in Vacaville, California.
The Pacific Plaza East portion of the project, consisting of a
32,000 square-foot office building, was completed and commenced
operations in 1992. The Pacific Plaza West portion is being
considered for development. At December 31, 1997, the Company
occupied approximately 14% of the Pacific Plaza East project for
use as its corporate offices. All significant intercompany
transactions, including rental income for the Company's corporate
offices, are eliminated in consolidation and excluded from the
schedule of future minimum rentals.
A summary of certain financial information for Conpac, after
consolidation, is as follows:
<TABLE>
<CAPTION>
1997 1996 1997 1996 1995
<S> <C> <C> <S> <C> <C> <C>
Investment in Pacific Plaza:
Land $1,314,000 $1,366,000 Rental income - net $503,000 $542,000 $481,000
Building and improvements 3,459,000 3,459,000
Less accumulated Operating expenses 262,000 185,000 168,000
depreciation (542,000) (426,000) Depreciation
---------- ---------- expense 115,000 115,000 100,000
Total investment in Pacific -------- -------- --------
Plaza 4,231,000 4,399,000
Other 93,000 84,000 Total expenses 377,000 300,000 268,000
---------- ---------- -------- -------- --------
Total investment in real estate Income from real
development $4,324,000 $4,483,000 estate development $126,000 $242,000 $213,000
========== ========== ======== ======== ========
</TABLE>
16
<PAGE>
The future minimum rental income under long-term
noncancelable leases for the Pacific Plaza East project are as
follows:
<TABLE>
<S> <C>
1998 $ 241,000
1999 117,000
2000 88,000
2001 88,000
2002 67,000
-----------------
Total $ 601,000
=================
</TABLE>
No interest costs were capitalized in 1997 or 1996 in
connection with the Bank's development activities.
A provision of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA) has impacted the Bank's ability to
continue to engage in certain real estate development activities.
Beginning in December 1992, state banks and their subsidiaries
may not engage, as principal, in activities not permissible to
national banks and their subsidiaries. Any bank engaged in such
activities must divest itself of these investments by December
1996, and was required to file a divestiture plan with the FDIC
by February 5, 1993. Generally national banks may not engage in
real estate development, although they can own property used or
to be used, in part, as a banking facility. During 1993, the
Bank moved its corporate offices to Pacific Plaza East which is
owned by Conpac. The Bank occupies approximately 14% of the
leasable office space. Since ownership of banking premises is
permissible for a national bank subsidiary, a divestiture plan is
not required for Pacific Plaza East. The Bank, through Conpac,
currently plans to retain its ownership of Pacific Plaza East.
The Bank's divestiture plan, which was not objected to by
the FDIC, states that the Bank and Conpac plan to develop and
retain ownership of Pacific Plaza West.
8. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Real estate acquired through
foreclosure and held for sale $96,000 $219,000
Less - allowance for other
real estate owned losses (69,000)
------- --------
Other real estate owned - net $96,000 $150,000
======= ========
</TABLE>
A summary of the activity in the allowance for other real
estate owned losses is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance at beginning of year $69,000 $161,000
Charge-offs (69,000) (92,000)
------- --------
Balance at end of year $ $ 69,000
======= ========
</TABLE>
17
<PAGE>
9. DEPOSITS
The aggregate amount of time certificates of deposit in
denominations of $100,000 or more was $22,230,000 and $20,881,000
at December 31, 1997 and 1996. Interest expense incurred on
certificates of deposit of $100,000 or more was approximately
$1,154,000, $1,049,000, and $873,000, for the years ended
December 31, 1997, 1996 and 1995.
At December 31, 1997, the scheduled maturities of
certificates of deposit are as follows:
<TABLE>
<S> <C>
1998 $ 55,320,000
1999 1,685,000
2000 89,000
2001 851,000
2002 and thereafter 1,894,000
------------
Total $ 59,839,000
============
</TABLE>
10. OTHER BORROWED FUNDS
Other borrowed funds at December 31, 1997 and 1996 represent
amounts borrowed from the FHLB. Borrowings require monthly
interest payments with the principal payable at maturity.
Amounts consist of the following:
<TABLE>
<S> <C>
Borrowing from the FHLB, matures March 26, 2001,
interest at 6.44% $ 750,000
Borrowing from the FHLB, matures April 23, 2003,
interest at 6.92% 1,900,000
----------
Total $2,650,000
==========
</TABLE>
11. CONVERTIBLE SUBORDINATED DEBENTURES
During 1993, the Bank sold $4,025,000 of convertible
subordinated variable rate debentures due April 30, 2003, with an
initial and minimum interest rate of 8%. During 1996, as part of
the plan of reorganization and merger of the Company and the Bank,
the convertible subordinated debentures were assumed by the
Company under the same terms and provisions as previously entered
into by the Bank. Interest is payable, as to the six months
beginning on any interest rate payment date, on each April 1 and
October 1 based on a variable rate of 1.5% over the average yield
on the 10-year U.S. Treasury bond (rounded down to the nearest
1/8%) for the month ending two months prior to the month of the
interest payment, subject to a ceiling of 10%. The debentures
are convertible, at any time prior to maturity, into shares of
the $.10 par value common stock of the Company at a conversion
prices of $12.75 per share (subject to adjustment). During 1997,
$1,132,000 (net of $90,000 in debt issuance costs) of the debt
was converted to 95,839 shares of common stock at $12.75 per
share. The debentures are currently redeemable at the Company's
option, in whole or from time to time in part, at a rate of 104%
of principal value until March 31, 1998 and at a rate of 100% of
principal value thereafter. The payment of principal and
interest on the debentures is subordinated in right of payment in
full to senior indebtedness of the Company which includes
obligations of the Company to its depositors and general
creditors.
18
<PAGE>
12. INCOME TAXES
The provision for income taxes for the years ended December
31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currently payable:
Federal $ 730,000 $529,000 $667,000
State 304,000 257,000 249,000
---------- -------- --------
Total 1,034,000 786,000 916,000
---------- -------- --------
Deferred:
Federal (49,000) 98,000 (259,000)
State (19,000) 34,000 (9,000)
---------- -------- --------
Total (68,000) 132,000 (268,000)
---------- -------- --------
Provision for income taxes $ 966,000 $918,000 $648,000
========== ======== ========
</TABLE>
A reconciliation of the federal statutory tax rate to the
effective tax rate on income is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 7.8 7.7 7.4
Effect of tax exempt income (2.9) (4.2) (10.5)
Merger-related costs 1.5
Other (1.2) (1.4) (0.3)
----- ----- -----
40.2% 37.1% 31.6%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax reporting purposes. The significant components of
the Bank's net deferred tax asset (included in other assets) at
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Unrealized loss on securities
available for sale $ 91,000 $199,000
Allowance for loan losses 393,000 349,000
State taxes 55,000 59,000
Depreciation (12,000) 70,000
Deferred compensation 67,000 42,000
Securities and loans marked
to market for tax purposes (83,000) (179,000)
Other 4,000 15,000
-------- --------
$515,000 $555,000
======== ========
</TABLE>
19
<PAGE>
13. STOCK BASED COMPENSATION
During 1996, as part of the plan of reorganization and
merger of the Company and the Bank, the two stock option plans of
the Bank were assumed by the Company under the same terms and
provisions as previously adopted by the Bank. Under the plans,
options are exercisable at prices equal to the fair market value
as determined in good faith by the Company's board of directors
at the date of the grant. The Company has reserved 200,000
shares of common stock for the 1993 stock option plan. No
additional grants may be made under the 1990 plan, however,
options for 47,486 shares remain outstanding. Options become
exercisable in approximately one-third increments during each
year subsequent to the date of grant. Options held by executives
and directors must be fully exercised by the end of the tenth
year, while all remaining options must be exercised by the end of
the fifth year. A summary of stock options follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price
<S> <C> <C>
Outstanding, January 1, 1995 140,367 10.17
Granted 3,500 14.50
Exercised (10,686) 10.65
Expired or canceled (333) 10.45
-------
Outstanding, December 31, 1995 132,848 10.49
Granted 4,000 14.81
Exercised (2,094) 6.53
Expired or canceled (500) 16.00
-------
Outstanding December 31, 1996 134,254 10.67
Granted 4,500 16.71
Exercised (19,679) 10.40
Expired or canceled (1,000) 16.00
-------
Outstanding, December 31, 1997 118,075 10.90
=======
</TABLE>
Information about stock options outstanding at December 31,
1997 is summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Average Exercise Exercise
Range of Remaining Price of Price of
Exercise Options Contractual Options Options Options
Prices Outstanding Life (Years) Outstanding Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
$8.88-$9.50 24,691 2.20 $8.98 24,691 $8.98
$10.45-$11.50 81,219 4.70 $10.84 81,219 $10.84
$13.75-$14.50 6,665 7.05 $14.02 4,667 $13.99
$16.00-$17.13 5,500 5.89 $16.58 1,500 $16.13
</TABLE>
As discussed in Note 1, the Company continues to
account for its stock-based awards using the intrinsic value
method in accordance with APB No. 25, Accounting for Stock Issued
to Employees and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial
statements for employee stock arrangements. The required pro
forma disclosures of the effect of stock-based compensation on
net income and earnings per share using the fair value method in
accordance with SFAS No. 123, Accounting for Stock-Based
Compensation, are not presented as the differences are not
material.
14. PROFIT SHARING PLAN
The Company has a profit sharing plan (Plan) for the
employees of the Company under which annual contributions are at
the discretion of the Board of Directors. Substantially all of
the Company's employees are participants in the Plan. The total
contribution made to the Plan by the Company in 1997, 1996 and
1995 was approximately $143,000, $132,000, and $117,000.
20
<PAGE>
15. SALARY CONTINUATION PLAN
The Company has a Salary Continuation Plan covering certain
of its senior officers. Under this plan, the officers or their
beneficiaries will receive monthly payments after retirement or
if earlier, death. The Company has accrued $55,000, $41,000 and
$32,000 as compensation expense in 1997, 1996 and 1995,
respectively, under this plan. To protect the Company in the
event of death prior to retirement, the Company has secured life
insurance on the lives of the covered officers.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters
of credit, and interest rate swaps. Those instruments involve,
to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the statement of financial
position. The contract or notional amounts of those instruments
reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments. For swap transactions, notional
principal amounts often are used to express the volume of these
transactions, but the amounts subject to credit risk are much
smaller because the Company enters into matched swap agreements
that are settled periodically on a net cash basis. The Company
controls the credit risk of its interest rate swap agreements
through credit approvals, limits, and monitoring procedures.
The following table discloses the contract or notional
amount of off-balance sheet financial instruments at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Financial instruments whose
contract amounts represent credit risk:
Commitments to extend credit $18,191,000 $14,370,000
Standby letters of credit 532,000 649,000
Financial instruments whose notional
or contract amounts exceed the amount
of credit risk:
Interest rate swap agreements 10,900,000 10,000,000
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by
the Company upon extension of credit is based on management's
credit evaluation of each customer. Collateral held varies but
may include real property, bank deposits, debt securities, equity
securities, or business assets.
Standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
inventory purchases by the Company's commercial and technology
division customers, and such guarantees are typically short-term.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers and the Company accordingly uses
evaluation and collateral requirements similar to those for loan
commitments.
21
<PAGE>
The Company has entered into interest rate swap agreements
with the FHLB as described below. The effect of the $10,000,000
notional amount agreement was to shorten the lag time in interest
rate fluctuations from the 11th District Cost of Funds Index
(COFI) to the treasury bill to enable the Company to better match
the timing of the repricing of certain liabilities. The effect
of the $900,000 notional amount agreement was to lock in an
interest rate spread on a fixed interest rate loan of a similar
amount and term.
<TABLE>
<CAPTION>
Original
Notional Issue Original Company Company
Amount Date Term Pays Receives
<S> <C> <C> <C> <C>
$10,000,000 5-24-1996 Five years COFI plus .65% Three month
(variable rate) treasury bill
(variable rate)
$900,000 1-24-1997 Seven years 6.74% (fixed One year constant
rate) maturity treasury
index (variable
rate)
</TABLE>
Cash requirements under the swap agreements have not been
material to the Company's financial position or results of
operations. The credit risk on the swap agreements is estimated
to be the replacement cost for those agreements in a gain
position in the event of nonperformance by the FHLB. At December
31, 1997 and 1996, there was no credit risk associated with these
agreements.
17. COMMITMENTS AND CONTINGENCIES
Branch facilities and certain equipment are rented under
long-term operating leases which provide for future minimum
rental payments as follows:
<TABLE>
<CAPTION>
Year Ended December 31 Amount
<S> <C>
1998 $ 572,000
1999 498,000
2000 473,000
2001 482,000
2002 412,000
Thereafter 1,889,000
-------------
$ 4,326,000
=============
</TABLE>
22
<PAGE>
Renewal privileges exist on certain leases. Total rent
expense amounted to $576,000, $536,000, and $534,000, for the
years ended December 31, 1997, 1996, and 1995.
The Company is involved in a number of legal actions arising
from normal business activities. Management, upon the advice of
legal counsel, believes that the ultimate resolution of these
actions will not have a material adverse effect on the financial
statements.
18. RELATED PARTY TRANSACTIONS
The Bank has made loans to directors and executive officers
and companies with which they are affiliated. These loans were
made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. A summary of the activity
for the years ended December 31, 1997 and 1996 is as follows
(renewals are not reflected as either new loans or repayments):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance at beginning of year $3,410,000 $3,376,000
Borrowings 246,000 433,000
Principal repayments (322,000) (399,000)
---------- ----------
Balance at end of year $3,334,000 $3,410,000
========== ==========
</TABLE>
19. REGULATORY MATTERS AND DIVIDENDS
The Company and the Bank are subject to various regulatory
capital requirements administered by federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory - and, possibly, additional discretionary - actions by
regulators that, if undertaken, could have a direct material
effect on the Company's consolidated financial statements. Under
capital adequacy guidelines, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of
the Company's and the Bank's assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and the
Bank's prompt corrective action classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as
defined) to average assets (as defined). Management believes, as
of December 31, 1997, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
23
<PAGE>
The most recent notifications from the Federal Deposit
Insurance Corporation for the Bank as of December 31, 1997 and
1996, categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum
Total risk-based, Tier I risk-based and Tier I leverage ratios as
set forth in the table. There are no conditions or events since
that notification that management believes have changed the
Bank's category.
The Company and the Bank's actual capital amounts and ratios
are also presented, respectively, in the following tables.
<TABLE>
<CAPTION>
Company: For Capital
Actual Adequacy Purposes
--------------------- ----------------------
Minimum Minimum
Amount Ratio Amount Ratio
As of December 31, 1997:
<S> <C> <C> <C> <C>
Total capital
(to risk weighted assets) $19,084,000 13.64% $11,195,000 8.00%
Tier I capital
(to risk weighted assets) $15,374,000 10.99% $ 5,597,000 4.00%
Tier I capital
(to average assets) $15,374,000 7.91% $ 7,772,000 4.00%
</TABLE>
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
--------------------- ----------------------
Minimum Minimum
Amount Ratio Amount Ratio
As of December 31, 1996:
<S> <C> <C> <C> <C>
Total capital
(to risk weighted assets) $17,895,000 13.55% $10,564,000 8.0%
Tier I capital
(to risk weighted assets) $13,104,000 9.92% $ 5,282,000 4.0%
Tier I capital
(to average assets) $13,104,000 7.04% $ 7,444,000 4.0%
</TABLE>
<TABLE>
<CAPTION>
Bank: To Be
Categorized as Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- --------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital
(to risk weighted assets) $18,431,000 13.21% $11,160,000 8.00% $13,950,000 10.00%
Tier I capital
(to risk weighted assets) $13,521,000 9.69% $ 5,580,000 4.00% $ 8,370,000 6.00%
Tier I capital
(to average assets) $13,521,000 6.97% $ 7,755,000 4.00% $ 9,694,000 5.00%
As of December 31, 1996:
Total capital
(to risk weighted assets) $17,416,000 13.22% $10,540,000 8.0% $13,174,000 10.0%
Tier I capital
(to risk weighted assets) $12,647,000 9.60% $ 5,270,000 4.0% $ 7,905,000 6.0%
Tier I capital
(to average assets) $12,647,000 6.81% $ 7,407,000 4.0% $ 9,286,000 5.0%
</TABLE>
24
<PAGE>
Under federal and California state banking laws, dividends
paid by the Bank to the Company in any calendar year may not
exceed certain limitations without the prior written approval of
the appropriate bank regulatory agency. At December 31, 1997,
the amount available for such dividends without prior written
approval was approximately $3,317,000. Similar restrictions
apply to the amounts and terms of loans, advances and other
transfers of funds from the Bank to the Company.
Dividends subsequent to year-end - On January 20, 1998, the
Board of Directors declared a $.15 per share cash dividend
payable February 17, 1998 to shareholders of record on February
3, 1998.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments requires certain disclosures regarding the estimated
fair value of financial instruments for which it is practicable
to estimate. Although management uses its best judgment in
assessing fair value, there are inherent weaknesses in any
estimating technique that may be reflected in the fair values
disclosed. The fair value estimates are made at a discrete point
in time based on relevant market data, information about the
financial instruments, and other factors. Estimates of fair
value of instruments without quoted market prices are subjective
in nature and involve various assumptions and estimates that are
matters of judgment. Changes in the assumptions used could
significantly affect these estimates. Fair value has not been
adjusted to reflect changes in market conditions subsequent to
December 31, 1997, therefore, estimates presented herein are not
necessarily indicative of amounts which could be realized in a
current transaction.
The following estimates and assumptions were used as of
December 31, 1997 and 1996 to estimate the fair value of each
class of financial instruments for which it is practicable to
estimate that value.
(a) Cash and Cash Equivalents - The carrying amount
represents a reasonable estimate of fair value.
(b) Securities - Available for sale securities are carried
at market based on quoted market prices, if available. If a
quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
(c) Loans Receivable - Commercial loans, residential
mortgages, and construction loans, are segmented by fixed and
adjustable rate interest terms, by maturity, and by performing
and nonperforming categories.
The fair value of performing loans is estimated by
discounting contractual cash flows using the current interest
rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Assumptions regarding credit risk, cash flow, and discount rates
are judgmentally determined using available market information.
The fair value of nonperforming loans and loans
delinquent more than 30 days is estimated by discounting
estimated future cash flows using current interest rates with an
additional risk adjustment reflecting the individual
characteristics of the loans.
(d) Deposit Liabilities - Noninterest bearing and interest
bearing demand deposits and savings accounts are payable on
demand and are assumed to be at fair value. Time deposits are
based on the discounted value of contractual cash flows. The
discount rate is based on rates currently offered for deposits of
similar size and remaining maturities.
(e) Other Borrowed Funds - The fair value of other borrowed
funds is estimated by discounting the contractual cash flows
using the current interest rate at which similar borrowings for
the same remaining maturities could be made.
(f) Convertible Subordinated Debentures - The carrying
amount represents a reasonable estimate of fair value.
25
<PAGE>
(g) Commitments to Fund Loans/Standby Letters of Credit -
The fair values of commitments are estimated using the fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. The differences between
the carrying value of commitments to fund loans or stand by
letters of credit and their fair value is not significant and
therefore not included in the following table.
(h) Interest Rate Swap Agreements - The fair value of the
interest rate swap agreements is estimated by discounting the
contractual cash flows using the interest rates in effect at year
end over the remaining maturity.
The estimated fair values of the Company's financial
instruments as of December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 19,064,000 $ 19,064,000 $ 16,940,000 $ 16,940,000
Available for sale securities 48,465,000 48,465,000 52,569,000 52,569,000
Loans receivable 121,062,000 118,884,000 113,625,000 112,499,000
FINANCIAL LIABILITIES:
Deposits 174,732,000 174,683,000 170,343,000 170,271,000
Other borrowed funds 2,650,000 2,533,000 2,650,000 2,606,000
Convertible subordinated debentures 2,468,000 2,468,000 3,690,000 3,690,000
Credit Fair Credit Fair
Risk Value Risk Value
OFF BALANCE SHEET ITEMS:
Interest rate swap agreements:
Pay variable/receive variable - $(106,000) - $(68,000)
Pay fixed/receive variable - (31,000) - -
</TABLE>
26
<PAGE>
21. CONDENSED FINANCIAL INFORMATION OF CALIFORNIA COMMUNITY
BANCSHARES CORPORATION
The condensed financial statements of California Community
Bancshares Corporation are presented below:
<TABLE>
<CAPTION>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------
1997 1996
<S> <C> <C>
Assets:
Cash and cash equivalents $ 168,000 $ 94,000
Investments in subsidiary 13,993,000 12,913,000
Note receivable from Bank 3,669,000 3,669,000
Other assets 455,000 478,000
----------- -----------
Total $18,285,000 $17,154,000
=========== ===========
Liabilities and shareholders' equity:
Other liabilities $ 64,000 $ 95,000
Convertible subordinated debentures 2,468,000 3,690,000
Shareholders' equity:
Common stock, no par value: authorized,
2,000,000 shares; outstanding,
1,110,036 and 994,519 as of
December 31, 1997 and 1996 12,561,000 11,135,000
Retained earnings 3,317,000 2,510,000
Net unrealized loss on securities
available for sale, net of tax effect (125,000) (276,000)
----------- -----------
Total $18,285,000 $17,154,000
=========== ===========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM FEBRUARY 29, 1996
(DATE OF MERGER WITH BANK) TO DECEMBER 31, 1996
- -----------------------------------------------------------
1997 1996
<S> <C> <C>
INCOME:
Dividends from subsidiary $ 750,000 $ 710,000
Interest income on note
receivable from Bank 295,000 251,000
---------- ----------
Total income 1,045,000 961,000
EXPENSE:
Convertible subordinated
debenture interest expense 223,000 254,000
Other 314,000 120,000
---------- ----------
Total expense 537,000 374,000
Income before equity in
undistributed income of subsidiary 508,000 587,000
Equity in undistributed
income of subsidiaries 931,000 972,000
---------- ----------
Net income $1,439,000 $1,559,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM FEBRUARY 29, 1996
(DATE OF MERGER WITH BANK) TO DECEMBER 31, 1996
- -----------------------------------------------------------
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,439,000 $1,559,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed income
of subsidiary (931,000) (972,000)
Effect of changes in:
Other assets 25,000 (478,000)
Other liabilities (31,000) 95,000
---------- ----------
Net cash provided by operating
activities 502,000 204,000
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (632,000) (442,000)
Cash proceeds from stock
options exercised 204,000
Increase in note receivable from Bank (3,669,000)
Convertible subordinated debentures 4,025,000
Other (24,000)
---------- ----------
Net cash used in financing activities (428,000) (110,000)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 74,000 94,000
CASH AND CASH EQUIVALENTS:
Beginning of year 94,000 -
---------- ----------
End of year $ 168,000 $ 94,000
---------- ----------
ADDITIONAL INFORMATION:
Common stock issued on conversion
of debentures net of debenture
offering costs of $90,000 and
$28,000 in 1997 and 1996,
respectively $1,132,000 $ 307,000
---------- ----------
Cash payments for interest
paid on convertible
subordinated debentures $ 248,000 $ 180,000
---------- ----------
</TABLE>
28
<PAGE>
(b) Pro-Forma financial information:
Page
Condensed Consolidated Combined
Balance Sheet as of December 31, 1997. 30
Condensed Consolidated Combined
Statements of Income as of December 31, 1997, 1996 and 1995. 31
(c) Exhibits
2.1 Agreement and Plan of Merger between SierraWest Bancorp and
SierraWest Bank and California Community Bancshares
Corporation and Continental Pacific Bank dated as of April 15,
1998 and filed with California's Secretary of State's office.
2.2 Plan of Acquisition and Merger by and between SierraWest
Bancorp, SierraWest Bank and California Community Bancshares
Corporation, Continental Pacific Bank, filed as Exhibit 2 to
Registrant's Form 8-K dated November 14, 1997, and by this
reference incorporated herein.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
Selected Historical and Pro-Forma Financial Data
The following represents unaudited pro-forma combined consolidated financial
information for SierraWest Bancorp and subsidiary and California Community
Bancshares Corporation and subsidiary. This information presents selected
financial information based upon historical financial statements of both
parties. These unaudited statements present information under the
pooling-of-interests accounting method and reflect the merger occurring at the
beginning of the period indicated or on December 31, 1997. There were no
material pro-forma adjustments. These statements are for illustrative purposes
only and do not indicate the results of operations, or financial position that
would have occurred if the merger had been in effect on the dates or for the
period indicated or that may occur in the future.
29
<PAGE>
<TABLE>
Unaudited Pro-Forma Combined Balance Sheet
(Amounts in thousands)
December 31, 1997
California
Community
SierraWest Bancshares Pro-Forma
Bancorp Corporation Combined
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks................... $ 48,056 $ 10,289 $ 58,345
Federal funds sold........................ 13,500 8,775 22,275
---------- ----------- ---------
Total Cash and Cash Equivalents.......... 61,556 19,064 80,620
Investment securities and investments
in mutual funds
Available for sale........................ 58,844 48,465 107,309
Held to maturity, market value
SWB $1,000 CCBC $0...................... 1,000 0 1,000
Loans and leases, net of deferred fees
of $2,636 and $498........................ 433,149 120,564 553,713
Allowance for possible loan and
lease losses.............................. 6,649 1,242 7,891
---------- ---------- ---------
Net loans and leases....................... 426,500 119,322 545,822
Other assets ............................... 41,855 10,140 51,995
---------- ---------- ---------
Total Assets ............................ $ 589,755 $ 196,991 $ 786,746
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand............... $ 130,122 $ 32,120 $ 162,242
Savings and interest bearing
transaction.............................. 172,910 82,773 255,683
Time...................................... 223,237 59,839 283,076
---------- ---------- ---------
Total Deposits......................... 526,269 174,732 701,001
Other borrowed funds........................ 0 2,650 2,650
Interest payable and other liabilities...... 9,856 1,388 11,244
Convertible debentures...................... 0 2,468 2,468
---------- ---------- ---------
Total Liabilities........................... 536,125 181,238 717,363
Preferred stock............................. 0 0 0
Common stock................................ 29,587 12,561 42,148
Retained earnings........................... 23,281 3,317 26,598
Net unrealized gain (loss) on investment
securities and interest-only strips
receivable, net of tax.................... 762 (125) 637
---------- ---------- ---------
Total Shareholders' Equity............... 53,630 15,753 69,383
---------- ---------- ---------
Total Liabilities and
Shareholders' Equity................... $ 589,755 $ 196,991 $ 786,746
========== ========== =========
</TABLE>
30
<PAGE>
<TABLE>
Unaudited Pro-Forma Combined Statements of Income
(Amounts in thousands)
December 31, 1997
California
Community
SierraWest Bancshares Pro-Forma
Bancorp Corporation Combined
<S> <C> <C> <C>
Interest and fees on loans and leases....... $ 39,357 $ 11,026 $ 50,383
Interest on federal funds sold.............. 1,795 165 1,960
Interest on investment securities........... 3,158 3,064 6,222
---------- ----------- -----------
Total interest income.................... 44,310 14,255 58,565
Interest on deposits........................ 16,859 5,638 22,497
Interest on other borrowed funds............ 0 230 230
Interest on convertible debentures.......... 60 223 283
Other interest expense...................... 180 31 211
---------- ----------- -----------
Total interest expense................... 17,099 6,122 23,221
---------- ----------- -----------
Net interest income......................... 27,211 8,133 35,344
Provision for possible loan and
lease losses.............................. 2,480 319 2,799
---------- ----------- -----------
Net interest income after provision
for possible loan and lease losses........ 24,731 7,814 32,545
Service charges on deposit accounts......... 2,299 908 3,207
Other operating income...................... 9,467 1,012 10,479
---------- ----------- -----------
Total non-interest income.............. 11,766 1,920 13,686
Salaries and employee benefits.............. 13,409 3,476 16,885
Occupancy and equipment expense............. 4,180 1,473 5,653
Other operating expense..................... 6,692 2,380 9,072
---------- ----------- -----------
Total non-interest expense............. 24,281 7,329 31,610
---------- ----------- -----------
Income before provision for
income taxes.............................. 12,216 2,405 14,621
Provision for income taxes.................. 4,707 966 5,673
---------- ----------- -----------
Net income.................................. $ 7,509 $ 1,439 $ 8,948
========== =========== ===========
Basic Earnings per share (1)................ $ 2.03 $ 1.36 $ 1.96
========== =========== ===========
Weighted average shares used to
calculate basic earnings per share........ 3,693 1,054 4,566
========== =========== ===========
Diluted Earnings per share (1).............. $ 1.82 $ 1.15 $ 1.73
========== =========== ===========
Net income adjusted for the effect
of convertible debentures................. $ 7,544 $ 1,568 $ 9,112
========== =========== ===========
Weighted average shares used to
calculate diluted earnings per share...... 4,155 1,359 5,281
========== =========== ===========
</TABLE>
(1) Pro-forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 0.8283.
31
<PAGE>
<TABLE>
Unaudited Pro-Forma Combined Statements of Income
(Amounts in thousands)
December 31, 1996
California
Community
SierraWest Bancshares Pro-Forma
Bancorp Corporation Combined
<S> <C> <C> <C>
Interest and fees on loans and leases....... $ 30,506 $ 10,704 $ 41,210
Interest on federal funds sold.............. 938 183 1,121
Interest on investment securities........... 1,825 2,215 4,040
---------- ----------- -----------
Total interest income.................... 33,269 13,102 46,371
Interest on deposits........................ 11,735 4,957 16,692
Interest on other borrowed funds............ 0 146 146
Interest on convertible debentures.......... 764 308 1,072
Other interest expense...................... (4) 54 50
---------- ----------- -----------
Total interest expense................... 12,495 5,465 17,960
---------- ----------- -----------
Net interest income......................... 20,774 7,637 28,411
Provision for possible loan and
lease losses.............................. 1,010 411 1,421
---------- ----------- -----------
Net interest income after provision
for possible loan and lease losses........ 19,764 7,226 26,990
Service charges on deposit accounts......... 1,722 843 2,565
Other operating income...................... 5,616 1,189 6,805
---------- ----------- -----------
Total non-interest income.............. 7,338 2,032 9,370
Salaries and employee benefits.............. 12,086 3,342 15,428
Occupancy and equipment expense............. 3,486 1,366 4,852
Other operating expense..................... 6,125 2,073 8,198
---------- ----------- -----------
Total non-interest expense............. 21,697 6,781 28,478
---------- ----------- -----------
Income before provision for
income taxes.............................. 5,405 2,477 7,882
Provision for income taxes.................. 2,077 918 2,995
---------- ----------- -----------
Net income.................................. $ 3,328 $ 1,559 $ 4,887
========== ========== ===========
Basic Earnings per share (1)................ $ 1.18 $ 1.59 $ 1.35
========== ========== ===========
Weighted average shares used to
calculate basic earnings per share........ 2,809 982 3,622
========== ========== ===========
Diluted Earnings per share (1).............. $ 0.96 $ 1.32 $ 1.10
========== ========== ===========
Net income adjusted for the effect
of convertible debentures................. $ 3,776 $ 1,737 $ 5,513
========== ========== ===========
Weighted average shares used to
calculate diluted earnings per share...... 3,920 1,321 5.014
========== ========== ===========
</TABLE>
(1) Pro-forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 0.8283.
32
<PAGE>
<TABLE>
Unaudited Pro-Forma Combined Statements of Income
(Amounts in thousands)
December 31, 1995
California
Community
SierraWest Bancshares Pro-Forma
Bancorp Corporation Combined
<S> <C> <C> <C>
Interest and fees on loans and leases....... $ 23,582 $ 10,370 $ 33,952
Interest on federal funds sold.............. 594 116 710
Interest on investment securities........... 1,655 1,824 3,479
---------- ----------- -----------
Total interest income.................... 25,831 12,310 38,141
Interest on deposits........................ 7,633 5,063 12,696
Interest on other borrowed funds............ 0 0 0
Interest on convertible debentures.......... 850 346 1,196
Other interest expense...................... 8 72 80
---------- ----------- -----------
Total interest expense................... 8,491 5,481 13,972
---------- ----------- -----------
Net interest income......................... 17,340 6,829 24,169
Provision for possible loan and
lease losses.............................. 1,270 324 1,594
---------- ----------- -----------
Net interest income after provision
for possible loan and lease losses........ 16,070 6,505 22,575
Service charges on deposit accounts......... 1,755 819 2,574
Other operating income...................... 6,214 1,359 7,573
---------- ----------- -----------
Total non-interest income.............. 7,969 2,178 10,147
Salaries and employee benefits.............. 10,627 3,137 13,764
Occupancy and equipment expense............. 3,401 1,374 4,775
Other operating expense..................... 6,916 2,119 9,035
---------- ----------- -----------
Total non-interest expense............. 20,944 6,630 27,574
---------- ----------- -----------
Income before provision for
income taxes.............................. 3,095 2,053 5,148
Provision for income taxes.................. 1,179 648 1,827
---------- ----------- -----------
Net income.................................. $ 1,916 $ 1,405 $ 3,321
========== =========== ===========
Basic Earnings per share (1)................ $ 0.70 $ 1.46 $ 0.94
========== =========== ===========
Weighted average shares used to
calculate basic earnings per share........ 2,728 962 3,525
========== =========== ===========
Diluted Earnings per share (1).............. $ 0.63 $ 1.22 $ 0.81
========== =========== ===========
Net income adjusted for the effect
of convertible debentures................. $ 2,415 $ 1,605 $ 4,020
========== =========== ===========
Weighted average shares used to
calculate diluted earnings per share...... 3,862 1,315 4,951
========== =========== ===========
</TABLE>
(1) Pro-forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 0.8283.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SierraWest Bancorp
(Registrant)
Dated: April 29, 1998 By:/s/ David C. Broadley
Truckee, California David C. Broadley
EVP/Chief Financial Officer
34
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 15, 1998 (this
"Merger Agreement"), is made and entered into by and between California
Community Bancshares Corporation, a Delaware corporation ("Seller") and
SierraWest Bancorp, a California corporation ("Buyer").
W I T N E S S E T H:
A. The Boards of Directors of Buyer and Seller have approved, and deem
it advisable and in the best interests of Buyer, Seller and their respective
shareholders, that Buyer and Seller consummate the business transaction provided
for herein in which Seller would merge with and into Buyer (the "Merger").
B. Buyer and Seller have entered into an Plan of Acquisition and Merger
dated as of November 13, 1997 (the "Plan"), providing, among other things, for
the execution and filing of this Merger Agreement and the consummation of the
Merger.
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained in this Merger Agreement, the parties to this Merger Agreement hereby
agree that Seller shall be merged with and into Buyer in accordance with the
provisions of the laws of the State of California and the State of Delaware upon
the terms and subject to the conditions set forth as follows:
Section 1. The Merger.
1.1 Effective Time. On April 15, 1998, upon the filing with the
California Secretary of State of a duly executed counterpart of this Merger
Agreement with the officers' certificates prescribed by Section 1103 of the
California General Corporation Law attached thereto, the Merger shall become
effective. The effective time of the Merger on the Effective Date shall be 12:01
a.m., Pacific Standard Time.
1.2 Effect of the Merger. On the Effective Date, Seller shall be merged
with and into Buyer and the separate corporate existence of Seller shall cease.
Buyer shall be the surviving corporation (the "Surviving Corporation") in the
Merger. It shall thereupon succeed, without other transfer, to all rights and
properties of, and shall be subject to all the debts and liabilities of, Seller
and the separate existence of Buyer as a California corporation, with all its
purposes, objects, rights, powers, privileges and franchises shall continue
unaffected and unimpaired by the Merger.
1
<PAGE>
Section 2. Corporate Governance Matters.
2.1 From and after the Effective Date and until thereafter amended as
provided by law: (a) the Articles of Incorporation of Buyer as in effect
immediately prior to the Effective Date shall be and continue to be the Articles
of Incorporation of the Surviving Corporation; and (b) the Bylaws of Buyer as in
effect immediately prior to the Effective Date shall be and continue to be the
Bylaws of the Surviving Corporation.
2.2 Subject to the provisions of Section 1.4 of the Plan, (a) the
directors of the Surviving Corporation shall be those persons who are the
directors of Buyer immediately prior to the Effective Date; and (b) the officers
of the Surviving Corporation shall be those persons who are the officers of
Buyer at the Effective Date.
Section 3. Conversion of Shares.
3.1 Conversion of Seller Shares. As of the Effective Date, by virtue of
the Merger and without any action on the part of the holder of the common stock
of Seller, [par value $.10 per share] (a "Seller Share" or "Seller Common
Stock"):
(a) Each issued and outstanding Seller Share (other than fractional
shares, or any shares as to which dissenters' rights have been perfected, but
including any shares issued pursuant to the Rights Agreement), shall be
converted into 0.8283 shares of the common stock, without par value, of Buyer
("Buyer Common Stock" or a "Buyer Share").
(b) From and after the Effective Date, the holders of certificates
formerly representing Seller Shares shall cease to have any rights with respect
thereto other than any dissenters' rights they have perfected pursuant to
Section 262 of the General Corporation Law of the State of Delaware.
(c) On the Effective Date, all shares of Seller Common Stock held in
the treasury of Seller or owned beneficially by any subsidiary of Seller other
than in a fiduciary capacity or in connection with a debt previously contracted
and all shares of Seller Common Stock owned by Buyer or owned beneficially by
any subsidiary of Buyer other than in a fiduciary capacity or in connection with
a debt previously contracted shall be canceled and no cash, stock or other
property shall be delivered in exchange therefor.
3.2 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Buyer Common Stock shall be issued to holders of Seller
Shares. In lieu thereof, each such holder entitled to a fraction of a share of
Buyer Common Stock shall receive, at the time of surrender of the certificate or
certificates representing such holder's Seller Shares, an amount in cash equal
to the market value per share of the Common Stock of Buyer, calculated by taking
the average of the closing price quoted on the Nasdaq, as reported in The Wall
Street Journal, for each of the twenty consecutive trading days prior to five
trading days prior to the Effective Date, rounded to 4 decimal places (whether
or not there were any trades in Buyer Common Stock on such days), multiplied by
the fraction of a share of Buyer Common Stock to which such holder otherwise
would be entitled. No such holder shall be entitled to dividends, voting rights,
interest on the value of, or any other rights in respect of, a fractional share.
2
<PAGE>
3.3 Surrender of Seller Shares.
(a) Prior to the Effective Date, Buyer shall appoint American Stock
Transfer & Trust Co., 40 Wall Street, New York, NY, 10005, or its successor, or
any other bank or trust company mutually acceptable to Seller and Buyer, as
exchange agent (the "Exchange Agent") for the purpose of exchanging certificates
representing the Buyer Common Stock, and at and after the Effective Date, Buyer
shall issue and deliver to the Exchange Agent certificates representing the
Buyer Common Stock, as shall be required to be delivered to holders of Seller
Shares pursuant to Section 3.1 of this Merger Agreement. As soon as practicable
after the Effective Date, each holder of Seller Shares converted pursuant to
Section 3.1, upon surrender to the Exchange Agent of one or more certificates
for such Seller Shares for cancellation, along with duly executed transmittal
materials to be mailed after the Effective Date by the Exchange Agent, will be
entitled to receive a certificate representing the number of shares of Buyer
Common Stock determined in accordance with Section 3.1 and a payment in cash
with respect to fractional shares, if any, determined in accordance with Section
3.2. Each certificate representing Buyer Common Stock will bear a notation
incorporating the Rights Agreement (as that term is defined in Section 2.1(f) of
the Plan) by reference and certificates representing the Buyer Common Stock will
evidence and entitle the holders thereof to certain rights as set forth in and
subject to the terms of the Rights Agreement ("Rights"). Certificates issued for
the Buyer common Stock shall be deemed to be certificates for said Rights.
(b) No dividends or other distributions of any kind which are declared
payable to shareholders of record of the Buyer Common Stock after the Effective
Date will be paid to persons entitled to receive such certificates for Buyer
Common Stock until such persons surrender their certificates representing Seller
Shares. Upon surrender of such certificates representing Seller Shares, the
holder thereof shall be paid, without interest, any dividends or other
distributions with respect to the Buyer Common Stock as to which the record date
and payment date occurred on or after the Effective Date and on or before the
date of surrender.
(c) If any certificate for a Buyer Share is to be issued in a name
other than that in which the certificate for a Seller Share surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
costs, taxes or other expenses required by reason of the issuance of
certificates for such Buyer Share in a name other than the registered holder of
the certificate surrendered, or such persons shall establish to the satisfaction
of Buyer and the Exchange Agent that such costs, taxes or other expenses have
been paid or are not applicable.
(d) All dividends or distributions, and any cash to be paid pursuant to
Section 3.2 in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing
Seller Shares and unclaimed at the end of one year from the Effective Date,
shall (together with any interest earned thereon) at such time be paid or
redelivered by the Exchange Agent to Buyer, and after such time any holder of a
certificate representing a Seller Share who has not surrendered such certificate
to the Exchange Agent shall, subject to applicable law, look as a general
creditor only to Buyer for payment or delivery of such dividends or
distributions or cash, as the case may be. Buyer shall not be liable to any
holder of a share of Seller Common Stock for such share (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
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(e) Upon the Effective Date, the stock transfer books of Seller shall
be closed and no transfer of Seller Common Stock shall thereafter be made or
recognized.
(f) In the event that prior to the Effective Date the outstanding
shares of Buyer Common Stock or Seller Common Stock shall have been increased,
decreased or changed into or exchanged for a different number or kind of shares
or securities by recapitalization, reclassification, stock dividend, stock split
or other like changes in Buyer's or Seller's capitalization, or a distribution
shall be made on Buyer Common Stock or Seller Common Stock in any security
convertible into Buyer Common Stock or Seller Common Stock, respectively
(provided that no such action shall be taken by Seller without Buyer's prior
written consent pursuant to Section 3.2(e) of the Plan), then an appropriate and
proportionate adjustment shall be made in the number and kind of shares of Buyer
Common Stock to be thereafter delivered pursuant to this Merger Agreement.
3.4 All shares of Buyer Common Stock shall remain outstanding and
unaffected by the Merger.
Section 4. Termination and Amendment.
4.1 The obligations of the parties to effect the Merger shall be
subject to all the terms and conditions contained in the Plan. Notwithstanding
the approval of this Merger Agreement by the shareholders of Seller or Buyer,
this Merger Agreement shall terminate forthwith in the event that the Plan shall
be terminated as therein provided.
4.2 This Merger Agreement may be amended by Buyer and Seller at any
time prior to the Effective Date without the approval of the shareholders of
Seller or Buyer with respect to any of its terms except any change in its
principal terms, the terms relating to the form or amount of consideration to be
delivered to the Seller shareholders in the Merger or as may be required by law.
This Merger Agreement may not be amended, except by an instrument in writing
signed on behalf of each of the parties hereto.
4.3 This Merger Agreement may be signed in any number of counterparts,
each of which shall be deemed an original, and all of which shall be deemed but
one and the same instrument.
Section 5. Miscellaneous.
5.1 The Plan is and will be maintained on file at the principal place
of business of the Surviving Corporation. The address of the principal place of
business of the Surviving Corporation is 10181 Truckee-Tahoe Airport Road,
Truckee, California, 96160.
5.2 A copy of the Plan will be furnished by the Surviving Corporation,
on request and without cost to any stockholder of Seller or Buyer.
5.3 The Plan between the parties to the Merger has been approved,
adopted, certified, executed and acknowledged by each of the Seller and Buyer
pursuant to Section 252 of the General Corporation Law of the State of Delaware,
and executed by the parties in accordance with the requirements of Chapter 12 of
the California General Corporation Law.
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5.4 The Surviving Corporation agrees that it may be served with process
in the State of Delaware in any proceeding for enforcement of any obligation of
Seller, as well as for enforcement of any obligation of the Surviving
Corporation arising from the Merger, including any suit or other proceedings to
enforce the right of any stockholders as determined in appraisal proceedings
pursuant to the provisions of Section 262 of the General Corporation Law of the
State of Delaware, and irrevocably appoints the Secretary of State of the State
of Delaware as its agent to accept service of process in any such suit or other
proceedings and directs the Secretary of State of the State of Delaware to mail
copies of such process to the following address: 10181 Truckee-Tahoe Airport
Road, Truckee, California 96160.
IN WITNESS WHEREOF, the parties have duly executed this Merger
Agreement as of the date first written above.
SIERRAWEST BANCORP
By /s/ William T. Fike
--------------------
William T. Fike
President and Chief Executive Officer
By /s/ A. Morgan Jones
-------------------
A. Morgan Jones
Corporate Secretary
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
By /s/ Walter O. Sunderman
-----------------------
Walter O. Sunderman
President and Chief Executive Officer
By /s/ John Usnick
---------------
John Usnick
Corporate Secretary
5
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OFFICERS' CERTIFICATE
William T. Fike and A. Morgan Jones hereby certify that:
1. They are the President and Chief Executive Officer and the
Corporate Secretary, respectively, of SierraWest Bancorp, a corporation
organized under the laws of the State of California.
2. The Agreement and Plan of Merger in the form attached was duly
approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of
outstanding shares which equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares
outstanding is 4,116,547.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: April 7, 1998
/s/ William T. Fike
---------------
William T. Fike
President and Chief Executive Officer
/s/ A. Morgan Jones
---------------
A. Morgan Jones
Corporate Secretary
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OFFICERS' CERTIFICATE
Walter O. Sunderman and John Usnick hereby certify that:
1. They are the President and Chief Executive Officer and the
Corporate Secretary, respectively, of California Community Bancshares
Corporation, a corporation organized under the laws of the State of Delaware.
2. The Agreement and Plan of Merger in the form attached was duly
approved by the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of a number of
outstanding shares which equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares.
4. There is only one class of shares and the number of shares
outstanding is 1,114,505.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: April 8, 1998
/s/ Walter O. Sunderman
-------------------
Walter O. Sunderman
President and Chief Executive Officer
/s/ John Usnick
-----------
John Usnick
Corporate Secretary
7
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Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-28004 on Form S-8, Registration Statement No. 33-13031 on Form S-8 and
Registration Statement No. 33-15013 on Form S-8 of SierraWest Bancorp of our
report dated February 20, 1998, on the consolidated financial statements of
California Community Bancshares Corporation for the year ended December 31,
1997, appearing herein.
/s/ Deloitte & Touche LLP
Sacramento, California
April 29, 1998
